Benefits Of The Implementation Of Business Analytics Strategy In The Retail Industry
This paper outlines the changing face of the current retail environment, the implications of the online marketplace and the growing diversity of retailer consumer interactions. The retail sector is an increasingly competitive on, retailers are forced to rethink their strategy. I have outlined how the implementation of business analytics across a broad range of business practices can facilitate cost effective change.
Through my research I have discovered a broad range of applications for BA across multiple business units, each of these applications face their own potential challenges which will be expanded upon. The report is concluded with my recommendations to achieve successful BA implementation.
Retailers are the intermediaries between the manufacture, wholesaler and the end consumer. They are both customer and supplier. A manufacture or wholesaler may have the capacity to sell directly to the end user, but this process can be costly and time consuming. Retailers have the infrastructure to engage with customer’s directly, asses the demand and develop a product assortment accordingly. But the success of a retail environment is no longer as simple presenting the customer with the right product.
Technology has changed the way business and consumers interact with each other and the gap between great service and bad is widening. Empowered consumers are better informed than ever before, information relating to products technical specifications, reviews and market price point are now available at the click of a button “As a result, the emphasis in retailing has moved from one focused mostly on transactions, where the goal was to sell goods and services to ultimate customers, to one focused on enhancing the customer experience”. Competition stemming from the online space and increased infiltration of the global market has increased customer service expectations, they expect the product they want at the best market price followed by a smooth transaction and delivery without delay. “Ideally analytics lets the companies combine demographic and behaviours data with sales information to determine how best to leverage the customer relationship”.
In order to tackle this, modern retailing has evolved into a multichannel one, “retailing practice is increasingly encompassing a broader range of activities as retailers expand the boundaries of their target markets and develop new ways for interacting with customers and channel partners”. Retailers must now focus on their interactions with customers across multiple platforms, maintaining the client experience across every channel. “the multiplicity of touch points now available to reach the same customer, require retailers to coordinate online and offline channels using multichannel formats such as “click-and-mortar” (Click and collect)”.
With additional channels comes an increase in data collection analytics is the only logical method of managing the data “Advanced analytics are necessary to predict inventory levels across channels that are complicated by omnichannel fulfilment”. This influx of competition should drive a savvy retailer to seek out cost reductions in all areas of the business. The implementation of business analytics can highlight potential cost savings and opportunities to improve across a broad range of business operations.
The use of business data in the assessment of potential employees and performance indicators of existing employees can assist in their success and retention. “If you want better performance from your top employees – who are perhaps your greatest asset and your largest expense--you'll do well to favour analytics over your gut instincts. ” Using data insights retailers can ensure they have the right people in the right position leading to a more fulfilled and productive workforce.
HR data outlining why employees have decided to leave the organisation historically can be developed into an algorithm which can then be used to assess the current workforce and indicate employees at risk. These indicators could include – age, years in the organisation, time since last pay rise or promotion. The analysis will return a ranked list of employees most at risk and the reason why they may consider leaving the business. By identifying employee’s management have the opportunity to proactively approach the employee’s role within the organisation and intervene if change is required.
Employee turnover costs on average 20% of the departing employee’s wage, these costs include loss of business knowledge, cost of recruitment and reduced productivity while the replacement gets up to speed. Maintaining the delicate balance between inventory holdings and demand is a cornerstone of successful supply chain management. Advances in data analytics algorithms have given retailers the power to assess large amounts of sales data previously asses weekly or monthly on a daily basis. Retailer and vendor sourcing rules can be scrutinised, and suggested stock replenishment can be automated to maintain the optimal stock level.
Maintaining the optimal stock level will in turn increase product shelf opportunity as retailers will naturally stock products that generate the most revenue without having to carry excess inventory. Coupling the BA results with an integrated replenishment system will mitigate the risk of stock outages caused by seasonal trends. BA has the capacity to flag lines to be discontinued with pricing optimisation tools automating the process at POS level. "The ability to quickly analyse massive amounts of data, down to the Stock Keeping Unit level, and automatically replenish stock gives our clients an edge in today's fast-paced business environment, " William Pulley blank, vice president, IBM Centre for Business Optimization.
Analytics can assist in the reduction of shrinkage at store level through the integration of point of sales systems and in store surveillance. Footage can be linked with suspicious transactional data to provide almost real time analysis on transactions. Business analytics data can be utilised at store level through the analysis of foot traffic. Foot traffic is the amount of people that enter and exit a retail environment and is useful in measuring the success of promotional performance. Foot traffic is typically recorded in fifteen intervals usually analysed on an hourly or daily basis. The comparison of foot traffic to promotional periods can help analyse the effectiveness of promotions. An extension of this strategy is conversion rate analysis. The conversion rate is the ratio of customers to transactions that have taken place. If an organisation is looking to increase profits, then understanding and assessment of conversion rate success is imperative. “The holy grail of analytics is being able to predict with scientific and statistical validity your return on investment either campaign by campaign or program by program”.
Data collection and analysis through the use of business analytics can highlight excess procurement in turn reducing areas of wastage within the organisation. Research done by Ramakrishnan Ramanathan, Elly Philpott, Yanqing Duan & Guangming Cao (2017) suggests that investments in business analytics can provide environmental sustainability benefits. This can be done by improving efficiencies or waste reduction.
The successful implementation of BA strategy is reliant on a companywide adoption. In order for BA integration to succeed this adoption must be driven by senior management as their decisions pertaining to investment and training are critical. Senior management can ensure engagement across all business units. Employees need to have faith in the information and tools provided, so timely and accurate deployment of a BA strategy is imperative “Without real time data, information provided internally and externally is out of date and, therefore, risks being inaccurate and out of context”.
The true value of business analytics can only be realised if the information is accessible to all areas of the business “Data visualisation/dashboards are a clear priority, reflecting a widespread effort by CG companies to move data outside individual business units and put it in front of more decision makers across the business” the information regarding the business needs to be distributed quickly, efficiently and conveniently to those team members that can take action and effect change. Evidence shows that low levels of integration between business analytics and existing organisational IT sub systems may have a negative impact of business analytics performance. In a study done by Ramakrishnan Ramanathan, Elly Philpott, Yanqing Duan & Guangming Cao (2017) shows that an interview that called his firm a slow adopter highlighted that they could not derive much benefit of BA because they kept wasting time and effort {process organisation related} as they did not have properly integrated systems’. Proper infrastructure poses concern for organisations looking to implement BA. Organisations have to develop data-orientated management systems to cope with the increasing size of big data and address the need to create not only business value but competitive advantage. “True competitive advantage comes from the capability to connect insights from those areas into a timely end to end view of business activities. ”
The high associated with fully integrated BA system is a challenge that is hampering business from fast and complete, integrated adoption of business analytics. While the industry leaders may be adopting BA strategy this may not always be realistic “The issue is level of resources and limitations on the analytics tools. Most retailers under $1 billion in size don’t have the size or ability to hire an army of data architects and data scientists”. As the number of organisations utilising business analytics as part of a forecasting strategy increase, value could be found by working in collaboration with suppliers. By feeding transactional data into the CG supplier analytics system both parties will benefit by a more transparent and centralised data set “Leading retailers need to elevate data access and analytics to a strategic discussion with their CG partners and create new, sustained business models”. This cultural shift is a significant one, running against the grain of traditional business practice. While consumer data collection has long been a cornerstone of marketing strategy, consumers are becoming increasingly suspicious of how it is being used. It is a challenge of every retail company to maintain the customer relationship in order to foster trust in the brand. Retailers must develop a practice that is not just legal but also in line with the organisational values. To mitigate this risk some organisations have engaged ethics committees to consider any request to use data for commercial purposes and asses weather it is legal and in line with ethical benchmarks.
A key recommendation to the successful implementation of a BA strategy is a clear and defined goal, what are the requirements of the organisation and what is needed to support the implementation. The investment in data collection will be substantial it therefore must yield a quantifiable benefit “You can gather all kinds of information, but if you don’t have context, if you don’t advance business hypothesis and generate a good strategy, it’s pretty much worthless information”.
Human assets cannot be understated in the successful application of BA, the first challenge is cultural, as previously stated the intention to adopt BA practices needs to be fully supported by senior management. However, it is not as simple as enthusiasm to adopt existing employees need to be trained and new data analysts may need to be brought on and they need to have the capacity make decisions and take action. “A mere number crunching may yield several results, but the management needs to exercise judgements in which of these insights are usable and actionable. ” Yanqing Duan & Guangming Cao (2017) found that “quick adopters” had employed dedicated departments for BA utilisation in either business development roles or in business insights.
Technological assets play a pivotal role in the implementation of BA systems. These assets include physical IT hardware, varying technological platforms, database development and maintenance practices, data architecture and definitions. It is imperative that legacy system limitations are clearly identified and addressed. Incompatible legacy systems need to be retired with a focus on progressively centralising the business data source. Organisations should strive to leverage their relationships with CG organisations and establish a mutually beneficial data sharing agreements. ‘Relationship assets could be in the form of partnerships with other divisions and external organisations, supplier relationships’. Having good IT partners is critical to the success of a BA strategy and to the ongoing development and maintenance.
The retail industry has changed and will continue to do so, retailers need to be customer centric in their approach, understanding what loyal customers like and what made a previously loyal customer leave is vital. As consumer demands increase retailers need to maintain service levels employing advanced BA algorithms to ensure they have the right product in the right place at the right time. The implementation of a successful BA strategy will be a challenging and costly endeavour but one which cannot be avoided to withstand the future of retail.
