RSR Research: Getting Over the Cloud

Oct 12, 2012

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

For retail line-of-business (LOB) leaders, a fundamental question should have been asked ages ago when their companies were investing in either ERP, best of breed, or even home-grown solutions. That question is: What about your proprietary way of doing business is so important that you can’t modify your internal processes to take advantage of the capabilities of a commercial solution?

Failure to address that question is at the heart of why companies feel compelled to modify packages, thus making them a future support headache for IT. Just last week, I talked to a consultant who is on a project to modify a tried-and-true commercial package for one retailer who feels that their weird merchandise hierarchy is so important that they have to burden their internal IT organization for years with custom code. Really?

Many businesses confuse "strategic" vs. "tactical" advantage. When RSR talks to companies about their strategies, we often find that while they may be strategically disadvantaged if they don’t do something well, they are only tactically advantaged if they improve. But "strategic plans" are often chock-full of projects that do precisely that; they eliminate a roadblock but, at the end of the day, the company in question is merely "keeping up with the Joneses."

The reason this point is important to bring up is because taking full advantage of a commercial cloud demands that the business use the software the way it was intended to be used. This might be the reason why retail IT’ers are generally not favorable on the idea of putting mission critical functionality into a public cloud; they’ve been hearing LOB leaders for a long, long time insist that their way of doing business must be accommodated in the technology. And so "on premise" (capital intensive) solutions tend to find most favor with IT’ers, because they can then modify the code to suit the peculiar needs of the business.

From the responses to a December 2010 survey on IT delivery strategies — which were overwhelmingly from IT decision makers as opposed to LOB leaders — we concluded that there’s a clear disconnect between IT and LOB objectives. IT favors on-premise owned solutions; LOB leaders want results, and the CMO in particular seems willing to bypass IT altogether. Implied in that is the inference that LOB executives are "over" their insistence that technology solutions conform to their odd ways of doing business. In short, they’re just in too big of a hurry.

Given that consumers’ omni-channel behaviors are changing the very foundations of the traditional retail operational model, it’s no surprise that LOB leaders are in a big hurry to technology-enable new business processes. That’s what creates the opening for "cloud" offerings from technology providers.

In your opinion, are on-demand technology solutions the way to address the reality of IT departments burdened with costs yet underfunded for value-adding efforts? Are commercially available applications delivered as on-demand services “good enough” for retail back-office processes?

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9 Comments on "RSR Research: Getting Over the Cloud"

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Max Goldberg

Wherever possible, retailers should use commercially available, on-demand technology solutions. Why reinvent the wheel and create technology mazes that future IT workers will have to spend countless hours deciphering? Commercially available solutions can meet most retailers’ needs.

Ron Margulis

There isn’t a black and white answer to these questions. For some functions, on-demand technology solutions have been built out to a point where they are clearly more effective than captive solutions, whether proprietary or vendor made. Examples here are price optimization, retailer-vendor promotion support and supply chain collaboration.

Retailer-based solutions for loss prevention, labor management and others are for the most part better than the available on-demand solutions for reasons specific to each function. Loss prevention, for instance, needs to be store based and store executed, even though there is a reporting structure to get the information on events to HQ. Even in loss prevention, however, new solutions are coming out that could enable the move to on-demand systems.

Ken Lonyai

Full disclosure: I develop custom software.

There’s never a one size fits all answer to custom vs. out of the box software. As with anything there’s a bunch of variables that vary, even amongst businesses in the same industry. The two most important factors are long term objectives and budget. Ultimately, they are the factors that will determine where things will go. After that, it comes down to details and as Brian mentioned, support costs/issues.

Oh and regarding “the cloud” and its perceived invincibility: as I write this Amazon is down.

Paula Rosenblum

I’m using this spot to comment on the poll question, more than the discussion question.

What about the right product for the right customer? Many women have been expressing concern on the state of fashion, and its lack of freshness. I get that marketing is in ascendancy, and RSR was among the first to spot this trend…moving from merchandising oriented to marketing oriented retailing. BUT…clothes are not laundry detergent. There are many opportunities missed on the product side. That must change.

Ian Percy

This discussion is really well over my pay grade, but that’s never held me back before!

When my wife and I experience a wonderful food dish, we often ask for the recipe. My wife wants to go home and replicate the dish exactly. My immediate response is, how do we do something different with it? And that’s where the mysteries of the human psyche come into this technology discussion. Creation is part of our DNA; even if it’s been beaten out of us, it’s still there. We are born to tinker and in some ways simply MUST think about reinventing the wheel. (I refer you back to an old discussion where I made the point that ‘wheel’ is an application, ’round’ is the core technology.)

I want to ask Brian where “open source” comes into this discussion, if it does at all. Oddly, I’m part of a group bringing ‘open data’ processes to municipalities which basically allows them, and the citizens for that matter, to cut and dice all data any way they want. Seems to me the wise thing is to have systems designed for manipulation for the get-go.

Adrian Weidmann

Human nature dictates that we all feel that our situation is unique when in fact there are many others with the same issues. Retailers and the challenges they face are the same, and the Pareto Principle defines this beautifully. 80% of all retailers share the same issues and challenges with no more than 20% of their challenges being unique. Retailers would be far more efficient and flexible to keep up with the expectations and fluidity of technical innovations available to the digitally empowered shopper if they focused on developing a purely strategic roadmap, and placed the burden of technological execution on the companies that make their living at it, instead of creating an internal IT empire that due to corporate culture and politics simply cannot move and react as fast as the ‘speed of the consumer’.

Tom Redd

I like how Brian got to the core issue of strategic and tactical advantages and the confusion retailers (and other industries) make of those two ideas. That is the crux of the problem. It’s not technology per se, but the unwillingness to identify and separate truly differentiated and sustainable business advantage(s) from the many standard industry process with established best practices. Technology solutions and approaches exist for both types, each with different implications. Forecast: the future will be mostly cloudy.

Jeff King
Jeff King
5 years 6 days ago

It’s essential. The pace of technology change is so fast that unless you are the largest of retailers, (and even then) you must leverage on-demand tech to keep up. Think about just channel expansion: mobile, social, pinterest, eBay, and dozens of other channels to support to maximize demand generation. Then there is next gen POS, clientelling, redlaser, buy online pick up in-store, ship from store, ship to store, new payment methods, etc. Most if not all of these weren’t imagined just a couple of years back and are experiences ‘expected’ by today’s consumers. Keeping up without support of on-demand software just isn’t possible for most retailers.

Ralph Jacobson

Since 70%+ of IT budgets are spent on maintenance and admin, cloud offerings can definitely respond to those cost constraints. Innovative retailers and CPGs are leveraging these solutions as we speak. The solutions are more than adequate for the largest companies, and flexible enough for smaller firms.

Too many retailers and CPG companies are still investing in custom code, whereas we have found that 90% of this custom code is not even utilized 12 months down the road after implementation. The 80/20 Rule certainly applies here. Guess what? The vast majority of your business can work fabulously with a robust cloud offering as is. Little customization is truly needed.


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