Tangled in the net

If there’s one business which typifies the challenges and opportunities of integrating the Internet into the heart of operating your business, it is Federal Express.

Customers worldwide can order parcel collection, make payment, and even track the progress of their package to its destination through the Internet. By allowing customers to view its IT systems, the global parcel delivery company has managed to achieve transactional, distributional and customer service efficiencies.

And here’s the nice touch – by allowing worried clients to track the progress of time-sensitive deliveries online, FedEx can offer them the comfort of knowing their packages are progressing on schedule. At the same time, they can avoid customers tying up call-centre staff with time-consuming enquiries on the whereabouts of their parcels.

Many of FedEx’s customers, of course, do not use the Internet to deal with the company. But on the assumption that more will, FedEx has clearly staked the reputation of its brand on extending its services to online customers – and getting it right.

FedEx is just one of many established global companies which have pioneered the integration of Web-based activity into the so-called back-end of their business.

The Web is not just seen as yet another medium through which to target consumers with a brand proposition. Instead, digital communication is taking centre stage as the very structure upon which businesses plan to take orders and bill customers, while at the same time ordering inventory, checking stock levels and managing credit with suppliers and customers.

The fact that e-commerce start-up Amazon.com is now established on Wall Street demonstrates that UK advertisers and retailers can no longer regard the Internet as a marketing bolt-on, according to Mark Curtis, creative strategy director at new media agency Razorfish UK.

“It’s true that when most new media agencies started, four or five years ago, our initial approach was how we could help with a client’s marketing,” says Curtis.

“What’s became clear is that the Internet is much bigger than that. E-commerce is happening this year. But it’s not just e-commerce. We are talking about a whole range of intranet and extranet activity which will transform communications within business and between business partners.

“We’re talking about the entire ‘digitalisation’ of business. If you don’t appreciate what this is about, your business will be dead in the next ten years,” he claims.

But for businesses attempting to exploit the opportunities available in this new digital environment, the path of progress is not smooth.

Tesco, one of the UK pioneers of online grocery shopping, typifies the problems involved in grafting an online service onto an existing business.

The retailer, keen to steal a march on rivals, launched a pilot home shopping screen which allowed customers to place orders through an elegant software interface. The only problem was that, when these online orders were received, they then had to be printed out and faxed on to the local stores for staff to process and deliver. Hardly fully-integrated e-commerce.

Existing businesses inherit valuable brand loyalty and recognition when they attempt to migrate their businesses to the Web. But they also inherit the troublesome baggage of pre-Internet IT systems, and methods of running bricks and mortar retail outlets, which are totally unsuited to selling direct over the Web, argues Simon Murdoch, managing director of Amazon.co.uk.

“Grafting Net operations onto a retailer’s warehouse system is difficult,” says Murdoch. “Being a high street retailer is very different from being a mail order fulfilment house. One of the key tasks in mail order or e-commerce is to do a good job at the fulfilment level. But lots of retailers don’t have that developed for selling direct.”

Much of the key to Amazon’s anticipated success lies in the depth of integration from its Web activity all the way through to realtime credit checks, authorisation, stock-checking and, if necessary, ordering of inventory from suppliers.

“To offer good service and discounts, it’s extremely important to have extensive efficiencies,” says Murdoch. “When people place orders through the Website, it may involve our computer talking to supplier computers through EDI (electronic data interchange). We aim to have everything computerised and fully integrated – not just in our own system, but in how we deal with suppliers. If this is not possible, then we try to find a way round it.”

He adds: “Being a ‘pure player’ gives you advantages, because you are doing things 100 per cent of the time. You are after different skills to those which exist in retail companies.”

Warehousing is a key area which requires a radically different approach if you are gearing up to supply thousands of customers directly once in a while, rather than a few dozen retail outlets daily.

“If you are a wholesaler supplying a high street chain, you may be geared up to store and send things out in quantities of a hundred books at a time, for example,” says Murdoch. “But as a retailer, typically we are sending things out in quantities of one to five. This means we need different packaging and warehousing systems.”

Andy Measham, controller of Comet Direct which launched a merchandising Website this month, agrees that the challenge of e-commerce for established retailers lies far beyond installing the latest generation of IT systems.

Comet launched a telephone and catalogue-based direct selling arm last year, and Measham expects all the company’s “direct channels” to benefit from investments, ranging from digital imaging of Comet’s products, to stock checks available through call-centres or the Web.

All this is designed to allow potential customers to browse across the store’s entire product range in print or online, which is typically only partially available in store, before ordering goods for delivery to the home.

“It’s part of our overall strategy for Comet Direct to develop multiple channels and be a retailer which can offer customers whatever they want, whenever they want it,” says Measham. “We’ve had to develop our internal procedures. We’ve had to satisfy ourselves that we are able to deliver and take orders. Although we do deliver the big stuff, as a retailer we were set up for people to come to the stores, pick up an item and leave happy,” he adds.

“Now we have had to grapple with issues such as how do we split multipacks of smaller items in a warehouse for direct orders, when we used to ship out these items to outlets in bulk.”

But the stakes for Measham and Comet’s rivals are high. Up to ten per cent of Comet’s market in electrical goods retailing is taken by traditional mail-order retailers. He believes the advent of e-commerce through the Net and interactive TV could result in a quarter or more of this market being handled direct within a decade.

But Comet remains the exception rather than the norm when it comes to how quickly UK retailers and advertisers are grasping the nettle of “digitalising” their businesses.

Edwina Sylvester, business development manager at new media agency RedKite@TMW, says: “Stock control and credit checking problems shouldn’t be a barrier to e-commerce, with the amount of software available and systems integration specialists.”

Instead, she says that, “it is often clients’ reluctance to embrace e-commerce and a full service Website that is the main obstacle”. She warns: “Half-hearted attempts will only bring more of the problems that e-commerce is supposed to overcome.”

Richard Davies of new media agency Good Tech, whose clients include Audi, believes integrating Web activity into a business opens up a can of worms for some clients. “Back-end systems are often not up to the task, and the ‘smoke and mirrors’ that have previously governed this sort of activity are exposed for what they really are,” he says.

A problem remains in the human management of Websites which offer even the most modest levels of interactivity beyond mere “brochure-ware”. A recent survey of UK financial services operators, including banks and insurance companies, revealed many sites invited e-mail enquiries from Web surfers which were then either ignored or sat on, meaning traditional post, fax or phone enquiries were answered sooner.

Curtis at Razorfish is convinced that financial services companies in particular are at risk if they fail to respond quickly to competitors investing in full digital integration. Davies, on the other hand, believes the music industry may be the next consumer sector to witness blood on the carpet, as direct downloading through the Web threatens to devastate traditional retailers and distribution routes.

But Curtis warns: “Financial services are most at risk if they don’t address the digital agenda. If you aren’t planning to take your business online now, you can guarantee a start-up business will be doing it instead of you.”

“Too many clients in the UK and Europe are buying into a vision of how digitalisation is changing their future, but they are dumbing down the steps needed to achieve that vision.”

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