The Price Was Wrong: Investors Demanding Dot Com Profitability

One of the hot news items recently was the decision by several dotcom companies to reduce one of their initial competitive advantages over brick-and-mortar competitors—cheaper prices. The reason is obvious, though it’s somewhat amusing to see it discussed in such lofty terms: In the wake of the slump in high-tech stock prices, investors are demanding profitability (gasp!), rather than just the “.com” suffix on a corporate name.

To any reasonably intelligent observer of the Internet phenomenon, this should not come as a great surprise. The question that remains is, what will e-businesses use as their competitive advantage if they can’t offer substantially lower prices than the brick-and-mortar world? One of the business-IT megatrends that we articulated nearly a year ago was that the products and services offered by many of the e-businesses would become commodities, and companies would have to find other ways of gaining customer loyalty.

This idea is not rocket science. Amazon.com may have achieved its initial success partly by offering books at a substantial discount, and perhaps CEO Jeff Bezos actually thought he could make a profit with discount pricing in the early days. After all, a virtual bookstore doesn’t have the overhead of rent and upkeep that a physical bookstore has. But during the course of a few years, Amazon.com discovered that it was facing almost identical discount prices from brick-and-mortar competitors like Barnes & Noble and its e-business spinoff, Barnesandnoble.com. The average consumer probably doesn’t lie awake every night obsessing about this the way Bezos and his counterpart at Barnes & Noble presumably do. As one of those consumers, all I know is that I’ll find virtually identical prices for a mainstream book today, unless I’m silly enough to buy it at the airport bookstore just before I jump on a flight. But you certainly can’t blame Amazon.com or any of the comparable dotcom companies for using discounted prices as an attractive marketing campaign in their early days. After all, the Japanese automobile industry used the same strategy in the 1960s, and the Indian software-outsourcing industry used the same strategy in the 1990s. Cheap prices can be an attractive way of getting attention in an established marketplace.

As suggested above, the interesting question is, what happens when discounted prices are no longer sufficient? In the case of the Japanese automobile industry, one of the obvious answers was better quality. Honda and Toyota could say to the U.S. marketplace, “Not only are our cars competitively priced [though perhaps no longer quite as cheap, compared with Ford and General Motors], they run better and last longer.”

In the case of the dotcom companies, factors like quality and convenience can be used as competitive weapons. I like to buy books from Amazon.com, for example, because (a) I have the convenience of being able to order from home at any time of day or night, and (b) I know that I can search for a book by author or title, whereas the clerk at the neighborhood brick-and-mortar store probably won’t be able to give me accurate information about the book I’m trying to find. But competitive advantages in this area are likely to be hygiene factors: I don’t pay much attention to them when they’re present and notice them only when they’re absent. And if the neighborhood brick-and-mortar store had any sense, it would retaliate by hiring better clerks and staying open 24 hours a day to service the people who want to wander in to buy a book at 3 a.m.

Ultimately, the success of a dotcom company is going to lie in other areas—such as the ability to make better use of its data and the ability to create a sense of community on its website. Amazon.com continues to amaze me with the sophistication of its personalized data-mining capabilities. Whenever I visit the site, it effectively says, “Hi, Ed, good to see you back again. Here are three books we think you’d like, based on your recent purchasing patterns.” In theory, the neighborhood brick-and-mortar store could do the same thing, and perhaps there are some legitimate examples of that level of service in a few small towns, but this doesn’t work so well in a big city like New York. Some brick-and-mortar bookstores do create a sense of community by opening a coffee shop in the midst of its book racks or by inviting poets and musicians to drop in to read their work and play their songs. But I think there are far greater opportunities to create virtual communities consisting of affinity groups based on products or other consumer preferences.

The interesting thing is that a company like Amazon.com is arguably doing a good, innovative job at several of these tasks—and yet it’s still being subjected to intense pressure by the financial community.

If it’s tough for Amazon.com, how much tougher must it be for all of the other dotcom companies that don’t have the experience and sophistication that Amazon.com demonstrates over and over again? Well, Charles Darwin told us a long time ago what happens when there is a great deal of competition in an environment with limited resources: It’s called survival of the fittest. And what we’ve begun seeing in the dotcom marketplace is that fittest no longer means offering the biggest discounts. It will be interesting to see what it really does mean as the dotcom industry evolves toward maturity.

The Right Match

By Dinah Daniels

The scenario is familiar to human resources professionals, hiring managers and CIOs. A job opening occurs in an organization, and a file drawer full of r¿m¿is pulled open to start the arduous task of finding the right candidate.

If the company is on its toes, a written job description may exist, giving the human resources department a road map to the educational background, job experience, skills and qualifications the ideal candidate should possess.

However, if HR proceeds with interviewing candidates before performing one critical internal assessment, a potential hire who looks great on paper may, in fact, be the wrong person for the job.

First, the HR department should interview the job before interviewing the job candidates in an effort to define a job profile. This profile should include information about key result areas, critical connections in the company, behaviors, values and education, and experience required to perform the job.

Creating a job profile can provide an organization with far more useful information than a written job description. While a job description states the functions of a specific job and the education, background and skills required to perform it, a job profile illustrates how the job fits into the context of the company. It profiles the key people in the organization with whom the person holding the job will interact. It looks at values and how the job impacts the entire organization, as well as specific, measurable outcomes of job performance.

With the creation of a job profile for a given position, a company connects that position to the entire organization in a meaningful way, something that is particularly relevant for IS positions. Creating a job profile requires human resources professionals, line managers and department supervisors to work together to establish a consistent understanding of how a job should be filled and the type of person who should fill it.

Traditionally, the interview and selection process is viewed as a chore that happens in isolation from everything else in a company. But with the creation of a job profile, which uses input from everyone who is affected in an organization, the decision makers are able to take a more comprehensive view.

The second critical step in the interviewing and selection process is building a candidate profile. Based on the job profile, the candidate profile will give the hiring managers a clear picture of the person needed for the job before they meet a single candidate.

The candidate profile is critical because there is more to matching people to jobs than simply finding the right education, job experience and skill set. Two candidates may possess the same college degree, similar levels of professional experience and work skills that match the requirements of the job. But if the job requires an assertive decision maker, someone who embraces risks and thrives in a fast-paced environment, suddenly the two candidates may not appear so equal. One may function well in an environment that is more deliberative and predictable, making him inappropriate for the opening. The other may possess the quick-thinking, authoritative characteristics needed but may also show signs of being somewhat reckless.

No candidate is a perfect fit for any job. There are always gaps between the requirements of a job and the capabilities of even the best person hired to fill it. But an enlightened company will not wait until that person is on board to discover—and consequently be caught unaware by—those gaps.

An interviewing process that’s successful will determine where strong fits exist between a candidate and a job, and discern if there are gaps between a company’s needs and a candidate’s capabilities.

If there are gaps, the interviewing process should yield enough information about a candidate to determine if there is anything the company can do to bridge them or compensate for them. Possible solutions may be as simple as a candidate taking a college course or sitting down with another person in the company who can provide assistance and training. Many organizations make the mistake of engaging in wishful thinking when job candidates come to them with recognizable gaps. Hiring managers believe that when the person starts working at the job, he will adapt to its needs just by becoming acquainted with the organization’s culture. That rarely happens, and the company ends up shaking its finger at the new employee when it should be blaming itself.

Even in a tight labor market, a company is setting someone up for failure by hiring him when it knows of serious gaps between the candidate’s personality or skills and what the job requires. An enlightened company may go ahead and hire this person but should do so with a clear idea of options for filling the gaps, including shoring them up with other resources in the organization or redefining the job to fit the capabilities of the new hire. (This latter option should be undertaken with the understanding that some functions will have to be shifted elsewhere in the organization.)

Most mistakes in the hiring process come from the fact that people are vague about what a candidate can and can’t do. Maybe they like the way a person meets and greets, or they like the candidate’s education level, but they don’t look at the whole picture, and in the end they make the hiring decision based on the wrong factors.

Most important, hiring professionals need to avoid the temptation to compare one candidate with another. What they should do is compare each candidate against the job.

By first creating a job profile and then creating a candidate profile, hiring managers dramatically increase their chances of long-term hiring success—before ever meeting a single job candidate.