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How the Internet is transforming and tweaking and fulfilling and failing and motivating and muddling companies just like yours
Growth-company leaders grappling with the Web are badly in need of perspective. Are their strategies sound enough, they often wonder, and their organizations fit enough to compete with other businesses on an increasingly digital terrain? "It's not just about doing business faster and cheaper," says one young CEO. "I'm sure I'm not alone in wishing I could get above the trees to speculate about the dramatic cultural and interpersonal changes brought about by the Internet."
To help companies orient themselves in the Web's competitive landscape, my team of researchers at Harvard Business School spent much of the past year surveying top executives about the Internet's impact on their businesses. We received and analyzed responses from 785 organizations ranging from small and emerging companies -- many of them on the Inc. 500 list and in the Young Entrepreneurs' Organization -- to global corporations belonging to the World Economic Forum. Our results suggest that while frustrations persist, the Internet is starting to live up to its billing. And though large organizations are, in general, more adept at wringing value from the Web's multifaceted capabilities, a growing number of small companies run with the Internet bulls.
First, the good news: our survey found that small and emerging businesses are as likely as large ones to love the Web. Small businesses handily beat the giants in creating virtual offices, which should allow them to grow without sacrificing flexibility and speed. Small businesses also outpace or match large companies in applying the Internet to some internal operations, such as training and harvesting employee feedback. And while E-business has proved more of an obstacle course than a smooth path to the finish line, many small-company respondents claim that the Web helps them compete with more formidable rivals and find customers outside their established markets.
The not-so-good news: small companies still lag behind large ones in using the Web to build their businesses and are less likely to deem it a competitive necessity. Restrained by the unpreparedness or intransigence of customers and suppliers, many small businesses have trouble finding the right partners in this we-are-the-networked-world. Companies founded before the advent of the Web -- even growth companies in high-tech fields -- face internal resistance to change. Still, only 4% of our respondents dismiss the Web outright as a waste of time and money. And many of the dissenters cite barriers specific to their industries, such as the importance of face-to-face relationships for big-ticket or "emotional" purchases.
The bottom line: actions matter. Companies that have been faster to the Web than their competitors are also more likely to report Web-related increases in revenues, profits, and market share. Many of those businesses have also modified or rebuilt their organizations to incorporate Internet technology and its attributes -- openness, collaborativeness, and flexibility -- into internal work processes and, by extension, into their relationships with partners and suppliers. This is what I call "E-culture."
Let them count the ways
One measure of companies' embrace of E-culture is the number of tasks they assign to the Web. We asked respondents about 11 possible uses of the Web, ranging from sales and purchasing to internal and external communication. At least 32% of small companies (those having fewer than 100 employees) report using the Web for each application. The top uses are selling to traditional customers (cited by 45% of respondents); allowing employees to telecommute (44%); and getting news and information (43%). Wrote one enthusiast: "I would have liked to mark a category of 'duh.' Why would we not use the Internet to do these things?"
In general, small companies are more internally focused than their bigger brethren in their Web use. Small businesses are slightly more likely to use the Internet to communicate with employees than with customers and suppliers. But a few truly virtual organizations rely on the Web for almost everything they do both inside and outside their sometimes nonexistent walls. "We're totally virtual, run out of my house," reports the CEO of a small Canadian company. "The VP of sales works from his house. We produce in Taiwan, fulfill from San Francisco, and ship around the world. The Internet facilitates the communication. We will do $2 million this year and $8 million to $10 million next year and should be able to remain virtual."
Compared with large companies, however, small companies are taking less advantage of the Web's outreach. Surprisingly, only 39% of the small companies responding to our survey use the Web for advertising their products or services. By contrast, more than half of large companies say they exploit the Web's billboard capabilities. Similarly, half of large companies are recruiting customers through the Web, compared with 41% of small businesses. Nonetheless, some growing companies evince flashes of inspiration in their approach to new markets. "Our unit took a product, hardtack crackers, that our parent company has sold for over 200 years," says one manager of a midsize company. "We capitalized on the market of Civil War reenactors by going online, and within three months increased our sales by 250% over the prior two years combined." Others are mining rich new veins -- not of customers but of employees. "The Web has greatly improved our ability to recruit from all over the world," reports the CEO of an advertising and graphic-design firm in California.
Large companies are twice as likely as small companies to bemoan the lack of employees with internet skills.
In organizations that consider themselves Web leaders, the technology is so pervasive as to be transformative, and executives are examining how it can improve efficiency and productivity. "We will use the Internet more for bidding, purchasing, and implementing our work," says one small construction company's CEO. "I expect more productivity from our field staff by eliminating middle-level report-generating functions." In some cases the Web enhances employees' quality of life as well as their productivity. One trucking company ticks off a long list of Internet applications it employs, including scheduling and logistics, spotting trouble with a vehicle, monitoring weather and road conditions, and communicating with drivers. Those improvements have helped promote better efficiency and safety records. But the benefits flow beyond the business to the workforce. "The advantages to our drivers and their families are just as great and have become one of our best recruiting and retention tools," a company leader comments.
What's stopping them
Small companies are more likely than large ones to train the Internet's positive powers on their internal operations, so it isn't surprising that their internal-operations teams have generally supported Internet ventures. In contrast, many large companies find barriers to E-business inside their own borders. Large corporations feel the drag of fearful longtime employees, at-each-other's-throats business units, leaders who still don't use computers or "get" the Internet, and technical-staff pools that are too shallow to support both new Web projects and thousands of existing users. Overall, large companies are more than twice as likely as small ones to bemoan the quality of management and the quantity of employees with Internet skills.
Among small companies -- particularly the youngest and most diminutive -- the most common complaint (voiced by 38% of respondents) is that other projects drain time and resources away from work on the Web. "So many ideas, so little time while keeping up with current demand," says one small-company leader. But while small and emerging companies report fewer barriers to Web success than large corporations do, most of the small businesses' barriers are external. For example, 34% say they have trouble finding partners, both online and off-line, for joint marketing, development, or distribution; and 30% complain about uncooperative suppliers. (Large companies are less likely to face those barriers, presumably because of greater marketplace clout and a wider choice of partners.) "We are still behind in our use of the Internet," says the CEO of a growth company in Hawaii. "Some of that is due to our slow response, but it is also due to vendors' and suppliers' not being ready for transactions over the Internet yet." The CEO of one design firm echoes those sentiments: "If our suppliers could handle it, we'd do more online with them. The first ones to move that way will take more of our business."
Customer reluctance is cited by 36% of small-company respondents as inhibiting use of the Web. Funeral Directors' Choice (FDC), a three-year-old Canadian company that offers telephone-answering services for funeral homes, exemplifies the plight of progressive vendors mired in conservative industries. FDC, which has an informational site and relies on the Web for internal communication, is itching to move such services as funeral arranging online. Not today, thank you, say its funeral-home customers, many of whom use computers only for bookkeeping or not at all. Still, FDC has faith that technology will ultimately catch on in the industry (a few mortuaries already offer online obituaries), and when that happens, it will be ready.
Most of FDC's customers are themselves small companies, but many entrepreneurial businesses identify large corporate partners as the walls they keep beating their heads against. A respondent from a medical-office management company, in Ohio, for example, says the docs it works with are ready, but not the insurance companies. "Physicians are finally looking to the Internet for virtual office services and billing; having a site is very important," explains the respondent. But, she adds, some big insurance companies that were slow to go online held her business back.
And of course, small businesses -- especially long-established ones -- aren't immune from the kind of change phobia that plagues large corporations. Ten percent of small-company respondents say their leaders don't know how to begin formulating an online strategy (compared with 38% of survey participants at large companies), and 9% cite executives who shy even from personal use of computers and the Internet (compared with 28% at large companies). Though such respondents are in the minority, their frustration is palpable. "Our managers are old in age and tenure, and too afraid to launch into the deep," says one small-company executive. "They're too conservative, and it is killing profits/market share." Complains another: "My organization is clinging to the things it did well during the Cold War." And while turf battles complicate matters in far fewer small businesses (4%) than in large ones (32%), they do exist. "The 'pissing contests' have a smaller playground," explains one unusually graphic respondent, "so everyone gets hit by the splashes."
Family businesses present an especially knotty problem because in those companies, power is often wielded by owners wedded to the past. A family-run manufacturer of home goods that we surveyed is typical. According to a senior manager, the company won't touch the Web even though major retailers -- its customers -- are taking their supply chains online. As long as family members cling to the company's traditional formula -- which has done them proud for 100 years -- and refuse to invest more in computers and employee training, its managers are hamstrung. An executive at another family-owned company predicted dire consequences: "Because no one inside the owner family understands what is going on in the market, I can see us ultimately disappearing."
Even technology companies can lag. "We suffer from the cobbler's children syndrome," laments one respondent. "While focused on developing Internet strategies for major companies, we haven't focused on developing a strong online strategy for ourselves."
Mind-set over matter
It's the raison d'être of benchmarking: people want to stand toe to toe with the best of breed. E-business is so new that hard data on it are elusive, so to identify the gold standard, we asked companies to rate their own Internet prowess. Almost 100 respondents place themselves among the "best" in their industry, while another 250 say they are "better" than their competitors. We've analyzed those self-described pacesetters in hopes of isolating the qualities that distinguish them from the rest of the field. The most profound differences, we've found, are in their answers to questions about organizational style.
Almost without exception, our self- described Web leaders practice the rites of E-culture. They search constantly for innovation and improvise instead of waiting for a perfect plan. They forge numerous alliances to tap the power of networks and connections. And they foster smooth cooperation and collaboration across all parts of their organizations and empower people to try new things.
Web-based start-ups, of course, have had the advantage of entering the fray baggageless and consequently being able to shape themselves in the image of the Internet. Take PlanetRx.com, an online drugstore and health-information site that surged from ground zero in 1998 to hundreds of employees today. Obstacles were numerous, but the founding team improvised its way around all of them. The founders initially considered physicians the customers, for example, but then realized they were staring at the wrong end of the stethoscope. Patients rather than doctors were driving the course of health-care delivery, they determined, and they settled instead on a business-to-consumer model. Then, chary of the toll that rapid growth was taking on informal communication, the leaders devised a system of formal communication -- including regular meetings and the wide dissemination of quarterly priorities -- to ensure everything that needed to be known was known. Armed with good information, employees make good decisions and make them quickly, thanks to the power vested in them by the company's leaders. "A decision is better than no decision because it moves the company forward," says one cofounder. "If you're a learning organization, you will quickly correct wrong decisions and learn from your mistakes."
Confidence and caveats
Many of the leaders my team has interviewed temper their enthusiasm for the business potential of the Internet with a realistic view of its shortcomings. It's no magic bullet, they say, and cannot compensate for fundamental business weaknesses. Even self-described Net enthusiasts and revolutionaries are balanced in their assessments, asserting that the Web requires them to run their businesses differently, but always offering the caveat that it doesn't eliminate the need for sound judgment, financial discipline, and face-to-face relationships.
The Internet, in sum, demands that companies accept the same duality imposed on them by previous waves of revolutionary technology. It requires a commitment to change, yet it builds on a foundation of enduring human experience. "No machine regardless of sophistication can fully replace the human experience," as one CEO puts it. "People need people, and machines need people to be fully effective assets. The world now has more room for both to thrive."
Copyright © 2001 by Rosabeth Moss Kanter. Michelle Heskett contributed to survey management; Daniel Galvin, Katherine Chen, Sukanya Lahiri, Rachel Lindell, and Karen Weigert to interviews; Michael Sorell to data processing; and John Buehler to statistical analysis.
Evolve!: Succeeding in the Digital Culture of Tomorrow by Rosabeth Moss Kanter is the book that grew out of the E-culture survey.
Please e-mail your comments to email@example.com.
How Companies Use the Net
There are many ways to exploit the Internet. Some are more popular than others
|Percentage of companies that use that application online|
|Application|| Fewer than
| More than |
|Attracting new kinds of customers||41%||42%||52%||50%|
|Selling to traditional customers||45||43||41||50|
|Working with customers||38||46||54||54|
|Working with suppliers||38||47||50||50|
|Conducting meetings, doing work||41||47||36||32|
|Getting employee feedback||40||39||38||36|
|Getting news and information||43||46||69||67|
Source: Kanter E-culture Project at Harvard Business School
What's in the way
Lack of staff? Time? Leadership? Companies cite various obstacles to achieving Internet excellence
|Percentage of companies that cited that barrier|
|Barrier|| Fewer than
| More than |
|Lack of staff with adequate skills||24%||38%||54%||51%|
|Customers who don't want change||36||41||36||38|
|Important projects that require resources and time||38||33||37||31|
|Inadequate or unavailable technology tools||36||32||34||32|
|Difficulty finding the right partners||34||27||32||28|
|Uncooperative or unprepared suppliers||30||31||27||25|
|Employees who are not comfortable with change||18||36||27||31|
|Leaders who are not sure how to make choices||10||20||26||38|
|Top execs who don't use computers or the Internet||9||13||18||28|
|Conflicts among internal units||4||12||35||32|
|Finding capital for new investments||12||16||11||14|
|Managers who fear loss of status||6||13||9||22|
|Employees who fear loss of jobs||5||13||9||17|
|Perception that the company is successful as is||7||8||16||11|
|Bad past experience with new technology||9||7||14||7|
|Perception that the Net's a waste of time and money||1||6||5||5|
Source: Kanter E-culture Project at Harvard Business School
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