I. The Enterprise View
Chubb: Improving on a Good Thing
B.C. Vierniero, assistant vice president of marketing and electronic commerce at The Chubb Corp. in Warren, N.J., says that his company looked at three choices in creating an e-commerce strategy for its property and casualty insurance business: "Do we create a new business model with e-commerce as one of the drivers? Do we spawn a secondary business model around e-commerce? Or do we use it as a tool within the existing business model?"
The first option, creating a new business model, was easy to discard. "We have 115 years of success with this model," says Vierniero. "We have a strong distribution network with our independent agents, and we believe our products match that distribution system. We don't sell commodity-based products, but differentiated products that require some degree of explanation and a real understanding of customer needs. For example, do you know your auto policy does not cover the full value of your cars? Do you know that the ornate moldings in your Victorian home are not covered unless you have full replacement costs?"
The next choice, developing a secondary model for going direct to the consumer, wasn't an alternative either！even if it could be successful. "Disrupting the relationship with our agents and brokers wouldn't be worth it. It also requires building an infrastructure: a call center staffed around the clock, technologies for processing tasks that agents and brokers traditionally do, and development of a well-educated sales force."
The third alternative, e-commerce as part of the existing business model, offered Chubb many opportunities to further differentiate its products and services. Also, there was pull from customers and agents. Chubb insures many high-tech companies, such as Netscape, says Vierniero, and they want to have easy electronic access to their business with Chubb. "Our agents began telling us more and more that their clients want to deal with us in the e-commerce world."
Therefore the opportunities arose from "being able in a short period of time to include your business partners and your customers in your internal infrastructure," Vierniero says. This amounts to using the Internet to let the customers for both commercial and personal lines serve themselves in increasingly more sophisticated ways. It also provides a link with agency management systems and enables global collaboration between Chubb people and its distribution network.
For example, Chubb has always created specialty programs for infinity groups, such as law firms, broadcasters and cargo shippers. "We first built DOS-based systems for them, then migrated to Windows. That put us in a position of being a software vendor and worrying about infrastructure," Vierniero says. "So along comes the Internet, which allows us to build systems on the Internet so these groups can self-serve！for instance, a cargo shipper needs a certificate of insurance for each shipment. Rather than come to us, we let companies anywhere in the world create their own certificate, send it over the Net, and we bill them once a month for all certificates. All they need is a browser and $19.95 a month for the connection."
Another major opportunity is in multinational organizations. "When you have to write a policy for a multinational company that may do business in 20 countries, it's a huge nightmare," Vierniero says. "Typically, either no one can pull this off and the client tells his business units to worry about their own coverage in their own countries, or a local agent or large broker will cobble something together. We can create a system that ties together brokers and Chubb people in all 20 countries so that we can resolve specific coverage issues in any given country. This gives us capability and speed to market not possible before. With the soft market in insurance these days, we can get a little more competitive in terms of pricing because of the way e-commerce allows us to process things internally."
Chubb opened its first Web site in 1996, primarily offering information on insurance and from there proceeded to develop smaller Web sites linked to special interests. For example, at sites for wine collectors, a Chubb mini-site describes insurance issues for such collections.
This year Chubb will begin implementing a host of transactional applications, having already developed a hierarchy of security technologies and techniques.
For instance, personal lines customers will be able to view the status of their claims. Commercial lines customers will also have online access to their full policies. The next wave will be providing commercial customers access to a data warehouse and analytical tools for examining the business they do with Chubb and their policy-usage records.
Hilton Hotels: A New Definition of Service
Hilton Hotels Corp. is trying to take customer service to levels never possible before the Web, says Bruce Rosenberg, vice president of market distribution. Right now, via Hilton.com, it has one of the fastest online reservation systems in the business (two minutes average). Plus it offers any traveler hotel information and visual guided tours through Hilton's hotels around the world. Frequent guests can go to the Web site to join the free HHONORS reward program and enjoy the varied benefits, including services automatically tailored to their preferences based on previous stays. Meeting planners can access the Web site for group reservations, digital floor plans and the like.
Once in the hotels, travelers can use Hilton's 24-hour business center kiosks of computers, with Internet access, as well as copy and fax machines and more. Some hotels even offer life-size TeleSuite Networks to conduct meetings or celebrations with participants located anywhere in the world, appearing life-size on screens. Soon to be rolled out are wireless Internet access and, in guest rooms, an interactive online service, information and entertainment system.
"When we first presented the concept of a Web site to senior management, there was a lot of support and skepticism. Just having a Web site doesn't play in our corporate environment; there have to be goals and a return on investment," says Rosenberg. "To do a Web site you have to do it right, and we have to take a whole approach to change the business model. What we are doing today won't work anymore."
Hilton wants a higher percentage of the travelers' business！35 percent to 50 percent, Rosenberg says, which means it has to take "brand and the experience the customers have with us to a level never done before. The Web opened up people's eyes about how we can do and should do business. We looked at all the business models！every customer segment from the business traveler, the tourist, the meeting planner, the travel agent！and identified the electronic commerce way of doing business with them."
This has to do with information, interactivity, reservation functionality and personalization. "We want profiles on the customers, their history with us, what they like and don't like, accessible no matter where they touch us in the world," Rosenberg says. "The Web has allowed us to redefine the contacts and touch points, and the more information we have the better we can do."
He says that Hilton has pieces of a "totally integrated customer environment," with very good profiles of its most frequent guests: the HHONORS members. But the information is not as good, he notes, on customers that occasionally travel with Hilton！who number in the tens of millions per year and represent major opportunities for revenue growth.
"The new systems we are building will allow us to have a larger number of profiles and a finer segmentation of our customer base. The Web will enable us to reach them cost effectively and develop a deeper personal relationship," Rosenberg says. "We just couldn't do this before by mailing collateral to them. The budgets weren't there to support it."
The new business model for Hilton is an expensive venture, however, annually costing "seven figures" for the Web site alone. Getting more business from each customer demands catering to their very specific preferences in hotel rooms (location, bed size, Internet services, etc.) as well as food and other amenities, which is far more complex and costly to manage.
A key issue is balancing the trade-offs between such levels of service and their costs. He emphasizes that management is "big on alignment. We pull people into a room to look at impacts of marketing and service initiatives and how to remove barriers to entry through technology or other solutions. To handle the complexity, we've increased the education and knowledge level of our people."
The incentive is there because Hilton's Web site has been providing returns. "We know how many visitors we have to our Web site, in the millions every month, and how much revenue they generate," Rosenberg says. "We have a positive return any way you want to analyze it."
Boise Cascade: From Reactive to Proactive
Boise Cascade Office Products Corp., a $3.1 billion international distributor of office and computer products, office furniture and paper, has Fortune 1000 companies and large global 2000 companies as its core customers. Its strength is being a one-stop shop (and as a result, the source of aggregate information) for thousands of items companies must keep in stock.
Driven into electronic data interchange (EDI) a dozen years ago by its powerful customers and the emergence of superstores like Staples and Office Depot, "it finally dawned on us that e-commerce could be a competitive advantage, providing a way for us to lower our customers' costs and ours," says Laura Longcore, senior manager of electronic commerce.
Early in the '90s, Boise developed a PC LAN-based system for ordering, which had about 2,000 customers on it. Late in 1995, with its eye on the Internet, the company went to 15 of its largest customers and said, "Let's build a prototype of the perfect ordering vehicle."
"They helped us build a business case," says Longcore, "and early in 1997 we were the first in our industry to launch a Web-based ordering system, I-97, offering 200,000 items." It wasn't an easy task, as no adequate business-to-business software existed at the time. "Working with Netscape and others, we designed the product for large corporate customers, with 70 different parameters that can be customized to adhere to the business rules of each company. For example, how much can be ordered before approval is required, are you allowed to use a credit card and what vendors are approved?"
She continues, "We didn't know what the return on investment would be, but if we could get enough customers on board, we would lower our costs. It costs $3.40 to process an order manually and $1.80 electronically."
By the end of that year, 1,500 companies were online and 1 percent of Boise's orders were being processed over the Web. By the end of 1998, 4,000 users were sending 5 percent of their orders via the Internet. And as of this March, it looks like Boise will cruise past its target of 10 percent for 1999.
From the reactive beginnings with electronic commerce, Boise has come to view it as crucial to its entire business strategy, "a marketing and sales tool and a new channel for us, not as much as means to lower costs, but as to build information and relationships," Longcore says. Through growth and acquisition, Boise has more than doubled its national accounts to 17,000 since 1995. I-97 is enabling it to move more aggressively into the middle market, and, using a small I-97 subset and direct mail catalog, into the small office and home office markets. Internationally, it is expanding into non-English-speaking countries as well.
Given that disintermediation by suppliers of its products isn't an issue, according to Longcore, electronic commerce has tightened Boise's relationships with suppliers. "With catalogs there were limits on the product information we could include. With the Web site, if the supplier wants it, we can include a 20-page spec sheet. Another example," she notes, "is that Daytimer does a ton of research on how people manage their time, and we can offer that kind of research to our customers. Also, the Web has made experimenting easy, so we can work with suppliers on different approaches and services."
The Good Fight Against the Gray Market
Selling consumer electronics products over the Web is a natural progression for Crutchfield Electronics, which has long sold the products of major manufacturers like Sony and Rockford through mail-order catalogs. As Robin Lebo, director of customer acquisitions, points out, the basic infrastructure is there！the distribution center, the back-end systems, the merchandising and catalog-development talent as well as onsite authorized repair. "We have the ability to take a sale, process it, fulfill it, service it. We know what our inventory is and can guarantee delivery," Lebo says.
Companies such as Crutchfield are working to protect their reputations for speed, quality of service and ethics！both with the help of and in spite of electronic commerce. Business models such as Crutchfield's are under attack by the virtual retailers who carry no inventory, provide no services and, in some cases, take orders for product lines that they are not authorized to sell！the gray market. By contrast, Crutchfield, which is authorized to sell dozens of manufacturers' products via its catalogs, has gone through the lengthy process of obtaining authorizations to sell those same products over the Web and has thus far garnered approvals from 25 companies.
"Bizrate.com [a Web service rating operation] ranks us consistently number one in service and sales," Lebo says. "We do sell authorized equipment, we don't attempt to hide our fees and we're the leader in technical and customer service, including easy returns."
Crutchfield's first step into e-commerce came several years ago, when it opened up a site full of catalog pages. Two years ago, it began taking orders and payment over the Web and now averages 60,000 visitors a day. "We have seen incremental sales increases because we're reaching a second layer of the market that we haven't been able to capture through the traditional advertising method," Lebo notes.
Crutchfield, which is now spending 30 percent of its ad budget on Web advertising, is aligning itself to vendors with good reputations and strong brands, working, for example, with CDNOW on cobranding and cross-promotions, and advertising itself on Amazon.com. Lebo's main advice for companies developing e-commerce models: "Make sure you have a reputation of trust, a good infrastructure and a clear set of goals for your Web site."
Chase: Master of Electronic Delivery
Because of the blurring of the lines between information and financial flows, Chase Manhattan Bank NA may all at once be a client's financial institution, software provider, business process reengineering consultant and outsourcing service. In short, Chase will help companies change their processes and take over the execution of some of those procedures as well.
Chase is recognized in the industry as a "master of electronic delivery," offering the best understanding of payment and collection systems today. And clearly the Internet is enabling a variety of services around that competence.
Susan J. Webb, senior vice president and technology executive of Treasury Solutions, says that "Chase's vantage point is to help clients reengineer overall purchasing-to-payables operations. Purchasing MRO (maintenance, repair and operations) supplies generates about three-fourths of the payables in a large corporation, and they are looking more and more to outsource this non-value-added activity."
At the same time, clients using Chase's Internet PaySource product can conduct financial EDI over the Internet, which is infinitely less expensive than using value-added networks (VANs). That is less than $500 per month, with minimal upfront costs, compared with proprietary EDI expenditures of more than $100,000 and monthly usage fees of up to $10,000.
Chase is also enabling clients using a browser to access Chase databases to answer their own queries on account activity, investment capabilities and information reporting.
Webb sees enormous opportunity in electronic commerce for companies, particularly smaller vendors who can now attack new markets at lower costs. Chase sees a major role for itself in enabling their growth, not only with services but also through the Global Trust Organization. "Through this entity, formed by several banks, we will certify our clients and validate their ability to do business on the Internet," she says.