The Intelligent Retailers World of Insight Benchmark Report 2011

Brian Kilcourse and Paula Rosenblum, Managing Partners November 2011

Sponsored by:

Supporting Sponsors:

Executive Summary
In an era of continued global economic uncertainty, rapid response to market conditions is increasingly important. Once disparate departments within the retail enterprise now need to respond as a single organism. An important tool to enable this responsiveness is an Enterprisewide BI strategy. The need has grown and more retailers are moving in the direction of putting one in place. The value of this enterprise-wide strategy is to ensure that each department is operating from the same set of data, delivered at the same time. Delivery mechanisms can and will likely differ depending on the physical location of the data consumer, but the data itself is consistent across channels, geographies, departments and roles.

Business Challenges
In the five years that RSR has been conducting benchmarks on the subject of BI, retailers have consistently expressed a need to move more quickly. The need for speed remains the most frequently cited business challenge driving new BI and Analytics initiatives. But the challenge is different for Retail Winners compared to all other retailers. While average and laggard performers arent getting the information quickly enough, most Retail Winners are getting the information quickly, but are unable to react to what it reveals. Additionally, more real-time information on relevant and personalized cross-sells, up-sells and hot promotions, along with actionable information about customer complaints, should be deliverable - but the industry, for the most part, is lagging.

Opportunities
Most retailers share the same desire to retain customers longer, and as a result have shifted the focus of their BI efforts to the stores. Winners additionally focus on improving their ability to react more quickly to supply chain disruptions outside the four walls of the business. Non-winners put more faith in opportunities that are inside the four walls of the business, after the receipt of goods.

Organizational Inhibitors
For most retailers, siloed information contained in existing legacy transactional systems is by far their biggest operational impediment to delivering new generation BI capabilities. But retailers also complain more that its hard to quantify the technology ROI for new BI capabilities. To overcome this inhibitor, many are turning to pilot projects to prove the value of new BI and Analytics capabilities.

Technology Enablers
Retailers understand that without a robust technology infrastructure, transforming mountains of transaction and customer data into useable metrics is almost impossible. While the plumbing for BI is being put into place, retailers are excited at the prospect of bringing consumer-grade usability into the enterprise. But todays reality is different: while desktop scorecards and dashboards have clearly become more ubiquitous, a surprising percentage of C-level executives, store managers and other retail executives are still predominantly getting their analytics through Flash reports.

BOOTstrap Recommendations
RSRs recommendations to retailers regarding next-generation BI and Analytics are as follows:

1. Get an enterprise-wide BI strategy in place. Such a strategy will have these critical components: executive commitment; an infrastructural plan for creating, retrieving, updating, and deleting big data; a wireless plan for the stores; a roadmap that insures a step-wise approach to implementation, and modern delivery vehicles for actionable information. 2. Prioritize those who most need real-time information, and information that is most valuable. Temper the enthusiasm created by consumer-oriented smart mobile technologies with appreciation for the underlying complexities.

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Table of Contents
Executive Summary ........................................................................................................................... i Research Overview ......................................................................................................................... 1 Why Did We Undertake This Research? ..................................................................................... 1 Traditional Approaches and Conventional Wisdom Now Fall Short ............................................ 2 Guidelines Used for Describing BI in this Report......................................................................... 3 RSRs Methodology and Whats a Retail Winner Anyway?..................................................... 4 Defining Winners and Why They Win, and Why Laggards Fail ............................................... 4 Survey Respondent Characteristics ............................................................................................ 4 Business Challenges ....................................................................................................................... 6 Cant Get Information Fast Enough or Cant Act on What They See .......................................... 6 Delivery Mechanisms Lag ............................................................................................................ 7 The Data Delivered Remains Somewhat Pedestrian .................................................................. 8 Despite the Challenges, Opportunities Abound ........................................................................... 9 Opportunities ................................................................................................................................. 10 Pushing Reaction Time To The Front Of The Process .............................................................. 10 Getting Smart In The Store ........................................................................................................ 11 What About New Demand Signals From Social Media? ........................................................... 12 Organizational Inhibitors ................................................................................................................ 14 Siloed Systems Supporting Siloed Business Units .................................................................... 14 Status Quo ................................................................................................................................. 15 Pilot Projects Gain Favor ........................................................................................................... 16 Technology Enablers ..................................................................................................................... 18 Theres a Lot of Plumbing Under those Dashboards ................................................................. 18 Beyond the Excitement and Promise, Whats the Reality Today? ............................................ 19 BOOTstrap Recommendations ..................................................................................................... 21 1. Get an Enterprise-wide BI Strategy in Place ......................................................................... 21 2. Prioritize those Who Need Real-time Information Most ......................................................... 21 3. Temper Enthusiasm with Appreciation for Complexity of the Task ....................................... 21 Appendix A: RSRs Research Methodology .................................................................................... a Appendix B: About Our Sponsors.................................................................................................... b Appendix C: About RSR Research.................................................................................................. d

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Figures
Figure 1: Not Your Fathers Uses for Business Intelligence ............................................................ 1 Figure 2: Enterprise-wide BI: 80% are doing SOMETHING. ....................................................... 3 Figure 3: Either We Cant Get the Data or We Cant Do Anything about It ..................................... 6 Figure 4: Smaller Retailers Challenged to Recognize Best Customers .......................................... 7 Figure 5: Delivery Vehicles Lag for Everyone but Consumers ........................................................ 8 Figure 6: Pedestrian Data Yields Sub-optimal Results ................................................................... 9 Figure 7: Nimble On The Buy Side? .............................................................................................. 10 Figure 8: Getting Back To The Store ............................................................................................. 12 Figure 9: Not Getting All The Signals - Yet ................................................................................... 13 Figure 10: Legacy .......................................................................................................................... 14 Figure 11: Frog In a Kettle? ........................................................................................................... 15 Figure 12: Try It, Youll Like It! .................................................................................................... 16 Figure 13: Infrastructures Matter ................................................................................................... 18 Figure 14: Delivery Mechanisms all Sound Really Appealing ................................................... 19 Figure 15: but Reality Lags Behind ............................................................................................ 20

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Research Overview
Why Did We Undertake This Research?
Business Intelligence and its resultant analytics have come a long way in retail over the past five years. These changes are enabled by faster hardware and informed by new data and user interfaces emerging from the consumerization of IT. New, simpler to use tools and techniques are being used by retailers track and monitor performance. Specifically we find BI-generated reports, dashboards and alerts: moving out of the glass house into the hands of decision-makers shifting from long lag-time look backs to near-real-time feedback loops becoming more granular and detailed shifting focus from solely within the enterprise to 360 degree views from source to consumption

This is evident in retailers assessment of BI value (Figure 1):

Figure 1: Not Your Fathers Uses for Business Intelligence

Value of BI to Support Business Processes

Very Relevant Somewhat Relevant Little to No Relevance 62% 57% 42% 42% 39% 38% 36% 36% 29% 40% 29% 36% 45% 54% 41% 40% 32% 30% 5% 12% 19% 29% 25% 16% 11% 23% 31%

Track key performance data to control our internal processes and compare actual performance against plan Understand customer behaviors in order to execute our business strategy and build loyalty A tool to support more timely responsiveness to demand changes A tool to manage exceptions as they are happening, not after-the-fact Match internal process performance metrics to customer satisfaction metrics to assess the value of Help optimize supply chain performance Help plan product assortment, allocation, pricing and promotions Maximize the value of our investments in inventory Enable a 360 degree view of our business (customers, suppliers & partners, internal operations)

Source: RSR Research, November 2011

While retail over-performers (the group RSR calls Retail Winners) have a slightly different focus than the aggregate, the overall response pool calls out the importance of getting information faster and places a greater focus on evaluating the entire value chain, from source to consumption.

Retail Winners tend to be more outwardly focused than their peers: 40% of Retail Winners find 360 degree views of the business to be very relevant vs. 15% of all other respondents 69% of Retail Winners believe understanding customer behaviors to help build business strategy is very important vs. 35% of all other respondents Almost half (47%) of Retail Winners believe in is very important to match their internal performance metrics with customer satisfaction metrics to evaluate their business vs. only one quarter (25%) of all other respondents Clearly in an era of continued global economic uncertainty, rapid response and outwardly facing metrics are increasingly important.

Traditional Approaches and Conventional Wisdom Now Fall Short

Retailers and economists have long used metrics like consumer confidence and the fluctuating price of oil and other commodities as a predictor of demand. They have also used their own products past performance as prelude to the future. But the Great Recession and the uncertain economic years that followed have shown these forecasts to be unreliable for retailers at all levels 1 of performance . Similarly, conventional wisdom long held that all reductions in payroll-to-sales ratios in stores were good reductions. However, as the web and other selling channels have become more convenient, the lack of helpful staff in stores has become more obviously inconvenient for shoppers who have found their voice in Social Media, and found alternatives through mobility. 2 RSRs research has shown payroll-to-sales ratios are finally stabilizing , but tools are clearly needed to insure that in-store payroll is acting as productively and as frequently in customerfacing roles as possible. In the face of so much uncertainty, and with the need to respond as a single organism rather than as a set of disparate departments, the recognition of the value of an Enterprise-wide BI strategy has grown and more retailers are moving in the direction of putting one in place (Figure 2).

Twenty-first Century Merchandising Takes Hold: Benchmark Report 2011, RSR Research, August 2011 2 st The 21 Century Store: The Search for Relevance, Benchmark Report, RSR Research, June 2011 2

Figure 2: Enterprise-wide BI: 80% are doing SOMETHING.

To What Extent Does Your Company Have Enterprise-wide BI Strategy in Place?

We've had one in place for longer thantwo years We've have one in place for less than two years We're working on putting one in place We see the value, but it'snot at the top of our priority list Very low priority or no plans 5% 17% 28%

35%

15%

Source: RSR Research, November 2011

The value of an enterprise-wide strategy is that it insures each department is operating from the same set of data, delivered at the same time. Delivery mechanisms can and will likely differ depending on the physical location of the data consumer, but the data itself is consistent across channels, geographies, departments and roles.

Guidelines Used for Describing BI in this Report

Weve found differences in terms used by retailers and vendors when describing BI and analytics. To set a level playing field, we make the following distinctions: Many people consider the terms Business Intelligence (BI) and Analytics to be interchangeable. For our purposes in this report, we will take this route. BI churns data and produces outputs. Those outputs are analytics. For our purposes, they both fall under the topic BI. Advanced analytics offer the ability to optimize pricing, model customer behavior, segment customers, forecast demand and more. As part of an enterprise BI strategy, these advanced analytics should be reviewed distinctly from reporting and are beyond the scope of this document. Our definition of real-time BI means as real-time as it needs to be. As well see later, in many instances, retailers are receiving information faster than they can actually use it. In our view real-time BI delivers actionable information into the hands of decision-makers.

With these nuances explained, well move on to the details of the report.

RSRs Methodology and Whats a Retail Winner Anyway?

RSR uses its own model, called the BOOT, to analyze Retail Industry issues. We build this model with our survey instruments. Appendix A contains a full explanation of the methodology. In a nutshell, the BOOT consists of four parts: Business Challenges the external challenges a company faces. Opportunities the ways the company perceives it can overcome those challenges Organizational Inhibitors the internal barriers the company faces that may prevent it from taking advantages of the opportunities it sees Technology Enablers assuming a company can overcome its internal issues, the technology tools it can use to support taking advantage of the opportunities it identifies

Defining Winners and Why They Win, and Why Laggards Fail
In our surveys, we continue to find differences in the thought processes, actions, and decisions made by retailers who outperform their competitors and the industry at large Retail Winners. The BOOT model helps us better understand the behavioral and technological differences that drive sustainable sales improvements and successful execution of brand vision. Our definition of these Retail Winners is straightforward. We judge retailers by year-over-year comparable store/channel sales improvements. Assuming industry average comparable store/ channel sales growth of two percent (the bar in a post-recession world is relatively low), we define those with sales above this hurdle as Winners, those at this sales growth rate as average, and those below this sales growth rate as laggards or also-rans. Because there have been so many strong retail comebacks post-recession, we also identified those whose comparable increases exceeded 10%. It is consistent throughout much of RSRs research findings that Winners dont merely do the same things better, they tend to do different things. They think differently. They plan differently. They respond differently. Laggards also tend to think differently. They may have spectacular vision, but often fail on execution. They may forget the power and breadth of choices todays customer has. They fail to re-invent themselves when it becomes obvious their existing business model is no longer working. They dont change their business processes in an effective manner, and so they either eschew technology enablers, or dont gain expected Return on Investment on those they DO buy. In good times, they skate by: in tough times these weaknesses come back to haunt them.

Survey Respondent Characteristics

RSR conducted an online survey from July - October 2011 and received answers from 95 qualified retail respondents. Respondent demographics are as follows: Job Title: Senior Management (CEO, CFO, COO) Vice President Director/Manager Internal Consultant Internal Staff & Other 2010 Revenue ($ Equivalent): Less than $249 Million $250 - $999 Million

23% 32% 27% 6% 12%

32% 9%

$1 - $5 Billion Over $5 Billion Selling Format: Fast Moving Consumer Goods General Merchandise and Apparel Food Service/Hospitality Headquarters/Retail Presence: United States Canada Latin America Europe United Kingdom Asia Pacific Middle East Africa

26% 18%

38% 46% 16%

61% 7% 2% 11% 4% 11% 1% 2%

67% 26% 20% 27% 21% 31% 11% 10%

Year-Over-Year Comparable Store Sales Growth Rates (assume average growth of 2%): Worse than Average (Laggards) 16% Average 19% Better than Average (Retail Winners) 54% More than a 10% Improvement 11%

Business Challenges
Cant Get Information Fast Enough or Cant Act on What They See
In the five years that RSR has been conducting benchmarks on the subject of BI, retailers have consistently expressed a need to move more quickly. In 2007, this was at least somewhat influential to more than 90% of survey respondents. This year the need for speed remains the most frequently cited business challenge (Figure 3).

Figure 3: Either We Cant Get the Data or We Cant Do Anything about It

Top Three Business Challenges that Create Interest in Using Near-real-time BI

All Respondents Winners All Others 48% 33% 41% 33% 48%

We cant act quickly enough on the information we receive Cant support customer cross-channel activities very well Marketing doesnt know what customer sentiment is until we can see it in sales Merchants dont get information fast enough to react to differences between what they thought would happen vs. what is actually happening We struggle to match inventory to demand

59%

46% 48% 47% 52% 48% 33% 31% 27% 28% 17% 27% 37% 60%

60%

Cant identify our best customers to offer special incentives to them while they are shopping Logistics managers dont get information fast enough to minimize the impact of supply chain problems

10%

Source: RSR Research, November 2011

But weve also seen a shift this year. While just more than half of respondents are not getting information to merchants quickly enough, just under half of respondents get the information, but cant act on what they receive. The organizations ability to respond lags its ability to inform. This is most evident when looking at Retail Winners vs. the rest of the respondent pool. Sixty percent of average and laggard performers arent getting the information quickly enough, and 59% of Retail Winners are getting the information quickly, but are unable to react.

More significant differences emerge when looking at Retailers across different revenue bands. The largest retailers, those with annual revenue over $5 billion are caught in BOTH conundrums. Seventy percent report their merchants dont get information fast enough (vs. only 38% of retailers with annual revenue less than $250 million), and 60% report that they cant act quickly enough on that information when they do get it. These are the most significant business challenges they face, by a wide margin. The smallest retailers, on the other hand, also cant act on what they do receive (69%), but in addition they are challenged to identify their best customers (Figure 4).

Figure 4: Smaller Retailers Challenged to Recognize Best Customers

Identifying Best Customers as a Business Challenge (based on Annual Revenue)

60% 46% 30% 17%

Less than $249 million

$250 million - $999 $1 Billion to $5 Billion million

Over $5 Billion

Source: RSR Research, November 2011

This is problematic, given that most small and mid-sized retailers attempt to differentiate through knowing their customers and the products they prefer. Without a proper BI infrastructure and tools, they may find themselves losing their most important advantage against their larger competitors. When Amazon.com knows your customers preferences better than you do, a local retailer is in serious trouble.

Delivery Mechanisms Lag

When we look at the most typical delivery vehicles used to present BI data to various constituents, it becomes easier to understand why its hard to both get and react to data. Dashboards are great tools for desk-bound C-level and Line of Business (LOB) executives and managers, but fall short when delivered to people in the field, like store managers and employees. And the still ubiquitous flash sales report typically involves poring over information, rather than creating an instant call to action (Figure 5).

Figure 5: Delivery Vehicles Lag for Everyone but Consumers

Most Typical Delivery Vehicles for BI Constituents

Desktop Scorecard/Dashboard Desktop Alerts Mobile Scorecard/Dashboard Mobile Alerts "Flash" Reports

C-level Executives Line of Business Executives -Vice Presidents & Directors Designated Analysts Line Level Managers Store Managers Employees Customers Supply Chain Partners Supply Chain Managers
19% 27%

43% 54% 50% 47% 45% 40% 15% 4% 21% 46%

6% 4% 2% 6% 4% 2% 17% 17% 2% 4%

45% 33% 26% 26% 32% 36% 27% 9% 5%3% 30% 24%

6% 4%

11% 6% 6% 21% 35% 12% 22% 2% 0%

Source: RSR Research, November 2011

Today, customers are the most likely recipients of mobile alerts across all revenue bands. Obviously this needs to change. Store Managers and employees must be armed with up-to-date information, and cant be expected to sit at desks or pore over reports while customers wander around the store, smart phones in hand. Happily we are seeing many indications of pre-packaged mobile solutions coming from the vendor community, and are hearing early use-case results and new pilots underway for in-store employees. The explosion of tablets as an affordable form-factor is making this shift possible and we expect to see a significant uptick in adoption over the coming year.

The Data Delivered Remains Somewhat Pedestrian

Just as delivery mechanisms have lagged, so have the data elements being delivered to constituents. While its useful to know best and worst sellers, we also believe tools to identify best customers as they enter the store or corporate ecommerce site should be part of the BI data portfolio. As we can see below in Figure 6, however, the data delivered remains uninteresting. Wed love to see more real-time information on relevant and personalized cross-sells, up-sells and hot promotions, along with actionable information about customer complaints, but the industry, for the most part, is lagging. Well investigate the reasons for this more in the section on Organizational Inhibitors, but make note of it here.

Figure 6: Pedestrian Data Yields Sub-optimal Results

Most Typical Near Real-time Information Delivered to Constituents

Current sales (Best sellers/worst sellers) Performance to plan Inventory exceptions (out of stock or overstock) Financial scorecard Expected sales Hot Promotions Customer complaints Loss Prevention alerts Expected Receipts 26% 26%
Source: RSR Research, November 2011

74% 63% 57% 46% 46% 39% 33%

We see no appreciable difference across revenue bands or performance level. While the industry aspires to become more customer-friendly, it lags in delivering relevant information to those who might help make it so.

Despite the Challenges, Opportunities Abound

Given that retailers recognize their challenges, and given the explosion of mobile delivery tools and techniques, coupled with ever more ubiquitous big data hardware, we expect to see retailers making a great leap over the coming year, In the next section well identify the areas they are most interested in exploring,

Opportunities
Pushing Reaction Time To The Front Of The Process
Most retailers share the same desire to retain customers longer, but Winners differ from others in their thought process on achieving that objective (Figure 7).

Figure 7: Nimble On The Buy Side?

Rate the following opportunities you see from realtime BI to help overcome those business challenges
(A Lot Of Opportunity) Winners
Higher customer retention Better what if modeling capabilities for matching demand with assortment, price, and promos at a Better reaction to supply chain shocks Increased shopping frequency Improved merchandise productivity Higher average transaction value Improved IT responsiveness & better system performance Rapid response to changes in consumer demand Better match of labor to customer flows just in time Improving supply chain network management Adjust space allocated for specific product in response to sales spikes Exception alerts point out the need for more training Reduce or eliminate re-work at stores or DC Reduced shrink 27% 42% 53% 38% 47% 54% 73% 52% 50% 57% 73% 36% 65% 80%

Others
73% 80% 70% 67% 67%

35% 40% 35% 60% 35%

35% 29% 22% 40%

Source: RSR Research, November 2011

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Retailers want to be able to perform more what if analyses with their BI capabilities, but the scenarios they are interested in analyzing differ. Winners are much more focused than their lesser performing counterparts on improving their ability to react more quickly to supply chain disruptions outside the four walls of the business. These disruptions can ultimately cause consumer dissatisfaction. Non-winners put more faith in opportunities for a better response to changes in consumer demand, and the ability to adjust space allocated to a specific product in response to sales spikes. These opportunities are inside the four walls of the business, after receipt of goods from suppliers. Its an important distinction. While most non-winners dont see a lot of opportunity on the supply chain side of their business, a majority does see opportunities for increased shopping activity, improved merchandise productivity, and higher average transaction value. While these are important, they are outcomes. As we have seen in other studies, Retail Winners take an activist role in framing their future prospects, while laggards tend to position themselves as victims of circumstance. For over-performing retailers, that means gaining visibility as far into the supply chain as possible to gain the lead-time they need to alter their plans and exceed consumer expectations. Another opportunity area also deserves mention: over twice as many non-winners as Winners see an opportunity to use BI to better control shrink than Winners. This again points to a historical difference between Winners and others; they have better control of shrink to begin with thus theres less of an opportunity for them as for others. Finally, while a majority of respondents see an opportunity to use BI for improved system performance, that choice is oddly out of place with other highly ranked opportunities.

Getting Smart In The Store

In RSRs June 2011 report entitled The 21 Century Store: The Search For Relevance , we said: The evolution and proliferation of consumer-held technologies have brought stores to their Rubicon. The question retailers face is no longer, How can we make the in-store experience as satisfying as the web? It has become, How can we make our stores more significant than showrooms for online merchants? Theoretically, that quandary is resolved through the effective use of information, specifically by informing store-level operational processes with actionable information derived from the companys BI and analytics capabilities in something approaching real-time. Consumers have information at their fingertips nowadays that often exceeds any of the information available to store management and personnel. If that kind of pressure werent enough, theres also the challenge of running the store at optimal productivity, having neither too much nor too little inventory, having the right assortment at the right place and time, and having the right number of service employees on hand to meet the demands of those hyper-informed consumers. Retailers are seeking to eliminate the lag time to action, to achieve both the goal of servicing knowledgeable customers better, and to run a more optimized operation.
st 3

The 21st Century Store: The Search for Relevance, Benchmark Report, June 2011, 2011 RSR Research LLC

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In an apparent response to these concerns, retailers have shifted the focus of their BI efforts to the stores (Figure 8). Whereas only last year almost of retailers who responded to our study indicated that all channels would receive equal benefit from realizing the opportunities in BI and analytics capabilities, this year the best value is perceived to come from improving performance at the stores, far more than the other selling channels.

Figure 8: Getting Back To The Store

What Channel Can Gain the Most Benefit from Near Real Time BI?
2011 2010

Brick and Mortar stores

55% 40% 14% 11% 2% 0% 10% 2% 19% 47%

Source: RSR Research, November 2011

Ecommerce

Catalog/call centers

Mobile Commerce

All channels can take equal benefit

This response is heavily weighted to non-winners, who overwhelming chose the store as the #1 benefactor of better BI capabilities (73%). Winners have a far more balanced perspective, but still also give most weight to the stores (44%).

What About New Demand Signals From Social Media?

In RSRs report entitled Social Medias Impact on Customer Engagement , responses from retailers showed us that: Top Winners see Social Medias potential to create new demand signals. Of course, messages from various Social Media, whether in the form of Facebook postings, email messages, blog entries, or Twitter tweets are not data they are sentiments expressed in plain (or natural) language. Until recently, there were few technical ways of turning that
4 Social Medias Impact on Customer Engagement, Benchmark Report, May 2011, 2011 RSR Research LLC
4

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unstructured text into something that can be transformed into true insights. But that has changed in the last two years as technology providers have brought natural language processing capabilities to the market Top Winners are aware of the opportunity that such technologies represent, and (more than other retailers) want those capabilities to turn customer sentiment expressed in Social Media into new demand signals. The question for our retailers in this study was how much progress had they made towards being able to consume and analyze new unstructured data from non-transactional systems such as social media to optimize their value offerings? The answer is mixed (Figure 9).

Figure 9: Not Getting All The Signals - Yet

Value Opportunities from Social Media Networks

Potentially at Least Some Value Actually Achieved at Least Some Value

Facebook

90% 69% 74% 45% 69% 28% 59% 18% 53% 21%

Twitter

YouTube

Location based social networks, eg. FourSquare, shopkick Presence on commerce portal such as Amazon.com

Source: RSR Research, November 2011

Retailers ability to consume un-structured information from Facebook is reflective of that platforms overwhelming popularity with consumers. For our retailers, no other source comes close, even though 45% of respondents say that they can now also use signals from Twitter to glean business intelligence. But as well see later in this report, its not at all clear that retailers are using such sophisticated tools as natural language processors to convert unstructured into structured data. Its far more likely that signals from the social media cloud are being translated into something usable by external sources, such as the social media platforms themselves, in the form of statistics. While that information is useful, its limited by how much the provider can or will provide.

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Organizational Inhibitors
Siloed Systems Supporting Siloed Business Units
For most retailers, siloed information contained in existing legacy transactional systems is by far their biggest operational impediment to delivering new generation BI capabilities (Figure 10). In this regard, Winners fared only slightly better than the total response group (72%).

Figure 10: Legacy

Identify The Top Three (3) Operational Challenges You Face That Create Interest In Using Near-realtime BI In Your Company

Information is siloed

75%

Our operational units dont work well together Our store managers dont have the information they need to run their stores more efficiently We get valuable insights from social networking sites, but cant use it for decisionmaking LP Managers dont get information fast enough to react to exceptions Our IT department doesnt get information fast enough to react to outages and other system problems

48%

45%

38%

32%

30%

Source: RSR Research, November 2011

Where Winners did outshine their competition is in the second-ranked operational challenge, that the our operational units dont work well together. They are learning to work cohesively. Twenty-five percent fewer Winners than the total response group (36% compared to 48% overall) rated that a top operational challenge. Presumably, most Winners have addressed the organizational challenges and varying compensation strategies that prevent line-of-business organizations working well together. Another important operational challenge identified by the survey respondents is that we get valuable insights from social media networking sites, but cant use it for decision making. The response from Winners and others was consistent. Given the high potential value that retailers

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assign to social media (Figure 9), one has to conclude that for some retailers the signals to be derived from social media havent affected their merchandising plans yet. Social media is still in its early days, but its important to look at the other side of that response 62% of our respondents didnt choose that as a top operational challenge. Given earlier responses about the value of information derived from social media, its a good bet that a plurality of retailers have managed to eke value out of the feedback they get form consumers, however it is that they get it.

Status Quo
In RSRs 2010 BI study, when we asked retailers specifically to identify the top three organizational inhibitors keeping them from taking advantage of real-time BI, retailers confessed to an inability to get data into a usable format and a lack of funds to do the deed. It is somewhat surprising to see then, in Figure 11, that not much has changed, except that retailers seem to be more acutely aware of the organizational issues that stand in the way of delivering improved BI capabilities.

Figure 11: Frog In a Kettle? Identify The Top Three Organizational Inhibitors Standing In The Way Of Taking Advantage Of The Opportunities Identified
2010 The data we need has to be manually pulled from operational systems There are budgetary constraints to creating integrated processes and systems Hard to quantify technology return on investment for new BI capabilities Different versions of the truth data in different operational systems that cant easily be We dont believe we can react quickly enough to the information a real-time BI system might tell us Our technology infrastructure is difficult to change and adapt We have no idea what to do with the data we get from social network and customer feedback sites Entrepreneurial reactive culture makes it difficult to agree on standardized alerts and metrics Poorly defined store-level processes 20% 18% 17% 12% 15% 20% 30% 2011 46% 41% 46% 37% 54%

38% 34% 29% 27% 29% 27%

Source: RSR Research, November 2011

Most startling of all is that retailers complain more that its hard to quantify the technology ROI for new BI capabilities (23% more of responding retailers claim this as a top 3 inhibitor than in 2010).

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Instead, given the challenges and opportunities that retailers have identified, the fact that the same old inhibitors stand in the way of progress seems incomprehensible. The answer to this paradox might be found in the challenges that retailers have been trying to address in these times of mobile and hyper-informed consumers. Retailers have a lot on their plates: channel integration, consumer and employee facing mobile capabilities, the reintegration of the store into an omni-channel world, the rise of the CMO and customer-centric marketing strategies. All of these are important, and investment in new BI capabilities is apparently taking a back seat to them all.

Pilot Projects Gain Favor

Given that retailers continue to fret over the ROI for investments in ROI vs. the potential value to be had from new BI capabilities, our respondents indicate an increased willingness to undertake pilot projects to prove the value (Figure 12).

Figure 12: Try It, Youll Like It! Rate The Value Of The Following In Overcoming The Organizational Inhibitors You Face To Implementing Capabilities To Deliver Near Real-time Information
A Lot Of Value Some Value Little Or No Value 65% 64% 58% 55% 42% 41% 41% 41% 39% 38% 38% 18% 51% 47% 41% 44% 44% 37% 54% 44% 30% 31% 42% 40% 5% 5% 0% 5% 11% 18% 15% 15% 24% 8% 18% 31%

Pilot programs to prove ROI business case Executive Mandate Improve employee training to start entering cleaner data Simpler analysis tools Cheaper, faster technology Wireless devices that can deliver alerts to employees in real-time More sophisticated tools to collate the unstructured data we gather Improve our POS systems to start gathering better data Hosted solutions (SaaS BI) Bringing in outside expertise to drive internal business process change Create an ROI-based business case to gain more resources for improving BI capabilities Improved integration tools

Source: RSR Research, November 2011

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While strong executive-level sponsorship of investments in BI remains a top method for overcoming inhibitors (as it has in every prior study weve undertaken about BI), establishing pilot projects to prove the ROI has risen to #1 (from #5 in our 2010 study). This rise in importance of pilot projects is a testament to the urgency that retailers feel to get the ball rolling when it comes to new investments in BI.

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Technology Enablers
Theres a Lot of Plumbing Under those Dashboards
When thinking about BI and analytics, we often look from the interface first, and then think about the underpinnings. In fact, without a robust technology infrastructure, transforming mountains of transaction and customer data into useable metrics is almost impossible. Our retail respondents clearly recognize this undeniable truth (Figure 13).

Figure 13: Infrastructures Matter

Value Opportunities from Infrastructure Tools

Potentially at Least Some Value Actually Received at Least Some Value

Data transformation & aggregation tools (to help enable normalization of disparate transactional data formats into one version of the truth Integration middleware between operational systems

100% 97%

100% 80%

Natural language processors, to convert unstructured data (e-mails, text, tweets, etc.) into structured data

97% 63%

Source: RSR Research November 2011

While we have some doubt that 63% of respondents are currently gaining real benefits from Natural Language Processors, we have no doubt that retailers understand the value of getting their disparate data into a single, usable format through data transformation tools and integration middleware. We are encouraged to see this universal appreciation of the underpinnings of BI, especially since at least half our respondents come from the business, rather than technology side of the retail house. In that spirit, its a bit easier to understand the over-enthusiastic response to perceived value received from Natural Language Processors. Line-of-business executives are finally trying to learn the language of IT, and while they may not have a thorough understanding of the differences between data transformation and aggregation tools, and Natural Language transformation tools, they get that the plumbing is necessary to get the results they want. We see a similar pattern when looking at perceived and actual value of various delivery mechanisms for BI (Figure 14).

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Figure 14: Delivery Mechanisms all Sound Really Appealing

Value Opportunities from Different Delivery Mechanisms

Potentially at Least Some Value
Company-owned smart mobile devices (Phones, iPad, etc.) Store Manager or Employee portals Commercial / pre-integrated application suite Corporate-wide Email Employee owned smart mobile devices Instant messaging via the internal network Integrated voice/data network at the store level

Actually Received at Least Some Value 98% 94% 92%

75% 73% 70% 71% 76% 34% 54% 47% 70% 71% 87%

Source: RSR Research, November 2011

The enthusiasm among all respondents is palpable. The iPad and iPhone have provided an epiphany for many retailers, with notable massive purchases at mega-retailers like Lowes (34,000 iPhones ordered for employees in 2011), and Nordstrom (purchasing iPads for sales associates to be used for both mobile check-out and clienteling). Perhaps the most interesting data point in Figure 14 revolves around the value and usage of corporate-wide email. Only here has actual value lived up to its potential. In fact, the world of email has matured to a point of diminishing returns. Retailers are far more enthusiastic at the prospect of instant messaging when necessary through either corporate or employee owned devices than perpetuating the verbose mlange of emails that every executive pores through on a daily (or hourly) basis. Our only caveat here is retailers propensity to drown themselves with information. A barrage of instant messages can prove to be as unnerving and counterproductive as a bulging in-box. Discipline is still needed, or new tools will turn out to be as confusing as their predecessors.

Beyond the Excitement and Promise, Whats the Reality Today?

We have no doubt that plumbing is being put into place, and we also are quite certain that retailers are excited at the prospect of bringing consumer-grade usability into the enterprise. After all, there are very few user manuals sent along with new apps for mobile phones and tablets why do we need training and classes in the use of our enterprise applications? Beyond the promise, whats actually in use today? As we can see in Figure 15, actual delivery mechanisms are quite different than the picture painted above.

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Figure 15: but Reality Lags Behind

Most Typical Delivery Vehicles for BI Constituents

Desktop Scorecard/Dashboard Desktop Alerts Mobile Scorecard/Dashboard Mobile Alerts "Flash" Reports

C-level Executives Line of Business Executives -Vice Presidents & Directors Designated Analysts Line Level Managers Store Managers Employees Customers Supply Chain Partners Supply Chain Managers 19% 27%

43% 54% 50% 47% 45% 40% 15% 4% 21% 46%

6%4% 2% 6%4% 2%

45% 33% 26% 26% 32% 36% 27% 9% 5% 3% 30% 24%

17% 2% 4% 17% 6%4%

11% 6% 6% 21% 35% 12% 22% 2% 0%

Source: RSR Research, November 2011

While desktop scorecards and dashboards have clearly become more ubiquitous, a somewhat stunning percentage of C-level executives, store managers and other retail executives are still predominantly getting their analytics through Flash reports. Of course, in todays real-time world, even the name flash reports is a bit of a misnomer, left over from a time when they really just referred to unaudited sales data being given to users. The only constituent that seems to be getting the results of BI delivered to them on mobile devices is the consumer. Thirty-five percent of respondents do deliver information to consumers on mobile devices. Were not convinced that this information is all analytical in nature, but certainly it has been scrubbed for relevancy. In fact, some might argue that some of the data being delivered to consumers, based on computer cookie analysis shifts from relevant to creepy. Its disconcerting for a consumer who has been browsing for shoes on one site to find ads for shoes showing up as sidebar ads on their Facebook pages. Yes business intelligence was used, yes the information was personalized, but it is not necessarily desirable. This delicate line between relevance and intrusion will be explored extensively over the coming years.

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BOOTstrap Recommendations
Were really encouraged to see retailers enthusiasm for new tools and delivery mechanisms for BI and analytics especially given the business-base of most of our respondents. We believe retailers can leverage that enthusiasm and create new applications to provide digestible information to the people who need it on retailings front lines. Towards that end, we present three recommendations.

1. Get an Enterprise-wide BI Strategy in Place

The successful enterprise-wide BI strategy will have several critical components: Infrastructure: Hardware is now available to support Big Data. Build the integration bridges from operational systems directly to the data warehouse. Executive Involvement: From the responses weve received to our BI survey, we believe Line of Business users are ready and willing to become engaged. Theyll even talk about infrastructure issues, since they recognize the importance of overcoming them. A Roadmap: An enterprise-wide BI strategy should include a step-wise approach to adding incremental value with BI and its associated outputs. Think about appropriate hardware platforms, data transformation tools and techniques, and layering in reporting, alerts, and finally advanced analytics that are retail-specific solutions. A Wireless Plan for Stores: Even the best insights will lose value if theyre not delivered in a timely fashion to the people that need them in the field. The time is NOW to put a wireless infrastructure in place. Customers can use 3G and 4G to educate themselves. Retailers will need the wireless infrastructure for store managers and employees. Letting customers hop on the bus will just be a plus. Modern Delivery vehicles: The days of desktop dashboards and flash reports are drawing to an end. Consumer grade usability has become the order of the day. No one gets a user manual with consumer apps. BI can be equally as simple. Plan for simplicity as an output of back-office complexity.

2. Prioritize those Who Need Real-time Information Most

Scorecards are useful after the fact, but real-time exception alerts are most valuable to those on the front lines: in call centers, stores and distribution centers. Giving information to those who can actually do something with it is critical.

3. Temper Enthusiasm with Appreciation for Complexity of the Task

The consumerization of IT has given the non-technical user a real appreciation for the value of technology tools. However, expectations may sometimes outstrip reality. There are no magic bullets in successful retailing. Insights delivered in a timely fashion will foster success, but it will take some time to build those insights. Brand building with words and pictures is relatively easy compared to the collation and synthesis of mountains of data into actionable information. While technology development cycles are faster than they used to be, populating apps with highpowered data will take some time. We live in very exciting times. The fact that half our respondents can deliver information faster than their organizations can respond to it is actually a huge leap forward. Business Intelligence and analytics will support the return to holistic retailing the RSR has been recommending for st several years. Holistic retailing in the 21 century is channel-aware but non-prejudicial (store,

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mobile, on-lineall are equally important and synergistic), collaborative rather than siloed, and forward, rather than backward looking, and customer, rather than product-centric.

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Appendix A: RSRs Research Methodology

The BOOT methodology is designed to reveal and prioritize the following: Business Challenges Retailers of all shapes and sizes face significant external challenges. These issues provide a business context for the subject being discussed and drive decision-making across the enterprise. Opportunities Every challenge brings with it a set of opportunities, or ways to change and overcome that challenge. The ways retailers turn business challenges into opportunities often define the difference between Winners and also-rans. Within the BOOT, we can also identify opportunities missed and describe leading edge models we believe drive success. Organizational Inhibitors Even as enterprises find opportunities to overcome their external challenges, they may find internal organizational inhibitors that keep them from executing on their vision. Opportunities can be found to overcome these inhibitors as well. Winning Retailers understand their organizational inhibitors and find creative, effective ways to overcome them. Technology Enablers If a company can overcome its organizational inhibitors it can use technology as an enabler to take advantage of the opportunities it identifies. Retail Winners are most adept at judiciously and effectively using these enablers, often far earlier than their peers.

A graphical depiction of the BOOT follows:

Appendix B: About Our Sponsors

Netezza, an IBM Company, is the global leader in data warehouse and analytic appliances that dramatically simplify high-performance analytics across an extended enterprise. Netezzas technology processes enormous amounts of data at exceptional speed, providing a significant competitive and operational advantage to retailers worldwide including Catalina Marketing, Guitar Center, Michaels, Neiman Marcus, Nielsen, Ross Stores and Yum! Brands.

With SASs 35 years of advanced analytics and retail domain expertise, retailers choose SAS to drive better business results. SAS provides winning retailers with solutions for retail merchandise planning, size optimization, localized assortment optimization, allocation, space planning and optimization, price optimization, customer insight, social media analytics, campaign management and advanced forecasting across the enterprise. SAS provide flexible deployment models, and SAS retail intelligence is ramped up at your pace. Retailers turn and return to SAS because SAS drives better results. For further information, visit http://www.sas.com/retail/

Supporting Sponsors

By enabling more content, mobility and capabilities than ever before, Intel gives you the advantage in a rapidly changing world. With advanced silicon, industry standard platforms, modular infrastructure solutions and ecosystem support, Intel can help you deliver a more compelling digital lifestyle. Intel, the world leader in silicon innovation, develops technologies, products and initiatives to continually advance how people work and live. Additional information about Intel is available at

www.intel.com/go/ic.

Manthan Systems produces cutting edge analytic solutions for global retailers. Manthan's breakthrough solutions, under the brand name ARC, transform the way retailers use analytics driven decision making for strategic advantage. The ARC product portfolio spans the entire spectrum of retail decision making with role-based, pre-built applications, and includes products for merchandising analytics, financial analytics, customer centric analytics, supplier portal and analytics. These award winning products provide a significant edge to an organizations analytical capability and maturity, and are proven to deliver unmatched business benefits in a remarkably short timeframe. Manthans experience spans a wide range of retail segments and formats, having transformed decision making for over 50 leading Retailers in 16 countries. For more information visit www.manthansystems.com.

For more than 35 years, RedPrairies best-of-breed supply chain, workforce, and all-channel retail solutions have put commerce in motion for the worlds leading companies. Installed in over 60,000 customer sites across more than 50 countries, RedPrairie solutions adapt to help ensure visibility and collaboration between manufacturers, distributors, retailers, and consumers. RedPrairie is prepared to meet its customers current and future demands with multiple delivery options, flexible architecture, and 24/7 technical and customer support. For a world in motion, TM RedPrairie is commerce in motion . To learn more about how RedPrairie solutions can optimize your inventory, improve employee productivity, or increase sales, visit RedPrairie.com or email info@RedPrairie.com.

Appendix C: About RSR Research

Retail Systems Research (RSR) is the only research company run by retailers for the retail industry. RSR provides insight into business and technology challenges facing the extended retail industry, providing thought leadership and advice on navigating these challenges for specific companies and the industry at large. We do this by: Identifying information that helps retailers and their trading partners to build more efficient and profitable businesses; Identifying industry issues that solutions providers must address to be relevant in the extended retail industry; Providing insight and analysis about a broad spectrum of issues and trends in the Extended Retail Industry.

Copyright 2011 by Retail Systems Research LLC All rights reserved. No part of the contents of this document may be reproduced or transmitted in any form or by any means without the permission of the publisher. Contact research@rsrresearch.com for more information.