Retail Technology Transformation
The retail technology landscape is beginning to catch up to the business drivers changing the retail industry. Make no mistake, the retail industry in incurring unprecedented change. The consumer is more connected, informed and empowered which has forever changed the balance of power.
Brand advertising continues to lose effectiveness in favor of consumer generated content on social media. Consumer loyalty is harder to come by, and consumer showrooming will continue to challenge brick and mortar retailers.
These types of market shifts require new ways to manage retail technologies to support more fluid business strategies. The days of relying upon back-office merchandising, supply chain and POS systems are over. These systems are still necessary, but now only a part of a more expanded technology portfolio needed to deliver relevant, personalized and contextual consumer engagement throughout an end to end customer experience across channels and devices.
However, before jumping into a slew of point solutions I recommend considering an IT portfolio approach that aids flexibility and closely aligns to the most salient changes impacting retail business strategy. The below framework is a deviation of Gartner’s Pace application strategy that we have adapted to accommodate retail.
Systems of Record
Systems of Engagement
(aka Systems of Differentiation)
Systems of Innovation
(aka Systems of Insight)
|Enterprise Resource Planning
Supply Chain Management
Customer Relationship Mgmt
Human Capital Management
Sales, Marketing & Service
Dynamic, Personalized Promotions
Mobile & Clienteling
NFC, iBeacons and Wi-Fi
Endless Isle & Kiosks
|Collaboration (Slack, Teams)
Social Ideation & Crowdsourcing
Next Best Offer/Action
Data Warehousing & OLAP
Internet of Things
While Systems of Record are often considered large, monolithic applications, their primary use cases should be decoupled in order to design with more specificity and better align with downstream systems. For example, drilling down on systems of record will identify many key retail functions:
The portfolio framework is designed to build upon core transaction systems with applications capable of realizing differentiation and driving innovative ideas, processes and strategies.
Systems of Record are really the work horse applications that provide little differentiation but manage the common business practices every retailer must accommodate. Because the business processes are routine and the volume of transaction processing is high, their rate of change is low and their ability to increase value is based on their capacity to act as a platform for more innovative applications. In fact, attempting to deploy disruptive technologies such cloud, social, mobile, analytics, big data or customer experience to name only a few, without leveraging systems of record as the underlying platform will clearly result in redundant systems, processes and data.
Systems of Engagement lie at the confluence of customers, merchandise and channels and literally connect retailers with their customers in order to improve the customer experience. These systems enable unique business processes that create differentiation and competitive advantage. Systems of engagement are often lightweight, consumer facing and developed in quick iterations. Above all, it's critical that these applications cater to what is sometimes called the Consumerization of IT. That means they must take a mobile first approach, follow consumer design principles and be extraordinarily intuitive (no manuals or online help required). In other words, they shouldn't look like, act or operate anything like your internal enterprise systems. Whereas Systems of Record are governed primarily by IT, fairly inflexible and generally have operating lives lasting from five to ten years, Systems of Engagement are more often governed by lines of business, very adaptable and have much shorter useful lives.
Systems of Innovation will define the future of retail competitiveness. Don't confuse learning with innovation. All retailers must show the ability to learn and apply that learning in their business execution. However, IMHO, extraordinarily few retailers are capable of building the culture and capabilities needed to produce innovation. While those retailers who can innovate will enjoy first to market advantage, market share acquisition and premium pricing, an alternative "fast follower" strategy is a viable tactic for other retailers as long as they act promptly. It's the retailers who don't proactively act and sit the sidelines that will involuntarily transfer their market share to their more innovative competitors.
This IT portfolio approach delivers several advantages.
- The layered framework offers a more nimble approach that better facilitates business and technology change. When business processes work across layers, each layer delivers increased agility to meet the changing needs of the business. As the rate of change increases, this approach allows quick change to Systems of Engagement while continuing to harness the OLTP power of Systems of Record.
- Recognizing that different types of applications offer differing value allows retailers to apply different IT strategies in procuring, managing and retiring business applications. It's not sensible to apply the same strategies and rules to Systems of Record that you would to Systems of Engagement.
- While Systems of Record are largely limited to common ideas shared by all retailers, Systems of Engagement and Systems of Innovation deliver competitive differentiation and new ideas to spur business growth. Gartner refers to Systems of Record as "common ideas", Systems of Engagement as "better ideas" and Systems of Innovation as "new ideas".
- The layered portfolio approach shows how Systems of Engagement should leverage Systems of Record as platforms in order to minimize the perennial problems associated with disparate applications, data siloes and fragmented systems. Key concepts such as Master Data Management and SOA architectures provide governance across layers, in order to aid enterprise-wide activities such as business process automation and information sharing while at the same time lessen the cost and pain of system integration.
- When portfolio layer applications are built upon each other, as opposed to the more reactive approach of acquiring standalone or redundant applications per layer, organizations manage fewer systems, incur much higher data quality, reduce business process cycles and have access to vastly more information.
- This retail-adapted Pace layered application model brings new governance to IT application strategy, deconstructs your inventory of IT applications and reorganizes them in a way that creates a more dynamic technology plan capable of more quickly supporting dynamic shifts in the marketplace.
All merchandise becomes commoditized over time thereby making product-centric retailers vulnerable. Fortunately, properly nurtured customer relationships do not deteriorate over time giving customer-centric retailers a more sustainable competitive advantage.
Advancing from Systems of Record to Systems of Engagement in order to improve the customer experience and continually foster the customer relationship is a technology strategy that aligns well to long-term retail business strategies.