Compaq Computer Corporation was founded in 1982 in Houston, Texas, and stands for compatibility and quality. With its products and services, Compaq creates the conditions for its customers to succeed in the internet age. Compaq is a leading IT company. The product range consists of industry-leading solutions for corporate IT, fault-tolerant solutions for business-critical applications, network, storage and communication products as well as PCs and notebooks for professional and private users. Compaq works together with a worldwide network of sales partners. With its IT experts and the partners’ service employees, the company has one of the largest service and support organisations in the world.


Background
Compaq operates an indirect business model and does not sell directly to end customers or business customers. Compaq has a distribution system comparable to the traditional distribution model. The IT distributor (wholesaler) purchases the products from Compaq, sells them to specialised dealers, who then cover the individual requirements of the end customers and business customers.


Industry
Compaq Computer (Switzerland) GmbH is a leading IT company and has subsidiaries in DĂĽbendorf (head office), Geneva, Baden und Basle.

Product
Compaq markets the following products and services:

• IT systems for corporate solutions
• Personal computers for business needs and home use
• IT services for outsourcing and corporate solutions
• IT support and management services

Target Group
Compaq divides the market into three main segments:

1. Large customers (major accounts): supportive and advisory through “Account Management” (product logistics often through dealers),
2. Small- and medium-sized companies: consulting and sales of Compaq products is mainly done by the dealers,
3. Retail business: exclusively through well-known mass distributors with branches in the electronics market.

Michael Capellas, CEO of Compaq Corporation, expresses Compaq’s vision as follows: "Everything to the internet”. Compaq not only develops hardware for Internet applications; it also informs existing and potential customers and partners about dialogue-rich internet applications. Compaq not only seeks to be a major provider of e-business solutions; it also wants to use innovative and useful e-business solutions itself in all areas of e-business. In the process, its aim is not only to optimise its own business operations, but to serve as an example to its customers for the use of operative solutions.

The case study presented here deals with e-business for customers, sales partners, and distributors (wholesalers) of Compaq Switzerland. It doesn’t cover the relationships to suppliers of Compaq or the support of internal processes (intranet).

The vision of the e-commerce solution in the case presented here is:

• Comprehensive support for end customers, sales partners, and distributors (wholesalers) through e-commerce (B2B, B2C),
• Services include information, support, proposal and order processing (including workflow elements)
• Compaq seeks to use the e-commerce solution to be present in indirect sales with end customers and sales partners and to use the solution to play an active role in marketing, sales, and logistics.

Strategy
The following strategy was chosen to achieve the vision:

• The e-commerce solution must support end customers, sales partners, and distributors. Specifically, it must not create any “channel conflicts”. Contacts to end customers should not compete with sales partners. Indirect sales will continue to be made. Compaq will only directly deliver to a few select major account projects.
• End customers must be able to receive comprehensive information and to order directly from the sales partner of their choice.
• Larger customers and sales partners will be given access to an extranet that provides a variety of information and ordering possibilities, and which can be setup in a customer-specific way and supports internal as well as external processes with workflow elements.
• A central platform for all sales partners and distributors will create the necessary logistics transparency (especially the availability of the products) across all of Switzerland.
• The solution must be implemented step-by-step and be expandable.
• The solution will lead to a better level of awareness of Compaq, more loyalty and turnover, and have a good return on investment (less than two years).

The supplier’s e-business concept
The objective of the e-business solution is to strengthen marketing, sales, support and distribution of Compaq’s hardware and software with sales that are almost exclusively indirect. The participating parties are:

• End customers: they are subdivided into home and small offices, small and medium-size companies, and major accounts (e.g. banks, insurance companies, the government, etc.). Globally active customers are not covered in this case study.
• Sales partners: Dealers that mainly offer their customers IT products (for home users this means retailers), and business partners that often also offer solutions and support in addition to supplying hardware and software. They buy hardware and software usually on a per-contract basis from a distributor and maintain only a marginal inventory stock themselves. Individual larger business partners have the possibility of ordering directly from Compaq plants (not covered further here).
• Distributors: mostly vertically integrated wholesalers (i.e. specialised in IT products), which distribute other products besides Compaq products. They purchase the products from Compaq ex works (usually a collective order); they maintain a stock of inventory, and guarantee a delivery service. They also bear the entire inventory risk.
• Compaq: While it’s true that Compaq supports end customers, sales partners, and distributors through marketing and sales, it usually only ships to distributors.
• Logistics service providers: forwarding agents, the postal service, courier services, etc. They manage all levels of transport. Usually, the sales partners and distributors choose a suitable logistics service provider.
• Payment transactions: this is handled through the usual channels between the participating business partners, i.e. between the end customer and sales partner, sales partner and distributor, distributor and Compaq. Compaq also provides a leasing option.

The following figure illustrates the usual distribution structure in Switzerland:

Figure 2.1: Compaq’s distribution structure in Switzerland

Based on this distribution structure and starting with existing information systems, four networked applications were designed:

• Homepage: (www.compaq.ch)
• Compaq Shops for end customers (www.compaq.ch/shop)
• Premium Club (Extranet) for medium and large-sized customers (www.premiumclub.ch)
• Compaq Link for sales partners and distributors (www.compaqlink.ch)

The following chapter contains information about the scope of functions and structure. The e-commerce solution was implemented and expanded step-by-step from 1999 to 2001.


Scope of Services
The solution includes Internet and extranet applications for B2C and B2B for Compaq products and services. For the participating sales partners and distributors, it only covers part of their requirements since they must handle products from other companies (non-Compaq products) using their own IT infrastructure.


Partners
Fulfillment partners
The usual progression is:
Sales partners: they handle the end customer orders (e.g. generate an order confirmation); then they order from a distributor (perhaps together with other products) and, finally, they send the invoice to the end customer (or they request advance payment). At the request of the customer, the sales partner can perform specific configuration tasks.

Distributors: they deliver the products that are ordered either to the end customer or the sales partner that then configures the products according to customer requirements, for example. Distributors issue invoices to the sales partners.

Logistics service providers (forwarding agents, courier services, post offices etc.): they perform the physical transport and settle accounts with their clients.

Payment transaction: this is usually carried out using the business partners’ existing channels. However, the e-business solution presented here supports leasing between corporate clients and Compaq Financial Partners (from a certain order volume). In this case, the sales partner issues an invoice to the Compaq Financial Partner.

The way that orders, deliveries, and payments are handled between sales partners, distributors, logistics service providers and financial service providers is different from case to case and includes solutions such as mail, fax, e-mail, and on up to more advanced e-business solutions. The handling method is mainly determined by the general type of cooperation between the participating business partners and is not specific to Compaq products (because the business partners distribute other products besides Compaq products). An example of the business transaction between the sales partner A. Baggenstos & Co. AG and the distributor ALSO ABC TRADING AG, can be found in this book under the “Baggenstos AG” case study. Compaq products are also handled between these companies in the same way described there.

Internet Agency
Compaq implemented this e-business solution together with namics ag. The company namics is a specialist for professional internet services and is the market leader in Switzerland. ”Team-based net solutions” are used to merge the three core competencies of consulting, design, and technology into e-business and e-commerce solutions which have been proven to yield a return on investment. namics is characterised by longstanding customer relationships and strategic customer projects with proven success. Its customers include companies such as ABB, Siemens, Compaq, Ericsson, Microsoft, Nestlé, Opel, Sunrise, Swisscom, Swiss Life/redsafe, and Swiss Re. More than 65% of turnover is attributable to customer relationships that have lasted more than three years. 75% of namics is owned by the PubliGroupe (www.publigroupe.com) and 25% belongs to its management. Besides its headquarters in St. Gallen, namics has subsidiaries in Geneva, Frankfurt, Hamburg, Constance, Milan, Zug, and Zürich.

Type of Fulfillment Service
The following briefly shows the most important scope of functions of the central applications:
Compaq Shop

• direct ordering option for selected products (so-called “Golden Offers”): The orders are fed into an order database,
• choice of transaction “advance payment” or “invoice”: For corporate customers with online orders of more than CHF 5000, there is also an online leasing option in cooperation with Compaq Financial Services and its partners. In this case, the information for the credit assessment and contract signing between the customer, sales partner, and financial institution is forwarded electronically.
• ability to choose a sales partner,
• information about product availability in Switzerland,
• additional support and contacts regarding the installation of software and drivers,
• Premium Club (extranet for medium and large-sized customers),
• choice and involvement of sales partners,
• definition of a company-specific product range (e.g. standard laptop for field sales staff),
• getting offers, preparing orders, information about product availability in Switzerland,
• online leasing option (see above),
• workflow covering internal orders, release points, and sales partners,
• tracing of offers and orders,
• Compaq Link (for sales partners and distributors),
• central order database with selective access for determining the availability of products across all of Switzerland (even detailed down to each distributor)
• personalised portal: product and service-related information specifically for individual Compaq partners,
• online forwarding of customer orders to the desired distributor.

The most important service for sales partners and distributors is found in the support for marketing, order processing, selected logistics functions (e.g. information about product availability) and payment support (e.g. leasing). In addition, sales partners are supported in the operation of their own internet presence by means of appropriate tabs and links (e.g. the link to the marketing promotion for “Golden Offers"). This reduces the effort for the sales partner and creates a standard appearance for Compaq at all sales partners in Switzerland.

The solution doesn’t provide direct support for logistics service providers and the effective payment transaction. This runs through the existing channels and information systems of the respective business partners (for Compaq products and those of other companies) and are vary diverse.


Fulfillment Partner's Solution
The effective solution for the partners involved consists of the sales partners’ and distributors’ existing IT solutions with their interfaces to the logistics service providers and payment transaction partners, which have now been expanded by the e-business solution presented here. 85% of data exchanges between Compaq plants and distributors use EDI in accordance with the UN/Edifact standard.


Costs
Investment
Approx. CHF 1.3 million was invested from the end of 1999 to the middle of 2001 in the implementation the applications Shop, Premium Club, and Compaq Link.

Overhead costs
The overhead IT costs are approx. CHF 50,000 per year (without ongoing development costs for the applications).

Processes / Redesign
Before developing the requirements profile, the following issues had to be addressed:

• Which information should be made available to end customers, sales partners, and distributors?
• How can “channel conflicts” be avoided?
• How do the processes run today and how should they be in the future? What can be standardised and what can’t (because customers, sales partners, and distributors have very different requirements and constraints)?
• How do we get the interfaces for the different partners and their IT systems?

The concept was then approved by the Management Board of Compaq Switzerland. Here, specific standards from Compaq USA had to be taken into consideration (above all regarding corporate design). Afterwards, it was possible to implement the solutions specifically for Switzerland. This made it possible to proceed rapidly since no coordination with other Compaq companies was required. After the concept was approved, detailed procedures and specifications were developed and the application was implemented and introduced step-by-step.


Software solution / Programming
Compaq was the client for all applications. After initial cooperation with various agencies, the applications Shop, Premium Club, and Compaq Link were developed to a great extent by namics. namics also maintains and further develops part of the applications. Compaq defines and maintains the processes and content.


Technical Platform
The applications are based on Windows2000, MS SQL Server 7.0, and Microsoft Site Server Commerce Edition 3.0.


Architecture [system architecture]
Compaq provided the information and IT platforms. The data is made available to the internet shop and the extranet (Premium Club) from the central product catalogue. Orders from both shops are entered into the common order database (with selective access). This database is used for order management and reporting. The sales partners process their orders via Compaq Link and forward them within the application directly to the appropriate distributor as the need arises.

The applications have the following interfaces:

• to the internal product catalogue from Compaq,
• sales partner and distributor data is input from Compaq’s CRM system,
• product availability information is reported electronically by the distributors every day (EDI/Edifact). It is consolidated and shown in the shops for the end customers (shown in Compaq Link for each individual distributor for the sales partners),
• information about incoming orders is forwarded by e-mail,
• XML interfaces to the sales partners’ and distributors’ ERP solutions are in development.

Figure 4.1: Solution concept

Maintenance
The solution is operated by Compaq Information Management itself. Maintenance and further development is partially performed by namics.


Profitability
Turnover
In the year 2000, turnover of ca. CHF 21 million was achieved through the shop and Premium Club. Towards the end of the year, this amounted to 4% of the equipment business and was consequently 20% below expectations for 2000. According to one estimate, 1/3 of this is additional business. The trend is continuously increasing. The upper limit of this e-business channel is estimated to be 10-15% of the indirect hardware business. The other 85-90% of the hardware business is processed through:

• traditional media (paper, fax),
• using the sales partners’ and distributors’ IT platforms, which are also used for products of companies other than Compaq.

Income
The direct return on investment (ROI) of the investment of approx. CHF 1.3 million is about one and a half years. An additional benefit is very easy updating of the information about products, offers, availability, services, etc. for end customers, sales partners and distributors, which reaches the market most efficiently using this internet platform.

Specialities of the Solution
The most significant items in this e-business solution are:

• Achieving an integrated approach in the market: better and more standardised branding as well as expanded information from Compaq for the entire Swiss market. This was achieved in spite of indirect sales. With it, Compaq achieved an effect that is similar to franchise systems (although the sales partners and distributors are not Compaq franchisees!). This is a leading, integrated multi-channel solution.
• Lowering the process costs: the entire process chain from the customer, through the sales partners and distributors to Compaq, are supported by services (information, offers, orders, confirmations, deliveries, leasing offers, archiving, and reporting). The actual payment runs through existing channels of participating business partners.

Unique Selling Proposition
Customers have the following benefits:

• End customers (B2C): easily available information about products, special offers, and availability; the ability to order directly from a dealer of choice;
• Medium-sized and large customers (B2B): establishment of a company-specific extranet, which allows the definition of a company-internal catalogue of Compaq products and which supports the internal and external procurement processes;
• Sales partners: additional business. Easy access to information from Compaq; in addition, sales partners can easily integrate the information from Compaq into their own internet presence; easy access to information about availability at various distributors.
• Distributors: easy access to information from Compaq (otherwise, no major benefits).

Changes
The main benefit for Compaq is found in the direct provision of information, including to the end customer sector (and not only to sales partners and distributors). As a result, Compaq can actively shape its market presence and support sales in spite of selling indirectly and without causing “channel conflicts”.


Lessons Learned
The solution presented here can be described as comprehensive and progressive. It results in the expected benefits. Nevertheless, it could have been even more effective, particularly in the implementation. The main improvement potential was found in an early and consequential structuring of the product catalogue. Here, too little was done in the early phases and this had to be compensated for during the course of the project with the related additional work.

On the other hand, some things went especially well:

• Due to Compaq Switzerland's relatively high independence and the availability of sufficient resources, it was possible to implement the project quickly and flexibly.
• Cooperation with namics went very well.

The limits of today’s solution are mainly found in its focus on products from Compaq. This limits the scope, and at the moment, it limits the acceptance of the solution with customers, sales partners, and distributors, who also buy and sell other IT products. Given this constraint, the solution still provides a variety of benefits for all participating parties.