Business Strategy Business Strategy: IDC PeerScape Retail Mobility Project Based Initiatives Leslie Hand IDC RETAIL INSIGHTS OPINION For the past half century, retail business growth has been achieved by opening more stores, broadening assortments, and automating processes to make shopping more convenient and valuable for the consumer. Satisfying customers today transcends place or time, and growth is dependent on continually creating "best experiences" the last best experience etched in the mind of the consumer every time a shopping journey is more extraordinary and engaging than the last. Mobility, a critical enabler of this "best experience," requires applications that will engage and inform consumers and increase employee productivity. Mobility brings with it significant complexity and a rate of change most retailers have never seen before. For those companies that have successfully deployed mobile solutions, the rewards have been greater customer loyalty and higher sales and profitability. On the other hand, those that have failed to meet customer expectations have seen abandoned "carts" and lost sales, and declining performance. So what are the foundations for mobile success? This report identifies five critical initiatives for retail companies deploying mobile solutions (see Figure 1). FIGURE 1 IDC PeerScape Mobility Executive Summary June 2014, IDC Retail Insights #RI249424
IN THIS STUDY For retail companies seeking new mobile solutions to build customer loyalty and improve business performance, this report highlights the five critical initiatives that can make or break your program. We examine several real-world retail deployments and identify the initiatives that will have the greatest impact on the success of similar projects. We also measure the impact of these practices in terms of their effect on revenue, customer satisfaction, and operational productivity and assess how difficult they are to deploy and maintain. SITUATION OVERVIEW The retailer's goal is to increase year-on-year revenue and profit by selling a range of goods that will continually satisfy changing consumer needs and improve consumer loyalty. For the past half century, growing the business has been accomplished by opening more stores, broadening assortments, and automating processes to make shopping more convenient and valuable for the consumer. Now, however, consumer expectations are based on their last best experience, and mobility provides some key components of this new shopping journey. But mobility demands much more than just creating a mobile-enabled ecommerce capability. It calls for capabilities that will engage and inform consumers and increase employee productivity. Mobility brings with it significant complexity and a rate of change most retailers have never seen before. For those that have successfully deployed mobile solutions, the rewards have been greater customer loyalty and higher sales and profitability. Those that have failed to meet customer expectations have seen abandoned shopping carts and lost sales, dramatically decreasing company value. Department store retailer Nordstrom is renowned for its high levels of customer service and customer loyalty. It was an early adopter of in-store mobile systems, as part of its commitment to maintaining the levels of excellence its customers expected, and has consistently been rewarded with improved sales, profits, and transaction sizes. Nordstrom's mobile applications exemplify how both consumer- and employee-facing mobility programs evolve, and how they should only be introduced after careful planning, with rigorous attention to governance and the measurement of KPIs. The company has progressively released more responsive and integrated capabilities. For Nordstrom, adoption was never a problem among employees with access to mobile capabilities. Indeed, employee feedback indicated that they weren't rolled out fast enough, although this was only because the capabilities were still being refined and released in waves at a department level by the team of Nordstrom staff and external specialists. What are the foundations for mobile success? This report identifies five critical initiatives for retail companies deploying mobile solutions, which are discussed in the sections that follow. Initiative 1: Identify and Align Cross-Functional Resources Identify, align, and engage cross-functional resources, ensuring all staff are adequately skilled, informed, and involved in planning. Consider the breadth of the project and tap the line-of-business and technical resources that will be needed. Involve people with technical expertise in applications, 2014 IDC Retail Insights #RI249424 1
device, security, data, infrastructure, and middleware and use outsourcing to supply any skills that are not available internally (see Figure 2). FIGURE 2 Initiative 1: Identify and Align Cross-Functional Resources Mobile projects need coordination across the business and can be undermined by shadow IT if not centrally controlled. Treasured skills, in this context, include deep functional knowledge, creative interface design, and technical expertise, and, frankly, many retailers are still struggling to acquire these resources. Projects we have discussed with retailers have relied on outside resources and many will continue to do so, as mobile IT skills are scarce and costly. In fact, according to IDC's 2013 CIO IT Staffing Survey, organizations may have to pay an average premium of 18% to recruit people with mobile IT experience. While retailers have declined to give us specific data about what they are paying, many have told us that they needed to retrain existing staff, add new skills, and outsource to augment staffing for major projects. Home Depot, for example, successfully engaged a consulting firm to lead a multiyear effort to deliver a mobile platform for communications, mobile POS, and inventory look-up. This project has led to tens of thousands of devices being deployed, application objectives being met, and ongoing operating costs being lowered. Initiative 2: Establish KPIs and Test for Performance and Usability Establish KPIs and test for performance and usability to ensure user acceptance and adoption. Before launch, benchmarks for each app must be established. You must know what your customers expect and strive to maintain the necessary performance levels. The performance levels will change over time, too, so it is important to benchmark regularly (see Figure 3). 2014 IDC Retail Insights #RI249424 2
FIGURE 3 Initiative 2: Establish KPIs and Test for Performance and Usability During the Super Bowl, luxury car maker Maserati's mobile apps crashed after the company's advertisements attracted an unexpectedly high response, exposing application weaknesses that had not been tested before launch. As a result, a brand built around high performance fell far short of wowing its prospects. In this case, the impact on sales was probably minimal. But for retailers that expect sales to follow once consumers click through their apps, the consequences of failure are evident immediately. In Maserati's case, simply loading less data directly onto the device might have prevented the mobile crashes. This would have been easy to address, if only the problem had been identified in advance. Testing must occur ahead of launch for all user app and site conditions, including unexpected surges. Standard benchmarks and KPIs can be identified online or via a technology partner. Initiative 3: Clearly Articulate Governance Policies Clearly articulate governance policies covering all the key factors availability, redundancy, responsiveness, integration methods, disaster recovery, data retention policies, security, privacy, authentication, and device and application management. By extending the general IT governance policy to include a section describing mobile governance, retailers can ensure that all mobile initiatives comply with corporate values (see Figure 4). 2014 IDC Retail Insights #RI249424 3
FIGURE 4 Initiative 3: Clearly Articulate Governance Policies Nobody wants to be the retailer that has to defend its practices after a major security failure. Discount retailing giant Target suffered a much-publicized security breach in October 2013, when more than 100 million customer data records were stolen because of a weak link in its VPN access arrangements. Target maintains relatively high security standards and employs good governance practice, but the breach showed that all end points had not been secured. A sanctioned outside vendor's actions had allowed advanced persistent threat (APT) malware to infest internal systems and steal millions of customers' details. Target lost millions of dollars in sales and will also face fines. While this security breach was caused by a vulnerability exploited through an outside vendor's mobile device, Target is now having to overhaul its governance and security policies and protections to make sure it doesn't happen again. In general, good governance ensures that projects meet organizational standards and that policies are properly enforced, so the retailer can engage consumers and grow customer loyalty without the risk of disasters and negative press coverage. Initiative 4: Adopt Agile Implementation Methods Adopt agile implementation methods and complete regular reviews with the project team. User acceptance is imperative for project success, and the team must be responsive to user needs, within defined parameters. Iterative deployments encourage refinement and avoid reworking, and reusable services can also be helpful (see Figure 5). 2014 IDC Retail Insights #RI249424 4
FIGURE 5 Initiative 4: Adopt Agile Implementation Methods Groupon, a definite mobile success story, now designs its apps to be "simple, beautiful, and fun," according to CTO Peter Merholz. Over 60 million downloads are proof of the apps' success, and Merholz says, "Mobile is driving Groupon's evolution." Groupon did not always have such highly praised applications, but the company has now adopted an agile development methodology. The mantra is "Prototype prototype prototype," and Groupon can continually test and enable a range of mechanisms for driving engagement and higher sales. Initiative 5: Leverage Cloud or SaaS-Based Services Leverage cloud or SaaS-based services to reduce initial capital outlays, consolidate underlying infrastructure, and provide more flexible computing capacity. Cloud computing can be a highly costeffective way to deliver mobile services, because it allows retailers to consolidate the infrastructure of servers and software, draw on computing capacity and services on demand, and use virtual service delivery platforms (see Figure 6). 2014 IDC Retail Insights #RI249424 5
FIGURE 6 Initiative 5: Leverage Cloud or SaaS-Based Services Netflix depends on cloud infrastructure to help customers stream content to their mobile devices and to flexibly scale up its computing and storage capacity as needed. Omni-channel retailers face the similar challenge of scaling up IT resources for the precise period needed to meet peak demand. Our client discussions have uncovered several examples where, for instance, retailers have been able to flex the infrastructure to provide effective support for the demand triggered by special offers. For many retail companies, choosing a SaaS or cloud infrastructure for mobile also provides scope for innovation while avoiding front-loaded capital outlays. FUTURE OUTLOOK As mobile continues to play a dominant role in both consumer-facing apps and employee business applications, rapid innovation will continue to make resource identification and alignment key long-term issues. Choosing the right selective or wholesale outsourcing strategies will therefore be a vital issue for most organizations. Changes in consumer technology and interaction models will continue to drive up user expectations, making agile development and an agile infrastructure essential if retailers are to keep pace, while cloud computing and managed services will be increasingly relied upon to provide scalability and speed of deployment. Mobile applications will soon be playing a part in many more retail transactions. But as mobile app enabled sales spread from the early adopters to mainstream buyers, there will be dramatically increased reputational risk associated with app failures or poor customer experiences. More effective testing will become increasingly important. The consumer's last best experience will be the benchmark for all others, and customers will increasingly expect mobile devices to play a central role in their shopping. Mobile implementations are inherently complex as retailers must consider platforms, infrastructure, security, device management, software management, and creative elements. The best practices 2014 IDC Retail Insights #RI249424 6
outlined in this report will support mobile adoption and mobile innovation at an ever-quickening pace. Sorting through the throng of vendors that can provide one or all of these capabilities will remain one of the toughest steps in the process, and many retailers will look to their peers for reference cases. But the leaders will stay ahead by constantly testing different approaches and applications to see what engages the consumer best to build loyalty and improve business performance. ESSENTIAL GUIDANCE The best practices identified in this report provide a practical guide to managing smooth and successful mobile platforms and applications. These are the following actions companies must take to ensure the success of their mobility program: Make sure all your internal resources are aligned in relation to the project objectives and implementation plan. Perhaps even more importantly, ensure that the right resources with the necessary skills are in place. Mobile projects demand an array of highly skilled talents, and you may want to look outside the organization to give the project extra momentum. Focus on consumers, and design and test apps that meet their needs. Establish KPIs in advance and benchmark performance and usability frequently, both before and after launch. Consumers expect fast, efficient interactions on their mobile devices. Performance is everything, and the bar is being raised all the time. Extend your general IT governance policies to describe mobile governance and ensure that all mobile initiatives comply with corporate values. Your organization's reputation depends on making application processes and user authentication secure. Be diligent and avoid costly surprises. Innovate, stay flexible and agile, and experiment with different services and solutions. Make the most of reusability and iterative development practices. The mobile applications environment is dynamic and demands continual development. Don't be afraid to let trial and error guide your more adventurous development efforts. Consider cloud or SaaS-based services to reduce capital outlays, consolidate your infrastructure of servers and software, and provide flexible computing capacity. In areas like mobile app development, where differentiation often comes from infrequent special offers or games, the need for scalability and agility will lead to new ways of doing things. Cloud can give you this flexibility. LEARN MORE Related Research Worldwide Retail 2014 Top 10 Predictions: Retail Reinvents Itself for Relationship, Relevance, and Reciprocity (IDC Retail Insights #RI245468, January 2014) 2014 Top 10 Emerging Agenda Predictions for Retailers (IDC Retail Insights #RI245966, January 2014) IDC MaturityScape: Enterprise Mobility A Guide for Success (IDC #240968, May 2013) 2014 IDC Retail Insights #RI249424 7
Synopsis This IDC Retail Insights report is a guide to critical initiatives for retail mobility projects. Leslie Hand, research director, IDC Retail Insights, reports, "Consumer-facing and enterprise-facing mobility programs top the list of initiatives retailers are actively pursuing, and applying the best practices of the leaders can speed progress and reduce costs." For retail companies seeking new mobile solutions to make shopping more convenient and improve customer loyalty, this report highlights the five best practices that can make or break your initiatives. We examine several real-world retail deployments and identify the best practices that will have the greatest impact on the success or failure of similar projects. We also measure the impact of these practices in terms of their effect on revenue, customer satisfaction, and operational productivity and assess how difficult they are to deploy and maintain. 2014 IDC Retail Insights #RI249424 8
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