Blinded by Science
By Tom Ryan
While retailers recognize that merchandising has become a blend between art and science, they’re still struggling with the science part.
According to a survey of retailers by RSAG (Retail Systems Alert Group), fractured planning processes (lack of coordination between merchandise, store, finance and expense departments) tops a list of primary merchandising challenges. Of the 55 retail respondents, 54 percent said fractured planning had a “major influence” on merchandising processes while 46 percent indicated it had “some influence.” (The study, sponsored by DemandTec and JDA, also included in-depth interviews with several retailers.)
In the accompanying Customer-Centric Merchandising 2007 Benchmark Report, Eric Olsen, RSAG’s VP of content, wrote that while poor integration between cross-functional teams is nothing new, what’s surprising is it’s proving to be “stunningly intractable.” This is particularly true as the benefits in reducing errors and moving faster become more crucial in meeting the needs of today’s fickle consumer.
“Ultimately, this synchronization promises more accurate and efficient planning, which results in a single, yet collective, version of the planning truth in a much shorter time frame,” said Mr. Olsen.
When RSAG asked respondents what prevented them from implementing new merchandising systems to enhance internal collaboration, “hard to quantify” ROI remained an obstacle. But other issues – particularly inflexibility in both business process and technology – were also mentioned given the persistence of the problem. Respondents clearly indicated a need for more sophistication in merchandising systems while also admitting to merchandising being viewed internally as more of an art than a science. Of the respondents, 75 percent agreed that their organizations were resistant to change to some degree. Many indicated they wanted to simplify rather than complicate their organizations.
To overcome this “organizational paralysis,” RSAG is urging retailers to make a commitment to understanding and anticipating customer preferences. Truly moving from a product-centric to a customer-centric approach, according to Mr. Olsen, “will entail more sophisticated merchandising systems with advanced functionality, as well as a willingness of the organization to balance art and science within merchandising.”
Second, RSAG recommends against a “roll your own” strategy in favor of packaged software, pointing out that many retailers are still working off customized versions of software bought in the early-to-mid nineties. Said Mr. Olsen, “Business logic has improved and the state of the application union is far better than it was before.”
Finally, retailers must create a plan for modernization. “A plan must be put in place to reduce dependency on out-of-date infrastructures,” observed Mr. Olsen. “Even though each application must justify its place with direct return on investment, attempt to define your integration strategy early, and then put pieces in place step-by-step, in accordance with the plan.”
Mr. Olsen notes that for many retailers to get beyond the fractured planning process may entail “a completely new way of thinking and interdepartmental cooperation,” and a big commitment to technology.
“In the age of geographically disbursed retail enterprises, customer-centric merchandising can only be accomplished with the assistance of technology to create localized assortments, space, and product plans,” said Mr. Olsen.
Discussion Questions: What do you think is behind the “stunningly intractable” struggles
by retailers to improve integration between cross-functional teams? What do
you think of some of RSAG’s ideas to improve cross-functional teamwork? Can
you come up with some of your own?
This one is no mystery. This problem was to be solved by going to Category Management versus the old way of buying, merchandising, space and pricing departments. These findings are proof positive that the Category Management approach has not worked. My term for the current state of Category Managers is “Super Buyers.” Like other retail channels, merchandising and marketing are the art drivers. You can never save a retailer by great store service and first class logistics. Unless you have the products consumers want and trust, they don’t come into the store. Buying, space and pricing should be science.
Balancing the development of great, on-trend, brand consistent products, merchandising across multiple product lines, ensuring quality, delivery and in-stock positions, looking good on the shelf, rack or page, being competitive and profitable, making sure the “big picture” makes sense…all of these factors makes for a very complex puzzle to solve!
While good systems are vital, I think it starts at the top with clear direction on the strategies, parameters and expectations.
The problem with Category Management is that it is focused on far too many factors other than the consumer. From my view, there is a distinct disconnect between the sophisticated technology and data that is available–the category manager’s ability to use it–and the consumer’s actual activity.
Far too much activity is focused on every other means of profitability other than actual consumer demand and that thing called SALES.
In the midst of all of the churn surrounding implementation of technology, new and modern category methods, etc.; where does the consumer’s actual activity play into such things as having what the consumer really wants, when they want it, in the quantities that they are prepared to buy and at a price they are willing to pay?
Somewhere in the midst of advancing technology, consulting, manufacturer incentives, overwhelming churn of non-sales producing activity, there is a loss of being a retailer. More technology will not solve the issues that exist for retailers today. There isn’t nor hasn’t been anywhere close to optimum usage of what exists today. What there is today is a lack of customer focus and all efforts focused on meeting their needs. Far too many ‘systems’ and ‘consultants’ are telling retailers what they think the consumer wants instead of identifying the actual consumer activity itself.
If you are leading your business by technology based and consultant based direction, you are behind the curve trying to meet demands that no longer exist. In the meantime, your customers are right in front of you giving you all the clues you need towards meeting their needs today and well into the future.
This all ties to a previous comment–“a lack of leadership.”
Any titled program such as Category Management does not work just because the title is used. Category Management requires cross-functional teams within an organization and partnering with other organizations. The title doesn’t result in change; the creation of a team doesn’t result in change; directives from managers don’t result in change; meetings don’t result in change.
What does? A culture that creates systems to reward the desired cross-functional and/or partner behavior. That requires a change in performance review, reporting processes, and measurements.
Category management in and of itself does not create change. Category management in conjunction with fundamental changes in business processes results in change. Adapting the titled program is much easier than fundamentally changing the organization.
Successful companies who have made the change are doing well. However, that change has not occurred across the board, thus the “intractable” findings.
The resources required to properly assess, evaluate, integrate and implement an enterprise level application which enables cross-functional planning are enormous. Let me put it another way…it takes one heck of a lot of people and money to do this right. The few retail C-suite executives I’ve met are unanimously supportive of the concept of integrated planning. The thing almost never bogs down in the initial value proposition. The amount of and type of resources required to get it done create the impression of a business interruption of such significance that the executive almost always stops and asks “are we really that badly off?”
Real world. There are any number of consulting experts and organizations with best practices on how to go about this process. The combined experience base of the consequence of proceeding without those practices in universally bad. Really, really, really bad. Confounding the matter is the track record even when these practices are followed and these experts employed. How many of us have not heard the horror stories about millions wasted on bad integrations? What we didn’t hear was the business interruption cost of all the high level talent employed during those horror stories.
The reality is that few organizations have high level talent lying around underutilized. Duh. High level talent is what is required to have an integrated planning project work. If that talent is pulled out of the “line,” there is an opportunity cost. More often than not, the attempt is made to simply add workload to line talent…which doesn’t work. It’s a vicious circle with no outlet I am aware of.
My last observation is that few if any major IT investments return an ROI without changes in business decision making. Not just business processes, but business decisions. Different decisions bring different results.
My time in Big 4 consulting opened my eyes to just how deficient the “experts” are in how to engineer different decisions. All too often, the consultants don’t know what those decisions should be (lacking the experience and knowledge base). Internally, if key executives already knew what different decisions to make, they would probably make them. Consequently, even if the system is properly planned and the integration well managed, the organization is left with the same people making the same decisions faster and more efficiently. No ROI.
The retailers I deal with are working to dissolve the organizational silos that are largely the result of informational silos. If Finance, Merchandising, Planning, and Store Operations are assessing the business from disparate informations systems, that’s big trouble, every day.
The answer is to load all of the operational and historical information into a single data warehouse and agree on universal metrics. The payoff for the retailer is that knows more about its operation than its competitors do about theirs. That’s the essence of competitive advantage.
Hard to disagree with any of the assessments posted here so far. I will only add that the problem is one of silos, inertia, and insufficient “force” applied by top management. When a President or CEO gets behind cross-functionality, and there are consequences for not toeing the line, these problems get addressed.
This is now an imperative for retailers operating in multiple channels, which should be all retailers. Profitability and viability will be determined by the ability to present a unified experience to consumers, and for management to have a unified view of markets, inventory, logistics, etc., across channels.
Remember the old joke that went something like: “If SAP is the answer, what is the question?” If scientific retailing is the answer, then what is the question? If the question is: How does a retailer systemically, via software and computers, solve the problem of being cross functional and customer centered…then, it looks like there is an opportunity for someone out there to figure it out and build a business. Customer centered business processes are evolving–pulling off the entire process is their IP–one of these days we may be able to buy packaged demand-side software that is built around the proper question. Current vendors have their legacy–they are built around the supply chain or “the extended supply chain”–is it working? How about another intractable problem: “it is really hard for legacy software packages to adjust to new business processes in vertical markets and if those firms lack leadership and R&D resources, they are stuck and will not survive.
I beg to differ with the headline. Retailers aren’t “Blinded by Science.” Rather, they don’t like what they see.
As many of the commentators have pointed out, technology isn’t (or at least shouldn’t be) the root cause of these issues.
The many problems cited have a clear, unambiguous solution. It’s called Leadership.
Ironically, when RSAG set out to do this report on merchandising, the LAST thing we expected was to find fractured planning processes as the number one issue. We thought we could move on to newer subjects. We were wrong. And thus was born Eric’s report.
J.C. Penney is, of course, a poster child for how to re-invent a retail enterprise and do things right. There are certainly other examples of retail winners who have solved this conundrum. The fact remains, most retailers (and their merchandise vendors for that matter) have not.
I see the problem as having two separate causes:
– Retailing remains an emotional business. Emotion and science don’t mix so well. I think I’ve been quoted as asking “What price optimization program decided to sell 42″ plasma TVs for $1000?” Of course I bought one. I also knew the price wars of the Christmas season were emotionally driven, not science-based.
Some retailers actually HAVE embraced science. And they’ve got a forecast engine for their merchandise plan, a forecast engine for the price optimization program, a forecast engine for their markdown optimization program, a forecast engine for their assortment planning program, a forecast engine for allocation and replenishment. You get the idea. Ask one of those retailers: “So what’s the plan? Where’s the plan?” The answer is invariably “in a spreadsheet.” The software suites need to mature to a point where they drive from one version of planning and forecast truth.
Those are my 5 cents on why the problem remains intractable. I see light at the end of the tunnel, but then, I’ve been staring down that tunnel for over 20 years (since I first installed Arthur at a long dead retailer)….
Everyone is right. The sheer scale of most retailers equates to them having up to 1,000 category managers all vying to stay ahead in ways they believe appropriate for their specific business.
In a time where consumers are bombarded with an array of choices 24/7, where winning ideas are replicated and brought to market in weeks or days by speed enabled competitors; winners are more and more focused on how to move out of a competitive to a differentiated environment. Much of this is driven and created by a distortion of resources to innovative operational models, product or both.
As stated by the Economist “Innovation is now recognized as the single most important ingredient in any modern economy. Just as this is true about nations so it is equally true about organizations.” Nike’s, A&F’s and Victoria’s Secret’s creation of R&D focused organizations and infrastructures. Zara’s and H&M’s unique and innovative operating models clearly impact their merchandising and so does Zara’s consumer demand model.
This is a problem that many companies don’t see from the C-suite but is evident in every department. Unfortunately, it can be detrimental to the results of a company. Companies need to evaluate their infrastructure and break down the barriers of communication and results.
A common area that is a huge problem is the technology department. If the technology department is the “king of the hill,” it can be guaranteed that there are many barriers. Many CTOs dictate the appropriate technology based on platform or database, not functionality of the solution that will benefit merchandising and customer service the most. Many want to keep outdated legacy systems that cannot give today’s huge benefits of modern software for job security. In almost all companies the ego syndrome is keeping the company from achieving greatness or profitable results.
Sorry, I’m not buying it. The problem is business culture that allows the breakdown of team integration in the first place. Fix the culture, you fix the “business” problem. The rest will sort itself out.
I don’t agree that the issue of cross-functional integration is “stunningly intractable.” If you study “best-in-class” retailers, they have recognized and wrestled with this need in their own organizations and (in some cases) have managed it well.
J.C. Penney comes to mind as a company that centralized its buying functions in the last ten years, at some risk to its long-standing company culture but with a more seamless outcome for the consumer (and stronger sales and profits to boot). Kohl’s CEO recently mentioned in the Wall Street Journal that cross-functional integration is a key to Kohl’s success. And Wal-Mart has executives with supply-chain background at the highest levels of the company (including the CEO) to push this issue along.
Cross-functional integration may be an intractable problem at other retailers, but they are probably also struggling with issues like fuzzy assortments, unclear branding, and so on.
There are few key litmus tests of poorly functioning organizations. Retailers who can’t get their people to work together can’t install cross functional systems. They have the same crises repeat again and again. They never get to the root cause of their issues. They expect different results even though their approach is the same every time. And they demand ROI analysis when it isn’t appropriate or they do it incorrectly when it is appropriate.
This is one of my favorite topics. I am a former retail executive and can speak to this issue first hand. There is no question that retail is a blend of art and science. There is also little question that many retailers struggle with the science portion of this equation. But why is that exactly?
Throughout the history of retailing this struggle has occurred. The issue of adding scientific fact to the merchant’s usually excellent “art of retailing” can yield massive benefit. Many theories exist. One theory on why this divide exist is that its easier just to work on the art. This is comfortable. Adding the science is presumed to be hard! For many the idea of making intelligent decisions with “some science” or some data seems to be enough. This thinking is deeply rooted in the notion that “this is the way it’s always been done.” While it is somewhat understandable how one could arrive at this position, it is by no means acceptable. If the merchant wishes to achieve growth over time, then science must be actively pursued. In fact the notion of continuing along a non-scientific path in today’s economy will likely result in negative financial results. In essence, doing what one has always done will result in less than one has always gotten.
Consider this: Retailers are now competing for customers across several formats. No matter that Drug competes with Drug and Food with Food, now everyone competes with the internet. In my own business, the man I have assigned to our CFO duties continuously brags about his internet purchasing prowess. He and his family will buy everything they can electronically. Smart retailers will explore this and other trends and easily conclude that the marriage of Art & Science is mandatory for survival. It is no longer optional. The use of syndicated data and the retailers own POS holds many of the answers needed to attain greater financial productivity and consumer satisfaction. However mining for this data requires skill and nimbleness. It does not require adding an army of staff who require years to gain the expertise needed for such a monumental task.
Someday soon retailers who are not already doing so will learn to apply science to fully understand all measurements of their financials. This science will reveal insight into productivity, organic growth, building trends, etc… It will be at this point that we will have seen the Art and Science of merchandising merged.