Managing the Risks of E-Business: Part II

Tang, V and Upton, N (2002) Managing the Risks of E-Business: Part II. Working Paper. London Business School Centre for the Networked Economy Working Paper.

Abstract

The main purpose of the questionnaire survey was to provide a basic overview of the kinds of e-business risks companies have faced and the techniques used to manage these risks. In the process of achieving this objective, the Seven Risk Categories Framework (as outlined in Appendix 1) was proven to encompass all key risk types. The most frequently mentioned e-business risks were generally associated with the commercial environment, company strategy, and technology. 64% of the problems cited fell under these three categories of risk. The remaining 36% were mainly related to the business process, criminal activity, regulations, and personnel. The reluctance of the target audience to use the Internet service was the most common obstacle in the Commercial Environment Risk Category. Buyers, intermediaries, and suppliers were either uncertain about online security and/or did not clearly understand the benefits of the e-service. To drive enrolment and usage, the e-businesses established offline support, leveraged brand equity of parent companies, used aggressive promotional programmes, and invested heavily in public relations. The main concern in the Strategy Risk Category was the problem of an unproven business model. Lack of benchmarks to forecast returns, unpredictable growth of newly defined markets, and challenges in providing simple interactions for all customer segments made it difficult to assess the sustainability, acceptability and viability of the e-business. Techniques used to mitigate these risks included: a) experimentation after research and market analysis, b) diversification of spends to spread risk, c) allocation of spends purely contingent on performance, d) continual development of innovative revenue generating options, and e) continual improvements on products/services to cater to needs. In the Technology Risk Category, integration with existing internal and external systems was the most significant issue. To control this potential problem, companies used interfacing programs, strong development teams and good project management. Clear definition of milestones was critical. Additional areas of concern were the following: a) the organisation's inability to deliver the right quality of goods/services at the right speed, b) limited security against illegal access to confidential information (especially in financial services), c) the constant flux of legal and regulatory requirements, creating ambiguity in contracts, signatures and commitments, d) lack of qualified human resource, and e) limited management support. On the overall practice of risk management, the results showed that it was generally considered, but not always in the planning phase of the e-business operation. Some evaluated risks as the e-business developed and only looked at technology-related risks from the beginning. Others viewed too much risk analysis as an obstacle to product/service speed-to-market and first-mover advantage. As one respondent put it: "The whole B2C exercise was an experiment. We started from a position of ignorance. If we had tried to analyse all the risks and applied a strategy to each before going live, we would still be waiting. Instead, we learned as we go (and made millions in the meantime)." Other interesting remarks suggest similarities between the management of e-business risks and traditional business risks. Further research will be required to provide more details. In summary, these preliminary research findings have not only helped to provide a basic understanding of risk types and risk management practices, but have also highlighted certain topic areas for further investigation. These include: a) the relationship between risk categories, b) the identification of similarities and differences between traditional risks and e-business risks, and c) the relevance of risk management models.