Digital Transformation—From Black Box to Crystal Clear

Roland Harste is the senior vice president for global marketing at Swarovski, a producer of cut crystals and crystal products since 1895. In addition to his core marketing role, he is responsible for the company’s digital transformation across three departments: online marketing (website, apps, social media), B2B e-commerce, and online retail (where customers can purchase products with Swarovski crystals).

The Boston Consulting Group partnered with IBM and the Electronic Business Group, a leading French think tank, to interview digital leaders and C-suite executives on the topic of digital transformation. Harste recently sat down with Claude Czechowski, a senior advisor to BCG’s Technology Advantage practice, to discuss the challenges inherent in leading a digital transformation in a global company with roots going back more than 100 years. Edited excerpts from their conversation follow.

What is the main focus of your digital transformation at Swarovski?

We sell crystals to 5,000 different B2B customers, like Prada, Armani, and Gucci, but also to many, many others in the fashion and jewelry industries. Our customers produce finished products with Swarovski crystals—shoes with crystals, for example—and then they sell them through retail channels. Not only do we sell the crystals, we also help our customers sell their products.

Our digital transformation is mainly designed to make our B2B customers successful in retail. We help them market and sell their products to their customers. As in other industries, online is becoming the dominant channel; therefore, it is very important for us to have scalable digital platforms through which we can help them sell products with Swarovski crystals.

We have 15,000 different SKUs for loose crystals and another 200,000 crystal products. In addition, because there are so many different application techniques, our crystals can be used in more than 1 million combinations. When customers want to use our crystals, they need to navigate effectively through our vast assortment. So, we created the Crystal Collection App, a digital catalog that lets consumers navigate through our whole assortment. This is great for our customers, and we also get live streams of transactional data that show what they are looking for and allow us to develop customer-specific recommendations that our key account managers can use in their B2B interactions.

We are also developing an e-commerce solution to sell all our loose crystals to B2B customers. The thing that’s tricky for us is that we sell directly to B2B customers, but we also sell indirectly through wholesalers. With our e-commerce solutions, we basically become competitors of our own indirect customers. This has been a big challenge from an organizational perspective. For the sales team, it felt like a huge channel risk. Are we crazy to compete against our own customers? How do I manage my own account and the revenue coming from the e-commerce solution, which is managed through headquarters? How does that feed into my net sales in the country? These discussions have kept us busy for a year and a half.

How has your B2C business evolved from a digital perspective?

The goal on the B2C side is to make our ingredient brand strong. Let’s take Jimmy Choo, for example. The Jimmy Choo company wants to crystallize a shoe and sell it in retail. It’s a Jimmy Choo shoe with ingredients—crystals—from Swarovski. The company can use a Swarovski tag or a seal on its product and use our brand in its communications.

But when it comes to digital communication, it’s important for us to make people aware of the ingredient brand. For example, Swarovski sponsors the Victoria’s Secret fashion show. If we do something with Victoria’s Secret, we create more than 100 million impressions and we get huge engagement on social media. In the end, if a consumer wants to purchase a product with Swarovski crystals, she may not find it. Why? Because online retailers may not include the right keywords when they categorize products. If they don’t say the ingredients are from Swarovski, there’s no way for someone seeking a product with Swarovski crystals to find it.

So, our digital solution was to develop a crystal hub [www.crystals-from-swarovski.com]. In our crystal hub, consumers can say, for example, “I want to see all shoes that include Swarovski crystals.” The consumer can see different brands of shoes, find the product, and then say, “I want to purchase this product.” We then lead the consumer to an online retailer, which handles fulfillment. This is very interesting because it will help our B2B customers sell products with Swarovski crystals to their customers.

How much value do you expect to create through e-commerce?

We have very big customers in B2B, and they will still be served through the normal offline channels. Our e-commerce is more for the smaller customers. So I expect we’ll have just 3% to 5% of our total revenue coming from e-commerce in three years or so. With B2C, the revenue stream is a little different because we don’t own the finished product for Swarovski crystals. If we help a customer sell 1,000 products, each of which costs €500, we don’t get €500,000; we get only the crystal share. For us, the bigger net sales advantage in B2C is in providing a service to our B2B customers. We provide a distribution platform and create loyalty. That’s more important to us.

In 2017, we will develop a marketplace where we own the customer relationship. We are one of the biggest jewelry manufacturers in the world, and we have 1,300 of our own Swarovski stores and 11,000 points of sale. If we can use that distribution and our loyalty program to drive traffic to our crystal hub, this would be a tremendous value.

Have you had success partnering with startups?

We have an open innovation team with a huge network of startups. If we need a specific technology—like a tool to manage product feeds from the online retailers for our crystal hub, for example—these startups have the technology and experience. There are so many new technologies that it’s not so difficult to get information about what’s out there and what we can use. The more difficult thing is to have a clear strategy and understand what’s relevant for the business, how to monetize it, and how to integrate it into existing processes.

What are some of the challenges you’ve faced over the course of Swarovski’s digital transformation?

The biggest thing is the mindset shift. We are a very old business. Swarovski started more than 120 years ago and has been very much an offline relationship business. We needed to get into the mindset that digital is important. Everybody understands advertising and building the brand through social media, but when it comes to commercialization and e-commerce, for example, that’s a huge mindset change for the organization. It’s very important that the people driving the digital-transformation agenda use every opportunity to talk to the business. We have had lunch lectures where people can participate and better understand the objectives, and they become more open to digital in the end, which is very important.

Who is driving the digital transformation? The CEO? Or a business unit?

Much of it comes from the marketing side. For me, it’s logical that we use e-commerce as a lead generation channel and to better understand our small customers, which were kind of a black box for us in the past.

But the question of who drives everything is complicated. Where does e-commerce sit and who develops it? For us, e-commerce is developed in the marketing organization, but it could have been in sales or in a separate digital business. Furthermore, we should not underestimate the importance of adjacent functions, such as supply chain, IT, and finance. How do the P&Ls work together in the offline and online business? How do we incentivize our sales force to send small customers to the e-commerce shop? And when customers are big enough, they need to be sent back to the offline sales organization. It’s very important to get alignment on these points.

Which teams are driving the company’s digital transformation?

From an organizational point of view, we have many different business units involved in the digital transformation: marketing, IT, the consumer business, etcetera. Everybody wants to drive the digital-transformation agenda. IT developed the digital-transformation agenda from a technical point of view. Other business units developed an agenda from their points of view. We are now in the alignment process, to bring all these together. In the offline world, the business units could operate separately. But it’s not possible anymore to tell the consumer, “Go to the sales organization,” because we have so many touchpoints now. In a digital environment, we have to provide one view to the consumer. I’d say we’re at about 80% in terms of alignment. There are still some really big nuts to crack, but these are more on the organization side, like having one customer loyalty program and getting the best people on board.

The most difficult thing for us was to get the right profiles on board. If you want to get into e-commerce, it’s not easy to find the right people because there’s huge competition. It’s so important to get really great people on board who have a network. That gives the organization credibility—people start to see that something big is happening— and then you get more people.

Have you integrated the data and analytics as well?

I would say we are at about 30% on data and analytics. We have tons of data. Through the Crystal Collection App, for example, we have so much transactional data from many different channels. We still need to create one view, but we have made a big step forward now that we have one customer relationship management system.

Another difficult thing is how to make use of the data. How do you bring it back to the consumer to create a cross-sell, an up-sell, or better lifetime value?

I’ll give you an example.

Our Crystal Collection App allows B2B customers to search through our product assortment to view a specific crystal by color, size, and cut. Our key account managers can now see transactional data based on past purchases and customers with similar purchase patterns, and they can make recommendations to the customer. That would be a great use case. But to make that happen, we have to get the key account managers to use the iPad with customers, understand how it can be used in the selling discussion, and so on. I think the most difficult part is to persuade key account managers to use it. You can analyze data until you are dead, but you need to create use cases, and behind each use case there needs to be an understanding of how to create more value for the business. Everything else should follow from this.