The e-commerce revolution is rapidly changing the structural dynamics of direct marketing management
The e-commerce explosion over the past five years has changed the business of selling goods forever. Catalogers and retailers are rushing to put up sites to sell products online, while Web pure-play companies are launching print catalogs to acquire customers, and are even buying established catalog operations or cataloger/retailers to gain direct marketing and fulfillment expertise. These developments have significantly altered the management structure of the catalog company – again.
If you look back, this industry has undergone three distinct management models over the past 50 years: the entrepreneurial management model, the professional-management model, and the e-management model. And this latest model, in turn, is now morphing – mainly through the effects of strategic alliances between selling channels – into the new multichannel management structure of the future.
But before analyzing today’s still-evolving catalog management structure, we should review what led up to this latest organizational shift.
The entrepreneurial model
Spanning from the 1950s through the 1970s, the entrepreneurial catalog management era was characterized largely by “kitchen-table start-ups” launched by people who understood niche markets (both consumer and business) and direct marketing techniques. Dominating catalog entrepreneur/owners pioneered and mastered the fundamentals of what is now nostalgically referred to as “mail order marketing.”
Despite what was often seat-of-the-pants management, the balance between growth and profitability was maintained by these masters through close monitoring of cash flow, inventories, and prospecting.
The hallmarks of this management model included high response rates, high margins, high inventory turns, low overhead, and low advertising costs, resulting in above-average levels of profitability. The predominant management structure was marketing-focused, with operations and fulfillment considered “back office” functions, while technology had a very minor, indeed near-insignificant, role. The kings and queens of direct marketing were the copywriters, the designers, and the list experts.
The professional-management model
The 1980s dawned with the “electronic revolution” in creative services. Visionary printers recognized that the future was about “frontend” and “backend,” and that the “middle” ink-on-paper process was rapidly becoming the past. Companies were now able to produce catalogs from desktop computers. Simultaneously, advances in comailing and carrier-route sortation technologies ushered in the era of “mailing smarter,” or as we now know it, the database era. Suddenly, regression analysis, RFM segmentation, and decile scoring became the mantras of the direct marketing industry. Analytics and numbers became all-important; the master entrepreneurs began to fade into the background; and the CPA/MBA manager began to emerge and establish the professional- management model. The kings and queens of direct marketing were the analysts, circulation mavens, and database managers who were also grounded in classic catalog marketing techniques.
At the same time, as cataloging became more sophisticated and more upscale, many catalog mailers opened retail channels. Williams-Sonoma, Sharper Image, and Eddie Bauer were just a few of the catalogers to roll out with significant retail channel expansion, which helped redefine the catalog industry’s image.
It also further redefined the management structure, as professional catalog and retail managers struggled to deal with store/catalog cannibalization issues and channel accountability.
The e-management model
In the mid-1990s, the explosive growth of electronic commerce quickly resulted in the emergence of the e-management model. And not only that: By the beginning of the latter half of the 1990s, the pure-play dot-com companies actually began redefining value. Assets became liabilities, and liabilities became assets. If a dot-com wasn’t losing money, it wasn’t worth anything.
The kings and queens of direct marketing were no longer the entrepreneurs, the marketers, the professional managers, or the database gurus, but instead the Webmasters. A new breed of high-tech direct royalty entered the scene – Web-savvy entrepreneurs wielding near-illiterate four-page business plans, a domain registration, and $40 million in “first-round financing.”
Looking at the early period of e-frenzy, direct marketing management principles were turned on their heads. The industry in essence was recycled and reengineered to reflect e-commerce. This new direct marketing channel was surrounded by incredible hype and produced astounding growth. But while e-commerce definitely changed direct marketing’s management structure, it has not in most cases produced a successful management model for the future.
E-changes, for better and for worse
One of the more obvious management changes wrought by the emergence of e-commerce is the shift to a circular structure. Because so many of the new e-com managers are company stakeholders, reporting structures within organizations began changing. The hierarchical, vertical structures of old disappeared in favor of holistic, circular structures, in which responsibility and reporting are shared equally because of the common bond of the stakeholders.
The circularity of reporting is key to understanding the new conventions created by the dot-comers. Take traditional vertical hierarchies and stretch them horizontally across the management disciplines. No one is “above” or “below.” All of the stakeholders are equal in importance and in their responsibility for contribution.
Now, take the two ends and bend them into a circle and connect the hierarchy together. This circularity of structure allows fast idea creation, fast implementation and testing, fast redefinition, and fast execution of beneficial alliances.
The resulting “fast company” is more than a clichA; it is a functional strategic and tactical structure that streamlines effort and eliminates nonproductive reporting conventions, such as weekly staff meetings. In the e-management model, collegiality and consensus occur on the fly, not by committee or fiat. Even the very term “reporting” disappears, replaced with “thinking.”
In terms of the management of this new business model, e-managers are typically consummate networkers. They know how to seek and structure alliances based on immediate and mutual benefit, rather than using the traditional “who you know” and “loyal old friend” quid pro quo network. The e-managers’ speed in establishing functional and revenue-generating alliances and relationships has often been breathtaking: The norm is, “That sounds good…let’s do it!” E-marketers can have a new relationship established and up and running in hours – vs. the weeks and months it takes the old guard marketers to act.
And like their customers, the new e-managers have little regard for “normal” work hours or “business dress” or the niceties of business practices. They don’t have time for that nonsense. They have a window of success to negotiate, and they are time-starved for accomplishment, generally defined as “making a lot of money fast.”
These managers are unconventional – often in the extreme. The resulting e-management structure they created has also been unconventional, again often in the extreme.
But as alliances and mergers-and-acquisitions activity among traditional catalog, catalog/retail, and Web marketers continue to escalate – so much so that prognosticators now agree that future direct marketing success will likely be based on the ability to sell customers across all channels – the question is whether the latest e-commerce management model will work in a multichannel environment.
The multichannel model
Today, alliances and relationships are being forged between e-com and traditional managers having either shared or disparate visions and relational motivations. Print catalogers are aligning with other mailers; Web marketers are aligning with print catalogers; Web marketers are aligning with each other. The first form of alliance results in more of the same; the second in new strategies and tactics with the stability of proven support; the third in unproven and uncontrolled potential. To operate at either management extreme is dangerous; to operate with a transformational structure (e-com aligned with traditional direct marketing) likely has the greatest percentage chance of success.
So what does the new multichannel management structure look like? Most of the essential competencies needed for a traditional catalog company, including product development, merchandising, marketing, circulation, order entry/customer service, warehousing, MIS, finance, and administration, are required in a multichannel management structure. But in the past, these disciplines were represented in the middle and senior management structure, with senior managers for marketing, operations, possibly creative, merchandising, and finance.
Reporting and management responsibilities were bottom-up along lines of diverging disciplines. For instance, order entry, customer service, and warehouse reported to the vice president of operations; the vice president of operations reported to the CEO. The vice president of operations and the vice president of marketing, more often than not, didn’t speak except when absolutely necessary; no one talked to the accountants.
What’s changed for companies that have expanded into e-commerce is that those classic structures and their characteristics have become middle management rather than senior management functions. Overall, the multichannel management structure is a blend of old and new, with the circular management structure of the e-marketers paving the way.
The Cluetrain Manifesto
Perhaps the most eloquent expression of the approach of this new multichannel era is to be found in The Cluetrain Manifesto: The End of Business As Usual. The premise of this thought-provoking book is “We are not seats or eyeballs or end users or consumers. We are human beings – and our reach exceeds your grasp. Deal with it.”
The 95 theses of The Cluetrain Manifesto can be found at www.cluetrain.com and represent the potential future structure of the companies that will survive the dynamic structural change resulting from the most significant revolution of commerce since the Industrial Revolution.
This new, still-evolving ethos of management must – by definition – petrify old-guard managers with fear. They do not understand it, and they have no clue how to implement it. In the words of a veteran of a Fortune 500 firm now in free fall:
The clue train stopped there four times a day for 10 years.
And they never took delivery.
To understand the coming structure and the necessary management rebirth, listen to the language of the authors and their manifesto:
“A powerful global conversation has begun. Through the Internet, people are discovering and inventing new ways to share relevant knowledge with blinding speed. As a direct result, markets are getting smarter – and getting smarter faster than most companies.
“These markets are conversations. Their members communicate in language that is natural, open, honest, direct, funny, and often shocking. Whether explaining or complaining, joking or serious, the human voice is unmistakably genuine. It can’t be faked.
“Most corporations, on the other hand, only know how to talk in the soothing, humorless monotone of the mission statement, marketing brochure, and your-call-is-important-to-us busy signal. Same old tone, same old lies. No wonder networked markets have no respect for companies unable or unwilling to speak as they do.”
A clear path ahead
The strategy is clear: better technological tools, more new ideas, no rules to slow change. The core competencies are clear: alliance building, boldness of concept, and speed, combined with traditional core direct marketing competencies of marketing, merchandising, fulfillment, and service.
The structure is clear: interlinked alliances and economic relationships.
The outcome is clear: a management, structural, and philosophical evolution incorporating the best of the unconventional, unbridled new dot-com approach with the savvy of traditional direct marketing principles. The choice is clear: future relevance or competitive irrelevance.
I have been telling direct marketers for the past decade that it’s time for operations and fulfillment professionals to move from the warehouse to the board of directors. The direct marketing and e-commerce industries – and now, the multichannel marketing industry – are increasingly dependent on accuracy, speed and convenience; in a word: fulfillment. Until those managers with responsibility for fulfillment are sitting on the boards and influencing decisions about investment, expansion, and technology, the boards will be operating at suboptimal potential.
The time has come for presidents and CEOs to come from the operations and fulfillment ranks. As the e-commerce world embraces the necessity of real-world performance, the value of operations and fulfillment talent increases proportionately.
For instance, the e-commerce enterprises have already discovered that their future is largely governed by fulfillment. It’s one thing to have a cool Website, but it’s quite another thing to be able to move boxes accurately and fast. On the other hand, the fast-paced Internet is creating a new definition of customer satisfaction for all marketers. More customers are demanding low prices and fast, accurate service from all channels, thanks to the Web.
The circularity of management must apply to the reconstituted board of directors of the multichannel organization. It is no longer either logical or effective to structure a board with only industry insiders or icons; it is necessary to bring in a diversity of experience and viewpoint, as well as relevant new-economy skills. Traditional board structures are unable to manage the circularity, the boldness, the informal approach to strategic planning, or the refreshing and scary absence of structure and politics. Those organizations seeking to redefine and recycle their structure for the e-commerce and multichannel future will benefit by asking the question, “What type of board member will benefit a fast company?”