e-Business effects the business in many different ways.
Some of these are easy to measure - for instance the number of orders that are placed online. Others only indirectly influence the business KPIs, and are much harder to measure.
We need to find a way to
Some areas of the business are harder to measure, and e-Business is one of them. What, for instance, is the value of a Unique Visitor on the web site? How do you measure Web User Satisfaction and what effect does it have on Profits? Which metrics are real and which ones are (should be) in the "smoke and mirrors" category?
Can we find a way of understanding the effects of e-Business and of levering the important effects, without engaging in endless discussions about the metrics and how they should be measured and interpreted?
I think we can, using this simple, graphical model
This picture says simply "Profit is effected (in some way) by Revenue and Costs" The different coloured connections tell us more: "If Revenue increases then (all other things being equal) Profit will increase" and "if Costs increase (all other things being equal) then Profit will decline". This is sufficient initially for our purposes. Later we can, of course, add the appropriate function: Profit=Revenue-Costs to describe the exact relationship.
Cost of Sales is effected by Account Management Efficiencies, but in the opposite direction: As efficiencies in the sales process increase, the Cost of Sales will reduce. This leads to a reduction in overall Costs. [Obviously there are other costs, for instance Overheads, that also influence overall Costs, but these are omitted here for simplicity]
Increases in Account Management Efficiences will lead to increases in the Quality of Service, as sales people spend more time engaging with customers, which in turn increases Customer Satisfaction. [Note that we are not, at this stage, making any attempt to quantify these effects. The object here is to understand the - often very complex - interactions between the various elements of the system.]
Satisfied customers tend to be open to cross-selling and up-selling, so that the average Order Value increases in line with Customer Satisfaction. Similarly, satisfied customers are more likely to divert an order or two from our competitors, so that the average Number of Orders increases also. Revenue - being a function of Number_Of_Orders*Value_of_Orders - increases accordingly.
Customer Satisfaction influences the total Number of Customers we have - through a reduction in the Churn (or turnover) Rate, and through increased positive Word of Mouth. More Customers implies more Orders and hence increased Revenue.
[The "alert reader" may have noticed that the model we're describing here is based on Systems Dynamics theory - and will begin to wonder why the Number of Customers is being displayed the way it is. For our initial understanding, this view is adequate, but the effects of Customer Satisfaction on the Number of Customers and the nature of the pool of Customers is more correctly modelled as shown in this Stock and Flow diagram]
Through e-Business - especially through usability, but also by reflecting the Customer Activity Cycle and the Awareness Cycle in the design and implementation of our web presence - we can directly influence both Customer Satisfaction - for those Customers who choose to use our online offering - and the (web) Conversion Rate. These e-Business causes interact with our model as shown below and support an increase in Revenue.
In interests of simplicity - not just for this discussion but, more importantly, to facilitate a meaningful discussion with the business - let's stop there. [Additional detail can be added to the model as apropriate or as long as you're still enjoying yourself, but do remember that the ensuing complexity needs to be maintained through all subsequent phases of the discussion. At some stage, it will then make sense to switch to an appropriate System Dynamics modelling tool and even to enlist the assistance of a professional modeller.]
Once we understand "what makes the business click" - the Causes and Effects and how they interact - and have identified the associated business benefits that we're interested in leveraging, we're ready to enhance our Customer Activity Cycle in preparation for the calculation of Return on INvestment and Net Present Value (NPV).