How does a retailer manage the digital disruption to win customers?
20 April 2017
“It’s important to remember that your competitor is only one click away”*
Retailers are facing disruption from both nontraditional and traditional competitors who are exploiting digital technologies to win customers. This may be through having a more user friendly website or mobile app, creating the best shopping experience through augmented reality tools or advanced personalisation. Or by the ability to gather and interpret customer data to create insight and maximise customer loyalty**. Whichever way you look at it, if a retailer is not investing in digital then the future may be bleak.
The response of most retailers, until now, has been to create separate e-commerce divisions and a variety of ad hoc digital tools, most notably in marketing, with IT functions historically focussed on maintaining the underlying operating systems. Recently, retailers have been bringing their separate e-commerce divisions back into the business, treating them as a channel like retail stores. However that still leaves them trying to manage the disruption, as the increased pace of change becomes the new norm.
How should retailers respond?
We believe going back to the organisation design basics is a good place to start. Retailers should incorporate digital into their strategy and determine what capabilities they need to deliver it. These are far more than just the knowledge of digital technologies, but include new leadership, smart logistics, data analytics and customer management to mention a few. A different “two track” IT support to deal with different cultures and priorities maybe considered. An example of this may be keeping operation systems working using traditional waterfall methodology and releasing new digital techniques using an agile methodology before exploring integrating to one IT and methodology.
How to create some organisation control for digital is a challenge too, as for the most part the old e-commerce teams were staffed with people who do not see themselves as retailers but more as “digital people” working closely with marketing using a lot of different digital tools (social media listening, content creation, video hosting, campaign automation and so on) with IT possibly completely unaware these products are being used.
The creation of a digital hub or lab can be a first step to address this. This is not a place to “dump” all digital technology however, but more of a centre of excellence with accountability for the management of the delivery of the digital strategy. These hubs are popping up everywhere with examples being Co-op (Manchester), John Lewis (Birmingham) and Shop Direct which launches in London later this year.
The hub will include an incubator to develop digital thinking – using all staff to produce new ideas- support the creation of a data strategy, the education of all staff in digital thinking, digital R&D and ownership to manage the agile role out of minimal viable (digital enabled) products and services. The whole organisation will become more digitally savvy as they get used to embedding the digital strategy and interact with the digital hub.
The overall retail organisation design is also going to have to be more agile - going against the traditional hierarchical structure. In an era of fast paced change categorised by agile digital delivery, retailers may need to consider moving to more distributed decision making and allow the creation of semi-autonomous self-managed teams. The digital hub can be a safe place to start this change which is why they are currently popular and who knows if this will broaden out to an entirely different way of working organisationally.
Although these “hubs” are good for fostering innovation and driving a different culture in the short term, the long term future ultimately has to be an integration back into the business to be indistinguishable for normal operations when the organisation is more digitally mature. This is such a fast moving phenomenon that org design models are still evolving. One thing is certain, the strategic importance of digital has stepped up a notch and effective leadership and C-suite sponsorship is essential. The Chief Digital Officer/redefined Chief Information Officer/Chief Technology Officer (CTO) is now more frequently a direct report to the CEO. Walmart’s CTO Jeremy King is an example of this elevation and newly appointed Exec Board member. We are also likely to see the future CEOs in retail coming from a digital/e-commerce background as they have the winning skill combination of commercial retail and digital innovation.
What are your thoughts on digital disruption? Do you think digital and IT should be combined? What will be the next big thing in digital innovation?
This blog is part of a series of blogs written by the PwC Retail Organisation Design Team, led by Stephanie Bloor. The last blog in the series can be found here
Authors: Mark Travis @markht001, Jessica Atkinson @jessatko, Stephanie Bloor @bloorsteph
*“It is important to remember that your competitor is only a click away” Doug Warner, former chairman of the board of J.P. Morgan & Co
**39% of retailers ranked the ability to turn data into intelligent and actionable insight one of their greatest challenges: PwC Total Retail Survey 2017
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