Going Digital Amid the Grit

Going Digital Amid the Grit

A Bain survey finds 62% of senior executives say their firms fail to take advantage of the Internet, while EuropeÆs old-line manufacturers are giving lessons in making e-business work.

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Going Digital Amid the Grit

While Manhattan-based companies hailed their Internet connections as lifelines during the Sept. 11 crisis, many Europeans are still scrambling for the right digital business plan. German ball-bearing maker FAG Kugelfischer Georg Schaefer AG recently erected an e-commerce portal and is working to create an electronic marketplace. Lloyds TSB of the UK last month set up a portal aimed at small- and medium-sized business. Meanwhile, German-based publisher Bertelsmann AG recently folded its struggling online book and music retailer into its book-club operations and disbanded BOL's management group. And France's mega-retailer, Carrefour, shut down four independent online shopping sites for lack of revenues.

It's all part of a trend that sees few longstanding European companies failing to reach out to customers digitally, and many falling short of their aspirations for revenue and profit. Of the 451 senior executives from around the world who responded to Bain & Company's recently released Management Tools 2001 Survey, 62% felt their company was not taking full advantage of the Internet and 73% planned to launch customer relationship management programs, which use Internet-based software to improve sales productivity and boost customer purchases.

If those survey respondents are serious, they should be looking to some of Europe's grittiest businesses for lessons in going digital wisely. Companies like petroleum titan BP Amoco and France's Imerys, the world's number one industrial minerals producer, are building focused Internet initiatives from proprietary, differentiated assets. They're doing the business analysis to provide profitable new services to customers, not just an online menu of business-as-usual. And in seeking new means to serve customers, they're finding scope to tighten internal operations and purchases and pacing themselves for the long-term.

Take Imerys' story of bricks to clicks: Founded 121 years ago to exploit nickel mines, Imerys literally produces bricks and mortar. In addition to such building materials, the company's core businesses include pigments and additives, minerals for the refractories and abrasives industries, raw materials for ceramics and high-performance graphite. In all, the company has over 14,500 employees and 250 sites in 32 countries.

Imerys chairman Patrick Kron watched the Internet phenomenon with a wary eye. Imerys had taken some small steps but Mr. Kron wondered what the big steps should be: What would be the potential impact on the company and its industry? Would online exchanges take off and squeeze margins? What if an agile, online newcomer arrived and scooped up clientele built over decades? How best to benefit from this new technology? And where to start?

To help make sense of it all, in July 2000 Imerys launched a review of its opportunities to leverage the power of the Internet. The first step was to look into every corner of the company to see what was already being done. In all, 52 projects were underway at the grassroots within the company, ranging from a corporate intranet to e-commerce portals and extranets.

After examining each project in detail, Imerys decided to focus on a few initiatives with the most potential for improving the company's operations, communications or business in the short and long term.

The company did not plunge into transformation, but started by developing the business case for each of these high potential initiatives, explaining why it was a good idea, defining the specifications and setting a road map for internal and external teams—such as information technology vendors—to implement them. Along the way, Imerys abandoned one project—an auction system for selling excess inventory that failed to prove economically viable-but is actively pursuing six others, including:

Bonding: Imerys launched ImerysNet, a corporate intranet, to tighten links between its highly decentralized, far-flung operations. Specifically the Intranet aims to: 1) improve knowledge sharing and disseminate best practices, 2) strengthen company cohesion and cultural integration, and 3) streamline a number of internal processes. The Intranet went "live" in May 2001, and is gradually expanding to offer directories, functional information and tools, such as web-enabled procedures and support processes, and ultimately a private section for each individual within the company.

Buying: Supply side costs including transportation and the purchase of goods and services accounts for over a third of the Imerys' outlays. To help the company buy faster and cheaper, Imerys has implemented e-procurement initiatives, including participating in a purchasing platform called Quadrem alongside Pechiney, Rio Tinto, Alcan, Alcoa and other mining, minerals and metals companies. This digital initiative triggered a more traditional program to revamp Imerys' relationship with its suppliers and its procurement processes. As is often the case, the Internet acted as a catalyst to foster fundamental changes in business practices.

Selling: "E-toiture", a portal devoted to roofing materials, went live in November 2000. It provides a wealth of information and services to all the constituencies involved with Imerys products in France, ranging from architectural firms and builders to decorators and homeowners.

The Ceramics and Specialties division, which provides raw material and blends to manufacturers of porcelain tableware and sanitaryware, has already found that reaching out to customers is a two-way street. The division initially aimed to create a website to manage and share information and respond to queries of customers, who turn the Imerys raw materials into teapots, plates, bathtubs and sinks. But the site turned out to provide a means for customers to reach out to Imerys, to improve their own processes.

One major customer, for example, wanted to produce some very complex designs, which are extremely sensitive on the properties of the raw materials used. The customer subsequently proved interested in setting up a web-based collaborative design process with Imerys to simulate stress, heat and other tests in real-time.

Imerys and others are turning the Internet into an effective catalyst for real improvements in business processes and customer relationships. And in the current economy, some old-line operators find they've simultaneously created a warning system for tough times. For example, Bekaert SA, of Kortrijk, Belgium, a maker of high-grade steel wire, installed an e-commerce system several years ago that allows customers to order online. When orders of Bekaert wire-used in products ranging from high-grade fencing to Mercedes gearshifts-began falling last April, some by nearly 25%, Bekaert saw it immediately. The company reacted quickly and idled dozens of factories.

For his part, Mr. Kron sees the Internet as more opportunity than threat for companies such as Imerys, positioned upstream in an industry value chain. Because Imerys buys commodities and sells value-added products, the maker of building materials has little to fear from commoditization. On the contrary, the Internet will allow Imerys to source inputs more competitively and to market its products more effectively to customers, end-users and materials specifiers. Moreover, Mr. Kron found the process of focusing his mind and investments on his company's best opportunities to go digital, allowed for a detailed and structured dialogue with all key constituencies that changed not just how the company reached out digitally, but how it approached business overall. "It separated fads from facts in identifying our most promising opportunities," said Mr. Kron, "And they're not always what you think.

We learned to think big . but take small steps towards the vision!"

*Jean-Pierre Felenbok is a director of Bain & Company in Paris, and Philippe Hauguel is a Bain Vice President in Paris and leader in Bain's European technology practice area. Gerry Mulvin is a vice president in London who heads Bain U.K.'s eBusiness practice.

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