Remember the dreaded R-word? Well, re-engineering is back—but this time in a form that will be far more effective and less expensive.

The reason is the Internet. Call it "e-engineering." While re-engineering helps companies streamline internal processes, the Internet lets companies reach beyond corporate boundaries to make all interactions with suppliers, distributors, other partners, and customers more efficient. While re-engineering cuts costs, e-engineering via the Internet slashes costs.

Re-engineering, often called the corporate equivalent of root canal, can, in fact, be frightfully expensive. That’s because it often requires complex enterprise-resource planning software from SAP and others, so that all parts of a business can share necessary data. However, e-engineering is much less costly because it builds on the free public network, the Internet, and its standards for handling data. It’s a little like installing SAP free.

Some leading-edge firms already are realizing huge savings. Cisco Systems books 73% of its revenue over the Internet and saves $500 million a year, according to securities analysts. Dell Computer says moving sales, customer service, and technical support to the Internet has cut by more than 40% the number of customer calls to check on the status of an order and has reduced technical support calls at least 10%. Each customer call costs Dell $20 to $25, so eliminating millions of these calls a year produces real savings.

In the aggregate, the numbers are overwhelming. Nobel Prize-winning economists Douglass North and J. Wallis estimate that transaction costs make up about 45% of the U.S. economy, or $4.5 trillion. The Internet will eliminate many of those costs by reducing the time it takes to find a buyer or seller and to process a transaction. If just 20% of transaction costs go away—which seems reasonable—that would represent a $900 billion savings. I’ll repeat that: $900 billion.

Everywhere you spend money communicating—customer service, order processing, retail stores, service centers, call centers, sales forces, purchasing departments—significant savings will be possible. And participation in this opportunity is not optional. Even if you don’t use the Internet to slash costs, some of your competitors will, and they will surely hurt you.

Here are some areas where you can begin, today:

Make sure all the information your customers need is available on your Web site. This is not always easy. You have numerous information flows to your customers, from sales, customer service, technical support, etc. But understanding these flows, and replacing them with Internet access, is a critical step in achieving efficiencies.

Some customers will prefer to get their information the old way. Let them. But most will move to the Internet, because it is simpler and easier, and they will save you money by limiting the need for human intervention. Bankers, for instance, figure it costs them more than $1 to answer a query in a branch vs. pennies on the Internet.

Move order entry to the Internet. This can be difficult, but it is doable. Dell and others have shown that sophisticated programs can walk the customer through even a set of complex choices with ease. In fact, Dell research shows that customers buy more expensive options if they use the Internet, rather than a sales representative.

Move much of your customer support to the Internet. Customers’ problems tend to fall into clear patterns, so it is possible to have software expert systems handle a high percentage of inquiries at minimal cost.

Now, you shouldn’t force customers to go on-line—some won’t be comfortable doing so, and automation can’t replace the insight of a knowledgeable specialist examining a unique customer situation. In addition, you have to be very careful to make sure customers can easily navigate through your systems.

But many customers actually prefer to find answers on their own, so they won’t have to confess ignorance about a problem and won’t have to wait in a queue for a customer-service representative to respond. Most Federal Express customers now check on the Internet to find the status of a delivery and the company spends about a nickel on every Web inquiry vs. $1 for each phone call.

Move sales to the Internet. This is most challenging of all, particularly if you have a sophisticated, relationship-based sales model. It is easy to assume that sales via the Internet are not possible at all. But they are. Sales software can suggest accessories, remind customers to reorder, and highlight special offers, all less invasively than a live salesperson would be. If you don’t think the Internet can be at least as effective as a traditional sales force, start-ups will be happy to show you otherwise.

Although office products have typically been sold through dedicated sales forces, start-ups Ariba and Commerce One provide such efficiencies to buyers that they are used to handle more than $200 billion a year in purchases electronically. I’ll repeat that number, too: $200 billion. [For more on these companies, see "Kaboom!".] Chemdex is building a market in commodity chemicals, and Steel.com is doing the same in steel. Just because you haven’t heard of a company doing something similar to displace the sales forces in your industry doesn’t mean it isn’t out there, being well-financed by venture capitalists.

Don’t count on customer relationships to save you, either. Virtual marketplaces, with so much information available, will tend to turn even complex products into commodities and erode the power of those relationships. Unless you anticipate this trend, you may find that your crack sales force is more of a liability than an asset.

When thinking about the Internet, many executives focus on Amazon.com and eBay and try to figure out how they, too, can generate 200% annual growth rates and push their stock prices up to 1,000 times earnings. Maybe they can. Certainly, the Internet can generate sales growth and let savvy companies capture market share, even if they haven’t been in start-up mode for decades. The point is that the Internet isn’t just a growth story, and that many executives are overlooking the immediate opportunity for everyone to cut costs.

You may not like the changes you have to make. Your sales force may scream bloody murder. Your distributors and suppliers may do the same. But, over time, all your interactions with partners and customers will tend to move to the Internet, because the economic forces driving the Internet are so powerful. The only question is whether you will proceed aggressively, in a leadership role, or reluctantly, pushed into each move by your customers and your competitors.

Companies that take advantage of the Internet will have superior cost structures, enhanced profit margins, and growth in market share. Laggards will lose.

Yeffeth is a partner with Diamond Technology Partners. He specializes in helping clients gain competitive advantage through the use of the Internet and related technologies. He can be reached at yeffethg@diamtech.com.