Consumer & Retail

White PaperFuture of Financial Systems

August 2014

Agile, Extensible, Adaptable

We make it happen. Better.

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Is retail ready for the financial future? Growth is an exciting proposition – especially in a global climate that has struggled to maintain a consistent upswing in the past five years. There are signs that the best of this economic cycle is yet to come, and those who succeed will manage their growth with agile, adaptable, and efficient strategies.

In the retail sector, this climate rewards innovation in product development, customer engagement, and transaction processing. The future will be won by players with adaptive financial systems that feature robust analytic capabilities and easy, secure access to information.

Improving economy opens doorsThe economic outlook continues to improve over the stagnant conditions of the late 2000s, and corporate leaders are enjoying a period of strong growth that has helped them to rebound. Consumer spending has increased, year-over-year auto sales volumes are higher, and borrowing rates continue to be at or near historic lows. All in all, a brighter picture than the economy has seen in several years.

In most corners of the retail industry, keeping pace with growth will place a heavy burden on companies’ infrastructure – especially their financial systems. The landscape continues to evolve to an omnichannel marketplace, with customer interaction extending to web-based and mobile devices. Customers in most retail sectors can now order items from online or mobile storefronts and select their delivery method – ship to customer or pick up at a store. The world in which they can interact with the brand has expanded tremendously, and with it the amount of data to translate and record.

Indeed, CNBC reports that “retailers are inundated with data streams. Wal-Mart, for example, generates a million rows of transaction records every hour, according to Bank of America Merrill Lynch. The data isn’t coming just from its in-store transaction records, but from social networks, smartphones, mobile devices, sensors and digital video recorders that can track customers’ shopping habits.”

Such a steady flow of sales and information brings with it incredible opportunities for improvement. Once the marketplace adapts, there will be no turning back. “This isn’t a passing trend, like leg warmers or acid-washed jeans,” notes Business Week. “It’s a fundamental restructuring of the way business is done. Macys.com, for example, now analyzes tens of millions of terabytes of information every day from online activity, in-store transactions, and social media in an effort to better understand customer preferences and improve its promotions. The use of big data analytics has helped Macy’s boost store sales by 10 percent.”

It does not end with omnichannel sales and marketing; engagement models are evolving as well. For example, Amazon – despite its lackluster financial performance – continues to set the pace in online retail, even offering a number of common products through a subscription model. Customers can order regularly used items and have a set number delivered on a routine schedule.

Whether assessing Big Data, the subscription model, or new currencies and payment methods (i.e., bitcoin and mobile wallets), there is no way to accurately predict the impact of these or future disruptions. Successful businesses can only ensure that they become and remain agile in order to respond to new opportunities.

Building the financial support systemTo create such a flexible environment, financial systems must address five specific challenges: transaction management, compliance, data analysis, reporting, and shadow computing.

TRANSACTION MANAGEMENT:Transaction management covers the collection and management of transaction data, including customers’ personally-identifiable information (credit card numbers, home addresses, bank accounts, etc.). Security, therefore, is of paramount importance; systems that interact with one another (a mobile app and a back-end financial system, for example) must have reliable and verifiable security protocols in place.

Internally, managers are also increasingly seeking to access core financial data from their mobile devices (iPhones, iPads, Android devices, etc.) for up-to-the-minute store performance and product stock analysis. Retailers must develop robust security protocols for mobile access to transaction management.

COMPLIANCE:External compliance is an ongoing challenge for most businesses. Local, state and federal agencies continue to produce new regulations that demand compliance; the U.S. Federal government alone announced 141 new regulations in the first three days of 2014, which will take effect sometime in 2014 (along with 131 other pending potential regulations).

Companies can certainly develop and maintain their own software systems and strive to stay on top of this growing regulation tsunami. Or, they can implement commercially available integrated systems developed by proven software developers to help them stay compliant. Trusted, commercial software solutions are periodically patched to supply updates necessary to maintain regulatory compliance.

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The internal compliance front is just as onerous and often more complex. Retailers are constantly hiring new workers, whether as a routine part of workforce turnover or due to expansion. While most new employees don’t interact with the company’s core financial systems, some may. Ensuring that those new employees comply with existing company policies will be easier if the financial systems are engineered to protect against unauthorized (even accidental) financial transactions.

Project management is another area that contemporary financial systems can incorporate to improve and streamline the organization. Integrating project accounting into the core financial systems will ensure capital projects adhere to approved budgets. These systems are also helpful in integrating project accounting into the fixed asset component of the balance sheet. This delivers a tightly integrated transaction flow for project costing, which is particularly helpful when managing new construction projects.

DATA ANALYSIS:To stay competitive during periods of fast-paced change, executives must make quick, fact-based decisions. That means having the right analytics at hand, integrated directly into their financial systems, and easily accessible across all devices. This combination adds significant power to their business intelligence and performance management capabilities.

In addition to internal data, executives will have more context when external data is integrated for analysis. Whether the business tracks social media data to analyze customer buying trends or subscribes to data sources for trend analysis at the industry or geography level, working external (and often unstructured) data into the process is becoming a common goal for IT leaders in retail operations.

REPORTING:Once all of the data from various sources are analyzed, reporting the findings in an easily understood format becomes the challenge. Contemporary financial systems must show an awareness of future trends (i.e., increased regulation externally and more mobile data mining by internal users). To accomplish this, data must move seamlessly among analytic systems (data marts, data warehouses, etc.) and must be accessible in real time, across all platforms, and through any device.

For external outlets, the key issues are ensuring accuracy and speed. Regulatory and governmental agencies are requesting vast amounts of data from businesses. Responding to those requests in a timely fashion is becoming increasingly burdensome. Future financial systems will be able to provide any answer, anytime, on any platform to assist in satisfying external requests.

SHADOW COMPUTING:In a word: Excel®. This is both the greatest ad hoc financial tool and the biggest challenge for data integrity in many businesses. Numerous users manually enter data to build presentations and demonstrate trends; the versatility is admirable, but the process leads to an un-auditable financial trail. Excel data is typically neither documented nor sourced. What is its origin? Was it taken exactly from an existing and established “System of Record” or was it taken from the system of record and then manipulated by one or more staffers?

A competent, future-state financial system will be able to provide trends and assist in creating internal and external presentations while still providing output to Excel. This change in perspective will provide better auditability and integration with the core financial systems.

Future financial systems in an enterprise retail environment will be dynamic, fluid, and will address a company’s central needs in order to aid expansion and compliance efforts. As the industry continues to gain momentum, companies can more effectively manage their growth through systems that are agile, extensible, and adaptable to emerging market and technological challenges.

Mr. Maholic is a Vice President in the Management Consulting practice of Hitachi Consulting and is the author of the award-winning book, Business Cases that Mean Business. His book has been featured

multiple times in CIO Magazine and is distributed worldwide.

Mr. Maholic has over twenty years’ experience helping the largest global companies with IT strategy and IT governance projects spanning numerous industries and government segments.

His career has included two stints as a CIO for complex manufacturing companies, two management positions with Big Four consulting firms and leadership positions in several technology companies.

http://online.wsj.com/mdc/public/page/2_3022-autosales.html

http://www.ft.com/cms/s/0/cd877366-2237-11e4-a828-00144feabdc0.html#axzz3ADU1MWv2

http://www.cnbc.com/id/100638141

http://www.businessweek.com/articles/2013-09-17/managing-the-technology-of-fashion

http://dailycaller.com/2014/01/03/happy-new-year-feds-list-141-new-regulations-in-only-3-days/

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About Hitachi Consulting CorporationAs Hitachi, Ltd.’s global consulting company, with operations throughout North America, Europe, the Middle East and Asia, Hitachi Consulting is a recognized leader in delivering proven business and IT strategies and solutions to Global 2000 companies across many industries. With a balanced view of strategy, people, process and technology, we work with companies to understand their unique business needs, and to develop and implement practical business strategies and

technology solutions. From business strategy development through application deployment, our consultants are committed to helping clients quickly realize measurable business value and achieve sustainable ROI.

Its client base includes 35 percent of the Fortune 100 and 25 percent of the Global 100, along with many mid-market leaders. With offices throughout North America, Europe, the Middle East and Asia, Hitachi Consulting employs approximately 5,000 professionals across 12 countries with delivery centers in India (Bangalore, Pune and Hyderabad), China (Guangzhou) and the United States (Fargo, North Dakota) to offer global delivery scale. For more information, visit www.hitachiconsulting.com.

About Hitachi, Ltd.Hitachi, Ltd. (TSE: 6501), headquartered in Tokyo, Japan, is a leading global electronics company with approximately 320,000 employees worldwide. Fiscal 2011 (ended March 31, 2012) consolidated revenues totaled 9,665 billion yen. Hitachi is focusing more than ever on the Social Innovation Business, which includes information and telecommunication systems, power systems, industrial, transportation and urban development systems, as well as the sophisticated materials and key devices that support them. For more information on Hitachi, please visit the company’s website at www.hitachi.com.

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