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The intelligent retailer's world of insight(1)

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  • 1. The Intelligent Retailer’s World of InsightBenchmark Report 2011Brian Kilcourse and Paula Rosenblum, Managing PartnersNovember 2011 Sponsored by: Supporting Sponsors:
  • 2. Executive Summary In an era of continued global economic uncertainty, rapid response to market conditions is increasingly important. Once disparate departments within the retail enterprise now need to respond as a single organism. An important tool to enable this responsiveness is an Enterprise- wide BI strategy. The need has grown and more retailers are moving in the direction of putting one in place. The value of this enterprise-wide strategy is to ensure that each department is operating from the same set of data, delivered at the same time. Delivery mechanisms can and will likely differ depending on the physical location of the data consumer, but the data itself is consistent across channels, geographies, departments and roles. Business Challenges In the five years that RSR has been conducting benchmarks on the subject of BI, retailers have consistently expressed a need to move more quickly. The need for speed remains the most frequently cited business challenge driving new BI and Analytics initiatives. But the challenge is different for Retail Winners compared to all other retailers. While average and laggard performers aren’t getting the information quickly enough, most Retail Winners are getting the information quickly, but are unable to react to what it reveals. Additionally, more real-time information on relevant and personalized cross-sells, up-sells and hot promotions, along with actionable information about customer complaints, should be deliverable - but the industry, for the most part, is lagging. Opportunities Most retailers share the same desire to retain customers longer, and as a result have shifted the focus of their BI efforts to the stores. Winners additionally focus on improving their ability to react more quickly to supply chain disruptions outside the “four walls” of the business. Non-winners put more faith in opportunities that are inside “the four walls” of the business, after the receipt of goods. Organizational Inhibitors For most retailers, siloed information contained in existing “legacy” transactional systems is by far their biggest operational impediment to delivering new generation BI capabilities. But retailers also complain more that it’s hard to quantify the technology ROI for new BI capabilities. To overcome this inhibitor, many are turning to pilot projects to prove the value of new BI and Analytics capabilities. Technology Enablers Retailers understand that without a robust technology infrastructure, transforming mountains of transaction and customer data into useable metrics is almost impossible. While the “plumbing” for BI is being put into place, retailers are excited at the prospect of bringing consumer-grade usability into the enterprise. But today’s reality is different: while desktop scorecards and dashboards have clearly become more ubiquitous, a surprising percentage of C-level executives, store managers and other retail executives are still predominantly getting their analytics through “Flash” reports. BOOTstrap Recommendations RSR’s recommendations to retailers regarding next-generation BI and Analytics are as follows: i
  • 3. 1. Get an enterprise-wide BI strategy in place. Such a strategy will have these critical components: executive commitment; an infrastructural plan for creating, retrieving, updating, and deleting “big data”; a wireless plan for the stores; a roadmap that insures a step-wise approach to implementation, and modern “delivery vehicles” for actionable information.2. Prioritize those who most need real-time information, and information that is most valuable.Temper the enthusiasm created by consumer-oriented smart mobile technologies withappreciation for the underlying complexities. ii
  • 4. Table of ContentsExecutive Summary ........................................................................................................................... iResearch Overview ......................................................................................................................... 1 Why Did We Undertake This Research? ..................................................................................... 1 Traditional Approaches and Conventional Wisdom Now Fall Short ............................................ 2 Guidelines Used for Describing BI in this Report......................................................................... 3 RSR’s Methodology and “What’s a ‘Retail Winner’ Anyway?”..................................................... 4 Defining Winners and Why They Win, and Why Laggards Fail ............................................... 4 Survey Respondent Characteristics ............................................................................................ 4Business Challenges ....................................................................................................................... 6 Can’t Get Information Fast Enough or Can’t Act on What They See .......................................... 6 Delivery Mechanisms Lag ............................................................................................................ 7 The Data Delivered Remains Somewhat Pedestrian .................................................................. 8 Despite the Challenges, Opportunities Abound ........................................................................... 9Opportunities ................................................................................................................................. 10 Pushing Reaction Time To The Front Of The Process .............................................................. 10 Getting Smart In The Store ........................................................................................................ 11 What About New Demand Signals From Social Media? ........................................................... 12Organizational Inhibitors ................................................................................................................ 14 Siloed Systems Supporting Siloed Business Units .................................................................... 14 Status Quo ................................................................................................................................. 15 Pilot Projects Gain Favor ........................................................................................................... 16Technology Enablers ..................................................................................................................... 18 There’s a Lot of Plumbing Under those Dashboards ................................................................. 18 Beyond the Excitement and Promise, What’s the Reality Today? ............................................ 19BOOTstrap Recommendations ..................................................................................................... 21 1. Get an Enterprise-wide BI Strategy in Place ......................................................................... 21 2. Prioritize those Who Need Real-time Information Most ......................................................... 21 3. Temper Enthusiasm with Appreciation for Complexity of the Task ....................................... 21Appendix A: RSR’s Research Methodology .................................................................................... aAppendix B: About Our Sponsors.................................................................................................... bAppendix C: About RSR Research.................................................................................................. d iii
  • 5. FiguresFigure 1: Not Your Father’s Uses for Business Intelligence ............................................................ 1Figure 2: Enterprise-wide BI: 80% are doing SOMETHING…. ....................................................... 3Figure 3: Either We Can’t Get the Data or We Can’t Do Anything about It ..................................... 6Figure 4: Smaller Retailers Challenged to Recognize Best Customers .......................................... 7Figure 5: Delivery Vehicles Lag for Everyone but Consumers ........................................................ 8Figure 6: Pedestrian Data Yields Sub-optimal Results ................................................................... 9Figure 7: Nimble On The Buy Side? .............................................................................................. 10Figure 8: Getting Back To The Store ............................................................................................. 12Figure 9: Not Getting All The Signals - Yet ................................................................................... 13Figure 10: Legacy .......................................................................................................................... 14Figure 11: Frog In a Kettle? ........................................................................................................... 15Figure 12: “Try It, You’ll Like It!” .................................................................................................... 16Figure 13: Infrastructures Matter ................................................................................................... 18Figure 14: Delivery Mechanisms all Sound Really Appealing… ................................................... 19Figure 15: …but Reality Lags Behind ............................................................................................ 20 iv
  • 6. Research Overview Why Did We Undertake This Research? Business Intelligence and its resultant analytics have come a long way in retail over the past five years. These changes are enabled by faster hardware and informed by new data and user interfaces emerging from the consumerization of IT. New, simpler to use tools and techniques are being used by retailers track and monitor performance. Specifically we find BI-generated reports, dashboards and alerts: • moving out of the glass house into the hands of decision-makers • shifting from long lag-time look backs to near-real-time feedback loops • becoming more granular and detailed • shifting focus from solely within the enterprise to 360 degree views – from source to consumption This is evident in retailers’ assessment of BI value (Figure 1): Figure 1: Not Your Father’s Uses for Business Intelligence Value of BI to Support Business Processes Very Relevant Somewhat Relevant Little to No Relevance Track key performance data to control our internal processes and compare actual performance against plan 62% 32% 5% Understand customer behaviors in order to execute our business strategy and build loyalty 57% 30% 12% A tool to support more timely responsiveness to demand changes 42% 40% 19% A tool to manage “exceptions” as they are happening, not after-the-fact 42% 29% 29% Match internal process performance metrics to customer satisfaction metrics to assess the value of… 39% 36% 25% Help optimize supply chain performance 38% 45% 16% Help plan product assortment, allocation, pricing and promotions 36% 54% 11% Maximize the value of our investments in inventory 36% 41% 23% Enable a “360 degree” view of our business (customers, suppliers & partners, internal operations) 29% 40% 31% Source: RSR Research, November 2011 While retail over-performers (the group RSR calls “Retail Winners”) have a slightly different focus than the aggregate, the overall response pool calls out the importance of getting information faster and places a greater focus on evaluating the entire value chain, from source to consumption. 1
  • 7. Retail Winners tend to be more outwardly focused than their peers: • 40% of Retail Winners find 360 degree views of the business to be very relevant vs. 15% of all other respondents • 69% of Retail Winners believe understanding customer behaviors to help build business strategy is very important vs. 35% of all other respondents • Almost half (47%) of Retail Winners believe in is very important to match their internal performance metrics with customer satisfaction metrics to evaluate their business vs. only one quarter (25%) of all other respondentsClearly in an era of continued global economic uncertainty, rapid response and outwardly facingmetrics are increasingly important.Traditional Approaches and Conventional Wisdom Now Fall ShortRetailers and economists have long used metrics like consumer confidence and the fluctuatingprice of oil and other commodities as a predictor of demand. They have also used their ownproducts’ past performance as prelude to the future. But the Great Recession and the uncertaineconomic years that followed have shown these forecasts to be unreliable for retailers at all levels 1of performance .Similarly, conventional wisdom long held that all reductions in payroll-to-sales ratios in storeswere good reductions. However, as the web and other selling channels have become moreconvenient, the lack of helpful staff in stores has become more obviously inconvenient forshoppers who have found their voice in Social Media, and found alternatives through mobility. 2RSR’s research has shown payroll-to-sales ratios are finally stabilizing , but tools are clearlyneeded to insure that in-store payroll is acting as productively and as frequently in customer-facing roles as possible.In the face of so much uncertainty, and with the need to respond as a single organism rather thanas a set of disparate departments, the recognition of the value of an Enterprise-wide BI strategyhas grown and more retailers are moving in the direction of putting one in place (Figure 2).1 Twenty-first Century Merchandising Takes Hold: Benchmark Report 2011, RSR Research,August 20112 st The 21 Century Store: The Search for Relevance, Benchmark Report, RSR Research,June 2011 2
  • 8. Figure 2: Enterprise-wide BI: 80% are doing SOMETHING…. To What Extent Does Your Company Have Enterprise-wide BI Strategy in Place? Weve had one in place for longer than two 28% years Weve have one in place for less than two 17% years Were working on putting one in place 35% We see the value, but its not at the top of our 15% priority list Very low priority or no plans 5% Source: RSR Research, November 2011The value of an enterprise-wide strategy is that it insures each department is operating from thesame set of data, delivered at the same time. Delivery mechanisms can and will likely differdepending on the physical location of the data consumer, but the data itself is consistent acrosschannels, geographies, departments and roles.Guidelines Used for Describing BI in this ReportWe’ve found differences in terms used by retailers and vendors when describing BI and analytics.To set a level playing field, we make the following distinctions: • Many people consider the terms Business Intelligence (BI) and Analytics to be interchangeable. For our purposes in this report, we will take this route. BI churns data and produces outputs. Those outputs are “analytics.” For our purposes, they both fall under the topic “BI.” “Advanced” analytics offer the ability to optimize pricing, model customer behavior, segment customers, forecast demand and more. As part of an enterprise BI strategy, these advanced analytics should be reviewed distinctly from reporting and are beyond the scope of this document. • Our definition of “real-time BI” means “as real-time as it needs to be”. As we’ll see later, in many instances, retailers are receiving information faster than they can actually use it. In our view real-time BI delivers actionable information into the hands of decision-makers.With these nuances explained, we’ll move on to the details of the report. 3
  • 9. RSR’s Methodology and “What’s a ‘Retail Winner’ Anyway?”RSR uses its own model, called the “BOOT,” to analyze Retail Industry issues. We build thismodel with our survey instruments. Appendix A contains a full explanation of the methodology. Ina nutshell, the BOOT consists of four parts: • Business Challenges – the external challenges a company faces. • Opportunities – the ways the company perceives it can overcome those challenges • Organizational Inhibitors – the internal barriers the company faces that may prevent it from taking advantages of the opportunities it sees • Technology Enablers – assuming a company can overcome its internal issues, the technology tools it can use to support taking advantage of the opportunities it identifiesDefining Winners and Why They Win, and Why Laggards FailIn our surveys, we continue to find differences in the thought processes, actions, and decisionsmade by retailers who outperform their competitors and the industry at large – Retail Winners.The BOOT model helps us better understand the behavioral and technological differences thatdrive sustainable sales improvements and successful execution of brand vision.Our definition of these Retail Winners is straightforward. We judge retailers by year-over-yearcomparable store/channel sales improvements. Assuming industry average comparable store/channel sales growth of two percent (the bar in a post-recession world is relatively low), wedefine those with sales above this hurdle as “Winners,” those at this sales growth rate as“average,” and those below this sales growth rate as “laggards” or “also-rans.” Because therehave been so many strong retail “comebacks” post-recession, we also identified those whosecomparable increases exceeded 10%. It is consistent throughout much of RSR’s researchfindings that Winners don’t merely do the same things better, they tend to do different things.They think differently. They plan differently. They respond differently.Laggards also tend to think differently. They may have spectacular vision, but often fail onexecution. They may forget the power and breadth of choices today’s customer has. They fail tore-invent themselves when it becomes obvious their existing business model is no longerworking. They don’t change their business processes in an effective manner, and so they eithereschew technology enablers, or don’t gain expected Return on Investment on those they DO buy.In good times, they skate by: in tough times these weaknesses come back to haunt them.Survey Respondent CharacteristicsRSR conducted an online survey from July - October 2011 and received answers from 95qualified retail respondents. Respondent demographics are as follows: • Job Title: Senior Management (CEO, CFO, COO) 23% Vice President 32% Director/Manager 27% Internal Consultant 6% Internal Staff & Other 12% • 2010 Revenue ($ Equivalent): Less than $249 Million 32% $250 - $999 Million 9% 4
  • 10. $1 - $5 Billion 26% Over $5 Billion 18%• Selling Format: Fast Moving Consumer Goods 38% General Merchandise and Apparel 46% Food Service/Hospitality 16%• Headquarters/Retail Presence: United States 61% 67% Canada 7% 26% Latin America 2% 20% Europe 11% 27% United Kingdom 4% 21% Asia Pacific 11% 31% Middle East 1% 11% Africa 2% 10%• Year-Over-Year Comparable Store Sales Growth Rates (assume average growth of 2%): Worse than Average (Laggards) 16% Average 19% Better than Average (Retail Winners) 54% More than a 10% Improvement 11% 5
  • 11. Business Challenges Can’t Get Information Fast Enough or Can’t Act on What They See In the five years that RSR has been conducting benchmarks on the subject of BI, retailers have consistently expressed a need to move more quickly. In 2007, this was at least somewhat influential to more than 90% of survey respondents. This year the need for speed remains the most frequently cited business challenge (Figure 3). Figure 3: Either We Can’t Get the Data or We Can’t Do Anything about It Top Three Business Challenges that Create Interest in Using Near-real-time BI All Respondents Winners All Others We can’t act quickly enough on the information we 48% receive 59% 33% Can’t support customer cross-channel activities 41% very well 48% 33% Marketing doesn’t know what customer sentiment 46% is until we can see it in sales 48% 47% Merchants don’t get information fast enough to 52% react to differences between what they thought 48% would happen vs. what is actually happening 60% 33% We struggle to match inventory to demand 31% 27% Can’t identify our best customers to offer special 37% incentives to them while they are shopping 28% 60% Logistics managers don’t get information fast 17% enough to minimize the impact of supply chain 10% problems 27% Source: RSR Research, November 2011 But we’ve also seen a shift this year. While just more than half of respondents are not getting information to merchants quickly enough, just under half of respondents get the information, but can’t act on what they receive. The organization’s ability to respond lags its ability to inform. This is most evident when looking at Retail Winners vs. the rest of the respondent pool. Sixty percent of average and laggard performers aren’t getting the information quickly enough, and 59% of Retail Winners are getting the information quickly, but are unable to react. 6
  • 12. More significant differences emerge when looking at Retailers across different revenue bands.The largest retailers, those with annual revenue over $5 billion are caught in BOTH conundrums.Seventy percent report their merchants don’t get information fast enough (vs. only 38% ofretailers with annual revenue less than $250 million), and 60% report that they can’t act quicklyenough on that information when they do get it. These are the most significant businesschallenges they face, by a wide margin.The smallest retailers, on the other hand, also can’t act on what they do receive (69%), but inaddition they are challenged to identify their best customers (Figure 4).Figure 4: Smaller Retailers Challenged to Recognize Best Customers Identifying Best Customers as a Business Challenge (based on Annual Revenue) 60% 46% 30% 17% Less than $249 $250 million - $999 $1 Billion to $5 Billion Over $5 Billion million million Source: RSR Research, November 2011This is problematic, given that most small and mid-sized retailers attempt to differentiate throughknowing their customers and the products they prefer. Without a proper BI infrastructure andtools, they may find themselves losing their most important advantage against their largercompetitors. When Amazon.com knows your customers’ preferences better than you do, a localretailer is in serious trouble.Delivery Mechanisms LagWhen we look at the most typical delivery vehicles used to present BI data to variousconstituents, it becomes easier to understand why it’s hard to both get and react to data.Dashboards are great tools for desk-bound C-level and Line of Business (LOB) executives andmanagers, but fall short when delivered to people in the field, like store managers andemployees. And the still ubiquitous “flash sales report” typically involves poring over information,rather than creating an instant call to action (Figure 5). 7
  • 13. Figure 5: Delivery Vehicles Lag for Everyone but Consumers Most Typical Delivery Vehicles for BI Constituents Desktop Scorecard/Dashboard Desktop Alerts Mobile Scorecard/Dashboard Mobile Alerts "Flash" Reports C-level Executives 43% 6% 4% 2% 45%Line of Business Executives -Vice Presidents & Directors 54% 6% 4% 2% 33% Designated Analysts 50% 17% 2% 4% 26% Line Level Managers 47% 17% 6% 4% 26% Store Managers 45% 11% 6% 6% 32% Employees 40% 21% 2% 0% 36% Customers 19% 15% 4% 35% 27% Supply Chain Partners 27% 21% 12% 9% 30% Supply Chain Managers 46% 22% 5%3% 24% Source: RSR Research, November 2011 Today, customers are the most likely recipients of mobile alerts across all revenue bands. Obviously this needs to change. Store Managers and employees must be armed with up-to-date information, and can’t be expected to sit at desks or pore over reports while customers wander around the store, smart phones in hand. Happily we are seeing many indications of pre-packaged mobile solutions coming from the vendor community, and are hearing early use-case results and new pilots underway for in-store employees. The explosion of tablets as an affordable form-factor is making this shift possible and we expect to see a significant uptick in adoption over the coming year. The Data Delivered Remains Somewhat Pedestrian Just as delivery mechanisms have lagged, so have the data elements being delivered to constituents. While it’s useful to know best and worst sellers, we also believe tools to identify best customers as they enter the store or corporate ecommerce site should be part of the BI data portfolio. As we can see below in Figure 6, however, the data delivered remains uninteresting. We’d love to see more real-time information on relevant and personalized cross-sells, up-sells and hot promotions, along with actionable information about customer complaints, but the industry, for the most part, is lagging. We’ll investigate the reasons for this more in the section on Organizational Inhibitors, but make note of it here. 8
  • 14. Figure 6: Pedestrian Data Yields Sub-optimal Results Most Typical Near Real-time Information Delivered to Constituents Current sales (Best sellers/worst sellers) 74% Performance to plan 63% Inventory exceptions (out of stock or overstock) 57% Financial scorecard 46% Expected sales 46% Hot Promotions 39% Customer complaints 33% Loss Prevention alerts 26% Expected Receipts 26% Source: RSR Research, November 2011We see no appreciable difference across revenue bands or performance level. While the industryaspires to become more customer-friendly, it lags in delivering relevant information to those whomight help make it so.Despite the Challenges, Opportunities AboundGiven that retailers recognize their challenges, and given the explosion of mobile delivery toolsand techniques, coupled with ever more ubiquitous “big data” hardware, we expect to seeretailers making a great leap over the coming year, In the next section we’ll identify the areasthey are most interested in exploring, 9
  • 15. Opportunities Pushing Reaction Time To The Front Of The Process Most retailers share the same desire to retain customers longer, but Winners differ from others in their thought process on achieving that objective (Figure 7). Figure 7: Nimble On The Buy Side? Rate the following opportunities you see from real- time BI to help overcome those business challenges (A Lot Of Opportunity) Winners Others Higher customer retention 73% 80% Better “what if” modeling capabilities for matching 70% demand with assortment, price, and promos at a… 67% Better reaction to supply chain shocks 67% 36% Increased shopping frequency 65% 80% Improved merchandise productivity 54% 73% Higher average transaction value 52% 73% Improved IT responsiveness & better system 50% performance 57% Rapid response to changes in consumer demand 42% 53% Better match of labor to customer flows “just in time” 38% 47% Improving supply chain network management 35% 40% Adjust space allocated for specific product in response 35% to sales spikes 60% Exception alerts point out the need for more training 35% 27% Reduce or eliminate re-work at stores or DC 35% 29% Reduced shrink 22% 40% Source: RSR Research, November 2011 10
  • 16. Retailers want to be able to perform more “what if” analyses with their BI capabilities, but thescenarios they are interested in analyzing differ. Winners are much more focused than theirlesser performing counterparts on improving their ability to react more quickly to supply chaindisruptions outside the “four walls” of the business. These disruptions can ultimately causeconsumer dissatisfaction. Non-winners put more faith in opportunities for a “better response tochanges in consumer demand”, and the ability to “adjust space allocated to a specific product inresponse to sales spikes”. These opportunities are inside “the four walls” of the business, afterreceipt of goods from suppliers.It’s an important distinction. While most non-winners don’t see a lot of opportunity on the supplychain side of their business, a majority does see opportunities for “increased shopping activity”,“improved merchandise productivity”, and “higher average transaction value”. While these areimportant, they are outcomes. As we have seen in other studies, Retail Winners take an activistrole in framing their future prospects, while laggards tend to position themselves asvictims of circumstance. For over-performing retailers, that means gaining visibility as far intothe supply chain as possible to gain the lead-time they need to alter their plans and exceedconsumer expectations.Another opportunity area also deserves mention: over twice as many non-winners as Winnerssee an opportunity to use BI to better control shrink than Winners. This again points to a historicaldifference between Winners and others; they have better control of shrink to begin with – thusthere’s less of an opportunity for them as for others.Finally, while a majority of respondents see an opportunity to use BI for improved systemperformance, that choice is oddly out of place with other highly ranked opportunities.Getting Smart In The Store st 3In RSR’s June 2011 report entitled The 21 Century Store: The Search For Relevance , wesaid: “The evolution and proliferation of consumer-held technologies have brought stores to their Rubicon. The question retailers face is no longer, “How can we make the in-store experience as satisfying as the web?” It has become, ‘How can we make our stores more significant than showrooms for online merchants?’”Theoretically, that quandary is resolved through the effective use of information, specifically byinforming store-level operational processes with actionable information derived from thecompany’s BI and analytics capabilities in something approaching real-time. Consumers haveinformation at their fingertips nowadays that often exceeds any of the information available tostore management and personnel. If that kind of pressure weren’t enough, there’s also thechallenge of running the store at optimal productivity, having neither too much nor too littleinventory, having the right assortment at the right place and time, and having the right number ofservice employees on hand to meet the demands of those hyper-informed consumers. Retailersare seeking to eliminate the lag time to action, to achieve both the goal of servicingknowledgeable customers better, and to run a more optimized operation.3 The 21st Century Store: The Search for Relevance, Benchmark Report, June 2011, © 2011 RSR Research LLC 11
  • 17. In an apparent response to these concerns, retailers have shifted the focus of their BI efforts to the stores (Figure 8). Whereas only last year almost ½ of retailers who responded to our study indicated that all channels would receive equal benefit from realizing the opportunities in BI and analytics capabilities, this year the best value is perceived to come from improving performance at the stores, far more than the other selling channels. Figure 8: Getting Back To The Store What Channel Can Gain the Most Benefit from Near Real Time BI? 2011 2010 55% Brick and Mortar stores 40% 14% Ecommerce 11% 2% Catalog/call centers 0% 10% Mobile Commerce 2% 19%All channels can take equal benefit 47% Source: RSR Research, November 2011 This response is heavily weighted to non-winners, who overwhelming chose the store as the #1 benefactor of better BI capabilities (73%). Winners have a far more balanced perspective, but still also give most weight to the stores (44%). What About New Demand Signals From Social Media? 4 In RSR’s report entitled Social Media’s Impact on Customer Engagement , responses from retailers showed us that: “Top Winners… see Social Media’s potential to create new demand signals. Of course, messages from various Social Media, whether in the form of Facebook postings, email messages, blog entries, or Twitter “tweets” are not data – they are sentiments expressed in plain (or natural) language. Until recently, there were few technical ways of turning that 4 Social Media’s Impact on Customer Engagement, Benchmark Report, May 2011, © 2011 RSR Research LLC 12
  • 18. unstructured text into something that can be transformed into true insights. But that has changed in the last two years as technology providers have brought natural language processing capabilities to the market… Top Winners are aware of the opportunity that such technologies represent, and (more than other retailers) want those capabilities to turn customer sentiment expressed in Social Media into new demand signals.”The question for our retailers in this study was how much progress had they made towards beingable to consume and analyze new unstructured data from non-transactional systems such associal media to optimize their value offerings? The answer is mixed (Figure 9).Figure 9: Not Getting All The Signals - Yet Value Opportunities from Social Media Networks Potentially at Least Some Value Actually Achieved at Least Some Value 90% Facebook 69% 74% Twitter 45% 69% YouTube 28% Location based social networks, eg. FourSquare, 59% shopkick 18% Presence on commerce portal such as 53% Amazon.com 21% Source: RSR Research, November 2011Retailers’ ability to consume un-structured information from Facebook is reflective of thatplatform’s overwhelming popularity with consumers. For our retailers, no other source comesclose, even though 45% of respondents say that they can now also use signals from Twitter toglean business intelligence. But as we’ll see later in this report, it’s not at all clear that retailersare using such sophisticated tools as natural language processors to convert unstructured intostructured data. It’s far more likely that signals from the social media “cloud” are being translatedinto something usable by external sources, such as the social media platforms themselves, in theform of statistics. While that information is useful, it’s limited by how much the provider can or willprovide. 13
  • 19. Organizational Inhibitors Siloed Systems Supporting Siloed Business Units For most retailers, siloed information contained in existing “legacy” transactional systems is by far their biggest operational impediment to delivering new generation BI capabilities (Figure 10). In this regard, Winners fared only slightly better than the total response group (72%). Figure 10: Legacy Identify The Top Three (3) Operational Challenges You Face That Create Interest In Using Near-real- time BI In Your Company Information is siloed 75% Our operational units don’t work well 48% together Our store managers don’t have the information they need to run their stores 45% more efficiently We get valuable insights from social networking sites, but can’t use it for decision- 38% making LP Managers don’t get information fast 32% enough to react to exceptions Our IT department doesn’t get information fast enough to react to outages and other 30% system problems Source: RSR Research, November 2011 Where Winners did outshine their competition is in the second-ranked operational challenge, that the “our operational units don’t work well together”. They are learning to work cohesively. Twenty-five percent fewer Winners than the total response group (36% compared to 48% overall) rated that a top operational challenge. Presumably, most Winners have addressed the organizational challenges and varying compensation strategies that prevent line-of-business organizations working well together. Another important operational challenge identified by the survey respondents is that “we get valuable insights from social media networking sites, but can’t use it for decision making”. The response from Winners and others was consistent. Given the high potential value that retailers 14
  • 20. assign to social media (Figure 9), one has to conclude that for some retailers the “signals” to bederived from social media haven’t affected their merchandising plans yet. Social media is still inits early days, but it’s important to look at the “other side” of that response – 62% of ourrespondents didn’t choose that as a top operational challenge. Given earlier responses about thevalue of information derived from social media, it’s a good bet that a plurality of retailers havemanaged to eke value out of the feedback they get form consumers, however it is that they get it.Status QuoIn RSR’s 2010 BI study, when we asked retailers specifically to identify the top threeorganizational inhibitors keeping them from taking advantage of real-time BI, retailers confessedto an inability to get data into a usable format and a lack of funds to “do the deed”.It is somewhat surprising to see then, in Figure 11, that not much has changed, except thatretailers seem to be more acutely aware of the organizational issues that stand in the way ofdelivering improved BI capabilities.Figure 11: Frog In a Kettle? Identify The Top Three Organizational Inhibitors Standing In The Way Of Taking Advantage Of The Opportunities Identified 2010 2011 The data we need has to be manually “pulled” 46% from operational systems 54% There are budgetary constraints to creating 41% integrated processes and systems 46% Hard to quantify technology return on investment 30% for new BI capabilities 37% Different “versions of the truth” – data in 38% different operational systems that can’t easily be… 34% We don’t believe we can react quickly enough to 20% the information a real-time BI system might tell us 29% Our technology infrastructure is difficult to 27% change and adapt 29% We have no idea what to do with the data we get 20% from social network and customer feedback sites 27% Entrepreneurial reactive culture makes it difficult 18% to agree on standardized alerts and metrics 17% Poorly defined store-level processes 12% 15% Source: RSR Research, November 2011Most startling of all is that retailers complain more that it’s hard to quantify the technology ROI fornew BI capabilities (23% more of responding retailers claim this as a “top 3” inhibitor than in2010). 15
  • 21. Instead, given the challenges and opportunities that retailers have identified, the fact that the“same old” inhibitors stand in the way of progress seems incomprehensible.The answer to this paradox might be found in the challenges that retailers have been trying toaddress in these times of mobile and hyper-informed consumers. Retailers have a lot on theirplates: channel integration, consumer and employee facing mobile capabilities, the reintegrationof the store into an “omni-channel” world, the rise of the CMO and customer-centric marketingstrategies. All of these are important, and investment in new BI capabilities is apparently taking aback seat to them all.Pilot Projects Gain FavorGiven that retailers continue to fret over the ROI for investments in ROI vs. the potential value tobe had from new BI capabilities, our respondents indicate an increased willingness to undertakepilot projects to prove the value (Figure 12).Figure 12: “Try It, You’ll Like It!” Rate The Value Of The Following In Overcoming The Organizational Inhibitors You Face To Implementing Capabilities To Deliver Near Real-time Information A Lot Of Value Some Value Little Or No Value Pilot programs to prove ROI business case 65% 30% 5% Executive Mandate 64% 31% 5% Improve employee training to start entering cleaner data 58% 42% 0% Simpler analysis tools 55% 40% 5% Cheaper, faster technology 42% 47% 11% Wireless devices that can deliver alerts to employees in real-time 41% 41% 18% More sophisticated tools to collate the unstructured data we gather 41% 44% 15% Improve our POS systems to start gathering better data 41% 44% 15% Hosted solutions (SaaS BI) 39% 37% 24% Bringing in outside expertise to drive internal business process change 38% 54% 8% Create an ROI-based business case to gain more resources for improving BI capabilities 38% 44% 18% Improved integration tools 18% 51% 31% Source: RSR Research, November 2011 16
  • 22. While strong executive-level sponsorship of investments in BI remains a top method forovercoming inhibitors (as it has in every prior study we’ve undertaken about BI), establishing pilotprojects to prove the ROI has risen to #1 (from #5 in our 2010 study). This rise in importance ofpilot projects is a testament to the urgency that retailers feel to get the ball rolling when it comesto new investments in BI. 17
  • 23. Technology Enablers There’s a Lot of Plumbing Under those Dashboards When thinking about BI and analytics, we often look from the interface first, and then think about the underpinnings. In fact, without a robust technology infrastructure, transforming mountains of transaction and customer data into useable metrics is almost impossible. Our retail respondents clearly recognize this undeniable truth (Figure 13). Figure 13: Infrastructures Matter Value Opportunities from Infrastructure Tools Potentially at Least Some Value Actually Received at Least Some Value Data transformation & aggregation tools (to help enable normalization of disparate 100% transactional data formats into “one version of 97% the truth” Integration “middleware” between operational 100% systems 80% Natural language processors, to convert 97% unstructured data (e-mails, text, “tweets”, etc.) into structured data 63% Source: RSR Research November 2011 While we have some doubt that 63% of respondents are currently gaining real benefits from Natural Language Processors, we have no doubt that retailers understand the value of getting their disparate data into a single, usable format through data transformation tools and integration middleware. We are encouraged to see this universal appreciation of the underpinnings of BI, especially since at least half our respondents come from the business, rather than technology side of the retail house. In that spirit, it’s a bit easier to understand the over-enthusiastic response to perceived value received from Natural Language Processors. Line-of-business executives are finally trying to learn the “language” of IT, and while they may not have a thorough understanding of the differences between data transformation and aggregation tools, and Natural Language transformation tools, they “get” that the plumbing is necessary to get the results they want. We see a similar pattern when looking at perceived and actual value of various delivery mechanisms for BI (Figure 14). 18
  • 24. Figure 14: Delivery Mechanisms all Sound Really Appealing… Value Opportunities from Different Delivery Mechanisms Potentially at Least Some Value Actually Received at Least Some ValueCompany-owned “smart” mobile devices (Phones, iPad, 98% etc.) 75% Store Manager or Employee “portals” 94% 73% Commercial / pre-integrated application suite 92% 70% Corporate-wide Email 71% 76% Employee owned “smart” mobile devices 71% 34% Instant messaging via the internal network 87% 54% Integrated voice/data network at the store level 70% 47% Source: RSR Research, November 2011 The enthusiasm among all respondents is palpable. The iPad and iPhone have provided an epiphany for many retailers, with notable massive purchases at mega-retailers like Lowes (34,000 iPhones ordered for employees in 2011), and Nordstrom (purchasing iPads for sales associates to be used for both mobile check-out and clienteling). Perhaps the most interesting data point in Figure 14 revolves around the value and usage of corporate-wide email. Only here has actual value lived up to its potential. In fact, the world of email has matured to a point of diminishing returns. Retailers are far more enthusiastic at the prospect of instant messaging when necessary through either corporate or employee owned devices than perpetuating the verbose mélange of emails that every executive pores through on a daily (or hourly) basis. Our only caveat here is retailers’ propensity to drown themselves with information. A barrage of instant messages can prove to be as unnerving and counterproductive as a bulging in-box. Discipline is still needed, or new tools will turn out to be as confusing as their predecessors. Beyond the Excitement and Promise, What’s the Reality Today? We have no doubt that plumbing is being put into place, and we also are quite certain that retailers are excited at the prospect of bringing consumer-grade usability into the enterprise. After all, there are very few user manuals sent along with new “apps” for mobile phones and tablets – why do we need training and classes in the use of our enterprise applications? Beyond the promise, what’s actually in use today? As we can see in Figure 15, actual delivery mechanisms are quite different than the picture painted above. 19
  • 25. Figure 15: …but Reality Lags Behind Most Typical Delivery Vehicles for BI Constituents Desktop Scorecard/Dashboard Desktop Alerts Mobile Scorecard/Dashboard Mobile Alerts "Flash" Reports C-level Executives 43% 6%4% 2% 45%Line of Business Executives -Vice Presidents & Directors 54% 6%4% 2% 33% Designated Analysts 50% 17% 2% 4% 26% Line Level Managers 47% 17% 6%4% 26% Store Managers 45% 11% 6% 6% 32% Employees 40% 21% 2% 0% 36% Customers 19% 15% 4% 35% 27% Supply Chain Partners 27% 21% 12% 9% 30% Supply Chain Managers 46% 22% 5%3% 24% Source: RSR Research, November 2011 While desktop scorecards and dashboards have clearly become more ubiquitous, a somewhat stunning percentage of C-level executives, store managers and other retail executives are still predominantly getting their analytics through “Flash” reports. Of course, in today’s real-time world, even the name “flash reports” is a bit of a misnomer, left over from a time when they really just referred to unaudited sales data being given to users. The only constituent that seems to be getting the results of BI delivered to them on mobile devices is the consumer. Thirty-five percent of respondents do deliver information to consumers on mobile devices. We’re not convinced that this information is all analytical in nature, but certainly it has been scrubbed for relevancy. In fact, some might argue that some of the data being delivered to consumers, based on computer cookie analysis shifts from relevant to “creepy”. It’s disconcerting for a consumer who has been browsing for shoes on one site to find ads for shoes showing up as sidebar ads on their Facebook pages. Yes business intelligence was used, yes the information was personalized, but it is not necessarily desirable. This delicate line between relevance and intrusion will be explored extensively over the coming years. 20
  • 26. BOOTstrap Recommendations We’re really encouraged to see retailers’ enthusiasm for new tools and delivery mechanisms for BI and analytics – especially given the business-base of most of our respondents. We believe retailers can leverage that enthusiasm and create new applications to provide digestible information to the people who need it – on retailing’s front lines. Towards that end, we present three recommendations. 1. Get an Enterprise-wide BI Strategy in Place The successful enterprise-wide BI strategy will have several critical components: • Infrastructure: Hardware is now available to support “Big Data”. Build the integration bridges from operational systems directly to the data warehouse. • Executive Involvement: From the responses we’ve received to our BI survey, we believe Line of Business users are ready and willing to become engaged. They’ll even talk about infrastructure issues, since they recognize the importance of overcoming them. • A Roadmap: An enterprise-wide BI strategy should include a step-wise approach to adding incremental value with BI and its associated outputs. Think about appropriate hardware platforms, data transformation tools and techniques, and layering in reporting, alerts, and finally advanced analytics that are retail-specific solutions. • A Wireless Plan for Stores: Even the best insights will lose value if they’re not delivered in a timely fashion to the people that need them in the field. The time is NOW to put a wireless infrastructure in place. Customers can use 3G and 4G to educate themselves. Retailers will need the wireless infrastructure for store managers and employees. Letting customers “hop on the bus” will just be a plus. • Modern Delivery vehicles: The days of desktop dashboards and flash reports are drawing to an end. “Consumer grade usability” has become the order of the day. No one gets a user manual with consumer apps. BI can be equally as simple. Plan for simplicity as an output of back-office complexity. 2. Prioritize those Who Need Real-time Information Most Scorecards are useful after the fact, but real-time exception alerts are most valuable to those on the front lines: in call centers, stores and distribution centers. Giving information to those who can actually do something with it is critical. 3. Temper Enthusiasm with Appreciation for Complexity of the Task The consumerization of IT has given the non-technical user a real appreciation for the value of technology tools. However, expectations may sometimes outstrip reality. There are no magic bullets in successful retailing. Insights delivered in a timely fashion will foster success, but it will take some time to build those insights. Brand building with words and pictures is relatively easy compared to the collation and synthesis of mountains of data into actionable information. While technology development cycles are faster than they used to be, populating apps with high- powered data will take some time. We live in very exciting times. The fact that half our respondents can deliver information faster than their organizations can respond to it is actually a huge leap forward. Business Intelligence and analytics will support the return to holistic retailing the RSR has been recommending for st several years. Holistic retailing in the 21 century is channel-aware but non-prejudicial (store, 21
  • 27. mobile, on-line…all are equally important and synergistic), collaborative rather than siloed, andforward, rather than backward looking, and customer, rather than product-centric. 22
  • 28. Appendix A: RSR’s Research Methodology The “BOOT” methodology is designed to reveal and prioritize the following: • Business Challenges – Retailers of all shapes and sizes face significant external challenges. These issues provide a business context for the subject being discussed and drive decision-making across the enterprise. • Opportunities – Every challenge brings with it a set of opportunities, or ways to change and overcome that challenge. The ways retailers turn business challenges into opportunities often define the difference between Winners and “also-rans.” Within the BOOT, we can also identify opportunities missed – and describe leading edge models we believe drive success. • Organizational Inhibitors – Even as enterprises find opportunities to overcome their external challenges, they may find internal organizational inhibitors that keep them from executing on their vision. Opportunities can be found to overcome these inhibitors as well. Winning Retailers understand their organizational inhibitors and find creative, effective ways to overcome them. • Technology Enablers – If a company can overcome its organizational inhibitors it can use technology as an enabler to take advantage of the opportunities it identifies. Retail Winners are most adept at judiciously and effectively using these enablers, often far earlier than their peers. A graphical depiction of the BOOT follows: a
  • 29. Appendix B: About Our Sponsors Netezza, an IBM Company, is the global leader in data warehouse and analytic appliances that dramatically simplify high-performance analytics across an extended enterprise. Netezza’s technology processes enormous amounts of data at exceptional speed, providing a significant competitive and operational advantage to retailers worldwide including Catalina Marketing, Guitar Center, Michaels, Neiman Marcus, Nielsen, Ross Stores and Yum! Brands. With SAS’s 35 years of advanced analytics and retail domain expertise, retailers choose SAS to drive better business results. SAS provides winning retailers with solutions for retail merchandise planning, size optimization, localized assortment optimization, allocation, space planning and optimization, price optimization, customer insight, social media analytics, campaign management and advanced forecasting across the enterprise. SAS provide flexible deployment models, and SAS retail intelligence is ramped up at your pace. Retailers turn and return to SAS because SAS drives better results. For further information, visit http://www.sas.com/retail/ b
  • 30. Supporting SponsorsBy enabling more content, mobility and capabilities than ever before, Intel gives you theadvantage in a rapidly changing world. With advanced silicon, industry standard platforms,modular infrastructure solutions and ecosystem support, Intel can help you deliver a morecompelling digital lifestyle. Intel, the world leader in silicon innovation, develops technologies,products and initiatives to continually advance how people work and live. Additional informationabout Intel is available at www.intel.com/go/ic.Manthan Systems produces cutting edge analytic solutions for global retailers. Manthansbreakthrough solutions, under the brand name ARC, transform the way retailers use analyticsdriven decision making for strategic advantage. The ARC product portfolio spans the entirespectrum of retail decision making with role-based, pre-built applications, and includes productsfor merchandising analytics, financial analytics, customer centric analytics, supplier portal andanalytics. These award winning products provide a significant edge to an organization’s analyticalcapability and maturity, and are proven to deliver unmatched business benefits in a remarkablyshort timeframe. Manthan’s experience spans a wide range of retail segments and formats,having transformed decision making for over 50 leading Retailers in 16 countries. For moreinformation visit www.manthansystems.com.For more than 35 years, RedPrairie’s best-of-breed supply chain, workforce, and all-channel retailsolutions have put commerce in motion for the world’s leading companies. Installed in over60,000 customer sites across more than 50 countries, RedPrairie solutions adapt to help ensurevisibility and collaboration between manufacturers, distributors, retailers, and consumers.RedPrairie is prepared to meet its customers’ current and future demands with multiple deliveryoptions, flexible architecture, and 24/7 technical and customer support. For a world in motion, TMRedPrairie is commerce in motion .To learn more about how RedPrairie solutions can optimize your inventory, improve employeeproductivity, or increase sales, visit RedPrairie.com or email info@RedPrairie.com. c
  • 31. Appendix C: About RSR Research Retail Systems Research (“RSR”) is the only research company run by retailers for the retail industry. RSR provides insight into business and technology challenges facing the extended retail industry, providing thought leadership and advice on navigating these challenges for specific companies and the industry at large. We do this by: • Identifying information that helps retailers and their trading partners to build more efficient and profitable businesses; • Identifying industry issues that solutions providers must address to be relevant in the extended retail industry; • Providing insight and analysis about a broad spectrum of issues and trends in the Extended Retail Industry. Copyright© 2011 by Retail Systems Research LLC • All rights reserved. No part of the contents of this document may be reproduced or transmitted in any form or by any means without the permission of the publisher. Contact research@rsrresearch.com for more information. d