eBusiness Levers drive business revenue and growth
eBusiness affects the business in many different ways. eBusiness Levers with the associated cause-and-effect model helps us understand how!
Some things 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
- identify the various effects that eBusiness can have
- understand the nature of these effects
- identify those effects that most influence the business KPIs (Key Perfomance Indicators)
- measure the (forecasts and) results of implementation
Keep it Simple – 3
Business it complex – particularly if you’re conducting B2B and utilising a variety of channels to get to market.
But most areas of the business are tangible! There may be a huge amount of numbers, but at least they exist and can be analysed in ways that are – more or less – agreed upon.
Some areas of the business are harder to measure, and eBusiness 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 eBusiness 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 a simple, graphical model.
Consider the following diagram:
This picture says simply “Profit is affected (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.
Adding more eBusiness Levers
We can extend the model, piece by piece. [Working slowly allows people to understand the principles of the technique, as well of the significance of the relationships]
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]
eBusiness Levers drive intangibles
Increases in Account Management Efficiency 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.]
eBusiness Levers drive Revenue
Satisfied customers tend to be open to cross-selling and upselling, 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, as 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 System 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 ADD LINK! Stock and Flow diagram.
Through eBusiness – 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 eBusiness 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 appropriate 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.]
eBusiness Levers and Business Benefits
We can now identify four or five key benefits that we might use for further discussion. In my example, I’m concentrating on Customers, Customer Satisfaction, Number and Value of Orders and Cost Reductions. Using different symbols, I’ve identified these benefits in the Cause and Effect diagram below.
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).