Convergence in IT

BOSTON (05/15/2000) - Not very long ago, convergence meant one thing in the information technology world: the merging of television and the Internet.

Interactive TV and Web multimedia would collide, the pundits predicted, resulting in a new medium combining the best of both worlds.

That kind of convergence may still happen someday. But right now, some business consultants are using the term to describe a much more immediate process: merging different sales channels, distribution systems and product categories.

The basic idea is that business is no longer about how you sell or deliver the product, or even what you sell. It's about the customer. And as a result, all the channels that lead to the customer must converge.

Coming Together

Case in point: Lands' End Inc., a retailer in Dodgeville, Wisconsin, no longer sees its Internet and toll-free phone sales as competing. Instead, an Internet customer can click on a Web-site button and within 20 seconds talk to a customer service representative who can feed personalized images to the customer's Web browser.

"The customer is at the center of everything we do - [mail-order] catalogs, the Internet, our [toll-free] number," says Sam Taylor, Lands' End's director of e-commerce.

But convergence is still a work in progress.

"Ideally, you want all the channels to know what all the other channels know," says Marc Singer, a principal at McKinsey & Co. in San Francisco and co-author of the book Net Worth. "You want it personalized for each case. That was hard before the Internet, and the Internet has made it harder. But people are taking the next set of steps."

Some steps are deceptively simple, Singer says. For example, Round Rock, Texas-based Dell Computer Corp.'s Web site "lets you pretend you're configuring your own computer, then talk to an adviser to make sure it makes sense," he says. At Gap.com, "I can buy something online and give it as a gift. If it's not right, [the recipient] can return it at a Gap store, and the clerk won't say ‘You bought it online, you can't return it here,'" adds Singer.

But convergence isn't just about selling; it can also be found in distribution channels. Some record companies are beginning to sell music as downloadable MP3 files and compact discs. And traditional book publisher Charles Scribner's Sons recently began selling a Stephen King horror story, "Riding the Bullet," as a downloadable online book.

Convergence isn't tied to the Internet - or even new. Although Seattle-based Amazon.com Inc. can track book purchases to offer other merchandise, such as toys and hand tools, New York-based Barnes & Noble Inc.'s bricks-and-mortar bookstores sell lattés, videotapes and other products tied to customers' lifestyles.

As a business process, convergence isn't simply a matter of installing new IT systems to link Web sites with service representatives. "It's a fundamental change in the rules of economic activities," says Douglas F. Aldrich, a managing director at Chicago-based A.T. Kearney Inc. and author of Mastering the Digital Marketplace: Practical Strategies for Competitiveness in the New Economy.

In the past, Aldrich says, companies concentrated on manufacturing their products, and the supply chain fed that process. But that was when regional distributors had strongholds on their markets. Now, customers can shop globally on the Internet, relying not only on distributors but on nontraditional retailers, or even purchasing direct from the manufacturer.

So the supply chain has turned into a demand chain, with the focus on the customer.

The result is "the convergence of what were distinct markets and channels," Aldrich says. "There's no longer any customer loyalty. Now the customer asks, ‘How do you become loyal to me?' "That means more than simply adding enterprise resource planning systems or supply-chain management; it means one-to-one marketing for every customer.

At Your Service

"It's easy to say you need a fundamental rearchitecting," says Singer. But it also requires rethinking the whole approach to doing business. "What, on the customer dimension, makes the experience better? he says. "And for the seller, which things have a chance to break even or make money and give you the benefits of customer conversion or retention?"

Does convergence translate into a return on the investment? At Lands' End, which has made a heavy commitment to merging its sales channels, the answer seems clear: More customers buy.

"We have a significantly higher checkout rate on our Web site," says Taylor.

"For the industry as a whole, two-thirds of shopping sessions are not completed. For Lands' End, more than 50 percent are completed."

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