The Internet isn't just for decorative marketing sites these days. Companies on the leading edge are harnessing the Web to run some of their most strategic operations, and they're reaping big rewards as a result.
The Internet isn't just for decorative marketing sites these days. Companies on the leading edge are harnessing the Web to run some of their most strategic operations, and they're reaping big rewards as a result.
Peter Monticup sits at his desk, a miniature guillotine at his elbow, a 70-year-old "talking" skull staring vacantly from its perch beside a Dell computer. It is not yet 9 a.m. and already he has fielded a dozen phone and e-mail inquiries from, among others, a man requesting a recipe for stage blood and another novice having difficulty with the Faro shuffle. Now Monticup is typing a response to someone who's staging a play and needs to know how to produce a cigarette as if from nowhere.
"Either use an illuminated self-smoking cigarette prop along with an automatic finger-mounted cigarette producing gimmick or have the actor produce a bouquet of flowers instead," Monticup types. "And if you use the cigarette, don't inhale!"
Monticup, founder and president of MagicTricks.com, a Web-based business in Charlottesville, Va., spends about 40% of his time typing explanations of such arcana. Answering questions was easier when he owned traditional stores and could simply show people he had nothing up his sleeve. The difficulty involved in demonstrating tricks online means customer service is more important to his business than ever; it just requires speed of typing rather than sleight of hand. And that's but one small change. Like most company owners who've made the Web a critical piece of their operations, Monticup has experienced new demands on himself, his staff, his processes, and his budget.
Five years ago small businesses got props if they remembered to change the date on their home page. Today some consider their Web operations as important as their supply-chain or customer-service functions. In fact, their Web operations may be those functions. This is true not only of companies that sell online but also of those that manage large projects with many partners, such as construction firms, or are in industries that require multiple handoffs or sign-offs, like freight or advertising.
Such strategic use of the Web is still uncommon. Of companies with fewer than 100 employees, only 40% have websites, and just 40% of those do e-commerce, according to Merle Sandler, a senior analyst at IDC, in Framingham, Mass. Far fewer manage other major functions online. "They still see it as being too expensive," says Sandler.
Whether to spend on talent or tools is just one decision facing company owners.
But companies that bet on the Web say their investment has paid off in new business, streamlined processes, and improved relationships with customers and suppliers. And while the investment may be large, there are ways to cut corners, such as using software and services priced for small companies and automating processes in stages. "We know we're not General Motors," says William Jopling, whose $15 million company, Wood Flooring International, is lashing together its entire supply chain using FrontPage and $4,000 software that makes reports interactive. "For a company our size, the key theme is doing it on the cheap."
Jopling does, however, turn out his pockets for four IT staffers. Whether to spend on talent or tools is just one decision facing company owners with Web initiatives. Others include whether to make the project interdepartmental, how to get customer buy-in, and what the goals are. For mission-critical Web operations, simply racking up hits doesn't cut it.
In this article, we look at how three very different companies are using the Web to handle three of the most vital business functions--supply-chain management, customer communication, and, of course, sales. Their experiences provide a good idea of the care and feeding required by Web efforts that have ceased to be mere decoration and have become, instead, load-bearing walls.
$15 million in revenue; 30 employees
The Site: An elaborate extranet that manages every link of the supply chain, from vendors all the way through to its customers' customers
The Cost: More than $300,000 so far to build; about $240,000 a year to operate (almost all of that labor)
The Team: Four technologists are dedicated to the site, and the CEO spends about a third of his time working on it as well.
If you run a mill in Paraguay, Malaysia, or Italy that sells to Wood Flooring International (WFI), chances are you've recently received a visit from Andrew Mullen. Mullen is in charge of technical services and quality control for the Delran, N.J., company, which buys exotic wood overseas, has it milled into floorboards, and sells it to distributors. Unlike most techies, who toil in the bowels of corporate data centers, Mullen spends a third of his time jetting around the world, preparing WFI's vendors to use its online supply-chain-management system. It isn't always easy.
WFI, you see, is on the technical leading edge of its industry. As for its vendors--20 small, family-owned mills, chiefly in Latin America--"you're lucky if they have accounting systems," says CEO William Jopling. Nonetheless, Jopling and Mullen have managed to persuade the mills to use their own protected sections of WFI's website (written in English, Spanish, or Portuguese--Italian is on the way) for everything from printing customized palette labels to retrieving product specs to checking open purchase orders. Perhaps most important, the suppliers use customized quality-control forms on the site to report readouts from their machinery as each lot of wood is milled, allowing Mullen, back in the U.S., to audit production. That has reduced quality and communications problems. "And if there's a quality issue, it's clear whose fault it is," says Jopling. If it's the supplier's, the supplier covers the cost.
"Every half-hour they're filling this out so we can make sure they're keeping up to our standards," says Jopling. "I used to have three overseas employees at a cost of $100,000 to watch them." The CEO says those savings, together with savings from the reduction in errors, are enough to fund the next stages of the Web initiative. The vendor piece, you see, is just the soup; early next year WFI will complete the nuts--a site to assist the marketing efforts of retailers and installers--of its supply-chain system.
The Web project began in 1999 as a massive brain-dump by Jopling. The former logger's business was poised for expansion, and he needed new staffers to know as much about such exotic species as Tamarind and Patagonian rosewood as he did himself. Ultimately he wrote more than 1,000 pages' worth of content.
Six months later Jopling recruited a CIO, Joel Scholtz, to create a site to house that material, using Microsoft FrontPage (the 2002 version costs $169) and outsourcing hosting to keep down costs. They soon brought the site in-house at a cost of about $75,000, which includes a Web server, an extra T-1 line, and off-the-shelf software for, among other things, online customer-relationship management and a virtual private network.
Simultaneously, the company was migrating to new accounting software, and Jopling hired a technician to build and maintain Web-based windows into that system via a product called Crystal Reports. Now, whenever WFI takes an order, the mill making that product sees an update instantly on the site. The mills also can consult real-time reports of their sales histories, check whether their shipments have arrived, and ensure that WFI's idea of money owed squares with their own. "We're heading toward just-in-time fulfillment, where the suppliers can self-manage our inventory," says Jopling. "If you're doing this the way Wal-Mart does it, the minute something went short it would generate a purchase order on their side. But the investment to do that is huge. Crystal Reports only costs about $4,000."
Suppliers can see aggregate reports of what the distributors are and are not selling and adjust their own production accordingly.
WFI has almost completed a comparable section of its site for "market partners"--flooring distributors holding a specified level of its products. The idea is to allow distributors to track how their inventory stacks up against their agreements with WFI. Distributors can also view how much, say, single-strip maple WFI has in stock, and how much more is on a boat headed for the company's warehouses. That allows them to order what's available or will be soon if they need supplies right away. The distributors can also quickly find answers to any questions about products, thanks to a vast repository of technical data, drawings, photographs, and marketing information that's constantly updated by the fourth member of the IT team. Meanwhile, suppliers can see aggregate reports of what the distributors are and are not selling and can adjust their own production accordingly. Jopling says this yields the whole channel more sales with less inventory, quicker fulfillment, and reduced overstocks.
"We think this will be a big incentive to do significant business with us," says Jopling, who estimates that efficiencies gained online will allow distributors to increase inventory turnover by 20% a year.
Jopling also expects to win over distributors with Web offerings for their customers: retailers and installers who sell the fancy flooring to architects and homeowners. WFI has created yet another subsection of the site with technical and marketing information, as well as inventory data, that those retailers and installers can make a part of their own sites. That way, folks who log on to a retailer's site can see just how much of any given flooring type is available from WFI.
Overall Web strategy and architecture are handled by Scholtz and Jopling, who find the job often spills into evenings and weekends. Aside from Jopling and the IT group, no one else in the company is much involved with the system's planning or operation. "It would get too bogged down," says the CEO.
One more advantage: The Web lets WFI do ever bigger business while remaining physically small. Thanks to the system, the company will need fewer people to answer questions about the status of customer orders; fewer people to support the outside sales staff (who have access to live data on all their accounts); and fewer people to negotiate orders and logistics with far-flung suppliers. "With this we can probably double sales without adding one staff member," says Jopling. "That's the whole game plan."
$30 million in billing; 44 employees
The Site: ClientNet, an extranet for the ad agency's client communication and project management
The Cost: $100,000 to build the site; $5,000 a month for maintenance and improvements
The Team: Ovation's vice president of technical services and two tech employees worked full-time for three months developing ClientNet. Today, the three-person IT staff spends about 10% of its time on the system, with input from top executives and from account managers, who are its principal users.
It's almost 500 miles as the Clydesdale gallops between Ovation in LaCrosse, Wis., and its largest client, Anheuser-Busch Cos. in St. Louis. ClientNet renders that distance meaningless. The extranet--born in 1995 as a place to post photos for client approval--is now a multifeatured edifice of customized workspaces: one for each of Ovation's 11 corporate customers. Virtually everything that passes through an account manager's hands--schedules, research, creative concepts, photos, campaign results--proceeds at once to the site, where customers can submit criticism and ideas. Because Ovation uses digital photography, clients can actually see a photo--as though through a camera lens--being composed and shot, and immediately call or e-mail to ask, for example, that a T-shirt's left sleeve be folded over instead of left flat. And the system will soon deliver Web-based videoconferencing, thus ducking the facelessness rap often leveled at online collaboration.
Ralph S. Heath III, founder and CEO of the 25-year-old business, says that from the beginning the project's return has been intuitive: "We just knew it was going to have greater value than the costs we put into it." Vice president of client services Kim Larson elaborates: ClientNet wins customers' love by helping them save time and money. One client, for example, reported a 25% reduction in time spent approving work and retrieving information from Ovation. Another said that the system cut the costs of shipping, copying, and long-distance calls between the two businesses by 80%.
Such customer gains have been at ClientNet's heart since 1995, when a cross-departmental executive team dreamed up a system that would house a central database accessible to the agency and its clients, streamline work processes, and make it easy for customers to give feedback. To vice president of technical services Jack Felsheim fell the task of making it flesh; he led two programmers in hand-coding the entire site. The creative services group weighs in on the design, and maintenance chiefly involves creating sections for new clients and improving ease of use. "We don't want the technical department holding the keys," says Felsheim. "Users should manage their own clients' spaces."
Ovation tests each new client offering on that client's platform before taking it live.
Account managers ask new clients what features they'd like on their slice of the site: Photo approval? An interactive calendar? A complete archive of all creative material produced by Ovation and other agencies for that client? (The Anheuser-Busch section of ClientNet, for example, houses more than 7,000 images created over four years.) Larson also surveys clients twice annually, asking among other things how the extranet can be improved. Ideas from inside the company percolate up through weekly management meetings and biweekly IT "geek meetings" attended by a rotating assortment of guests from other departments. "We want everyone to have a voice in this," says Felsheim.
Heath says that more than three-quarters of clients use the extranet--in part because it's been made so dang easy for them. Ovation keeps handy one of most types of computers and operating systems and tests each new-client offering on that client's platform before taking it live. The technology department guides each new client user remotely through an hourlong screen-by-screen orientation using WebEx software.
Ovation is similarly conscientious when prepping for its "webinars"--free 35-minute online tutorials launched last year. A new-business initiative, they demonstrate Ovation's expertise in everything from photographing food to building a brand. About 25 to 50 prospective clients attend each; two of them have been converted to paying customers in the past six months. A few days before the event Ovation does a brief test run with all attendees to ensure they can experience the slides, audio, and video in all their glory.
Ovation initially outsourced development and hosting of the webinars--as it does with all experimental applications--bringing them in-house when their value became clear and Heath was convinced his staff could create something comparable for less money. The company is taking the same approach with Web-based videoconferencing. Says Heath: "We're going to build a room and use it to do all our broadcasting over the Internet, including webinars, teleconferencing, and videoconferencing.
"This is never anything I've ever had to push," says Heath. "Everyone knows it's about getting closer to our clients. There is no resistance."
4 to 10 employees (seasonal)
The Site: An e-commerce site selling tricks, videos, and memorabilia; an extensive library on magic
The Cost: A few thousand dollars to construct; $2,000 a month to operate and $3,000 a month for promotion
The Team: MagicTricks.com's vice president developed the site and works on it almost exclusively; the president devotes a few hours a day to online customer service; and an employee spends one day a week typing in product information.
Peter Monticup's most mystifying feat in a long career of mystifying feats is this: that he ended up the owner of a dot-com. Monticup is a guy who eight years ago ran a business that didn't use a single computer. Yet today, after more than three decades of operating magic stores that never reaped more than $100,000 in sales, he's the owner of a Web business that employs as many as 10 people and has been growing 30% to 50% a year.
For small and midsize businesses with basic commerce sites, host outsourcing can reduce the total cost of ownership 25% to 80%.
Certainly magic is nonintuitive content for the Web, which presents no physical reality to subvert. At the three stores he owned, Monticup, a professional magician, would first astound customers with his tricks, then demonstrate their ease of execution, and finally close the deal. But in each location, "there are only so many people who are going to buy magic," he explains. "You saturate the market, and you have to move to another location and open another store."
In 1995 Monticup's wife suggested they experiment with the Web. Jackie Monticup is an M.B.A. and former advertising executive. (The couple met when she was handling the McDonald's account for a major New York agency and he was the East Coast Ronald McDonald.) As head of marketing for the business, she was chiefly looking for ways to promote the couple's latest store, Magic Tricks, and maybe move a little inventory as well. A computer-literate insomniac, she taught herself Web programming at night, using free online resources like HTML Goodies, PageResource.com, and Bravenet.com. She then built a site using Microsoft's FrontPage, a gift from one of that product's original developers, who happened to be an amateur magician.
Like many small-company owners, Jackie outsourced hosting for the site and the attendant security and reliability headaches. (For small and midsize businesses with basic commerce sites, host outsourcing can reduce total cost of ownership 25% to 80%, according to the online Web Hosting Resource Index.) The store portion of the site is housed at a company called Hostway, which charges MagicTricks.com from $69.95 to $159.95 a month, depending on traffic. Jackie also chose low-cost vendors to handle the electronic commerce piece: Americart for the shopping cart and Stone Edge Technologies--to which she paid an initial $2,500 fee--for database processing. She manually enters credit-card numbers into a regular retail credit-card processor, then erases the numbers from her site--a setup she believes is more secure than a fully online processing system. She still uses the same vendors, at a cost of less than $600 a year. "The site cost us hardly anything to put up," says Jackie.
But there is nothing bargain-basement-ish about MagicTricks.com's appearance. Jackie went into the project with an understanding of design developed over years working in advertising. And she has never been shy about contacting other site owners to ask how they achieve certain effects. As for the site's scope, MagicTricks.com offers more than 1,400 constantly changing products--from a device for sawing a girl in half to tricks recommended specifically for bartenders and sales reps.
There are also thousands of pages of pure content: biographies of magicians, histories of tricks; sheet music played during performances; guides to celebrity magicians, tips from "guest authors," and more. The content is so copious that it would cost an extra $300 a month to house it at Hostway. Fortunately, the Monticups have a friend who runs the information portion of the site on his own servers at no charge.
"It would be great if people who read about Houdini would then go to the online store and buy some of his favorite tricks but unfortunately, that's not how it seems to work," says Jackie. But the content, she adds, "establishes our expertise and makes customers more secure about our buying recommendations; it gives visitors a reason to bookmark our site and perhaps return when they are in a buying mode."
As the site grew through the late '90s, so did its impact on revenue. The first year, it accounted for 50% of sales; the next year, more than 80%. At that point the Monticups hired several people to take online orders and handle fulfillment; they also built a physical wall dividing their shop into a showroom front and shipping-department back. In 2000, when their lease came up, they closed the shop and moved the online operation into their guesthouse.
Jackie insisted on managing MagicTricks.com by herself when it was part of a store; even now that it is the entire business she still refuses to hire technical help. "I believe in doing things myself. I like to have control," she says. Currently, she spends 20 hours a week removing discontinued items from the site and adding new ones, changing product descriptions, taking photos with a digital camera and posting them. (An employee from the shipping department lends a hand with data input.) Another 10 hours is devoted to finding and writing up new material for the online magic resources. That task often means playing reference librarian. "People will write and say, 'My grandfather was this particular magician and what can you tell me about him?" Jackie says.
The rest of her time--two hours a day--is given over to the study of metrics. She spends several hundred dollars a month on Web analytic software and services that measure how people arrive at MagicTricks.com, where they travel on the site, and what pages prompt them toward--or deter them from--final checkout. The most useful of those programs is Urchin, offered for $5 a month through Hostway. MagicTricks.com plans to spend $2,000 on a much more powerful tool--the WebTrends Log Analyzer--early next year.
Jackie is also meticulous about tracking the performance of her advertising: The company pays about $3,000 a month to such pay-per-click sites as Overture, Google, and Sprinks, and for banner ads on industry sites. "I want to know the return on every investment I've made, and as a result of what I see I will make changes every day," she says. For example, if her weblogs suggest that a preponderance of customers head for the beginner's section of the site, she might tweak the wording in her ads so that instead of "Incredible Magic Tricks!" they tout "Incredibly Easy Magic Tricks!"
Peter Monticup, meanwhile, remains responsible for inventory and customer service, which he chiefly handles through e-mail. (The couple hired another professional magician to take customer questions over the phone.) And he is preparing for a more public role: demonstrating tricks on videos that will be on the site next year. Video will be the most expensive tech investment the Monticups have made to date; Jackie estimates the cost at $40,000, plus greater charges for hosting.
Even as the site grows more technologically sophisticated, the Monticups plan to spend less time on it. Unlike a mall store, the Web business allows them to keep Monday-through-Friday schedules. That gives them more time to pursue hobbies and more opportunities to attend professional gatherings, like a sword-swallowers' conference or a horror convention, where they can network, pick up ideas, and promote their business to peers in the industry.
"I grew up thinking that you have to have a walk-in business," says Peter Monticup. "Then I came to my senses."
Leigh Buchanan is a frequent contributor to Inc. on the subject of technology.