Stelzer Speaks to Technology Challenges

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Mar 17, 2006
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By Ronald Margulis, Managing Director, RAM Communications


I spoke at length with John Stelzer, director of retail industry marketing for the business integration solutions provider Sterling Commerce, on technology trends in the retail industry at the National Retail Federation conference in New York earlier this year. More recently, I asked him to address four broad questions on the topic. Here they are, along with his responses.


What are the most critical technology and operations issues facing retailers in 2006?


John Stelzer: Retailers have long operated in three worlds — customer-facing; internal operations; supply-facing. As they’ve sought to address challenges, they’ve typically implemented solutions that dealt with one challenge in one world — or a sub-segment of a particular world — at a time. Now, faced with multiple channels for conducting business and numerous islands of automation, retailers are rapidly realizing that, to present a single face to the consumer, they must unify their three worlds, the multiple channels within each of those worlds, and the parade of technology that they’ve implemented over the years. A failure to do that translates to reduced profits and undermined customer experience.


How are retailers addressing these challenges?


Stelzer: Retailers are using applications to provide the added business processing capabilities needed and infrastructure to integrate the many disparate technology silos currently in place. They’re turning to a service oriented architecture (SOA) to more tightly integrate their widely-varied technological parts. And, they’re turning to solutions that span all three retailer worlds to enable them to present a fully-integrated unified customer experience from source to sale. Where an initiative involves parties outside the retailer’s enterprise, they are utilizing community enablement services for faster implementation and lower total cost of ownership. This combination of applications, infrastructure, and community management allows the retailer to span technology silos, multi-channel business processes, and diverse trading community participants to focus on core competencies and present a single face to the customer… regardless of the channel(s) through which the customer is interacting with the retailer.


What pushback is the average retail CIO facing from company executives or management teams in terms of technology implementations?


Stelzer: Integrating multiple channels means bridging fiefdoms that were often managed autonomously before attempting to bridge multi-channel gaps. Often, those silos occurred because individual business units or departments invested in a solution that was specific to only their needs. As more and more point solutions were implemented, they created islands of automation that complicated a retailer’s ability to create a unified customer experience.


Integration technology can only go so far to tie these silos together because there’s a need to perform business analysis, exception identification/recovery, etc. at a meta level. Taking a holistic view of how the retailer touches the customer requires these units to work with one another to create a unified customer experience. But, it also requires a business processing level above and between these individual applications. This has spawned today’s multi-channel applications that span multiple existing applications and enterprises to provide seamless source-to-sale business processing and management capabilities.


Are executive teams calling on technology to grow sales or reduce costs?


Stelzer: Both, but there has been a decided shift toward adding growth initiatives in the last 18 months. A survey of CEOs conducted by CIO Magazine showed that seven
of the top ten expectations that CEOs had for IT in 2005 were related to growth. Increasingly, senior executives are coming to the realization that growth and competitive advantage
can be improved through the innovative use of information to deliver unique customer value. And, they realize that IT is the source of the tools and expertise to best leverage
that information.


Moderator’s Comment: Are retail executive teams calling on technology to grow sales or reduce costs?


I’ve heard arguments supporting both sides of this question, and the only commonality I see is that high volume retailers tend to be deploying technology
that helps reduce costs, and high margin retailers tend to be looking at technology that helps them sell more.

Ronald Margulis – Moderator

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7 Comments on "Stelzer Speaks to Technology Challenges"


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M. Jericho Banks PhD
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M. Jericho Banks PhD
14 years 11 months ago

Stelzer’s comments sound hifalutin’ to me. Customer/supply-facing? Islands of automation? Undermined customer experience? Community enablement services? Meta level? Anyone got a jargon dictionary, or can we just get the sales brochure mailed to us? Can’t you just picture retailers’ eyes glazing over?

However, Ron, as always, has it right. Volume retailers employ technology to control costs, and margin retailers use technology to increase sales. But wait, there’s more! What about Target’s latest “big deal,” the use of their banks of display TVs to show ads for products in the store rather than music videos? While not a breakthrough idea (Wal-Mart is way ahead here), Target is a low-margin retailer using technology (TVs are still considered technology, right?) to increase sales. The sound you hear is that of a rule being broken.

Don Delzell
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Don Delzell
14 years 11 months ago
This one really shouldn’t be an “either – or” equation. I agree, it seems to be. The reality is that high volume retailers have adopted strategies which require focus on lowering and controlling costs. They drive that volume through pricing practices, and pay for those practices by super efficiencies in supply and operations. Or by cutting costs in those areas, which is not at all the same. High margin retailers seek to acquire new customers, because the net benefit of customer acquisition, due to the margin impact, is enormous. One clear difference is WM. This is a high volume retailer focused in both areas. Clearly the revised consumer segmentation and strategic focus is in the demand side of the equation. And they are implementing technology to help drive that. Supply chain and cost efficiencies have been the core competencies, and they continue to spend money and effort to drive father improvements. The bottom line is that technology should be the “engine” behind strategic initiatives in developing competitive differentiation based on core competencies. Focusing on one… Read more »
Mark Lilien
Guest
14 years 11 months ago
Most retailers are no/low growth enterprises. They see technology as overhead that should be minimized, like all overhead. A few visionaries realize that technology can be a lever to reduce cost and improve sales and service. Some of these visionaries’ implementations stumble, which is why few visionaries live to see their visions. People who want safe careers don’t use technology to improve sales. They use it to reduce cost, but only after they see other people successfully doing it. Many technology folks report to the CFO, and CFO’s have the image of being conservative with technology investments. The terrible track record of new technology implementation leads the CFO’s to be extra careful. Who can blame them? Even if the technology folks don’t report to the CFO, their spending is subject to great skepticism by anyone familiar with the continuing track record of technology disappointments. Would cars be popular if 1/3 of all trips resulted in accidents? Would you fly on a jet if 10% of all flights crashed? Would you eat out if 25% of… Read more »
Warren Thayer
Guest
14 years 11 months ago

I don’t know if it is exactly “growing sales,” but I am seeing rapidly growing interest in SKU rationalization and price optimization. There are significant efficiencies and profits to be gained with better category assortments (less out of stocks on key items, more productive use of space) and opportunistic profit taking when pricing structures/margins are set properly. There’s good, fairly low-hanging fruit there still after all this time, with new software that can actually do the job.

Ken Wyker
Guest
14 years 11 months ago

Retail executive teams are focused on the bottom line, so they’ll take either sales gains or cost reductions if they can get them. The reality has been that the most publicized successes have been on the cost reduction side and in grocery retail; that’s an easy path to pursue to boost profits. It’s also true that some of the promotionally oriented technology efforts that promised to grow sales turned out to be so costly or ineffective that the net impact was reduced profitability.

Retailers are discovering that the real sweet spot is when technology can be applied to achieve both objectives by reducing the cost and improving the impact of existing promotional or customer-facing activities.

One example would be price-optimization software, which can be applied to either improve margins without hurting sales, or to drive sales and price perception with minimal impact on margins. Another example is the use of targeting analytics and lower cost electronic communication vehicles to reduce the cost and/or boost the impact of promotional efforts.

Bill Bittner
Guest
Bill Bittner
14 years 11 months ago
Ron, great questions and obviously very thoughtful responses from John. I agree with some of the other comments; this does not have to be an either/or question. In fact in many cases it is better to look at the supply chain and logistics processes completely independently of the marketing and merchandising processes. One would focus on the efficiency and operations factors while the other works on growing both the magnitude and quality of sales. While both have to be aware of the “other half,” by focusing on each separately it is easier for the players involved to recognize their objectives. For the supply chain and logistics technology this means giving suppliers and retailers a common view of the whole supply chain right down to the shelf edge. This common perspective of the business processes allows both to agree on the issues and work together to solve anomalies. This kind of visibility has traditionally been difficult to provide, but wireless technology, wide area networks, B2B communications standards, and inexpensive portable devices have removed technology as the… Read more »
Lee Kent
Guest
14 years 11 months ago

The answer is to ‘save the sale’, all the while containing costs, remaining stable and growing brand loyalty. This year, an estimated 100 million US shoppers will be looking for a more meaningful and, therefore, integrated, shopping experience. Moment to moment information must be available to ‘save the sale’. This means real-time access to the supply chain, back office access to transaction data, and down-stocking information to the receiving area. Today’s store must not only have access to corporate enterprise applications but also must have store enterprise applications of their own. The store must no longer have a dotted line connection to the corporate enterprise; they must be incorporated into the enterprise. This means reshaping IT in order to revolutionize the customer experience. Transformation WILL take place and those players that can tackle the transformation issues, uncomplicate the lives of retailers, while increasing conversion rates, will be the winners. Technology must become a strategy!

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