Photo: Target
Where should retailers concentrate their tech focus?
Retailers making significant investments in technology are typically credited within industry circles for showing the type of commitment necessary to compete in today’s competitive and data rich environment. Whether these investments are the right ones for a particular business, however, is more important than the size of a given retailer’s IT budget. Two recent articles point to the importance of not only making tech investments, but doing so in a way that helps move the corporate needle forward.
A Denver Post article pointed to the need for retailers to emphasize technology research and development (R&D) if for no other reason than to avoid eventually being overwhelmed by Amazon.com. Jeff Bezos and company, according to the article, spent $12.5 billion on tech R&D last year.
The same piece highlighted the experience of eBags.com, a pure play e-tailer which, according to CEO Mike Edwards, has implemented about eight new technologies over the past year after having tested a dozen. EBags’ tech priority has been set on developing consumer insights to drive sales. “We are obsessed with how you act on our website,” Mr. Edwards told the Post.
A lack of focus has been one of the problems that have undermined Target’s success in recent years. A Minneapolis Star Tribune article points to the experience of new CIO Mike McNamara who concluded after joining the retailer that it was using an oversized outsourced workforce to handle too many projects. Mr. McNamara, in what he called a career first, asked for the tech budget to be cut and refocused the organization on areas critical to current and future success.
Mr. McNamara cut the list of projects from 800 to 80. “Even a company as big as Target doesn’t have 800 priorities,” he told the Star Tribune.
Discussion Questions
DISCUSSION QUESTIONS: How critical is tech R&D to the success of retailers? What are the keys to establishing the correct tech project priorities within retail organizations?
Poll
BrainTrust
Chris Petersen, PhD.
President, Integrated Marketing Solutions
Ryan Mathews
Founder, CEO, Black Monk Consulting
Retail is an industry that famously under-invests in technology while its upstart challengers thrive on it. It’s time for the industry to move beyond the “1 percent funding” rule and get more aggressive about seeking tech innovations that improve consumer engagement and re-think the store experience. This will be a key focus of the store operations meeting coming up in October.
Cathy, I believe we are beginning to see this change. Many large retailers now have venture labs, or participate in technology incubators as a means to keep relevant with technology innovation.
With my work here in Minneapolis often intersecting with Target people, I think it’s helpful to dig deeper on the 80 projects there as reflective on where other retailers should focus. You only have to read the trade media to know that out-of-stocks has been a major issue for Target for some time. Also, customer satisfaction that the data breach is behind Target and they can trust the retailer again. This is why, in my view, Target is working hard all along the supply chain and distribution to focus on the availability issues. For instance, its wedding and baby registries now offer back-in-stock alerts powered by MyAlerts to lessen the disappointment of gifters who want to gift certain items and couples who want their registries to work better. On the customer front, Target is also testing various new email marketing tactics that are more targeted to the recipient based on their intent versus simply blasting more generic messages. In other words, home in one the biggest issues first, versus piling on “shiny new objects” that sound cool.
Retailers might think that the smartest use of their tech projects is to lower costs through better logistics management, sourcing and so forth. But they are better off shifting the focus to areas of improvement that the customer will recognize. This may involve smarter replenishment tactics, associate scheduling or targeted loyalty programs. Consumer-facing enhancements ought to be the priority.
Omnichannel is the new consumer normal behavior. To reach consumers when, where and how they shop requires technology at new touch points. Retailers need to be not only “obsessed with how [consumers] act on [their] websites,” but also new patterns of behavior while in stores. The keys to success are not going to be found in focus groups. Success will require R&D targeting real consumers as they now behave while they shop.
However, technology is NOT a panacea. In fact, blanket deployment of technology can turn consumers off. I just reviewed an excellent book by Mark Brown, titled “The Empathic Enterprise.” Brown makes an excellent case for why retailers also need to have R&D on the human side of the experience … and how to balance “humanism” with machinism” in order to have a winning formula.
This is definitely a case where technology for the sake of technology doesn’t make any sense. It’s simply a piece of the bigger puzzle of how to serve your customers as Chris suggests. That said, retailers I’ve seen execute on this promise really well tend to have live innovation stores (very different than labs) where they can track, measure and survey the customer experience to gain insights that can be implemented across the entire chain.
“Having lost sight of our objectives, let us redouble our efforts.”
Forgive my simplistic thinking, but what does “moving the corporate needle forward” mean? First, a needle has a very sharp point on it and most corporations aren’t even close to that kind of focus. And “forward” means movement, but doesn’t indicate a direction. One can drive forward while being totally lost.
Watching corporations and retailers specifically is like watching little kids play soccer. The entire team runs to this side and then the entire team runs to that side. In retail we all ran toward low-cost providers. Now we’re to all run to technology. Most will overspend and still have no idea what the purpose was.
Target cutting 800 projects to 80 is classic. But even with those 80 we have to ask, what ONE purpose or target are they focused on? When an organization aligns all its energy on that ONE thing it becomes unassailable within its purpose.
Why does your organization exist? What good do you want to do for the world? Who is it that is most critical to you being successful in that calling?
If we spent as much time teaching our employees how to relate to customers as we do analyzing those customers we’d be much further ahead.
Tech R&D is one of many priorities on which retailers must focus. The most important priority for a retailer is an overall vision and strategy for how they compete and win in the market. That vision then drives the strategy for how the retailer invests in technology and other initiatives. Target is wise to pare down their technology projects to focus only on those which demonstrably improve their value proposition.
Retailers need to look well beyond their PROCESS (online, brick-and-mortar) and concentrate on PURPOSES and PRECEPTS. What customers want and what they believe to be true about themselves is the fuel that makes brands sticky. The problem with retailer IT is that oftentimes retailers concentrate on HOW they bring goods to consumers and not WHY.
This slight shift in focus changes everything. It reduces barriers based upon business models (which always age out) and focuses on an alignment with the personal identification that consumers hold dear.
So what should the technology focus be? Easy. Do everything you can with technology to make your process as transparent (meaning unnoticed) as possible. All technological focus should be on creating an environment where the needs and wants of the customer are anticipated and simplified, remembering always that what customers need is directly tied to what they believe to be true about themselves. Everything else is self-serving.
Tech R&D investment is absolutely critical for survival but ONLY if it is reflective of a company’s business strategy, objectives and priorities. That said, at least some of the strategy, objectives and priorities should be about the customer which leads me to suggest that investing in tech R&D to improve the customer experience is a winning answer, if not the winning one.
Clearly Amazon and Mr. Bezos have long seen the customer as their number one “obsession” and if there’s any question regarding how that has paid off please see their stock performance.
Unfortunately most retailers see things differently, which is why they are mostly getting crushed these days.
Very few retail companies have the size and sufficiently deep pockets to embark on successful tech R&D. However, given the consumer’s adoption of technology as part of their lifestyle choices, retailers can’t sit on their hands. Retailers’ best bang for their buck is to focus on existing consumer-facing — and consumer-influencing — technologies and to partner with technology partners to bring their own business ideas and priorities to fruition. Rather than taking an “if you build it, they will come” approach, retailers need to become better “integration hubs” of innovation guided by strategic vision and an adaptive roadmap.
In this great age of organizational specialization, trying to do too much eventually begets the peanut butter syndrome for IT. Retailers, as with other industries, need to focus and excel on the actions and outcomes that are most valued by their chosen segments of customers while partnering with those with the credibility and track record to support such an approach.
Technology presents two major opportunities — supply chain and customer experience. From a supply chain perspective, costs can be reduced and profits increased by reducing out-of-stocks (which also can improve customer experience). From a customer experience standpoint, optimizing for mobile and improving the website experience as well as improving store associate interactions are critical areas where technology can make a big impact.
No need to be “state of the art” — these aspects are the basic blocking and tackling of improving customer experience to drive greater AOV and customer retention. Make the experience as quick and pleasant for customers as possible — that is a good investment of technology dollars.
Let’s look at this backwards. The biggest recent failures in retailing were by companies that notably invested poorly in technology. A&P had many problems, including inept management and an awful pricing and assortment model, but its lousy investment in technology certainly hastened its demise. They even signed on with one vendor several years ago as a way to get revenue (they’d get a commission for other retailers buying that vendor’s software) instead of fixing a problem or taking advantage of an opportunity.
The list goes on — Borders, RadioShack, Blockbuster, even Circuit City all made really poor tech investment decisions.
Now which companies have made the biggest investments in technology over the years? Walmart, Kroger, Costco, H-E-B, Home Depot. And that’s not even getting into the online retailers. There is a clear correlation between investment in technology and a retailer’s success.
I agree with Chris in that “technology is not a panacea” and comparable investment in “R&D on the human side of the (customer) experience” can be just as important.
That said, when it comes to tech project priorities within retail organizations, I will answer with a question: Can it ever be a bad thing right now — in a time of continued Amazon retail sales disintermediation — for retailers to give THE priority to ramping up their customer analytic capabilities to better understand customer behavior and improve their ability to target and communicate with relevancy?
If retailers focus on only two simple priorities they will be successful in tech over the long term:
As $125 billion will be spent on technology by retailers in 2017, MarTech is gaining momentum or operational tech, (though the lines blur). If the business of business is to create a customer, and the business of retail is also to retain them, then customer experience improvements and omnichannel engagement seem to be the apparent area for investment in the competitive landscape.
As the physical store is central to branding, merchandising, fulfillment and ongoing customer relationship, technologies for nimble, targeted digital messaging and interactivity that tell the story, sell the story and put customers into the story are worthy investments that deliver high ROI and less quantified ROO (return on objectives). These typically leverage operating applications and deliver insights that fuel sustainable and accelerated success.
Depends on what the focus is.
Technology is a tool. It’s like asking, how important is it that tradesmen invest in hammers? If the tradesman is a roofer or a carpenter it’s mission critical. If they are electricians, not so much.
So retailers have to determine which problem they are trying to solve. The brunt of retail technology today is focused on logistics and payment in one form or another. Maybe the focus ought to be the consumer.
Figuring out your focus tells you all you need to know about direction and funding. Without it you are just working on random systems and hoping for the best.
Projects that support improved customer interactions deserve first attention. Projects that reduce costs or improve operational efficiency deserve some attention, maybe 30% vs customer interactions. Infrastructure projects that don’t directly relate to the first two should be ignored unless they are hard limits to growth, like being unable to open any more stores, or DCs, or the solution is unsupportable. Sorry IT, but if you can’t connect an investment to a real measurable business benefit….
What is the point of technology for a retailer? If consumers do not get what they want, when they want it, in the format they want, delivered in the manner they want, the retailer will go out of business. Technology needs to help retailers manage the paradox of increasing efficiency and satisfying customers. The solution will be different for every retailer. That means each retailer needs to identify their strategic direction and then determine their technology needs.
With elevated customer expectations, it is imperative that retailers recognize the importance of tech R&D and invest in their infrastructure to deliver the “Amazon Experience” customers expect. This experience requires real-time visibility and access to customer, product and inventory information across the enterprise including the store. Real-time retail can only be achieved with an infrastructure designed to accommodate transparency across channels and a bullet-proof network to connect everything in real-time.
The problem is that most retailers operate in a CFO centric world where IT budgets based on a “hard savings” perspective and the annual planning processes are based on a goal to reduce IT and business spending by X%. This hard savings approach is short sighted and lacks the ability to consider innovative projects and investments in the future. Retailers need to consider the “soft benefits” of investments in innovative technology that drive increased customer satisfaction and sales soft benefits. Retailers that will be successful in the long-run will use soft analysis to help drive investment decisions and will invest in the infrastructure that enables innovative technology that drives a better customer experience. Innovation is powered by the “soft” approach and cutting IT spend is not necessarily the way to get there…prioritizing innovation is.
Tracking tech is critical to the success of retailers. But more important than the level of investment is carefully choosing only the RIGHT investments to make. And retailers need to be extremely wary of those selling technology as the magic cure to R&D.
Read the book “Disrupted” by Dan Lyons and you’ll realize there’s an entire industry of investors who look at big data operations and marketing tech as ways to get rich quick — not as valuable products to deliver advantages to clients. It’s not all the companies, but it’s a great number of them. And those investors win if the products are bought by retail — without it mattering if the products are effective at retail.
I’ve watched an amazing waste of resources over the past decade as retailers have thrown tech magic into their systems — but not seen much value back.
It concerns me as well, in this article, that Amazon is thrown around so easily and that somehow tech is the way to compete with Amazon. We must remember that Amazon’s retail model is currently unprofitable. They’re not an organization I’d recommend we look to for best practices.
Retailers should focus on areas that gives them competitive advantage and overcome areas of weakness. As others have noted, retailers are known for under-investing in IT (with the exception of a few like Walmart and e-retailers) and that probably isn’t going to change quickly. For some it is omnichannel, for some it is supply chain and keeping items on the shelves. There isn’t a simple answer.
This is quite timely for me. I have just completed a series of posts that touch on this topic. The first piece talked about new and emerging technologies and the need for the right “stack.” With today’s IT budgets skewed the way they are, retailers are hard pressed to have access to the right resources to do this.
The next piece went on to say that retailers need to re-think their business strategies from the top down in order to get this right. And finally, I took it tactical by addressing the need to rapidly prototype. Retailers need to have the mindset that they are going to be in “perpetual beta.”
What I have not talked about is where the focus needs to be. This is largely because it will be different with each brand and with the current software and hardware constraints they are living with.
The bottom line is, yes, retailers need to be budgeting for and taking seriously their R&D. They can no longer survive playing “maintain at the lowest cost” and “throw a few bucks at the low hanging fruit.”
And that is my 2 cents!
Two quotes to mind:
“As a startup, figure out the problem you are addressing, and the users,” says Waze cofounder Uri Levine. “Fall in love with the problem, not the solution, and the rest will follow.”
“The truth will set you free, but first it will piss you off.”