Against the backdrop of the most digital Christmas ever a new study from technology research firm EKN shows that most retailers don’t believe they are spending enough on the Internet, mobile, business intelligence and analytics.
EKN, with sponsorship from Cisco, Earthlink and Tata Consultancy Services, surveyed more than 120 retail information technology executives and uncovered some disturbing findings given the direction in which consumers are leading the retail industry.
For example, although technology is viewed as a strategic enabler for customer-centric retailing, driven by the need for deeper customer insights, omnichannel integration, enterprise mobility and a host of other priorities, the current retail IT cost structure isn't aligned with these strategic priorities. That puts many retailers at a competitive disadvantage, according to EKN.
“Technology must become a strategic enabler of new-age retail, and this report is the first to provide an honest, open assessment of the true state of retail IT," said Gaurav Pant, research director, EKN. "The good news is that retailers can take steps to improve their strategic alignment and bring IT's priorities in line with the true needs of the business."
EKN's research also found that while retailers acknowledge the importance of technology in building the capabilities to thrive in a consumer-driven retail environment, 70% of retailers consider themselves at par or behind competitors in terms of strategic use of IT, something EKN viewed as a telling indictment of the inability of retailers to leverage IT to drive competitive differentiation.
Other insights from the report titled, “The New Cost Structure of Retail IT,” included the following:
- Customer engagement is not IT's top priority. For all of IT's supposed strategic relevance to driving customer engagement, retailers consider technology as primarily a tool to improve operational efficiency. Retailers that use IT as a way to differentiate themselves from the competition are more the exception than the norm.
- IT is not seen as a strategic business unit. The organizational alignment is off-center, forcing IT to be driven more by cost-reduction than by strategic business growth. The fact that retail leadership still considers IT a cost-center is reflected in its leadership alignment. According to EKN's research, in 2013 45% of CIOs reported to the CFO or COO, while 65% of CMOs reported to the CEO or the Board. Shifting this mentality will not be easy, especially as few retailers possess the ability to measure investments in IT against business outcome.
- IT budgets are constricted. Over the past decade, 1.5% of revenue has been the industry benchmark for IT spending, and budgets will remain flat in the coming year. However, retailers are spending more on technology directly through business functions such as marketing and e-commerce. And, this trend is expected to continue to drive IT spending in retail.
- Retailers are under-spending on Web, mobile, BI and analytics. Fifty percent of retailers state they are under-spending on Web and mobile. With 30% of brick and mortar retailers' revenue expected to come from web and mobile by 2016, this points to a strong disconnect between business demands and current IT spending. The need for deeper customer insights to drive stronger customer relationships is near or at the top of every retailer survey that EKN has undertaken in the past year; yet, 45% of retailers state they spend too little on business intelligence and analytics.