Roadmap for Retail Tech Transformation

McKinsey & Company recently issued a report on The Tech Transformation Imperative in Retail. We found the information insightful and relevant to what...



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McKinsey & Company recently issued a report on The Tech Transformation Imperative in Retail. We found the information insightful and relevant to what we believe is necessary for the market. So, we are sharing some key points from the piece.

Retail’s Changing Landscape

The retail industry has undergone significant shifts due to the rise of eCommerce and omnichannel, changing customer behaviors and hyper-personalization, and growing supply chain complexity, which all have been accelerated by the pandemic. These trends have increased pressure on retailers’ bottom lines and shrinking margins.

Only a few retailers have built true omnichannel offerings, harnessed data at scale, and implemented agile ways of working through their organizations. To reverse the negative trajectory of recent years, retailers need bold action to radically transform their tech function – both architecture and operating model.

Retail Trends

Today’s consumers are more connected, less loyal, more informed, and channel-agnostic. E-tailers have captured a significant share of online sales and built direct relationships with brands, and online marketplaces have become dominant platforms. These developments increase the pressure on physical retailers to expand their omnichannel presence.

To become more responsive to these trends, retailers can leverage technology as a core enabler across several areas of next-generation retail.

Six Foundation Pillars for a Holistic Technology Transformation

To fully exploit technology, retailers must dramatically transform their IT functions. The six pillars represent a comprehensive approach. Although some retailers have excelled in one or several of these pillars, few have mastered all six. Since the pillars are interconnected, retailers must work on all six in tandem to get the full value from investments in technology.

  1. Omnichannel Integration. The best-in-class retailers have been able to deliver a distinctive, consistent customer experience across channels by migrating to a headless commerce architecture that supports all touchpoints and shared functionalities such as wish lists, appointment bookings, and payments. Traditionally, the retailer’s tech architecture was focused primarily on the store network and supply chain. ECommerce capabilities were developed through a separate effort that used commercial solutions that were integrated in a limited way with legacy systems, hindering the ability of retailers to implement truly omnichannel journeys (and achieve real-time stock visibility).
  2. Datafication. Data are often fragmented across systems or partly consolidated in on-premises infrastructure with limited scalability with traditional architecture. Additionally, most companies have implemented only limited data and model standards, making it difficult to reuse and scale analytics use cases. To unleash the power of data and accelerate value capture, leading retailers implement cloud-based data platforms that enable automation and reuse over defined protocols.
  3. Tech modernization. Traditional retail architecture typically relies on monolithic and aging applications that dramatically hinder agility and upgrades, resulting in higher overall costs. Moving to modular, microservice-based architecture can enable organizations to achieve greater flexibility and scalability.
  4. Product-led organization. Most retailers have set up an agile digital factory that combines business and tech resources to manage e-commerce (and sometimes analytics) capabilities. However, a transformation of the entire IT function must meet a consistent baseline for efficiency, flexibility, and speed. A product-led organization focused on developing and managing business capabilities supported by tech solutions. These products are then staffed with cross-functional teams of different tech competencies led by product owners to ensure consistent focus on business outcomes.
  5. Highly automated software delivery. Digital and software companies pioneered advanced engineering practices and automated the software development cycle, but the retail industry is still in the preliminary stages of adopting these practices. The definition and implementation of these practices will be a core element of achieving next-level performance in software delivery.
  6. Talent-driven transformations. Most retailers have an IT department that relies on external partners to maintain business applications. As technology increasingly becomes a differentiating factor, developing an internal pool of highly skilled engineers is critical. An in-house team can protect the organization’s intellectual property and drastically improve delivery performance and market time.

The right investment can accelerate the time to market of digital offerings by a factor of three; double the internal skills needed to develop competitive solutions, and optimize run costs to save up to 20 percent, which can be reinvested in digital-innovation projects.

Concrete Actions to Take

Retailers can take several concrete actions to fully unlock the potential and accelerate their tech transformation journey.

  1. Adapt a journey-dive approach by taking an end-to-end customer perspective.
  2. Redirect tech investments with a focus on business value
  3. Double down on data
  4. Build next-generation technology foundations
  5. Pilot extreme industrialization

By committing to a drastic transformation, retailers can spark growth and increase performance. With consumers demanding greater flexibility, customization, and responsiveness, many retailers lack the tech foundation to meet these expectations. The time is now to act. Retailers should take all the required actions to expedite their transformation, which will create value through the business and tech organization and the bottom line.

To read the report in its entirety, click here.

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