In last week’s Retail Paradox Weekly, RSR partner Nikki Baird shared her take on the early days of omni-channel retailing, recounting Best Buy’s early forays into selling channel synchronization. She concluded the story with the observation that,

“…at the heart of omni-channel is customer centricity. You can’t do one without the other. Much of the current struggle to implement omni-channel initiatives… comes from retailers trying to preserve their current product- and channel-centric business models. Retailers who find themselves in this predicament are not going to survive the transition to customer-centric. It’s happening with or without them, driven by consumers themselves and how they shop. “

We’ve observed on many occasions that the retail industry is at a “reset moment “, triggered by a fundamental change in how consumers shop, using both the digital and physical domains in a harmonious way to find relevant products and services. But the traditional retail operating model is highly verticalized along channel boundaries and overtly product-oriented, with each channel being aligned around four “dimensions “: Planning, Buying, Selling, and Measuring. To meet the demands of the omni-channel consumer, retailers must consider organizing their businesses differently, around 6 horizontally aligned dimensions that span the whole enterprise: Customer, Product, Inventory, Order/Fulfillment, Locus, and Technology.

The question is, how does a retailer get from one model to another?

In 2013, Nikki and I worked on an “omni-channel maturity model ” that tried to answer that question. Here’s a summary of what we came up with.

The Six Dimensions Of An Omni-Channel Retailer

Just as Nikki stated, the heart the new operational model has to be The Customer. The business objective of an omni-channel operation isn’t to move as much product through a channel as possible, but to maximize the sales and profit potential of each customer. The granularity of “the customer ” can range from broad demographic categories to true one-to-one, depending on the Brand value that the retailer delivers. The Customer dimension includes information derived from the customer shopping experience, not only past transactions, but non-transactional “path to purchase ” data derived from consumers’ digital shopping behaviors. This information is used to determine the context of consumer needs and to actively engage with consumers to build a bias towards the Retailer’s Brand, no matter when, where, and how the consumer interacts with the Retailer.

Product

In the new model, Products are solutions in the context of consumers’ lifestyle needs. The Product dimension is familiar to all retailers – it includes information about the products that are included in the assortment, and that information is used to offer the right product at the right place and time, and presented in the right way, in the right context to consumers.

Inventory

The omni-channel operational model, customer demand can come from far beyond the four walls of the store and be fulfilled from anywhere in the enterprise. Inventory needs to well positioned to profitably fulfill customer orders, no matter where and how those orders were generated.

Order/Fulfillment

Another way to describe omni-channel retailing is that it enables “anytime, anywhere ” shopping. Consumers use both the digital domain and the physical one together to make a single purchase decision. Regardless of how a customer order is built, it needs to be visible across all the selling channels, so that the retailer can offer several fulfillment options (in the store, in an alternate store, direct delivery), regardless of where customers choose to finalize an order.

Locus

the classic Latin word “locus ” means “a place “. But in the context of omni-channel, the physical notion of “place ” gives way to a harmonization of the digital domain and the physical one. While a store-centric retailing assumes the physical store to be the center of gravity in the new customer-centric model the digital and physical selling environments need to work seamlessly together to create one Brand experience for the consumer.

Technology: Information drives the new model, just as physical products drove the old one. New investments in technology are required to understand and act on information being generated by consumers during their digitally enabled paths to purchase.

No Shortcuts

The legacy retail operational model can’t change overnight – even if you want it to. Macy’s, a company generally regarding as a bellweather for omni-channel adoption, has been at it for several years. But just last month, the company announced a set of sweeping organizational changes with a restructure of its marketing and merchandising organizations. So it’s a long process, but one that is necessary. In our Omni-channel maturity model, here are the steps Nikki and I recommended:

1. Design the Customer Experience You Want for your Brand

Before investing in the latest technology solution, there are key questions about the Brand that must be answered:

• What do you want the Brand to stand for?
• What do you want your “advocates ” to say about the Brand?
• What is the role of digital channels for your Brand/company?
• What is the role of the store in fulfilling your Brand Promise?

2. Align Your Organization around Your Brand

Some retailers have created a separate head of “omni-channel ” strategies and activities. This may not be appropriate for many retailers. It may be more appropriate to align all channels under one executive.

3. Spend Time Understanding Paths to Purchase

Customer paths-to-purchase can appear chaotic. They have so many tools at their disposal and the mobility explosion allows them to stroll down that path at unlikely times, in unlikely places. But looking at aggregated data should reveal some patterns that are unique to your Brand. Analytics can help the retailer understand the more typical paths of your customers.

4. Think about a Harmonized Selling Environment

The explosion of information and selling channels has resulted in a rats’ nest of custom point-to-point integrations between “best of breed ” and even homegrown technology solutions. Retailers have to think about an enterprise systems architecture that is extensible and fluid enough to support new selling channels as they emerge and morph.

5. Understand the Implications to the Supply Chain

In the last several years, retailers have spent a lot of time talking about the implications of omni-channel shopping to the sell-side of the retail business. But the implications to the buy-side of the business are even bigger. While retailers have mostly used price as a lever to drive profits, in an omni-channel world the Winners will also use the supply chain to drive profits. Amazon has raised the bar on responsiveness, but it is up to others to also do it profitably.

Be In It For The Long Haul

The Retail Industry is famously reactive, and the golden rule from time immemorial has been “whatever it takes “. But that takes on a whole new meaning in the new consumer-centric paradigm, when the whole enterprise must be able to adapt quickly and effectively to shifts in consumer preferences and behaviors. That means that the enterprise has to be architected that way.

In his 1999 book entitled Adaptive Enterprise, author Stephen Haeckel explained the challenge for businesses:

“… discontinuous change demands a new business model, The dominant large corporations of the 21st Century will succeed only by embracing new concepts, not by better executing old ones. The sense-and-respond model provides a means for meeting the challenges of discontinuity. A sense-and-respond organization does not attempt to predict future demand for its offerings. Instead, it identifies changing customer needs and new business challenges as they happen, responding to them quickly and appropriately…. ” [1]

Changing from rigid channel-specific organizational structures and supporting systems isn’t easy, but the potential for reward is huge. But retailers that don’t embrace the challenge of customer-centricity in the context of their Brand will not survive.

[1] Adaptive Enterprise, Creating And Leading Sense-And-Respond Organization, Stephen Haeckel, ©1999 President And Fellows Of Harvard College, p.4