THE TECHNOLOGY OF REASSESSMENT

MARC MILLSTEIN

WHITE PLAINS, N.Y. -- For retailers, solving the complex issue of how best to take advantage of information systems technology involves much more than simply selecting a computer hardware or software solution.

Instead, it requires taking a comprehensive look at nearly all aspects of a company's business practices and culture, and setting clear goals for using computer technology and the massive amounts of data generated by today's retail systems.

Equally important, retailers must learn to excel at viewing information systems applications and strategies from the standpoint of the ultimate end user: the consumer. Only then is it possible to harness the best technological solutions to thrive in today's rapidly evolving information-driven business environment, said Greg Wylie, vice president of distribution business transformation services at IBM Consulting Group here.

"Retailers have to look at the whole structure of their organization, including their business processes, how they manage themselves, their culture and how they employ technology. Our philosophy is it's better to simplify the retail organization and the business processes, and then apply technology," Wylie told SN in an executive interview.

"We come at it with a mind-set that if you do the right job in changing the processes, the organization and the business culture, then applying technology will bring a much greater return on investment.

"We don't even use the phrase 're-engineering.' Re-engineering implies simply changing a process. What we are involved in is business transformation."

IBM Consulting Group, which has been part of IBM for four years, works with retailers on developing and implementing business realignment and transformation strategies, and maximizing information technology support systems to help them gain a competitive edge.

One of the most critical trends in that process today is taking into full account the increased need to focus, first and foremost, on serving the needs of the customer in all areas of business practice, Wylie said.

That consumer-first focus -- and the competitive edge it promises -- is driving much of the dramatic change now taking place in the food industry.

"There are a number of compelling trends we're seeing in the industry today. But the first is that [retailers are] becoming more focused on understanding the consumer and taking a consumer-centered point of view," Wylie said.

"We hear retailers talk in terms of customer awareness, being more customer-centered, improving customer service, trying to understand who their consumer is. That is one of the most prominent areas in which we are working with retailers in the food industry," he said.

The move toward a consumer-first focus is becoming especially evident in a number of key areas, according to Wylie.

One of the most important of these is the food industry's quest to track consumer purchases through enhanced point-of-sale technology and then to implement advanced category management and inventory replenishment programs.

"Supermarkets have invested heavily in POS technology and are now gaining valuable insight into what products are being purchased. The question now is how retailers can better leverage that information base and POS data to develop category management and merchandise planning programs and to have the right product at the right time on their shelves," Wylie said.

Retailers are also just now beginning to step up their efforts, using frequent-shopper cards or other POS-driven programs, to gain a much more detailed understanding of the shopping patterns and spending preferences of specific customers.

Today, product promotions that retailers typically participate in target all customers equally. As a result, many of the people who take advantage of promotional offers are not the highest spending or most loyal shoppers. As retailers begin to decipher POS data and identify specific shopper trends, however, all that is beginning to change.

"Over the next five years we expect to see much more of an outbound focus by supermarket retailers in targeting customers. If promotions can be targeted at the retailer's largest market-basket customers, they will become more profitable. Everyone is still experimenting in this area, even the most sophisticated chains," Wylie said.

"One of the programs we work with is helping retailers understand who their shoppers are and target promotions to customers who spend $80 to $100 a week on average rather than to customers who spend $25 a week and cherry-pick promotional items," he added.

The biggest obstacle in terms of developing highly successful targeted marketing programs, Wylie said, is collecting the right data and being able to present information to executives in a form that they can use to make decisions.

"That is where we're trying to become more helpful -- by providing the capability to take that massive amount of quantitative data and gain insight from it," Wylie said.

Another high-priority area IBM Consulting Group is working on with retailers is the potential emergence and impact of home shopping systems.

"We're also seeing [retailers] focusing on how to anticipate the venue of home shopping. Today, home shopping is less than 5% of total retail sales in the U.S. But if it grows to 10%, 20% or 50%, how will retailers have to change to accommodate home shopping?" Wylie said.

"In the food industry, home shopping only accounts for 0.7% or 0.8% of sales today, but there are a lot of experiments going on, some of which could become widespread," he said.

"The smart retailers, at least some of them, are starting to think about the implications of home shopping. We're trying to help retailers understand the technologies that will be available to consumers and how they can address that market."

In all these strategic areas, from interpreting POS data to preparing for the advent of home shopping, however, Wylie stressed the importance of involving all levels of retail management, beginning at the top, in the planning process.

For new programs to be successful, and the investments in information systems technology to yield the greatest benefits, senior level executives must help set goals and priorities.

"We usually get involved with senior-level executives to work on issues most important to the company. In a recent example involving a large regional chain in Pennsylvania, we were asked to help determine whether they were making the right investment in information technology," Wylie said.

"We looked at the company's whole operation, from their business strategy all the way to their information technology strategy, to see if they were spending the right money on IS to accomplish their business strategy," he said.

"But it all started with the chairman, CEO and COO telling us exactly what their business strategy was and what they wanted to accomplish. Only then did we look at their IS and business organizations to determine whether they had the right technology to support their objectives," he said.

"We eventually developed a number of IS initiatives for them that they are now putting in place to support their business strategy more effectively."

The need to change, and the determination to do so quickly, are both concepts that retailers clearly are beginning to embrace as two critical keys to survival, Wylie stressed.

"The thing I see in retailers today is an attitude of change. In the past, they could be accused of being reluctant to change, of hanging on to the status quo.

"But the competitive environment is altering the landscape in the supermarket industry today. The change in technology has had an impact on their business and the investments that they had to make. They're now in the process of trying to reap those investments," he said.