Store-back operations - IBM

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RetailStore-back operationsTackling the store operations dilemma

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Store-back operations Tackling the store operations dilemmaPage �

Highlights

3 Introduction

4 ExecutiveSummary

6 Thestoreoperationsdilemma:

Thebarhasbeenraised

12 Store-backoperations:

Fivethematicconnectors

24 Store-backoperationscapability

framework

26 Howtodevelopthecapabilityto

adoptaStore-backapproach:

Nextsteps

28 Conclusion

28 Relatedpublications

29 Abouttheauthor

30 AboutIBMGlobalBusinessServices

30 Endnotes

Contents


HighlightsIntroduction

Today, more than ever before, retailers are faced with delivering a more

complex and diverse offer to their customers. Customers are often better

informed and more demanding; moreover, they use different modes

of shopping at different times. They expect a personalised service to

match their shopping ‘mood’ while in different formats of a store, and

they expect a retailer to recognise the intimate relationship that has

been built with them over a series of interactions.

The store is the place where all retail processes have to come together,

it’s where a retailer’s systems and procedures are most visible and come

in direct contact with customers, and where availability, resilience, and

consistency of execution are key to trading. The bar has been raised;

however the store environment comprises a complex series of disparate

tasks and activities that are at the end of everyone else’s processes.

Many have been designed and ‘owned’ by people outside the store

environment who don’t necessarily have an understanding of store

operations, where the influence is much earlier in the supply chain, and

at some distance from the store.

How can store operations executives meet these rising customer

expectations whilst at the same time managing their resources

within affordable limits? How can they take maximum advantage of

appropriate technology and ensure that their systems and procedures

actually do what they intended? And how can they make sure that

everything in store is working together to ensure that the bar now raised

doesn’t become a hurdle they can’t clear? From experience, the answer

is to make sense of this complex situation by taking a holistic ‘Store-

back’ approach to the implementation of technology, design of in-store

processes, and utilisation of people. In short, ‘Store-back operations’.

Thestoreistheplacewhereallretail

processeshavetocometogether,it’s

wherearetailer’ssystemsandprocedures

aremostvisibleandcomeindirect

contactwithcustomers,andwhere

availability,resilience,andconsistencyof

executionarekeytotrading.


HighlightsExecutive summary

The store operations dilemma is a sensitive balance between meeting

customer needs (demand) by providing the right goods and services,

at the right time in the right way to an agreed and accepted service

standard, and managing resources (supply) in an efficient and effective

way, in order to make a profit. This report advocates a holistic ‘Store-

back’ operations approach to help retail store operations executives

make sense of the complex store operations landscape by viewing

it through the lens of five higher level thematic connectors. These

connectors provide a new perspective on how to organise store

operations. They can liberate the store operations function from

conventional silo thinking, and they help to add value and insight when

reviewing processes. The five high level thematic connectors comprise:

1 Payment:payingforgoodsandserviceswithcashorotherinstruments,inpersonorviaelectronictransfers

2 Self Service:wherethetransactionisconductedbythecustomer(eithersupervisedorunsupervised),onorofftheretailer’spremises

3 Information when and where needed:informationtheuserneeds,intheformthatismostappropriatetothem,providedviathemostsuitabletechnology(includingpaper),preciselywhereandwhentheyneeditandwilluseit

4 Management and Leadership:themosteffectivemechanismsavailabletoimpacttheperformanceofastore

5 Closely coupled retailing: recognisingtheintegratednatureoftasks,activities,processesandtechnologytoensuretheywork.

Thestoreoperationsdilemmaisreal.Like

itornot,thebarhasbeenraisedandstore

operationsexecutivesneedtobeinshape

toclearthehurdle.


HighlightsGreat retailers recognise that to drive success in store operations they

need to develop critical capabilities to address the operations dilemma.

The capability framework described in this paper is a checklist to help

store operations executives assess their ability and compare themselves

against the best, and is grouped into four topics:

(i) Processes:Understandcustomerandshopkeepingprocessesindetail;recogniseandrespectthecloselycoupledprocessesandpracticesinstore;learnfromprocessfailuresandstrivefor

‘excellenceinexecution’(ii) Organisation:Makethefocusthestoreandcustomer–notthe

headoffice;enablestoremanagerstobeleaders(iii)Technology:EnsureyoursystemsandITsupportyourstore

operationsrequirements(iv)Information:Ensureeffectivecommunicationsbetweenhead

officeandstores;understandhoweachstorecomparestocompetitors;keepabreastofdevelopmentsintheretailindustryandothers.

An overriding objective of this framework is to keep the solutions simple

and pragmatic, yet effective.

The store operations dilemma is real. Like it or not, the bar has been

raised and store operations executives need to be in shape to clear

the hurdle. Leading retailers are able to make sense of the complex

relationships that exist in store, recognize the criticality, and have the

capability to adopt a Store-back operations approach. Those who have

not yet recognised the imperative of Store-back operations may fail to

deliver the appropriate shopping experience for their customers, which

is ultimately likely to reflect in rising costs and falling sales.

Anoverridingobjectiveofthisframework

istokeepthesolutionssimpleand

pragmatic,yeteffective.


HighlightsThe store operations dilemma: The bar has been raised

What is the store operations dilemma? (See figure 1). Put simply, the

Operations Management of a store is a sensitive balance between two

things:

(i) Meeting customer needs: (demand)byprovidingtherightgoodsandservices,attherighttimeintherightwaytoanagreedandacceptedservicestandard

(ii)Managing resources:(supply)inanefficientandeffectivewayinordertomakeaprofit.i

1. So what are the demand drivers to meet customer needs?

An emphasis on demand side innovations: An increase in customer

demand for service has a direct impact on the cost of delivery, and the

two are diametrically opposed. Results from a recent IBM Global Retail

CEO surveyii show that retailers have traditionally focused on demand

side issues at the expense (or lag) of the supply side ones (see figure 2).

Figure 1: The store operations dilemma

A sensitive balance between two things

Meeting customer needs

Managing resources


Highlights

CEOsbelievethatproductsandservices

arethemainpointsofdifferentiation,and

strivetofindnewwaystocreatevaluein

thoseareas.

This can result in an underinvestment in operations, which in turn

leads to tactical short-term point solutions rather than enduring

strategic ones. This lack of insight means many operational changes

are often only partially implemented, the true impact is not really

understood, quantified, or benefits realised, and any appetite to finish

the original initiative fades before completion, particularly where it

spans planning and budgetary years. For retailers with a large store

portfolio the multiplier effect is dramatic and the cost of change

comparatively high, but the cost of ignoring the need to change and

thus operating in a sub-optimal way, will be even higher albeit not

always immediately visible.

Figure 2: Emphasis on products and services for innovation

Retail CEOs believe their main source of innovation comes from a traditional focus on products and services

What CEOs are saying:

“We start from the product concept and move to the business model and operations that best fit.”

“Products and services are the source of our existence.”

“Our prime focus is always the customer, and hence ‘Products, Services & Markets’, the rest has to follow.”

“Mass market is strong but focus at top and bottom end is critical. Looking at new services.”

Products, services and markets

Operations

Business and enterprise models

23%

13%

65%

Source: IBM Global Business Services “Expanding the Innovation Horizon: The Global CEO Study 2006”.


HighlightsCustomer satisfaction: An earlier surveyiii demonstrated that

interactions with store employees and certain elements of the in-store

experience were the most important groups of drivers of customer

satisfaction (see figure 3).

More than ever before, retail staff need to be responsive to the demands

of customers, who require convenience accompanied with reliable

delivery. Many customers have greater access to information and are

generally better informed, which now puts even more pressure on staff

to manage expectations of those customers and to have comparable

product and service knowledge available when needed. The challenge

is how to achieve this.

Figure 3: Relative importance of key drivers of customer satisfaction

Note: Scores above 110 indicate statistically significant correlation to level of customer satisfaction. Source: ‘Making CRM Work for Retailers Survey’, IBM Institute for Business Value, 2002.

Store experience

Person-to-person experience

Pricing and value

Marketing and communications

Data integration and analytics

0 50 100 150 200 250 300

21

38

47

122

272

Consumers are clear about what drives their satisfaction


HighlightsThe retail store environment: In an attempt to differentiate, many

retailers are investing in innovative store design concepts that enhance

the shopping experience while making it easier for the customer.

Shopping is becoming a form of entertainment, with some retailers

putting as much effort into the theatrical experience of shopping within

one of their stores as they do into the products and services they offer.

However, many retailers still do not truly understand the knock-on

impact of these design changes.

Customer centricity: It is no longer reasonable to rely on the overused

concept of an ‘average customer’, as they have all but disappeared. Instead,

increasing customer diversity and individualism are creating significant

demand complexity. Retailers need to be flexible and responsive to all

customer demands and changing requirements. Stores need to be easy to

shop, convenient, and open when the customer wants them to be open.

2. What are the supply drivers for managing resources?

Labour force challenges: The retail store operations landscape is made

up of a complex mix of labour intensive tasks, activities and processes,

and retailers have been slow to address the operational opportunities

afforded by automated scheduling and technology. For some retailers,

labour turnover is so high that new hires don’t stay long enough to have

completed their basic training before they leave.

Retailersneedtobeflexibleand

responsivetoallcustomerdemandsand

changingrequirements.

Store-back operations Tackling the store operations dilemma

HighlightsThis problem is exacerbated as most retailers operate with employees

that are paid on or near minimum wage rates, and retail is seen as dull

and unattractive to graduatesiv. Store labour is usually the single biggest

cost to a retailer, yet training and development is the first to be cut when

high staff turnover inhibits investment.

Innovation and technology: From the recent IBM Global CEO Studyv it

emerged that while focusing on products and services innovation, many

retailers are missing an opportunity for operational and business model

innovation (see figure 4).

Technologyfacilitatesinsightdevelopment

andknowledgesharing,andenablesnew

waysofdeliveringproductsandservices.

Figure 4: Traditional approach to innovation topic areas

Some retail CEOs are beginning to question the wisdom of the traditional approach…

“Business Model is drastically changing and innovation is very important for this.”


“In a broader prospect for the future, the business model will become predominant”

“All three elements are deeply interwoven

– all three have to work. Innovation is important in all these areas!”

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0% Retail All industries

Business and Enterprise Models

Operations

Products, services and markets

While focusing on products and services innovation, many retailers are missing an opportunity for operational and business model innovation

Percentage of respondents choosing as top innovation priority

Store-back operations Tackling the store operations dilemma

Highlights

Figure 5: The integration gap

79% of retail CEOs believe that business process and technology integration is of significant to critical importance


100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%Believe integration is of

significant to critical importance

How important is a more comprehensive integration of business and technology for driving innovation?

Integration of business and technology is one of the most important enabling features of innovation

Only 43% of the retailers have integrated business process and technology to a large extent

The integration gap:

“There is a huge gap currently” “We need to evolve more quickly”

What CEOs are saying

Integrated to a large extent

Integration gap

43%

79%

To what extent has your organization integrated business and technology more comprehensively to innovate ?

The same study recognised that technology facilitates insight

development and knowledge sharing and enables new ways of delivering

products and services, and that the integration of business process and

technology is one of the most important enabling factors of innovation.

However, retail CEOs recognised that there is a significant gap and a

need to move more quickly (see figure 5).

The traditional focus by retailers on product and service innovation

at the expense of operations is wholly understandable, but flawed as a

long-term strategy. The piecemeal approach will continue to reinforce

the imbalance between customer needs and managing resources, thus

embedding the operations dilemma within the DNA of the business.

Store-back operations Tackling the store operations dilemmaPage 1�

HighlightsStore-back operations: Five thematic connectors

To combat the effects of the store operations dilemma, I would advocate

that retailers should take a holistic store-centric view, working back

from the desired end-state outcomes in store towards the supply and

support facilities that service the store. This ‘Store-back’ approach will

help retailers make sense of the complex store operations landscape

by viewing it through the lens of five higher level thematic connectors.

These thematic connectors have regularly surfaced as being enduring

and significant throughout consulting engagements, and provide a

new perspective on how retailers can organise their operations. They

liberate the store operations function from conventional silo thinking,

and add value and insight when reviewing processes. They focus on

the relevant content first rather than on the underlying technologies,

and challenge the unhelpful language, labelling and terminology

traditionally used in this landscape.

Store-back operations is not a ‘one size fits all’ approach. As retail

chains introduce more variants of format, this ‘dynamic alignment’vi

and matching of process to format to accommodate the differences

and optimise performance becomes important. The need to hide

behind reduced variation and complexity for IT convenience is no

longer acceptable and a prerequisite is to make provision for tailored

information and applications.

Retailersshouldtakeaholisticstore-

centricview,workingbackfromthedesired

end-stateoutcomesinstoretowardsthe

supplychainandsupportfacilitiesthat

servicethestore.


Highlights

Figure 6: High-level thematic connectors

Self ServiceSelf Service PaymentPayment

A new perspective on how to view store operations

Information when and where needed

Closely coupled retailing

Self service Payment Management and leadership

Source: IBM Global Business Services analysis

The five high level thematic connectors comprise:

1 Payment:payingforgoodsandserviceswithcashorotherinstruments,inpersonorviaelectronictransfers

2 Self Service:wherethetransactionisconductedbythecustomer(eithersupervisedorunsupervised),onorofftheretailer’spremises

3 Information when and where needed:Informationtheuserneeds,intheformthatismostappropriatetothem,providedviathemostsuitabletechnology(includingpaper)preciselyandwhentheyneeditandwilluseit

4 Management and Leadership:themosteffectivemechanismavailabletoimpacttheperformanceofastore

5 Closely coupled retailing:recognisingtheintegratednatureoftasks,activities,processesandtechnologytoensuretheywork(seefigure6).


HighlightsThese five connectors can embody your brand values, customer

propositions, service levels, and attitude to risk, in fact your whole

organisation’s world-viewvii. They are overlapping, inclusive, and

complementary, without hierarchy but intrinsically closely coupled.

Lower order thematic connectors such as ‘loss prevention’ or ‘workforce

management’ will emerge as being important, but will be influenced

ultimately by the higher level connectors. To take each connector in turn:

1. Payment

Payment, and in particular queuing to pay, still remains the biggest

single source of customer dissatisfaction, attracting even more

complaints than the price of goods and services, yet of course it is

essential to the shopping process and almost all customer transactions

that take place in a store still conclude with a payment.

Payment using near cash substitutes (i.e. cheques and debit/credit cards)

is rapidly approaching 50 per centviii of all transactions although there

is some regional variation (for example Ireland in particular where cash

transactions are more frequent). As cashless electronic payment methods

are becoming more prevalent in store, consumers are likely to adopt

new and innovative ways to pay such as via mobile phones, contactless

devices and, more controversially, biometrics. The growth of transactions

through other channels and devices such as kiosks, online (including call

centres) and mobile phones continues, but these still require a payment to

take place, including payment on account, so payment is an all pervading

process and should be considered in this way. Despite this ‘cashless’ shift,

the management of cash, its handling, security and propensity for fraud

and loss, still remain big corporate issues for retailers.

Viewing operations processes through a payment lens logically connects

the processes which have the same components. It recognises similarities

and opportunities for simplification of common ‘elements’ and promotes

a clear understanding of the various complexities, both from a customer

and staff member perspective, of tendering, credit checking, and dealing

with coupons, vouchers and loyalty points. Despite similarities, gift

cards, store value cards and credit cards all operate in different ways, and

refunds continue to be a source of difficulty for retailers especially as

the items presented in store might well have been purchased through a

different channel, or even a different retailer. It may also be necessary to

capture additional information such as address details for a delivery or

licence registration.

SomeretailersstillviewtheirPointofSale

systemasmerelyanelectroniccash

register.


Highlights

Payment: Corney & Barrow – ‘Buy me a drink.co.uk’

Corney & Barrow, one of London’s Financial District’s largest bar operators, has joined forces with buymeabeer.com to make it possible for people to buy their friends a drink online. These drinks may be “virtual,” but they still quench the thirst after a hard day at the office. Users select a drink (by glass or bottle) and pay by credit card, after which a text message (SMS) with a code is sent to their friend. The happy recipient then presents his or her phone with their virtual voucher to any Corney & Barrow bar to redeem their free drink. Ed Gardner, marketing director of Corney & Barrow Wine Bars says,

“Buy Me a Drink has been a huge success for both Eagle Eye Solutions and Corney & Barrow over the last twelve months. With changing lifestyles seeing increasing use of mobile technologies, we recognise the potential for growth and expansion of such an innovative product. We are excited to be at the forefront of our industry in the use of modern technologies to support what is essentially still a people led business.”

Source: coolbusinessideas.com ix

Payment: SHOP SCAN SAVE – Jacksons Stores

SHOP SCAN SAVE is a revolutionary way for consumers to save money on their shopping by using their mobile phone. It is simple to join. To subscribe text ‘JOIN’ to a pre-determined number and seconds after subscribing, a unique membership barcode is sent to your mobile phone. Alternatively you can request a barcode online. SHOP SCAN SAVE club members receive weekly offers from leading brand owners such as Unilever, Masterfoods, P&G and News Group International. The offers are received via text message or, for owners of newer phone models, as an MMS. There are no charges associated with receiving the club text messages or utilising the service. It is also possible for you to request offers direct to your mobile. If there is a product on your shopping list that you would like to receive a discount for, just text the product to a pre-determined number, and they will send you a relevant offer for that category. For example, if you would like to purchase washing powder, text

“washing powder” and an offer will be sent to your mobile immediately. To redeem any promoted offer, SHOP SCAN SAVE members simply show their membership barcode at the check out at Jacksons Stores. The cashier scans the membership barcode once and the discounts are applied automatically to your purchases. Simply, Shop Scan and Save.

Source: Shopscansave.com x

Some retailers still view their Point of Sale (POS) system as merely an

electronic cash register, and fail to manage queue lengths at the checkout.

It is important to recognise that this is no longer appropriate. Instead,

retailers need to overcome their resistance to change and embrace the

emerging payment devices into their store operations, and understand

how this will impact associated processes such as cash management

arrangements. There will also be a growing need to be able to account

financially for sales arranged via a website but picked-up in store.


Highlights2. Self service

One of the biggest shifts in retail history was the move from ‘being

served’ by store staff to customers ‘serving themselves’. Now, several

decades on, self service as a method of operation has been truly adopted

by consumers and is no longer viewed as a second-class service. This

‘McDonaldisation of Society’xi, can be witnessed at ATM’s, during

theatre and cinema ticket booking and purchase, airline self check-

in, and fast food restaurants. Yet retailers are at an early stage in

truly understanding, implementing, and exploiting ‘self service’. The

underlying processes of self service, be it self check-in at an airline or

self checkout at a supermarket, are the same, yet the retail industry is

slow to learn lessons from other industries, or to understand the benefits

of having customers do work that you once had to pay staff to do.

The impatience of retailers to see quick returns on technology

investment deters those less technologically innovative, and there is

evidence that insufficient attention is paid to critical topics such as the

in-store location of self service devices, usage rates, queuing, and the

adoption and training of staff – which is as important as the adoption

and training of customers. However, how often have you witnessed a

hand-written note stuck to the screen of a kiosk with the words ‘OUT

OF ORDER’? ‘Self service requires service’xii especially as pressure

on operations cost is likely to accelerate this trend. Broken technology

undermines the reliability and security perception for both customers

and staff.

Eachretailorganisationneedstodevelop

thecapabilitytoimplementself-service

processesandpractices.


Highlights

Self service: METRO Group

The METRO Group’s sales divisions have adopted “Self Check-outs” which have now been installed in more than 50 Real hypermarkets and Extra supermarkets. In August 2005, the sales division started testing a new “Future Check-out” with separate scanning and pay stations. “Information Terminals” are being used in all Galeria Kaufhof stores. Metro Cash & Carry also employs future-oriented technologies to modernize its stores and, among other things, has been using a simplified version of the “Personal Shopping Assistant” since the end of 2005. Source: METRO Group xiii

Vending, self selection, self scanning, personal shopping assistants

(PSAs), self checkouts, kiosks and websites, are all ‘self service’

approaches. When combined with payment functions, they typically

require a ‘key’ (such as user name, password, account or customer

number, or payment or loyalty card). Inevitably, this involves collecting

and using personal data about the customer (name, address, banking

details etc.), with obvious consequences for security, confidentiality,

and of course links to loyalty and reward programmes. There are

further concerns regarding shrink and loss prevention, as well as the

associated complexities of restricted age related goods such as alcohol,

medication, and knives.

Each retail organisation needs to develop the capability to implement

self service processes and practices, but will first require a thorough

understanding of its current shopping processes so as to assess the

benefits. This also extends to having the technology appetite and

know-how, and the ability to make the necessary extensions and

developments to POS, if it is to support initiatives such as self checkout.


Highlights3. Information when and where needed

Whether it’s the whereabouts of a pallet; the contents of a roll cage; the

ingredients of a Chicken Korma (does it contain nuts?); or “how close

am I to this week’s sales target?”, almost all everyday retail questions

rely on timely and accurate information being provided when and

where the user needs it. Most retailers differentiate between systems

designated ‘back office’, or ‘front office’, and label devices as being

specific to a location, role, or area within the store. This preoccupation,

based on the days when systems were stand-alone and without the

capability to be integrated, stifles creative thinking and limits the

options available.

In most cases the information requirements of store staff will be

treated the same regardless of their role, specialism, or needs, and the

retailer continues to provide them with a single view of information

that probably meets none of their individual needs as well as it could.

Systems also have to cater for staff with flexible working patterns who

do not work core hours. It is also traditional to assume that devices can

only be used by either staff or customers. However, in the modern world

there are many more possibilities. For example, a device like a kiosk

could just as easily be used by a member of the overnight fill-up team

to check information on facings and merchandising arrangements as it

can by a customer who wants to place that important wedding gift order

during the day.

From analysis I have conducted during recent consulting engagements,

the ratio of non customer facing store staff activities when compared

with customer facing ones can be as high as 65:35. When asked the

price of an item, its availability, or the size and colour variations, the

sales assistant often has to leave the customer ‘stranded’ on the sales

floor while they go back shop to find out. During slow periods, cashiers

could access data at the workstation they use most frequently (i.e. the

POS), which could then be extended to the customer through trolley

mounted devices that give the latest information on serving suggestions,

ingredients, or product specifications as they are in front of those goods

in store. When linked to customer data (from the previous section) this

could provide a powerful view of the customer, their buying habits and

product selection.

Whenaskedthepriceofanitem,its

availability,orthesizeandcolour

variations,thesalesassistantoftenhasto

leavethecustomer“stranded”onthe

salesfloor.


HighlightsThis “Information” connector contains most of the activity related to

stock. Volume, quantity, location, shelf life, price, and expected delivery

dates are all examples of the stock related attributes that are needed to

manage the supply chain. So the focus here is on the information about

stock rather than its physical handling, which would be the subject of a

lower level connector.

If a retailer’s systems do not satisfy the information needs of its store

operations teams, and if their store staff do not believe the data

provided but just tolerate what they get, then it may be time to assess the

‘true’ value (or cost) of such systems.

Information when and where needed: Boots The Chemists

Boots, the UK’s leading health & beauty store, has developed an in-store employee portal to help store managers and their teams to deliver better customer service. Accessible through check-outs and personal digital assistants, the portal will provide Boots store managers and teams with access on demand to training materials and personalised advice to complete tasks in progress more efficiently. The initiative is part of Boots’ strategy to simplify internal processes, giving staff more time to assist customers on the shop floor. The portal will be the foundation for quick and simple delivery of a wide range of information and applications, enabling stores to be run more efficiently and profitably. Materials available will include advice on serving customers, managing constant stock availability on store shelves, and driving sales plans.

Customer appeal is founded on Boots’ heritage of expert service and advice. Boots is empowering store managers and their teams with the tools they need to drive the outstanding retail offering. Integral to the project will be input from key Boots store staff who are being consulted on the type of information they need on a daily basis to serve customers more efficiently. The Boots employee portal will drive new levels of customer service and productivity for Boots, empowering store staff to deliver the optimal shopping experience for sophisticated consumers. It enables Boots to exceed customers’ demands and maintain its leadership in the market.

Source: Boots, & CRM Today xiv

Store-back operations Tackling the store operations dilemmaPage �0

Highlights4. Management and leadership

The most influential ‘lever’ to pull within a store to have a significant

impact on its performance is the store manager. You only need to

check out the demeanour of the store staff, the eye contact and smiles

exchanged with customers, and the appearance and environment

of the store, to know how effective the manager really is! In smaller

retailing chains the store manager is expected to be a ‘jack of all trades

and master of them all’, but is expected to achieve this with minimal

support, guidance and training. Specialists like pharmacists can often

find themselves ‘managing’ the store by default as the most senior

member of staff, but they may not be the most experienced retailers.

Information that is made available to store managers usually lags

behind actual trading patterns, is difficult to access, and requires

considerable ‘interpretation’ to make it useable for that specific store.

However, we know from consulting assignments that the value to the

retailer of bringing the bottom 25 per cent of stores in a large estate up

to at least an ‘average performance’ can be phenomenal and therefore a

prize worth pursuing.

“Changing stores is like herding cats” according to Forrester Researchxv,

which describes the importance of store managers understanding

new behaviours in store and, more importantly, why any new process

should be adopted. If they don’t understand fully, they can adapt

it in ‘unintended ways’ thereby undermining the initiative. This is

particularly relevant where a change in behaviour is required. Good

managers intuitively do the right things but the real challenge is

to embed good shopkeeping principles into a less capable manager.

Themostinfluentiallevertopullwithina

storetohaveasignificantimpactonits

performanceisthestoremanager.


HighlightsInvolvement in developing new initiatives and degrees of flexibility

within guidelines for particular stores will be beneficial.

Supporting store managers by providing guidance, leadership, and

training for them is essential in creating a successful store. Burdening

store managers with centrally generated problems often prevents them

from focusing on store related issues.

Management and Leadership: The Reject Shop – Australia

With more than 100 outlets across Australia, ensuring fast and consistent communication from head office and area managers to stores was becoming an increasing challenge. Business need: Decrease costs, improve productivity and enhance customer service through a centralised communication system and more effective staff and inventory management. Make a complicated back-office environment easier to support and manage. Solution: Using IBM WebSphere Portal – Express, The Reject Shop worked with IBM and business partner Synergy Plus to make applications available through a portal that can be managed centrally. Benefits: Dramatically improved decision-making, resulting in reduced costs, increased productivity, better relationships with customers, partners and suppliers and more uniform customer service and store presentation.

Source: IBM xvi

Store-back operations Tackling the store operations dilemmaPage ��

Highlights5. Closely coupled retailing

A retail store is a closely coupled unit relying on multi-tasking

individuals who can work seamlessly as a team, yet few retailers fully

understand the complex interrelationship between customer arrivals at

the store, the shopping/browsing time around the store, queuing at the

point of sale, completion of the transaction (including payment), and

then exiting the store. The relationship between these factors needs to

be understood as a change to process or procedures in one part of the

store will invariably have a corresponding impact somewhere else.

In an ideal world, retail locations should be planned, optimised, and

well thought through. However, with the exception of green field sites

with an opportunity for planning with a formulaic approach, retailers

often ‘make do’ in inappropriate surroundings and ignore the learnings

from the ‘retail anthropology school’xvii. At worst, stores have to

maximise service on limited budgets with minimum staff operating

labour intensive procedures, in premises that carry the legacy of a

property purchased in a different era which is not ideally suited to a

modern retail environment.

Closely coupled retailing – Marks & Spencer

Marks & Spencer’s customer conversion system builds on a simple equation – the number of transactions divided by the number of customers that have entered a particular store. The most important metric the conversion rate can give is to show “how many people are NOT buying”, therefore giving a measure of “missed conversions”. Conversion measures the success of change and as such is a tool to measure in-store innovation, be it in-store layout or getting the right staff in the right place at the right time. In a store such as M&S a basket can contain multiple items from different departments. M&S is now able to measure conversion rates by department, giving it an innovative capability to give departmental conversion rates and departmental transactional analysis.

Source: Taken from a presentation by Bill Donald (M&S) at an IBM Event 25th April 2006

Achangetoprocessorproceduresinone

partofthestorewillinvariablyhavea

correspondingimpactsomewhereelse.


HighlightsIntegration of data and the customer insight that can emerge from it

becomes key as the sophistication of the offer and service increases.

From this derives understanding of seasonal demand, staff allocation

and scheduling. The role of the store in multi-channel retailing relies

on the integration of data, and timely and real-time information.

Systems have to talk to each other and be dynamic, easy to use,

and tailored to the end user’s role. Figure 7 shows a typical store

operations landscape and the relationship with some of the supporting

technologies.

Figure 7: Store operations landscape and supporting technologies

• Personal Shopping Assistant

• Kiosk

• Intelligent scales

• Self check-out

• Chip & Pin

• PoS • Biometrics

• Cash management

• Contact-less

• Workforce management

• Price optimisation

• Managers workbench

• Performance reporting

• Digital Media

• Portals (Employee etc.)• Head Office / Store communications

• Electronic Shelf-Edge Labels

• Wireless

• Radio Frequency Identification

Self Service Payment

Store Management and Leadership

Information when and where needed

• Data Integration• Know your customer (Loyalty/Insight)

• Store layout and design

• Facilities Management

• Integration of products and services• Store Integration Framework /

Technology Integration

• Loss Prevention

Closely coupled retailing



HighlightsToo frequently retailers install technology in stores without it being

fully tested, and/or fail to gain the cooperation, understanding, and

buy-in of the store teams, and/or fail to recognise the dynamic between

a change in processes and the labour content required. Retailers need

to understand, for example, the connectedness and real impact that

Christmas packaging of products has on queue lengths in store because

the POS scanners can’t read the barcode through the additional

cellophane.

Store-back operations capability framework

Great retailers have already recognised that success in store operations

depends upon developing critical capabilities to address the operations

dilemma. So how does your organisation compare against the best?

IBM has developed a capability framework (see figure 8) to act as a

checklist to help any retailer assess its capability and compare itself

against the best. The framework is grouped into four topics: Processes,

Organisation, Technology, and Information, as follows:

Processes• Understand your customer and shop keeping processes in detail:

Youneedtoknowwhattasksandactivitiesmakeupyourcustomerandshopkeepingprocesses,andhavedetailedworkmeasurementandmethodstudydataforthoseprocesses.OperationsManagementisadisciplinewithamaturebodyofknowledgealongwithsuitabletoolsandtechniques,andiswellworthembracing.

• Recognise and respect the closely coupled processes and practices

in store: Beawareofandrecognisetheimpactofintroducingnewmethods,approachesandtechnologytothefinelybalancedecosystemwithinastore.

• Learn from process failures and strive for ‘excellence in execution’:

Whenthingsgowrong,capturethelearningandbuildtheresolutionintofutureworkingpracticesinorderto:

–Generatemoretimewithcustomersonthesalesfloor –Driveandsupportstoreperformance –Improvecustomerservice

Greatretailershavealreadyrecognised

thatsuccessinstoreoperationsdepends

upondevelopingcriticalcapabilitiesto

addresstheoperationsdilemma.


HighlightsOrganisation

• Make the focus the store and customer – not the head office: Don’ttolerateheadofficecentricity,althoughthisisnotacallforanarchy.Focusfirstonthestorenetworkwherethemajorityofstaffandthecostsare;wherethereismostneedforaccurateinformation;andwhichismostvisibletocustomers.Ensurethattheheadofficehasastoressupportfocus.

• Enable store managers to be leaders: Givemanagersthetools,techniques,andtrainingtomanagetheirstoreinthewayyouwantitmanaged.Embedgoodshopkeepinginyourpractices,systemsandprocedures.

Technology• Ensure your systems and IT support your store operations

requirements: Tailorin-storesystemstodifferenttradingformats.Storesystemsshouldnotmakeupforpoorin-storeprocessesor,evenworse,poorcentralprocessesandsystems,butshouldbeanenablertoimprovethecapabilityofstorestafftodelivercustomerserviceefficientlyandeffectively.Thestore’smainfocusistoservecustomers–nottomanageinternalprocesses.

Information• Ensure effective communications between head office and stores:

In-storestaffmightbenewjoiners,part-timersorevennotemployeesofyourorganisation,sorecogniseandsatisfyeveryone’sinformationrequirements.Determinetheappropriatecontent,identifytheaudience,andusethemostappropriateinformationchannel.

• Understand how you compare to your competitors: Morethananyotherindustrysector,retailerstakegreatcomfortfromappearingliketheirpeersintheindustry.Developeffectivemechanismstoevaluateyourcompetition.

• Keep abreast of developments in your industry and others: Usetrustedadvisorstohelpyouunderstandyourmarketandindustryfoci,andtobenchmarkperformance.

• Keep it simple, pragmatic, but effective: Whileinherentlybecomingmorecomplex,retainasimplisticapproachtosolvingproblems.

Focusfirstonthestorenetworkwherethe

majorityofstaffandthecostsare;where

thereismostneedforaccurate

information;andwhichismostvisibleto

customers.


HighlightsHow to develop the capability to adopt a Store-back approach:

Next steps

Adopting a Store-back approach and developing the capability is not a

formulaic exercise that can be approached as with ‘paint by numbers’. It

requires an organisational maturity and shared understanding capable

of providing the support to make it truly successful and avoiding a

blame culture. It will require cross functional working and cooperation;

clarity of vision and brand values which are communicated well and

frequently; a thorough understanding of the ‘art of the possible’; and a

disciplined change management regime. This is analogous to replacing

the central nervous system of the business without impacting trading

and thus keeping the business alive. Having assessed your current

ability and appetite to operate a Store-back operations approach, I

would recommend three practical steps:

Figure 8: Store-back operations capability framework

Understand your customer and shop keeping processes in detail

Recognise and respect the closely-coupled processes and practices in store

Learn from process failures and strive for ‘excellence in execution’

Make the focus the store and customer – not the head office

Enable store managers to be leaders

Ensure your systems and IT support your store operations requirements

Ensure effective communications between head office and stores

Understand how you compare to your competitors

Keep abreast of developments in your industry and others

Processes

Organisation

Information

Technology

Keep it simple, pragmatic, but effective


Thisisanalogoustoreplacingthecentral

nervoussystemofthebusinesswithout

impactingtrading.


HighlightsStep one

Undertake a store diagnostic to increase your awareness of problems

and enable you to recognise the symptoms of excessive costs,

inadequate outputs, falling sales, discontent of personnel, delays

and high or low stock levels. The purpose of the store diagnostic is to

establish the facts and collect real evidence that supports empirical

observations. Include interviews with customers, store managers and

staff of all levels in all functions and departments – on an anonymous

basis. Ensure that a representative sample of store types and formats

is included in this data gathering and recognise the real differences

between them. Collate the data in appropriate words, tables and

graphs and be clear about the source. This will be an iterative process

of recording and collating in order to establish a clear and accurate

picture.

Step two

Generate and evaluate possible solutions to the high-priority issues you

have identified. Start small by developing store laboratories in which

to develop, test and learn from your investigations. Involve your store

staff in the problem solving and design process, as they have valuable

insight into the current methods and first-hand experience of the

problems. Moving from the hypothetical to the practical, test, measure

and evaluate the possible changes to process, procedures and the

technology implications, ensuring the compatibility with brand values

and customer propositions. This is a continual process of

‘Plan – Do – Review’.

Step three

No matter how impressive the solution, it is wasted if not properly

implemented. Positive and regular communication is a prerequisite

and the technical elegance of the solution will not be sufficient. Secure

buy-in from store managers. Establish training and development

material, ensure the appropriate equipment and facilities are available,

and be aware that some modifications might well be required during

implementation. It is important to recognise that no process remains

static, so implement feedback loops and review mechanisms to ensure

that the changes remain fit for purpose.

Thepurposeofthestorediagnosticisto

establishthefactsandcollectreal

evidence.

Test,measureandevaluatethepossible

changestoprocess,proceduresandthe

technologyimplications.

Nomatterhowimpressivethesolution,it

iswastedifnotproperlyimplemented.


HighlightsConclusion

The store operations dilemma is real. Like it or not, the bar has been

raised, and store operations executives need to be in shape to clear

the hurdle. Leading retailers are able to make sense of the complex

relationships that exist in store, recognize the criticality, and have the

capability to adopt a Store-back operations approach. Those who have

not yet recognised the imperative of Store-back operations may fail to

deliver the appropriate shopping experience for their customers, which

is ultimately likely to reflect in rising costs and falling sales.

To access publications on related topics or to browse through other

materials for business executives, please visit our web site:

ibm.com/bcs/retail

Related publications

• “Theretaildivide:Leadershipinaworldofextremes.”IBMInstituteofBusinessValue.July2004.

• “Thecustomer-centricstore:Deliveringthetotalexperience.”IBMInstituteofBusinessValue.2005.


HighlightsAbout the author

Dr Brad Poulson is an acknowledged retail industry thought leader

and regular industry commentator, speaker and author specialising

in retail operations, customer facing technology and business process

design, working at the intersection of information technology and

organisational change. He is the leader for store solutions and

operational performance for the IBM Global Business Services Retail

Practice in the UK, Ireland, and South Africa.

In a career spanning 26 years Dr Poulson has held executive roles in a

number of leading retail and financial services organisations. Prior to

joining IBM he was CIO for a large building society, and more recently

Business Systems Director for a well known high street retailer. He

divides his spare time between a variety of research, writing, public

speaking and lecturing.

He combines a unique blend of practical experience and academic

insight and is committed to helping organisations develop their

business change and process capability through the strategic

application of information technology.

Dr Poulson has served as Deputy Director of the Centre for Enterprise

Systems Research (CESR) at Nottingham University Business School;

is a visiting lecturer in Information Systems Strategy, Management

and Technology at Warwick University Business School, and has also

served as a Director of the ‘LINK’ Interchange Network. He holds

a PhD in Industrial & Business Studies from Warwick University

Business School, where his research examined the decision processes

organisations go through to adopt commodity business processes. He is

a member of a number of Retail IT Advisory and User Group Boards in

Europe and North America, and a regular speaker at conferences and

seminars. Dr Poulson’s current research interest is the adoption of ‘self

service’ technology in the retail industry.


HighlightsAbout IBM Global Business Services

With consultants and professional staff in more than 160 countries

globally, IBM Global Business Services is the world’s largest consulting

services organisation. IBM Global Business Services provides clients

with business process and industry expertise, a deep understanding

of technology solutions that address specific industry issues, and the

ability to design, build and run those solutions in a way that delivers

bottom-line business value.

Endnotes i Based on: Johnson J., Chambers S., Harland C., Harrison A., and Slack N. (1993).

‘Cases in Operations Management’, Pitman, London.ii Expanding the Innovation Horizon – The Global CEO Study 2006. IBM Business

Consulting Services.iii Person to person experience factors included: has helpful employees, knowledgeable

employees, employees available to answer questions. Store experience factors included: has stores that are well designed, has the highest quality merchandise, always has the products in stock that I need. Source: ‘Making CRM Work for Retailers Survey’, IBM Institute for Business Value, 2002.

iv Source: 1044 graduates aged 21-35. Published 12/8/2004. Teacher Training Agency (The Times 13/8/2004)

v Op cit (ii)vi Gattorna J., (2006). Living Supply Chains: How to mobilise the enterprise around

delivering what your customers want. Prentice Hall, London. Gattorna describes the concept of ‘dynamic alignment’ – where supply chains should be capable of endless adaptation and reconfiguration.

vii Checkland, P. and Scholes, J. (1990). Soft systems methodology in action. John Wiley & Sons, Chichester.

viii APACS: http://www.apacs.org.uk/payment_options/cash.html. Note: Many retailers are already reporting that they have reached 50 per cent of transactions with near cash substitutes.

ix www.coolbusinessideas.com/archives/buy_me_a_beer.htmlx www.shopscansave.com/home.htmxi Ritzer G. (1996) The McDonaldization of Society. Pine Forge Press, California.xii “Self-service requires service” is Robert Wenig’s motto. Wenig is the cofounder and CTO

of TeaLeaf Technology Inc., a San Francisco-based firm that specializes in managing Web applications.

xiii www.metrogroup.de/servlet/PB/menu/1067330_l2/index.htmlxiv www.crm2day.com/news/crm/EpllZVVAAkweUPZwoc.phpxv “Keeping stores innovative: Retail insights from Forrester’s Consumer Forum.” Nikki Baird,

October 2005.xvi www-306.ibm.com/software/success/cssdb.nsf/CS/GWAN-6J6584?OpenDocument&Site=xvii Underhill, P (1999). Why we buy: The science of shopping. Orion Business Books.

www.coolbusinessideas.com/archives/buy_me_a_beer.html

www.shopscansave.com/home.htm

www.metrogroup.de/servlet/PB/menu/1067330_l2/index.html

www.crm2day.com/news/crm/EpllZVVAAkweUPZwoc.php

http://www-306.ibm.com/software/success/cssdb.nsf/CS/GWAN-6J6584?OpenDocument&Site=

http://www.apacs.org.uk/payment_options/cash.html


Highlights

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