Authored by Brian Chung (edited by Nicki)

New set of necessary capabilities

For years, retailers have chosen their differentiation strategy to gain competitive advantage in the market. These determined core retail capabilities include scientific merchandising to identify market-relevant products, dynamic pricing to secure the profit, campaign/promotion analytics to optimize marketing spendings, store profile/location analytics to maximize the real-estate investments, etc. Today, these strategic approaches are still relevant to retailers, but they have also become vastly more complex. Take pricing, for example. Historically, this was mainly focused on setting the optimal product price point, finding the best time for mark-downs, and negotiating a good deal with vendors. But now, these same relevant pricing factors have become more complex. Retailers need to automate pricing changes across channels, and predict the profit impacts nearly in real-time. This is all required to capture the highly-informed consumers, with likely multiple alternate retailer options at their disposal. And, such valuable save-the-sale pricing across these channels is only relevant if you can keep customers on the desired platform long enough with relevant, desirable offers.

In describing these increased complexities to core retail competitive strategies, with pricing as one example, I also mentioned necessary functions such as “automate”, “predict”, “real-time.” These are only enabled by IT capabilities which serve to capture multiple data points, analyze the correlation and derive meaningful insights for business outcomes, and fundamentally perform in a fast and agile manner. I think these IT capabilities are truly where retailers should put their focus and their investments, as they have the potential for exponential impact on the business to enable speedy, scalable and agile operations.

Let me share my perspectives on why these are critical for the retailers. With regards to speed- the retail industry is at the forefront of consumer-facing business, meaning they need to act fast to address consumers’ rapidly changing expectations. This need for speed is also applicable for retailers when it comes to developing new products and services, setting relevant marketing strategies and price points, and enhancing customer services. But simply being “fast” does not guarantee business outcomes. Actually realizing business outcomes requires the element of scalability, by expanding what is working, such as driving higher price points when those practices are proven successful. Equally as important, retailers need to understand what is not working and quickly pivot on such findings before even expanding on successful endeavours. Remember that retailers are dealing with fast-moving targets- young and bold start-ups who disrupt the entire industry.

The IT capabilities which are the underlying drivers for high level strategic differentiation in retail are more important now than ever before. In other words, these IT capabilities, on top of fundamental core retail functions, is the key for retailers to remain competitive through an evolving retail landscape.

Cloud as a catalyst

Let’s talk about the most impactful technologies for retailers. Artificial Intelligence, IoT, Cloud, Blockchain, virtual/augmented reality, I personally believe, are the key to arriving at the future of retail. And you can easily find many services or use cases around these technologies, from PR headlines or in the executive retail boardrooms. Amongst these technologies, I believe cloud plays as a catalyst for fundamental IT capability in retail operations, primarily in that the main outcomes I see from cloud capabilities are speed, scalability and agility.

Key considerations to maximize the value of cloud

Cloud is not something new, it has been in the market for almost a decade, and most retailers are leveraging cloud in some capacity for their operations. Based on my observations from multiple retailers, today’s challenges around cloud primarily fall around execution. From witnessing some key retailers environments, I believe the top 3 challenges retailers are facing in their cloud operations are 1) inconsistent service levels, 2) lack of prioritization of cloud-first architecture, and 3) managing compliance levels across multiple environments. Let me take a step back and articulate on why the retailers are facing these type of challenges.

First, for many retailers, their enterprise architecture has been designed on an on-prem (data center) environment, which is not cloud-friendly in the first place. Cloud network constructs within each of the cloud providers differ distinctly one another, introducing inconsistency, complexity if not addressed properly. Second, the correlation between application and connectivity in a cloud environment is critical, in terms of both user experiences and performances.

Let me give you one realistic challenges that retailers are facing in this regards. When retailers migrate the application to cloud, it requires a deep contextual understanding of the application, components, process, interfaces and other dependencies. Without this understanding, especially on application to network inter-dependencities, it would not only slow the migration, but also damage user experiences, and further cause unexpected overheard in the process. And this is often underestimated or not thoroughly considered in certain cases. Third, dealing with cloud environments means dealing with hybrid or multi-cloud environments. When not managed properly, this can cause a lack of visibility or control, or an increase in security vulnerability. Implementing a consistent security policy across multiple cloud platforms is challenging as each of the public cloud environments are different in terms of cloud native security controls, and in order to address this, the retailers should be able to secure applications, workloads and users, anywhere from edge to cloud as part of a complete zero trust architecture.

For these reasons, it is absolutely critical for retailers to consider the underlying infrastructure when deploying cloud in the first place. Not doing so can result in the most costly and difficult predicaments. However, leveraging a strong, reliable infrastructure with end-to-end security to support a cloud environment results in the greatest gains from speed, to agility and scalability. A retailer’s underlying infrastructure can no longer be viewed as simply the irrelevant plumbing for an organization. A highly connected infrastructure, which enables a cloud environment and supports the applications and services running on top and at the edge, is the driving force for retailers getting where they’d like to go.

Together with Forrester, we have created an analyst paper on specifically how cloud technologies are advancing retailers’ capabilities to drive growth. Check it out!