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Thursday, October 07, 2004

Start to Measure Your E-commerce Success via HBSWK

CIOs often suggest that better measures of the payoffs of e-commerce operational and capital investments are necessary to demonstrate the value creation of e-commerce initiatives and to obtain additional resources for critical e-commerce projects.
This article outlines a framework through which e-commerce project success can be measured.The measures are essential to monitor the key performance drivers (inputs and processes) and assess whether the e-commerce initiative is achieving its stated objectives (outputs) and thus contributing to the long-term success of the corporation (outcomes). Companies often waste resources on e-commerce initiatives or do not invest when they should because they cannot effectively evaluate the potential payoffs of e-commerce investments.Measuring returns on e-commerce projects can be a daunting challenge. Predicting customer behavior is difficult, because using the Web to do business is still relatively new to many businesses and thus forecasting sales and profits is typically imprecise. The pace of change in e-business and Web-based technologies has been so rapid that precise measurements are often difficult. Six Initial questions can help organizations to define their metrics:

- What measurement systems are currently in place and being utilized within the organization?
- What are the important criteria to the company and its constituencies and stakeholders?
- What does the company desire to accomplish with the e-commerce initiative?
- What is the anticipated timeframe associated with the e-commerce program?
- Who are the parties involved in implementing the e-commerce project, and who will be affected by the results?
- What critical processes are associated with the successful execution of the e-commerce project?
Once metrics have been developed, data on these indicators must be collected and statistical analysis, such as multiple regression, should be performed to analyze and test the validity of the customized e-commerce measurement system and causal relationships hypothesized by the company. As companies evaluate the initial measurement system's performance, they will typically add some metrics and drop others because of a lack of evidence of a strong relationship. It is here that a final measurement system emerges, and the focus then shifts to applying the model to support improved decision making.

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