E-Biz Metrics

Published in TDAN.com October 2000


Introduction

From our searches for excellence, through quality improvement, and business process re-engineering there emerges a common requirement: the need for “metrics” – measurements (or standards of
comparison) of business activities. Numerous metrics can be used to determine success or failure within the business context.

To be better positioned in its market and to reach its business objectives, an enterprise needs to gain competitive advantages. Competitive advantages are factors that allow an enterprise or an
enterprise’s products gain superiority within their marketplace. The enterprise seeks to differentiate its products or services against those of the competition. A company’s strategy is often
based on defining competitive advantages that produce increased sales, reduced costs, product and service differentiation, shorter times in the delivery of products and services, improved products
launches, innovation, and improved market share.

Judging success, customer satisfaction, and competitive advantage all require sound metrics. This is all the more important in the fast moving environment of E-Business.


The E-Business Value Chain

E-Business is a revolutionary transformation for the way business, society, and government interact and handle their relationships. E-Business is not a fad, a buzzword, a technology trend, or a new
word for doing “the same old thing”.

E-Business is the transformation of essential business processes using Internet technologies. Each enterprise has its own reason for moving to E-Business. In order to target the right E-Business
customers, it is essential to understand the complete value chain of the enterprise product set. The value chain describes the flow of materials from raw materials to finished goods to disposal or
recycling, and the associated flows of value (i.e. costs, value created and value recovered). A value chain analysis examines the decision-making processes at work at each level in the value chain,
as well as explaining the basis upon which purchasing and supplier selection decisions are made. Value chain analysis is performed by collecting and scrutinizing business metrics.

An enterprise may utilize E-Business to improve cost-effectiveness, to get into a wider range of market segments, or to increase market share in existing market segments. An enterprise may use
E-Business to retain existing customers or to keep customers happy. E-Business may improve order and product development turn-around. All of these objectives must be measured with great care.

E-Business includes:

  • Electronic Commerce – The use of electronic technology to execute transactions among enterprises and individuals
  • Electronic Collaboration – The use of electronic technology to share information and work together toward shared objectives
  • Electronic Communities – The use of electronic technology to connect multiple participants in multiple industries.

There are various aspects of E-Business, all of which can be measured.

 





General E-Business Metrics

There are certain metrics that can be used to measure all aspects of E-Business. These metrics include:

  • Revenue Impact – The percentage increase/decrease of total revenue for a given period (probably a year but maybe a quarter) compared to total revenue for a comparable period.
    E-Business should facilitate increased revenue whether directly or indirectly impacted. Revenue Impact directly attributable to E-Business could be tracked as a separate metric.
  • Net Income Improvement – The percentage increase/decrease of total net profit before taxes for a given period (probably a year but maybe a quarter) compared to net profit before taxes for a
    comparable period. E-Business should facilitate increased profitability whether directly or indirectly impacted by E-Business. Net Income Improvement directly attributable to
    E-Business
    could be tracked as a separate metric.
  • Customer Satisfaction – The result of customer surveys that takes into account satisfaction with the sales cycle over a period of time. An effective E-Commerce system should increase customer
    satisfaction.


E.Strategy

Building an effective E-Business takes more than an integration of Web business solutions on the Internet. E-Business affects every corner of an enterprise — customer relationships, internal
communications, supply and delivery channels. Each element of an enterprise’s organization becomes an integral part of the E-Business whole. It’s an overarching strategic corporate
initiative. E.Strategy includes business strategy and optimization, integrating enterprise business assets with the E-Business infrastructure, Web brand and market management, and the alignment of
business strategy and planning and IT strategy and planning.

E.Strategy would include:

  • Enterprise Strategy and Planning – When the business environment changes or a new product is developed, the enterprise strategy and planning business process may develop or modify strategic
    plans and trigger new business initiatives and/or projects, some of which may be market oriented. An integral part of enterprise strategy and planning is the alignment of business and information
    technology strategy and plans.
  • Market Development/Management – A new or revised strategic plan, a new or changed market environment, and/or a new product may all trigger market development/management business functions. A
    new or revised market plan may be developed, along with new or modified market initiatives or projects. A new or revised product/services catalog may be generated.

See E.Strategy Process Chart

 





Measuring E.Strategy

There are certain metrics that can be used to measure the E.Strategy aspects of E-Business. These metrics include:

  • Forecast vs. Actual Revenue- The percentage of Forecasted Revenue to Actual Revenue. The increased information received from E-Business should improve the ability to forecast.
  • Number of Strategic Programs and Initiatives determined to be successful – The number of strategic programs or initiatives determined by management to be successful by management over a
    given period. Strategic Programs’ or Initiatives’ Return on Investment (ROI) may be used as metrics also.
  • Market Share Impact – The percentage of the total sales of the products and services that are attributable to the enterprise compared to the sales of the market as a whole. Market Share
    calculation could be limited to those products and services offered through E-Business but Market Share for the whole company should be impacted by an E-Business presence. Market Share might be
    compared across various periods. Market Share is a Key Business Objective of E-Business.
  • New Markets – The number of new markets or market segments added during the present period of time. This could be compared to a previous period. Customer intelligence gathered as a part of
    market analysis and customer relationship management will often lead to revised market segmentation.
  • Media References – The number of references to the enterprise WebSite on the Internet, the electronic media and the print media. Marketplace Development/Management should encourage recognition
    of the enterprise in the public media.
  • Document Download Requests – The number of file downloads from the E-Business site during a period of time. There may be a comparison to a previous comparable period. Potential customer and
    marketing information can be gathered as a part of making files (e.g., white papers, trial software, product catalog, and other similar download information) available for download.
  • Visitor Profile(s) – Visitors profiles may be by industry, customer type, location, order activity, number of visits, length of time, product category, or other parameters. This may be a
    percentage breakout of the number of visitors by profile type instance. For instance the percentage of visitors living in a location, or interested in buying a type of product. The nature of the
    visitor is crucial to determining the value and success of the E-Business effort, including the Web Site itself and its promotion.
  • Visitors who Order – The percentage of visitors who actually place an order over a period of time. There may be a comparison to a previous comparable period. It may also be the number of
    visitors who had ordered over a period of time. The raison d’être of a Web Site may be to give a visitor the ability to order.
  • Visitor Sessions – The Number of Visitor Sessions, that is, the hits to the site by a single visitor within a timeframe. There may also be breakouts of visitors by location of origin, or by
    frequency of visits. The nature of the visitor hits is an important aspect for evaluating E-Business strategy and success.
  • Visitor Session Length – The average length of time that a visitor spends on the site. This may be broken-out by visitors who browse and visitors who buy. The number of pages visited may also
    be a Key Performance Indicator (KPI). There is a balance concerning session length. You want to have visitors spend time at a site in order to make the use of it that is planned. There could be a
    downside to time spent. If the site is difficult to use, excessive time spent on the site may be negative.
  • Referrer Results – The top sites that are driving traffic to the web site. A referrer is defined as the URL or web page from which the visitor came to the web site. This information is
    particularly useful in identifying whether web sites on which there is advertising or promotions are in fact, driving traffic to the site. Top referring sites are often, but not always, sites on
    which the enterprise advertises. This information may point out an excellent place to advertise or link from in the future.
  • Content Popularity – Pages on the Web Site that get the most visits or where the most time is spent. This can be used to evaluate the presentation layer design of the site as whole, of the flow
    through the site, and of the individual page designs.
  • Product Results – A percentage breakout of the products bought through E-Business by Location or by Customer Type or by other parameters. Which Products are sold, where and to whom is a matter
    of significance.


E.Customer

E.Customer solutions assist the enterprise to integrate and automate all customer data — from direct relationships to point-of-sale in a traditional selling environment. E-Customer includes
Customer Development/Management. Customer Development/Management enables companies to effectively manage relationships with their customers. It provides an integrated view of a company’s
customers to everyone in the organization.

Customer Development/Management begins with the recognition of new prospects. Market changes, customer information changes, customer contacts, customer portfolio changes, customer account changes
and new sales opportunities are all a part of customer development management.

A key aspect of Customer Development/Management is Customer Relationship Management. Customer Relationship Management (CRM) involves creating value where it counts – in the eyes of the customer. It
takes a lot more than a new call center with all the latest tools and technologies to build customer relationships. CRM includes:

  • CRM Strategy and Vision Management
  • Contact profile, history and n-tiered relationships
  • Customer (Business) Intelligence Management
  • Customer Campaign and Market Management
  • Comprehensive account management functions
  • Automated quotes and correspondence
  • Instant access to historical account summary

 





Measuring E.Customer

  • New Customers – The number of customers or prospective customers added during the present period of time. This could be compared to a previous period. Gathering information on both prospects
    and customers is one basis for E-Business.
  • New Customer Revenue – Revenue attributable to newly acquired customers. It may be compared to revenue from existing customers over a comparable period of time. E-Business may bring in new
    customers.
  • Customer Queries Handled – The number of Customer Queries handled through E-Commerce whether directly through the site or by E-Mail. Customer Service is a crucial part of E-Business.
  • Customer Retention – Depending upon the enterprise business model, customer retention may be measured by Customers under Contract over a period of time or for another business model, the number
    of orders from customers with a previous order history over a period of time. If E-Business works well, customers will stay and re-order.
  • Customer Affinity (Reuse) – The number of times that a relationship between two existing customer instances is recognized or where a new instance is related to an existing customer. For
    example, a subsidiary is found to be such and is related to its parent, or a new customer is recognized as related to another customer. Often customer instances are related to another customer
    instance but this relationship is not recognized. A crucial aspect of E-Business is recognizing that a customer may be related to another customer.
  • Customer Activity – The number of contact events, customer visits, participation in web site forums or chats, downloads, or any other recorded activities that has occurred during a period of
    time. There may be a comparison to a previous comparable period. Customer activity is a key part of developing the marketplace.
  • Customer Contacts – The number of contact events that has occurred during a period of time. There may be a comparison to a previous comparable period. The management of customer contacts is a
    key part of E-Business.
  • Self-Registration – The number of visitors who add or update visitor registration information during a period of time. There may be a comparison to a previous comparable period. E-Business
    should encourage visitors to provide valuable information useful in customer and market analysis.


E.Nterprise

E.Nterprise focuses upon the core of E-Business functionality — as much as 80 percent of the required data — resides in primary enterprise applications. These core functions constitute
the business infrastructure that recognize and manage change and create common global access that helps build a winning E-Business.

E.Nterprise may be considered to include:

  • Product Development/Management
  • Business Party Development/Management
  • Knowledge Management
  • Resource Development/Management
  • Financial Services

 





Measuring E.Nterprise

  • Products Visited – The number of Product Catalog pages visited during a period of time. Time per page visited may also be useful in evaluating product information visitation. An integral part
    of E-Business is presenting product information that is useful to Web Site visitors.
  • Productivity Improvement – Revenue per Full Time Equivalent (FTE) Associate (employees or FTE contractor) for a given period compared to the Revenue per FTE Associate for a comparable period.
    E-Business should raise productivity. Revenue would seem to be a good measure, although before tax profit could be used also. The FTE Associate would be used where there is significant outsourcing.
  • Web Site Revenue – The Amount or Percentage of Revenue from E-Business related Sales compared to Total Revenue from all Sources over a period of time. This might be compared to the amount or
    percentage from a previous comparable period. Depending upon the enterprise business model, the percentage of E-Business Revenue to Total Revenue may increase or decrease but will, in any case, be
    significant.
  • Web Site Profit Margin – The Percentage of Revenue from E-Business related Sales compared to the Total Cost of Ownership of the Web Site over a period of time. This might be compared to the
    percentage from a previous comparable period. It may also be compared to the profit margin of the enterprise as a whole or to non-E-Business profit margin. Web Site profit margin should always be
    significant. It would be expected that Web Site profit margin should be better than overall profit margin.
  • Accounts Receivable Turnover – The average duration of an account receivable equal to total credit sales divided by accounts receivable. This would be compared to AR turnover from a comparable
    period. E-Business should facilitate the improvement of accounts receivable turnover.


E.Supply Chain

Supply chain management–delivering the right product to the right place, at the right time and at the right price–has been recognized as one of the most powerful engines of business
transformation.

Using E-business to transform supply-chain management means more than increasing efficiency and effectiveness. A 1998 Meta Group report cites the tangible benefits of E-business as 43 percent in
‘hard’ cost savings, 30 percent in improved productivity, a 16 percent boost in customer retention and revenues up 12 percent. Why? Because E-business accelerates enhanced communication,
coordination, and collaboration, all critical attributes of a smooth supply chain.

E.Supply-Chain may considered to include:

  • Resource Inventory Management – New and changed resources (raw materials, work in process, finished goods, supplies, services, etc.) will be maintained. When a proposal or an order is received,
    the availability of resources is determined.
  • Order and Proposal Management – Proposals and orders may be entered and maintained. The status of an order is tracked and, upon fulfillment, the order becomes part of history.
  • Manufacturing – If the product ordered is not available in inventory and is manufactured by the enterprise, a manufacturing order is planned and processed, and the product is manufactured.
  • Procurement – If the product ordered or a required resource is not available in inventory and is not manufactured by the enterprise, a purchase order is planned and processed and the product is
    procured.
  • Logistics and Distribution – If the product is available, the logistics and distribution system will fulfill the order. If the product is manufactured or obtained by means of the procurement
    system, logistics will see that the resulting product is made available to the customer.

 





Measuring E.Supply Chain

  • E-Commerce Orders Taken -The number of orders taken within the E-Commerce system over a period of time. This may be compared to a previous comparable period. This could also be a comparison of
    E-Commerce orders to total orders over a time period. E-Commerce orders are the heart of E-Business.
  • Time to Market – The average time from date of recognition/discovery to the date of first sale as measured over a period of time. Time to Market is another accepted measure of the product
    development aspect of the Supply Chain.
  • Order Fulfillment Cycle Time – The average time from the date of an order to the date of product receipt at the customer site measured over a period time. This could be all orders or just
    E-Commerce orders. E-Business should facilitate the movement of the order from creation to final fulfillment whether the order was placed through E-Business or not.
  • Product Returns – The percentage of product returns (in terms of units of issue) compared to the number of product units sold over a period of time. An improved supply chain should get the
    right products to the right customer at the right time, thus product returns should decrease.


E.Technical Services

E-Business demands a solid infrastructure. It is important to assemble an infrastructure that’s right for today — and fully scalable for the future. E.Technical Services help to
integrate diverse network environments and applications that function seamlessly. It is important that the enterprise-scale mission-critical systems, and integrate legacy systems with Web-enabling
technologies and applications.

E-Business is being accelerated by Information Technology by means of E-Technical Services, by:

  • Developing and enforcing Presentation Standards
  • Developing and enforcing Data Standards
  • Developing and enforcing Operating System Standards
  • Developing and enforcing Communication Standards
  • Encouraging and supporting Collaboration Technologies
  • Developing and maintaining E-Business Technology Infrastructure
  • Supporting Web Site Management


Measuring E.Technical Services

  • Hardware/Software/Network/Website Reliability – Mean Time To Failure (MTTF). It could also be Hit Failures over a period of time. The E-Business web site(s) must be up and handling visits in
    order to be successful.
  • Time to Repair – The mean time to repair (MTTR) over a period of time.
  • Reduced Rework per Database (Rework is a post-production fix of something that should have done during development.) For each database a baseline of rework should be developed. Then a periodic
    measurement of rework can be made.
  • Reduced Rework per System (Rework is a post-production fix of something that should have done during development.) For each system a baseline of rework should be developed. Then a periodic
    measurement of rework can be made.
  • Increased % of Data Elements used in a project that are reused – A measure of redundancy reduction.
  • Satisfaction score given by Users – Results from project after reports given by the user community.
  • Total cost of recovery – This includes the cost of people time lost, the cost of lost data, and the cost of whatever recovery actions that are taken.


E-Business Metrics – the measure of success

E-Business is a revolutionary transformation for the way business, society, and government interact and handle their relationships. Without E-Business metrics, however, the impact of this
revolution cannot be truly measured. Serious management cannot determine the tangible success of the E-Business transformation.

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About Thomas Finneran

Thomas R. Finneran is a principal consultant for the IDennedy Project. He has proposed an approach to use the Organization for the Advancement of Structured Information Standards (OASIS) UML Standard for privacy analysis. He was a consultant for over 25 years for CIBER, Inc. He has acquired over twenty-five years of experience in the field of information technology. His strengths include Enterprise (including data, information, knowledge, business, and application) Architecture, business and data analysis, UML Object Analysis and Design, logical data modeling, database systems design and analysis, Information Resource Management Methodologies, CASE and metadata repository tools, project management and Computer Law.  

Mr. Finneran has held such titles as Director, MIS; Manager, Corporate Data Strategy; Manager, Data Administration; Managing Consultant; Manager, Standards and Education; and Systems Designer.  These companies include The Standard Oil Company, Corning Glass Works, ITT, ADR, and the U.S. Navy.  In addition, he was Vice President and General Counsel of TOMARK, Inc., the developer of the highly successful ABEND-AID software package. He has a Bachelor of Arts, Ohio State University, a Master of Business Administration, Roosevelt University, and a Juris Doctor Degree, Cleveland State.  He is a member of the Bar of the U.S. Supreme Court and of Ohio, New Jersey, and Connecticut.  Member of Patent Bar.

 

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