Reimagining IT for Omnichannel Retailing
By Will Poindexter and Coleman Mark, Bain & Company
Retailers need to quickly build world-class IT capabilities for omnichannel retailing — a seamless, integrated shopping experience, whether the customers are in the store or online. The major reason: customer expectations are rising, in part thanks to the strides made by new competitors with business models built on technology, and pure-play retailers like Amazon, which are not encumbered by legacy environments and physical stores.
To stay competitive, leading retail executives must seek IT partners who understand social, mobile, analytics, cloud (sometimes called SMAC) and all the other technologies that can deliver omnichannel in ways that play nicely with legacy environments.
For their part, IT executives need to make significant changes to the way they work, as their insights and capabilities become increasingly vital to success. And the business, to get what it needs in a technology partner, needs to support those changes, with the appropriate investments and with engagement to help set priorities and make decisions. But as they pursue the technology and organizational changes that will assure their omnichannel future, many retailers face three key challenges.
First, there’s the challenge of prioritizing opportunities. One way to discover the most potent opportunities is to trace the customer experience: Where are they dissatisfied, and where could technology investments delight them? Linking technology investments back to these opportunities helps sharpen the focus, eliminating distractions from the latest “next big thing.”
Executives also need to clarify decision rights. How are decisions made across functions, and how does IT balance requests from various business leaders? A decision-making framework can clarify roles and speed up decision making. (For more, read “RAPID®: Bain’s tool to clarify decision accountability.”)
Finally, retailers must strengthen their processes for managing the needs and expectations of the business. IT cannot forsake the care and feeding of the existing technology that keeps the business running, activities that still consume 60% to 80% of IT operating expenses.
Cutting through the technology hype
A second key challenge: keeping up with the technology. It’s not always clear when an innovation will cross the tipping point from experimental to essential, so a rapid-paced product delivery model, rather than the traditional long-term project model, allows flexibility in development. The best CIOs and business leaders cut through the hype and focus on the new technologies that can generate real value.
That’s why pioneering retailers strive to integrate their supply chain and logistics. For example, to allow for flexible fulfillment, companies create transparency into inventory across channels. Such transparency enables Dick’s Sporting Goods to ship items from stores and lets customers buy online and pick up in the store. It allows Macy to use stores as fulfillment centers for its online channel. These changes put products in customers’ hands faster and at lower costs by applying location-based business rules that route orders to nearby stores, when feasible.
Winners also invest in technology aimed at improving the in-store experience. Home-improvement retailer Lowe’s distributed 42,000 iPhones to store associates so they could quickly access product information, inventory and pricing. It also released an app that lets customers see their purchase history, locate products in stores and watch how-to videos.
Meanwhile, aggregating data from customer browsing, transactions and social interactions opens new possibilities for retailers to market more effectively before a purchase, personalize the shopping experience and offer better support after the sale. And leading retailers invest to enhance their website and mobile functionality. Customers expect their online transactions to be increasingly personalized. Features like being able to check whether the product is in stock at a local store are quickly becoming standard.
Building a new operating model
A final challenge: bringing all of this technology together effectively and executing against strategic priorities requires retailers to develop new ways of working. One way to view a transformation of this scope is to consider the five elements of an operating model.
Strategy and alignment. When the business is clear on its strategic priorities, IT leaders can define the implications for the technology capabilities required to meet them. Describing the customer’s journey, including any pain points or opportunities to delight, can help executives see where technology investment can make a significant improvement to the business and thus link execution to strategy.
Roles and structure. The cross-functional and cross-channel nature of omnichannel demands clear roles for critical IT decisions and simple, cost-effective structures that support value creation. By organizing around retail functions or services — instead of around traditional technology-specific domains — IT can be more accountable to the business function or the service it supports. We see many companies reorganizing along a hybrid model that mixes functions and services.
Processes and information. IT executives know they need good information at the right time. Many are also turning to a product-delivery approach — quick, iterative builds using Agile development principles, with rapid feedback from internal and external customers — to complement their traditional waterfall approach to longer-term projects. This approach speeds time to market, reduces rework and lowers delivery costs.
People and performance. Talent gaps may be the greatest barrier faced by retail CIOs. Building the new IT bench often means moving beyond traditional industry recruiting grounds and realigning incentives, goals and metrics to omnichannel priorities and results.
Leadership and culture. Change of this magnitude is difficult and can be achieved and sustained only with a committed leadership team. The most successful transformations prepare the organization for change and establish “sponsorship spines” that connect advocates throughout the organization with positive reinforcement.
To deliver on the promise of omnichannel, IT leaders will need to transform and improve not only how they work within their function, but also how they collaborate with the rest of the business. IT leaders must avoid analysis paralysis — or worse, taking on too much, too fast. Instead, they should pilot new processes and services in limited environments, learn rapidly, rack up some early wins and build momentum for the big changes ahead.
Will Poindexter is a partner with Bain & Company in Chicago, where he works with the global IT practice. Coleman Mark is a Bain partner in Boston and a leader in the global Retail practice. The authors would like to acknowledge the contributions of Jonathan Stern, a partner with Bain & Company in San Francisco.