Report: E-Biz Faces Five Dangers That Limit Growth

Roughly 70 percent of large firms will fall prey to a handful of "significant business traps" -- including the fumbling of e-commerce opportunities -- that will hamper growth and perhaps destroy entire companies, predicted a report released Tuesday by GartnerG2, a new research service of Gartner Group.

At a time when the cooling economy is forcing managers to reassess their business models and trim costs, GartnerG2 said that many companies are subject to "danger points" that will prevent them from meeting their goals.

"Whether through fear or ignorance, business strategists are being duped far too frequently by thinly veiled growth traps and are greatly impeded in their ability to lead their businesses through recovery and on to growth," Gartner president and chief executive officer Michael Fleisher said.

The research service forecast that at least two major corporations will be toppled by growth traps in the next five years.

"The growth traps are insidious and stem from a mind set or mental model of the business world around you," Fleisher said.

However, those companies that manage to leverage the Internet's potential will grow earnings by 30 percent to 80 percent per share, depending on the industry, GartnerG2 said.

Failing To Innovate

Chief among these growth traps, said the study, is the unsupported belief that some industries will provide only slow growth, which leads managers to avoid innovation.

"Proof exists that there are no mature industries, only managers who succumb to prevailing beliefs about growth through creeping and tweaking margins and costs," said GartnerG2.

For example, the study said that while many managers have turned to geographic expansion in the search for growth, that effort alone will guarantee failure. Instead, companies must aggressively work to stay ahead of the curve with innovative operational models -- or risk falling victim to a "self-fulfilling prophecy."

GartnerG2 said that innovation does not necessarily have to take place in the technology arena. Instead, the firm said, innovation can be achieved through any method that offers added value to consumers, such as improved products, services or deliveries.

Neglecting Dot-Com Lessons

Although many companies view the dot-com shakeout as a reason for staying away from online expansion, GartnerG2 said such a point of view is a "potentially fatal mistake."

According to the report, a second key "danger point" is misunderstanding the lessons of the dot-com shakeout.

"It is true that some companies misapplied the Internet, focusing only on price, while others rushed into ill-advised partnerships and some had no business value at all," GartnerG2 said. "But it's a serious growth trap to dismiss the dot-com experience without learning from it."

GartnerG2 advised that companies should look at the Internet as a place for "new tools that can be used as weapons by you or against you."

Flying Solo ...

GartnerG2 also predicted that alliances and partnerships will replace mergers and acquisitions as the preferred approach to improve productivity, acquire new core competencies and enter new markets. Failing to make key alliances is a third "danger point" facing businesses, the report said.

According to the study, successful collaborations can help businesses share the risk of new ventures and satisfy increasingly complex customer demands.

The study also said that collaboration can reduce the capital requirements for expansion and help companies integrate supply chains for speed and efficiency. According to GartnerG2, e-business alliances allow both companies to gain competitive advantages by exploiting each other's core competencies and sidestepping local ownership rules in an age of increased trade regulation.

... a No Go

"Companies that attempt to do everything as a solo act risk a quick and lonely death," said the report.

GartnerG2 pointed to Amazon's recent partnerships with Toys 'R' Us and Borders as examples of the benefits alliances can offer. By working together, Amazon and Toys 'R' Us are both extending their brands and increasing their market penetration, the research firm noted.

Meanwhile, Amazon's deal with Borders gives Borders a "top-notch" Web presence and allows Amazon to sell customers books online for collection at a local Borders branch, the firm said.

Competitive Focus

The report also cautioned companies about focusing on "unworthy competitors." Playing the competitor's game and denying reality are two of the other danger points identified by GartnerG2.

"Failure to keep abreast of competitor innovations, new market entrants, substitute products and industry shifts can sound the death knell for a business," said GartnerG2.

At the same time, the study said that businesses need to take action only if doing so will strengthen their company, and not "just because competitors are doing it." Companies also need to shift their focus from their competitors to their customers, the report said.

"Identify what customers value most from among all the factors your industry competes on, and deliver it," GartnerG2 said.