Where does the web team belong?

When e-commerce was a novelty, it didn’t much matter where the web team fit within a retail chain’s organization chart. But now it matters a great deal, not only because of the growth in online sales but because of mounting evidence that consumers often make their in-store buying decisions based on what they see on the web.

The importance of the web for store success is prompting mandates from the top levels of retail organizations to accelerate cross-channel initiatives, says Jim Okamura, senior partner at consulting firm J.C. Williams Group Ltd. who has been studying organizational issues connected with e-commerce. That in turn forces decisions on how to plan, prioritize, fund, staff, execute and measure programs that require e-commerce specialists to collaborate with their peers in marketing, merchandising, operations and IT.

Will programs like order online for in-store pickup or store kiosks that access a retail web site be more likely to succeed if the e-commerce team is part of a broader organization, such as marketing or store operations? Or should e-commerce remain a standalone unit that assigns specialists to teams established to carry out a specific project?

Toward togetherness

“It’s less about how you’re situated in the organization and much more about the conversations you’re having with the rest of the organization and to what degree there is strategic visibility at the CEO level,” says Greg Foglesong, general manager of Home Depot Direct, the e-commerce and catalog arm of The Home Depot Inc.

E-commerce is getting more C-suite visibility as the head of direct-to-consumer marketing increasingly is a member of the senior management team, with compensation tied to the overall success of the company and not just that of the online channel, Okamura says.

While that’s a discernible trend, driven by the growing importance of the web, there remains no agreement on where to place the e-commerce unit within a retail organization. A study last year by Forrester Research and online retailer organization Shop.org showed that 34% of retailers with stores and e-commerce operations organized online as a separate division; 26% put web and catalog in a single unit; 26% put web, catalog and stores in a single unit; and 14% had some other structure.

Okamura, who studied the organizational structure at 30 large multi-channel retailers last year, says the discussion of how to organize e-commerce is still at an early stage in many of those companies. If there is a trend, he says, it is toward at least partial integration of e-commerce teams with personnel focused on stores.

In such a “semi-integrated” structure, for instance, merchandising experts dedicated to the online channel might reside within the merchandising organization, as opposed to in the e-commerce unit. The aim is to provide a more consistent customer experience across channels and to facilitate collaboration between the web team and the stores.

But even initial steps in this direction pose challenges, Okamura says.

A big one is measuring the impact of cross-channel initiatives. How many customers show up at a store because of an online promotion? Or how much did e-mail addresses collected at store checkout counters boost online sales? Measurable results are necessary for a company to assess what works, and to compensate store and online personnel for good work—compensation that encourages them to put their all into future cross-channel efforts.

Another challenge is how to manage the individuals that emerge, usually from the e-commerce team, as bridges to their store counterparts. “Often these people are challenged by having two or more bosses and having to attend twice as many meetings,” Okamura says. Besides stretching them thin, these individuals become so valuable that replacing them is difficult if they leave.

The Wal-Mart approach

Retailers are addressing these issues in different ways. But Okamura says many of the early cross-channel initiatives he’s seen have been driven by teams created to drive through a particular project.

That has been the case at the world’s largest retailer, Wal-Mart Stores Inc., where the e-commerce team that operates Walmart.com is based in northern California, 1,800 miles from company headquarters, and reports to the head of the U.S. store business.

The company executed three major initiatives in 2007 that touched store and web customers—in-store pickup of items ordered online, customer reviews and ratings of items bought in Wal-Mart stores or at Walmart.com, and the “find in store” program that allows web visitors to check the availability of an item in their local stores.

The key to making these initiatives work is a common goal among web and store personnel of making Wal-Mart the best place to shop online and off, says Cathy Halligan, chief marketing officer at Walmart.com.

She says initiatives like these typically come out of annual planning meetings where staff discusses and prioritizes ideas. While the web team proposed customer reviews, she says “find in store” came from the bricks-and-mortar side and in-store pickup, or “site to store” as Wal-Mart calls it, was an idea that came from both.

“Once these ideas are prioritized, primarily within an annual operating plan, we put teams against those,” Halligan says. For instance, the “find in store” program required IT resources to funnel store inventory data to the web site, and required work on the user interface that a site visitor would encounter.

“Our secret sauce is customer focus,” Halligan says. “Be clear on the platforms that deliver customer value and prioritize appropriately. Operating plans are a perfect way to do that.”

A consistent image

Focusing on the customer experience led Home Depot in a different direction in the past year, moving it more toward the “semi-integrated” model Okamura describes. One aspect of that was transferring the merchandisers out of Home Depot Direct and into the merchandising department, Foglesong says.

That move flowed from a growing awareness within the home improvement giant that the web impacts Home Depot customers in ways that go well beyond online sales, and that it is increasingly important for the web and stores to present a consistent image to consumers, he says.

The previous structure, in which the web team operated independently of the stores, led online merchandisers to take steps that made sense as long as they were only thinking about maximizing online sales. For instance, the web site started selling bedding, which stores do not sell

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“There’s a great online opportunity to sell bedding, and their incentives were tied to the amount they sell online,” Foglesong says. The problem was that adding bedding products confused customers about what to expect from Home Depot.

Just because the site can sell something, doesn’t mean it should, he says. “The more we deviate from the core merchandising strategy, the less we do to reinforce our core store strategy and the greater the disconnect with customers about what Home Depot is online and in the store,” he says. “We believe it should be the same Home Depot. That’s different from what we would have said two years ago, but we’re absolutely committed to that today.” HomeDepot.com dropped bedding as well as other products unrelated to home improvement, Foglesong says.

As for the merchandisers’ financial incentives, now those tasked with buying products for the web site are compensated in part based on online sales and partly based on overall sales for the product areas they’re assigned to.

Relying on others

Another retailer that moved away from a standalone web team and toward integration about five years ago is Recreational Equipment Inc., a co-op chain that sells outdoor gear and apparel. “We realized customers don’t want to discriminate between REI as the store and REI as the web site and REI as the telephone,” says Brad Brown, vice president of e-commerce and web strategies. “We need to make that seamless.”

As in some other retail organizations moving in this direction, there remains a web team devoted to site operations and other tasks that require web-specific expertise.

But important tasks related to e-commerce reside elsewhere. For instance, the team responsible for driving traffic to the web site is part of marketing, and does not report to Brown.

“But I expect them to bring traffic to the site at a rate that supports the overall sales goals of my division,” Brown says. “My peer in marketing knows that’s the expectation, and he knows that if he’s doing the best he can but can’t drive the traffic that’s necessary and needs more money, I’ll be with him as we go to the leadership team to get it.”

While REI store employees are largely compensated based on store sales, executives’ bonuses are tied to overall company performance, Brown says. That’s also the case at office supplies chain Staples Inc., says Pete Howard, senior vice president of Staples Business Delivery and the executive responsible for Staples.com. He says Staples has experimented with tying a small part of bonuses to channel results but found it inefficient and unnecessary.

On the other hand, at a jewelry retailer like Zale Corp., commissions are an important part of store employees’ compensation. With that in mind, the company plans to test attributing online sales to local stores and compensating store employees for cross-channel efforts, such as collecting e-mail addresses, says Steve Larkin, senior vice president of e-commerce at the ZLC Direct unit responsible for three retail web sites.

Bridge builders

In terms of the staffers who help to bridge different business units, that role is played at REI by business analysts who take on specific projects and work with whatever divisions are involved. They report to e-commerce chief Brown, even though some of their projects are not tied to online sales.

At Staples, individuals emerge naturally from web-store initiatives, such as merchandisers involved in purchasing items like computers and printers that are strong sellers both in stores and online. Howard thinks those employees benefit from playing that cross-department role. “In this organization you have to have an understanding of all our channels,” he says.

As far as where e-commerce fits within a company’s structure, retailers continue to follow different paths.

Zale took its e-commerce team out of the marketing department two years ago to create the ZLC Direct unit focused on e-commerce. “The attention, focus, commitment and investment in the online channel was pretty diluted, and the feeling was it needed to be managed and led individually,” Larkin says. “Now we’re into the second phase of multi-channel integration.”

That includes working with store counterparts on e-mail marketing campaigns, and using the same product photography online and off. Whereas the e-commerce site used to have its own inventory, about a year ago that changed to using the same stock for both web and stores, a move that improves efficiency and gives the web site access to more inventory than before, Larkin says.

Zig, then zag

While Zale carved out a direct unit two years ago, electronics retailer Circuit City earlier this year put its Circuit City Direct unit under an executive also responsible for stores, George Clark Jr., who was given the title of executive vice president of multi-channel sales. That weakened the e-commerce leadership and online growth slowed, leading Circuit City to issue an internal memo last fall saying it planned to restore the group’s autonomy and hire a new senior vice president to head the group, according to Fiona Dias, a former executive vice president at Circuit City who left the retailer last March for a management role at e-commerce platform provider GSI Commerce Inc.

Dias draws the conclusion that it’s too early to fold the online team into a broader organization. “You need to focus on the e-commerce channel,” she says. “It’s a much faster pace and takes unique expertise. You can’t do it in your spare time.”

The change in course underscores the risks in organizational change. Brown, for instance, reports that on cross-channel initiatives, REI moves “very carefully and very deliberately.”

Okamura, the consultant from J.C. Williams, endorses that approach. He suggests each retailer decide what it wants to be known for, then focus its initial cross-channel initiatives on that key goal, rather than trying to do everything at once.

“Any reorganization carries a certain risk to it,” he says. “Develop a roadmap so you can phase this out in a logical manner that’s not too much of a shock to the existing business.”