Digital transformation is the new reality for the commercial world, and the retail industry is no exception. In fact, the theme of this year’s National Retail Federation (NRF) Big Show, which took place in January, was “retail transformation” and focused on four key elements: technology, business performance and growth, innovation, and partnerships and collaboration.
There are multiple catalysts for this transformation, and one of the main ones is the shopper. With constantly evolving expectations for everything from product research to in-store experience, shopping behaviors are making it challenging for retailers to keep up. As a result, retail organizations are experiencing an existential crisis – how do they successfully transform along with the constantly changing needs of their customers?
To successfully evolve, it is critical to first understand the journey before to jumping into the solution. Digital transformation may be the end goal, but understanding what that path looks like for each retailer is a key initial step. By taking the following problem-solving approach, focusing on added value and reduction of waste, retailers can identify the solutions that will allow them to achieve, sustain, and maximize their business success.
The first, and arguably most important, step is to clearly and quantitatively define the issue you seek to solve. Whether an organization is experiencing high employee turnover, an increase in shrink rate, or a decrease in customer satisfaction, the challenge often faced is articulating the problem in a measurable way. For example, which issue statement is more clear and impactful?
1) Stores’ operating costs have been increasing recently, which is leading to a reduction in the bottom-line.
2) In Q2, the operating costs for stores in the North-Eastern region have increased by $1.5MM, which in effect has reduced the net revenue of the entire chain by 10%.
Defining the problem in a measurable way will help clearly articulate the value of solving that problem. Further, it helps determine if resources should be invested to solve it.
Once the problem has been defined, the focus should shift to identifying root causes, and it’s important to dig as deep as you can. For the example above, an increase in operating costs could be due to an increase in payroll, investments in building renovations, or unexpected equipment maintenance. Taking this a step further would be to identify what has led to the increase in payroll. Has the team grown or been working more hours? To get even more granular (and therefore, in a better spot to rectify the issue) you should work to understand why the team is working more hours. When you’re able to determine the specific root causes, you’ll be building a strong foundation to problem solve.
Of course, we can’t forget about the customer. The customer experience has become so integral to the success of retailers that their expectations are often dictating the sweeping digital changes that organizations are working towards. Therefore, it’s imperative to understand those expectations relative to your transformation goals and expectations must be measured in the way the customer views them. For example, choosing to reduce operating costs by capping employee overtime allotments may have a negative impact on the shopper’s experience due to limited employee availability.
The perception of the problem does not always equal the problem itself, so documenting the process is the next step in your journey. Viewing the problem from a value stream (end-to-end) perspective means assessing the big picture, not just individual processes, to improve the whole and not just optimize the parts.
Use available data to understand the baseline of current performance. If data isn’t readily available, then develop and execute a plan to obtain current state measures. If possible, use trending data to see how specific data points vary over time. Understanding the starting point gives something to measure against as solutions are implemented down the road.
Using data to confirm the sources of process variation and waste that lead to customer dissatisfaction will validate the root causes previously identified and build a strong case for the improvements needed.
Have a data interpretation plan in place. Many improvement opportunities will likely have been identified by this time, but not every opportunity is created equal and you’ll want to determine the impact to the key operations. For example, if the timeliest task for employees is selecting the items from buy online, pick-up in-store orders for customers, then the improvement of that process has the largest impact opportunity.
If non-value-added activities, such as unnecessary paperwork or prolonged inventory searches, are reduced or eliminated, then employees are freed up to complete more value-add activities, like interacting with customers. Focus on the activities that provide direct benefits to the customer. Identify, evaluate, select, and validate the right improvement solutions in the form of projects. Solutions must be considered against required implementation investment, implementation difficulty, and expected benefits.
Make it happen
Develop the business case for each project based on its impact to business performance. Measure and report improvements and promote an evolving culture. Invest in data and implement enhancements into new or existing systems (KPIs, dashboards, SOPs, roles, and accountabilities) and capture learnings, opportunities for standardization, and sustainability across the organization.
a change management approach to help your company adapt and be transparent with the organization by informing leaders first. Motivate change by testing and learning. Culture is often more critical than strategy, so provide clarity to employees as necessary and always keep them engaged.
By following this problem-solving approach, founded on lean principles, retailers can improve key processes, achieve their bottom-line targets, and evolve alongside their customers. Standard and efficient processes are the foundation of business scalability and growth, and without them transformation can be a long and costly quest, especially in today’s digital world. As Beth Comstock, previous GE VP of Transformation, mentioned in her keynote speaker segment at NRF, “transformation means you’re never done…and it is the new normal.”
Yes, digital technologies may be the answer to both age-old and trending retail issues, but the appropriate application of its solutions cannot be successful without first identifying the underlying causes.
Learn more about how West Monroe has applied this problem-solving methodology to improve our clients’ omni-channel fulfillment rate.