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06/07/2016

Tear Down Those Silos

Joe Skorupa
Editor at Large
Joe Skorupa profile picture
6/7/16
 
By Joe Skorupa
 
The time is right for retailers to tear down internal silos and the reason is simple: they have become barriers to agility and advancement. I am reminded of the message delivered by President Reagan at Berlin’s Brandenburg Gate during the Cold War: “Mr. Gorbachev: Tear down this wall!” The walls in retail are tech stacks, multi-channel infrastructure and functional silos. The message in each case is the same: time to tear them down.
 
Today, only about half of retailers have shifted away from a siloed tech stack for their enterprise systems (52%) and about the same number say they have done it for their customer-facing systems (53%). This means the other half has a lot of work to do to modernize its IT architecture to match the pace of fast-moving customer and competitive trends.
 
These concerning datapoints come from an RIS Custom Research report titled, “Unified Commerce Game Plan,” which examines retail’s shift toward a unified commerce strategy. We define unified commerce as having mostly consolidated databases on top of which software platforms manage core retail functions, i.e. merchandising, purchases/order management, supply chain, CRM/customer profiles, and others.
 
The shift toward unified commerce is not only a recommended strategy, it is necessary to replace legacy architecture that was not designed for today’s omnichannel world. The reason today’s legacy architecture is outmoded is that 63% of retailers say their channels were built internally one channel at a time (41%) or they rely on digital partners for managing/hosting parts of their multichannel business (22%). Essentially, today’s IT architecture is the sum of many parts added together in a piecemeal fashion.  
 
Why this happened is understandable because most retailers started out with stores and then the dot-com boom arrived and then m-commerce exploded and then social selling and then flash sales and then subscriptions and affiliate partners and so forth. No doubt there are more sales channels to come. The typical retail tech stack is a siloed amalgamation that is difficult to manage today and will be impossible manage in the future.
 
Understanding Unified Commerce

Unified commerce, which is an approach that RIS recommends, is a strategy that requires consolidation of databases and tightly coupling applications into interoperable platforms. This strategy includes modifying both enterprise and customer-facing systems, a two-pronged approach.

The term itself is relatively new, but the goal has long been a Nirvana-like vision for retail CIOs. Roughly 30% of retailers say they have already begun taking concrete steps toward achieving some level of unified commerce. This group consists of 12% who say they are currently in the process of consolidating databases, 15% who are currently in the process of both consolidating databases and deploying some software platforms, and 3% who say they have completed most of this work.

A third (33%) say they are in the planning and research phase of their unified commerce strategy and 27% say they have gone one step further by securing budget for their plan. All of this represents a great deal of activity devoted to unified commerce.

One of the key drivers of this IT activity is the widespread acceptance of cloud-based software, which is a key enabler of both application integration and the adoption of software platforms. Today, the largest group of retailers (29%) say that less than 5% of their IT budget goes toward cloud-based software, but in 2020 the largest group of retailers (39%) say that more than 35% will go toward cloud-based software.

This represents a seismic shift in strategy that bodes well for the creation of a more flexible architecture as well as a lifeline for retailers because cloud solutions can be deployed much more quickly than licensed software.

Other Key Takeaways

Important datapoints uncovered in the study include:
  • Topping the list of goals and objectives for shifting to a unified commerce strategy are implementing buy online pick up/return in store (46%) and real-time customer history/profiles (46%). Each of these objectives requires the kind of accuracy that can only be achieved by consolidating multiple databases (i.e. supply chain, POS, e-commerce, store systems, etc.) into a single view of the truth.
  • The top challenge that retailers need to overcome to successfully transition to a unified commerce state is to replace legacy systems (39%). Tied for second at 33% are avoiding complexity for store associates and managers and aligning execution with strategic vision.
  • Are retailers striving to develop “offline cookie” technologies that enable real-time shopper tracking and communication in stores? The answer is not so much. The biggest group (33%) says it is not on their radar. However, 21% are in the early research and planning phase and 24% plan to start by the end of the year.
  • There are so many pieces to the unified commerce puzzle that we wanted to find out which technologies retailers believe are key elements of a unified commerce plan. The top three are POS chosen by 82% followed by inventory management at 79% and e-commerce platforms at 76%. Tied for next highest on the list are three technologies at 58%: shopper profiles/purchase histories, marketing/promotion, and item master data management.
To see the full set of charts and insights click here to download the report “Unified Commerce Game Plan.”
 

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