AberdeenGroup

The Last Frontier:

Collaboration in the Retail Enterprise
Business Value Research Series

June 2005
 The Retail Business Value Research Series

Executive Summary

The Issue at Hand

Despite dramatic advances in enabling technologies, most retailers are failing in their
efforts to encourage higher levels of communication and collaboration within their or-
ganizations. The results? Productivity is lost, and with it the opportunity to improve
overall profitability. Revenue suffers, too; and promotions become poorly executed; and
new product introductions lose the impact retailers planned to create.
Poor communication and collaboration are rampant across the retail organization, stretch-
ing from product design and merchandising, to store floor activity and home office-store
interactions. Most especially, the critical communication link between the home office
and stores remains a mélange of phone calls, mailings, e-mails and very basic intranets.
There is little room in these methods for feedback mechanisms or even sharing best prac-
tices. Aberdeen’s retail studies have revealed that for today’s retailers:
• Retailers often work better with suppliers than with their own internal organizations
• The emergence of intra-company e-mail and intranets has done little to improve or
streamline communications between stores and home offices
• Efficient customer-centricity won’t happen without improved enterprise communica-
tion
• The inability to share product, inventory, and customer data across channel organiza-
tions hampers retailers’ ability to take maximum opportunity from the emerging mul-
ti-channel shopping phenomenon

Key Business Value Findings

The benefits of collaboration reach across the entire retail enterprise, all the way from
stores to the home office and into the backroom of IT.
For stores, improving payroll-to-sales ratios remains the “holy grail” in retail perform-
ance, but the right capabilities are required to ensure stores don’t suffer from failures in
executing key initiatives. Task management systems can help store management articu-
late the implications of payroll reductions and determine baseline staffing requirements
for day-to-day store operations.
Also, store managers report that filtered, targeted, communication methods give them
more time on the sales floor supervising employees and assisting customers
The home office should be moving beyond memorization of shared file server “drive let-
ters” to an efficient, searchable document repository that brings benefits to home office
personnel. Further, collaboration between product designers and merchants can reduce
inefficiencies associated with creating designs not destined to be part of the assortment.

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AberdeenGroup • i
 The Retail Business Value Research Series

Last but certainly not least, IT can benefit from improved communications and collabora-
tion. IT departments report that once an integrated means of collaboration is in place,
ongoing IT support costs are reduced by more than 15% as fewer “special projects” are
required to place information in users’ hands.

Recommendations
To improve communication and collaboration, start with identifying process inefficien-
cies. The first question to ask is “Are there formal processes in place for intra-company
communication and collaboration?” If the answer is no, you need a champion to create a
“straw man”-proposed process flow. If this is challenged and changed, you can be rea-
sonably certain the involved departments will be engaged in the shift.
Consider deploying store-based systems in ways that keep store management out on the
sales floor. While we don’t advocate moving the morass of e-mail and intranet-based
messaging to mobile devices, we do advocate an alert-based system that keeps managers
available to their employees and customers.
Presenting information on inter-departmental performance months, weeks, or even min-
utes after the fact can inhibit undesirable behaviors. Rather, the implications of pending
actions on the organization should be predicted, and alerts should be sent across the en-
terprise before those actions occur. Retailers should explore tools that support pre-
emptive actions, and move from reactive measurements, through proactive and into pre-
emptive measurements as rapidly as their organizations can absorb the change.

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ii • AberdeenGroup
 The Retail Business Value Research Series

Table of Contents

Executive Summary .............................................................................................. i

The Issue at Hand .......................................................................................... i
Key Business Value Findings.......................................................................... i
Recommendations..........................................................................................ii

Chapter One: The Issue at Hand: ........................................................................1

Retailers Drown in a Sea of Intra-Company Communication......................... 1
Retailers Collaborate Better with Suppliers.................................................... 2
A Drive Toward Efficient Customer-Centricity Forces Collaboration............... 3

Chapter Two: Business Value Findings ................................................................4

Improving Payroll to Sales Ratio – the Holy Grail .......................................... 4
Using Closed Loop Task Management to Improve Execution ................. 5
Putting Store Management Back on the Selling Floor ................................... 5
Moving Beyond `Shared Drives’ to Collaboration........................................... 6
How Well Does Your Retail Organization Perform? ....................................... 6

Chapter Three: Recommendations ......................................................................8

Consider Process First, Then Follow With Appropriate Technologies ............ 8
Bang for the Buck – Start with the Stores ...................................................... 8
The Pre-Emptive Retail Enterprise ................................................................ 9

Author Profile ..................................................................................................... 10

Appendix A: Related Aberdeen Research & Tools.............................................. 11

About AberdeenGroup ...................................................................................... 12

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AberdeenGroup
 The Retail Business Value Research Series

Figures

Figure 1: Collaboration between Divisions and With Suppliers ...........................2

Figure 2: A Mélange of Home Office / Store Communications ............................3

Tables

Table 1: Sample Effect of 40 Hour-per-Store Payroll Reduction...........................4

Table 2: Retail Enterprise Collaboration Competitive Framework........................6

Table 3: Internal Collaboration Technology Tools ................................................9

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 The Retail Business Value Research Series

Chapter One:
The Issue at Hand:

• Retailers drown in a sea of intra-company communications. It’s often easier for them
Key Takeaways

to collaborate with their suppliers than within their organizations

• Efficient customer centricity demands improved enterprise communication.
• To evaluate the value of internal collaboration, best-in-class retailers think beyond
measuring comparable store sales increases to the value of increased speed, pro-
ductivity and eliminating waste.

Retailers Drown in a Sea of Intra-Company Communication

Despite dramatic advances in enabling technologies, most retailers remain challenged to
effectively communicate and collaborate within their organizations. Aberdeen research
found the following:
• Lack of communication between assortment planners and product developers at
some private-label retailers result in upwards of 90% of product designs being
dropped before they get to the selling floor. (source: Aberdeen Group: The Re-
tail Brand Management Sourcing Study, June 2004)
• The inability to share product, inventory and customer data across channel or-
ganizations hampers retailers’ ability to take maximum advantage of the multi-
channel shopping phenomenon. (source: Aberdeen Group: The Integrated Mul-
tichannel Benchmark Study, June 2004)
• The emergence of intra-company e-mail and intranets has done little to improve
or streamline communications between stores and home offices. In fact, these
tools have been added to the existing hodgepodge of faxes, voice mails, confer-
ence calls, and weekly mailings used to push information out to the field
(source: Aberdeen Group: The Empowered Store, September 2004). Despite in-
dustry buzz about knowledge management, enterprises have accomplished little
to create effective feedback loops from the stores to the home offices. Store per-
formance is often determined by a fleet of hired “mystery shoppers” who evalu-
ate the stores on a series of dated metrics the home office defines.
• Twenty years after the introduction of merchandise planning systems, 63% of
surveyed retailers still say their greatest challenge is the need to involve all con-
stituents in common sales and inventory planning processes and timelines
(source: Aberdeen Group: The Proactive Merchant, December 2004). Software
vendors of these products can cite the mathematical accuracy of their forecasts,
yet are challenged to gain widespread adoption even among their own customer
bases.
In short, time and energy are wasted on inefficient communication across every facet of
the retail enterprise, and poor communication discourages the cooperative activities nec-
essary for efficient operations and effective promotional initiatives. Productivity is lost,
and with it the opportunity to improve overall profitability.

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 The Retail Business Value Research Series

Retailers Collaborate Better with Suppliers

Retailers’ attempts to grow their gross margins have led them to create their own in-
house brands. Channels blur as branded suppliers, in turn, outsource their production and
open their own branded specialty stores to add more dollars to shrinking bottom lines.
Technology is widely available to support collaborative design and logistics, and brand
managers intercede on behalf of suppliers to ensure a ready, low-cost supply of raw ma-
terials like fabric, circuit boards, or food products. Yet even as merchants hire and man-
age their own order expeditors, logistics and store personnel often have no visibility into
the status of a purchase order until a trucker calls for a delivery appointment. As Figure 1
shows, collaborating across oceans with suppliers is easier than collaborating with other
divisions and departments within the retail enterprise. Fully 24% of retailers say there is
no collaboration within the organization, compared to only 15% of retailers reporting
there is none with suppliers.

Figure 1: Collaboration between Divisions and With Suppliers

In My Organization, Collaboration is...

Prevalent across divisions and with

23%
primary suppliers

Prevalent within divisions and with their

36%
primary suppliers

Nonexistent with our suppliers 15%

Nonexistent within the organization 24%

0% 10% 20% 30% 40%

Source: AberdeenGroup, June 2004

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 The Retail Business Value Research Series

A Drive Toward Efficient Customer-Centricity Forces Collaboration

In Aberdeen’s view, a retailer achieves customer-centricity when it puts the customer’s
tastes, price and time constraints at the top of its priority list.
One way to demonstrate customer-centricity is to meet customer expectations around
new product introduction and promotions. More than 80% of retailers cite the need to
improve execution of new product introduction (NPI) as a critical strategic action they
must take to improve store execution and customer satisfaction. These initiatives, taken
together, are like a complicated dance that must be choreographed between merchandis-
ing, logistics, advertising, and field organizations. The product, pricing, planograms, and
signage must be readily available, and the store must use those materials to execute flaw-
lessly, within time and budget constraints. On the surface, the task calls for exceptional
tools to get the job done.
Yet, as shown in Figure 2, close to 90% still rely on faxes, e-mail, intranets, store mailers
and phone calls to communicate on this and other intricate initiatives. Store personnel
and field management have made yeoman-like efforts to get the job done, but other in-
store priorities slip, as the “squeakiest wheel” gets the grease of payroll dollars.

Figure 2: A Mélange of Home Office / Store Communications

Store and Field Management Communications and Control

Processes
14%

E-mail, fax, mail and phone calls are

primary means of home office / field
communication.
Intranet supplements fax, mail and phone
20% calls. Planograms available for viewing on
line.
Closed loop task management to insure
tasks are assigned and completed.
67%

Source: AberdeenGroup, September 2004

What’s worse, this communication is primarily one way: from home office to the stores.
There’s very little room in these primitive methodologies for feedback mechanisms or
even sharing best practices.

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 The Retail Business Value Research Series

Chapter Two:
Business Value Findings

• Improving payroll-to-sales ratios remains the “holy grail” in retail performance, but re-
tailers require the right capabilities to ensure stores don’t suffer from execution fail-
ures on key initiatives.
Key Takeaways

• Store managers report that filtered, targeted communication methods give them
more time on the sales floor supervising employees and assisting customers.
• Moving beyond memorization of shared file server “drive letters” to an efficient,
searchable document repository brings benefits to home office personnel.
• IT departments report that once an integrated means of collaboration is in place, on-
going IT support costs are reduced more than 15%.

Improving Payroll to Sales Ratio – the Holy Grail

Payroll remains the single largest controllable expense in the retail enterprise. The allure
of removing a mere 40 hours of payroll from each of 1,000 retail stores has seduced
many giant retailers to tweak store payroll hours in hopes of satisfying Wall Street for a
quarter. The reasons why become clear when one examines the effect of this type of
cost reduction (Table 1). For retail chains that are driving net income of only 2% of sales,
an improvement of .07% (the equivalent of 40 hours per store) represents an immediate
35% increase to the bottom line.

Table 1: Sample Effect of 40 Hour-per-Store Payroll Reduction

1,000 Stores
$3,000,000 revenue / store / year
$3,000,000,000 Total chain revenue
$10 Loaded payroll cost / hour
$400 Cost reduction / store / week
$20,800 Cost reduction / store / year
$20,800,000 Cost reduction / chain
0.07% Payroll reduction as % of sales
$60,000,000 Pre-Reduction Net Income
$80,800,000 Post-Reduction Net Income
35% Net Income Improvement %
Source: AberdeenGroup, May 2005

While this seems like a fairly obvious math problem with an exciting conclusion for
shareholders, the real question is “What is the retailer giving up with this 40 hour-per-

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 The Retail Business Value Research Series

store payroll reduction?” The question is even more critical when we acknowledge that
reducing payroll hours is often the first and most frequent retailer response to anemic
sales in a quarter. The impact is clear: Absent clear and concise directions, stores fail to
execute all of their assigned tasks.

Using Closed Loop Task Management to Improve Execution

More than 65% of retail respondents feel acute pressure created by inconsistent store
execution. Best-in-class retailers’ strategic response to this pressure is to focus on im-
proved operational efficiencies and improve home office/store communication. Tools that
can ensure timely and consistent implementation of store initiatives like task management
systems and role-based portals are critical capabilities and enablers for these initiatives.
Clear and concise direction and communication minimize re-work and wrong work, and
improve overall management and execution in the store.
One retailer interviewed for this report highlighted the value of using task management
tools to quantify how long it takes stores to accomplish assigned tasks. Instead of using
anecdotal information on the “fastest” or “slowest” stores, retailers can finally understand
the bell curve of accomplishing tasks – truly measuring fastest, slowest and average.
Additional knowledge management tools can be used to help spread the gospel of best
practice and, in turn, raise the average over time. This is the quintessential value of
closed loop task management: continuous improvement through continual measurement
making for a more efficient retail enterprise. While on the surface, these tools don’t seem
collaborative in nature, task management systems set the stage for fact-based communi-
cation and collaboration across the enterprise by exposing the actual time it takes to per-
form these tasks, and the true dependencies required to get them done.
Through measuring the impact of tasks on store productivity, task management tools can
also be used to create accountability for payroll hours spent on tasks that don’t necessar-
ily generate revenue or other customer service improvements. Measuring the actual im-
pact of these tasks will go a long way toward ending the longstanding mutual misunder-
standings between stores and the home office; stores think the home office throws tasks
over the organizational transom, while home office management thinks stores either
don’t care or don’t understand how to follow through on their assignments.

Putting Store Management Back on the Selling Floor

Retailers have been drowning in data for more than 20 years. The advent of intranets, e-
mail, and online planograms have only added to the mélange of information store and
department managers wade through each day as they attempt to create payroll schedules,
allocate work for associates, and keep up to date on assigned tasks. In particular, e-mail
has proven to be somewhat pernicious since it tethers store managers to their computers
and removes them from the selling floor. Aberdeen’s Empowered Store benchmark report
revealed that even best-in-class retailers are plagued with the problem of disparate store
communications; almost two-thirds of retailers with superior comparable store increases
still use these communications techniques.
These results beg the question: What is the latent opportunity these retailers are missing?
Having store management, the most knowledgeable people in the in-store workforce,
back on the selling floor could have a profound effect on customer experiences, em-
ployee morale, and ensuring standards are consistently followed. Demonstrating their

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AberdeenGroup • 5
 The Retail Business Value Research Series

knowledge of products and in-store selling techniques, managers can act as an example
for inexperienced personnel. Mobile devices that provide alerts and performance indica-
tors to store management can bring these managers to the sales floor. Yet, while we have
anecdotal evidence presented by store managers indicating the value of these initiatives,
penetration has been insufficient to quantify top-line benefits.

Moving Beyond `Shared Drives’ to Collaboration

Sticky notes that detail “drive letters” and who they’re shared with have become ubiqui-
tous over the past 20 years. Every office worker has phrases like “the j drive is where I
put things I am sharing” burned into their memory banks. While they’re more efficient
than carrying floppy disks around, these shared drives are subject to whimsical folder
names and errant deletions, and pose challenges in finding relevant data.
Today, there are far more efficient solutions to sharing data. Retailers interviewed for
this report identified several best practices, including: comprehensive search engines,
single points of contact for inter-departmental communication, content management sys-
tems, and other workgroup collaboration tools, including shared content repositories.
IT departments report that once an integrated means of collaboration is in place, ongoing
support costs are reduced more than 15%, with fewer support calls, requests for restoring
deleted files and folders, and maintaining the corporate intranet.

How Well Does Your Retail Organization Perform?

Table 2 represents the continuum of retailer collaboration. Each retailer should see where
it fits within this framework. Expect productivity (rather than sales) to rise as your enter-
prise creates initiatives across process, organization, knowledge, technology, and meas-
urements to improve the state of collaboration. In other words, expect bottom-line, rather
than just top-line, growth. This bottom-line growth does not necessarily come from pay-
roll reductions; it also comes from improved customer retention, and consequent reduced
mass advertising expense (for new customer acquisition).

Table 2: Retail Enterprise Collaboration Competitive Framework

Laggards Industry Norm Best in Class
Process No formal business proc- One way communica- Closed-loop task man-
ess. tion: dominant depart- agement to ensure tasks
ments send directives to are assigned and com-
Cross-departmental
supporting departments pleted at every step of
collaboration happens in
through a variety of stan- the process.
an ad hoc and haphaz-
dard communication
ard manner.
methods.

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 The Retail Business Value Research Series

Laggards Industry Norm Best in Class

Organization Dictatorial rather than Departments responsible Departments communi-
collegial. Departments for task completion pro- cate pro-actively as part
responsible for task vide feedback after the of project and task de-
completion have little fact on what could have sign and strategies.
say in timing or volume been done better.
of work.
Knowledge Reactive rather than Some advance knowl- Clear and precise expec-
proactive. edge of major corporate tations on execution of
initiatives. all corporate mandates
and policies.

Technology Death by e-mail and Intranet used to identify Role-based portals used
phone calls. key corporate initiatives. to provide key informa-
tion to all relevant stake
Shared network drives Some form of compre-
holders.
used for common cross- hensive search tool used
departmental information to find critical docu- Content management
exchange. ments. and other workgroup
collaboration tools in
place.
Measurement Individuals and depart- Some metrics (like All individual and de-
ments measured mostly sales) used to measure partment metrics are
or completely on specific every department, but driven from contribution
individual department’s primary measurement is to the retail enterprise
performance. driven from departmental whole.
and personal objectives
only.

Source: AberdeenGroup, May 2005

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AberdeenGroup • 7
 The Retail Business Value Research Series

Chapter Three:
Recommendations

• Consider process first, then follow with appropriate technologies.

Key Takeaways

• The biggest bang for the buck lies in improving store execution. Measure store per-
formance against specific criteria, and take multiple samples before drawing conclu-
sions.
• Carefully examine the way departments and divisions within the home office com-
municate. Move from reactive modes of communication to pre-emptive methods of
collaboration.

The first rule of thumb when attempting to move in a collaborative direction is: Collabo-
ration doesn’t work when it’s not in mutual and enlightened self interest. Within a com-
pany, this revolves around ensuring that individual performance metrics are aligned with
performance improvements of the whole.

Consider Process First, Then Follow With Appropriate Technologies

The rules of engagement for intra-company collaboration resemble the requirements for
any business change: Start by identifying process inefficiencies. The first question to ask
is: Are there formal processes in place for intra-company communication and collabora-
tion? If the answer is no, the company needs a champion to create a “straw man” pro-
posed process flow. If this proposed process is challenged and changed, you can be rea-
sonably certain the involved departments are engaged in the shift.
As always, technology infrastructure can only enhance and improve a process, rather
than drive a change to a new way of thinking. The processes defined as most critical
should be the ones tackled with technology infrastructure improvements first.

Bang for the Buck – Start with the Stores

Retail respondents consistently highlight the need for improving store execution. To
achieve improved new product introduction, promotion execution and an improved in-
store customer experience, traditional means of communication and collaboration must
change. Given the pressures Wall Street exerts to streamline payroll and store operations
expenses, these changes must come using methods that maintain or improve payroll-to-
sales ratios. Portals, task management systems, management dashboards, and knowledge
management tools can raise the bar of store performance without requiring additional
investments in human capital.
Aberdeen strongly encourages retailers to consider deploying these various systems in
ways that keep store management on the sales floor. While we don’t advocate moving the
morass of e-mail and intranet to mobile devices, we do advocate an alert-based system
that keeps managers available to their employees and customers.

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 The Retail Business Value Research Series

The Pre-Emptive Retail Enterprise

The old adage “people do what is inspected, rather than what is expected” is particularly
relevant when examining the way various retail departments are measured. Aberdeen’s
research has revealed that the most effective enterprises measure individuals based on the
performance of the whole, rather than that of any one part. For a collaboration initiative
to work, it has to be in everyone’s self interest to actually collaborate. So, for example,
while measuring merchants on turn may seem effective, it’s critical to also measure the
cost to logistics, store operations, and transportation to achieve that turn.
Presenting information on inter-departmental performance months, weeks, or even min-
utes after the fact is unlikely to inhibit undesirable behaviors. Rather, the implications of
pending actions on the organization should be predicted and alerts sent across the enter-
prise before those actions occur. Aberdeen describes organizations that practice these
behaviors pre-emptive enterprises. E-mail alerts may have sufficed in the days when in-
boxes were not suffocated with spam, jokes and the news of the day. Today, e-mail is no
longer an effective way to ensure that all affected parties are informed and provided with
actionable alternatives. More sophisticated dashboards and presentations are required in
pre-emptive enterprises, backed by advanced forecast engines. We encourage retailers to
explore these tools, and move from reactive through proactive, and into pre-emptive
measurements as rapidly as their organizations can absorb the change.
Table 3 lists the various technologies that can support collaboration within the retail en-
terprise. Each technology adds value to an organization that decides to move forward.

Table 3: Internal Collaboration Technology Tools

Role-based portal
Management dashboard of corporate performance
Task management
Knowledge management
Video conferencing
Self-service human resource management
Content management
Mobile devices
Supply chain visibility
Demand forecasting
Advertising and promotion management
Source: AberdeenGroup, May 2005

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AberdeenGroup • 9
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Author Profile

Paula Rosenblum,
Director of Retail Research
AberdeenGroup

As director of AberdeenGroup's Retail Research practice, Paula Rosenblum focuses on

the critical issues facing today's retail executives. The overarching themes of her research
are “Thriving in the Post-Wal-Mart World” and “The Globalization of Retailing – Ex-
ploring Best Practices Around the World”.
Paula’s research demonstrates how best-in-class retailers satisfy their various constituen-
cies. These retailers please their shareholders by promising sustainable growth; delight
consumers by providing product selection, convenience, and reasonable pricing; and mo-
tivate employees by setting clear expectations and defining manageable tasks. Her studies
give retailers insights into strategies to optimize their enterprises, empower the customer
through the art of merchandise selection, and marry world-class technology with logistics
management.
Prior to joining Aberdeen, Rosenblum was a retail research director for AMR Research.
Previous to that, Rosenblum spent more than 20 years as a retail technology executive.
Rosenblum holds an M.B.A. in Management of High Technology from Northeastern
University and was nominated for the Beta Gamma Sigma Honor Society. She also holds
a Bachelor of Arts from the State University of New York.

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10 • AberdeenGroup
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Appendix A:
Related Aberdeen Research & Tools

Related Aberdeen research that forms a companion or reference to this report includes:
• The Empowered Store (September 2004)
• Moving Beyond Mediocrity: The Retailer Imperative for 2005 (January 2005)
Information on these and any other Aberdeen publications can be found at
www.aberdeen.com.

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AberdeenGroup • 11
 The Retail Business Value Research Series

About
AberdeenGroup

Our Mission
To be the trusted advisor and business value research destination of choice for the Global
Business Executive.

Our Approach
Aberdeen delivers unbiased, primary research that helps enterprises derive tangible busi-
ness value from technology-enabled solutions. Through continuous benchmarking and
analysis of value chain practices, Aberdeen offers a unique mix of research, tools, and
services to help Global Business Executives accomplish the following:
• IMPROVE the financial and competitive position of their business now
• PRIORITIZE operational improvement areas to drive immediate, tangible value
to their business
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Aberdeen also offers selected solution providers fact-based tools and services to em-
power and equip them to accomplish the following:
• CREATE DEMAND, by reaching the right level of executives in companies
where their solutions can deliver differentiated results
• ACCELERATE SALES, by accessing executive decision-makers who need a so-
lution and arming the sales team with fact-based differentiation around business
impact
• EXPAND CUSTOMERS, by fortifying their value proposition with independent
fact-based research and demonstrating installed base proof points

Our History of Integrity

Aberdeen was founded in 1988 to conduct fact-based, unbiased research that delivers
tangible value to executives trying to advance their businesses with technology-enabled
solutions.
Aberdeen's integrity has always been and always will be beyond reproach. We provide
independent research and analysis of the dynamics underlying specific technology-
enabled business strategies, market trends, and technology solutions. While some reports
or portions of reports may be underwritten by corporate sponsors, Aberdeen's research
findings are never influenced by any of these sponsors.

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AberdeenGroup, Inc. Founded in 1988, AberdeenGroup is the technology-

260 Franklin Street driven research destination of choice for the global
Boston, Massachusetts business executive. AberdeenGroup has over 100,000
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© 2005 AberdeenGroup, Inc. and services.
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