Corona causes dramatic changes in consumer behaviour, forcing retailers to respond with unprecedented agility, at the highest pace. Impact varies across sectors, but even within sectors responses vary widely. Many retailers struggle and seem to get stuck whilst others smoothly ride the new waves and successfully launch new propositions. Why is that?
In the ‘new normal’ one thing is certain: there is a lot of uncertainty – at least in the nearby future. In many cases, coping with this uncertainty requires an instant and flexible response, to adjust capacity, shift direction and realign offerings. Responses easily take too long, and agility can make the difference. For example, online food retailer Picnic, who shortly after the corona outbreak faced tripled demand. At short notice, they increased delivery capacity in cities, through extending the number of morning delivery timeslots and hiring 500 additional employees. On a different scale, Instacart has nearly doubled their workforce from 200K to 350K employees to offer greater flexibility and their delivery options and allowing customers to place orders two weeks ahead instead of one.
However, agility alone is not enough. Many corona responses need to include innovation, an area which retailers historically do not excel in. Shelves typically have been the same for many years. A lot of retailers are stuck in the paradigm of inefficient and manual processes, inflexible systems, complex governance structures and limited data insights to substantiate innovation. In contrast to pure e-commerce players, who have innovation in their DNA. Digital natives who combine technology and data with a setup of trial and error. It enables them to manoeuvre more quickly. Like traffic application Flitsmeister launching the new service ‘Pickup’ in response to the corona-driven capacity challenges and delays at parcel delivery companies. With Pickup, they call on their 1,7 million application users to help retailers delivering packages. Within 24 hours, ten-thousands of application users registered as potential deliverer and 250 stores showed their interest.
Many factors are in play for to create a setup that accommodates successful and swift innovations. Next to agility, it is also about availability of resources and organizational entrepreneurship to name a few. However, companies like Instacart, Picnic and Flitsmeister illustrate how technology and data can make the difference. Technology as an innovation enabler instead of a constraint and data as the fuel to get it right. For more traditional players who lag these capabilities, now is the time to embark on an accelerated digital transformation journey. We will further elaborate on three key ingredients: technology, data, and agility.
Ingredient 1 – Technology to enable swift innovations
For many retailers, technology is characterized by complex legacy that has been built up over many years. Typically, most attention is geared towards ‘keeping the lights on’. Shifting gears towards innovation requires technology to be more flexible than ever. Cloud– and high-performance platforms can help increase time to market in a cost-effective way.
The current market volatility requires high speed, relevant innovations. Since technology is increasingly wide available, unique and differentiated innovations are crucial to outperform peers. An integrated and seamless customer journey becomes a hygiene factor with personalized offers as a qualifier rather than a differentiator. These developments can only be realised through IT and the integration between IT systems. However, most retailers rely on outdated IT systems and have a fixed IT spend that is not aligned to their operations. Up to 80 percent of retailers’ IT spend is needed for day–to–day operations. This leaves only 20% for investments to differentiate or innovate, which should be around 50%. To make a step change, many retailers face three challenges. First reducing costs for day–to–day operations in a sustainable manner, secondly make the IT landscape resilient for abrupt demand changes and third accommodate agility and fast time to market for differentiated propositions. New technologies are evolving quickly and getting more mature, hence opening up new possibilities.
Many companies still choose on premise solutions. Meanwhile, cloud platforms are creating great possibilities to seamless integrate standard plug-and-play solutions in existing IT landscapes. By using cloud platforms, you create the ability to easily scale up and down, to align IT spend with business volumes through pay-per-use fees. In areas requiring differentiation, flexibility and fast time to market, we observe a vast increase of low-code platforms. Annual market growth of low-code is between 30% and 50%. It can reduce development time with a factor 3 to 6 compared with traditional software development. The philosophy in the program language is to click small, modular building blocks into each other, hence preventing traditional heavy coding. These building blocks then can be tailored to specific needs. Moreover, maintenance cost savings can add up to 50% (complex integrations). Gartner predicts that 65% of all software development will include low-code by 2024. An interesting example is Lidl, who has built an ecommerce platform that is only available at special times of the year, such as during holidays when people are prepared to eat more luxuriously. Low-code in specific made this business case viable. This way, technology becomes an enabler of high pace iterative developments (launch and learn) of innovations.
Ingredient 2 – Data as the fuel to get it right
Already since a long time, data has become the cornerstone for understanding consumer behaviour and making the right decisions to fuel growth ambitions. However, with corona this is becoming more complex since historic data is no longer a reliable start to predict the future. Yet, accurate forecasting has gained importance due to changing behaviour and volatility in demand.
A data science capability (including predictive analytics) has proven to be a key asset for quite some time now. Both through personalizing offerings to meet demand and through adjusting supply accordingly. One of the most well-known examples is the American supermarket Target. With data, they once predicted a high school girl’s pregnancy based on her spending habits, before her father did. On the demand side, a data science capability is more important than ever due to corona. Demand is erratic and customer loyalty can only be achieved through an extensive understanding of a changing customer journey. Surprising your customer is not easy and competition is fierce. A company like Cool Blue shows how to create fans, with their tagline ‘Everything for a smile’. On the supply side, the pandemic has shown the vulnerability of supply chains and the importance of reliable forecasts. Patterns in replenishment and promotional sales have completely turned around, requiring a different approach to forecasting and often work-arounds to manage supply adequately. A large Dutch do-it-yourself retailer for example, established a manual loophole to process orders, because of limitations in their existing systems.
Unlocking, structuring and enriching data is one thing, but translating it into (actionable) business insights to enhance integral decision making, is another. This hinges upon the data science capability to be seamlessly linked to the business. Carefully selected dataset should be easily and instantly available at different organizational levels. For example, a company CCO is interested in performance across stores, whereas a store manager rather needs commercial insights on how to improve on NPS, conversion and basket size in one specific store. Having the right data available enables determining specific actions per channel, region or customer segment, whilst making substantiated cost/benefit trade-offs. An example comes from Picnic, who uses data analytics to optimize the fill rate of their crates. Data showed them their minimal order amount of 25 euro mostly resulted in the need of a second crate that was often minimally filled. By increasing the minimal order amount to 35 euro, this second crate is well-filled. Most customers already ordered over 25 euros, so this increased threshold did not jeopardize customer satisfaction. A simple example of how data can be translated into actionable insights that create value.
Ingredient 3 – Agility and organizational resilience to keep up with the pace
Digital transformation is not just about data and technology. A company’s culture often is the number one barrier. This includes leadership, way of working and employees’ skillset & mindset. Embedding agility in a company’s culture is key – but not easy. Starting point can be a ‘lab’ set up where data and technology are combined with an agile way of working to accelerate innovations and hence organically change from within.
Culture evolves and strengthens over time, making it often a barrier to transform. Successful innovation requires an entrepreneurial mindset to be embedded across the organization. Leadership must be able to delegate responsibilities and give guidance based on output rather than throughput. Giving employees ‘trust to act’ is key. For many retailers, this has proven to be a positive side-effect from corona, where employees had to work from home in a more independent setup. Sustaining this when the working situation is ‘back to normal’ will be challenging though, unless it is structurally embedded in your setup. Booking.com does this by authorizing any employee to launch and experiment on millions of customers, without management approval. To strengthen innovation culture, the best companies use culture hacking. Referring to costless small actions, possible to start instantly, leaving big impact on company culture. Google, for example, has the Courageous Penguin award for people who dare to take a risk without knowing the outcome, just like the first Penguin to jump from the iceberg. To encourage new ideas, Ben & Jerry’s introduced the Flavour Graveyard of unsuccessful flavours. Motivating employees to have the courage to look forward and to become ambassadors of innovation is needed to accelerate change.
Agility can only be embedded in the organization when facilitated by the way of working. Short cycles facilitating continuous improvement iterations is needed to speed up the pace of innovation. Again, a great example comes from Booking.com, running more than 1,000 experiments simultaneously. On estimate, they run over 25,000 test each year, to truly understand customer behaviour and respond accordingly whilst most retailers do not go beyond a few dozen per year.
But how do you become agile? A good starting point can be to initiate innovations in an isolated lab set-up first. In this lab, a dedicated team focusses on innovations. Working in sprints of 2 to 3 weeks, prioritizing their activities from a backlog full of innovative ideas and working to a minimal viable product each sprint. It facilitates alignment between all ingredients to increase adaptiveness and guarantee progress, to make the digital transformation really stick.
Any successful digital transformation hinges upon advanced analytics, flexible technology and organizational agility. It is the combination that can drive swift innovations effectively. A comprehensive and urgent agenda in case you lag but embracing and embedding all ingredients is key to make digital transformation work!
Director at IG&H
Partner at IG&H
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Author: Myrthe van Hoek (firstname.lastname@example.org)