VideoFor Julian Culhane, it must have felt like he'd climbed aboard a rocket just as it was taking off. When he joined Lastminute.com as its CFO in November 1999, the online travel and gift retailer had revenue of only £195,000, or $283,000. One year later, that figure had soared 1,800 percent to reach $5.4 million.
And just as rockets burn through fuel at a frightening pace when they take off, so too was Lastminute.com blasting its way through the $224 million of cash that the company had raised when it floated in March 2000. What's more, the territory into which the company was racing was the uncharted hinterland of the new economy. It all left Culhane with an enormous challenge: How best to steer a business moving at breakneck speed through an unfamiliar landscape?
If he was to have any chance of controlling the company, Culhane reasoned, he would need a decent set of performance metrics. So he set about building a dashboard for his rocket. Financial indicators were first: sales, profit and loss, cash position, and controls on two traditionally troublesome areas for dotcoms — spending on marketing and technology.
Digital Dials
But, says Culhane, such measures only went part of the way. As the CFO of an E-business, he wanted to complement traditional numbers with indicators that gave a deeper insight into how Lastminute.com was doing. To that end, he added a raft of "Web metrics" to the dashboard: measures such as how many shoppers have visited the firm's sites across Europe, how many of them made purchases, how many are repeat customers, and how many items are bought on average with each visit.
Armed with such data, Culhane is now able to calculate metrics such as how much it costs to draw a visitor to Lastminute's site and what its customer payback levels are. And by getting data in real-time — Culhane downloads a one-page flash report every day — he is able to change the course of his company at a moment's notice if signs of risk or opportunity appear.
"Having good metrics in real-time makes us much more responsive than an offline company could be," enthuses Culhane. "For example, we change the special offers on our Web site several times a day based on click-through rates. It's our shop window, so we need to get the biggest bang for our buck from it."
Sadly, for many of Europe's firms, Culhane's fondness for Web metrics is something of a rarity, as a study released last month illustrates. Carried out by four business schools on behalf of SAS Institute, a software firm that specializes in performance management, the survey found that, of 145 companies in Germany, France, Italy and the UK, more than 81 percent had an E-business strategy in place. And yet, of those companies, just 41 percent were measuring E-business performance.
On top of that, when CFOs do monitor the progress of Web ventures, say experts, they often use the wrong types of metric. In particular, says Richard Roth, managing director of Hackett Benchmarking & Research (now part of Answerthink, a best-practices research firm), CFOs tend to rely on the same performance measures for their E-business as they do for their offline business.
Of course, traditional financial metrics will always have a place of honor — Web ventures need to earn a return just like any other project. But, argues Roth, using only old-economy metrics can be misleading: "The Web is different to the offline world; it has different drivers. Take retail. A lot of companies regard their Web site as just another store and use the same bricks-and-mortar measures to analyze it. In reality, it's much more than that."
For Peter Bull, manager in charge of consolidation, reporting and analysis software at SAS Institute, CFOs who don't monitor their E-businesses are missing a trick. "One of the great things about the new economy is that it gives you so much more data than in the old economy," he asserts.
One important source is log file data, generated by the Internet servers that host Web sites. This data shows, for example, exactly who has visited a site and how often, which pages they looked at, what they bought, where they came from and where they went. "Trying to manage and make sense of the massive quantities of Web data is a big challenge for CFOs," says Bull. "But those who achieve it can reap rich rewards."
So how should CFOs go about installing metrics for E-business operations? According to Paul Pilkington, a senior manager at PricewaterhouseCoopers, the first step is to recognize that Web metrics will vary from one firm to another. "Whereas accounting measures are meaningful across all businesses, Internet measures aren't," he explains. "Companies need to work out what the drivers of their E-business are and set their metrics accordingly." Thus, for example, portals that rely on advertising need to attract viewers for as long as possible, while auction sites need to increase the number of transactions that take place.
An important part of this initial process is to agree on definitions, notes Anne Engel, senior analytics consultant at NetGenesis, which helps firms gather and interpret Internet data. "You can't manage what you don't measure, and you can't measure what you don't define."
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