Interview with Sebastian Paas, Partner Consulting, KPMG AG
Sebastian Paas: "Digitalization also largely affects the personnel department."
Digitalization forces retail to increasingly face new challenges. Setting up your own online store is by no means enough. Retailers need to remain innovative and flexible. The key to this can often be found in your own company with ideas from employees. In this interview, Sebastian Paas, Partner at KPMG, talks about digitalization strategies for retailers and the innovative power in your own store.
Mr. Paas, responding to digitalization in retail today means far more than just opening your own online store. What does a successful digitalization strategy look like?
First, the retailer needs to adapt his or her processes as well as hardware and software of course, since the integration of digital solutions always means increased complexity. When the retailer subsequently makes his/her product available through digital channels, mere online sales are not nearly enough. For us, this also includes new digital services such as integrating suggestions from other customers for instance or –this is an example from wholesale- an automated shopping cart solution. Here the currently most popular items are automatically transferred into the customer’s shopping cart. This is exactly what we mean by digitalization: shortening and simplifying processes with the help of digital solutions to yield an added benefit for the customer.
Digitalization is important on the road to omnichannel commerce. This is why it is just as important for a retailer to create a shopping experience at the store for customers that they are not able to experience with online shopping. Whether a digitalization strategy provides an added benefit, depends on whether the retailer is able to offer his customers both this kind of shopping experience along with advantages digital can offer online.
How do retailers need to adapt their processes to meet these challenges?
A retailer actually has to put all of his processes, including the internal ones to the test, since omnichannel retailing applies to almost all areas of the company. However, some processes are particularly affected by digitalization, for instance in logistics. This area needs to be fundamentally reassessed, since there are many new services emerging in this particular section, for instance in returns processing. Why shouldn’t the mail carrier, who delivers the current order to the customer, also pick up the returns from the last shipment at the same time? The processes need to be adapted to be able to make this happen.
Digitalization also largely affects the personnel department. To be able to provide new services, you need to hire new employees with the respective skills. Oftentimes, established companies also try to get the respective know-how by buying startup companies. Quite often, there is a very different organizational culture in these young companies. In this case, a harmonic collaboration between the company entities needs to be ensured. Human resources departments subsequently face the challenge of adapting their hiring processes and hiring criteria and –in many cases for the first time ever –contemplating collaboration with external service providers and freelancers.
Utilizing the right technologies and partners is also essential. How do retailers find the right solution?
Customers frequently ask us this question, because the implementation of new technologies is tied to big investments of course. In the future, it will be even more important for commercial enterprises to have a broad spectrum of partners and technologies available. We advise retailers not to commit to one single provider, especially in the early phase of digitalization. Instead, they should get a portfolio of technologies and partners with which they can collaborate via service contracts. In doing so, they achieve a certain planning reliability without losing their flexibility. The technological development is still progressing at a rapid speed where companies need to be able to remain flexible and respond at any time to new developments – even if this means a change in provider.
Several manufacturers and providers on the market offer a multitude of technologies and services from one source. What do you think about these models?
It is tempting to use this service of course. However, a retailer should first be clear on his own requirements and then decide whether the provider really suits his own plans. In any company, special solutions might be required based on the business model or the individual growth strategy, which is something this type of full-service provider is not able to deliver. Yet it might still be beneficial for some retailers to procure all solutions from one producer, but it certainly isn’t the case for all retailers.
Employees are also an important factor in response to digitalization. In what way do innovations originate from employees and how can you successfully involve associates in the digitalization process?
Many smart innovations come from employees. These are usually items that improve daily workflow or customer service, since the associate in the store has the best insights in this case. However, for many commercial enterprises it means an enormous change in corporate culture to actually include the employees. You subsequently face the challenge of turning employee suggestions into actual innovations. A great way is to make the employees themselves responsible for the implementation of innovations they suggest and do so regardless of corporate hierarchy. Rigid hierarchies are often the biggest obstacle to innovations.
Can you give a few examples of this?
Associates of one large German discounter now have cell phones in the store to stay in touch with each other. Prior to that, there were only few opportunities for employees within the store to quickly and directly communicate with each other. In this case, the cashier uses the cell phone for example to alert colleagues that a second cash register should be opened.
Another example is a wholesaler, who services trade shows among others. This merchant is currently rolling out mobile cash registers. Associates are now able to directly record details about deliveries and payments in a mobile fashion instead of entering the information into the system at night at a central location. This is also an innovation taken from everyday life that was initially suggested by the employees. This is precisely where innovation and digitalization come together: where service is improved with digital solutions.
Generally speaking, what role does digitalization play in the innovative power of a company?
Today, digitalization and innovation can no longer be separated from each other. Digitalization makes it possible for a company to change permanently. Even so, you can also say there is no consistent digitalization strategy that is still feasible in five years without change. Both technologies and customer demands are developing far too quickly today and no company can afford this kind of position. This is why retailers need to stay innovative. Experience tells us that innovation comes from the inside far more often than we would think.