Traditionally, the retail industry has lagged behind other industries in adopting new technologies, and this holds true in its acceptance of BI technology. Some industries, such as financial services, have become very sophisticated in using BI software for financial reporting and consolidation, customer intelligence, regulatory compliance, and risk management. However, retailers are quickly catching up and beginning to recognize the many areas of BI that can be applied specifically to their businesses.
The competitive game is changing for retail. As the industry continues to consolidate, retailers have begun to realize that using technology to better understand customer buying behavior, to drive sales and profitability, and to reduce operational costs is a necessity for long-term survival.
Retailers are now paying significant attention to BI software, specifically in the areas of merchandise intelligence (including merchandise planning, assortment, size, space, price, promotion, and markdown optimization), customer intelligence (including marketing automation, marketing optimization, and market basket analysis), operational intelligence (including IT portfolio management, labor optimization, and real estate site selection), and competitive intelligence. There are many factors that have led retailers to adopt BI software: increased competition, the need to squeeze more profitability out of less space, prevalent credit card usage, the Internet's role as an alternative sales channel, the popularity of loyalty cards, and soon, RFID (radio frequency identification). These milestones have created a wealth of data that retailers are now beginning to appreciate and use.
Within individual companies, we view the history of BI in retail through a method that we devised to describe the status of any company's evolution toward becoming an intelligent enterprise. We believe that organizations pass through five fundamental stages as they advance in their use of BI as a competitive differentiator:
Operate -- At this most basic level are the companies rife with information mavericks: the guys in basement offices hammering away on desktop spreadsheets. If they go, the knowledge goes with them. There are no processes, and each request becomes an ad hoc data rebuild, resulting in multiple versions of the truth, with the likelihood of a different answer to any one question every time it is asked.
Consolidate -- At this stage, a company has pulled together its data at the departmental level. Here, a question gets the same answer every time, at least within the department. However, departmental interests and interdepartmental competition can skew the integrity of the output and result in multiple versions of the truth.
Integrate -- At this point in the evolution, a company has adopted enterprise-wide data and bases its decisions on this more complete information. This company is beginning to have a true awareness of additional opportunities for the use of BI to improve processes and profits.
Optimize -- At this stage, the company's knowledge workers are very focused on incremental process improvements and refining the value-creation process. Everyone understands and uses analysis, trending, pattern analysis, and predictive results to increase efficiency and effectiveness. The extended value chain becomes increasingly critical to the organization, including the customers, suppliers, and partners who constitute intercompany communities.
Innovate -- This level represents a major, quantum break with the past. It exploits the understanding of the value-creation process acquired in the optimize stage and replicates that efficiency with new products in new markets. Companies operating at this level understand what they do well and apply this expertise to new areas of opportunity, thus multiplying the number of revenue streams flowing into the enterprise. Armed with information and business process knowledge, organizations approaching the innovate level will introduce truly innovative products and services that reflect their unique understanding of the market, their internal strengths and weaknesses, and an unfailing flow of ideas from continuously engaged employees.
We are finding that most large retailers have reached or are approaching the integrate stage, with many making great strides toward the optimize and innovate levels. There is an enormous opportunity for the evolution to continue -- within every retail organization.
The Presence of BI in the Retail IT Infrastructure:
In the typical retail IT infrastructure, there are two fundamental categories of systems: transactional/operational systems, such as POS and purchase order management systems; and analytic/BI systems.