It’s the rare merchant these days who doesn’t sell through multiple channels, but the process of coordinating those channels — particularly off-line and online venues — remains as difficult as ever. For the first time, however, retailers may be able to tap into a scientific framework for doing so. A Massachusetts Institute of Technology study breaks new ground in identifying the components of successful additions of Web commerce to traditional retail.
In “Organizing for ‘Bricks and Clicks’ E-Business,” a study of 36 retailers published in the fall of 2002, MIT research scientist George Westerman asserts that “the ideal structure for e-business resolves the tradeoff between separation to enable speed and learning, and integration to leverage existing assets. Too much separation is inefficient, and too much integration slows progress.” The study sample comprised seven catalog-only merchants, 13 store-only retailers, and 16 multichannel businesses; median annual sales totaled $550 million. All the firms had been online an average of 33 months as of January 2001. Identifying six major sets of e-business capability, Westerman analyzes the extent to which a merchant can harness current competencies in these areas to aid in doing e-business. He classifies his respondents’ capabilities into three categories:
- USE
This group includes capacities that can be used for e-business without change, such as a catalog distribution center’s ability to fulfill small orders.
- ADAPT
The “adapt” category comprises skills and infrastructure that can be modified to work online. For instance, some catalog merchants created a division of e-CSRs within the traditional customer service department.
- BUILD/ACQUIRE
If a capacity cannot be used or does not exist, a retailer must either create it or acquire it from outside. Store-only retailers typically must build competencies in direct marketing and customer service. The survey respondents also reported difficulty in adapting their IT staff capacities to e-commerce.
Westerman’s analysis of the survey resulted in two organizational profiles, one for catalog-capable companies and one for store-only merchants (the latter is shown above). Each shows the business components to be used, adapted, or acquired for optimal performance. Westerman discovered that the more a company deviated from the ideal structure, the worse its performance was — for example, if an e-business was mismatched on half of the six capabilities, it obtained only about 40% of the online revenue of a properly aligned one.
“One thing that’s really struck me lately is that people are looking at how e-commerce can be a piece of the whole enterprise,” Westerman told O+F. “In the DC, the big tipping point is where your process needs to change. If you change the ends, it’s easier. If you have to change the middle of the process, it’s a much bigger deal.” He advises viewing the online component as “an opportunity to transform the old stuff. Take one of your DCs and change it just for the online model. Transform all your processes in that DC. Experiment in a part of it, then move it to the whole operation.”
The first expansion is the most difficult one in multichannel operations, says Westerman. “It seems almost easier to go from two channels to three than from one to two.”
For more information, e-mail Westerman at [email protected] or visit MIT’s Center for Information Research at http://web.mit.edu/cisr/www.