The Power of Small Changes in Pursuing Digital Transformation: A Retail Perspective

By Rick Childs, Managing Director
Consumer Products and Services Industry Leader

 

 

 

Adaptability has always been critical to retail success. But in the digital era, where disruptive change is constant, many retailers find it difficult to evolve fast enough to remain competitive — let alone relevant. That is especially true for companies burdened by the weight of legacy business models, inefficient back-office processes and outdated technology infrastructure. A proof point: The massive wave of brick-and-mortar store closures seen so far in the first half of 2017 involving many well-known retailers that simply didn’t adapt fast or well enough to change.

Most retail executives recognize that their businesses need to embrace digital transformation if they are to survive. These leaders yearn to get ahead of the curve — or at least, ride along with it comfortably — but struggle to create a viable digital strategy. One reason for the struggle is that digital transformation is a nebulous concept. It’s vast and complex and evolving. Discovering and defining what digital transformation means and looks like for the business is a journey for any organization, particularly one encumbered by a legacy business model with longstanding brand promises.

To bring digital transformation into focus and develop viable business strategies around it, it helps to understand the four key drivers for pursuing this type of change:

  • Improving customer engagement
  • Digitizing products and exploring new business models
  • Improving decision-making
  • Driving operational efficiencies

These are major challenges for any business, but retailers are under relentless pressure to deliver consistently on all fronts. Many become fixated on trying to develop and execute a sweeping digital transformation program but end up overwhelmed and falling further behind the curve instead. That’s because a do-everything-at-once approach is not realistic. It places additional stress on an already hectic business and results in the company overlooking the value of achieving substantive change through smaller, value-adding steps.

One example of an incremental step is the move to mobile technology for retail audits. While not one of the flashiest digital transformation initiatives and not necessarily a strategic move by any means, it nevertheless allows technology to be used to create more efficiency in back-office processes. And greater efficiency can increase operational effectiveness for the entire organization.

More than a decade ago, Protiviti forecasted that internal audit functions in retail would expand their use of mobile audit technology to streamline processes, increase analytic capabilities, and supplement traditional store audits with continuous monitoring and standardized store self-audits. In our most recent report on this topic, we note that “… the adoption rate and maturity of mobile audit technology have increased to the point where retailers not actively pursuing mobile store audit technology initiatives risk falling behind regulatory and shareholder expectations.”

Here’s a quick look at some of the ways that this simple but important technology change in the back office aligns fundamentally with the four drivers of digital transformation:

  • Improving customer engagement: Internal audit’s “customers” are business owners. Mobile technology for store audits helps to streamline and accelerate the audit cycle. That helps to improve the experience for auditees and keep them engaged in the process. And by making the audit process more efficient, the business can address risks and make improvements to external customer-facing processes more quickly, ultimately creating value for the retailer’s external customers, too.
  • Digitizing products: An automated mobile solution for store audits can eliminate paperwork, delays and errors. Audit findings also can be analyzed sooner; data is entered only once at the store into a web-based reporting system that delivers real-time results.
  • Improving decision-making: Store audit technology can provide management with instant feedback on current store performance as well as real-time insight into compliance trends. Organizations can use that insight to detect and resolve ongoing problem areas before they become insurmountable issues, and improve the company’s overall performance.
  • Driving operational efficiencies: As we note in our store audit technology report, “Self-assessment, coupled with improved productivity from a mobile reporting solution, not only allows auditors to physically audit more stores, but also effectively increases audit reach to all locations by providing convenient, easy-to-use means of comprehensive store-level data collection and analysis.” This is what operational efficiency is all about.

While the retail industry’s general adoption of mobile technology for store audits has been years in the making, increased regulation and compliance changes over the past 10 years have created more of a pressing need for a digital solution. It’s an important reminder that real change takes time and is brought about by necessity, even in an era of rapid digital disruption. It is also a reminder that each thousand-mile journey begins with a single step.

Strategic back-office technology improvements are one such step. Such changes can add significant and lasting value to retail businesses in multiple ways. They can also help retailers become more agile, creative and adaptable — qualities that are essential to achieving digital transformation on a broader scale.

Security, Data Analytics, Smart Leadership – the Trifecta in Consumer Products and Services

Protiviti and North Carolina State University’s ERM Initiative teamed at the end of last year to survey directors and executives across a wide spectrum of industries for our fourth annual Executive Perspectives on Top Risks report. We are drilling down, over a series of blog posts, to provide insight into these executive perspectives within key industries and how these risks may have evolved since the survey was conducted. This post focuses on the consumer products industry.

 

Rick ChildsBy Richard Childs, Managing Director
Consumer Products and Services Industry Leader

 

 

 

The list of top risks in the consumer products industry – regulation, customer loyalty, cybersecurity, growth, and employee recruitment and retention – have remained remarkably consistent year-to-year. In 2016, the perceived significance of those risks decreased across the board, but it’s hard to say whether this is a statistical anomaly, or indicative of the anesthetizing effect of managing significant risks over an extended period.

From Protiviti’s perspective, we have not seen anything to suggest any ebb in the disruptive forces at work in the industry. If anything, consumer demands are increasing as technology and competition foster expectations of a consistent and fluid shopping experience across multiple channels – allowing customers to shop online, accept delivery on their doorstep and return goods in the store, for example.

If anything, this so-called “omni-channel” business model is increasing risks, by demanding that retailers simultaneously collect more data and invest in better security to keep it safe and analytics to make it actionable. This increased reliance on data, delivery and telecommunications increases the risk of regulation and regulatory scrutiny.

Finally, it ups the ante on consumer products and services companies to recruit and retain employees and executives capable of embracing change without losing sight of unique brand values and brand-specific customer expectations.

In my experience, the executives I work with are well-aware of these challenges. This leads me to lean toward the idea that executives who responded to our survey are already so engaged in the process of dealing with the risks they identified that perhaps they don’t loom as large as before.

The most interesting risk I see in the industry today is also an opportunity – and that’s deep data analytics. Big retailers have been capitalizing on this opportunity for some time, digging deep, mining customer data, trying to drive repeat purchases. They’re getting very good at providing customers with what they want, when they want it, on the customer’s terms, and still managing to control inventory without running out of stock. That’s not so much the case with mid-size and small companies, but it’s what they should be doing to remain in the game.

Bringing all of that home, I think there are really three areas where consumer products and services companies should be investing now to mitigate risks and get the best return on their strategic risk management investment. The first area is data security – nothing will do more damage, faster, than the public disclosure that a retailer failed to protect customer credit card data. Second, data analytics – the ability to analyze and predict customer spending – is going to be critical to retail success in an omni-channel world. And finally, talent acquisition – the right team can make a critical difference. These days a new CEO usually comes with a new team and a whole new brand philosophy. Experience has shown that what connects a brand with its customers at one company can turn customers off at another. A CEO with innovative ideas can propel a company upward – or plunge it towards the bottom. So this is a critical risk.

All of these are good challenges to have, and it’s a fascinating time to be in the consumer products and services industry. I would definitely encourage you to download and read the overall survey and the industry findings. And I’d love to read your thoughts in the comment section below.