E-Commerce Matters...E-Commerce Leadership Matters More

E-Commerce matters...E-commerce leadership matters more

by Becky Stein and Hawlan Ng

Key Takeaways:

I nvesting in the online channel has become mandatory. Consumers do not make distinctions between the channels but expect to be able to move seamlessly from Web site to physical store and back again.

Web retailers must focus on the 4 C’s: Content, Community, Commerce and Customization, but the importance of each depends on how the Web supports the overall strategic goals of the company.

The trend is to integrate the online business into the rest of the company and not operate it separately; however, that is by no means the right structure for every company and poses serious risks of success.

When hiring a general manager for the e-commerce operations, look for potential, not perfection. The industry is too new to have both deep and broad experiences.

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-commerce retailing requires a special kind of leadership.

For e-tailers, the Web is the end-all, be-all; for multichannel retailers, Web sites expand the opportunities to interact with

consumers. In an industry where change and evolution are a given, having the right leader is critical. Knowing what to look for, and how and where to find him/her is often the greatest challenge.

Taking a Good Look at Where You Are The Internet has moved beyond its “information highway” origins to encompass interactive opportunities ranging from personal and social interaction to commercial relationships of almost infinite variety. Just as retailers have broken out of the “brick and mortar” tradition that had so long defined them, so has e-commerce grown beyond its computer base to include mobile communications and other emerging technologies. The U.S. Commerce Department noted that online retailing last year grew seven times faster than store-based retail sales. The world of e-commerce does not expand milestone by milestone, but in many directions all at once in an explosion of ideas.

To consumers, a retailer’s Web site has become an important vehicle for “getting to know” a retailer. In their quest, these consumers have grown savvier at initiating and fostering relationships via the Internet.

Sharp retailers reciprocate, building confidence and strengthening commercial relationships. Innovation and experimentation are necessities, and less daunting because of a creative environment free of the limitations of brick and mortar.

For traditional retailers, investing in the online channel has become mandatory. Consumers expect that retail sites can be searched, be educational, allow them to share expectations, perceptions and opinions, and enable them to become part of a community.

And, yes, enable them to buy. Online shopping; in-store shopping; comparative research – these are no longer singular activities for consumers accustomed to moving seamlessly from Web site to physical store and back again. Shoppers do not make distinctions between channels, but rather look for a singular shopping experience at favored retailers.

Since the nascent days of online retailing, consumers have used Web sites to research purchases, even if they wound up in a store to make the final selection and complete the transaction. Now it is just as likely to be the other way around. A study by the Center for the Digital Future at the University of Southern California’s Annenberg School for Communication found that nearly 72 percent of shoppers under the age of 50 have researched merchandise offline but made their purchases online. Similarly, a report by the Pew Institute & American Life Project called “Online Shopping” indicates that as many as 84 percent of consumers prefer to see goods in a store setting prior to buying them online.

Shopping is an involved process. Consumers want to be able to do their research anywhere, buy anywhere and return anywhere.

They want to know exactly where their merchandise is, when it is being shipped, and they want to have their questions answered quickly, regardless of which channel is being utilized. Successful retailers offer a seamless experience for their customers built on an integrated and consistent operation strategy that recognizes the role each channel plays.

That said, there are many Internet businesses that have been cobbled together both organizationally and technically in the past

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decade. Legacy systems and inconsistent practices have led to diverse, sometimes conflicting merchandising, marketing and IT operations. Those companies have found they must update on the fly to create a new foundation so their e-commerce business will flourish. Our research has shown that in such environments, leadership is a key component of success. Hiring executives with a high sense of urgency – executives who are laser focused on evolving challenges – leads to superior outcomes.

Moving Ahead

Over the past 12 months, Korn/Ferry has recruited e-commerce talent for organizations as diverse as FAO Schwarz, Harry and David, Potpourri Group, Toys “R” Us, FTD, Live Nation and Oriental Trading Co. We have helped these and other clients determine the importance of this business channel and crystallize the issues that are key to success.

To create an accurate profile of the executive needed to run an e-commerce business, the first critical step is determining what role the Internet should play in the overall scope of the operation.

Web sites serve many critical functions. All Web retailers must focus on the 4 C’s: Content, Community, Commerce and Customization.

But the importance of each depends on how the Web business supports the overall strategic goals of the company.

Today, a Web site can play a meaningful role in: eepening relationships with customers and allowing customers d to have a dialog with the company allowing customers to conduct research driving traffic to the stores ffering a wider selection of merchandise than can be carried in o the stores testing different products with a smaller financial commitment creating a community expanding internationally in a more cost-efficient manner l engthening the time of customer engagement by offering after-sales service and communication reaching underexploited, or micro customer segments Perhaps most important, however, is the role the Internet can play in strengthening a brand by using social media to create “brand ambassadors.” Influential fans are out there, generating authentic content on social networking sites, blogs, message boards, 3

podcasts and, of course, e-mail. If customers are there, retailers need to be there as well.

Once the roles and functions of a site have been coordinated with the company’s overall business strategy, the focus must shift to tactics. The Internet is ever-changing at a dizzying speed, which calls for constant innovation, creativity and vision. A new and “cool” feature – no matter what its provenance – instantly becomes the standard by which all sites are judged. Functions such as three-dimensional and 360-degree graphics, fabric zoom capability, customer reviews, online ordering for in-store pickup and in-store returns for Internet-shipped purchases were once considered novel. Now these features are standard and likely soon to be supplemented, or even supplanted, by newer, fresher, more gimmicky or more useful tools.

The public’s demands and expectations are a merciless master.

No longer content with complaining to store managers or e-mailing headquarters, unhappy customers now wish to share comments and opinions online, 24 hours a day, seven days a week. One recent study by Fair Winds partners, an Internet consulting firm, found more than 20,000 domains that end in “sucks.com,” including WalMart, Toys “R” Us, Target and Whole Foods Markets. While some companies actively purchase any negative-sounding domain names, it is impossible to eradicate every negative posting. It is important to give customers options on how to offer feedback and discuss grievances. One such way is with shoppers’ reviews.

While addressing the impact of shopper reviews, Linda Shea, senior vice president of Opinion Research, notes: “Businesses today exist in an era in which it is nearly impossible to escape the likelihood of being evaluated. There’s nowhere to hide.” Sixty-one percent of respondents in a recent Opinion Research study said they check online reviews, blogs and other online customer feedback before buying a new product or service; another 80 percent said such evaluations have at least some influence on their purchases.

And, according to a survey conducted for InQuira, the importance of customers’ opinions almost cannot be overemphasized – as reviews from other customers are valued more highly than those from professionals.

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“Must-Haves” in Leading an E-Commerce Enterprise

Once the role and priorities of the online channel in a retail enterprise have been established and the gaps or shortcomings that currently exist have been assessed, it becomes easier to define the skill set needed by the individual who will take the helm.

Often, executives tapped to lead Internet businesses are already involved in retailing, having fashioned careers encompassing information technology, marketing or both. These individuals are typically well versed in such areas as demand generation, customer acquisition, customer relationship management, search engine optimization, search engine marketing, e-mail campaigns and Web analytics, and know how to strengthen a weak e-commerce business.

Conversely, companies with solid e-commerce operations that are interested in taking their Web site to the next level should look for executives with consumer Internet backgrounds. These individuals will have a broader career online, often including experience at information portals, online advertising, or content companies. They are also more likely to be well versed in incorporating Web 2.0 tools such as collective intelligence, user-generated content, peer reviews, social networking podcasts, wikis, blogs, mashups and similar functions, into a site to induce community-building. These executives will create compelling interactive sites.

Either way, it is imperative that these executives have an appreciation of how the e-commerce component fits into the whole ecosystem of the company. E-commerce must work collaboratively with all business units and recognize the sometimes conflicting demands of the e-commerce group and the other units. These executives must be willing to find win-win situations.

After interviewing hundreds of e-commerce executives, we found that the number one reason for dissatisfaction in their current positions – and the reason they were looking elsewhere – was a lack of support from top management. Many executives feel that their e-commerce business is viewed as an afterthought, with its oversight buried within a marketing or IT department.

To illustrate this point, one retail CEO confessed that he spent less than 2 percent of his mind share thinking about his company’s online operation. The business he ran generated annual revenues of $700 million and, like many multichannel retailers, revenue was rapidly shifting to the Internet. In this case, online revenue now accounted

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for more than 55 percent of total sales and was continuing to grow.

Despite this obvious channel shift, the CEO was stuck trying to “fix” his catalog operations.

Ultimately, the company’s owners sought to replace him with someone more Web savvy and with a vision for the future. This proved to be a wise decision, considering that of the largest multichannel retailers engaged in e-commerce, two-thirds of those with the highest growth rate have a president or executive vice president directly responsible for Internet operations.

The “Right” Structure for Your E-Commerce Operation

Whether an e-commerce operation should be integrated with the rest of the organization, operate as a separate entity, or have a hybrid reporting structure is a matter of debate with passionate views on all sides. While the trend is to have an integrated business, it is by no means the right structure for every company.

There are two situations where we most often see a separate structure. The first occurs where there is or has been a strong catalog operation. In almost all cases, the Internet falls under this group as a natural evolution of the direct marketing and technical skills found there. Since catalog operations have been separate from the brick and mortar business, so too is the Internet. The second scenario occurs where the business is young enough to need the care and attention of a senior executive to nurture the business along. Even healthy plants won’t bloom in the shadow of a large tree.

Integrating the businesses makes sense if it is viewed as important enough within a company to be allocated the appropriate resources.

Borders Group is one of the best examples. When George Jones joined as CEO in July of 2006, he had a vision of how the Internet would be a critical component in the transformation of Borders from a store that sells books and music to a multichannel knowledge and entertainment company. After teaming with Amazon.com for seven years, it recently launched its own Web site filled with rich and compelling original content that exponentially enhances Borders’ engagement with its customers. The company’s success is in large part due to the CEO’s absolute commitment to the strategy, and the fact that he feels it is imperative to have e-commerce integrated into the business. George Jones even referred to himself as “the crosschannel executive” recently.

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The biggest pitfall in integrating the business is not allocating appropriate resources. If viewed strictly as another storefront within a predominantly brick and mortar business, there is a danger of dismissing it as not “big enough” to warrant resources. According to a recent Forrester report, The State of Retailing Online, online purchases represented 7 percent of retail sales. While this is a monumental shift in just 10 years and e-commerce is far and away the fastest growing part of retail today, it is still a small part of overall revenue. In a fight for resources, it is too easy to judge the Internet’s contribution based solely on revenue.

Companies that have moved to integrate their Web operations include JC Penney, which earlier this year made the move to fully integrate its $3 billion Direct Business into the $20 billion Stores operation. WalMart.com, which was started as a separate company headquartered in San Francisco instead of Bentonville, Ark., has moved more and more of its functions back to Bentonville over the past few years. Whether or not these turn out to be wise decisions will depend on the expectations and commitment of their respective CEOs. While there are strong feelings on both sides of the debate, there are two factors that should help determine which is right for your organization. First, how strongly the CEO believes the Web needs to be ubiquitous for the business to thrive. Second, whether or not senior leadership is willing to have different standards of measurement that recognize the wide-reaching and diverse contributions the Internet makes to a company’s business.

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Managing the Task

Korn/Ferry works with clients to define the optimal set of skills an executive candidate should possess by differentiating between the “must-haves” and the “nice-to-haves.” Assessing skill sets of e-commerce executives is especially challenging because of the disparate organizational structure in which they work.

Job descriptions vary significantly from company to company, necessitating that the right questions be asked during interviews: How is the current company structured?

There are a surprising number of “presidents” working without a full range of P&L responsibility.

How sophisticated is the company’s current e-commerce operation?

In which functional areas is the company viewed as “best in class?”

What is outsourced?

GSI Commerce runs online sites for more than 150 retailers, providing services that range from running the whole operation to minimal warehousing support. Commission Junction and affiliate sites handle major aspects of the online marketing functions. To best understand what an executive “owns” at his or her job requires knowing what is outsourced to service providers.

How is the candidate’s business evaluated?

E-commerce channels frequently have different performance metrics than the company as a whole. These metrics can include such variables as customer acquisition costs, conversion rates, repeat purchase rates, average order size, shopping cart abandonment and rate of customer service calls. On what is the executive evaluated? Against what standards is he or she judged?

How important is the online business viewed at the current company?

If e-commerce is not viewed as strategically important, it is unlikely the company will put its best and brightest into the area.

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According to Mornell’s Maxim, “The best predictor of future behavior is past behavior.” Sometimes, however, that past is not very deep.

Because Internet retailing did not exist 15 years ago, an e-commerce candidate’s work history and successes should be examined in broad terms to avoid the risk of becoming mired in narrowing factors.

Consider the case of Toby Lenk, President of Gap, Direct. Before he founded eToys, he had never worked in retailing or been involved in the toy industry. When Gap tapped him for its e-commerce position, they disregarded his lack of fashion/retail experience and focused on his success as a strategic thought leader at the Walt Disney Co.

The Right Fit

As critical as skills are, organizational culture cannot be underestimated.

To avoid the “hire for skill, fire for fit” syndrome, compatibility with an organization’s style is imperative. The right fit can often override soft spots in a person’s technical expertise. In his book, The Microsoft Way, Randall E. Stross describes Microsoft’s culture as one valuing intelligence, and writes, “[Bill] Gates and his recruiters aren’t overly concerned about relevant experience, but are instead biased toward intelligence or smartness over anything else, even, in many cases, experience.”

Research published in the Harvard Business Review indicates that 40 percent of executives fail within the first 18 months of a new job and that in the majority of cases, this is not due to lack of experience or intelligence, but rather, cultural fit and leadership competencies.

To more comprehensively assess “fit” between executive candidates, specific job positions, and organizational cultures, Korn/Ferry utilizes a proprietary assessment tool to measure how well a candidate will match a specific company and culture. With a research database of more than 500,000 individuals, the behavioral characteristics and career motives of the top 20 percent (in terms of success/performance) have been identified. From this information, the firm has developed a researchbased library of “best-in-class” profiles.

Overall, initial research on e-commerce executives demonstrates that they place a uniquely high value on quality and accuracy and are willing to make the extra effort to deliver work that is both precise and appropriately well considered. They are unlikely to sugar-coat situations even if they might upset others, and have little interest in playing office politics. Their focus is on higher levels of mastery and proficiency in specific disciplines, possibly even beyond that which is required for 9

their particular role. Lifted by being at the forefront of technology, they can articulate at length on specialized topics. Contributing most to their productivity is an understanding of where things stand, who does what and “how things are done around here.”

Korn/Ferry has developed a research-based library of leadership characteristics critical to organizational success enabling clients to identify specific competencies needed for an open position.

Depending on how the client prioritizes these leadership characteristics, the best-in-class profiles are then customized to reflect the client and job situation more accurately.

For example, a recent Korn/Ferry client in the e-commerce space modified its hiring profile to take into account leadership characteristics that it determined were important to an executive in its organization. These characteristics included: strong organizational skills (such as planning and time management); communication skills (both written and oral); interpersonal savvy; the ability to deal with ambiguity; creativity; and innovation management.

We urge our clients to look for potential, not perfection. All too often, clients want the “perfect” person to head up their e-commerce organization and choose to leave a position vacant while the hunt goes on for the “purple zebra” – our description for something or someone that does not exist. The problem is that there is an opportunity cost for leaving the role open for too long. For Internet roles, we suggest looking for above-average intellectual horsepower, a high level of motivation, and emotional maturity in candidates.

These three traits indicate that individuals can learn and be highly effective in the role.

Attracting the Right Executive

What does it take to gain the attention of the right candidate?

First, CEOs must be fully invested in their company’s online channel, endorsing the notion that all channels work together for the benefit of the customer. CEOs must also include the executive heading the online channel at the management leadership table, have them be a direct report and encourage them to participate in decisions regarding the allocation of resources. A company will increase its chances of success if it is configured like this and does not pit one channel against another, breed distrust or induce silo-building that is unhealthy to the business as a whole.

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We know e-commerce can be frightening, but inaction because of fear is not a strategy. It can be intimidating because standards of progress and performance are still in the formative stages. With new applications being introduced at breathtaking speed, retailers can feel easily overwhelmed. A heavy reliance on technology introduces new types of risk factors. For example, when Amazon.com’s Web site crashed in June 2008, the media calculated that based on 2007 revenues, the outage cost the company $29,000 a minute. That kind of loss does not occur when a store manager oversleeps and does not open the doors on time.

Yet, e-commerce is immensely exciting and rewarding, and will continue to permanently improve the retail landscape. Never before have there been so many ways and means to engage customers and interact with them, and the opportunities to do so will certainly only grow greater in number and scope.

About The Korn/Ferry Institute

Becky Stein is a Senior Client Partner in Korn/Ferry’s Global Consumer Market, based in San Francisco.

415-288-5357

About Korn/Ferry International

Hawlan Ng, Psy.D., is the Director of Assessment Services based in Korn/Ferry’s San Francisco office.

415-288-5312

The Korn/Ferry Institute was founded to serve as a premier global voice on a range of talent management and leadership issues.

The Institute commissions and publishes groundbreaking research utilizing Korn/Ferry’s unparalleled expertise and preeminent behavioral research library. It also serves as an exclusive destination for executives to convene and hone their leadership skills. The Institute is dedicated to improving the state of global human capital for organizations of all sizes around the world.

Korn/Ferry International, with more than 90 offices in 39 countries, is a premier global provider of talent management solutions. Based in Los Angeles, the firm delivers an array of solutions that help clients to identify, deploy, develop, retain and reward their talent.

For more information on the Korn/Ferry International family of companies, visit www.kornferry.com.

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Global Multichannel Consultants Americas Atlanta Jeff McKinnis Client Partner 404-222-4047

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