InformationWeek
Defining The Business Value Of Technology
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September 4, 2000 |
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Value, And Pain, In Integration
Some click-and-mortars are merging their traditional and online operations
By Rick Whiting
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ome Depot Inc., a brick-and-mortar business if ever there was one, finished some home improvement of its own last week when it began selling products online. Though the retailer is late to E-commerce, it may have an advantage over companies that moved faster. That's because Home Depot has designed its Web operations from the start to be fully integrated with its core-business IT systems.The $38 billion home-improvement retailer initially opened its E-storefront to only a few contractors in Las Vegas, but it plans eventually to sell online to contractors and do-it-yourselfers nationwide. The Web site and 1,022 North American stores will offer the same inventory and prices--and will do so by running on the same IT infrastructure. "We're not doing this to maximize Internet sales," says Ron Griffin, Home Depot's senior VP and CIO. "The objective is to maximize the relationship with the customer."
The company's fashionably late arrival to online sales means its IT staff won't have to confront the systems-integration problems faced by the growing number of companies that launched standalone E-commerce sites--complete with separate back-end systems--but that now want to fold those operations into the rest of the business. Some companies are finding that the benefits of merged systems--improved customer service and consistency in business processes among them--outweigh the reasons separate systems were deployed in the first place, such as faster time to market. "Data architecture is the bedrock" for integrating multiple sales channels, says Bill Seltzer, executive VP and CIO at Office Depot Inc., which operates with integrated systems.
Retailers in particular are coming to realize that there's something to lose by divorcing online operations from retail stores. A survey by Jupiter Communications found that 76% of retailers could not track their customers across store, online, and catalog channels. "If you're not serving your customers in a seamless manner across all channels, you're effectively giving your best customers a fractured experience," says Jupiter analyst Michele Rosenshein.
J. Crew Inc. is working on a solution to the problem. The clothing retailer recently disclosed plans to build a data warehouse containing customer, product, inventory, cost, and financial data from its store, catalog, and Web channels. J. Crew will use Informatica Corp.'s PowerMart data-integration software to populate the data warehouse from a variety of databases. The data will be analyzed to better understand customer demands and conduct targeted marketing.
"The big challenge is to have a customer-centric, brand-centric environment," says Mirek Zlotkowski, J. Crew's business integration VP. "We want to give customers the same experience through all our channels. The goal is to retain customers for life."
By viewing data from multiple channels, companies can create unified pricing and promotions, better allocate merchandise between channels, and improve inventory and fulfillment operations. Hallmark Cards Inc., a $3.9 billion greeting-card and gift retailer in Kansas City, Mo., is starting down that path. Its vision is to create synergies among its physical stores and online ventures such as Hallmark Flowers. "It's clearly a priority, but one that will require several iterations," says Steve Hawn, senior VP of IT at Hallmark Cards.
One of Hallmark's first steps will be to build a customer database, running on Oracle software, that supports its retail and online channels. It will have to consolidate separate customer databases devoted to its 15 million loyalty-card members, Keepsakes Collectibles clubs, retailers, and Hallmark.com. "These things have grown up around each business as it developed," Hawn says. "But with some of the new tools available and some of the new opportunities we have to leverage the Internet, we now have the ability to use the data at an enterprise level."
Data warehouses are a popular first step. Executives at Borders Group Inc. in Ann Arbor, Mich., can't tell whether customers who buy books in the company's retail stores are the same who buy from its Web site. But they should be able to get the answer from a 1-terabyte data warehouse that's being built. The system, scheduled for completion later this year, will pull information from multiple databases and provide a consolidated view of customers of Borders Books and Borders Music superstores, the Borders-owned Waldenbooks stores, and the Borders .com Web site.
Such projects aren't cheap. Borders' data warehouse will cost more than $1 million. Other companies find it difficult to move quickly because of the financial and human resources required.
A merger last year brought CVS .com (formerly Soma.com) and CVS Corp. together. The online pharmacy is now integrated with CVS's procurement, inventory, and order-fulfillment systems. They're in the process of integrating customer-service operations. "We want to present one face to the customer, no matter where they shop," says CVS.com VP and CIO Debra Robinson.
But plans to create a single database by linking the CVS and CVS.com customer-loyalty programs are on hold. "It's an enormous project, and we have so many competing priorities right now," says David Zook, strategic alliances manager at CVS.com.
Gymboree.com in Burlingame, Calif., the online retail division of Gymboree Corp., is in a similar situation. It wants to create a single database of both online and retail-store customers. "I would say that in the next year or two, we'll integrate with our retail store systems to get a consolidated customer view," says Susan Neal, Gymboree.com's business development VP. For now, resources are tied up with other projects. "It's a fairly big investment," she says.
The delay will be noticeable in a customer-reward program that Gymboree is about to launch: Online purchases won't count in the program because the databases are still separate.
One challenge IT managers face is that businesses frequently run some core operations on older computer systems, while online properties were generally built on newer technologies. Many software products can help facilitate data integration, but the effort still involves time-consuming programming work and data conversion.
Click-and-mortar integration isn't the goal for everyone. Some companies continue to run their divisions separately--and successfully. Earlier this year, bookseller Barnes & Noble Inc. spun off its online operation in a public offering. And although the parent retains a minority stake, their IT systems are not and never were linked.
Other retailers, while acknowledging the benefits of integration, seem to be in no hurry to do the work. Kmart Corp. has a database on 90 million households, and its Bluelight.com Internet operation has a database of 4 million customers. There are "plans in the works to see how we can optimize the two databases to create a better shopping experience," but no timetable for the project, a spokesman says.
Business-practice issues are another factor. Should customers be allowed to return merchandise bought online to a retail outlet? Store managers often are given incentives to minimize returns. Breaking down barriers between traditional stores and online operations will require a rethinking of outdated, provincial policies.
Toy retailer KB Toys and its KBkids.com online business recently formed a committee from both organizations to explore ideas such as allowing customers to order products online and then pick them up at stores. "Those are things we're looking at," says Mike Wagner, VP and chief operating officer at KBkids.com. "But we're not there yet."
An InformationWeek Research survey on E-business released in June found that 61% of companies have implemented E-business in a majority of their business units. At the same time, they're less interested in launching independent Internet ventures.
Home Depot seems convinced of the value in an integrated approach. Last fall, the company was set to debut an online shop with 5,000 general items, but backed away after it determined that wasn't what its customers wanted. "We were thinking about it the wrong way," Griffin says. "They wanted a view into their local Home Depot store." Toward that end, Home Depot's Web site recognizes ZIP codes to offer customers the same inventory and prices that are available in their local Home Depot stores.
Home Depot came to an important realization. "We're not competing with our existing business," Griffin says. "We're complementing it." As other companies come to the same conclusion, their IT operations will have to change in lockstep.
--with additional reporting by Alorie Gilbert and Beth Bacheldor
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