A Retailers Guide to Best In Class Retail Software Management

Retail Technology Management

Retail software adoption is beginning to catch up with the business changes occurring in the retail industry. The retail industry in incurring unprecedented change and many retailers are struggling to keep up. The consumer is more connected, informed and empowered which has changed the balance of power. Brand advertising is losing effectiveness in favor of consumer generated content on social media. Customer loyalty is on the decline and consumer showrooming will continue to challenge brick and mortar retailers.

These types of consumer driven market shifts require new technologies to support more agile business strategies. The days of relying upon back-office ERP merchandising, supply chain and POS systems are behind us. These applications are still necessary, but now only a part of a more expanded software portfolio needed to deliver relevant, personalized and real-time consumer engagement throughout end to end customer journeys across channels and devices.

However, before acquiring new systems to solve hard problems and capitalize on new business opportunities, I recommend adopting an IT portfolio approach that aids manageability and closely aligns to the high impact changes affecting retail business strategies. The below application framework is a deviation of Gartner's Pace strategy that I’ve adapted to accommodate the retail industry.

	While Systems of Record are often viewed as large, monolithic applications, their primary use cases need to be decoupled in order to design with more specificity and better align with downstream systems. For example, retail systems of record will cascade to many retail functions:
	Merchandise and Assortment Planning Category, Assortment & Space Optimization Demand Planning and Forecasting Open To Buy Planning Procurement and Sourcing Allocation and Replenishment Pricing, Promotion & Markdown Optimization Multichannel Order Management	Multichannel Inventory Management Cross Channel Fulfillment Sales & Operations Planning Warehouse Management Transportation Management Vendor Managed Inventory Single View of the Customer Master Data Management

The IT portfolio framework is designed to build upon core transaction systems with applications capable of realizing differentiation and driving innovative ideas, processes and strategies.

Systems of Record are really the work horse apps that provide little differentiation but manage the everyday business practices every retailer must accommodate. Because the business processes are routine and the volume of transaction processing is high, their pace of change is low and their ability to increase value is based on their platform extensibility to support more innovative applications. In fact, attempting to implement disruptive technologies such cloud, mobile, social, analytics, big data or customer experience to name a few, without leveraging systems of record as the originating platform will result in redundant systems, processes and data.

Systems of Engagement lie at the intersection of customers, merchandise and channels and connect retailers with their customers in order to improve the customer experience. These applications support unique business processes that create differentiation and competitive advantage. Systems of Engagement are normally lightweight, consumer facing and developed in successive iterations. Above all, it is imperative that these applications cater to what is sometimes called the Consumerization of IT. That means these apps must take a mobile first approach, adhere to consumer design principles and be extraordinarily intuitive (no online help required). In other words, for most retailers they wont look like, act or operate anything like the internal enterprise systems. While Systems of Record are primarily governed by IT, fairly inflexible and generally have operating lives lasting from 5 to 10 years, Systems of Engagement are more often governed by managers in lines of business, very adaptable and have much shorter useful lives.

Systems of Innovation will define the future of retail competitiveness. Do not confuse learning with innovation. All retailers must be able learn and apply that learning in their business execution. However, extraordinarily few retailers are capable of building the culture and capabilities needed to create innovation. While those retailers who can innovate will enjoy first to market advantage, market share growth and premium pricing, an alternative 'fast follower' strategy is a viable approach for other retailers as long as they show the ability to act promptly. It's the retailers who do not proactively act or act timely that will involuntarily transfer their market share to their more innovative competitors.

This retail IT portfolio approach delivers several benefits.

• The layered framework offers a building block approach that better facilitates business and technology change. When business processes work across layers, each layer delivers increased agility to meet the changing needs of the business. As the pace of change increases, this approach allows more rapid changes to Systems of Engagement while continuing to harness the compute power of Systems of Record.

• Recognizing that different types of systems offer different value and constraints allows retailers to apply varying IT strategies in procuring, managing and retiring business applications. It doesn't make sense to apply the same strategies and rules to Systems of Record that you would to Systems of Engagement.

• While Systems of Record are generally limited to common ideas shared by all retailers, Systems of Engagement and Systems of Innovation deliver differentiation and new ideas to spur business growth. Gartner refers to Systems of Record as "common ideas", Systems of Engagement as "better ideas" and Systems of Innovation as "new ideas".

• The layered management approach illustrates how Systems of Engagement should leverage Systems of Record as underlying platforms in order to minimize perennial problems such as disparate applications, data siloes and fragmented systems. Master Data Management and SOA architectures provide governance and standards across layers in order to aid enterprise-wide activities such as business process automation and information sharing while at the same time lessening the cost and pain of system integration.

• When portfolio layer applications retail process workloads, as opposed to the more reactive approach of acquiring standalone or redundant applications per layer, retailers manage fewer systems, incur much higher data quality, reduce business process cycles and have access to more information.

• This retail-adapted Pace layered portfolio model offers a more simple governance to IT application strategy, deconstructs your inventory of IT systems and reorganizes them in a way that creates a more elastic technology plan capable of more quickly supporting dynamic shifts in the marketplace.

All retail merchandise becomes commoditized over time thereby making product-centric retailers vulnerable. However, properly nurtured consumer relationships do not deteriorate over time giving customer-centric retailers a more sustainable competitive advantage. Evolving from Systems of Record to Systems of Engagement in order to improve the customer experience and continually foster the consumer relationship is a technology strategy that aligns well to the most sustainable retail business strategy.

Comments (6)	— Comments for this page are closed —

	Joe Weithman
	This is what Amazon and Zappos use which is why they and other digital retailers are putting brick and mortar retailers away.

		Chuck Schaeffer
		Retail industry shifts are clearly resulting in some forward thinking retailers who are delivering innovation for consumers and quickly acquiring customer share while retail stalwarts that have benefitted from capital intensive barriers to entry that have stood for decades are seeing their customer share erode. Many retail pundits suggest that a new breed of digital disrupters will satisfy consumers' new found preferences while brick and mortar stores will stagnate. This scenario is a false choice in my opinion. It's not about whether you're digital or physical, it's about your ability to adapt to consumers behaviors. Viewing retailers through a lens that positions them by channel may describe their history but not their future. Tomorrows retail leaders won't be pegged as either digital or traditional. Consumers will instead reward retailers that seamlessly bridge their digital and physical shopping experiences. This is why Amazon is opening brick and mortar stores, and why Google is also expanding its digital retail business to stores. Yesterday's digital disrupters are vying to be tomorrows retail leaders across all channels.

		Joe Weithman
		You may be right, but the digital retailers are incurring the big growth.

		Chuck Schaeffer
		Big growth for sure, but I think you have to look at the big picture. Many retail industry pundits cite real but not necessarily complete statistics to position online retailers against more traditional brick and mortar stores. For example, according to Forrester, online retail sales in the US will sustain a compound annual growth rate (CAGR) of 9.5% through 2018. This is an impressive figure for sure, however, put into a bigger picture perspective Forrester also reports that online sales currently account for about 9% of all retail sales in the US, and will grow to 11% of total US retail sales by 2018. To view the retail market, it's helpful to understand both the growth percentages and the absolute dollars involved.

	Buckeye2000
	Did Gartner invent this pace applications strategy?

		Chuck Schaeffer
		I'm told that Gartner discovered the concept of pace layers from a book titled, How Buildings Learn, by Stewart Brand. They adapted those principals to their Pace-Layered Application Strategy. Geoffrey Moore, author of Crossing the Chasm, actually first used the phrase "System of Engagement" as a way to align information management with social technologies.

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Evolving from Systems of Record to Systems of Engagement in order to improve the customer experience and foster the consumer relationship is a technology strategy that aligns well to the most sustainable retail business strategy.

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