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Strategic alignment – an eCommerce pillar

One of my fundamental working habits is to make sure that activities and work produced from my eCommerce organization are aligned to the strategic plan of the business.  I define eCommerce strategic alignment as the condition when work output supports or satisfies items listed in the annual business plan and company mission statement. Strategic alignment cannot be treated with lip service or discussed at the outset of a project and never mentioned again. To do so reduces the importance and significance of the strategic plan. There are valuable practical benefits to alignment that make this course of action a no-brainer for those in leadership or management positions.

Practical benefits of eCommerce strategic alignment

It validates work – work that supports the strategic plan should already be officially sanctioned or approved . With the approval of management, resources are assigned, money is allocated, and schedules can be set.

It motivates employees – People rally behind and support work that they know is created for a greater purpose. Aligning to the strategic plan is an automatic validation that the work produced is approved by management. Happy boss, happy employee.

It keeps the output in sync with the whole – Just as team members must work together, the work output produced from each group must be in sync with each other to have the desired and full impact. The strategic plan is the playbook that each team performs to so that they stay in sync with each other. Avoid organizational chaos and entropy and stay aligned.

Sources for finding the strategy and plan

Finding the company’s strategic plan shouldn’t be a difficult task. I reference the annual business plan and company mission statement. The mission statement provides purpose of direction while the annual business plan will contain specific and actionable items that management hopes to accomplish in the current year. Some business plans are summarized lists of objectives, while others are listed as financial metric goals. Both of these are valuable because it gives a good balance to both customer focused and financially focused goals.

Tools for showing alignment

The eCommerce organization can’t realize the practical benefits listed above unless the leader communicates the alignment outward into the organization. To do this, I use a set of documents that are geared for specific audiences or set to publish at periodic intervals.

Roadmaps – A roadmap document can be used with management and team members. It shows the sequence of work output as well as the contents of each work effort. I’ve used two types of roadmaps in the past. The first is a release roadmap that shows releases and release contents on a sequential timeline. Typically, I will color code the releases to designate different content such as defects, enhancements, contractual, or technical. The second is an application roadmap that focuses on releases by application. This works if you have multiple eCommerce properties in the portfolio. Once I create the roadmap and summary level list of contents, I will then create a cross reference to specific items on the strategic business plan. Think of this as just a grid showing release name and which strategic plan elements it supports. Now, at any point in time, I can produce a current and relevant roadmap that shows how the eCommerce team is in alignment with the company strategic plan.

Project Business Case – Business cases and Return on Investment (ROI) analysis documents are typically created at the outset of large projects to unlock the expenditure of monetary, equipment, and human resources. A defining part of this document is the “why?”. It shows why it is necessary to complete this work. Everybody has more work than they complete so you have to make wise choices about what you work on and what you don’t. Know the business. Use alignment as your guide for what gets done and what does not.

Status Reports – Weekly progress reports are not the place for showing the alignment because it would be too repetitive. But monthly, quarterly, and project closeout reports are the perfect opportunity to show and communicate the alignment of the team. In fact, depending on the audience, I will often reuse the roadmap report or pieces of the roadmap. Redundancy can be good in this sense because I like to keep my work top of mind with management about how it supports the planned objectives of the company.

eCommerce solutions ownership – customer focused results

An important role in an eCommerce operation is responsibility for solutions ownership and the results delivered to senior management and other stakeholders. It’s a senior role that focuses on the macro level results that  define the success and viability of the eCommerce team. In addition to the traditional financial and market metrics, the solutions owner must deliver customer focused results. It’s the customer focus that provides the building blocks for the traditional results and helps to set an eCommerce team apart from it’s competitors.

Traditional financial results

A solutions owner is responsible for profitable results with positive contribution margins. The contribution margin of a product is defined as the revenue minus the variable costs. eCommerce sites should consider both product variable costs as well as an allocation cost assigned to the channel for the variable costs associated with keeping the site running.

What about cost reduction? Typically, eCommerce operations help to reduce costs because they scale well and require less labor to maintain for the level of output. Cost reduction can be tied into the profitability calculations if the variable costs for the eCommerce channel are less than those for other channels. In this case, the channel would be more profitable per sale.

Customer focused financial results

An often overlooked part of financial results are those of the client, in a B2B relationship, or a customer, in a B2C relationship. In a B2B framework, the solutions owner is responsible not only for delivering results to his own company, but to his client as well.  The eCommerce operation is as successful as it is in keeping the client in business with it’s customers. The mission is to make the client profitable. This concept applies whether your site a straight B2B or a B2B2C site. Either way, the costs of the products from your eCommerce will be part of the final price that the end-customer pays and part of the profitability of the middle business.

The solution owner should also be concerned about the financial results of the customer because the customer’s financial results determine if they’ll be repeat customers. In this sense, the financial results must be in alignment with the strategic positioning of the product in the market place. If your product competes on lowest cost (i.e. Wal-Mart)  then obviously customers will repeat as long as they feel they get a better price. But if you compete on something other than price (i.e. Chic-Fil-A with community and customer service), then you will help customers to find ways to off-set the price premium. My drawer is full of Chic-Fil-A coupons for free food.  That makes me feel financially successful with those purchases. But it also makes me spend more money at their stores because when I go, I usually buy for other members in my family. I could list many other examples of this, but the point is the solutions manager must consider the financial results to the end-customer.

Traditional market results

Typically a solutions owner oversees market results that focus on market share, units sold, and the percentage of products sold through the eCommerce channel (channel penetration). These are good and necessary result categories that show how the eCommerce operation is performing in a broader context. It’s important to note that growth may not be the expected result in all cases. If the product is in the declining stage of its product life-cycle then year-over-year comparisons may be expected to show decline.

Customer focused market results

A solutions owner with a customer focused view of market results recognizes that the eCommerce channel does not compete with other channels but is offered as a complementary channel to the customer. In the early days of eCommerce, many companies setup the eCommerce channel as a stand-alone profit center with separate P&L metrics from other channels. There was fear among retailers that the eCommerce site would cut into the storefront sales. That kind of thinking leads to internal competition and moves the focus away from the customer. Over the years, companies have realized that customers like to shop using multiple channels.  So it’s the job of the eCommerce site to deliver an experience on par with a brick and mortar storefront and that has cross channel linking for the customer.

Organizational results

A third area for solution owners to deliver results is with organizational engagement.  As with any good manager the solutions owner must engage employees in the overall mission and success of the team. This means communicating openly about the objectives of the team and explaining how the objectives align to the greater organization. People respond when they believe and understand how they belong to the bigger picture.

eCommerce operation mind map

Statistically speaking, the posts I’ve written about the organizational aspects of an eCommerce operation get more views on the Merchant Stand than any other posts. It’s telling me that people are interested in ideas for how they can structure an eCommerce team and what areas of responsibility they should cover. I think the greater interest is that people are looking for ideas and ways that their teams can operate more efficiently to be more agile. I plan to explore more thoughts around organizational layout in an eCommerce operation in future posts. To help with that, and to invite others in the community to discuss this with me, I’ve captured my thoughts on areas of an effective eCommerce operation as a public mind map at mindmeister. I’ll update the mind map with changes and updates as the discussion progresses.

I welcome your comments on this discussion and thoughts on my mind map. The map is embedded here. You can drag the map to see sections not visible or you can launch to the map on the mindmeister site.

Three golden nuggets for eCommerce financial metrics management

The ultimate goal of financial metrics in your eCommerce operation is to provide a measurement against revenue and profits required to sustain and grow your business. Choosing which financial metrics to measure can be a tricky endeavor. You want to make sure to capture relevant data that define your business and to use your time wisely. Common areas of measurement include revenue, average cart purchase, up-sell ratio, retail dollars, number of items in the cart, cost to operate, adword spend,and delivery dollars.

But what is financial metrics management really about and how should you structure this part of your eCommerce operation?

Use financial metrics that define the success of your business

Make sure the financial measurement points to a key performance indicator in your business. Remember too that areas that define the success of your business go beyond dollars spent. For example, it’s commonly documented that retail giant Costco makes the bulk of its profits on membership dues rather than merchandise sold. Costco retail margins are capped at a lower threshold than typical retailers which is the basis for it’s low-cost but high-quality reputation. While I don’t work for Costco, I can imagine that a critical financial metric for them is both memberships sold and renewed. Other possible metrics include:

  • Profit per order – Filling shopping carts is only beneficial if its done so at a profit.
  • Number of units sold – Important for businesses that need to move multiple units to turn a profit.
  • Average time of inventory before sell – Think about the implications of receiving your customer’s payment for a product before paying your supplier.
  • Percentage of inventory sold – Think about transportation providers and selling available seats for a specific trip
  • Revenue per order – If your cost structure is in good order and you are trying to show investors a growing revenue stream then you may be focused on the highest revenue possible
  • Revenue mix – You measure the revenue mix of eCommerce (Internet) against other available channels. This is important if you Internet channel has a higher profit per order than other channels so you may want to show the total contribution of profit of the channel.

It’s worthy to note here that it’s also important to focus on measurements of customer behaviors that lead to the dollars spent. This often gets into site measurement areas such as time on the site, delivery selection breakdown, and number of items in the cart. I consider these building blocks to the financial results, but that’s the topic for another session.

Use incremental financial metrics as a basis for enhancements justification

If you are a marketer or product manager then the financial metrics of your existing eCommerce property are the gold used to purchase new enhancements. In some cases you may have measurements on a pilot effort and are looking for the remainder of funding to complete the roll-out process of that feature. In other cases you may be able to show the existing reach and contribution of an eCommerce property to your business as a basis to request more funding for expansion of products and ideas. One fundamental concept to remember when creating new businesses cases is that you need to use the incremental financial contributions your change is forecasted to bring to the business. Your existing financial metrics baseline is already established. Don’t double count the financial contribution that would be present if your site remained as-is.

Increased financial metrics may trump decreased site metrics

After you release any new changes to an eCommerce property there are a number of measurements to gather to determine if the new release is successful. The ultimate scenario is that a new release increases both site metrics (conversion rates, number of visitors) and financial metrics. However, there are some situations where a decrease in site metrics may be off-set and even trumped by an increase in financial metrics. A simple example to consider is with a price increase or additive fee on a site. The resulting price increase may decrease the site’s overall conversion rate yet give it a stronger contribution towards financial goals. So remember to compare the resulting financial metrics against the established baseline after a release. Consider the long term implications of the results on both site metrics and financial metrics. This will guide your decision whether or not to keep the change.

Defining an eCommerce Operation – Demand Management

UPDATE 10/27/10 – I posted a mind map of my eCommerce Operation on mindmeister that replaces the original map at the bottom of this post. This includes the latest updates to my organizational thoughts on an eCommerce team.

It’s been a few months since I wrote about the building blocks of an eCommerce operation. Previously I wrote about the areas of solution ownership, content management, and product management. In this post I’ll list some of the key elements from the demand management area. I have three more areas on my master eCommerce operation plan, so you this is post 4 of 7 on this topic.

As with any type of product or service there is a need within the marketing area to create awareness. This fits into the area of demand management. It’s composed of activities that promote and create awareness about your product or service in such a way that it creates “demand”. An eCommerce site, especially one that represents a brand that is not well known, will need a good deal of work in the demand management area.

Search

Search demand is broken into two areas: natural and paid. These two types of search management are the source of many books, reviews, and blogs and really there is an entire industry around Search Engine Optimization (SEO). In the context of building an eCommerce operation what’s important to know is that at a minimum you should have a focus on natural search results. Natural search results are those shown in the center content area of search engine results. You don’t pay to be listed in these results, but how you structure your pages will determine your ranking in these results. Search is dominated by Google right now and with the growing popularity of mobile devices to augment the capabilities of computers, the Yellow Pages is quickly fading into a tool of the past. So if you’re not tuning your site for natural search results, you should sooner than later.

The paid search results are usually on the top or down the right side of the search results page. You’ll pay to be listed in these results based on keywords in the search query. This requires a bit of focused discipline in your eCommerce organization as well, because someone needs to manage the keywords you buy and monitor them for success or failure in attracting traffic.

eMail

eMail is a large component of the demand management strategy for eCommerce organizations today. You’ll want to have someone knowledgeable about all of the eMail regulations and guidelines such as opting-in/out, spam, and list management. Additionally, the copy or content in each email plays a role in how successful it is in achieving the desired action from the recipient.

Online Advertising

Another option for eCommerce demand management is online advertising. Techniques used in this space are sponsored banner ads and pop-ups that users see when they visit a site. Depending upon your audience and product, online advertising may be a good component to add to your overall advertising plan.

Print Media

eCommerce team members should not forget about traditional media. They can use print to create awareness through many vehicles such as newspaper, magazines, billboards, etc. In some cases you may want to print reorder directives on printed materials the customer receives.

Offers

Many eCommerce sites offer coupons or promotions to encourage sales. So your eCommerce team needs to organizationally matrix to those who create the promotions and offers as incentives. The offer that works in a brick and mortar storefront may not be the same one that works best for eCommerce. Test and then test again.

Social Media

eCommerce teams must now consider their involvement role in social media. Consumers have the ability to create online content today in the form of product/service reviews, status updates, blog postings, etc. The wrong approach is to ignore the conversation or pretend its not there. Instead, designate someone to be involved in the conversation. Use the opportunity to add value to your customers and prospects. Become and established voice in your industry.

Partnerships and Portals

The final area of demand management that I’ll discuss is through partnerships and portals. You may be in a situation where you can introduce your product to to new markets based on the established framework set by someone else. Two examples are the Amazon Associates program and integrations with Ariba. With Amazon Associates, you can merchandise product from another retailer and receive a commission based on it. This creates the possibility to expand your product offering because the partner site offers a broader scope of product. In the Ariba example, Ariba serves as a partner aggregator for spend management from subscribing companies. If you integrate with the aggregator in this type of arrangement then they can offer your products to their subscribers . This could open the doors for new buyers of product that already have established a relationship with the procurement enabler.

I added these elements of the eCommerce organization to my concept diagram. Select the diagram to expand it.

eCommerce Operation as discussed to-date, more areas pending

eCommerce Operation (areas 4 of 7)