The following observations were gathered across public discussions with senior business and IT executives from John Lewis Partnership, Wm. Morrison, Barclays Bank, Mercedes Benz, Target, Marks & Spencer, and Argos between March 10th and March 14th, 2014.
The information was remarkably consistent across these leaders, including those who might normally be seen as “Financial Services” (Barclays) and “Automotive” (Mercedes Benz). In fact, both Barclays and Mercedes Benz have business-critical retail operations that are subject to the same forces driving traditional retailers and even CPG companies to adopt digital business platforms.
Marketing spend on technology is eclipsing IT investment in tech. Marketing-led tech spending will only increase in future. John Lewis Partnership has increased their tech spending 600% in the last 3 years; they would have increased faster but they believed they were spending at the limit of what the organization could absorb. Others are following the same trend. Most importantly, the old conversation about “how to align IT with the business” is changing to “the business buys technology to meet business needs and IT implements some of it.” Business teams are hiring tech leads who then hold IT accountable or find technology resources elsewhere.
To achieve these kinds of changes, a company must have a 5-7 year vision with executive & board support. “Belief” is still a key theme for retail companies, referring to the belief that if they make major changes towards digital business they will be rewarded with profits and market share. Older companies, like Barclays (founded over 300 years ago) and John Lewis Partnership (founded over 150 years ago) share a sentiment that “everything was fairly constant in their approach to the market until 10 years ago,” and that “right now we’re in the middle of a huge shift that is going faster.” The shift they point to is the fundamental change in customer behavior: use of smartphones, tablets, the web, and social media for research, purchasing, and support.
Where companies cannot justify an investment model based on belief, it is NPS rather than revenue that is used to support the move to digital business. The promise of going digital is “achieving higher NPS at lower cost.” This approach supports incremental increases in investment based on results, which is crucial for less aggressive companies. An alternative to NPS is using an “engagement metric” which measures the number of times per day or per week that a customer is engaging with the company. Higher engagement is seen as a leading indicator of satisfaction and revenue through loyalty and through cross-selling opportunities.
In the most cautious companies, building a clear picture of “what does losing look like?”This approach uses the cost of inaction rather than justifying going digital on its own. What has made this approach feasible in 2014 is the broad adoption of digital devices across every level of leadership, so telling the story of a digital leader is easy. Picturing losses in engagment and NPS, illustrated through employees and leaders’ own experiences of dissatisfaction with digital laggards, is a strong motivator.
Once the drivers and budgets are in place, execution still relies on change management. Building and deploying the technology is only 20% of the problem; getting employees to understand, adopt, and evangelize the technology is the other 80%.
In some cases, people’s jobs will change slightly because they are using an iPad when interacting with the customer. In other cases, their jobs will change dramatically. Digital consumers do much more research and have more information at hand when making a purchase than do most traditional retail salespeople. Because consumers do more research, they want to be immediately connected to highly empowered employees or deep product experts.
Rather than talking with a high-pressure car salesperson, when a customer walks into a showroom they want to talk with a car enthusiast who knows even more about the models than they do; the customer has nearly made their choice before arriving, and once they are satisfied with the enthusiast’s conversation they are ready to work through terms with a salesperson. A supporting fact is that car buyers used to go to 4 different dealerships on average before purchasing; now the average is 1.3.
When walking into an electronics retailer, digital consumers don’t want to be overwhelmed by hundreds of products, but want the store to be simple and clean, with employees who can give them good advice based on their personal needs and history. The salesperson needs to be educated on the latest devices and the best financial terms for the customer, interviewing the customer for their needs and providing guidance - not stuck behind a cash register waiting for the customer to choose and purchase on their own.
In most cases, the employees who are the first to embrace the shift to digital are people in their 20s. Socially rewarding these people not just to embrace digital but to help older employees learn to use the new digital tools is a powerful tool in retail change management. Barclays Bank created a team of “Digital Eagles” after observing the behavior of a group of younger employees; they do this training on top of their normal job due both to their enthusiasm and the recognition they have been given.
One of the hardest aspects of the change to digital is managing channel conflict within the retailer’s own business. The shorthand for digital transformation in retail is “omnichannel” - bringing together what were once many separate channels (local store, warehouse, catalog, web, mobile, call center, and kiosk) into a federated business. Each of these different channels have separate employees, histories, pricing, incentives, and employee rewards. When confronted with smaller, more focused digital-only retailers that offer consistent pricing and customer experience, multi-channel retailers tend to suffer. A good example of this is Blockbuster vs. Netflix. What successful omnichannel retailers are finding is that the retail store itself is a very significant advantage if it can be aligned to the digital business.
A successful response to the channel conflict problem with retail stores is “local catchment”. This term means that local stores’ responsibilities are not simply to manage the store, but to manage business outcomes such as purchasing, engagement, and customer satisfaction for the whole region they’re in. Instead of having the local retail store compete with the website or mobile app for purchases, this approach rewards the local store for omnichannel engagements. Credit for web and mobile purchases goes to the store if the buyer is in the store’s region. This a significant shift in rewards and alignment, and can create major victories for the business. For example, Waitrose store managers collected over 200,000 qualified email addresses in just 3 weeks from in-store activity, which allowed them to bootstrap a massive digital outreach campaign.
All of this underscores the shift in the relationship between IT and business.
The business owns the technology implementation, and that implementation is a business objective. With tech leads employed by the line of business, IT is no longer the leader in anticipating future technology needs or in selecting technology products. The most important thing that IT can do is understand the current state of the historical infrastructure, and how it runs within each business silo. Bridging and connecting the silos “effectively and quickly and cheaply” for new projects and new consumer experiences “is the most important thing IT can do.”
Managing retail suppliers - including delivery and logistics suppliers - is also a crucial IT role. In a digital business, each link in the chain represents a risk to your customer experience. If the delivery of the product is late, the customer is more likely to blame the retailer they bought it from than to blame the logistics provider. Suppliers must be managed and integrated tightly into the experience in order to protect the brand.
Looking to the future, “mass personalization” is seen as the next phase in order to simplify shopping, improve loyalty, and predict trends. Most retailers seek to “move beyond RichRelevance” into full omnichannel predictive analytics, enabling accurate segmentation and action across all of the retailer’s customers. New classes of partnerships, like the alliance between Wm. Morrison and Ocado to power retail digital interactions, are just the beginning. One example is a pilot with Volvo to provide a “point of delivery” like “an Amazon locker - but in your car's trunk.” Through digital partnerships, a very different set of capabilities and linked brand experiences are coming into existence.