Expert Advice


The Towering E-Commerce 3.0 Wave

Not since Amazon started selling books more than 15 years ago has the world of e-commerce undergone such a wholesale transformation. The current online overhaul will likely be even more profound than the original dot-com boom, as it’s unfolding across the entire retail sector as opposed to just a few business areas.

Today, some of the biggest brand names in storefront shopping are suddenly investing heavily in their once-neglected dot-com units. Other businesses that previously leveraged websites exclusively for branding are now embracing the opportunity to sell online (be it on a website, mobile phone or tablet). Not to be left out, even consumer-product makers are beginning to use the Web to sell directly to consumers.

The secret about e-commerce is out. The Web holds the promise of higher growth rates compared with strictly brick-and-mortar operations. Online profit margins are typically higher than storefront, and independent research suggests that multichannel customers — those who shop online and in the store — are more valuable than pure store-only or Web-only buyers.

Indeed, the days of store vs. Web are quickly dissolving in favor of a multiplatform ethic: Merchandising, operations and marketing are becoming integrated and “channel agnostic.” Some retailers, for example, are using their online platforms to drive people into the stores to finalize the actual purchase.

This inexorable and expanding trend has created a heavy demand for seasoned e-commerce leaders, but there are pitfalls for companies along the way. Before launching — or relaunching — an e-commerce initiative, businesses would be well advised to grapple with several issues, including whether or not an e-commerce unit should be housed at headquarters along with everyone else or at a dot-com talent center that’s two, three (or even more) time zones away.

Additionally, will the e-commerce unit command its own tech resources, or will IT be shared by many departments? Finally, finding a so-called right-size leader for a rapidly growing business is a particularly challenging task.

Location, Location, Location

Where should e-commerce be housed? For most companies and CEOs, that probably seems like an easy one: E-commerce should be at headquarters. The logic for having everyone in the same physical space is sound, especially if the point is to integrate e-commerce with the rest of an organization.

A one-roof structure will enable the e-commerce team to forge strong and positive relationships with colleagues. It also means that e-commerce won’t be out of the corporate loop, won’t have to be updated separately, and won’t develop a culture that’s at odds with the company’s values. Staying in the loop when the loop is 1,500 miles away can be a challenging and distracting task. That’s the conventional wisdom.

However, in certain circumstances, there are strong arguments to be made for having e-commerce located elsewhere — a different city, perhaps another region with a unique culture. One compelling reason is that some companies find it difficult to attract high-caliber e-commerce executives to their headquarters location, so launching a unit where tech talent congregates can open up a whole new range of prospective hires.

For example, the e-commerce organization of one well-known big-box retailer is based in the San Francisco Bay area — even though the corporate headquarters is situated far away.

Other retailers have concluded that if their e-commerce organizations are to thrive, they need to sit elsewhere to get out of the shadow of the stores — truly making e-commerce a separate division. That scenario also favors the concept of locating near an e-commerce talent center and away from the corporate campus.

Deciding to house e-commerce elsewhere shouldn’t be undertaken lightly, and it’s typically done when a mid-size unit is growing to the next level. In order to make it work, the head of e-commerce, the CEO and relevant C-level colleagues all will have to make a concerted effort — perhaps even a meticulously scheduled and rigid one — to communicate often and openly.

Who Owns IT?

Once companies figure out where a new e-commerce team will live, the next step is establishing who reports to whom, and this is particularly essential with a firm’s existing tech/IT department. Many e-commerce executives assigned to create or expand Web-retail operations will typically assume that tech/IT will be reporting to them. The reasoning is that they will need dedicated and undistracted IT personnel to focus on e-commerce assignments. Furthermore, if IT reports elsewhere and e-commerce doesn’t meet its targets because of an overextended IT department, then who is held accountable?

“It’s definitely something to be concerned about,” one veteran e-commerce executive told me. “It doesn’t mean it can’t work, but if you don’t control your own team, it can be a warning sign that you won’t be able to get your job done.”

A shared-services approach isn’t doomed to failure, though. Some executives actually thrive in that kind of environment, especially those who excel at collaboration and relationship-building. The bottom line is that being clear and spelling out the lines of structure, reporting and accountability will help avoid problems when it comes to launching a new e-commerce initiative.

The Right Job for the Right Leader at the Right Time

Beyond the universal objectives of growth and profit, companies need to address the strategic goals around e-commerce before they begin the hunt for the perfect e-commerce executive. For example, what are the multichannel strategies? Is the aim to boost online sales, drive foot traffic to stores or both?

Will the purpose be to push customers to purchase online but return merchandise in stores? Is the point to gain online market share as rapidly as possible despite short-term costs? Perhaps the mission will be to implement sophisticated customer-relationship strategies to maximize loyalty and lifetime value?

What’s the time frame for getting there? What kind of investment will it take to achieve success?

Addressing these strategy points is vital, because it will help dictate whom to hire. There is a big difference between an e-commerce executive who knows how to build a business completely from scratch compared to one who can take a $50 million enterprise and triple the revenue. Still another executive would be the right person to take a $300 million business and turn it into a $1 billion enterprise.

Companies also need to make sure they’ve got an e-commerce leader who will be around for a while. Disruptions in leadership cost time and money, and that’s why it’s becoming increasingly common for companies to consciously hire someone who is “too big” for an existing business. The expectation is that the executive will be the right person to handle the organization’s future size and tap its fullest potential.

If executed properly, e-commerce is poised to win an ever-increasing share of income across a range of businesses. So finding the right leaders and grappling with the common mistakes are worthy and essential challenges. By focusing on these critical issues, companies should be able to find a thriving pool of candidates to manage their next wave of digital business.

Margot McShane is a consultant in the consumer sector at Russell Reynolds Associates, an executive search and assessment firm.

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