Five Principles for Managing Retail Business Transformation Risks

By Isaac Krakovsky, VP, SAP Retail

As we continue to work with retailers looking to embark on initiatives to transform and grow their businesses into best-run retail businesses, five key principles have emerged as critical indicators of success. Transformational programs involving a truly integrated retail solution enable business flexibility, innovation, and smarter IT investment. The following five components must be planned and executed properly in order to safeguard the return on investment and remove risk. 

1. Develop a business case – This may seem obvious but even if the entire management team is united behind the transformational initiative and doesn’t require a business case, develop one anyway. Every project goes through a “honeymoon period” where everyone is happy that things have finally started moving forward. It is inevitable that at some point this will change. Management (and maybe some project team members) will begin to realize that transforming a business is hard work and can be painful. Business processes will be scrutinized, automated, and standardized, all while running the day-to-day operations of the business. It’s like changing a tire on a moving car while doing 60 MPH on the freeway. A solid business case with significant benefits identified, documented and signed off comes in very handy when the project hits the “trough of disillusionment” or the inflection point where people begin to ask “why are we doing this”. The business case also provides a baseline for establishing the relative success of the initiative. Demonstrating success to the Executive Team is critical in building credibility for the CIO and business sponsors. It is also critical that these initiatives be led and sponsored by an Executive from the line-of-business (and not the IT group) that owns the benefits. This will go a long way with the end-users acceptance of the new processes and systems and will further the culture of IT and the business working in partnership.

2. Establish a governance and communication process – The most successful initiatives are governed by a Program Management Office (PMO). This should be led by a seasoned Program Manager who understands how to manage multiple project work streams and also has the skills and judgment required to know when and how to navigate a politically charged environment. Protocols for issue escalation to the Executive Sponsors and which decisions are made at the project level must be established very early on. Everyone wants an on-time, on-budget project but the Executive Steering Committee’s ownership over key decisions is one of the biggest obstacles and risks the PMO will face. These business decisions must be made on a timely basis. Establishing a multi-layered regular communication program is also critical. Not everyone shares the same perspective. Make sure all stakeholders receive regular communications and are connected and invested in the success of the program. In a transformational initiative, almost every functional area of the retail business will be impacted including Merchants, Planners, Finance, Supply Chain, Human Resources, and Store Operations. Stakeholder representation from these areas is key or the risk of a derailed project increase significantly. It is also the PMO’s responsibility to ensure that the right subject matter experts from the business are on the team. Generally, these people should be considered leaders who are visionary and well respected within the organization. If it’s painful to remove them from their everyday job, you probably have the right person.

3. Start master data clean up now – Retailers should take a good look at their existing data and begin identifying and addressing bad data as soon as possible (even before the project officially starts). Many of the benefits that were undoubtedly uncovered in the business case revolve around an assumption of accurate data. Optimizing prices, becoming a consumer-centric retailer, forecasting sales are all dependant on this assumption. ERP systems are intolerant of bad data (garbage in - garbage out) and it can throw into question the best forecasting algorithms or planning systems. What you may have considered to be a successful project at the time of go-live can suddenly become a failure if new software isn’t used because the data isn’t trusted to be accurate.

4. Think through your integration strategy carefully – Today’s fully integrated Retail ERP solutions are usually implemented in a modular fashion and require connecting to the legacy environment (albeit on a temporary basis). A full understanding of how the legacy systems operate is required but usually doesn’t really exist as documentation is sporadic and inconsistent and there are usually only one or two people in the IT shop who understand how everything is connected. Identifying a strategy for retiring those old applications requires an understating of the downstream and upstream impact on processes and software and in many cases will require writing documentation for the systems you want to replace. This is probably the scariest thing the CIO faces as he or she ventures into the unknown world of software developed long before his or her arrival. Many retailers roll out new functionality in smaller discrete businesses to shake out and solve any final problems where business disruption will be minimized before attempting larger business units. A good integration strategy is all about managing risk.

5. Stay vanilla – No commercially available software product will provide you with 100% of your business requirements. It is imperative that you identify which business processes are considered to be competitive differentiators for your business. This usually represents around 10% - 20% of the total processes involved that might require some specialized software development around the edges of the base package. All other processes should follow the best practices embedded within the software. This is another area that will provide a challenge to the PMO, but retailers that are successful have found the discipline required to just say no to custom code and modifications. If you have a true partnership with your software vendor, both parties are committed to a long-term mutually beneficial relationship. Staying vanilla allows you to realize greater benefits over time by being able to easily upgrade and add new features as they become available. Retailers that have customized their applications during earlier implementations have started to upgrade using this vanilla approach. They understand that modifications add unnecessary risk.