The cloud is about more than ROI

Through a special arrangement, what follows is a summary of an article from Retail Paradox, RSR Research’s weekly analysis on emerging issues facing retailers, presented here for discussion.

At Oracle’s Industry Connect conference, I probably heard the most rational explanation for why companies will not just end up adopting cloud delivery of solutions but ultimately need to embrace it as a strategy.

The rationale goes like this: consumers are changing. Whether because they are Millennials who grew up as the most digital native population and with spending power, or because no matter what their age they are embracing technology as part of the shopping process, the reality is that how consumers engage with retailers has changed.

And more change is coming. We’re only seeing the beginning with Millennials entering the workforce, and there’s another generation behind them that is even more digital native. The change is going to happen fast. My favorite stat of the day: by 2020, Millennials will be the largest generational segment in the workforce.

Therefore, retailers need to change — fast. And with companies on average spending 82 percent of their technology budget on maintenance, there is just no way they can change fast enough to keep up with changing consumers. (Eighty-two percent is an average across industries — I suspect it’s even higher in retail.)

cloud puzzle

Enter The Cloud. Cloud delivery models enable retailers to change fast, and to stay flexible so that they can change again. This isn’t a one-time transformation that consumers are going through; it’s an ongoing thing. The cloud is the only way that retailers can change fast enough and afford it if they want to survive.

Now, for me, I have heard a lot of the same things said by other people when it comes to making the case for the cloud, but the order has been different. For the most part, we at RSR hear questions from vendors more like, "What business case will convince retailers to invest in cloud solutions?" The answer is, there is no business case. It’s not about the ROI; it’s about the corporate willingness to give up "customization" in favor of "flexibility."

There are a lot of retailers — I’m guessing way more than 50 percent of them out there — who are not yet ready to embrace that philosophy. For those retailers, it doesn’t matter how much money you offer to save them, they are not going to be interested in the cloud. And frankly, they’d be a risky bet in taking on the cloud because they would not have the commitment to keep from trying to customize things, something that adds expense and reduces flexibility.

BrainTrust

Discussion Questions

What would be your argument for or against cloud computing for retailers? Do you agree that embracing the cloud is less about ROI and more about flexibility?

Poll

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Max Goldberg
Max Goldberg
8 years ago

Great article from Nikki. The rapid and constant pace of change renders customized software obsolete soon after it is created. Retailers need the flexibility that the cloud offers. As consumers demand a true omnichannel shopping experience, the cloud is the answer. Digital natives, and even digital immigrants, expect nothing less.

Ralph Jacobson
Ralph Jacobson
8 years ago

It is all about agility, which helps drive ROI. There are enough options with vendors in the marketplace today to “try before you buy” at little or no cost. There is absolutely no reason, that’s right, no reason for a retailer nor CPG brand of any size to wrestle with “to cloud, or not to cloud.” Innovative merchants of all sizes, whether regional or global, are moving toward cloud deployments to leverage other key areas of focus, including analytics, mobile, social and security. It is about ROI, but also so much more.

Ian Percy
Ian Percy
8 years ago

First, I’m shocked at Nikki’s reference to 82 percent of an IT budget going to maintenance, that’s double the figure I’ve been using. But in my opinion that is not a cloud issue, it’s a software quality issue. And generally the quality of software remains pathetic even in these sophisticated times.

The word that’s missing here is “security.” Is cloud storage inevitable? For sure. But the fact remains it contains great risk. Where exactly is your data? Is your cloud private or do you share it with an unknown roommate? Who has access to it? Three things are exacerbating the epidemic security problem (the White House was hacked yesterday): BYOD, the IoT and the cloud. Frankly I don’t blame the late adopters.

Matt Schmitt
Matt Schmitt
8 years ago

ROI provides a way to vet the approach, and to ensure the right solutions are being adopted. But ROI isn’t the business case. As retailers weigh the benefits of cloud solutions, the business considerations will be speed and flexibility.

As omnichannel platforms continue to come together, the cloud plays a big part in “stitching together” the components that need to make up the overarching system. With the Internet being the common thread that will connect retail systems and consumers, cloud platforms will likely be the most efficient way to create a tech fabric to cover the needs of the always-on, connected consumer experience.

Bill Davis
Bill Davis
8 years ago

While I am a proponent of the cloud for certain things—based on the expertise inside a company on being able to bring new applications and capabilities online—this, “Cloud delivery models enable retailers to change fast, and to stay flexible so that they can change again,” needs further explanation. Saying it is one thing, but clearly explaining how is another and I personally need more detail than is in this article.

Why is the cloud a trade off between customization vs. flexibility? Are we suggesting that the desire to customize software deployed in-house is too great and that its not possible to prevent? If so, how does the cloud limit/prevent this overemphasis on customization? This is a complex issue, one that needs to be looked at on a case-by-case basis in my opinion, and it would help me to better understand how the cloud minimizes/eliminates customization and enables greater flexibility first.

Lee Kent
Lee Kent
8 years ago

Having come from the tech side of retail, all I can say is Alleluia! If more people like Nikki will raise their collective voices, retail just might have a chance to catch up with their customers and even get ahead.

I have been an advocate of the cloud since day one. With all the cobbled together platforms, operating systems, hardware, software solutions, and versions of the truth that you will find in any retail operation, the cloud offers a way to adopt more current solutions without enduring a massive rip and replace project that will likely never end.

And with some of these pay-as-you-need options, it is even more affordable. The price? Software customization. But let me ask, is that really such a price?

Look at all the tools at our disposal today. Mobile, tablets, beacons, and the list goes on. The competition will be in the customer experience and so much of that will come from that list of tools I mentioned that will easily plug and play with the cloud. ’nuff said.

Thanks Nikki Baird, keep on talking. Me and my 2 cents are right on board.

Kenneth Leung
Kenneth Leung
8 years ago

What the cloud offers is flexibility. You can run prototypes, do short-term pilots for cloud based applications in a lot more flexible manner than traditional software installs. It is like a car; do you want brute horsepower for a straight line drive or you want handling for curves? Traditionally invest in IT with little account for flexibility, it is all about capital expense and running it past depreciate-to-zero point. Successful businesses today need to be flexible, invest in the infrastructure that can support change continuously, rather than buy it and run it until the wheels fall off.

Vahe Katros
Vahe Katros
8 years ago

The issue is security, and network issues less. The debate I hear is over how vertical industry applications (the vertical cloud) splits between public or private clouds—of course the conclusions point to a hybrid cloud, but it’s all about security.

To make the argument of what to deploy, we need to look at our vertical apps.

On the customer side, we need to support marketing, merchandising, sales and service, with heavy support for the mobile touchpoint.

On the supplier side, we need to support a similar workflow, buying, merchandising, collaborative efforts (that could span multiple vendors) etc. Again with support for the mobile touchpoint.

Within the retailer, there is the management of the staff, aka Human Capital Management. Hiring, training, and growing the skills of your people is a huge part of how retailers will compete for talent and customers. Again with support for the mobile touchpoint. And other internal applications (like doing research, working with agencies and consultants) but I fear this is another mini-whitepaper post, so let’s skip that.

Each on of these application areas, if done better, makes you a better partner for all of your stakeholders and there are tangible and intangible benefits you can accrue. But each area has it’s security tradeoffs.

That Oracle is discussing this is good—and while I used to think it was due to Netsuite and others, I think this is just good strategy. The argument for cloud deployments of POS and ERP are still problematic. There is still time, so my guess is that Oracle will try to lock in their franchise by delivering some solid solutions in safer new areas. Retailers rely on these giants. In fact, they invested in these platforms to be future proof. The industry needs their help—and these April clouds are a good sign.

Ed Stevens
Ed Stevens
8 years ago

The cloud is the future, but only a multi-tenant cloud. On-premise solutions that are simply hosted by the vendor (often disingenuously called “cloud”) suffer from the same architecture failures as regular on-premise. Upgrades are slow or impossible to make, and integrations are one-off for each retailer/client.

When a solution is multi-tenant, all clients are on the same version at all times, and all clients get at least 6 upgrades per year.

In a true multi-tenant solution, retailers can innovate at least 6 times faster than with on-premise (or hosted on-premise). This is how they really compete—by launching new experiences and saving costs in a rapid fashion.

When multi-tenant solutions are put into play by retailers, they become more competitive over time.

Cathy Hotka
Cathy Hotka
8 years ago

I hear from retailers all the time that they’re spending upwards of 80% on maintenance, but pressure is building to re-platform. It’s a big jump!…but more and more retailers are looking at what the cloud can offer them.