Innovators in Retail are Rewarded With Success




By: Rick Terlep, Chief Technology Officer of Retail at VMware
Ben Byer, Senior Systems Engineer at VMware

If you do an internet search on “change in retail industry” you will get a lot of returns.  Many of them will be on how Retail is “catching up” or “behind” or “adjusting” to change in the industry.  The other thing that you will notice is that the list of articles spans from from 2012 all the way to present – a five year gap.   Since 2011, counting out M&A activity, Amazon has grown year over year at a pace that is remarkably different than any other retailer.

While it’s easy to say that Amazon is different because, up to recently, they have been 100% e-commerce, the reality is this kind of growth performance cannot be accounted for by them just selling “more” stuff. Amazon is doing a better job at innovating in new ways.

Retailers are good at engaging customers in person, but modern buyers want to seamlessly collaborate with the retailer and other shoppers across all channels – many which are relatively new business models to retailers.  Driving innovation into an existing business is always a challenge for any established enterprise.  Once you have found a business model that allows you to be profitable and successful in your space, it’s hard to affect change especially when an external catalyst like ecommerce or mobility demands it instead of something that grows from inside the organization.

Today’s customer would like to be able to research something online, go to the store and see what it looks like in person, ask questions about it to a knowledgeable associate, buy the good, and if it’s not available in the configuration that the consumer desires at that store, have one shipped from another store or from HQ for free to home the next day.  The retailer would like to have the entire experience tracked and tied back directly to the consumer for analysis so that the next time the consumer shops with them, they can suggest a curated list of other items to sell to the consumer, presented in online store or in person by an associate. 

The amount of effort to make this vision a reality is significant.   At a first glance you would identify and implement  a series of technological advances that would make it happen.  You would need to implement sensors, digital imaging and automatic payment systems to support the new paradigm.  Applications would need to be written to support those platforms and code developed to make all of these systems talk to each other in methods that support the change in business model.  Its at this point that you start to appreciate that the real challenge in implementing this vision is not simply a technological problem, but a change in all of the processes that support a consumer being able to research, find, and buy a product from you.  Store associates will need to be trained on the new process before they even start to learn about the new technology.  Any smart enterprise would just continue doing what has proven successful in the past while implementing minor changes along the way that suits their business.

Unfortunately, “change” is not really the disruption, its the pace of change. Ten years ago, retailers were implementing IVR systems, just as the iPhone was being released.  They were trying to figure out how to mimic the success of Wal-Mart in multi-channel customer interaction  in-store delivery.  Five years ago, every retailer was trying to figure out how to get mobile devices into stores and how to deliver an Omnichannel experience for customers.  Three years ago, there  was a focus on being involved with social media (in support of – you guessed it, Omnichannel), and enhancing face-to-face interactions with associates. 

Today, Amazon is targeted as the biggest threat to Retail.   The threat posed by Amazon is not what they are changing in retail but how fast they are able to change in this space.  Amazon can dictate change because of their focus on developing and implementing innovative ways to do business.  Walgreens is praised as being an innovator in retail, they do not consider themselves big spenders on R&D in alignment with GAAP which classifies R&D as being an opex spend of doing business.  On the other hand, Amazon focused over 9 billion dollars in 2014 on R&D work.

Even if a traditional retailer invested that heavily in R&D, it does not help much if you cannot deploy the innovations to the business rapidly.  Making system wide changes at stores takes months to years, and a bulk of the work that happens behind the scenes, re-integration of back-end systems or processes or redevelopment / retraining of staff is never fully implemented or changed along the way.  Amazon is going to be able to apply their successes in building a new methodology for retail into a newly-acquired,  strong brand in Whole Foods with presence in many affluent and urban areas.  Furthermore, because of the culture of innovation that exists in their organization, they will be able to continue to test, refactor and redeploy new ideas and strategies faster to a traditional physical retailer because Amazon innovated their back end logistics.  Most retailers introduce change to the stores as a result of customer demand.  Amazon will be able to drive change in how customers shop because of their data-driven understanding of customer demand and that may be more than what most brick & mortar chains can handle.

Wal-Mart was one of the first retailers to successfully leverage data gathered from customer buying habits into the design of their business.  They knew what local shoppers wanted and could amend their storefronts fast enough to always have something that the consumer wanted in the right spot in the store at the right time.  They used that data to optimize the supply chain and to squeeze suppliers on pricing.  While Wal-Mart has successfully used this data inside their stores, they, like many others are still struggling to find success like Amazon has online Traditional retail is realizing that having a separate store and e-commerce strategy is not a winning strategy.  Working towards a unified or complimentary in-store and online business strategy is the only way to succeed.

Amazon took a page from traditional retail (would rather be 2nd to market to improve on what was done) and used the same model as Wal Mart and applied it to an online store, where changes to the storefront are as simple as a few lines of code, and where gathering data on customer shopping habits is easier because it’s built into their primary interface with the customer rather than bolted onto a physical location.

Tech refresh occurs every 5-10 years in a traditional retailer.  Unfortunately, the retail market and technology itself is refreshing at a much faster pace.  Sometimes these changes seem to develop in weeks instead of years.  All is not doom and gloom though; people like to shop!  That said, retailers must adopt a flexible more operational model and compute infrastructure in order adapt to these changes.

The key to laying the foundation for faster paced technological change is to virtualize the store compute and application infrastructure, keeping it from being bolted on to every physical location.  The benefits to this approach are numerous, but the fundamental advantage is the realization of business-focused agility in a rapidly changing economic environment.  Retailers can no longer wait to adapt, they must change or perish, and virtual infrastructure enables retailers to adapt their technical strategies and deployments to drive transformation in the current retail environment.

Enhancing customer engagement and driving operational efficiency both rely on applications, deployed on location, in the data center, or the cloud.  Virtualized infrastructure provides a standardized yet flexible environment to run and connect to these applications.  Decoupling the running environment from hardware allows applications to be run without time consuming reconfiguration of physical devices.  It’s this instant flexibility of the virtualized environment that allows retailers to rapidly change their applications and thus their operations and engagement models as the market changes.

Just managing the deployment of applications is no longer sufficient; application developers now develop their infrastructure environments while writing the applications themselves.  Devops has brought Agile development to infrastructure and the best way to support this is with virtualized infrastructure.  Whether it is containers, traditional virtualized infrastructure, or based on cloud services, new applications are written to include the infrastructure as part of the application in order to ease deployment and troubleshooting while reducing the time to market.  These applications can be run anywhere, on premise, off premise, or in the cloud and the need for this flexibility breaks the model of tying applications to physical infrastructure.

Figuring out which cloud services to use for which applications and how to connect them together is a bit like living in the wild west right now.  The technical hurdles to brokering these services can be conquered by adhering to the strategy of virtualizing all infrastructure.  It is possible to move applications between cloud services, or onboard new cloud based applications when everything resides in software and no hardware has to be configured.  The cloud is anti-hardware, only the logic matters.

Controlling all these different applications and services is tough work though, requiring a new approach that fits into both the development model of new applications while improving upon the governance and security of traditional IT.  Virtual infrastructure begets virtual business process.  Once the infrastructure is controllable in software, these very same logical constructs can be snapped together in loosely coupled blueprints and templates.  All of these can be spun up, turned down, modified and deployed at the touch of a button and meanwhile these operations are controlled through strict security and governance policies, built directly into these processes.  Centralizing this control, something not possible with individual pieces of hardware, guarantees that the rules are followed and applications are secured.

Centralized, standardized and virtualized controls also provide the foundation for a collaborative, inter-disciplinary culture necessary to rapidly adapt to the changing world of technology.  Simplifying and standardizing WHAT IT works on breaks down the organizational silos that make change hard to manage and act upon.   When the operational parameters and consumption models are the same across all the technology silos (server, storage, network, security, and applications), single purpose teams can be created to manage the technology holistically instead of piece by piece.  This simplification means that innovation can happen much faster without coordinating and scheduling multiple teams to make each change.  Faster operations on a standardized model also eases troubleshooting and maintenance down the road.  Organizations adapt to simplified technology by simplifying their structure and processes, accelerating the pace of technical change within the business.

Retail businesses must adapt and do it now, or face extinction.  The pace of change is over running even the most nimble business and innovation is now expected to be instantaneous.  At the same time the traditional brick and mortar boundaries have been smashed.  Technical innovation rules the day and virtualized infrastructure provides the foundation needed to quickly adjust applications and services, no matter the format, location, or connectivity required.  As the traditional store format and experience continue to evolve, so must the technical foundations. 

The store of the future is a virtual unification of online and brick and mortar business models.  To the customer, it must be unified, regardless of how it is actually implemented behind the scenes.


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