FACED WITH A MISHMASH OF LEGACY SYSTEMS, BEST-OF-BREED COMPONENTS
AND SOME CLEVER NICHE APPLICATIONS, HOW CAN TODAY’S OMNICHANNEL
RETAILERS ENSURE THAT TECHNOLOGY COPES WITH CHANNEL-HOPPING
SHOPPERS? PENELOPE ODY REPORTS
They are familiar problems. That nice little
standalone system that helped launch the website, manages orders and fulfilment, and keeps track of online inventory may be stitched together with the main inventory files but perhaps it can’t really talk to the new tills. These tills can access the Internet, but might struggle to link real-time to the product files on an ageing head-office server. then there is that Shiny new mobile app which somehow doesn’t seem to work in most branches – maybe lack of wi-fi bandwidth is to blame?
The list goes on. Successfully integrating a mixture of IT components acquired over the course of a decade or two to provide for seamless omnichannel transactions is not exactly straightforward, especially when diagrams showing the IT architecture start to look like spaghetti.
“Systems are interfaced rather than integrated, with middleware often playing a big part.” says Jas Virdee, a partner at Kurt Salmon and head of its UK multichannel practice. “Even where the big IT vendors have bought ecommerce companies – such as SAP with Hybris or Oracle and ATG- you don’ get full integration. The technology providers are not going to make the sort of investment needed for that unless it’s on the back of some major retailer who wants it and is prepared to share the cost.”
THE NEED FOR SPEED
The days of implementing fully integrated – so-called “wall-to-wall” -enterprise systems are probably long gone, and not just becaouse of the expense and time involved. Given the pace of change in retailing, no single vendor can keep totally ahead of the curve. Niche applications to deliver hitherto unsuspected attributes for emerging channels are appearing all the time, so there are always new things to stitch into the IT model. There is also the little matter of capability: IT departments may lack the necessary skills or can simply be too busy keeping the lights on and the email system afloat to have time for major IT implementations.
“Too many retailers still try to do everything in house,” says Virdee, “instead of off-shoring the basic stuff. We had one recent client who was keen to implement a full ERP system, but we recommended best-of-breed components instead. There was no relevant in-house expertise and the business change involved was enormous. The result would have been too much focus on the ERP implementation and not enough time left actually to run the business.”
Typically, he says, IT departments lack vendormanagement skills and depend on third-party systems integratos to run a project. Inevitably, too, there will still be some form of ageing technology somewhere deep in the IT architecture.
“Most retail systems are in a bit of a mess because the decisions which directed those IT purchases were made 10 or 20 years ago when retailing was very different, “says Martin Schonofield, operations director at Itim, and himself a former retail IT director. “Everything is in silos, and replacement is scary and high business risk. A huge effort is needed to untangle the various layers of spaghetti that have been created over the years, so the day job is focused on patching things up to keep the system going. It could take a company maybe three years to unscramble their technology at a time when the pace of retail change is increasing exponentially.”
THE LIFECYCLE FACTOR
Retail IT systems, as Richard Goodall group sales and marketing director at PCMS points out, also have quite disparate lifecycles. “A company may change its ERP system every 12 years, PoS every seven, web perhaps every three and mobile every 18 months so there is no way you are ever going to have a single integrated system,” he say. “There may be a desire to buy more from the ERP supplier, but would you buy a mobile application from someone like Oracle? Probably not. So there has to be some sort of middleware, hub or service-oriented architecture to link things together.”
Tony Bryant, head of business development at K3 Retail agrees: “One of our customers had 43 different IT contracts with little bespoke bits of functionality all over the place. Businesses don’t want to get rid of this niche functionality, but they do want to join up front and back ends so that customer and stock information are linked. To do that they must have a solid infrastructure, a good strong backbone. It’s a very different journey from the big business transformation of ERP.”
Quite apart from the management and cost of multiple IT vendor contracts, complex architectures bring an additional problem: core applications may have been written in a language such as Cobol or Fortran, which can be a mystery to the current generation of IT executives. Documentation can also be scanty and, as those who have coaxed the system to keep going for the past few decades reach retirement, the existing skills shortage is
exacerbated. Small wonder that many see cloud computing and software-as-a-service (saas) as realistic alternatives. “Retailers have become more and more inclined to use saas for what can be viewed as commodity applications,” says Martin Schofield, “while the spaghetti problem can also lead to faster adoption of cloud-based offerings.”
Nick McLean, director of products at eCommera , is already finding widespread enthusiasm for the cloud. “Over the past three years cloud-based solutions have become perfectly acceptable,” he says. “No-one now questions whether they are viable and every form of technology is available on the platform.” As he says the “pace of change” in multichannel retailing is “very frenetic and you can’t afford to be left behind, so do you opt for capital investment and wait while you train the IT team or do you want it now?” Not only can saas and cloud deliver new applications almost immediately, but the provider will also keep the technology up to date and can scale availability to match the seasonal peaks and troughs of retailing.
Smaller retailers often lack significant IT skills so may seem ideal candidates for cloud and saas, although some are hesitant. “Such companies are not always at the leading edge,” says Gavin Masters, head of ecommerce consulting at Maginus , “and they worry about the risks of running operations off-site. They’re starting to see the cloud as okay for web-hosting but when it comes to enterprise applications they’re not so sure. It’s ideal for handling the traditional retail peaks, can be more reliable than on-premise and it can also be many thousands of pounds cheaper – in fact cost is often the persuading factor.”
SPEAKING FROM EXPERIENCE
COMPOUNDING PROBLEMS
“Some retailers are only interested in dealing with an immediate problem. They don’t want to make a long-term investment in a platform that can gradually be expanded to take on more functionality, but keep on buying new little bits and point solutions and just make their infrastructure problems worse.”
Tony Bryant, head of business development, K3 Retail
RISK FACTORS“
Cloud is not an issue as far as the technology is concerned – it has more to do with finances where retailers need to do a quick fix or where they’re unsure if the development is essential so they can pilot for a year as a test rather than making a capital investment. The more mid-size the retailer they more cautious they are about investment risk.”
David Hogg, commerce solutions lead for Europe, IBM
DIFFERENT APPROACHES
“The big tier-one companies will still be largely in-house but they’re pragmatic and if they want a specific product that is not exclusive then they’ll opt for saas. Tier-two retailers have smaller IT departments, which already have enough to do, so they’re increasingly looking at cloud-based systems to maintain the infrastructure. That also frees up the CIO to take a strategic rather than tactical role in the business.”
Nick McLean, director of products, eCommera
CORE BUSINESS“
Retailers are there to sell goods not to manage IT infrastructure. I like to think that within the next 10 years we’ll see more of them realising that they don’t need to manage those assets internally.”
Jas Virdee, partner, Kurt Salmon
NEW COSTS
In straitened economic times, cost is, of course, paramount. Managed services and hosted systems can take a large part of the IT budget from ‘cap-ex’ to ‘op-ex’, and conveniently off the balance sheet.
Omnichannel does, however, bring some new expenses. With more mobile devices in store, and with more customers eager to access free wi-fi as the roam the shopfloor, demand for in-store bandwidth is increasing.
“It’s really high on the agenda for many retailers,” says Paul Leybourne, head of sales at Vodat. “Communications are very important and resilience is essential so we’re seeing use of 3G as a technology to give greater bandwidth.”
Typically, ADSL broadband can cost around £160 a year but FTTC is more likely to be £800. Multiply that across the number of stores in the estate and the expenses soon escalate. “ADSL can deliver as little as 1.5mbps in some areas,” says Leybourne, “but FTTC, where it’s available gives, 15mbps.
In some out-of-town locations there is very poor telecoms infrastructure so retailers have to put in leased lines, and they can cost up to £3,000 a year.”
It’s a significant expense, but with omnichannel setting new demands on store capabilities it can be an essential one. “Over the past 12 months, and certainly at the NRF show in January, there has been a lot of focus on the store,” says David Hogg, commerce solutions lead for Europe at IBM. “It’s not just that buy online and collect in-store means that fulfilments needs to change to cut costs, but there is also a need to digitise the store environment to increase omnichannel activities and there’s a move to recognition technology to improve the customer experience in-store.”
Promotional activity, he argues, is becoming increasingly personalised and that has to be achieved in-store as well as online, hence the interest in permission marketing and recognition tools. “Omnichannel retailers are moving towards big data at the consumer level to give greater personalisation for promotions,” says Hogg. “Most are at the point where they have plenty of customer history but they often lack the right marketing toolsto give consistent promotions across all channels.
No one has a complete up-to-date store system, and it’s the same problem with marketing. There has to be integration with lots of specialist software and the ecommerce platform.”
Richard Goodall agrees: “There is a need to move promotions higher up in the IT architecture so that you have the same offer across the business. It’s not just a case of a single view of the customer or the inventory, you need ‘one version of the offer’ as well, so the hub has to be part of that too with a promotions engine able to deliver offers across all channels.”
TAKING THE TABLETS
Empowering sales staff with mobile PoS and access to CRM and product files may also help the customer experience, but can put yet more strain on creaking IT architecture. “Best-of-breed is still usual in-store,” says Hogg, “even where there is a wall-towall ERP system as there is no obvious store suite for vendors like SAP and Oracle. All retailers seem to be very excited by mobile systems for store staff but that’s very expensive so you’d only achieve RoI in your top stores with high footfall.”
Tablets instead of tills may be expensive, but Stefan Schmidt, director of product strategy at Hybris , believes they will soon become the norm. “There is no future for PoS,” he says. “Traditional EPoS systems are on the way out for specialty stores – they may be okay for supermarkets with 20 or 30 lanes but otherwise mobile devices are the way forward.”
Hybris formed an alliance in January with OneView Commerce, which offers a complete mobile solution for stores and is looking for similar partnerships in future. “If you don’t want to replace EPoS you can still link conventional systems into the ecommerce platform,” says Schmidt. “The ecommerce platform is really now an enterprise business. There are around 170 parts to any ecommerce platform becomes a hub to make all these parts work together.”
Systems integration may be a great deal easier today than it was a decade ago, but omnichannel is pushing the bar higher. A single view of the customer and virtual stock files enabling fulfilment from anywhere are just the start. Tomorrow’s channel-hopping customers may expect systems to deliver personalised promotions and seamless cross-channel marketing messages as well.
WHAT’S CHANGED?
There is a realisation that many retail IT systems are simply not fit for purpose in a multichannel world and after five years of ‘make-do-and-mend’ since the recession hit in 2008, it is time for an overhaul. Major players, such as John Lewis and Home Retail Group , have already announced significant capital investments, while others companies are looking to saas and cloud-based technologies. There is greater emphasis on hubs and middleware as retailers try to salvage what they
can from ageing systems and use the latest technology to integrate new tools and applications into existing architecture.
