Editor's Note: For this special issue, we asked our columnists to cover a variety of e-business topics. Their insightful commentary provides a well- rounded outlook as to the benefits and challenges of the e-world. Regular column format will return next month.

I find it interesting that suddenly dot-com executives are no longer describing their companies in terms of market capitalization or by post-IPO increases in their share prices, now that literally billions of dollars of paper wealth have been obliterated.

This change in the measurement of value is just one example of the dynamic and situational nature of valuations. Apparently, the old adage about lies, damn lies and statistics applies very well to the e-business world. Measures of value seemingly evolve as businesses and industries mature. Stage one tends to reflect on growth rates. New players frequently refer to themselves as "the fastest growing company in our segment." This is a convenient tool when you are starting out, since small increases in real revenues, such as a jump from $1 to $2 translate into statistically impressive growth rates.

Stage two tends to move toward a market share measure where the key is to define your market very precisely. Why not? If you define your market narrowly enough, you can reach 100 percent market share quite easily. Wang proved it in the proprietary word processing market in the 1980s. However, is anyone surprised that we no longer see many Wang word processors today?

Ultimately, of course, the only long-term measure that matters is sustained growth and profitability. This will soon be true for dot-com companies. Yahoo! Chief Financial Officer Gary Valenzuela was recently quoted as saying, "Being profitable is a strong operating discipline. People understand how important the budgeting cycle is. They understand how important it is to make your numbers ... we've always viewed ourselves as a leadership company, and we felt profitability and financial leadership went hand in hand ...."

What is changing rapidly for dot-coms ­ other than their market capitalization ­ is the data and measures needed to understand the drivers of value and, hence, the ability to sustain growth and earnings. Increasingly, value is being driven by factors such as a company's ability to innovate, its success in managing partnerships (where would Intel be without partners who use its products), its ability to attract and retain talent as well as its ability to support a brand proposition through efficient execution.

The challenge is that very few management information systems even recognize these variables. You never see budget line items nor monthly management reports that give any indication of the investments that were made to acquire and retain customers, effectively leverage business partnerships or retain talented associates.

Traditional reporting has largely been organized around a financial account ­ such as departmental travel expenses ­ giving managers an organizational view of the world in which their companies compete. This view is often augmented by the tools of activity-based costing and management. Some have moved even further and embraced the principles of the balanced scorecard, which seeks to balance the financial view with aspects of customer, process and growth. All have been attempts to better align information with the types of decisions that are now being made; yet many of these efforts remain largely uncoordinated, poorly integrated and often inefficient as multiple data collection and reporting mechanisms have been created.

The impact of e-business and its associated increases in volatility, uncertainty, competitiveness and customer choice are now heightening the frustration that many business leaders feel with respect to having the right information to make decisions. Ironically, few of these managers have yet to realize that the Internet is also providing them with cheap, reliable access to new data that can close the information gap. The digitization of much of the information flow between suppliers and customers and between companies and their associates is providing a major opportunity to capture the meaningful insight they need.

As leading companies seek to revamp their planning and reporting systems, we are seeing a change in focus with respect to the types of data and the relationships between data that are being defined as necessary to support decision making. For the designers and builders of management information systems, the emerging principles for effective measurement are:

  • Focus on the identification and reporting of leading indicators that are predictive of future events/ financial results.
  • Incorporate external measures of customer, competitor and market behavior into routine management reporting.
  • Leverage the digitization of data that relates to upstream and downstream activities beyond the boundaries of the enterprise.
  • Move from calendar- driven/informational reporting to event-triggered/ decision-driver reporting (i.e., changes in customer behavior, competitor action and process failure).
  • Leverage the low-cost ubiquity of the Internet and related communication technologies, such as wireless, to deliver meaningful information directly to all affected parties and not just managers.

One of the liberating effects of the speed required to be competitive in the e- business world is the devolution of decision-making power to the front line, challenging the whole concept of "management information." In a point-and-click world, time-consuming processes ­ such as ten-step loan approvals and multitier customer problem resolution ­ cannot survive for very long, putting the very concept of managers making decisions that employees implement under attack. The Internet is empowering front-line employees. And personally, I think the change is overdue.

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