Unbreaking the Enterprise
There is a pervading truth circling the retail industry right now: consumers are in control. For some, this may seem obvious. Consumers are the ones who choose how to spend their money. It’s just another version of “The customer is always right.” Not exactly. Those of you who’ve been in the loop for a few decades know that it used to be different scene.
About 30 years ago, corporations with manufacturing capabilities were in control. What, when, where, and how products were sold was up to them. Then, in the next decade, major retailers gained some leverage and pushed back. Manufacturing corporations had to figure out ways to quickly and cheaply manufacture overseas in order to support their large deals with retailers looking to control costs. The power shifted to the retailers with the biggest distribution, and therefore, deal size. Throughout this time, advertising told consumers what was mainstream, and therefore acceptable to spend their money on. The power was in the hands of the sellers, not the buyers.
Then came the internet. Individuals could reach their niche interest products, and product-makers could survive and thrive on smaller and smaller deal sizes, as overhead shrank with e-commerce, retail tech, and global accessibility to markets. Authenticity became an important part of commerce as consumers were able to see products that appealed more personally to them. That’s when the consumer gained control.
This power shift can be seen in every section of the product development and retail circle, including manufacturing, marketing, fulfillment, and online payments. Retail technology companies aim to optimize processes for individuals and emerging brands. This is true for two reasons: individual consumers want the ability to take product development into their own hands, and consumer tastes have changed; they now favor the maker/artisanal products and small/emerging brands.
For decades, enterprises have been set up to handle the old ways of business. With this power shift, enterprise brands and retailers are facing a widespread problem when it comes to adapting to the new age of retail.
To get a better look into the problems enterprise brands and retailers face, I consulted with Kurt Kober, Director of Omni-Channel Analytics at the Clorox Company, and co-founder of Red Clay. He walked me through where enterprise brands and retailers have been, where they need to go, and how they might get there.
Some enterprise brands and retailers are taking steps to stay relevant. They are working to keep up with consumers’ changing tastes by acquiring smaller and emerging brands or selling them in their stores (e.g. General Mills, Nordstrom and Target).
Kober acknowledges that the strategy of acquiring smaller brands is a good first step, but thinks they have a long way to go before they can function in a way that fully serves the consumer. Beyond this step, he says, “They have to ask themselves, ‘How do we take in those capabilities from more nimble companies?’”
This is a crucial question because the real problem for enterprises lie in the current infrastructure of their supply chains. Kober laid out a scenario: “Imagine 100% transparency within a brand’s supply chain — you can see your bottle of laundry detergent at every step of the way, but you still need to go to Walmart to buy it!” In the end, this doesn’t actually serve customers’ needs. They’re shopping online or in boutiques, depending on the product; they don’t want to shop through massive retailers.
As most brands with manufacturing capabilities are great at making massive amounts of product at very low costs, but everything in the system is configured to manufacture and sell only in huge quantities: from packaging to delivery trucks and huge distribution centers to big deals with the biggest retailers. There is currently no way for enterprise brands to sell to one consumer. That’s what they need to be doing to keep up with the products and organizational capacities of emerging brands, hence Kober’s question of taking in more “nimble” capabilities.
So, I wondered, how will enterprises solve for the next step? Overhauling entire systems would cost tens of millions of dollars per organization; I suggested a hypothetical retail tech company that was able to combine enterprise infrastructure with new technology to create a more agile ecosystem. Kober agreed that it could happen, and suggested more concrete possibilities.
Since aggregation and fragmentation are two big challenges for current supply chain systems, he suggested that new packaging could play a part: being able to ship products in giant quantities as well as smaller packs while keeping everything protected en route solves one part of the problem. Another option is one we’re already familiar with: the sharing economy.
Along with consumers’ new preference for smaller and more organic or health conscious brands, Kober says, “people care less about stuff [these days], and so they have more space,” which opens up the opportunity for a new type of supply chain management; think, Uber or AirBnB for distribution, wherein a person with an empty garage or a spare room could rent it out as a small-scale distribution center.
The last potential hurdle I saw for enterprise retailers and brands in this position is that of corporate culture. Will enterprise culture be able to accommodate the fast pace necessary to move with agility through this new landscape? Kober acknowledges that, “there will be winners and losers,” when this issue finally comes to a head. But, as the older generations who are most familiar with the power structures of the 70s, 80s and 90s move out and retire, younger folks will be moving into higher power positions in enterprise companies. The simple fact of not having been entrenched in one way of doing things for decades will make it easier for them to make much needed changes.
Advice across the board is to look to the more tech savvy and agile companies, bring them in, learn from them, and push out the learnings through the middle of the organization to most efficiently and effectively overhaul the old systems and processes. This will be a tough change, as large corporations with built up infrastructure often make decisions based on their current capabilities. However, in order to succeed, enterprises will have to look beyond what they can do today to figure how they can best serve their customers tomorrow, in this new age of retail.