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Book
Review
On
Building Corporate Value;
by Mukul Pandya, Harbir Singh, Robert E.
Mittlestaedt and Eric Clemons; John Wiley &
Sons, Inc; Hoboken, N.J.; 2002.
by
Doug Koelemay
Economists are still hedging their bets on full economic
recovery. Latest discussions suggest the
information technology industry gets healthier in
2003, while the telecom sector is looking at 2004
or beyond. Now a good time to prepare for a new,
new thing, even if it turns out to be an old, new
thing, such as "How can my Virginia business
take greater advantage of the Internet?"
A slim volume from the Wharton School entitled On
Building Corporate Value is a great place for
Commonwealth enterprises sitting atop a huge
Internet infrastructure surrounded by an
Internet-savvy workforce to start formulating an
answer. As one might expect from the nation’s
leading business school, four authors from the
innovative Knowledge@Wharton online team establish
in plain English some of the theoretical tools and
concepts to use in making an Internet business
strategy successful. But readers might start just
as profitably in Part Two, where four chapters
outline real world experiences of both successful
and forgotten companies, sample the realities,
then double-back for explanations.
Take, for example, the book’s discussions about Capital
One. Capital One is known to consumers as a
Virginia
credit card company with a new headquarters
building in Tysons Corner, but it is managed as an
information company marked by careful, calculated,
complex, almost slavish market testing.
Information technology and Internet-based
operations drive its core business, which as
President and Chief Operating Officer Nigel Morris
is quoted at one point, is to "find customers
who want a lot of your money and pay you back
slowly," probably as direct a statement of a
revenue plan as exists anywhere. Morris, who also
is the vice chairman of Gov. Mark R. Warner's
Commission on Efficiency and Effectiveness in
Government, recently told a
Northern
Virginia
business audience that as a result, CapitalOne has the
strictest privacy protections in the world,
because its customer information is a strategic
resource not to be shared with any other
enterprise.
The authors excel at matching key concepts with
successful companies. Google is engineered to find
information fast (the communications effect). Ebay
links buyers and sellers (the brokerage effect).
Covisint transforms the value chain (the
integration effect). Capital One is good at data
mining and micro-market segmentation.
But just as revealing are snapshots of failures. Webvan,
fueled by easy capital and false promises, flamed
out shortly after expanding operations from
California to Virginia, unable to make the
home-delivery grocery model work and revealing in
the process that ego-driven runs for dominance
make "first mover advantage" one of the
seven deadly Internet business sins. Glorification
of the burn ratio is another. Beenz.com, like
Virginia's CyberCash, cannot change human behavior
with its online currency experiments. These and
other comments on failures can be summarized in
the title of the introduction, "You Cannot
Violate the Laws of Economics."
Those feeling particularly risk averse can head straight
for Chapter Four on managing risks in an
Internet-based strategy. The authors suggest that
weaving the unique characteristics of the Internet
into information-based business models and
investment strategies throw off six distinctive
risks. From structure, channels and sourcing to
organization, liquidity and uncertainty, every
business executive will find discussions that both
elaborate on the obvious and reveal simple truths
behind an otherwise complex set of variables.
References to household names from Coca-Cola to
Wal-Mart to Hotmail provide examples of successful
strategies.
On
Building Corporate Value starts with basics. “The purpose of economic
activity,” the authors posit up front, “is to
build value.” Later they suggest that nature of
the Internet does not allow one business to
dominate, so, “The competitive advantage in
e-business is often based on managing
collaborative relationships with key partners.”
They point out that the Internet is not a cheap
medium, but is a convenient one, a comment that
brings to mind the approach of Bob Pittman when he
originally joined AOL in Dulles in the mid-1990s
to resolve the argument then raging between
technology savvy early adapters and mainstream
customers looking more for convenience.
The authors then add insights, such as: Ebay not only
expands the size of the market, it enhances value
by allowing more buyers to bid. In a Wharton
conference proceeding, Pitney Bowes CEO Michael J.
Critelli remembers author Ian Morrison's maxim
that "in any revolutionary technology, the
pace of change is overestimated in the short run
and the magnitude of change is underestimated in
the long run." Author Mittelstaedt's M3
treatise on "managing multiple mistakes"
is particularly useful as one of the 14 selected
readings included in the book's appendix.
And finally, the authors pose some provocative questions.
“What is the cost of losing customers by not
having the technology support that they expect?”
inevitably drives a defensive analysis.
Interestingly enough, online consumers may find some
reassurance in the book, too. The Internet gives
greater power not only to smaller businesses, but
to consumers in information, knowledge and
understanding before a transaction takes place.
Ultimately Internet-based businesses succeed to
the extent that endeavors reinforce, not
challenge, the way humans do business.
The bottom line evaluation is that through philosophy,
theory, frameworks, models and commentary, On
Building Corporate Value succeeds by its own
measure. The value from revealing truths and
fiction about the Internet and e-business is
something all can appreciate. Just as Webvan's
failure proves self-deception can be as
destructive in business as in politics, Tesco's
success in the same sector proves IT and Internet
technologies can make an existing and successful
shopping process more efficient and convenient for
those who want it.
December 9, 2002
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