We are in the midst of an industrial revolution that will impact the world economy and humankind every bit as much as the first industrial revolution did. While the 4th industrial revolution is still relatively nascent, its impact on business can be seen clearly. Many retailers have progressed myopically into this new era and suffered the consequences. Many more retailers are surviving based on older generations of customers who are late adopters of the 21st century. The retailers that are thriving are those that recognize that we are in a revolution that requires an urgent change of focus to be successful.
This brief article is primarily intended as a thought-starter for CIOs, CTOs, and other retail executives working with retailers that had their best years before 2015.
Industrial Revolution 4.0 – so what?
Industrial Revolution 1.0 was catalyzed by the use of steam to mechanize production. The mechanization of production led to the formation of industries, and the mass migration of workers from rural agriculture into specialized work in cities. Industrial Revolution 2.0 was fueled by electrical power, oil, and gas to revolutionize travel and spur mass production. Industrial Revolution 3.0 occurred due to the invention of nuclear energy, computers, electronics, and telecommunications, which reshaped the world economy. Industrial Revolution 4.0 is well underway and is being driven by the internet, digitization, and another new energy source: data.
Compared with prior industrial revolutions, the pace of innovation is exponential and impacting every industry around the globe, rather than the linear and slower-paced change seen previously. The impact on people’s quality of life and how they spend their free time is already as significant as many of the prior industrial revolutions. However, the Covid-19 pandemic will ultimately be seen as having had an accelerating impact on the digitization of businesses, how people work, and where people live relative to their jobs. In several recent polls in the US and UK, workers are almost unanimously stating that they do not want to return to working in offices on a full-time basis post the pandemic. This shift has been coming slowly for the last decade, but it has suddenly been accelerated, and the knock-on effect on businesses who locate near office buildings and rely on office worker traffic is going to be dramatic.
This shift is going to further diminish physical location as a competitive advantage and push for more digital innovation of services and products of all kinds. Retailers who are not acting like they are in the middle of a revolution will find themselves on the losing side, and the pace just quickened.
"Compared with prior industrial revolutions, the pace of innovation is exponential and impacting every industry around the globe, rather than the linear and slower-paced change seen previously"
Industrial Revolution 4.0 and Retail
The single biggest shift already realized in retail due to IR 4.0 is the shift away from the traditional “merchant prince” model where a single merchant, or a small group of merchants, was the primary arbiter of customer tastes. With the impact of social media and mobile technology, understanding customer wants, and needs is much more of a team sport. Using CRM and omnichannel technology to create visibility to all customer touchpoints and then create consistent experiences across those touchpoints has become essential to retail success. Gone are the days when retailers pushed products to store locations and relied on visual and promotional tactics to drive revenues. Modern retailers understand the lifestyles of their customers and engage with them, and deliver products to them, at times and venues that suit the customer.
How should CIOs and Retailers be responding?
Some retailers today, and all successful retailers in the future, will consider themselves to be as much a tech company as they are a retailer. If they are to survive, the retail c-suite should be well underway with the migration from siloed business units, with a predominant store focus, to agile cross-functional teams that are informed directly by the customer and are empowered to act quickly to satisfy their needs. To do this, one version of the truth across all key performance and customer metrics is imperative. Next, customer insights and data must be collected, tracked, stitched together, and analyzed across all the retailer’s touchpoints with the customer. Business teams must be empowered to respond to the data and analytically-derived insights to improve the company’s products, services, and experiences. Truly personalizing each customer experience and interaction is the holy grail that retailers should be pursuing.
Beyond using data, analytics, and organizational dynamics to shift the retail organization to real customer-centricity, there are several other critical things to consider. First, data and data analytics are going to be incredibly important drivers of supply-chain and SG&A cost reductions. Future efficiency gains are expected to be massive, as consumers, retailers, and factories become more connected than ever before. Layers of organizations and supply-chain middlemen will be stripped away. Second, innovation and agility must become key organizational skills. This revolution is just getting started, and the pace of change is accelerating. Using technology to keep pace, and deploying technologies that can be replaced with newer, better, or different capabilities within days, not months, is going to be essential; this is why retailers are going to ultimately transform into retailer/tech company hybrids.
Food for thought
When you consider the current expectations of consumers, most retail organizations lack the skills, organizational structures, data, and analytics to sustain their performance. This has become even more evident recently, as stores were mandated for closure and consumers shifted to other channels, most retailers couldn’t respond, and simply went dark or went bust. The most critical thing retailers should be asking themselves now is, do we have the skills and talent to transform into a customer, data, and technology-centric retailer? The answer is truly clear: do or die.