Removing Omni-Channel Silos Creates Competitive Advantage

The whole point of omni-channel is for retailers to present an engaging and consistent shopping experience to customers regardless of what channel the customer is using at any given point on their path to purchase. Retailers readily understand the importance of providing these seamless shopping experiences, yet few have structured their operations to optimally support this imperative. According to a recent survey of retail CEOs by PwC conducted on behalf of JDA Software, 75 percent indicated their business operations were still siloed.

The interesting thing is that although 75 percent say they are operating in business silos, 59 percent say they are able to provide seamless shopping experiences. This anomaly suggests there is considerable scrambling going on behind the scenes to provide these experiences—think of a duck serenely sailing across the surface of the pond while below the surface it is paddling like crazy to move ahead. And all of that behind the scenes work is expensive and prone to error.

Careful analysis of the CEO survey data indicates it is not just the added effort that is the problem, however. CEOs who have removed business silos are gaining competitive advantage through reduced costs and more customer-centric operations.  As a result, these CEOs are much more confident in revenue and profit growth in the short term and long term than their peers with siloed operations.

Structured for Growth

By removing business silos from their operations, CEOs better position their companies to meet the key challenge of omni-channel—to provide seamless customer shopping experiences. In the survey, those CEOs who have removed the silos were only half as worried as their peers with silos (17% vs. 34%) that they would fail to meet customers’ expectations across all channels. They were also less worried than their peers (23% vs. 30%) about the impact this would have on their business if this failure did occur.

Already structured to meet customers’ demands for seamless omni-channel shopping experiences, the CEOs who have removed the business silos were much more confident in growth, with 59 percent saying they are ‘very confident’ in revenue growth over the next 12 months and 69 percent saying they are ‘very confident’ in revenue growth over the next three years. Contrast that with responses from CEOs who still operate in silos. Only 44% of those said they are ‘very confident’ in revenue growth over the next 12 months, and only 50% ‘very confident’ in revenue growth over the next three years.

As you might expect, the CEOs who had removed the silos were also more confident in profit growth over the next 12 months (63% vs. 37%) and over the next three years (70% vs, 49%). Figure 1 illustrates how this confidence in growth adds up.

Figure 1 – CEOs’ confidence in revenue and profit growth

Fig1-CEOs confidence in revenue and profit growth

Cost Advantage

Without all of the extra work behind the scenes to make omni-channel operations possible, the CEOs without silos are keeping better control over omni-channel fulfillment costs and were less concerned about the impact of these costs. Only 59 percent of the silo-less CEOs reported their online fulfillment costs were rising, while 74 percent of those who still have silos reported increases.

When considering two key costs associated with omni-channel operations—the cost to fulfill online orders and the cost to handle the increased number of returns, CEOs who have removed the silos expressed much less concern about the likelihood that they would fail to properly manage those cost, as shown in Figure 2.

Figure 2 – CEOs’ Concerns about Omni-Channel Costs

Fig2-CEOs concerns omnichannel costs

Customer-Centricity

Omni-channel leaders—those companies that have removed business siloes and are providing seamless shopping experiences—are continuing to invest in capabilities that provide competitive advantage. These companies are more likely to be increasing their omni-channel investments this year (52% vs. the 43% average) and they are investing in more customer-centric capabilities. When asked to rank their top three priorities for their I.T. investments, the omni-channel leaders are putting much more emphasis than their peers on understanding their customers through improved forecasting and replenishment (42% vs. 25%) and through analyzing customer data (42% vs. 23%). In contrast, the CEOs who still have silos were focused more on the basics such as ecommerce, order management and supply chain, areas the omni-channel leaders have already mastered.

Omni-channel leaders are not standing pat waiting for their peers to catch up. They are investing more in the customer-centric capabilities that will allow them to better understand their customers and deliver richer customer shopping experiences. Companies who want to successfully compete with these leaders, therefore, must not only remove the business silos that require so much extra effort behind the scenes, but also rapidly increase their investments in omni-channel capabilities before they fall further behind the omni-channel leaders. These actions will define retail winners and losers going forward.

To learn more about the advantages omni-channel leaders enjoy, access the infographic and read the full report.

  19 Comments   Comment

  1. Getting rid of siloes is clearly a bold decision. Nevertheless it’s also clear that no single silos can survive per se but only if well cooperating within its ecosystem. Internet based business can provide great insights regarding what the general market prefer while shops allow to fine tune this understanding

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  2. Simon Grainger

    Completely agree….if you have enough stock in your warehouse/WMS which reconciles with ERP/Hist this will ensure full order fulfilment for all orders for a period before stock needs repleting then B&M teams don’t need siloed stock.

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  3. Ian Stevens

    Interesting to see the changes in a retail environment. It is not the internet that will be the death of stores but a lack of recognition of the omni-channel experience.

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  4. Forecasting is the most important key to understand what is the exactly inventory I need to fulfill all the demand and a focus in the coming years for retailers in order to be successful; this is the opportunity that generates the decision for not have silos anymore: We just do not need only to store, but to have the right inventory in the right place at the right moment. This will required a lot of data from customer that we also need to understand in order to make decisions.

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  5. I suspect this probably reflects those that have successfully removed the correct silos, as it easier to remove silos than to replace with a working solution and team after

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  6. A great article and the duck analogy is very appropriate. Retailers that can become more like ‘fish’ like by investing more in their Omni-Channel capabilities will be ideally positioned for future success.

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    • Did you mean to ask how can companies be offering omni-channel shopping experiences if they still operate in siloes? The answer is that it certainly isn’t easy (and seldom profitable) to do it that way. What it requires is for these companies to do a great deal of work behind the scenes bridging the gaps that normally occur between siloed operations. They must have a mechanism to quickly pass data, track orders and execute the order as the customer wishes. I am skeptical that many, if any, are actually doing this without glitches and without oftentimes disappointing customers. Certainly, this is not a long term solution for omni-channel as the extra effort is costly and you cannot continue to disappoint customers and still retain their loyalty.

      Reply
  7. Chris Caraballo

    Great read, especially with a focus on omni channel within our retail company.

    Reply

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