The Case for an E-Commerce IT Org Change

As multi-channel retailers move more and more towards implementing cross-channel strategies, organizational structures need to change to support those new strategies. I am a huge proponent of breaking up most e-commerce silo  organizations and integrating online and in-store marketing and merchandising teams to ensure a common vision and voice across channels. For IT, though, I actually recommend the opposite approach. I believe technology  professionals who work full time (or near full-time) on the e-commerce site should report directly to the head of e-commerce.

While at a high level is seems like technology should have the same kind of continuity as marketing and merchandising, I believe a close look tells a different story.

Here’s why e-commerce IT is significantly different from traditional IT:

In e-commerce, the business is technology

Traditionally, IT creates tools that help employees be more productive and efficient. However, in e-commerce, IT is actually creating software designed to generate revenue. E-commerce “stores” are really self-service software  applications designed to help customers perform a service — in this case it’s to buy the products and services we sell.  Intuit has Quicken; Microsoft has Word and Excel; retailers have our e-commerce sites. We really need to think about  our sites more as software products and organize our teams in a product management type of structure.

Also, a particular pet peeve of mine is when IT folks refer to those in other functions of the company as “the business.”  Just that reference alone insinuates that IT is not a crucial part of the overall business and creates a separation that  frequently leaves IT coming across as second class citizens, which they are not. While I’ve never liked “the business”  reference in any circumstance, it’s doubly bad in e-commerce where success absolutely depends on technology team  members actively working as part of the business.

Self-service applications require a different mindset

Working on an e-commerce application that is designed to be used directly by customers requires a very different  mindset than what is typically required when working on applications that support employees. Even when the  underlying technology is similar, the mindset required is substantially different. New employee applications usually  come with training programs and manuals. Moreover, employees are ultimately forced to use the app; they get used to it and get incrementally better at using it over time through daily usage. Customers, however, don’t get the benefit of manuals and training programs. They’re on their own. And if the experience doesn’t satisfy them, they give up and the sale is lost.

Site functionality and customer experience are major components of the e-commerce business strategy

The website application is a key differentiator for the business, and customer experience is hugely driven by site functionality. While functions other than technology certainly contribute to an e-commerce site’s success or failure, there can be little doubt that the quality of the technology is a massive contributing factor.

E-commerce is 100% dependent on technology to be open for business.

While technology is critical in all areas of the business, most retailers have offline contingencies for stores so they can  continue to make sales even if the system is down. Websites obviously don’t have an offline mode.

Web businesses are still immature and need considerable agility and flexibility to mature as quickly as possible

For many absolutely legitimate reasons, most IT organizations at multi-channel retailers have significant (and some might say onerous) processes in place to manage technology requests and roadmap prioritization. Because requests for technology improvements come from all corners of the company, it’s important for CIOs to ensure they are spending their resources on work that is thoroughly vetted and likely to generate the highest return on investment for the company. But given the absolute dependence of the e-commerce business on technology, typical IT prioritization and allocation processes are too slow for e-commerce businesses that need to be able to adjust quickly to issues that arise with customer experience.

The e-commerce competitive marketplace innovates far quicker than the brick & mortar marketplace

The CEO of a pure-play e-commerce company is in basically the same role as the head of e-commerce at a multi-channel retailer. If for no other reason than there is no alternative, the CIO of a pure-play reports to the CEO. This reporting structure gives the pure-play leader a leg up in agility and the ability to react to customer needs. In a multi-channel retailer, the CIO must split time between many functions of the business, and I find e-commerce often gets time allocated in a ratio roughly equal to its financial contribution to the business. While such an allocation is understandable given everything on a busy CIO’s plate, I believe this lessened focus can lead to stunted growth and lost ground to competitors such as Amazon who are more devoted to improving their software application and increasing their customers’ satisfaction with their site customer experience.

I believe if a head of e-commerce is to be truly held accountable for the success of the site, he or she should have  appropriate authority over such a major contributor to the success of the site.

So why should the head of e-commerce have authority over e-commerce IT and not e-commerce marketing and merchandising?

To me, it’s all about what faces the customer and what doesn’t. A brand should be clear to its customers about who it is and what it stands for, so continuity in marketing and merchandising trumps silo control over those aspects of the business. Site functionality has no parallels in other parts of the organization. Since it is both unique and customer facing, I believe the head of the online channel should maintain the authority to develop and execute the technical strategy for his or her business unit when it directly affects the customer relationship.

I’ll add this final point: I’ve lived through many different org structures surrounding e-commerce IT, and the only times I’ve found the pros to outweigh the cons of an org structure have been when e-commerce IT was part of the e-commerce operation and reporting to the head of e-commerce.

What do you think? Am I completely misguided? What structures have you seen work and not work? What structure do you think is ideal?

11 Comments

  • By Geoff Foley, August 25, 2009 @ 9:16 pm

    I completely agree.
    The best operational structure I have been part of was one where the e-commerce technology team was separate from the internal technology team and reported to the head of online operations.
    It was very agile in it’s ability to execute new ideas and strategies in e-commerce.
    On the other hand, I have also had the opportunity to see how slow innovation and strategy changes become when a single CIO is responsible for all IT operations, both internal and e-commerce.
    The procedures put in place for the request of resources grinds even the smallest of technology changes or enhancements to user experience to a halt when such requests have to compete with all other IT resource requests. This leads to a very dissatisfied and frustrated creative/technology team whose responsibility is ensuring that customers get the best experience possible.

  • By Kevin Ertell, August 26, 2009 @ 8:47 am

    Thanks for your comments, Geoff. I really appreciate you bringing your perspective and experiences to the discussion. I think you make an excellent point about team morale in environments where those doing the work feel constrained by a process that is not best suited to allowing them to do what they can to help.

  • By Cathy DeLucia, August 26, 2009 @ 11:25 am

    I couldn’t agree more with your observation about the difference between employee user technology and customer user technology. Even with training manuals and sessions, many system upgrades are hard for employess to master. For the consumer, a site has to be dead on intuitive or the customer becomes frustrated and goes elsewhere. The reverse is also true and I can tell you that if I find a site with the products I want and a user friendly application, I am a customer for life!!

  • By Matt Cushing, August 26, 2009 @ 6:42 pm

    Kevin – I couldn’t agree more with this approach. Having run e-commerce technology for a few different organizations, I can honestly say the most successful teams, in terms of output, quality, and morale, were those dedicated to and reporting up through the e-commerce organization.
    By far, the biggest benefit of having e-commerce technology reporting into the head of e-commerce from a technology perspective is not having two masters. As you accurately pointed out, the relative priorities of a multi-channel CIO and the head of e-commerce don’t always match, and the level and frequency of disagreement is much higher than you would think. Though everyone wants to support “the company’s priorities”, it is not uncommon for a CIO to just as easily focus on a new warehouse system or POS updates over e-commerce projects. Accountability and responsibility have to be aligned, especially when growth is often a more important success metric for an e-commerce site than sales.
    I also think it is a mistake to take a project-based approach to maintaining and updating an e-commerce site. Improving usability, fixing edge-case issues, clarifying instructions, expanding content, and adding new functionality need to occur repeatedly and continuously. I believe organizations that are built around supporting continuous (and continual) improvements to a company’s site are more successful than those that fit in e-commerce projects along with all the other demands on IT.
    I also think you’re spot-on in distinguishing internal users of corporate systems from external customers and how that affects technology improvements. With internal systems, there are usually no alternatives to a particular system, so switching costs are infinite. As you said, the user will learn the strengths and weaknesses of the corporate system and will adapt. With e-commerce sites, however, switching costs are non-existent as there are not only many alternatives from a functionality point of view, but those alternatives, i.e. competitors, are actively trying to persuade your customers to come to their site! The criticality of having an effective, intuitive, and pleasant shopping experience cannot be higher.
    Finally, I understand the necessity to matrix marketing, merchandising, and customer service to some point, but I would argue it is better to have those resources focusing on e-commerce to hard-line report up to the head of e-commerce and dotted-line report to the appropriate department head. I agree that branding and marketing has to be consistent from a customer’s perspective, but even marketing and merchandising occurs at a different pace for e-commerce than other channels. I also believe it is critical to have the entire e-commerce team co-located where “over the wall” conversations are common and everyone has access to the same information. I don’t know how many issues have been circumvented because someone overheard a conversation and was able to provide an answer or get involved early in the process.

  • By Manish Vyas, August 26, 2009 @ 7:01 pm

    Hmmmm…sounds familiar 🙂
    Well stated. I’m sure many of us who have been in the trenches have thought the same thing and you’ve done a good job of stating the case.
    Speed and innovation are two critical elements to stay in the game on the e-commerce side. When the key players on your team report up through a different organization you often find that their priorities are elsewhere. As a result, speed and innovation take a back seat.
    Good stuff. Keep it coming!!

  • By Kevin Ertell, August 27, 2009 @ 11:42 am

    Thanks for your comment, Cathy. It’s good to know that a good site experience can help make you a loyal customer. Which sites have you found have those types of intuitiveness?

  • By Kevin Ertell, August 27, 2009 @ 11:58 am

    Thanks for the very thoughtful comments, Matt. I appreciate your perspective from someone who’s been there. I definitely see your points about marketing and merchandising, and it’s a worth discussion point. I think the right answer could be different for each organization and it may depend on the maturity of their operations. In the current economy, we’re seeing more and more multi-channel retailers using online marketing to drive traffic to their brands regardless of channel as a cost-saving alternative to traditional channel. The result, though, is more traditional marketers are seeing the value of online marketing for the brand overall. I wonder how many will go back to the old methods when budget constraints are loosened.

  • By Kevin Ertell, August 27, 2009 @ 12:00 pm

    Thanks for your comment, Manish. Good points about speed and innovation. I feel the need for speed! 🙂

  • By anonymous, April 18, 2010 @ 1:19 pm

    right on the mark with the its structure. however, marketing and merchandising I have to agree with Matt. I’d like to hear from anyone who works in a company that has successfully integrated the online marketing and merchandising functions into brick/mortar structure. And by successfully, I mean that ecom sales continued to grow at a similar pace to before the integration.

  • By Betty, October 19, 2011 @ 2:12 am

    the good news is that 2 yewars on 2011 and best buys is still running that site but now it is trying t5o deflect negative comments to its complaints department but the praise still stands

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  1. You ARE a technology company | Retail: Shaken Not Stirred — February 3, 2010 @ 11:47 am

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