ent 36 (2007) 10–20

Industrial Marketing Managem

The multi-channel challenge: A dynamic capability approach

Hugh Wilson a,⁎, Elizabeth Daniel b

a Cranfield School of Management, Cranfield, Bedford, MK43 0AL, UKb Open University, UK

Available online 8 August 2006

Abstract

The maturing of e-commerce, the diffusion of call centres into the B2B space and purchaser demands on price and service are leading to rapidchange in the route to market in many B2B sectors, with shifting combinations of channels being offered to the customer in the search foradvantage. In this situation managers can no longer rely on the channel resources that they have assembled to provide their extant competitiveposition. Instead they must be able to combine resources in new ways, gain additional resources and dispose of superfluous resources, and to dothis repeatedly and rapidly if they are to compete successfully. The term ‘dynamic capabilities’ has emerged in the strategic management literaturefor these activities. Using four case studies and the analytic induction approach to data analysis, we identify seven dynamic capabilities for channeltransformation.© 2006 Elsevier Inc. All rights reserved.

Keywords: Marketing channels; Business-to-business; Dynamic capabilities; Resource based view; Case studies; Analytic induction

1. Introduction

Peter Drucker famously observed fifty years ago (Drucker,1954) that “Because it is its purpose to create a customer, anybusiness enterprise has two, and only these two, basic functions:marketing and innovation”. If he was right, our topic is animportant one, as it concerns both marketing and innovation.But while the product innovation that Drucker was referring tocontinues apace, today's competitive strategy is equally basedon innovation in the route to market (Rayport, 2005). The use ofe-marketplaces (Dai & Kaufmann, 2002) and the evolution ofthe remote model to encompass product delivery and service aswell as sales in sectors such as IT (Hoffman & Novak, 2000) arejust two examples of innovative channel strategies as a keycomponent of the value proposition.

But we have not seen the wholesale switch to remotechannels which many predicted just a few years ago. Instead,we find ourselves in a multi-channel world. The business-to-business sales force is still struggling to work out its relationshipwith the call centre and the Internet channel. And although thepure-play model flourishes for some product-market segments,many others like Dell have found that a remote model of mail

⁎ Corresponding author. Tel.: +44 1234 751122; fax: +44 1234 751806.E-mail address: hugh.wilson@cranfield.ac.uk (H. Wilson).

0019-8501/$ - see front matter © 2006 Elsevier Inc. All rights reserved.doi:10.1016/j.indmarman.2006.06.015

order, the telephone and the Internet still has to be supplementedby a sales force to build relationships with major accounts.

The route to market has therefore become a key competitivebattleground in many industries, with different players tryingout different channels or channel combinations in an attempt toreduce costs, improve customer satisfaction or both. A numberof researchers have suggested that in such dynamic environ-ments competitive advantage is transient, rather than sustainable(D′Aveni, 1994). Managers must therefore concentrate onrenewing rather than protecting their sources of competitiveadvantage (Rindova & Kotha, 2001). No longer can they rely ontheir extant channel resources – a distribution network, anexcellent sales force – that they have assembled to provide theirpresent competitive position. The dynamic nature of channelcompetition requires them to be able to combine these resourcesin new ways and to gain additional resources, and to do thisrepeatedly, if they are to compete successfully. Strategicmanagement scholars have come to refer to the processes bywhich firms reconfigure their resources in order to gaincompetitive advantage as dynamic capabilities (Teece, Pisano,& Shuen, 1997).

In this paper we seek to help managers undertaking channeltransformation by exploring the role of dynamic capabilities inthis domain. In particular this study, which is preliminary innature, seeks to identify generic dynamic capabilities that might

11H. Wilson, E. Daniel / Industrial Marketing Management 36 (2007) 10–20

be considered as best practice in channel transformationinitiatives in B2B markets. We also consider the lessons thatthe dynamic capability paradigm can provide to managersundertaking this important activity, and to academics engagedin studying this domain.

The concept of dynamic capabilities has proved usefulwithin some other marketing areas. Previous studies haveconsidered their use in international expansion (Grant, 1996;Griffith & Harvey, 2001; Luo, 2000) and new productdevelopment (Deeds, DeCarolis, & Coombs, 2000; King &Tucci, 2002; Marsh & Stock, 2003; Spanos & Prastacos, 2004).Whilst other studies (Daniel & Wilson, 2003; Hackbarth &Kettinger, 2004; Rindova & Kotha, 2001; Wheeler, 2002) haveconsidered Internet channels specifically, we are unaware of theapplication of the concepts of dynamic capabilities to the issuesof how channels fit together and how channel strategy overall isto be developed. This study therefore represents an extension ofthis increasingly widely accepted area of strategic thinking tothis important topic.

We use the term channel transformation to describe anorganisation's deployment of marketing and sales channels tosignificantly modify its strategy. In accordance with our focuson the resource based view, we define strategy in turn as ‘asustained pattern of resource allocation’ (Mintzberg, 1978).Following more recent practice (Payne & Frow, 2004), weinclude within the term ‘channels’ both indirect channels suchas agents and distributors, and direct channels such as theInternet, call centre and field sales force.

The paper commences with a summary of the concept ofDynamic capabilities. The objectives and Method adopted forthe study are then described and the findings of the study arethen presented and discussed. We conclude with a more generaldiscussion of our findings including suggestions for furtherresearch. We do not here present a full review of the growing,though mainly prescriptive, literature addressing channelstrategy in today's multi-channel environment. Instead thereader is referred to papers by Payne and Frow (2004), Nunesand Cespedes (2003), Myers, Pickersgill, and Metre (2004) andStone, Hobbs, and Khaleeli (2002), and to the other paperswithin this special section of Industrial Marketing Management.

2. Dynamic capabilities

The resource based view (RBV) (Wernerfelt, 1984) con-siders organisations as collections of specific physical, humanand organisational assets or resources. If these assets arevaluable, rare, inimitable and non-substitutable – the so-calledVRIN attributes – they can be used to implement value-creatingstrategies that will provide sustainable competitive advantage(Barney, 1991). Some scholars have questioned whether RBVadequately explains why certain firms have competitiveadvantage in situations of rapid and unpredictable marketchange, termed high-velocity or dynamic markets (Rindova &Kotha, 2001; Zollo & Winter, 1999). In such markets, theyargue, the mere existence of appropriate bundles of specificresources is not sufficient to sustain competitive advantage.Instead a firm must constantly reconfigure, gain and dispose of

resources to meet the demands of a shifting market. This has ledto the concept of dynamic capabilities, which are characterisedas an organisation's processes that ‘integrate, reconfigure, gainand release resources to match and even create market change’(Eisenhardt & Martin, 2000: p.1107).

Considerable interest has been shown in this concept, withstudies focussing for example on their role in organisationallearning (Tsoukas & Mylonopoulous, 2003); new firm forma-tion (Newbert, 2005); knowledge management (Macpherson,Jones, & Zang, 2004; Sher & Lee, 2004); corporate strategy(Bowman & Ambrosini, 2003) and mergers and acquisitions(Grant and Baden-Fuller, 2004).

Lawson and Samson (2001) apply a dynamic capabilitiesapproach to the investigation of innovation. Whilst manyauthors highlight the differences between an organisation'swell-established or ‘mainstream’ activities and their innovativeor ‘newstream’ activities (Kanter, 1989), Lawson and Samson(p.382) stress that ‘managing the different needs of themainstream and newstream independently is unlikely to besuccessful in a dynamic and turbulent operating environment’.They suggest that in such markets organisations must developan innovation capability that allows these two streams to beclosely coupled. They propose a model that operationalises thiscapability as seven elements: vision and strategy; harnessing thecompetence base; organisational intelligence; creativity andidea management; organisational structure and systems; cultureand climate; and the management of technology.

Teece et al. (1997) suggest that dynamic capabilities areunique to individual firms, reflecting their individual idiosyn-crasies and their specific path-dependencies. Whilst acknowl-edging that the details of dynamic capabilities are idiosyncratic,Eisenhardt and Martin (2000) consider that specific dynamiccapabilities show considerable similarities across firms.

Although required in all markets, dynamic capabilitieschange in nature in high-velocity markets from theirembodiment in more stable markets (Eisenhardt & Martin,2000). In stable markets they are detailed, analytic and stableprocesses and resemble the traditional conception of routines.In contrast, in high velocity markets dynamic capabilitiesbecome simple, experiential and fragile processes withunpredictable outcomes. The simplicity of these capabilitiesmeans that there is little structure or routine for managers torely on. Prigogine and Stengers (1984) describe suchprocesses as dissipative, in that they require constant energyto stay on track, and they are constantly in the unstable state ofslipping into either too much or too little structure. As the rateof change in the market increases, these processes becomeparticularly difficult to sustain, leading to the warning that inhigh-velocity markets, ‘the threat to competitive advantagecomes not only from outside the firm, but insidiously frominside the firm though the collapse of dynamic capabilities’(Eisenhardt & Martin, 2000 p.1113).

3. Method

An objective of this study is to identify generic or bestpractice dynamic capabilities which are necessary for multi-

Table 1Case studies undertaken

Case study IBM British Telecom Major Business (BT) UK Trade And Investment (TAI) Hospitality Services (HS)

Industry sector IT and consulting Telecoms and IT (B2B) Export consultancy to SMEs Services to hospitality sectorHeadquartered US UK UK UKTurnover (2004, approx) $96 bn $8 bn $50 m c.$200 mGeographic markets served International International International UKNature of channel

transformationMajor programme completed to simplifyIBM’s route to market into seven mainchannel combinations globally

Introduction of desk-based accountmanagers and integration of allchannels via single CRM system

Channel strategy developed to servethree broad segments throughappropriate channels (vs. previousone-size-fits-all)

Project to evolve from field salesmodel to mixed channel modelusing call centres and the web

Commentary These seven combinations are now wellembedded into operational systems, enablingmanagement information to be collated bychannel as well as product, geography etc.

300 field sales people replaced bydesk-based account managers so far.Savings in cost of sale as well asincrease in revenue as field sales canfocus on largest deals

One of the segments suited thetraditional face-to-face approach.Another suited a teleweb model.The third used one-to-manyapproaches including seminars and PR.

Pilots of call centre sales havesignificantly lowered cost of sale,and thereby increased revenue assales budget goes further. Roll-outto some sectors in progress.

Relative turbulence ofunderlying market

High — the IT industry creates and destroyscompetitors at pace. Consulting continues toconsolidate, with IBM having integrated itsPwC purchase

High — the telecoms market, likeother sectors of the information andcommunications industry, has beenimpacted by rapid technologychange (e.g. mobile devices, voiceover IP) and increased competition

Low — consolidation in majorconsultancies has relatively littleimpact on SMEs, which continue tobe served by fragmented providersof advice including banks,accountants and specialist\consultancies

Medium — rapid consolidation insome subsectors such as restaurants.Increased emphasis on consumerexperience sees new requirementsplaced on service providers.

Market turbulence due tochannel competition

High — major players continue toexperiment with the boundaries of Dell'sdirect model, and with different permutationsof indirect channels

Medium — Internet contributes tolowering prices for simple offerings,forcing players to rethink channelstrategy to maintain margins and revenue

Low — while some peer-to-peernetworking for SMEs is nowsupported online, most advice isgained face to face and direct fromthe advice providers

Medium — the buying power ofconsolidated hospitality providers ispressuring their suppliers on price,which in turn encourages use oflow-cost sales channels

Number of staff interviewed 4 5 4 5

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channel transformation. The resource based view (RBV) isusually linked to a case study approach due to its ability toincorporate a rich picture of the firms studied, including theirunique context and idiosyncrasies (Hoskisson, Hitt, Wan, &Yiu, 1999). Since we are looking to identify capabilities whichare common across various B2B sectors, a multiple firm, cross-industry case study approach was adopted.

The analytic induction approach to data collection andanalysis was used. Originally proposed by Znaniecki (1934),analytic induction has refined into perhaps the best-devel-oped logic for theory development and testing acrossmultiple case studies (Gill & Johnson, 1991). Recentapplications in the marketing domain include Daniel, Wilson,and McDonald (2003) and Wilson, Daniel, and McDonald(2002). In brief, the method involves generating hypothesesor propositions (here, our identification of dynamic capabil-ities relevant to multi-channel transformation) from the firstcase study; using the hypotheses generated to inform thecollection of data in the second case; comparing thehypothesis against the data collected in the second case; ifnecessary reformulating or supplementing the hypotheses soas to take account of the data from this case; and so onthrough the other cases.

Translated into the context of this study, the method can besummarised as follows:

1. Four cases were selected (listed in Table 1), to provide aspread across a range of B2B sectors including product andservice firms, and across size of firm, private versus publicsector and across a range of different channel transforma-tion initiatives. Three of the cases were internationalorganisations, one based in the US and two in the UK.The fourth company serves purely a UK market: we haverenamed this company as Hospitality Services for reasonsof confidentiality.

2. Semi-structured interviews were held with staff involved inchannel strategy. Nineteen managers from the four organisa-tions were interviewed, of whom seven were at directorlevel. Interviews lasted between 1 and 2 h and were tape-recorded and transcribed.

3. Managers were asked to describe their organisation's currentchannel strategy, how it had evolved, and what theorganisation had learned about what capabilities werenecessary to transform channel strategy.

4. Having completed the first case study, the transcripts wereanalysed and data supporting particular examples of dynamiccapabilities and of effective practice were identified.

5. A second case study was undertaken and the transcripts wereanalysed. Data supporting the dynamic capabilities identifiedin the first case were noted. Where necessary thesecapabilities were amended to take account of the data fromthe second case, or additional capabilities were added.

6. Step 5 was repeated for each subsequent case. If a changewas made to the capabilities identified, or a newcapability was added, it was ensured that the changewas consistent with all previous data, as well as the caseunder consideration.

Both the underlying markets in which the four organisationsoperate and the channel competition which they exhibit displaydifferent degrees of dynamism as shown in Table 1. Theincrease in channel competition had tended to contribute to theincreased level of dynamism or velocity in three of the marketsstudied, providing the catalyst for significant industry changewhich had not yet stabilised.

4. Findings and discussion

Table 2 shows the seven specific dynamic capabilities thatwere identified in the case studies and how frequently thesewere observed across the cases. Four of these, which are listedfirst in Table 2, appear to be associated with innovation and areconsistent with the model of innovation capability proposed byLawson and Samson (2001). A further three relate to integrationbetween channels (Payne & Frow, 2004), though again theyrelate to elements of Lawson and Samson's (2001) model, asillustrated in the last column of Table 2. Each capability will bediscussed in turn.

4.1. Active review of the route to market in an iterativestrategy/implementation cycle

Exploiting the competitive possibilities of channel strategyrequires firstly that the organisation must have some mechanismfor reviewing and reforming the traditional route to market,rather than just taking it for granted. Many marketing planningmethods, for example, start with a map of the industry structureand a positioning of the organisation within that structure, andfocus purely on refining the product/service offering (McDo-nald, 1999). Potential transformations to the industry structuresuch as disintermediation or reintermediation, if considered atall, are regarded as ‘out-of-the-box thinking’ that is high riskand essentially an intuitive bet. By contrast, in three of the cases,these transformations were evaluated as a systematised part ofthe planning process.

Hospitality Services, for example, had traditionally soldalmost exclusively via a 40-strong field sales force, with amixture of field sales and internal call centre approaches forcontract renewals. Its growth had slowed to single digits over thepast two years, despite plenty of market potential, and the salesand marketing director believed that the problem was that thesales force simply couldn't cover the whole territory. Neithercould he increase its size due to pressure on annual profitability.The idea of transforming the route to market came from twosources. Firstly, he had been exposed via a business school toideas and case studies on multi-channel marketing, and he begunto conceive of alternative channel models from observation ofsuccesses in other sectors. Additionally, a colleague responsiblefor debt collection had experimented successfully with anoutsourced call centre for smaller accounts, which introducedthe idea of using the call centre in the sales context.

The sales and marketing director therefore instituted aplanning process to review the route to market. This conceived anew model using a call centre for lower-value accounts, desk-based account managers for medium-value accounts and field

Table 2Dynamic capabilities for multi-channel transformation

Dynamic capabilities Capability observeda Example from cases Nature of dynamic capability —Lawson and Samson (2001)

Active review of the routeto market in a cycle ofstrategy developmentand implementation

IBM, BT, HS “This project has kick-started a whole cultural change for us. We areapplying the same logic to other markets. Can we make such radicalsavings in the cost of sale again? I see myself as an ambassador forchange now. And it's a never-ending process.” Sales and MarketingDirector, Hospitality Services

Innovative (Vision and strategy)

The alignment of route tomarket with differentsegment and productcharacteristics

All “We made a key insight: that the same company, even the sameindividual buyer, could behave in different ways when buying differentproducts. So we had to stop allocating a customer to a channel.”Marketing managing partner, IBM

Innovative (organisationalintelligence/harnessing thecompetence base)

The creation of innovativechannel combinations

All “What the segmentation has done for us is fascinating. Yes, we'velearned that different segments need different channels. But also, we'verealised that each segment might need several channels complementingeach other. Telephone and web for the experienced exporters, forexample.” UK Trade And Investment

Innovative (creativity andidea management)

Iterative development ofcustomer valueproposition meldingplanned and experientialapproaches

BT, TAI, HS “It's about learning to experiment, isn't it? I thought it was going to beall about planning. But all this piloting and control groups is more likelaunching a new product. Find out what works, tweak it, try it again.”Hospitality Services

Innovative (organisationalintelligence)

Integration of processesand IT to supportmulti-channelcustomer relationships

All “You cannot make something like this work without powerful customermanagement technology. We opted for Siebel and it integrates all ourchannels including the web and our third parties. At first we did not offeraccess to our CRM system to our partners but we found it so difficultto work without it, it became obvious that we must do it” Channeldirector, BT

Integrative (managementof technology)

An organisational structurewhich balances the needfor innovation andintegration

IBM, BT, HS “The account director buys in resources from other channels so has astrong dotted line influence, though DBAMs have their own solid-linemanager to build channel skills. In retrospect this may seem obvious. Atthe time it was nothing short of revolutionary.” Channel generalmanager, BT

Integrative (organisationalstructure and systems)

Metrics and rewards whichreflect multi-channelcustomer behaviour

IBM, BT, HS “Client managers had small, simple things taken out of theirremuneration scheme — they were only required to get involvedwhen things went wrong.” Project manager, IBM

Integrative (culture and climate)

a Cases listed are where explicit data on the capability was found in the interview transcripts.

14 H. Wilson, E. Daniel / Industrial Marketing Management 36 (2007) 10–20

sales staff with desk-based support for key accounts. A series ofpilots was undertaken to test and refine the model. The firstcovered a single geographical area, chosen to be broadly typicalof the organisation's market. This found that the cost of sale wassignificantly lower using the call centre approach for mostcustomers, but the picture was uneven.

For customer groups where the new approach was manifestlyworking, he rolled out the new model across the UK. For others,further experiments occurred in a second geographical pilot tofine-tune the model.

By the time of the interviews, the sales and marketingdirector had concluded that there would never be a ‘final’version of the route-to-market model:

I thought that after three months of piloting we would naildown the new approach and that would be that. I'mbeginning to live with uncertainty now. As long as we canproduce some reasonable estimates for the year for thebudget, it's OK that we just keep on refining. Though thebroad template we defined in our original planning sessionsis holding firm.

The partial exception to this pattern of iterative strategy andimplementation was UK Trade And Investment, where the

review of route to market, while planned and systematic, was aone-off activity (which we will describe later): it remains to beseen whether this company will institute regular further reviews.It is notable that this company faces the lowest environmentalturbulence of the four cases, as we saw in Table 1.

4.2. The alignment of route to market with different segment/product characteristics

Typically, market segmentation impacts on marketingcommunications and perhaps the product and pricing, butoften it has no impact on the route to market. In each of thecases, though, different customer groups were served throughdifferent channel combinations, defined to take into accountboth the relative value of different segments and their differentneeds.

IBM, BT and Hospitality Services all represented thisvariation through a ‘coverage map’ (Friedman & Furey,1999), which lists customer groups along the vertical axis of achart, with highest value customers at the top, and productgroups along the horizontal axis in increasing order of productsales complexity. Fig. 1 shows a coverage map for IBM. Thismap was a key tool in rationalising their routes to market. Seven

Fig. 1. Coverage map for IBM.

15H. Wilson, E. Daniel / Industrial Marketing Management 36 (2007) 10–20

main routes worldwide, each of which was represented by adifferent colour on the chart, were identified. These include theIBM Global Services channel for major outsourcing projects(route 1 on the chart), the direct sales force for large systemimplementations (route 5), and a range of distributor types (2, 3,4 and 6), as well as a direct telephone/web operation (route 7).This “Route-to-market Simplification Strategy” project, as itwas termed, made modest changes to the ‘closing channel’where sales are closed, with face-to-face sales slightly reduced,but quite substantial changes on lead generation, where 22%fewer leads were generated from field sales over a one-yearperiod as other channels took up the slack. This allowed greatertime investment by account managers to the crucial areas ofpost-sales delivery and support.

A further benefit of this standardised focus on seven routes tomarket for the entire global organisation was that the cost ofmanaging channels was reduced, as staff internally andexternally had a clearer idea of their role. A country marketingdirector estimated that his channel management costs hadreduced by 50%.

4.3. The creation of innovative channel combinations

The experience of the four cases we studied suggested thatemphasis has moved away from ‘pure-play’ new channels toinnovative channel combinations. In none were new channelsstraightforward substitutes for existing ones: rather, thetransformed strategy involved innovative combinations ofchannels targeted at particular customer groups. At the veryleast, the possibility of combining channels within the samecustomer relationship, as opposed to simply having a range ofchannels for different customers, provides another strategicoption which needs to be considered.

UK Trade And Investment is a case in point. The purpose ofthis public sector organisation is to improve the exportperformance of UK small and medium enterprises (SMEs). Ithad traditionally fulfilled this mission through a network of 200consultants, situated in offices country-wide, who would adviseclients face to face. This, then, represented a one-size-fits-allchannel strategy. The organisation launched a project tosegment its customer base and define propositions appropriateto each segment. This would include a review of its channelstrategy as well as other elements of the mix.

The review began with a market research exercise, whichsimplifying somewhat, resulted in three major segments.‘Aspirants’ export little or not at all as yet, but aspire to doingso in the future. ‘Reluctants’ are also inexperienced exporters,but by contrast are fearful of the complexities and risks theyassociate with exporting, creating deep-seated barriers toprogressing beyond the fulfilment of the few leads whichhappen to ‘walk in the door’. ‘Confidents’ export as a matter ofcourse, and are only likely to turn to UK Trade And Investmentfor help on specifics such as identifying a distributor in a newcountry.

As part of the subsequent proposition development, channelcombinations were developed for each of these broad segmentsby a team of managers. These can be represented using what weterm a channel chain diagram, as shown in Fig. 2. In thisdiagram, the stages of the sales and/or service process are listeddown the left, starting at the top of the figure. The channels usedto perform each stage are listed in boxes against each stage. Ifthere is then a handover to a different channel for the next stageof the customer relationship, this is shown with a line betweenthe two boxes.

The ‘aspirants’, for example, were reasonably well servedby the organisation's traditional channel strategy of face-to-

Fig. 2. Channel chains by segment

16 H. Wilson, E. Daniel / Industrial Marketing Management 36 (2007) 10–20

face consultations with advisers who guide the entrepreneurthrough an export planning process, so this segment's overallproposition which the team termed “Passport to export”involved only minor modifications to channel strategy. Thelast thing the ‘confidents’ wanted, though, was to phone a localoffice and have an appointment made 2 weeks hence when aconsultant happened to be free. Instead, a ‘buffet’ approachwas designed for them, dominated by the remote channels of acall centre with expert ringback plus the Internet, which wouldprovide quick access to the answers they needed for theirspecific queries.

The pure face-to-face model was equally inappropriate forthe ‘reluctants’, who tended to only approach UK Trade AndInvestment for help with fulfilling a specific order thathappened to come their way, such as “how to get money outof Saudi Arabia” or “the customs paperwork for China”. Themanagement team concluded that the same remote ‘buffet’designed for the experienced exporters met this specific need,but needed to be supplemented by a cost-effective communica-tions campaign to address the segment's attitudinal barriers,using such techniques as seminars and white papers. The aimhere was to convert some members of this segment to become‘aspirants’.

Hospitality Services, IBM and BT had also sought to designcombinations of channels. IBM paid particular attention to howthe handover was made between channels at different points inthe relationship with the customer. The colours on theircoverage map represented the ‘leading’ or ‘closing’ channel,therefore, and not the exclusive channel for that customer/product cell. IBM believed that effective design of channelcombinations should provide a natural journey for the customer,and also benefits to the organisation:

“I don't think we can force customers to stay within aparticular channel combination we have designed for them.But having gone through this thought process, the idea isthat customers will gently steer themselves through achannel combination which suits them. And it suits us asit makes appropriate use of low-cost channels, where thecustomer doesn't need high bandwidth.” Lead partner, IBM.

4.4. Iterative development of the value proposition meldingplanning and experience

Any new service will require a redefinition of the customervalue proposition. However, the managers intervieweddescribed the highly challenging nature of this in the multi-channel world. In some markets use of online channels is stillthe exception rather than the rule, for example, and customerexperience is not yet sufficient for them to be able toarticulate what value offering would be optimal, althoughwhen they find a service disappointing they will abandon itvery quickly (Agrawal, Arjona, & Lemmens, 2001; Reichheld& Schefter, 2000). Companies must therefore develop thecapability of creating new services that customers will valuewithout the market research that they might traditionally relyon. How can they do this without resorting to guesswork? Akey seems to be a more experiential approach (Eisenhardt &Tabrizi, 1995) which involves hypothesising a value proposi-tion and then trialing it in the marketplace and using feedbackfrom customer interactions to validate and tune theproposition.

BT used an experimental design incorporating control cells inorder to learn from its early experimentation in its route tomarket within its major business division, which served the topone thousand accounts. Until 2001, the division sold almostexclusively through two thousand field sales representatives. Achannel strategy exercise proposed a new model: a combinationof field sales staff for more complex sales to high-valuecustomers, the web for simple transactions to low-valuecustomers, and a new desk-based account manager (DBAM)channel –professional account managers, but working exclu-sively from the office– in the middle. Its new coverage map wasthus very similar to that of Hospitality Services, and is illustratedin Fig. 3.

BT decided that the first step to test the efficacy of this newmodel was to conduct a pilot:

“Given the nature of the change, the risks of it going wrongand the impact upon our reputation with BT's largest clients,we needed to progress carefully, piloting every step,

— UK Trade and Investment.

Fig. 3. Coverage map — BT Major Business.

17H. Wilson, E. Daniel / Industrial Marketing Management 36 (2007) 10–20

learning, rolling out, and enhancing every part of the effort”Channel director, BT.

The pilot involved allocating 12 DBAMs to a pilot set ofaccounts, who had their field sales representation reducedaccordingly. Importantly, they were working in an integratedteam with field sales staff, because as the coverage map makesclear, a single customer may deal with two or three differentchannels depending on the sales complexity of the product. Theteam could communicate with each other about customerinteractions via a simple shared prototype IT system, in order todeliver an integrated customer experience: the subsequent fullrollout used the Siebel CRM system for this purpose, but thetechnology was kept simple and flexible for the pilot.

Some business rules were drafted for the pilot that allocatedsales leads to channels based on the coverage map. Signifi-cantly, though, the staff in each channel was authorised tooverrule this automated allocation of leads if they felt thatindividual circumstances required a different approach. In thepilot, around 60% of the automated channel recommendationswere accepted: in the subsequent rollout, this figure hasincreased to 80% as the business rules have been refined.

After a trial period, the pilot was evaluated on three criteria:cost of marketing and sales as a proportion of revenue, or‘expense to revenue ratio’; customer satisfaction; and employeesatisfaction. The pilot found that the cost of sale had decreasedfrom 25% of revenue to 17% due primarily to the lower cost ofemploying desk-based account managers. Customer satisfac-tion actually went up: the project manager's interpretation ofthis was that customers were able to access DBAMs morequickly than field sales staff and therefore were able to dealwith simple matters more effectively. Employee satisfactionremained constant — itself regarded as an achievement in asituation which was inclined to be threatening to the field salesstaff.

The pilot was regarded as a success, and a rollout of thenew channel model followed over the following 3 years, to apoint where a fifth of the field sales force had been replaced bydesk-based account managers. As well as decreasing the costof sale, the interviewees claimed that over £100 m ofadditional annual revenue had been gained by 2004 due tothe channel transformation, as the field sales force was freedup from simple tasks and able to focus on significantopportunities.

Similarly, Hospitality Services intended to use randomexperimental and control group allocation to confirm thefindings from their geographically-based pilots:

“We'll divide the next thousand sales leads in the [x] sectorinto two groups. The first lead to the sales force, the secondto the call centre the third to the sales force and so on. Wewon't tell either party of course. Now that will beinteresting!” Interviewee, Hospitality Services.

4.5. Integration of processes and IT to support multi-channelcustomer relationships

By contrast, the last three capabilities listed in Table 2 areassociated with integrating channels together. Perhaps counter-intuitively, systems integration does not seem in tension withthe need for swift innovation: rather, it provides a platform onwhich the company can experiment with different channelcombinations performing different roles in the customerrelationship, and communicating with each other via the sharedIT systems.

BT, as we have mentioned, implemented a CRM system as acrucial underpinning of its transformation from field sales forceto multi-channel marketer. Once its Siebel system had beenrolled out to all sales and service staff, the channel director soonextended the rollout to the indirect channel partners so theycould draw on the same unified data on leads and existingcustomers. This enabled BT to analyse and improve theeffectiveness of the distributor channel under the same metricsas the internal channels.

Hospitality Services similarly soon concluded that its callcentre partner needed access to its core customer managementsystem. Initially, the call centre used its own system, andtransferred a batch of data to Hospitality Services periodicallythrough a campaign, but once the economics of the early workhad been proved, it was soon felt necessary to give call centrestaff direct access to the customer management system so theycould deliver an integrated customer experience and comeacross as fully informed on the customer's previous interactionswith the company.

4.6. An organisational structure which balances the need forinnovation and integration

Another dimension of integration concerns organisationalstructure. The advantages of a separate unit for new channels infreeing up the embedded cultural artefacts which provide a brakeon innovation have been much discussed in the e-commercecontext (Chaffey, 2002). But BT amongst others reported thatthis can lead to ‘channel silos’ in which staff act in the bestinterests of their channel rather than the overall customerrelationship:

“How would we get field-based sales to embrace a second,lower cost, channel to market? How could we changeembedded habits and routines? If we freed up senior salespeoples’ time for strategic work — would they rise to the

Fig. 4. BT's channel structure.

18 H. Wilson, E. Daniel / Industrial Marketing Management 36 (2007) 10–20

challenge? Would we end up with a series of mini BTbusinesses or could we really integrate all the channels intoa single, managed customer experience?”

BT's answer, as shown in Fig. 4, was a matrix structure, inwhich staff in the new direct channels – desk-based accountmanagers and BT.com – report ‘sideways’ to the channeldirector but also ‘vertically’ to the account team for whom theyare working. The sideways reporting appears to help toconsolidate learning in best practice within each channel,while the vertical reporting keeps the account directorresponsible for all the channel resources deployed on theaccount.

4.7. Metrics and rewards which reflect multi-channel customerbehaviour

Similar cross-channel thinking seems necessary in thedefinition of metrics and rewards. For example, a corollary ofIBM's coverage map, which dictates that the customer may usedifferent channels for different products, is that it does not makesense to remunerate field sales for every product sale. Simplerproducts were therefore taken out of their renumeration packageas a key driver of changed behaviour. In other cases, thecomplementary roles of different channels at different points ofthe customer relationship were reflected in the recognition ofthe value of leads which are passed for fulfilment to a differentchannel.

BT had a slightly different approach. In recognition of theneed for simpler products to have a low cost of sale, its CRMsystem automatically routes these leads to a lower cost channelsuch as a desk-based account manager, as we have alreadymentioned. The alignment with rewards comes, though, withthe account manager's targets, which include a stretching targetfor expense-to-revenue ratio, which can only be met bydiverting at least some business to lower-cost channels. Thesame effect, then, is achieved as with IBM, but by a subtlydifferent method.

Hospitality Services resolved the issue by a yet simplerapproach. To encourage cross-channel cooperation, the organi-sation switched from bonuses based on individual or group

performance to a single bonus system for the organisation basedon the whole organisation's cash flow for the year. It is difficultto isolate the impact of this initiative from the othersimultaneous management changes, but the company's percep-tion that this resulted in no loss of motivation or staff retentionwhile removing some dysfunctional channel silo behaviourseems plausible and consistent with the company's employeesatisfaction survey data.

5. Conclusions

Due to the paucity of previous studies in this domain, ourstudy adopted an inductive approach, identifying sevendynamic capabilities for channel transformation. Of these, wecategorised four as innovation-related, but importantly we alsofound that three integrative capabilities are critical to route-to-market transformation, relating to IT, organisational structureand metrics/rewards. Organisations must not only be able tofind how to make use of new channels, but also bring thosechannels into their standard way of operating, if the organisationis going to deliver an integrated customer experience and makethe most of synergies between channels. In this respect, ourstudy supports the argument made by Lawson and Samson(2001) for managing the ‘mainstream’ and the ‘newstream’ in aclosely coupled way, while adding detail as to how this can beachieved in the case of marketing channels.

An important finding of the study therefore is that channelstrategy presents organisations with a tension between twodistinct groups of dynamic capabilities that must be balanced.On the one hand, managers need to develop innovativechannels that change the way the company operates and howit interacts with its customers, while on the other, they need tokeep the organisation operating as a single, coherent entity so asto create innovative channel combinations and deliver con-sistent service.

Dynamic capability theory provides at least a hint of how thistension might be managed. In high-velocity markets, Eisenhardtand Martin (2000) assert, dynamic capabilities become simple,experiential and iterative. This was found to be the case in threeof the companies studied here, where channel strategy wasevolved by setting an overall, clear and simple vision for theintended transformation. This was then broken down into aseries of smaller projects, to which the companies applied a‘learning by doing’ (Pisano, 1994) approach, and not just a‘learning before doing’ one. Subsequent stages of development,rather than follow a pre-determined linear sequence, woulditeratively depend upon the outcomes and learning producedfrom earlier projects. It is consistent with Eisenhardt andMartin's assertion that the exception, UK Trade And Invest-ment, which developed and executed its channel strategy in amore planned manner, operates in a market with comparativelylow turbulence.

5.1. Implications for managers

The implications for managers can be summarised under theheadings of the seven dynamic capabilities of Table 2.

19H. Wilson, E. Daniel / Industrial Marketing Management 36 (2007) 10–20

1. Companies can gain from actively and regularly reviewingthe route to market, rather than taking it for granted as ‘theway things are done in our industry’. Innovation in thechannel mix can be a source of competitive advantage asvaluable as innovation in the product/service offer. Thefrequency with which review this is necessary depends onhow turbulent the market is.

2. This review needs to bear in mind that the optimum route tomarket will generally vary both by segment and by product.The coverage map (Friedman & Furey, 1999) is a tool whichmanagers can consider to help with this task.

3. Combining multiple channels within the same relationshipprovides further innovation possibilities. During the dot-comboom we saw many new pure-play entrants into B2Bmarkets, amongst them such now-defunct e-marketplaces asCovisint and Chemdex as well as a smaller number ofsuccesses. Perhaps many of the ‘quick wins’ from pure-playInternet sales, or indeed from single-channel telephoneoperations, have already been gained, however, as channelinnovation shifts away from new channels to new channelcombinations. We have described a simple tool we termchannel chain diagrams, which spell out how channelscombine in the customer relationship. However it is drawn,though, it appears that channel chain analysis can act as ashared representation within a management team while itdiscusses the optimum channel proposition relative firstly tocustomers' differing needs at different points in the relation-ship, and secondly to the use of expensive physical andhuman assets in a more targeted manner.

4. A planned approach to multi-channel strategy may need tobe combined with experimentation and piloting to refine theplan. An experimental design using control groups is worthconsidering when a radical shift in channel policy is beingcontemplated.

5. Customer relationships sustained across multiple channelswill generally need to be underpinned by a CRM system.This may need to be made available to indirect channelpartners as well as direct channel staff.

6. An organisational structure that is strongly built aroundchannel silos may have weaknesses if the customer relation-ship is sustained across multiple channels. A matrix structureor a structure around customer groups may be worthconsidering.

7. Similarly, metrics and rewards can be in tension with a multi-channel strategy if they encourage staff or channel partnersto keep the customer within a single channel.

5.2. Limitations and further research

There are always limits to the generalizability of case studyresearch, as it is difficult to rule out the possibility that thesample organisations are in some way unusual, particularly witha relatively small number of cases. We would thereforewelcome further studies to confirm and extend our findings.Further studies could check for any additional dynamiccapabilities important in channel transformation as well aschecking and refining those we have identified. In particular,

our inductive study identified five of the seven innovationelements cited by Lawson and Samson (2001). Further studies,particularly of players in other markets, may identify capabil-ities related to the other elements that they propose.

The differences we have discussed in how companies plantheir route to market according to market turbulence would alsobenefit from further research. It would therefore be helpful iffuture case study research was to include a spread oforganisations with different levels of market turbulence in itssample frame.

A survey approach to this topic will become increasinglyfeasible as case study work continues and the relevantconstructs are identified, and could provide a more completedescriptive picture of current practice. Testing of hypothesesbased on our proposed dynamic capabilities would, however,face the not inconsiderable challenge of constructing adependent variable for the success of a multi-channel strategy.We suspect that case study research is likely to be moreilluminating in the short term.

As underlying markets become increasingly dynamic, animproved understanding of the role of dynamic capabilities willbecome imperative, both for academics who wish to provideunderstanding and guidance to practitioners, and for managerswho must operate in a continually shifting world. We hope thatthis study adds a small step along the path to this improvedunderstanding.

Acknowledgements

We would like to thank Cranfield's Dr. Stan Maklan for hiswork on the BT case study, Dr. Brian Smith and Lindsay Brucefor their work with UK Trade And Investment, and Alex Garrettfor his assistance with the IBM case study. We would like toacknowledge the role of the members of Cranfield's CustomerManagement Forum, and Rod Street and Matt Hobbs at IBMGlobal Business Services in particular, in funding this work andcontributing to our ideas.

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Hugh Wilson MA(Oxon), DipCompSci(Cantab), PhD is a Senior ResearchFellow and Director of the Customer Management Forum at Cranfield Schoolof Management. After a mathematics degree at Oxford University and apostgraduate computer science degree at Cambridge University, he spentthirteen years in the computing industry, before gaining a prize-winning PhDfrom Cranfield University on marketing planning. He has published in BritishJournal of Management, Journal of Marketing Management and EuropeanJournal of Marketing amongst others. Books include “e-Marketing: Improv-ing marketing effectiveness in a digital world” (FT Prentice Hall 1999) and“The new marketing: Transforming the corporate future” (ButterworthHeinemann 2002) (both with M McDonald). Hugh is listed in the CharteredInstitute of Marketing's global “Guru Gallery” of “the 50 leading marketingthinkers alive today” (www.shapetheagenda.com), and was recently honouredby the UK's Secretary of State for Trade and Industry and Tim Berners-Leeas one of the “Internet Decade” list of the hundred individuals who have hadmost influence over the development of e-commerce, according to a NOPpoll of practitioners.

Elizabeth Daniel BSc, PhD, MBA is Professor of Information Systems at theOpen University, UK. Elizabeth has a first degree and PhD in Physics and anMBA from London Business School. She spent over ten years in industry,starting her career as a Medical Engineer at GEC and then working in a leadingstrategy management consultancy, the LEK Partnership, where she undertookassignments across a number of industry sectors. She then worked at CityBusiness School and Cranfield School of Management before taking up herchair at Open University in 2004. Elizabeth undertakes teaching and research inthe fields of e-business and new technologies in marketing. She has publishedon these topics in a variety of journals, such as Long Range Planning,European Journal of Marketing, European Journal of Information Systems andJournal of Marketing Management. Books include “Electronic Banking inEurope” (The Stationery Office 1998), “Profiting from eCRM” (FT PrenticeHall 2001) and “Marketing strategy in the digital age” (FT Prentice Hall 2002,with Hugh Wilson).