Complexity and Change: the Retail Industrys DNA
After the fall of the Berlin Wall and the breakup of the former Soviet Union, the distinguished professor James N. Rosenau saw the rise of globalization and increased connectivity by noting that “history is not one damn thing after another so much as it is many damn things simultaneously.” Retailers today can certainly relate to their own history as they tackle the complexity of being a retailer.
No Silver Bullets:
A search for that silver bullet will prove elusive with the emerging contradictions and the absolute rise of the consumer. Simple rules of thumb can’t solve the inherent challenges of the economy, behavior of consumers, the weather, supply chain flows, etc. It is difficult to confidently see direct cause-effect in the midst of these uncertainties. Consider the millions of interactions based on the variables along the retail network: products and characteristics, locations, websites, consumers, competitors quickly turn retail into “many damn things simultaneously.”
Facing such complexity, there is still hope and even an opportunity to take advantage of the nature of complexity. Complexity researchers and the leading complexity think-tank, Santa Fe Institute, advise us to go beyond the pursuit of efficiencies and rather to increase the internal organizational diversity to allow for exploration of the environment and future adaptability. One can imagine a company that has fine-tuned its processes and systems to maximize efficiencies and profitability by exploiting its strengths, but due to unforeseen (and/or unrecognized) changes in the environment, their risk of becoming irrelevant increases significantly. As Jack Welch mentioned in his 2001 book, Jack: Straight from the gut, “when the rate of change inside an institution becomes slower than the rate of change outside, the end is in sight.”
Flexibility Is Key:
To help your organization work through this complexity, consider viewing your decision horizon along figure 1 below by inserting flexibility along the time continuum. Captured POS data along with the rich online consumer interactions offer a wealth of information about your customers which links their past behavior to future opportunities through real-time loyalty and promotional offers. This can also inform your assortment and range decisions at headquarters, keep inventory flowing based on actual demand, and work to confirm your pricing strategy. Planning ought to consider both top-down and the insights of bottom-up inputs as they come together in an executable plan and process at the store and headquarters. The long-range horizon brings in your strategy along customer-facing processes and systems of records and engagement as well as your supply chain bringing goods and services to the market. These need constant monitoring through your financial and operational reporting.
|Decision Horizon||Functional / Type Impact|
|NOW||Real real-time decisions|
|Short Range||Analytics: Promo, Price, Replenishment|
|Mid Range||Assortment and Range|
|Long Range||Business Model for Consumer-facing and Supply Network|
Some guidelines for you to consider:
- Develop greater awareness of changes in your operating environment – explore and don’t ignore the unexpected
- Pay attention to economic trends, but pay attention to what these mean to your specific segment of the market – you have to ‘read’ your own trends based on your own Big Data
- Keep an ‘adaptive strategy’ stance to continuously probe your environment and understanding of your customers and competitors
- Promote fast decision cycles to test, assess, and learn from your actions
- Always keep some capacity for unanticipated opportunities that you identify in the market
Retail is about the myriad of details and they happen simultaneously. As you move along the path of increasing profitability and greater same store comps, your ability to detect and respond to changes around you will determine your ability to deal with the complexity and uncertainty. Your own set of decision horizon and people-centered applications need to come together as these impact your assortments, promotions, pricing, and replenishment in a way that adds value for your specific customer segments. The SAP industry solutions specific to the retail industry, along with SAP Business Suite and foundational technology of NetWeaver, the Line of Business solutions, and ongoing innovation vectors in mobility, in-memory computing, and the cloud, come together to meet a retailer’s needs today and tomorrow.