An article from the Economist Intelligence Unit

Retail IT departments have adapted more than most to the digital era,
but there is demand for even deeper collaboration with the business

he retail industry, perhaps more than any other, has borne the full brunt of digital
disruption. The success of e-commerce giant Amazon.com has affected almost
every category of retail, and online competition has been on every retail executives
mind for at least a decade.
This explains why executives in the retail sector place more importance on their
organisations digital initiatives than their peers in other sectors, as revealed by a crossindustry survey of 812 senior IT and non-IT executives, conducted by The Economist
Intelligence Unit (EIU) and sponsored by SAP, which included 102 respondents from the
retail sector. The survey found that 82% of retail respondents say their organisations
digital initiatives are either its highest priority or a relatively high one, compared with 72%
of respondents from other industries.
It also means that IT departments in the retail sector have had a head-start in adapting
their practices, processes and culture in order to support digital transformation. Six out
of ten retail executives surveyed say that in the last three years their IT function has
completely or significantly changed the way it operates to support digital initiatives,
compared with an average of 43% in other sectors. And they are pleased with the
results: 58% of retail executives are happy with their IT departments contribution to
digital initiatives, compared with just 45% of respondents in other sectors.
However, as in all industries, there are still discrepancies between the role that retail IT
departments play today and their ideal role in the eyes of both IT and non-IT executives.
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Digitising IT in retail

Specifically, many retail executives included in the survey would like to see their IT
function take a leadership role in understanding customer needs, driving innovation
and improving organisational agility.
Retail IT executives will know by now that the success they have had so far in adopting
digital practices does not mean an end to the need to evolve. Instead, they will
recognise that in the current era of digital transformation, the only stable state is one of
constant transformation.
Take Rentalcars.com, for example, the worlds largest online car-rental service.
According to CIO Graham Benson, the company is always looking for opportunities
to differentiate itself to maintain its market lead. It is being different thats made us
successful, and in order to retain that competitive position, we need to continue to
innovate and differentiate ourselves from the competition, he says.

Customer focus
The primary focus of this continual innovation is the customer experience, according to
Mr Benson. Our customer journey is key to our differentiation, he explains. So anything
that improves our customer engagement is where we try to innovate.
The same goes for Otto.de, the largest online fashion and lifestyle retailer in Germany.
Otto.des digital transformation strategy is led by consumer needs, explains CIO
Michael Mller-Wnsch. It is led by the ambition to be a company with a very
personalised approach to interacting with consumers, and to individually fulfil their
needs and desires in the market of apparel and fashion items.
This also applies to traditional bricks-and-mortar retailers, which, in an online
marketplace, cannot rely on traditional differentiators such as the number or location
of their outlets. Our customers want to have a more personal and intimate experience,
and a lot of the technologies and strategies we are implementing are to understand
them better and improve that experience, says Anthony Roberts, global CIO of
Walgreens Boots Alliance (WBA), the US-based pharmacy group.
Improving the customer (and partner) experience is the most common objective
of retailers digital initiatives, with 42% of respondents identifying it as their primary
objective. And 36% see the ability to identify withand respond quickly tocustomer
needs as the most important capability influencing the success of these initiatives, the
most common response alongside improving our organisational agility.
However, despite their overall satisfaction with their IT departments contribution
to digital transformation, on this last point retail executives would like to see more
leadership from IT. While just 19% of respondents say the IT department plays a
leadership role in understanding and reacting to customer needs, 43% believe that it
should.
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Digitising IT in retail

Another area for improvement is collaboration. Just under half of retail executives
surveyed say that the best way to help their IT department make the ideal contribution
to their organisations digital initiatives would be improving the collaboration between IT
and other departments.
Collaboration is easy to talk about and difficult to deliver, says Mr Benson at
Rentalcars.com. Technologists and marketing people work in different ways.
The company has therefore made a concerted effort to overcome the structural
hierarchies and silos within the organisation, he explains. Weve created crossfunctional product groups to allow us to be more agile in reacting and delivering
innovation.
This move has already proved its value, he adds. The transition is still under way, but
agile working pretty much delivers from day one.
At Otto.de, Mr Mller-Wnsch argues that the digital development requires staff with a
range of skills, so organisational structures that divide employees by function must be
overcome. We strongly believe that interdisciplinary working approaches will help us
to become more agile and more flexible, and also to deal with new innovative trends
and technology. We are changing from a siloed and function-oriented organisation to
a more interdisciplinary, project-oriented setup.

Centres of excellence
More than any other industry included in the study, retailers are likely to have established
digital centres of excellence within their organisation: 62% of retail respondents report
having done so in the last three years, compared with 56% of firms in other sectors (see
chart 1). And their digital initiatives are more likely to be led by a specialist digital unit
(30%, versus 24% in other sectors).
It is easy to see why retailers might favour this approach: when companies
acknowledge that digital transformation is strategically critical, they want to
concentrate their resources to develop their expertise and best practices. WBA, for
example, is building a digital centre of excellence in Chicago.
However, Mr Roberts of WBA warns companies against creating a digital silo within
the organisation. You can look at digital as a silo, and that can be good from an
incubation point of view for testing things out, he says. But sooner or later you run into
a road block, because youre looking at end-to-end processes and customer journeys,
which inevitably will touch different parts of the organisation, and certainly different
parts of your technology estate.
WBAs digital centre of excellence is instead part of a wider reorganisation of the
groups IT resources to operate a single entity, called One IT team. The digital centre
of excellence uses capabilities of a number of different locations globally, organised
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Digitising IT in retail

Chart 1
Which of the following initiatives has your organisation undertaken in the last
three years?
(% of respondents)

Retail

Other industries

Established a digital
centre of excellence

58%
60%

Promoted digital collaboration

among employees
Launched new customer-facing digital
channels, e.g. mobile apps, portals

57%
58%

Prioritised digital marketing over

traditional forms

50%

55%

52%

Launched new products or services

made possible by digital technology

60%

48%
45%

Applied digital technology to improve

internal operations
Appointed a chief digital officer

62%

56%

36%

41%

Source: The Economist Intelligence Unit.

around a common strategy and set of platforms that we can deliver across the
organisation, Mr Roberts says. The interpretation and delivery of that, and even the
way it might look to customers in a market, may be different, but under the covers we
are organised to build technologies and deliver solutions in a common way.
This is already helping the company to reuse digital expertise and experience across its
various brands. For example, before the merger with Boots in 2014 Walgreens had built
an app that turns the traditional idea of having a camera film developed at your local
chemist into a platform for sharing photos on social media. It has grown the category
tremendously, says Mr Roberts. We decided it is so good that it would work for Boots
too, which weve done using exactly the same technology. It looks like Boots on the
front end, but its actually exactly the same technology underneath.
Similarly, WBA is building on highly popular mobile apps at Walgreens for services such
as Pharmacy Chat and Refill by Scan, which lets people refill their prescriptions by
scanning a barcode on their bottle label with their mobile phone. Theres no point in
reinventing all that across the globe, notes Mr Roberts. What were doing is aligning
the teams, the organisation and the technologies, so that we can take advantage of
that capability and bring the digital assets to a wider group. We call it cook once, serve
many times.
Companies in all sectors are hungry for digital innovation, eager as they are to be
the source of disruption in their markets, not the victim. And while only 10% of retail
executives say their IT department has a leadership role in identifying opportunities to
innovate today, 36% believe that it should.
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Digitising IT in retail

Mr Roberts advises retail CIOs not to neglect their traditional responsibilities, however. In
addition to being the digital guru and the company policeman, you also have to keep
IT systems running. Its no good just focusing on innovation or digital.
He also warns against mindlessly pursuing the latest digital trends without considering
what they mean in the organisations specific context. Its a mistake just to go chasing
technology and the latest, greatest thing. While there will be some directional signposts,
this is all so new that you cant just lift and shift from other examples. You have to find
ways of making that digital strategy right for your company.
As a reflection of this, WBA does not describe digital transformation per se as one of
its priorities. Instead, it has defined a number of transformational priorities that are
supported by digital technology: What we have is priorities around the evolution of the
business, the delivery of our plans and the change of engagement with our customers.
Retail CIOs seeking to support their organisations ongoing transformation might
consider a similar approach.

About this article:

Digitising IT is a research programme by The Economist Intelligence Unit (EIU),
sponsored by SAP. This article draws on a multinational survey of 812 senior
executives, conducted in March 2016. Just under half of respondents (49%) are
senior IT executives, while the remainder represent a range of other functions,
including HR, marketing, finance and operations. Respondents are drawn from a
range of industries, including 102 in the retail sector, and from countries in Europe,
Asia, North America and Latin America.

The Economist Intelligence Unit Limited 2016