“Retailers are not alone in their struggle to accelerate change,” Tim says. “Companies in nearly every industry have difficulty aligning the seemingly opposing demands of business in the digital age. Changing customer needs compel retailers to make fast decisions. But costly investments in innovation and data seem to fly in the face of a company’s need to cut costs and increase efficiency.” So, what should retailers do to succeed in the new paradigm? Take a closer look, and make some critical decisions.
Tip 1: Face the facts
The number one reason why retailers struggle to accelerate is because they’re stuck in an old-fashioned model. They are often constrained by complex, inflexible legacy systems that hinder innovation. They have technological debt due to under-investment in technology. They work in silos in which isolated innovation may take place, but never reaches the other parts of the company. With these kind of roadblocks, true acceleration is nearly impossible.
But Tim explains that the biggest obstacles are often deeper under the surface. “Many times, a company’s mindset is more of a roadblock than anything,” he explains. “And there’s a lack of trust and confidence between the business and IT.” To truly make a change, Tim explains that the mindset must change first. Real transformation can only happen in an environment that invites it.
Tip 2: Get the picture
Tim says that every company – retailers included – wants the same thing. They want to be more responsive and effective, take advantage of available opportunities, and provide quality and value for customers. “The problem is, most companies don’t have a clear, long-term view of where they want to go and who they want to be. If the strategic and business architecture strategies aren’t on point, then no efforts to innovate will be successful in the end.”
Tim recommends that retailers begin with a deep-dive into the strategic goals and vision for the company. With the right experts around the table, a company should know where they want to be five, ten, fifteen and twenty years into the future. The journey towards those goals begins today, but that doesn’t mean a journey into the unknown. “A good strategy will allow for flexibility in case some things change,” Tim says, “but there must be a plan in place before you can really get started effectively.”
A good strategy will allow for flexiblity in case some things changeTim Smeets, Digital Strategy Consulting at Cognizant
Tip 3: Take an Enterprise view
One common error many legacy companies make is attempting to make innovation grow ‘organically’ in the company. In small, siloed projects, they utilize innovation to improve a process, accelerate a system or serve a single customer need. But often, that same innovation holds a lot more power than companies realize.
“Once, a client came to us seeking digital solution to their accounts payable/accounts receivable system. Of course, there are dozens of solutions that would work. But we showed them how the right system could not only solve that single financial issue, but several other issues within the company.” By taking an Enterprise view of the organization from the beginning, companies can avoid this pitfall. “Stop thinking in terms of how digital might solve singular roadblocks in your company, and start imagining what the right digital solutions can do to optimize your company as a whole,” Tim suggests. “Then, your time and technology investments will have a much greater impact.”
Tip 4: Check the capabilities
The next step involves taking a critical look at the company’s in-house capabilities. After all, your new strategic vision isn’t worth much if it can’t be implemented. So reshaping your organizational model should begin with a careful survey of the skills and talents you already have in-house, and how you can best utilize them in your new operational model. This can be a real moment of truth.
“Here, retailers have a couple of choices for how to proceed,” Tim explains. “Sometimes, it’s just a matter of training current staff in new skills sets. Or recruiting a few specialists to round out the team. But other times, retailers will uncover major gaps in their available capabilities. And until these are addressed, the strategy won’t take off.”
Tip 5: Choose your Model
Once you have a clear strategy and are aware of all the capabilities you have in house, you can select the operational model that best suits your company. With expert advice and careful planning, you can decide the model that best suits your aspirations for the future.
Some of the biggest retail players in the world, like Amazon and Alibaba, are based on the ecosystem idea. Why develop the systems yourself in-house, when an already-established market player can help you hit the ground running? For some retailers, an ecosystem of logistics, IT infrastructure, distribution or other experts can help propel a retailer towards the end goal in a much shorter time frame, with much greater success.
“We’re also seeing a knock-on effect from the ecosystem strategy,” Tim says. “Retailers aren’t only acquiring skills they need. They also have skills that others require. So in an ecosystem, a retailer can develop an entirely new business model based on the leverage created by what they do best. The entire point of an ecosystem is that every participant gets something they need, and contributes something they have.”
The power of scale
When most retailers think of scale, they think of going bigger. And for some retailers, like Ahold Delhaize in the Netherlands, bigger is better. With a major local presence, huge distribution centers and all the in-house capabilities they need, these retail giants seem to have everything it takes.
But Tim explains that small-scale ‘niche gems’ have their own, special superpower. By excelling at what they do, and doing it differently than the competition, small-scale retailers can still have a large-scale impact. “My favorite example is Ace & Tate, a small-scale eyecare retailer in the Netherlands,” Tim says. “They’ve build a fantastic brand based on excellent customer service, and carry their strong brand strategy through to every customer experience – from customer emails to the online experience to the in-store service. As they gain popularity, they stay true to their mission and vision, and trust in the strong retail strategy they created.”
“Niche gems don’t need to aim for acquisition to be successful,” Tim says. “If they keep a strong focus, believe in their strategy and stay true to their values, then they have the mindset and the model to be a success in their own right.”
The value proposition
There will always be space for retailers who choose an operational model based on value. Companies like Action, Aldi, Lidl and Primark will always have a place in the retail sector, since there will always be shoppers who are in for a bargain. Another benefit of this model? Retailers who follow it rarely have a strong (if any) online presence, so the investment in customer-facing digital innovation is very low. But that’s only half the story, Tim warns.
“These types of retailers have extremely narrow margins, and work in a volume business,” he explains. “To ensure a continuous flow of products, you need an outstanding logistics and distribution system, and your operations have to be as swift and efficient as they can possibly be. Here, digital innovation can be the secret to incredible success.”
Tim also notes that value retailers often find special ways to distinguish themselves. Action appeals to shoppers who enjoy the element of surprise with an ever-changing product assortment. Lidl publicizes their award-winning fruits and vegetables, and test-winning cleaning products to show that value and quality can go hand-in-hand.
Tip 6: Plan from end to end
Tim goes on to explain why Mirabeau/Cognizant encourages an end-to-end approach to acceleration and transformation. “When we work with retailers who want to be prepared for the future, we look at every step of the process. First, we conduct research to find the retailer’s ‘sweet spot’ – their differentiating value proposition. Then, with a mix of customer insight and organizational assessment, we shape the strategy, do gap analyses and design a plan for execution that aligns the organizational model with that proposition. We make a plan using customer-specific scenarios and of course leave room for adjustment, as we begin to execute the strategy with the right technology to pull everything together. And of course, small-scale testing of ideas is the best way to get proof of concept.”
And that spirit of experimentation reminds Tim of one final industry example. Home and lifestyle retailer Hema is combining their decades-old reputation for reliability with some new and innovative extras in order to stay relevant. “They’re making changes to their assortment, improving their online presence and experimenting with new shopping concepts,” he says. “They’ve even partnered with insurance company Achmea to offer Social Alarm systems that fit perfectly with their ‘family and home’ brand identity. All that change has come at a high cost, but Hema also reported a record-breaking 2.8% increase in turnover in 2018. So while the jury’s still out, they seem to be headed in the right direction.”
We’d like to welcome you to the second edition of The Click. Download The Click: Accelerating the Pace of Change.