September 2004

Web commerce - building binding customer links

There's more to e-Business than trading, and at its boundaries the information-driven process of business change can question more than a few common and comfortable corporate assumptions…

In addition to the day-to-day business that has become the commonplace of expanding electronic commercial nets, companies are using the Internet for three other main functions. They are procurement, managing customer relationships and intra-organisational information management.

Sandvik Steel, a large division of the group of companies that also includes the UK's Osprey Metal Powders, is deeply involved in most of these issues. Indeed, they are planning for levels of electronic integration between supply, producer and customer at which the boundaries between three distinct organisations become highly problematic.

Sandvik Steel is one of the world's leading producers of tube, strip, wire and bar products. It is part of the Sandvik Group and, like them, its headquarters are located in Sandviken, in central Sweden. All of Sandvik Steel's products are made from stainless steel and special alloys. The company concentrates on niche business areas, in which it is a world leader. It can also claim to be a pioneer among business-to-business companies in the implementation of e-Business solutions.

"In most conventional, commercial organisations there's often a tension between 'user needs' and 'supplier needs'," says Göran Nyström, Vice President for Sales & Marketing at Sandvik Steel.

"The production and sales administrative functions tend to focus on supplier needs. In other words, they are generally product-oriented, while marketing and product research concentrate on user needs, i.e. they're application-oriented."

He sees the organisational transformations made possible by e-Business as a means of integrating these divergent orientations and making the whole organisation more outward-looking and application-focused. In short, more Case-Based.

"Our objectives in e-Business can be summarised as follows and roughly in this order;

1) to improve the efficiency of our operations;
2) to enhance our capacity to build relationships with our customers; and
3) to achieve 'electronic integration' with our key customers."

With regard to objective one, he says: "Just as with the introduction of previous communications technologies, such as the telephone, the basic idea behind the drive to adopt the Internet as a channel is to make it easier to do business - and, just like previous technologies, those who adopt it first and utilise it most effectively will have a competitive advantage."

Key-customer extranet

One of the main tools for achieving objectives two and three is the company's extranet, which was introduced in 1999. "Our extranet system is designed for our 'key customers'," explains Annika Roos, Marketing Manager at Sandvik Steel. "Each of these is given their own site in the system which they access via the ID codes we give them.

"The actual selection of who counts as a 'key customer' is left entirely to the national sales companies and product units (certain products and customers are assigned to global product units) and they remain very much 'their' customers.

"This is an important point because we're trying very hard not alienate our sales companies around the world during this process of transition to e-Business.

Sales companies integrated

For reasons of language and culture and also because personal relationships are always going to be crucial in B2B transactions, our policy is to integrate our sales companies into our e-Business development.

"Once selected, the local company or product unit will invite the customer to join our extranet and will make presentations to them regarding the advantages of doing so," says Annika.

"We have a menu of services which are available via our extranet. This includes; e-Commerce, a special on-line customer magazine, technical training materials, catalogues, technical data and an intra-company communications system. Another choice for the sales companies to make is which of these service options to offer each particular customer.

"A basic issue here is the strength of the relationship we have with that particular customer. A lot of the services we're making available in this way give access to the knowledge base which is one of our main competitive advantages. We certainly don't want to give away this knowledge to our competitors. Consequently, there has to be a fairly high level of trust between us and the customers to whom we offer our full extranet service.

"There are also other criteria for tailoring the service to particular customers, e.g. larger customers may have their own purchasing system and therefore wouldn't be interested in our e-Commerce option." Once the customer's extranet site is set up, it's up them and 'their' Sandvik sales company how they want to develop it.

"Our current goal," Annika explains, "is to have 200 'actively functioning' sites, and we have run an internal project called 'Extra Push' to encourage this." In total, more than 500 customer sites have been set up, so far. But how does Sandvik Steel define an "actively functioning" site? Göran Nyström says: "Pre-e-Business, communication between us and a customer's organization flowed pretty exclusively through the relevant sales person in our organization to the relevant purchaser in theirs. Now we're opening up a much wider person-to-person interface between the two organisations. For example, individuals in the production or R&D departments of each organisation can now talk directly to each other. With our advanced customer extranet sites we're approaching the point where the 'interface' more or less ceases to exist: we're sharing large parts of our 'internal' information systems.

Value-related ‘lock-in’

"The ultimate would be a seamless merging of the two systems. This can start with sharing basic information like stock levels and then can expand into areas like product development and R&D.

"Our aim is to 'lock in' customers by providing superior value. Part of this involves making the information flow between our two organisations as easy and extensive as possible." (See Figure 1)

Annika Roos says: "Test certificates are a practical example of what we're currently using the customer sites for: These documents certify the agreed specification for the material we supply, including chemical composition, ISO standards etc. Such certificates can be important for our customers, for example, in a situation where their customer required them to trace back the original and composition of the materials they used.

"Previously, these were packed with the material when shipped from our plants and possibly also posted or faxed ahead to the customer. Now we post the relevant certificates on the customer's extranet site.

"This means, firstly, that they have instant access to them 24/7 and, perhaps more importantly, we undertake to archive them for at least ten years on the site, so, in effect, we're taking over the archive function in this area for them."

Mr Nyström points out that some of the barriers to progress in this area are still technological: "We've already achieved some progress on the integration front; orders corresponding to 10 per cent of our invoicing value are now transmitted directly computer-to-computer. The major constraint in the EDI (Electronic Data Interchange) area is a lack of universal standards. There's EDIFACT, which was developed by the UN 20 years ago, though this still requires 'translators' at either end and is rather basic. XML (Extended Mark-up Language) is more sophisticated but, as yet, lacks universal standards."

Changing cultures

The major obstacles to this sort of inter-organisation integration, however, are in the realm of organisational culture. Göran Nyström says: "We need to change from a culture of 'sending & receiving' to one of 'depositing & searching'. We have to change our attitudes to information and we need to escape from the 'culture of secrecy' in which possessing and concealing knowledge is used as a power base.

"Instead we have to reward and promote people who openly share, spread and develop knowledge. Inevitably though, changing cultures is a gradual process."

Annika Roos says: "A lot of the effort of becoming 'an e-Business' involves overcoming resistance and fear within your own organisation. You need to change people's patterns of thinking and reacting. We've found that a lot of resistance comes from the 'now-I've-got-to-do-this-too!' reaction.

"Instead of seeing the potential for making their jobs easier and more interesting, many people see the conversion to e-Business as just another burdensome task. A lot of the fear is, of course, connected with job security.

"If we make our product databases directly accessible to our customers, our people, who previously used them to provide information to customers by 'phone, start asking themselves 'what's going to be left for me to do?'

"The constructive answer is that instead of providing the 'mechanical details' of products, which customers can now find for themselves, the displaced people can be assigned to investigating and answering more subtle and 'open-ended' questions about product characteristics. For the transition process to be successful, it's important that people in the organisation see their colleagues being assigned to other (hopefully more stimulating) tasks when their previous jobs get 'automated away' by e-Business."

An important part of this new flexibility of roles, involves getting everyone to take responsibility for e-Business activities. e-Business isn't a specialist area of the business, it's the whole organisation in an electronic environment says Annika. "When we first introduced our customer extranet, the sales companies were obliged to make someone responsible for setting up and managing customer sites. Almost invariably, their IT manager was selected for this task.

"We learned that this generally meant that very little was going to happen, the problem being that the IT manager may not know very much about the company's customers or its sales and marketing operations. Ideally, someone from sales and marketing should be responsible for this area, so now we require every company to appoint both a commercial and an IT 'Champion'. The Commercial Champion's job is to explain, both to customers and to the company's own sales force, how an extranet customer site can be developed for the mutual benefit of their organisation and ours.

The most important sales and marketing tool

"The point here is that, from a business point of view, our customer extranet is not part of our IT system. It's now our most important sales and marketing tool and consequently should be managed as such.

“A basic principle is that whoever is responsible for a particular area within our organisation, should also be responsible for handling this area in our e-Business environment. e-Business is not something that can be delegated to our 'IT people'."

'Göran Nyström says: "The ways in which you get people to adapt to e-Business are also very important. I like to talk, in this context, about a 'tale of two cultures'; technoculture and infoculture (see Figure 2). The technoculture approach is to dictate, from the top down, how the organisation's e-Business systems are to be designed and built. As we've mentioned already, the problem with this approach is that it generates fear, resistance or indifference.

"The best way to get people to actually use and develop e-Business systems is to let them do it themselves - 'evolution' not 'revolution'. This way you can literally 'grow' e-Business through the co-operation of everyone involved."