Retailers have been struggling with the idea that they need to shift away from being product-centric, to being more customer-centric. It’s a hard shift to take. Retail used to be defined by the products a company sold. No one cared who bought them, so long as “merchant princes” decided which products were the right ones to sell. All of a retailer’s knowledge about customers was encapsulated in that merchant prince’s gut feel for what would do well and what would not.
Now, everyone talks about customer centricity putting the customer at the heart of the business, understanding what they want and need, and then organising the company to deliver on those wants or needs. Gone is the merchant prince, replaced by the data scientist. The right product at the right place, price, and time is a function of math, rather than gut feel.
Software AG certainly wants to support that shift to a focus on the customer, but the company has yet another and potentially even more disruptive shift in mind. At the same time that retailers are navigating a move from product to customer, Software AG sees a future where product itself is replaced. By software.
Retailers have historically resisted IT investments, preferring instead to invest in the areas that they felt could grow the business (as opposed to IT, which was perceived only as a cost, a support cost). Open new stores, or invest in an ERP? The answer is fairly easy, up to a point invest in stores. And even when it came time to admit that companies’ growth would undermined or at least limited without an investment in software systems, retailers had a tendency to claim they were too special to be supported by packaged solutions. There has long been a tendency to build instead of buy, or buy point solutions instead of integrated suites.
Personally, I have said to retailers many times, “You’re not a software company. Why would you build instead of buy?” And, as business has increased in pace and scale and complexity, and retailers have fallen behind in how well their IT infrastructure has kept up, you can hardly blame line of business leaders for going around the CIO to buy internet-delivered solutions, software as a service, etc. for the speed of implementation and the ability to avoid their IT departments all together. After all, they’re not in the software business. They sell products.
And most technology companies have not only supported this line of thinking, they have enabled it wholesale. There are many companies out there today positioning themselves as a way to eliminate a retailer’s IT burden. They want to take software off of the retail company’s plate, and have whole solution areas focused on enabling exactly that.
At Software AG’s Innovation World conference last week, the company’s CTO, Wolfram Jost, took a position very contrary to that reasoning. The future of business, he argued, is no longer about products, or even customers. It’s about information. It’s about how well a company can add value to the information it has, or how well a company can derive value from information created by others. Software AG calls this the Digital Business Platform.
If you want to innovate, you need to be able to turn your information about products or customers into something valuable, and in order to do that, you need to create unique software solutions. Rather than avoiding IT, or going around the CIO, Dr. Jost said that IT is going to be even more central to every company (and yes, this includes retail), and those who try to persist in ignoring the value of using software to add value to information will be left behind. In their view, every company needs to be a software company.
It’s a fascinating idea. A big one. Probably the biggest one I’ve encountered this year. In that context, retail has undergone exactly one and a half shifts in the last 20 years. The first shift: at the beginning of this century, from product to customer. While digital played a role in driving that shift, to some degree I believe that digital was merely coincidental to customer centricity, not central. Retailers were feeling the heat from Walmart at the turn of this century, not from Amazon.
In the opportunities to differentiate from the competition (price, product, or customer), Walmart had captured price so thoroughly that the only way to compete was to pick one of the other two. Unless you’re a vertically integrated manufacturer, product’s not really an option. And so, customer became the only option for differentiation, and thus customer centricity was born. That this happened during the eCommerce boom perhaps accelerated the idea, but it wasn’t until several years later that internet-driven technologies had matured to the point where digital was key to understanding customers, let alone to enabling their engagement with retailers.
But digital has not gone away, and it has not slowed. Retailers have realized that in eCommerce, the technology is the product. You can’t sell online without technology as an enabler. There is no such thing as first defining a business strategy, and then defining a technology strategy. Business and technology are so integral to each other that the technology strategy is the business strategy.
We’ve seen the seeds of this change in a few companies. Burberry speaks of their “three-legged stool”: design, marketing, and IT. Walgreens promoted their eCommerce lead to take over Marketing. Walmart doesn’t just make news, it affects whole market indices, by announcing they will be investing $1 billion into eCommerce over the next year (which, as Paula points out, is a paltry 0.024% of sales for the behemoth company).
As digital matures, and as more retailers work to bring their (mostly isolated) eCommerce businesses back into the corporate fold, you can start to see how we might be moving to a future where business and IT become indistinguishable. A distant future, no one said retail moves fast but one visible on the horizon.
Software AG is taking that idea, that business and IT might become so intertwined as to be indistinguishable, even further where technology is historically seen as a barrier to innovation, their goal is to create solutions where technology is the main enabler for innovation. Retailers need a future where they can both build and buy. Where the business is so immersed in technology that business process changes, including the bulk of the system changes that go with them, are initiated by dragging a box around on a screen and pressing enter as someone who made a living helping companies navigate this kind of change, the idea of managing business and IT alignment in this way is practically revolutionary.
That is the half shift the one that is yet to come. That shift from being primarily a physical business to becoming a digital one. And I don’t mean that brick and mortar stores are dead, not by a long shot. But there is a future ahead of us where retailers make more money from the information about their products and their customers than they do from the products themselves. That is definitely an Amazon story far more than it is a Walmart one.
But if it was hard enough for retailers to make the shift from product to customer (and there are many retailers out there that are still in denial about even that transformation), it will be nothing compared to the internal revolution needed to navigate from physical to digital. I myself have said many times that “retailers are here to sell stuff,” with “stuff” being the operative word. For the retail winners of the future, that may very well no longer hold true.