When managers at Pittsfield, Massachusetts-based KB Toys decided to join the digital revolution, they did what lots of managers at traditional brick-and-mortar companies are doing.
They built an independent organization with a separate name (KBkids.com), staff, compensation, and funding. Then they located it two time zones away. “We decided to make the brick-and-click an independent entity, based on what we perceived were two different cultures,” explains Michael Wagner, chief operating officer and former CFO at KBkids.com, in Denver, Colorado.
By separating the two cultures, Wagner says KB Toys management wasn’t forced to impose traditional retailing constraints on the creativity of its E-tailing business. More important, the distance between the operations meant the new kids on the block didn’t ruffle the feathers of employees working at the parent company. Says Wagner: “There’s no animosity toward the new generation and their different ways — because they’re thousands of miles away.”
Some consultants say putting a little geography between the established and the upstart is a wise move. These days, as traditional manufacturing and service companies move increasingly toward E-business, corporate managers face a balancing act. The launch of an E-commerce business at an old-economy company means managers must oversee dissimilar corporate cultures — often with radically different psychological profiles and work habits.
Encouraging out-of-the-box thinking, managers must still be guided by familiar signposts. “You can have a really creative person in charge of the Internet project,” says Richard Halpenny, CFO at VNU Business Publishing Europe, the $290 million-in-revenues company based in London (part of the Netherlands-based VNU Group). “But you’ve got to put a good financial accountant behind him, who manages business in a traditional way.”
The managing can get complicated, particularly since performance goals for a traditional company and its E-tailing operation often vary dramatically. No one knows this better than finance chiefs. As Frans Blom, vice president of Boston Consulting Group’s (www.bcg.com) E-business division in Amsterdam, notes: “It’s an enormous challenge for the CFO to have to steer on totally different metrics.”
While steering, finance managers must also make sure workers at the traditional and digital operations pull together — especially during the early stages of an E-tail rollout. Mishandled, a dot-com launch can devolve into a nasty turf war, with employees squabbling over titles, resources, and salaries. Add the specter of a spin-off of the dot-com — with potentially lucrative employee stock options — and you’ve got the makings of a John Woo movie.
Some corporate managers, looking to avoid the ugliness, have chosen to dot-com — that is, establish discrete organizations for old and new. Department store giant Wal-Mart, for instance, runs its traditional retailing operation from Bentonville, Arkansas. The company’s E-tailing business is situated in the heart of Silicon Valley — 1,500 miles away. Barnes & Noble also went the separate-but-equal route — so separate that the book retailer spun off its virtual operation. The bookseller may not have had much choice. “Basically, they sutured a dot-com to a brick and mortar, without having thought through the holistic aspects of the business,” offers Mary Pat McCarthy, global vice chair of the information, communication, and entertainment practice at KPMG LLP (www.us.kpmg.com).