SANDVIK STEEL

Sandvik Steel, a company selling into many international markets, provides a good illustration of
how Internet revenue contribution can be used to set objectives for different geographical markets.

When dot-com mania was at its height, so-called old economy companies, such as Sweden’s Sandvik,
tended to be overshadowed as the brash new online stars took the limelight. But now that the
collapse of Internet and other tech- nology stocks has injected a harsh dose of reality into the stock
market and business scene, many established names are back in favour again. As the experience of
Sandvik, founded in 1862, shows, skilful use of the Internet can lead to huge improvements in links
with customers and suppliers, bringing considerable cost savings. Based north of Stockholm in
Sandviken, the com- pany’s activities seem remote from the virtual world of Sandvik Steel, a
company selling into many international markets, provides a good illustration of how Internet
revenue contribution can be used to set objectives for different geographical markets. When dot--
com mania was at its height, so-called old economy companies, such as Sweden’s Sandvik, tended to
be overshadowed as the brash new online stars took the limelight.

But now that the collapse of Internet and other tech- nology stocks has injected a harsh dose of
reality into the stock market and business scene, many established names are back in favour again.
As the experience of Sandvik, founded in 1862, shows, skilful use of the Internet can lead to huge
improvements in links with customers and suppliers, bringing considerable cost savings. Based north
of Stockholm in Sandviken, the com- pany’s activities seem remote from the virtual world of Sandvik
Steel, the speciality steel operation, also goes beyond transactions to find solutions for its cus-
tomers. Its extranet enables users to obtain worldwide stock information, catalogues and training
aids, as well as take part in online discussions.

. At both Coromant and Sandvik Steel, digital business activities are mainly directed towards
enhancing links with customers. ‘Customer value comes when our prod- uct is used, not when it is
purchased,’ Mr Fredriksson says. Thus, Coromant allows customers not only to buy tools over the
web but also to design their own products – within parameters set by Coromant – and receive advice
on how best to use them. Choosing the right cutting tools and using them effectively can save
around 10% of the total cost of manufactured components. The digital business strat- egy had to
take account of this. It also had to avoid channel conflict, the bypassing of its traditional sales
outlets.

Most Coromant tools are sold directly to customers, but 40% goes through resell- ers. Moreover,
there are big regional variations: more than 80% of sales in the Nordic region are direct, while most
North American sales are indirect. The company’s approach was to work with the tra- ditional sales
channels. ‘So many companies try to bypass traditional channels and lose sales and relation- ships,’
Mr Fredriksson says. It is the relationship with the customer – including greater personalisation and
an extended reach into global markets – which will be the most important pillar of its digital business
strategy in the long term, he says. This is what provides real competitive advantage. Shifting existing
customers to the Internet, winning new ones and saving costs are also important. But other
companies will be doing the same. At present, only a small part of Coromant’s orders are transacted
over the web. Nordic countries are lead- ing the way. Around 20% of all orders from Denmark are
online and 31% of those from Sweden. The proportion in the US, however, is only 3%, since most
business goes through distributors and is con- ducted by EDI (electronic data interchange), the pre-
Internet means of e-commerce. Over the next six months, the company hopes to raise the US figure
to 40%. Mr Fredriksson hopes that in two years, between 40 and 50% of total orders will come via
the web. To enhance its online service to customers, Coromant plans to offer each one a
personalised web page. This will enable the company to offer new products, materi- als and advice
on productivity improvements. Training will also be part of this expanded web offering, which
Coromant aims to have in place later this year.

For both Coromant and Sandvik Steel, the value of the web lies in strengthening and expanding
relation- ships with customers. In the case of Coromant, with some 25,000 standard products, there
are numerous customers buying low volumes. With Sandvik Steel, however, a small number of
customers buy a high volume of products.

Our aims were to have 200 key customers using the extranet by a fixed time; and a confirmation
from at least 80% of key customers that they consider the extranet to be a major reason to deal with
Sandvik,’ says Annika Roos, marketing manager at Sandvik Steel. By putting the Internet at the heart
of its business, the Sandvik group intends to penetrate deeply into the minds and ambitions of its
customers. ‘The challenge is not just doing digital business, it is becoming a digital business,’ she
adds.