Gaining Digital Advantage in Internet Retail
Mike Petevinos, Vice President at Capgemini Consulting , takes a look at the global ‘Digerati’ and why they outperform peers in terms of revenue, profit and market valuation.
As the retail space shifts into overdrive in the crucial run up to Christmas it is heartening to see how British brands and retailers are forging new paths for the retail sector. Despite the high profile departure of John Browett, ex-Dixons chief, from Apple it’s clear that multinationals view our small island’s retail executives with envy – truly we are seen as a nation of digital shop keepers.
Burberry is just such an example, an iconic British luxury brand established in 1856, it was significantly underperforming against its peers when CEO Angela Ahrendts took over in 2006. While the overall sector was growing at around 1213% a year, Burberry’s rate was about 1-2%. To address these issues, Ahrendts launched a significant transformation programme covering multiple business areas, from customer experience to operational excellence, and largely driven by digital technologies. As well as online, Burberry leveraged digital technologies to enrich the in- store customer experience, while at the back end, it rolled-out a global ERP programme to unify processes and integrate data across the globe. According to Ahrendts, “Digital has been a catalyst for everything in the company, and when we got everyone on board with this concept they were clamouring to become even more connected.”
The visionary approach of leaders such as Ahrendts is examined in a global study on which Capgemini has partnered with the MIT Center for Digital Business. This research of 400 major global companies worldwide has revealed the common ingredients of successful digital transformation, and identified the business returns that successful deployment of such technologies can deliver for organisations.
Two key findings emerge from the research: First, that the ‘Digirati’ - those who are delivering a fundamental transformation of their business – are in the minority, with a quarter of surveyed firms reaching that elevated status. Second, that digital is driving change in all industries, from the obvious suspects in the retail and media sectors to the less familiar bricks-and-mortar giants of manufacturing.
The study also reveals a significant and measurable performance advantage for those organisations that have a highly developed or mature approach to digital transformation. These high performing companies – the ‘Digirati’ – outperform their industry competitors on multiple financial metrics. They generate, on average, 9% more revenues through their existing assets; outperform their peers by 26% in terms of profitability; and achieve significantly higher (12%) market valuations.FRAMEWORKS & FASHIONISTAS
Achieving this transformation however is about much more than new technology implementation. It involves a closely managed change programme to achieve cross-channel consistency, engage employees, secure the right skills, and develop strong IT-business relationships. Specific governance needs to be put in place, new roles need to be created, and missing skills need to be developed or acquired. It is also about continuous improvement, with no possibility of standing still. The leaders of ‘Digirati’ firms such as Ahrendts already have one eye on the future possibilities: “Consumer data will be the biggest differentiator in the next two to three years. Whoever unlocks the reams of data and uses it strategically will win,” she says.
The challenge for those looking to buy in expertise by poaching staff is shown by the underperformance of firms in the report which slavishly follow digital trends, rather than adapting their underlying business models. Such digital “Fashionistas”, tend to just follow the latest digital trend; “Conservatives”, who are sceptical and favour prudence over innovation; and “Beginners”, who do very little with advanced digital technologies even if they have achieved a lot with ERP or traditional ecommerce. These three groups are shown by the research to follow a trend of steadily worse revenue and profit performance.
George Westerman, the research scientist whom we have worked alongside at MIT states it best: “Achieving a digital advantage requires more than sheer digital investment. It requires building the leadership frameworks to envision and drive transformation. Digital transformation is as much about leadership and organisational change as it is about implementing new technologies. Both leaders and laggards need to recognize that this is a process of constant reinvention.”
And why does this matter to readers such as yourself? Surely by definition as someone interested in internet retailing you are already well ahead of the pack? Well as we see from the Beginners category, ecommerce is only the beginning of digital transformation – true digital advantage only emerges from a more wholesale adoption of technology across the supply chain and business. Indeed, according to the research, globally consumer products and goods are laggards in the race for digital advantage, only manufacturing and pharmaceuticals as sectors come off worse. Unsurprising the high tech sector, with around 40% of Digirati leads the race, just ahead of banking. Travel and hospitality, insurance and telecom companies have many Digirati too.
Ocado’s recent cashbox refinancing shows that initial market leadership counts for little in the highly competitive British marketplace, but that challenge is exactly why as a nation we are among the most innovative and competitive in the internet retailing space. The message is clear: whether you are in the business of handbags or shopping bags, digital matters. And while there is no “one-size-fits-all” in digital transformation, there are common patterns for how CEOs and business leaders can build their digital advantage, based on the two dimensions of digital maturity discussed earlier: your transformation management practices and your digital practices.
Digirati leaders such as Angela Ahrendts invest 100% on the “how” of digital transformation practices. This means developing a shared understanding of the digital vision, engaging the workforce at scale in understanding the vision, implementing proper governance structures to ensure ownership and accountability, investing in a competence upgrade, and building a strong relationship between the business and IT functions.
Second, leaders make choices about what digital practices they will excel in, based on an understanding of the pace of transition between the old and the new in their industry as well as competitive dynamics. This means concentrating investment in one or several key domains of operational excellence where they can gain advantage (rather than spreading a little investment in many areas). For instance, some Digirati excel in process digitization with a strong emphasis on analytics and internal collaboration, while others select customer experience excellence through channel integration. These principles provide the starting point for what will undoubtedly be a long and challenging journey, but whether you are selling overcoats to the world’s High Net Worth Individuals or delivering groceries to the masses digital transformation is both a massive opportunity and an absolute necessity.
A full copy of the Digital Advantage research can be viewed at: www.capgemini.com/insightsand-resources/by-publication/the-digitaladvantage-how-digital-leaders-outperform-their-pe ers-in-every-industry/