Four organizational conflict scenarios in omni-channel retail

Profile picture for user gonzodaddy By Den Howlett March 18, 2014
Summary:
Forrester talks about how omni channel retail can be executed against. The reality might well be very different.

I'm going to dust off my management consulting hat for this one - please bear with me.

Yesterday, Stuart Lauchlan parsed a Forrester Consulting report commissioned by Hybris/Accenture on the challenges faced by retailers moving to an omni-channel approach to selling.

Technology plays a crucial role but as anyone will tell you, technology is only an enabler. The report highlighted organizational challenges. Under the 'organizational challenges' head, the report says:

The status quo of siloed online and offline groups prevent innovative omni-channel programs from seeing the light of day. There are many stakeholders involved in the strategy and execution of omni-channel. Most prominent are the CMO, SVP eCommerce, head of omni-channel, CIO, head of sales, and head of supply chain.

Despite the fact that 46% of the retailers we surveyed cited that they already have a dedicated omni-channel team that includes members of all functions, fundamental silo barriers and conflicting priorities remain with 34% of respondents reporting that conflict between channel organizations is still a major barrier to success.

When dealing with the attribution of cross-channel sales (e.g., buy online, pick up in-store), only 16% of retailers reported that attribution of the sale revenue is irrelevant, focusing on the entire customer experience rather than channel revenues (see Figure 12). Interestingly, 16% of retailers still attribute revenue between channels, while 31% and 21%, respectively, attribute revenue from such sales exclusively to the online or store channels.

The reality is that only a few retailers have yet completely dismantled their online, offline, and mobile channel silos, implementing a single retail P&L with an associated organizational structure for all sales regardless of channel.

Forrester Fig 12

I must admit to being confused by the naming of the departmental heads in this scenario. Where do the store managers fit? What about emerging scenarios where the customer picks up at warehouse operations? If we're going to lump supply chain in, then what about buying and distribution groups?

I am also confused by this data. Operating a single profit and loss account really has nothing to do with how you resolve the conflicts involved unless you can persuade all actors that the total customer experience fits into the equation and, in turn, how that gets parsed in the real world. I have no idea for example how customer service fits into this scenario.

Similarly, the report remains silent on how the compensation models of those involved would shift in an omni-channel environment, other than to imply that a single organization solves all ills. I can assure readers it does not.

The fact 34% report conflicts strikes me as optimistic. I would not be surprised if the truth was nearer 80%. Here are some reasons why.

Here are four conflict scenario that will arise:

  1. Total sales revenue is augmented by online sales
  2. Online sales revenue replaces in store revenue
  3. Online sales revenue augment total but in-store pickup is preferred to delivery
  4. In store pick up has a failure rate of (pick your percentage here)

Here are some of the questions that arise:

  1. Who gets credit for what and how?
  2. How would pick and pack failure be accounted?
  3. What credit arises from the total experience?
  4. How does great design factor into driving sales revenue?
  5. What about in-store revamps?
  6. How are promotions and seasonality handled?

You can argue all day about a single organization but these six questions alone indicate the extent to which you're looking at a considerable number of moving parts that are not easily reconciled. Here are some of the practical challenges in managing any of these scenarios:

  1. Is sales revenue the only measure? If so then how is it allocated on a fair and equitable basis?
  2. How do departmental heads agree cost allocation for marketing initiatives?
  3. How will the accounting system cope such that departmental heads can rely upon the ongoing data they see?
  4. How will the accounting systems change - changing chart of accounts is not something you venture into lightly?
  5. What room is there for invention and innovation - how does that get measured?
  6. Is the HR and talent system able to cope with what-if scenarios? Can they give us sensible answers for changing organizations?

These are a few of the fundamental technical questions that any organization will have to face. Simply recognizing the market challenge from an Amazon, Zappos or Google is not enough.

Forrester rightly point out the siloed operation problem but as I have recently seen, even when you can find ways to operate across silos, vested interests that are tied to antiquated and - to be honest, often brute force compensation models - will eat this kind of challenge for breakfast, lunch and dinner.

It is often said that the accountant's default response to any question is 'no.' I see that regularly played out in departments where the heads exhibit a natural fear of change. There is no easy answer to this problem. While colleagues like Euan Semple might point to the benefits of emergent, cross silo collaboration, I see an equally difficult job in getting those same silos to co-operate meaningfully with one another let alone collaborate.

If past experience is a guide, then I am increasingly coming to the view that if we really want a great outcome then addressing the organizational issues must be number one on the agenda, well before any technology decisions are taken. I am equally minded to see this as much deeper than adding more departments to the org chart and then winging it in the comp model negotiation or simply rebranding to 'omni-channel.'

Instead, I see this as a challenge that, in the best scenarios, will lead to a wholesale rethinking of the way retail is organized and executed. It is not simply a matter of looking over the fence and wondering WTF to do about online challenges? It is about the whole customer experience. And that starts with service.

Anything else leads to a miring in change management that might well benefit the large consulting practices as they act as referees in the inevitable management meeting punch ups, but which also leaves the organization in a permanent state of re-org and angst. I've lived through that mess. It isn't pretty.

The main risk here has nothing do with modelling the new shape of retail but everything to do with ensuring that the best talent is kept on board. And beneath all of that lies a compensation model that cannot be ignored but which will require considerable finesse if it is to lead into better outcomes for everyone.

One thing is for certain, a technology refresh is not the answer.