Three years ago, PC supplier Watford Electronics dipped its toe in the Internet waters to see if it could develop a Web site to display product information and take orders. Today, the site receives about six million hits and provides a channel for 3,500 orders a month worth £500,000. That success is due to the company's constant efforts to make its site easier to use, while offering a sophisticated range of facilities to its customers.
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Watford is now using the communication capabilities of the Internet to transform itself into a virtual operation. Using electronic data interchange (EDI) and Extensible Markup language (XML) the company is integrating its systems with those of its suppliers so that it can trade electronically with them.
While these developments are still in their early stages, Watford has already been able to reduce its stockholdings by more than half. Once integration is completed, the company hopes to hold no stock and get orders shipped to customers directly from the supplier. As Watford's managing director Nazir Jessa points out, this means Watford "can afford to sell goods at very low margins, as we have none of the usual overheads of conventional companies, such as warehouse space, stock forecasting, obsolescence issues, booking and dispatching stock, staff training and so on".
In short, streamlining operations by turning itself into an e-business is the key to Watford's survival in an increasingly competitive marketplace.
"Even with great dexterity, it is difficult to maintain sales and profitability," Jessa admits. "Therefore we had to think long and hard to see not only how to survive but how to be successful in this global economy, even when trading on single-digit gross margins. Being at the forefront of IT, we could see the benefits of the Internet long before it became a buzzword, especially the increase in productivity, huge cost savings in head count and in avoiding wastage due to obsolescence. Of course, it also offers connectivity to millions of Web users up and down the country and worldwide."
However, Watford's attempts to create a virtual company with seamless links to its suppliers' systems have been frustrated by organisational issues within its trading partners. "Some companies are very keen and get their top people to liaise with us and we are able to get systems up and running very quickly. Other companies - some of which are major suppliers needed for the success of our own business - have been much less interested," Jessa explains. "E-business is a partnership and all partners have to be committed to make it work."
While this reinvention of the company as a virtual e-business may seem a huge step, it is merely the latest of a series of radical changes that Watford Electronics has undergone over its 28-year history. The company started life in 1972 in Jessa's spare bedroom, where he sold electronic components by mail order. The company moved on to selling home computers in the 1980s, when models such as the BBC Micro were launched, and concentrated on Wintel PCs during the 1990s. Watford now manufactures and sells its own brand of PCs, as well as some 7,000 items of hardware, software and peripherals. Its products are sold through conventional mail order, two retail outlets and over the Web.
Yet despite its current success, Watford's first venture on to the Web was as troubled as most bricks-and-mortar companies trying to make sense of this new medium. Having decided it needed a presence on the Web, Watford paid £35,000 to an external consultancy to produce a showcase site. What it got for its money, Jessa admits, "was not versatile and we could not change it easily. We felt we needed to have some kind of Web site because of being in the IT industry".
Having appreciated the limitations of its first site, Watford approached a number of leading Internet companies, looking for a true e-business site. "To our amazement and disappointment, we found that behind all that sales jargon and the glossy literature, they could offer very little," says Jessa. "No company was in a position to provide us with a seamless e-business site that would interface with our legacy back-office system."
Even worse, Watford felt the prices charged were out of all proportion to the functions being delivered. So the company decided to develop a solution in-house. The major drawback of taking this route, Jessa warns, is that you need top-level commitment and continued involvement from the board if your e-business projects are to deliver real business benefits. Otherwise, he cautions, "The techies take over and do not deliver what is required."
The first version of Watford's e-commerce site went live in May 1999, three months after the company started development. The site is already on its fourth build, with Watford making improvements to both the facilities it offers to customers and the usability of the interface. According to Jessa, a major complaint from customers in the early days was that they could not find the products they were looking for and had to use the search engine.
"We have now structured the site to create a lot of sub-directories to help people find the products they want," he explains. "We have also created an express checkout facility, so that repeat customers just have to enter their customer number, click on the product and confirm the order. The system will remember all their details."
Although Watford's site is now one of the most sophisticated in the industry, the company is not resting on its laurels. It is constantly striving to improve its offering to customers. The IT team and the company's directors hold regular meetings to evaluate the performance of the current site and brainstorm new ideas. Watford also monitors customers' reactions to the site, soliciting feedback by thanking people who make comments with a small gift.
Yet continuing to enhance the site is not an easy task. Jessa says that the need to solve the issues arising from trying to integrate new technologies with existing solutions is a reoccurring headache. The company also has to ensure ongoing developments to its back-office operations remain compatible with the site. "But linking to internal systems has not been a major problem, just lots of little technical issues," says Jessa.
The current site has been developed using Microsoft's Active Server Pages technology, backed up by Microsoft Transaction Server, SQL Server 7 and the e-commerce edition of Internet Information Server. Integration with the company's back-office applications - based on an enterprise resource planning solution from Masterpack running on an IBM RS/6000 - has been achieved by using Microsoft's Data Transformation Services to synchronise the front- and back-office databases every five minutes. The EDI module within Masterpack is used to get data in and out of the ERP system.
This integration allows Watford to keep customers automatically posted on the progress of their orders. Seamless links with suppliers' systems allow the company to forward confirmation of the order and details of the actual or expected delivery date to customers by e-mail, with further updates sent if delivery arrangements change. Customers can also review orders online: EDI messages from suppliers update Watford's systems, so that customers can drill down from a summary of the orders they have placed to reveal the status of items in their order. They can even link to couriers' sites to find out whether their parcel is on the delivery van or when it was signed for.
Those links to the couriers' sites also allow Watford to wait until delivery of the goods has been confirmed before debiting customers' credit cards.
"Debiting peoples' cards after delivery increases their confidence in us and we become their preferred supplier," claims Jessa. Watford can take this relaxed approach to getting its money because it has included sophisticated anti-fraud measures at the start of the ordering process, including a card authorisation solution from Checkline which can authorise cards within four seconds. If there is a query, the details are automatically directed to a human operator, who can verify the authenticity of the card manually. These measures have enabled Watford to reduce attempted fraud to negligible levels.
The card authorisation process is just one way in which the Web site has been linked to the company's customer service system and call centre. In turn, customers are protected through a series of security solutions based on the secure socket layer (SSL) protocol. Digital certificates are used for encrypting sensitive data, while a firewall screens all traffic.
In fact, delivering excellent customer service has been a key objective for the site. "There is quite a bit of repeat business, but Internet customers are more demanding than our usual ones and we have to respond to that," says Jessa. "If they do not get good service, they will not come back, because there is always someone else who can fill the gap."
If customers are unhappy with the goods they have received, they can use the site to access information about manufacturers' warranties and Watford's own return policies. They can even use an online returns module to arrange a refund or exchange at any time of the day or night. From information provided by the customer, the system is able to validate return policies and procedures, with the options available to the customer controlled by the back-office system.
Watford has extended the concept of customers serving themselves to other areas of the site, so their queries can be answered without the need for them to phone the company's call centre. For example, detailed product specifications can be viewed online thanks to a deal with a third-party information provider. Watford has also developed a downloadable price-check feature that allows customers to check prices even when they are on another site, simplifying the process of comparison shopping.
Another facility being added to the site is a build-to-order PC configuration tool which will display a running total of the cost of the PC as customers select or substitute components. Jessa hopes this will reduce the proportion of configurations that are abandoned compared with configurators on other sites which only display the price right at the end of the selection process.
When customers do have queries, about 40% of them are now contacting Watford using e-mail rather than the call centre. An increasing number of the calls received are from customers who have placed their first order through the Web site and simply want to confirm it was accepted. These changes to the way customers contact the company have led Watford to restructure its customer service team and introduce systems to automatically distribute e-mail queries to agents.
The receiving agent has to reply within 30 minutes, with an average response time of less than 10 minutes currently being achieved. This reflects a wider culture change within the organisation, with 85% of the company's staff now having a PC. Communications through e-mail and the use of intranet-based systems have become the norm.
The move to e-business has also seen Watford change its promotional tactics. Traditionally, the company has publicised itself by advertising in half a dozen specialist magazines through a bound-in catalogue. While this continues to be a major channel for attracting new customers, Jessa explains that the company has been able to cut the size of the catalogue from 64 pages to just 16, since it now only needs to list a representative sample of its product portfolio. As a result, the company's advertising spend has been reduced considerably.
This provides some offset to the £2m Watford has ploughed into its e-commerce developments as it commits to remodelling itself as an e-business. This represents a huge investment in e-business operations relative to the company's overall size.
But Jessa believes that "to succeed in a cut-throat marketplace, the only option we had was to 'think big' and to initially invest heavily, in order to reap the benefits and take advantage of the cost effectiveness of e-business in the long term".
Furthermore, the company has already seen dramatic benefits in a number of areas of its operations. Direct shipping of goods has reduced the incidence of breakages and allowed Watford to address one of the biggest bugbears of the IT industry: being left with obsolescent stock.
"Over the years, we have written off millions of dollars in obsolete stock," Jessa admits. "With the advent of e-business, obsolescence this year reduced by 55% and we believe that by the end of next year this should become negligible."
The purchasing team - renamed the supply chain management team - is also now able to spend more time sourcing new products and less on the routine mechanics of purchasing.
Jessa is confident that e-business represents the future, predicting that 70% of Watford's mail-order business will come through the Web site by the end of this year. On top of that, the company is now developing a Wap version and is looking at a digital TV solution, all driven by the same back-office data. To handle this growth, the company has purchased new hardware from IBM to ensure the latest incarnation of its site can continue to deliver the response customers have come to expect, even as numbers grow.
This upgrade will also give the company enough capacity to host sites for other e-tailers, as well as the option to develop new stores and product ranges itself. Initially, Watford plans to expand its computer product range to cover DVDs, videos, games and similar leisure products. However, it expects to expand its activities further to cover brown and white goods as well. This is possible because a key aspect of the design and implementation of the site is its generic and entirely configurable nature, with all of the pages generated dynamically.
With the company evolving in these new directions, Watford is preparing to undertake a rebranding exercise - including a change of name - to reflect the fact that, as a dotcom, it has become a very different business.