By Brian Kilcourse, Managing Partner
6/3/2008
In RSR’s recent research on the future of business application delivery in retail, our findings reinforce what every CIO knows, that the multi-generational nature of the application portfolio requires a big percentage of developers to focus on maintenance, rather than on new value adding development. This reality is pushing retailers to consider new application delivery models. What’s not so obvious but perhaps more important from the analysis is that the retail business practices that the legacy portfolio supports might need a “forklift” replacement too. Retail winners in particular expressed a concern that their business partners are unwilling to change old business processes to take advantage of new capabilities inherent in many of today’s technologies.
John F. Kennedy once said, “Change is the law of life. And those who look only to the past or the present are certain to miss the future.” But what if your company had no past or present to look to? What would you do?
One CIO gets to answer just that question. Nick Goss is the CIO for DestiNY USA, a development project in Syracuse, NY, that is envisioned to be a cross between Disney World, Mall of America, and Amazon. It promises “a complete mix of shopping, entertainment, dining, and hospitality choices enabled with a new model emphasizing convenient and exciting customer experiences … (with an) aspiration to be a model for renewable energy.” As part of that, the management team of DestiNY is working with participating retailers and manufacturers to introduce innovations into the retail setting that drive both customer satisfaction and profitability. Those aren’t unique goals for technology investments in retail, certainly. But how they are going about it is.
Goss isn’t a retail expert. The CIO, who hails originally from the UK, is a 29-year “been there done that” technology veteran, but was drawn to the New York project because of the sheer boldness of the concept. Perhaps because of his newness to retail, Goss is more free than some to ask “why do we do this?” about many aspects of the retail business model.
Goss, who worked the BBC early in his career, uses an analogy to explain why retailers (or for that matter, any business) continue to do things “the way they’ve always been done.” “There are different modes of thinking,” according to the CIO, “almost like broadcasting frequencies. Which channel are you broadcasting on? People tune into a particular frequency, and by definition they tune out another. We see the same thing in the physical world. A lot of people are tuned into a store oriented ‘minimum wage labor’ way of thinking. That deliberately tunes out ideas like, ‘what if our people were earning $60K a year?’ We’re looking at a workforce model that isn’t minimum wage – it’s not even close to minimum wage. To do that, we have to have orders of magnitude more efficiency in certain in-location processes, but by enabling those we are also enabling much better people-to-people interactions. This is not a technical challenge,” says the CIO, “this is a business model challenge.”
The leadership at the DestiNY project is questioning some of the very fundamentals of retail business practices before investing in the technologies that are typically deployed to support retail business practices. “In terms of ‘people, process, and technology’, rather than looking at one of those factors and asking ‘what can we do to change that?’, we’re actually looking at what the design outcome should be,” says Goss. “Then we look at the implied changes to people, process, and technology to achieve those results. That, apart from anything else, is one of the benefits from not having a legacy. Not only do we not start off with a technology platform that is assumed, we don’t start off with a staffing model that is assumed, and we don’t start off with an in-location process model that is assumed.”
DestiNY seeks to create a highly differentiated in-location experience from the consumer perspective, where the experience itself is entertaining. To that end, the CIO recognizes that new metrics have to be developed to measure the effectiveness of their business model design. For example, DestiNY developers are considering a set of metrics to measure consumer pre-purchase behavior. “The first thing that no one knows currently,” says Goss, “is who walked in the store? So the first metric is around the identity of the person that walks into a particular environment, not just that ‘someone’ walked into a particular environment. From that, you can begin to determine routes through a one million square foot environment. By looking at how long it takes a person to move through the environment, you can determine whether they are just trying to get somewhere else, or browsing.”
What’s the value? With such a determination, the retailer could know not only that the consumer is browsing, but what she is looking at. “We are looking to reduce the difference between shopping on the web and shopping in a physical location,” says Goss. “We know from all the surveys that not only are many in-location purchases researched on the Internet, but also that Internet purchases are researched in-location. So rather than looking at this as store-centric or web-centric, we want to look at it as a consumer-centric model.” By establishing a set of metrics based on positive identification of the consumer when they are browsing a physical location, retailers essentially gain the same knowledge that they learn when they examine click-tracks from Internet purchases, i.e. what’s working and what isn’t, and can react accordingly.
What’s the reaction when DestiNY approaches potential retail partners? “Either hugely positive or bemusement,” says Goss. What about technology solutions providers? “Solutions providers are tuned to the same frequencies as retailers,” says the CIO. “For example, they are focused on improving POS systems rather than how to get rid of them. Both retailers and their technology providers spend a lot of time talking to themselves and to the people who buy from them – basically focus groups. They don’t spend much time talking to the people who don’t buy from them. If Henry Ford had only talked to focus groups he would have developed a faster horse.”
In his book “Leading Change” (Harvard Business School Press, 1996), John Kotter stated that “transformations fail to achieve their objectives when complacency levels are high.” Given the challenges that most retailers face, complacency about the business model should be a thing of the past. DestiNY’s CIO is the first to admit that there’s a lot of experimentation going on in the project; “If everything worked on the first try, we would regard it as a failure because we didn’t push the envelope hard enough.” Although very few retailers have a blank slate from which to work, they can still do more to embrace the spirit of experimentation, and perhaps come away with something better than a faster horse.
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