Activity-Based Costing 127return. Now, since you are a service provider rather than a manufacturer, ex-
plain your business model in like terms. What infrastructure is necessary for
your business? What does it cost you to provide your service? How much does it
cost to market these services? What are customers willing to pay for it?As he sat there now, Dave wondered if the analogy the investors had used
was appropriate. In a manufacturing environment these questions were more
easily answered than in a service company like ETN/ W. Yet after two rounds of
investment and eighteen months in business he had fumbled the most impor-
tant question in the meeting. In his hand he had the business card of a con-
sultant suggested by his investors. They said this person had worked with a
number of their clients and could help him develop the appropriate analysis. As
much as he disliked being pushed by anyone to make decisions, he knew that 25
employees were counting on him. He lifted the phone to call Denise Pizzi.
PREPARING FOR DENISE
Denise was very professional on the phone. She was awaiting his call and sug-
gested that he prepare some documentation for their first meeting: a brief his-
tory of the company, their customer value proposition (she called it CVP), a
blueprint of the value system for their industry, and their strategy—what was
it that ETN/ W could offer clients that was distinct and value producing? Much
of this had already been prepared.
ETN/W History
Three MBA classmates with extensive experience in electronic commerce had
founded ETN/ W in Dallas, Texas, 18 months ago. Two came from a Houston
computer giant—Carol Kelly from the hardware side and Eric Rock, a senior
software applications manager. The third, Dave Roger, came from a well-known
Dallas IT consultancy, a company focused on the Internet and e-commerce. The
idea had come from Dave. Many of his clients were in e-commerce, and all had
the same problem—transaction processing. Although most people think on-
line commerce is a relatively simple process—point and click—it is actually
quite complicated (see Exhibit 4.1). Assume customer A buys an item
at Books “ ” Us. When the order comes in, the company must first ascertain
A’s creditworthiness. This means a credit check with a payment processor. If
credit is okay, then Books “ ” Us has to contact the book wholesaler it partners
with to see if the book is in stock (this is called fulfillment). If the answer is in
the affirmative, Books “ ” Us gives the wholesaler the appropriate shipping
information, gets the tracking information from the shipper, and contacts the
payment processor once more to charge customer A. Books “ ” Us then relays
this information to A. This all has to be done in real time. Customer A does not
want to wait and will quickly move to a competitor if not satisfied. In addition,
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