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Can Aligning IT with Business Strategy Help Retailers Achieve Growth Targets? Absolutely.


5/9/14

In the constantly evolving landscape of retail and consumer products companies, information technology (IT) is a key component in providing the seamless omni-channel experience that today’s consumers demand. Successfully incorporating this crucial technology within the overall business strategy can bolster an organization’s ability to react in time to the changing needs of the business and can propel a company to surpass its competition. It can also strengthen customer relationships, tighten communication between supplier and distribution networks, and ultimately bolster company revenue.

However, before companies break out their checkbooks for IT purchases, they should ensure that their IT strategy is aligned with their current and long-term business strategies and that their IT enterprise applications are capable of supporting any planned growth or changes to the business model. A failure to align IT and business strategies limits an organization’s ability to react in time to the changing needs of the business, and can cause a company to fall behind its competition. For retail and consumer products companies, where consumer preferences and the competitive environment constantly shift, the situation is further magnified.

To be sure, technology and the way it is implemented can either enable or hinder the achievement of a company’s strategic objectives. A sound IT strategy must accommodate key business drivers; it must enable competitive advantage and/or internal efficiencies. In addition, the strategy must be forward looking, as business needs will likely shift three to five years after the strategy is adopted, and technology solutions can take many months–or even years–to successfully implement.

Far too often, this critical alignment between the business strategy and IT strategy does not occur. In a Harvard Business Review survey of corporate executives, 50 percent of respondents said they viewed achieving the goal of “aligning business and IT strategy” as “a major problem.” Similarly, year after year, CIO Magazine’s annual “State of the CIO” survey consistently finds that “aligning IT and business goals” remains a top CIO priority as well as a primary challenge for IT executives.

Yet a failure to align IT and business strategies limits an organization’s ability to react in time to the changing needs of the business and can cause a company to fall behind its competition. For example, the executive in charge of IT may not clearly understand the organization’s operational and long-term growth objectives, while corporate leadership does not fully grasp how technology can advance–or deter–the execution of its strategies. This misalignment becomes painfully obvious in future years. The organization’s business model changes to accommodate strategic objectives and only then is it discovered that the IT applications cannot support growth because the underlying IT strategy was never put in place. For retail and consumer products companies, where consumer preferences and the competitive environment constantly shift, the situation is further magnified.

Impact on Retail, Consumer Goods Environments

In a retail scenario, this misalignment might mean having an inability to segment customers in order to better identify unmet customer need.  To overcome this obstacle, IT would be tasked with building capabilities for integrated data storage, common platforms for various channel and product needs, and dynamic end-user computing. But in an organization where IT and operations were not working off of the same plan, the need for this level of IT functionality might never be communicated.

Conversely, consider the case of Johnson & Johnson, which suddenly faced new business pressures from its largest customer, Wal-Mart, for cost savings and just-in-time stock replenishment. Its business and IT managers joined forces to align strategies and develop a new set of IT capabilities to meet the retailer’s demands. This alignment allowed Johnson & Johnson to centralize information flow, standardize data across business units to facilitate information sharing, leverage information for competitive positioning, and reduce costs by eliminating the duplication of effort.

From a retail perspective, as successful retailers know, creating a consumer-centric culture is also a business imperative that relies on IT. Creating such a culture demands the ability to quickly modify products, special offers, and pricing based on consumer behaviors and key customer relationships. When aligned to business strategy, IT can enable this capability by creating a responsive technology platform for delivering appropriate customer profiles to inform decision making. 

A Real-World Application: How Alignment Occurs

In a recent situation, one of our clients, who was planning to bring new products to the market, proactively sought to achieve such an alignment of its business direction and IT strategy. The client recognized that their business model would be expanding, and that the IT capabilities they had to support their old business model might not readily support new business requirements. The company requested that CohnReznick assess the current state of its IT function, organization, business applications, and infrastructure, with a specific focus on the capability of existing systems to support an expansion and diversification of offerings. The client also asked that we recommend a short-term tactical IT plan based on the findings of the assessment and create a longer-term IT “road map” that would get them where they want to go in the future.

The assessment was comprehensive, examining the IT function as a whole to determine whether the client had the right people, processes, infrastructure, and applications in place to support the goals of the business. We leveraged our technology effectiveness methodology to quickly identify gaps, improvement opportunities, and risk areas. The review focused on process efficiencies, data integrity, and the ability for management to obtain the information it needed to effectively manage the business. Finally, we looked at the IT organization itself – personnel, roles and responsibilities, and reporting structure – to determine how to realign and enable a more proactive and project-driven organization.

At the conclusion of the assessment, management was provided a comprehensive set of findings and recommendations, with a time-phased technology road map that supported the clients’ business strategy. Key initiatives that resulted from the assessment included a selection for a new financial system with an integrated procurement solution and a business-process design project. Major customer benefits expected to be realized include improved responsiveness, accuracy, and consistency.

Proper Implementation Is Critical To Realizing Expected Benefits

The ultimate success of any strategic IT plan will depend largely on how carefully its rollout is implemented. For this reason, the implementation plan should be viewed as a critical extension of any strategic IT plan.

Often, it is the implementation of the IT plan that trips up the organization. A company might have an IT strategy in place, and perhaps a project or a series of projects slated for implementation. But now the internal IT team is managing multiple work streams, often with the same people involved. Couple that with the fact that many organizations struggle with basic project management skills, add into the mix a complex, multiyear IT implementation, and it’s easy to see where the train can go off the rails.

To get past these hurdles, the answer is to assign a dedicated project manager whose sole mission is to steer implementation of the plan. Project managers should not be confused with project administrators – individuals whose function it is to manage a sort of punch list. A true project manager is a change agent with the ability and real power within the organization to drive the implementation across multiple disciplines and multiple departments. In conjunction with this, there needs to be a strong program governance structure in place – whether it’s a project steering committee or the corporate operating committee – encompassing a body that can make decisions and resolve issues, especially issues that relate to conflicting or competing goals or resource conflicts that inevitably will arise. In larger or complex projects, a separate organizational change-management leader may be necessary to drive acceptance and adoption of new roles and responsibilities that inevitably will result from new technologies and processes.

What Does CohnReznick Think?
With a recovering economy and evolving industry landscape, the opportunity is ripe for retail and consumer products companies to align their technology strategy with their business strategy in order to bolster their bottom line and maintain a competitive advantage.  However, it is essential to understand that the work of aligning the IT function with the operations and finance function of a corporation is an ongoing endeavor and one that should be ingrained in the company’s culture. All three functions must have a seat at the table when day-to-day operating decisions are made. The functions must be integrated, intertwined, and constantly communicating with each other to achieve one common goal–the ultimate success of the organization.

Case Study: Profile of a Winner
“Retail winners”—retailers who consistently achieve average year-over-year comparable store sales growth of above 3 percent—strategically align information technology with business strategy, according to a 2009 benchmark1 study by Retail Systems Research (RSR), a research company run by retailers for the retail industry. They do so, the study found, by encouraging business involvement in IT efforts, and vice versa, as compared with laggards—retailers with average year-over-year comparable store sales growth of below 3 percent.

The RSR study also found that “retail winners” placed high importance on using IT to put “actionable information” in the hands of decision makers in order to execute four key survival strategies: to retain existing customers through price, assortment, and promotion optimization; to optimize the “buy” side of their businesses; to achieve a faster-moving inventory pipeline; and to introduce new and compelling value-creating offers to consumers in multiple shopping channels.

Conversely, laggards placed highest importance on IT’s ability to enable their company to lower costs, a far lower priority for winners, who saw information as the ultimate prize. “While winners understand that getting the right information into the hands of the right people goes a long way to ensure better processes, laggards expect to change processes to lower costs—without understanding that the ability to get information to the right people at the right time makes that achievable,” the study’s authors note.

1IT and Business Alignment in Retail: Benchmark Study 2009, by Retail Systems Research


Contact

For more information, please contact Richard Schurig, Partner and Retail and Consumer Products Industry Practice Leader, at 973-364-6670 or John Yin, CPIM, Director with CohnReznick Advisory Group who leads its strategic technology solutions service areas, at 973-863-4301.

This is an adaptation of an article by John Yin that was published by CEOWorld magazine in April 2014.


This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

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