CIO Challenges in leading transformation
Technology has always been the mainstay of retail providing the foundation for merchandising, sale, and replenishment at a basic level; almost all Retailers have successfully created this stack. This hygiene is something CIOs and IT has done well; they run the data centre, networks, point of sale machines, and enable the supply chain to replenish at predefined frequencies. Organic growth of stores kept everyone busy until pureplay internet retailers started eating away market share. As more consumers connected to the internet the need to also have an ecommerce site was acknowledged and the CIO was given the task.
Almost a decade back when Flipkart was beginning to raise its head, few retailers recognized the threat and decided to get on the ecommerce bandwagon. Talking to some of the IT Heads of that time, the simplistic view of what it takes to run an online store was a certain disaster, which did not take too long to fail. With recessionary trends and slowing economy in 2008, investments dried up quickly; some of the challenges faced by IT without the clear alignment with the business were:
1. Limited product catalogue, images, descriptions for available and upcoming inventory – physical stores do not need these attributes to sell.
2. Inconsistent availability of products for the new channel to ship for orders received – store pickup, or warehouse ? End result, 15-20 percent order cancellation due to inventory issues.
3. Who gets the credit for the sale when merchandise is picked from store for online orders ?
4. Customers enjoyed Free Shipping; cost of shipping left limited margins to fund overheads.
5. Online discounts for same/similar merchandise drove customers away from brands.
6. Returns process complexity created dissatisfied customers with stores not integrated into the process. Pilferage in the supply chain also aggrieved customers.
7. Cash on Delivery was still evolving and ate into the margins
8. Technology was still evolving, and investments required were quite high
9. Stores were not interested in promoting online channels with sparse change management on the new business opportunities.
10. Expectation of quick ROI (Return on Investment) versus pureplay burning investor money.
CIOs struggled to get the organization behind the new business opportunity resulting in marginal business at costs that were not sustainable. Customers sought deals across channels and took their business to whosoever offered instant gratification of lower prices. Unfortunately, the blame fell squarely on the technology choices and project execution, which CIOs were unable to defend. Large retailers in India struggled with multiple attempts with fresh talent from the disruptors (ecommerce companies). They knew how to scale but did not know how to make money. Thus, traditional metrics limited the cash burn and restricted sales. IT went back to managing what they knew best, new talent was recruited; without alignment across people, process and technology, the struggle continued.
Fail fast is often heard of in conferences, read about in case studies and self-help books; in reality, within enterprises this does not gain favour adequately for people to take risks. IT driven projects typically end up in Orphanages with no owner, no usage, relegated to ignominy. For success it is critical for every project to be a Business project enabled by IT and outcomes owned by business. Most global IT project failures (greater than 80 percent) according to a 2-decade running study by The Standish Group, are due to lack of business involvement and ownership. Today awareness levels are higher and most CXOs understand impact of technology on their business activities and the overall organization and industry at large.
MIT Sloan Management Review cites 7 technologies that are changing every dimension of our lives (see chart). While all of these may not be immediately relevant to retail, their implications over time need to be understood and weaved into future experiments and Proof of Concepts. Uber for example is using Pervasive Computing to utilize vehicle capacities and earn more. Similarly, wireless networks are evolving with 5G experiments globally potentially opening up new business opportunities not feasible in the current environment. Off course, Machine Learning is already finding mainstream use cases within all kinds of industries; Retailers are experimenting with algorithms to improve ability to understand customers better, define merchandising strategies and create better promotions and offers.
Lesson for CIOs: The subject of Business IT Alignment has been discussed, debated and stressed upon for more than 2 decades; Technology for technology has never been a formula for success. The business needs to be thought through with process reengineering and alignment to expectations from customers. Don’t rush into solving a problem until you understand the larger implications to internal stakeholders and the customers. CIOs need to articulate and communicate new upcoming trends and how they may potentially impact the company in a time horizon.