Three rules to build a modern retailer

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There is a good reason for this. Their most valuable customers are engaging with them across all channels: store, mobile, social, and online. Some retailers find these omnichannel customers spend two to five times more than customers who purchase using only one channel.

But many retailers say it is difficult to build the right organisation to deliver their omnichannel strategy. It is easy to make mistakes, with disastrous consequences.

Consider the rough path taken by an early leader in omnichannel. The retailer recognised the need for highly aligned assortments and chose to make every merchant an omnichannel merchant, with responsibility across physical stores and digital channels. While the principle of alignment and shared vision was right, most merchants found the small digital business to be a distraction from the physical stores. Many had no experience with digital and ignored the business altogether. Digital growth stalled, even while the online market expanded 15%.

When the leadership team recognised the error, it moved quickly to reinstate a digital team, this time setting goals to accelerate digital growth considerably. However, a year later, the company found itself with highly divergent assortments, poor communication around major programmes and events, and misaligned incentives around inventory management. Growth stalled for a second year.

Where did this retailer go off course? It had twice tried to use structure to solve a problem without making the corresponding investments and clarifications in capabilities, alignment, and decision rights. By the time the retailer tackled these issues the following year, it had fallen from first place to third place among its competitors in digital sales.

This is not an unusual experience, and it highlights the dangers that retailers encounter by not making the right organisational changes required to support an omnichannel strategy. For every company that loses its place in digital sales, a rival moves up the ranks, using the disruption presented by digital retailing to gain market share.

Our analysis and work with hundreds of clients across retail sectors to navigate the omnichannel journey has helped us identify the three rules required to build a modern retail organisation.

First, be a silo buster. Many retailers have long been organised in a siloed way, often with infrequent collaboration across channel teams, or across functions such as merchandising, stores, information technology, and supply chain. This model makes it easier to run the business, but it doesn’t make it easier for customers to shop seamlessly across channels.

To deliver on new omnichannel strategies and to meet the expectations of customers, retailers have no choice but to work more effectively across functions and channels. The first step is to have a clear strategy for critical omnichannel capabilities, acknowledging that those capabilities span multiple functions or channels, and require well-defined accountabilities, decision roles, and processes to co-ordinate effectively.

Take the example of "buy online, pick up in store" — or "click and collect". This capability calls for co-ordination and quick decisions across e-commerce, supply chain, and brick-and-mortar stores, as well as across planning, merchandising, and marketing functions, among others. The online channel needs to know that inventory is available in the local store.

Stores need to receive the order, reserve it for the customer, and provide great service when the customer picks it up. Supply chain and planning need to have appropriate visibility into the movement of inventory, and marketing needs to be involved to showcase the offering to customers effectively.

The second rule is to go beyond structure. Changing organisational structure alone will not give a company the muscle to develop omnichannel capabilities. All elements of a retailer’s operating model need to align with its strategy. This includes structure, accountabilities, governance, and essential behaviours, as well as the way people, processes, and technology are deployed.

Some omnichannel leaders have focused on designing effective processes, with clear decision roles on how functions should work together.

Others have found that co-location of people from different functions and channels helps establish learning and trust-based relationships. Some redesign metrics and incentives to encourage the right behaviours from their team. One major retailer integrated online sales into store budgets, and made store managers into "trade area managers", measuring them on sales across all channels for everyone who lives in the store’s trade area.

Retailers are also defining new career paths that build cross-channel capabilities and develop the next generation of omnichannel leaders.

A caution: when companies evaluate possible operating model changes, they cannot make their choices by simply trying to replicate competitors. Operating models need to be tied to a retailer’s unique strategy. A company aiming to differentiate on shipping speed and reliability will have different answers than one aiming to excel on in-store experiences.

The same caution should apply when retailers decide on the capabilities they develop. There are essential capabilities, but we counsel retailers to clearly define those that will be most important to win.

A retailer that chooses to win on the basis of a highly personalised experience may invest in different data and analytics capabilities than one focused on the lowest-cost supply chain.

Success of a strategy can rest on deciding which capabilities will differentiate the company, and which will be on par with competitors.

Finally, it is important to get the timing right. Integrating too swiftly can stifle digital growth. Moving too slowly can leave a retailer stuck with disparate customer experiences across channels.

The correct choices will depend on a retailer’s strategy and level of systems integration and digital maturity.

In our experience, retailers at the early stages of building digital capabilities should have greater functional and channel separation to foster innovation, yet phased evolution towards a more integrated operating model is essential.

Beginner-level retailers typically have distinct cultures and metrics within channels, heavy investments in older technology, and one-to two-year investment horizons.

In contrast, expert-level retailers have more unified cultures, integrated systems and tools, and five-year-plus investment ambitions.

The radical change sweeping across the retailing world brings with it tremendous opportunities, but only for companies that are willing to reimagine organisations that are fit for the future.