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The Need to Build Digital Business Platforms for Retailers

The Need to Build Digital Business Platforms for Retailers
August 03, 2018

Digitalization is Transforming Business Models

As digitalization moves from being an innovative trend to a core competency, it is leading to the creation of new business designs by blurring the boundaries between the digital and physical worlds due to the convergence of people, business, and things. The deepening of digital and the spread of digitalization mean that lines are becoming semi-porous — both inside and outside the enterprise — as multiple networks of stakeholders bring value to each other by exploiting and exploring platform dynamics. Even in the retail industry, the average CIO expects digital revenue to grow from 16% to 37% in the next five years, according to a Gartner survey.

Innovative digital businesses look less like fixed systems and more like platforms where resources can come together quickly to create value

Retailers have traditionally either invested in home-grown applications or packaged applications to address different business needs, including digitalization. Many large retailers still depend upon green monitors running on yesteryear technologies such as a mainframe for digital services. With the advent and ongoing evolution of the connected consumer, many tech start-ups have exploited advancements in digital technologies to create and solidify a unique market position. Being digital native, these start-ups engineered digital platform as against applications. The platforms enable the digital start-ups to fail fast, i.e. build business models at a rapid pace and in a test-and-learn manner.

Today, innovative businesses seeking to deploy business technology look less like fixed systems and more like platforms where resources can come together quickly, temporarily, or in a fixed way to create value. What's more, this transformation to adopt business technology to a flexible structure spans all the way from the technical platform and delivery to talent and leadership.

Hence, there is a need to build business and technology platforms that can support the evolving relationship dynamics of the retail ecosystem, including but not limited to retailers, manufacturers, suppliers, brands, franchises, logistics service providers, and more. Such business technology platforms can enable the evolution of this ecosystem and help retailers retain a unique position.

Platforms Matter in the Digital Era

While most companies' digital focus is still quite operational, the potential is much greater. A large number of retail CIOs believe that the top three digital impacts on their businesses are: more revenue from better operations (66%), more business through digital channels (48%), and tighter partnerships (37%).

The digital era requires flexible systems and structures that can swap resources in and out and change partners based on shifting priorities. Digital visionaries harness digital technology platforms to create value through connections and interactions rather than ownership of individual resources. To many, the notion of ecosystem or platform businesses such as Airbnb and Uber would come to mind. However, there are many more examples in the retail technology world itself.

For instance, Ocado, an online-only grocery company, started as a fusion of two businesses – retail and technology. Ocado.com drives innovation and the meeting of customer requirements while the retail technology business builds solutions that are deployed in the e-commerce business and sold as a white-label service to its competitors. Now, Ocado is becoming a retail, technology, and platform company. It has helped Morrisons create its online grocery business using its OSP platform making Morrisons the fastest-growing online grocery business globally.

The Platform Versus Product Conundrum

Platforms enable business processes or functional areas built on service-oriented principles and architecture. The goal is to create an interoperable set of services that can be brought together to create applications and workflows. A services-first versus applications-first mindset is one of the main attributes of a loosely coupled, interoperable platform. The openness and composite nature of a platform are ideally suited to the external customer-facing capabilities required by new digital business processes, moments, and models. The platforms are not necessarily purchased from a technology vendor as a single unit.

Companies invest in platforms in the hope that future products can be developed faster and cheaper than if they built them stand-alone. Today, it is much more important to think of a platform as a framework that allows multiple business models to be built and supported. For instance, Amazon is an online retail framework. Amazon started by selling books. Over time, they have expanded to selling everything on their marketplace. Apple iTunes started by selling tracks and now uses the same framework to sell videos.

Software products or applications come with predefined and hard-coded business logic that narrows their ultimate breadth of scope. Conversely, platforms separate out the logic functions of applications so that an IT structure can be built for change.

Building Blocks of a Digital Business Platform

According to Gartner, a digital business is supported by a technology platform in five key areas:-

  • Information Systems Platform — Supports the back office and operations such as ERP and core systems
  • Customer Experience Platform — Contains the main customer-facing elements such as customer portals, a multichannel commerce, and customer apps
  • Data and Analytics Platform — Contains information management and analytical capabilities. Data management programs and analytical applications fuel data-driven decision-making, and algorithms automate discovery and action
  • IoT Platform — Connects physical assets for monitoring, optimization, control, and monetization. Capabilities include connectivity, analytics, and integration to the core and operational technology systems
  • Ecosystems Platform — Supports the creation of, and connection to, external ecosystems, marketplaces, and communities. API management, control, and security are the main elements

Creating Platforms for Value-Added Digital Services

TeamSnap has built a fantastic platform for taking the hassle out of managing, coaching, and organizing team sports and groups. It also lets coaches collect membership fees, track game status, and more. This is the type of digital platform that a brick-and-mortar sporting goods store could use to deeply engage and retain its best customers.

At scale, digital services could be a very profitable business. And if retailers can build their own platforms like TeamSnap to offer relevant digital services, the digital revenue stream would flow right to the bottom line.

The Right Approach Toward Building Platforms

Strategy, culture, and technology are the three key parts to think about how to build the platform. For retailers, the key to success will be the ability to sit down with the business and have them admit that they didn’t know what they should be doing next. Technology will then be able to say – “That’s fantastic, we don’t know either! Give us a week, let’s build some small things together to figure this out.” It’s this ability to be uncertain and unpredictable, which is powerful because that will allow the firms to collaboratively refine their ideas and find the way forward toward defining the right platform for their business.

Retailers should be looking at what their core capabilities are, and what they want to achieve. They need to think about where they want their business to be, where it should be reliable, and where they need to differentiate. Once that is established, they need to then pick a project, put together a cross-functional team around this initiative, and let them explore and experiment and create an MVP. Then they could use a culture of evolution to find the right path forward. Essentially, it’s all about empowering teams to build new platforms and services, offering them up to customers, learning from their success and failures, and possibly finding a business value along the way. So, start small, be agile, and evolve at scale.