Digital transformation: two words that strike fear into the most forward-thinking retail leaders who, when faced with organisational open-heart surgery in an IT capacity, come under enormous pressure to continually deliver the right solutions with minimal impact to business as usual and, crucially, within budget.

Even if retail leadership teams are aligned on the commercial imperative of being ‘Digital First’, and are clear on what needs to change, is it really possible to deliver an enterprise-wide IT overhaul as part of this process on budget, to planned timelines without causing major organisational disruption?

C-suite collaboration is critical 

Despite significant investments in digitisation, many executives are not seeing them deliver the promised payoffs. A large proportion of transformation programmes fail, and well over two thirds of digital transformation efforts fail to deliver any business value at all.

There are many reasons. While it is tempting to get bogged down in the more technical challenges, failure is often due to the organisation’s inability to transform. Shifting from managing channels in silos (e.g. separate online and stores teams, distinct digital and IT teams) to integrated ways of working is hugely challenging. Opaque leadership structures with confused accountabilities, fundamental culture barriers, and breakdowns in coordination across functions – most notably between technology teams and the rest of the business – are typical root causes.

A recent IDC report explored the notion of Digital Dream Teams. It says that, by 2025, companies with cross-functional leadership will enjoy faster rates of innovation, higher market share gains, and greater operational efficiencies than their contemporaries. The relationship between the CEO and the CIO is especially important. By 2026, it says 54% of CIOs will drive business transformation with strategic technology roadmaps and re-platforming programmes.

In retail, where some CIOs have struggled to migrate from functional leaders to strategic partners, the case for cooperation is greater than ever. Leaders must rethink how technology teams intersect with the rest of the business. In a recent Wall Street Journal article, Google’s Cloud CEO emphasised how CEOs are increasingly looking to the CIO for strategic guidance on technology choices. However, there is cause for optimism, as Gartner’s 2021 CIO Survey recently reported that nearly two thirds of CIOs now have stronger relationships with their CEOs compared to before the pandemic.

The importance of impartial advice 

In our experience working with retail leaders, it is more than possible to find smaller, simpler, and often more nimble approaches to re-platforming and integration programmes, which are driven by the business proposition, the budget and the pursuit of maintaining business as usual. Acting as technology advisors to the CEO or CFO, rather than the CIO, can also broaden strategic perspectives, factor in enterprise-wide objectives, and drive a more effective relationship between the two parties.

Even with a progressive company culture, sourcing technology solutions and vendors to deliver a seamless digital experience can be complex, costly and off-putting to leaders who may have a relatively short tenure.

A publicly listed company – where a CEO is focused on the next quarterly earnings statement and may only hold the role for three to four years – may well view a complex transformation programme as career-ending rather than career-defining, given the high failure rates and potential personal damage to reputation.

Conversely, those with private equity backing have seen some benefit from adopting a longer-term view regarding the creation of enterprise value. Whilst PE owners want to know whether there are major IT projects under way or necessary systems overhauls that could pose financial headwinds or erode future profit, the potential value multiple that comes with a successful transformation is often attractive enough to warrant the risk.

Whatever the business, there are always opportunities to simplify infrastructure and consolidate suppliers across the retail ecosystem to build a resilient, flexible and secure network that uses the right partners and leverages the best in-house capabilities.

The challenge in the current market is that systems integrators and software vendors are inherently linked to particular products and delivery teams, which doesn’t always serve a retailer’s ambitions. Too often, CEOs are told that they need to spend hundreds of millions on a fundamental rebuild.

A pressing commercial imperative in retail

We know the pandemic has accelerated the shift towards digital, and retail businesses have responded by ramping up their omnichannel capabilities. In 2021, retail e-commerce sales amounted to US$4.9 trillion worldwide and this figure is forecast to grow by 50% over the next four years, reaching about US$7.4 trillion by 2025.

However, the next wave of digitisation goes beyond perfecting online. Whilst many retailers likely view online as the primary route to market, even if it's frequently less than 50% of their business, attention must turn to digitalising and integrating all channels. Stores – if they have them – are a key example. These must now transform to be in service of digital. Amazon has already started to reshape the blueprint for the physical aspect of digital retail by cleverly weaving together the digital and physical aspects of grocery shopping. It now has fashion firmly in its sights and others must follow suit.

This marks a seismic shift in mindset for many traditional retailers who have survived the last two years through patching up the online side of their businesses and closing seemingly non-performant stores, and must now look to digitalising their business and operating models end to end in order to meet shifting customer demands. This is far from easy. Even some of the much-heralded digital natives are encountering growing pains as they struggle with the challenges of building out their first-generation pureplay models.

To meet rising demand, companies worldwide are expected to invest US$6.8 trillion in digital transformation between 2020 and 2023. Clearly, there is a pressing commercial imperative and organisations that get their digital transformation efforts right will reap significant rewards.

We know how the story ends for those who don’t. However, before the implementation of any technological overhaul begins, it will be the human elements of close collaboration in shaping the way forward between leadership team members and trusted counsel that dictates whether ‘Digital First’ efforts prove to be successful.