PRINTABLE VERSION HERE

Digital transformation remains a central topic of discussion for department stores. The IADS already dedicated its 2021 White Paper to the topic, trying to understand what was at stake and what was needed within department store companies to fully embrace the change. In order to bring a very down-to-earth angle to the conversation, the IADS invited Laurent Raoul to explain his views on digital transformation in heritage organisations in a new global context.

Laurent Raoul is the founder and managing consultant of XLc Consultancy Company, specializing in Supply Chain, Operating Models and Back Office IT systems dedicated to the Fashion Industry. He has run development or restructuring projects for brands belonging to main Fashion Groups in Europe or in the US, and for mass market and bridge brands or retailers.

Introduction: there is no such thing as “back to normal”

Retailers now live in a systemic world, which means that anything happening anywhere can have a worldwide impact. It is even estimated that a crisis is likely to happen every 12 to 18 months. As a result, retail operations are impacted by increasing chain reactions. ‘Heavy weather’ management becomes the norm, whether it’s to deal with natural disasters, financial crises, geopolitical uncertainties (if not wars) or the next pandemic.

In this troubled environment, past certainties fall short: it is no longer about being “big rather than small”, but about being “fast rather than slow”. Even though size will still matter, upcoming changes won’t be about the big companies eating the small ones, but about the fast companies overpowering the slow ones. To that end, they have to quickly change their methods in all aspects of the value chain and focus on raw data and back office operations, with extra attention put on IT management and knowledge.

Finance, planning, management, sales: it’s all about new agile methods

To manage companies’ transition and transformation, the most important words are resilience (obviously much-needed to mitigate crisis) and agility. While the word “agility” has become an overused blanket word, it still does mean something crucial for companies: the ability to go from situation A to B with both celerity (speed of transformation) and magnitude (depth of transformation).

The new finance: rolling budgets

In an unpredictable world, in which the coming year will probably not have much to do with the past year, is the usual yearly timeframe still important or even relevant for operative finance? Since Laurent Raoul discussed this matter with IADS member CEOs, the French newspaper Les Echos explained that the dogma of the budget completed at the end of the year to set the objectives for the following 4 quarters is over. Furthermore, it is increasingly considered that the usual budget management is becoming a growth inhibitor for companies.

Since Covid and even more so since the geopolitical and energy crisis, many companies have been calling for a more up-to-date and reliable forecast of their finances. Transforming management methods and tools is now a priority for many finance departments. Rolling budget tools develop as an answer: a few key indicators such as turnover, gross operating surplus, working capital requirements, etc… are updated each month or quarter. The method may vary as everyone has their own recipe and applies it totally or partially, generally keeping the annual budget exercise as a safety measure.

New ways of planning: the thinner, the more wrong

Should organisations better forecast or better react? As Eisenhower put it: “plans are useless, but planning is indispensable”. Nowadays in forecasting, it’s overall useless to go into details: the thinner and deeper they will go into details, the more wrong retailers will be. Still, forecasting remains very much relevant these days, but companies should not spend that much time and money on it in advance (no more planning quantities per SKU, store, and season) as situations are changing often and very quickly. Then a new concept emerges: “forcasgility”. It involves a better plan, better reactions and progressive engagement.

There are also 2 contradictory constraints to take into consideration, especially for finance teams. Procurement and production require early engagement to secure upstream supply, but distribution and retail increasingly engage as late as possible to better stick to sales. To tackle and anticipate the consequences of this contradiction, the supply chain should reverse. In short: we go from a front-to-back to a back-to-front system.

Velocity in transformation management

From a transformation perspective, unicorns’ work methods can inspire department store management teams. Such methods are making bureaucracy or heavy processes disappear from project and transformation management. New principles, work methods and tools should be promoted among teams.

The well-known ‘test & learn’ method is still relevant. Meetings should only be 4 people and never exceed 1 hour to ensure efficiency and decision-making. The ‘quick & dirty’ could even be used for some critical situations. KISS (Keep It Simple & Stupid), war rooms should also be considered. Also, POC (Proof of Concept), a demonstration of a product, service or solution in a sales context, could help show that the product can fulfil customer requirements and also provide a compelling business case for adoption.

Cross-channel operations 

The pre-tail (VICs, VIPs, influencers) is now a channel as much as a department store can be: B to C becomes a business in itself as B to B is. This means assortments and allocations have to be more precise and accurate than before, so working on arbitration is key. In that perspective, AI will be of some help to decide the most efficient product allocation, even more in case of product shortage.

Brands are also trying to build cross-category assortments, which is especially difficult as product categories work with different IT systems. Previously built in silos, operating models and IT systems tend to converge: it’s now visible in luxury brand collections with cross-category aesthetics, animations and market events, but also with seasonal and seasonless, short or long lifespan product cohabitation.

Raw data is the most important asset for the future

Back-office data for front operations

There are now countless CSR regulations to comply with. In France for instance, if retailers are not ready, fines will go up to €50,000. The level of information that should be provided will go up to tier 4 (at the animal level for wool for instance). The needed information for the front operations will come from the back-office supply chain data, using brands and retailers’ direct communication, partners, social media and apps, but also through governments and customs as well as coalitions and lobbies -up until the end consumers.

It’s a big change, as such information used to be kept in the back office. Strong agility and organisation in operations and IT will be required to bring data from back to front, in order to comply with the high number of rules and regulations. The fact that the product might be in licensing or sub-contracting won't make any difference when it comes to the data required. Of course, private labels will be considered the same way as national brands.

Regulation requirements and claims will be based on calculated KPIs such as the share of recycled and recyclable materials, main origin, etc… That is only the tip of the iceberg that we (consumers and retailers) see now. In fact, such information is rooted in the raw data: material scientific names, weight per unit, reference ID, batch ID, serial ID… All this data will have to be available, organized, and aggregated, to be available to consumers and regulators.

Which system for raw data?

From that perspective, an important question is to know in which system this raw data should be stored. For retailers, could it be in tier 1 and 2 internal applications such as their ERP? For brands, could it be in the internal applications such as PLM (Product Lifecycle Management) and the TMS (Transport Management System) for instance? Actually, none of them is able to aggregate all the countless information needed from the thread used in a piece of clothing to the garment’s overall carbon footprint. As third part upstream SaaS applications are already very much involved in retail companies, an aggregator is needed such as PIM (Product Information Management), data lakes or data hubs. It means the most critical information might be stored outside of the companies./nbsp]

Companies like Elementum (the provider of Apple, and considered as the potential successor to AWS) could become competitors for retailers and should be looked at. Elementum could lead the market upstream. In 2040, there might be a B2B equivalent to Uber, having no factory, and no physical business, but ruling all the business between brands and factories. Retailers could become a sort of taxi managed by Uber, with another company owning the most critical information needed to operate the business.

The importance of IT: people, knowledge and speed

A critical role in the digital transformation: the CIO

Companies are increasingly dependent on IT knowledge and IT teams. This is why the CIO position plays a pivotal and critical role in the transformation process. First of all, the CIO has to sit at the board and grasp what is going on. As a consequence, the CIO has to be a human being, which means he/she should be able to talk to the CEO and other stakeholders and make technical things clear to everyone. As a kind of teacher, he/she should give the appropriate wording and KPIs for the transformation project.

The KPIs assigned to the CIO should include speed, which is almost never taken into consideration, compared to cost or risk KPIs. The CIO also has to promote agile methods and avoid bureaucracy in IT: it is really toxic as IT sometimes ends up spending more time managing the process, rather than making sure the target is met.

In IT, the position and role given to consultants should be carefully considered. Even though they can help and provide important insights, consultants can be very dangerous if they manage architecture as it should be managed internally: it is too serious to be given to external companies.

The example of ERP implementation: speed and ‘state-of-the-art’, the double road map

A real-life case comes from companies looking for a new ERP system, like SAP, to transform their IT. SAP implementation is at least a 12 to 18 months project whereas speed is a key to success. But if speed is the only key, why would people work with SAP which is the slowest ERP? It might mean companies should pick the quicker solution rather than what is assumed to be the best one: it’s a paradigm shift.

In reality, retailers constantly need to adapt when it comes to digital transformation, which somehow forces them to invest in overpriced IT systems that they don't fully know how to use. It seems there is no alternative but there is an agile way to proceed with ERP implementation. Having a double road map works: this means running 2 projects at the same time. One team works in the short term with a first roadmap: it is not about being ‘quick & dirty’ here, or not even about quick wins, but it rather means quick solutions, first and second steps. In parallel, a second team is working on the medium and long term. Both teams are coordinated and discuss almost every day. The long-term team can use short-term quick solutions to help with the following steps of the project. Companies using this method have seen very good results.

Conclusion: agility in digital transformation is about speed

Laurent Raoul explained how digital transformation implies a paradigm shift in many ways. This shift involves new methods in all steps of the value chain: more flexible operative finance and planning, new management methods and cross-channel selling. At the time, the importance of data grows and is now necessary to front operations, only emphasizing the CIO’s critical role.

While agility has become an important value and skill (even more since Covid), speed is not taken into consideration enough when running digital transformation projects. Considering the inevitable crisis retailers and their teams will have to go through in the near future, and mandatory compliance with countless CSR regulations, speed might be the ultimate key to transforming a business and succeeding.

Credits: IADS (Christine Montard)