The response to Covid-19 has accelerated trends towards digital with 59% of UK CEOs having digital transformation of core business operations and processes as a top three priority (PWC, Aug ’20).
Econsultancy asked Guy Magrath, former Chief Digital Officer (CDO) at Electrocomponents plc, to summarize the recent digital transformation of Electrocomponents, the impacts of such a transformation, and most importantly how it was done and the role he played at the time as the company’s CDO.
In 2015, we at Electrocomponents (trading names RS, Allied (US), IESA and OKdo) embarked on a three-year digital transformation which repositioned the company from a traditional catalogue distributor of industrial and electronic components to a leading digital solution provider that saw us become one of the top five growth stocks in the FTSE 250.
The end result was sizeable improvements in all financial metrics whether sales growth, cost savings, operating profits and margins, customer NPS or employee engagement. All driving a market capitalization increase from £1.06bn to £3.2bn and a share price rise from £2.45 to £7.45.
In this article, I want to share the five core strategic pillars that the digital transformation was built on.
Although many of the pillars were worked upon in parallel, for the ease of storytelling I will explain them in sequential order.
Electrocomponents plc is headquartered in London and listed on the London Stock Exchange (FTSE 250). The company was founded in 1937 as Radiospares and floated in 1967. It is now a global omni-channel solutions partner for industrial customers and suppliers and aims to provide an unrivalled choice of industrial and electronic products, solve problems with innovative solutions and deliver best-in-class customer service.
By the numbers:
- 7,000 employees
- 32 operating countries
- 1 million+ customers
- 2,500 supplier brands
- 500,000 stocked products
- 63% digital revenue
Digital transformation step 1 – Develop a digital vision that is an integral part of the business strategy
No digital transformation can ever be successful if it is not fully integrated into the business strategy and, most importantly, fully supported by the CEO.
It doesn’t matter how much enthusiasm and groundswell you can generate from the bottom up; if the transformation is not fully endorsed and supported by the CEO it’s almost certain to fail.
Lindsley Ruth, the newly appointed CEO, was a visionary and quickly understood the need for change. To support Lindsley in making this transition, I spent a lot of time at Electrocomponents showing how in a digital world our customers, suppliers, employees, shareholders, social community and the environment would be far better off in a new world, post-digital transformation. I researched the approaches taken by all the leading consulting houses in this field, and out of that research a five-step process was born.
My goal was to get the CEO so excited he would tell the Board, City and investors, therefore committing to delivery of the transformation. A full digital maturity assessment was conducted with Forrester to understand our current position, a detailed three-year roadmap defined, a £1.25bn shadow P&L created, digital measures added to the group bonus scheme and every function asked to define their transformation based on the digital vision defined.
Outcome of step 1 – The starting gun had fired, and everyone was moving in the right direction.
Digital transformation step 2 – Relentless focus on creating a “brilliant customer experience”
Although Electrocomponents has a history and culture immersed in customer service since it was established in 1937, it was clear in 2015 that customer expectations in a digital world were moving far faster than the company.
After reviewing all the ‘Voice of the Customer’ feedback, digital analytics, UX research and sales force feedback, we developed a plan to excel in meeting three core customer expectations:
- Convenient – Ease of use, saving customers their most precious commodity – time, by doing the ‘basics brilliantly’
- Friendly – Highly relevant and personalized customer journeys
- Fast – A fast and frictionless service.
We defined our core customer purchasing journey (research, find, buy, pay, deliver, after care) and put a product ownership model in place to develop customer journey maps, identifying and fixing core customer issues and exploiting new revenue opportunities. For larger corporate customers with sophisticated purchasing departments, we developed a suite of tailored purchasing solutions including eprocurement, Purchasing Manager and MyMRO to lock them in. Where simple manual processes could be automated or centralised under a regional shared business service to be more efficient, we would do so.
Up to 15 agile teams were formed to develop customer features, six times faster than before. Most impressive of all was how these customer features were developed, under an approach called ‘user-centric design’ where pain points were redeveloped with customers at the heart of the design process (via user experience research labs), then A/B tested to verify before being passed to the agile teams to build.
Fifteen teams were building and releasing new customer-tested features every two weeks.
The complexity to serve over a million active customers around the world, with differing cultural needs through 60+ websites offering a range of over 500,000 products, was immense. Even with that complexity we drove a ‘customer-obsessed’ culture driving historic high NPS scores (48 to 59) and market-leading CSAT rates (a market leading score of 73 against a sector average of 66).
We also embedded a global marketing platform (Adobe Experience Cloud), integrating multiple data sources to create highly targeted audiences to deliver automated real time customer messages on a massive global scale. This in turn drove digital sales from £500m in 2013 to £1.25bn by the end of 2019, accounting for 63% of group sales, with an average growth rate of 14% a year. Website visits increased from 60m to 120m per annum, acquiring 20,000 new spending contacts a month.
Outcome of step 2 – We were laser-focused on the customer and delivering value faster than ever before.
Digital transformation step 3 – Modernize technology and data capabilities to move at pace
Electrocomponents had spent the previous 10 years implementing a global ERP system that was highly bespoke, resulting in significant time delays and cost increases. As a result, the core backbone of the proposition – sourcing, stocking, selling products on the web and billing – became outdated, inefficient and less competitive. Focus immediately turned to transforming and prioritizing this core backbone across the front, middle and back office where most of the value was created.
We updated the ERP system, removed bespoke code wherever possible and moved to the cloud for increased flexibility and greater efficiency. In the middle office the Product Information Management system (PIM) was replaced with the latest cloud-based technology to allow rapid ingestion of supplier product ranges that drove efficiencies through automation. In the front office we moved to a fully responsive, mobile first website that was underpinned by cloud based microservices, increasing the speed of development yet further.
Finally, we developed and implemented a centralized, cloud based, data ecosystem that drove commercial value and improved data driven decision making from Day One. Initiatives such as data-driven product ranges, automated bidding, real-time personalization and enriching products with unique content to further drive performance were implemented at pace with many having an additional AI/ML layer applied.
To fund these initiatives, we negotiated and reduced ‘IT Run’ costs by £10m annually through cost savings and nearshoring certain engineering capabilities allowing increased invested in the above transformational initiatives. Alongside that we overhauled and built a centre of ‘Software Engineering Excellence’ resulting in Electrocomponents being recognized as ‘one of the best technology companies to work for in the UK’ in 2019.
Outcome of step 3 – We transformed to a modern enterprise architecture creating enablers to move at pace and scale, key attributes of a digital business.
Digital transformation step 4 – Recruit and develop world class talent into an environment where they will thrive
Electrocomponents was not an obvious destination point for top talent as the brand was not clearly known and the technology it worked on was not modern. We therefore had to think differently on how we would acquire and retain top talent that was in such high demand.
Firstly, we moved our International digital hub to London. London was not only attracting top talent across the UK but Europe as well. After three quick moves across London due to expansion we finally settled at London Kings Cross where we integrated the digital hub with the new HQ that moved from Oxford, accelerating the overall digital transformation.
Secondly, we repositioned the brand from a functional position to a market-leading, purpose-driven one under the umbrella ‘For the Inspired’ where we honoured great engineers and celebrated great engineering. We showcased the work they did and how it enriched society for the better.
For example, when Ben Ryan started his journey and established Ambionics to develop a new 3D printed arm for his son Sol, little did he realise that his innovation had the potential to change the lives of children worldwide. Not only did this attract exceptionally talent from leading blue-chip companies, who were likewise purpose-driven, but the customers and suppliers themselves loved watching what other engineers were doing.
It took Electrocomponents seven years to get to its first one million views on YouTube. These short three-minute videos were getting one million views a week. As a result, our brand was being propelled forward into a leadership position where we saw spontaneous brand awareness increase by 10% and first choice ratings improve by 20% in core markets. This enabled us to acquire and retain some of the best talent across the industry, driving a step change in cultural and gender diversity (Glint engagement score of over 70).
Finally, the core offices across the group were redesigned to drive and accelerate our six core behavioural values of collaboration, integrity, aspiration, innovation, accountability and passion.
Outcome of step 4 – We created a purpose-driven culture that not only acquired and retained world-class digital talent but highly motivated them as well.
Digital transformation step 5 – Drive cultural change within the business to exploit these digital capabilities.
Of all the steps, this one was probably the hardest to implement and comes back full circle to Step One and the drive and commitment needed from the very top.
Electrocomponents built an incredibly strong digital function that was now moving and evolving with the market at real pace. Keeping the rest of the business abreast and updated was a huge challenge.
To counter this, in-depth training programs were put in place for our top senior leaders. Every two years we would run a three-day digital festival where some of the best thought leaders in the industry and leading digital suppliers would speak. Their presentations were transmitted live around the world to every employee who could log in from their desk. Shadowing and mentoring programs were put in place and collaboration was encouraged and fostered wherever possible through cross-functional teams working to common objectives.
Cultural values for the business were defined through a digital lens. Cultural change on this scale, in more traditional business units, was difficult and took time. But many a success story was and continues to be created from these business units, proving the digital transformation was taking hold.
Our STEM strategy across our education sector emerged and began inspiring the next generation of engineers linked with our Single Board Computing (SBC) and Internet of Things (IOT) solutions. Our DesignSpark engineering community of over 750,000 engineers was born, our onboarding app for new employees created, a ‘customer potential model’ for the sales force developed, digitising our supply chain and much much more.
Outcome of step 5 – Finally, the way the whole business went about its work began to change.
Recognition of a successful digital transformation
On top of the business outcomes already discussed, this three-year digital transformation led to Electrocomponents winning more than 30 national awards across the digital, data and technology spectrum (such as Best In House Digital Team, Best B2B Brand Campaign, Best Digital Strategy, UK Digital Business Of The Year and Best Customer and UX Award) as well as winning the prestigious ‘Business Transformation of the year award’ in 2017 (LSE).
As CDO, I was personally ranked in the top 100 digital change agents future-proofing their brand (100 Digital Leaders).
And most importantly, the business moved its focus back on to the customer, strengthened its leadership team and drove a culture of innovation, accountability and continuous improvement.