Digital Leadership for Business Transformation
The TCS 2020 Chief Information Officer (CIO) Study seeks answers to central questions facing information and technology executives across industries in North America and Europe: How are they helping their enterprises navigate a complex and fast-evolving digital landscape? Where are they focusing their digital initiatives? What traction have they gained this decade from those efforts?
This report provides insights from analyzing the surveys of CIOs in the retail industry (representing 121 companies in the United States, Canada, Germany, the Netherlands and the United Kingdom) compared against the overall survey data (1,010 companies) on such issues as which technologies are expected to impact retailers in the years ahead, how much the retail CIO is focused on innovation and digital business models versus maintaining the current IT environment, and how do retailers with more success in digital business operate and prioritize differently than firms with less success to date.
Other reports in this series examine these and other issues across and within industries:
■ Key Findings: How CIOs Are Helping Their Companies Navigate the Digital Ecosystem
■ Roles & Responsibilities in Digital Business
■ Data Priorities & Practices
■ Threats & Opportunities: Industry vs. Ecosystem
■ Master Report: Study Results, Trends & Best Practices
Additional reports look specifically at the following industries: consumer packaged goods; banking, financial services, and insurance; and media, entertainment and information services, as well as the viewpoints of CIOs at North American and European firms.
All reports currently available from the TCS 2020 CIO Study can be found here.
■ The retail industry’s best days in digital business are still ahead. While lagging behind many other industries in digitizing its operations, most of retail’s upper management sees further digital opportunities awaiting them.
■ For retailers, as for firms in most other industries, cloud computing has been the technology with the greatest impact—slightly ahead even of mobile and smartphone technologies. Looking ahead, artificial intelligence and mobile are expected to have the greatest impact.
■ Compared to those in other industries, retail’s CIOs report higher levels of alignment on a vision for their company’s digital future across the board of directors, the CEO, the C-suite and line-of-business heads. Signaling a strong strategic focus, for Digital Leader companies such agreement approaches 100%.
■ Looking at revenue and growth, Digital Leader retailers were apt to have revenues of over $20 billion annually, whereas none of the Digital Follower retailers in our study reached $10 billion in revenues. These CIOs at Digital Leader companies report that today, digital business (beyond just e-commerce) accounts for nearly two-thirds of total revenues.
■ Besides the differences in revenue and digital business’s contribution to it, one of the starkest distinctions between retail Digital Leaders and Digital Followers lies in where they expect to find revenue growth. Nearly all the Digital Leaders are looking at adjoining retail sectors for revenue opportunities, and almost two-thirds are even considering sectors outside retail.
■ Despite ranking “improve customer experience” near the top as a priority for future growth, retail CIOs reported customer experience was less a factor in their companies’ corporate cultures than it was for any other industry in our study.
How Digital Leaders are Different: Context in the CIO Study
Across 11 industries in Europe and North America, we analyzed the survey answers of 1,010 CIOs and other IT executives to understand the differences between firms that are leading and trailing in the digital transformation of their businesses.
Among retail companies (121 firms out of 1,010)
Using these criteria, we found slightly more Digital Leaders among retail companies than we found Digital Followers.
■ Retail Digital Leaders: 20%
■ Retail Digital Followers: 18%
The retail industry’s Digital Leader companies represented about 11% of all the Digital Leaders in our study.
The percent of retail Digital Leaders by region tracks closely to retail’s overall representation across these geographies. Sixty percent of retail companies surveyed were in either the United States or Canada and 40% were in the UK, Germany, or the Netherlands. Similarly, 58% of retail’s Digital Leaders were based in North America and 42% were based in Europe. A higher percentage of European retailers were in the middle of the pack, however, as Digital Followers are overrepresented among North American retailers in our study compared to retailers overall distribution across these two regions: 68% of retail Digital Followers are based in North America whereas only 32% of the Digital Followers are European companies.
While one might expect Digital Leaders to come mostly, or solely, from the ranks of online-only retailers, this was not the case: 63% of these firms were groceries, department stores, office supply chains, and other such retail examples.
From Cloud (and Mobile) This Past Decade…
As in most (but not all) industries we surveyed, retail CIOs say that cloud computing has had the greatest impact on their industry this past decade: nearly four-fifths said its impact has been “high” or even “extreme.” (Three-quarters of nonretail CIOs said it had had the highest impact on their industries, as well.) The pervasive use of mobile devices has also affected the retail industry. And in contrast to nonretail companies, virtual or augmented reality has had an outsized implication for retailers -- overall, retail CIOs said VR/AR’s impact has been “high,” although the retail Digital Leader CIOs are less impressed with it so far, calling its effect “moderate.” (They see bigger potential for VR in the decade ahead.)
Even though a quarter of retail Digital Leader CIOs said 3D printing has had a major impact on the industry, overall retail CIOs said its impact had been “minor.” By comparison, nonretail CIOs thought evidence for 3D printing’s effects on their industries to date was “moderate.”
…To AI (and Mobile) in the Next Decade
In the next 10 years, retailers will likely see the greatest impact from applications of artificial intelligence to their processes and business models, according to the industry’s CIOs. Mobile devices—smartphones, tablets, and wearables, like smart watches—will also likely continue to influence retail strategies and decisions. In fact, it was the only technology of which over half of retail CIOs said its impact over the next decade would be “extreme.”
Compared to their nonretail counterparts, retail CIOs see every technology we queried as having at least a “high” impact in the years ahead, including VR or augmented reality and 3D printing, the impacts of which were predicted to be only “moderate” by nonretail CIOs.
Retail CIOs Focus on Innovation
Retail CIOs were the only industry surveyed where less than half (46%) said they oversee their company’s existing IT infrastructure and legacy information systems. For all ten other industries, more than half (54% in travel, transportation and hospitality, for instance) to more than two-thirds (68% in banking and financial services) said they are partly focused on running the company’s legacy systems, at least where that wasn’t covered in one of our other choices (such as data security or end-user tech support, for example).
However, when asked to describe how they split their time—between managing the present IT infrastructure versus helping to innovate the company’s digital business model—retail CIOs were only marginally more occupied with digital transformation work than were their peers in other industries, who on average split their attention almost exactly 50/50. Yet CIOs at retail Digital Leaders spend about as much of their time on innovating the business model as do CIOs at Digital Leader companies in other industries (63%).
This focus on innovation for Digital Leader CIOs makes sense given where digital business gets developed at these companies. For most retailers, new digitally based offerings and revenue sources might get developed anywhere in the company, although a plurality of retail companies include the IT function in that work. For retail Digital Leaders, the IT function is firmly at the center of new digital products and services.
Digital Leader CIOs Drive Transformation
Across the retail industry, CIOs are tapped for their ideation and strategy skills in bringing about digital transformation in their companies with about the same frequency as all CIOs are.
And CIOs at Digital Leader retailers are even more likely (88%) to be engaged at this stage. Only 68% of CIOs at Digital Follower retail firms contribute to the initial ideation and strategy discussions in developing new digital businesses or transforming their current businesses.
Despite being slightly more focused on innovation than their nonretail counterparts, CIOs in retail are somewhat less likely to be the primary driver of digital transformation projects. Only about half of retail CIOs said they had been this decade, compared to 59% of CIOs in other industries. However, the same percentage of retail CIOs at Digital Leaders who are involved at the initial ideation stage of major transformation projects (88%) also say they are the primary driver of digital innovation. (For the remaining retail Digital Leaders, the key driver of transformation efforts was either the CEO or the board of directors.)
Strong Alignment for Digital Vision
Retail CIOs’ ability to drive consensus among key stakeholders in their company is slightly better than it is for nonretail CIOs, by 2 to 5 percentage points, depending on the executives.
The Digital Leader retail CIOs have among the most impressive records for reaching agreement about their future digital opportunities. (Only CIOs at the most digitally advanced automotive companies claim a higher degree of strategic alignment.)
Executive consensus—at least in terms of digital strategy—seems to be common at most retail companies. Even CIOs at Digital Follower firms report roughly similar levels of alignment with their colleagues as CIOs across the retail industry overall did.
Digital Experience for Digital Leaders
For the retail industry, a little over half of the board members and top management of companies have what their CIOs would consider deep digital experience. This compares favorably with nonretail companies, where just under half (49%) have such experience.
Among the retail Digital Leaders, more than two-thirds of the board and top management have strong digital experience, however—a leadership profile nearly as strong in digital experience as that of executives and directors at Digital Leader firms in the banking, high-tech, automotive and media industries.
Much Digitization Work Ahead for Retail
Digitization in the retail industry is perhaps the best-known example of how a new digital economy is impacting older business models. Compared to most other industries, retail sees a bigger task ahead in digitizing its business—perhaps due to its traditional reliance on and staffing of brick-and-mortar presences.
Retail CIOs say only about 43% of their industry’s processes are digitized…among the lowest of any industry.
Today, retail CIOs say their industry is among the least digitized (43%) overall, alongside CIOs in the telecommunications (43%) and insurance industries (42%). The overall estimation among all 1,010 surveyed CIOs was that today’s businesses activities are about 48% digital, even though some industries—notably banking and financial services, consumer packaged goods, and the automotive industry—estimate that their transformation efforts to date have digitized their business activities more than 50%.
Looking to the future, retail CIOs are only slightly less optimistic than their peers in other industries. Averaging across their estimates for the various processes and business activities, they expect 69% of the retail industry could be digitized by 2030. For the 889 CIOs across all the other industries in the CIO Study, that estimate was 73%.
Self-Imposed Limitations—or Opportunities?
Leaving aside the challenges of digitizing specific processes and activities, Digital Leaders in retail see a lot of opportunity ahead compared to where they are today; more even than all leader companies across our study (64% of whose management sees open territory ahead).
By contrast, the management of nearly two-thirds the retail industry’s Digital Followers say there just isn’t much more they can do to digitize their business any further—even though none of their CIOs said they have covered much ground yet.
Service Performance Data Ranks Highest for Retailers
Retail CIOs as a whole were slightly less focused on the kinds of data considered essential to the future of their business than were CIOs in other industries—even though they were more likely to be in charge of data and analytics than were other CIOs. To be sure, retail CIOs rated some types of data more important than nonretailers did—such as data on things like the quality and performance of their services, which for retailers could mean anything from in-store sensors and cameras for monitoring foot traffic and wait times to Net Promoter Score®, customer satisfaction, and other feedback metrics. Retailers also valued “data on what products and services our customers buy from our company (or show interest in buying)” slightly more than nonretailers did.
On average, retail CIOs rated different kinds of data as being of only “moderate importance” to the future of their business—whereas nonretail CIOs said they were of “high importance.”
Of less interest to retailers than for companies overall were such information as production data and after-sales product usage data. Of note, CIOs said online reputation data (what customers were saying about the company on review sites and social media) was only moderately important to retailers compared to its role for other industries.
Net Promoter, Net Promoter Score and NPS are registered trademarks of Bain & Company, Inc., Satmetrix Systems, Inc., and Fred Reichheld.
Retail Leaders Report Higher Revenues than Followers Do
In determining which companies in the study constituted Digital Leaders or Followers, revenue amounts were not considered. The determination was based only on the CIO’s qualitative answers about the company’s progress in digitizing its processes and offerings and a characterization of how successful the company has been since 2010 in increasing revenue from its digital business, regardless of the actual amount.
Yet revenue proved to be a distinction between these groups after all. Among all the retailers we surveyed, nearly two-thirds had revenues of over $5 billion. A nearly equal percentage (63%) of the Digital Leader retailers had revenues of more than $10 billion, while all of retail Digital Follower companies’ revenues were under that $10 billion mark. (Companies reporting less than $500 million in revenue were not included in the study.)
Nearly Half of Retail Revenue Is “Digital Revenue”
Online sales to consumers—e-commerce—constitute approximately 11% of total retail sales in the U.S. (according to the U.S. Department of Commerce*), with similar percentages for Canada and many European countries. But e-commerce is only part of the picture for the broader landscape of retail today. Placing prescription reorders using a pharmacy’s phone app, displaying a digital coupon at checkout, flash sales and buy-one-get-one offers based on geofencing data, faster farm-to-grocer supply chains for fresher food—the work of digital transformation can account for far more revenue than just the better-known e-commerce of online shopping.
In fact, in retail, the CIOs of Digital Leader companies say nearly two-thirds of their revenue today is a result of their digital products, services, or digitally enabled business operations.
The entire retail industry, however, has only just surpassed the point where Digital Leaders were in 2010, with digital revenue accounting for 47% of total revenue, according to the CIOs surveyed.
*“Quarterly Retail E-Commerce Sales,” U.S. Department of Commerce. Bureau of the Census: https://www.census.gov/retail/mrts/www/data/pdf/ec_current.pdf
What Will Drive Future Retail Growth?
The customer is always king…except in the retail industry, interestingly enough. When it comes to driving future growth, the customer is certainly important: 77% of retail CIOs said “focusing on current customers, continually gaining more knowledge on them to keep improving our products and services” was important to a high or the highest extent.
However, retail CIOs—none of whom could have failed to note the major changes affecting their industry—were more likely than any other industry’s CIOs to say “developing whole new digital products and services for new customers” was the most important (84%), even more so than “developing whole new digital products and services for current customers” (79%).
CIOs at Digital Leader retailers were among the most adamant that new customers and entirely new revenue streams were central to future growth for their companies. Even finding revenue from sectors currently distant from the current retail landscape was a major priority for nearly two-thirds of Digital Leader CIOs.
While retail’s Digital Follower CIOs do see the importance of developing new digital products and services for new customers, far fewer feel rethinking the business model or identifying new revenue streams makes much sense. In fact, retail Digital Followers’ CIOs held roughly the inverse proportion of retail leaders’ view of looking outside their current landscape for revenue. (Also lower on their priority list: improving non-customer-facing activities to deliver their products and services and “creating breakthrough products and services through game-changing innovations.”)
Where the Competition Will Emerge
reverse view of where digital opportunities may be found can be seen in asking CIOs where they expect competitive threats to emerge. As with where they are looking for new revenue, Digital Leaders have an eye on the current field as well as what could appear from across the digital ecosystem. By comparison, over four-fifths of Digital Followers expect to compete over the next 5 years along the same lines as they do today.
Overall, nearly two-thirds of retail companies are focused on their current competitive landscape, according to their CIOs—far higher than the 37% of nonretail company CIOs who also said that.
The difference is even starker comparing retail Digital Leaders and retail Digital Followers. While more than two-fifths of the Digital Leader companies expect competition from “new digital companies that aren’t yet here, but will be by 2025,” less than one-fifth of the Digital Follower retailers are focused there. And no retail Digital Follower CIOs said they expected increasing competition from “companies already established as digital companies”—in contrast to the fifth of Digital Leader CIOs who see threats emerging from that direction. So, while 38% of Digital Leader retailers do see future competition coming from the current field of players, 82% of Digital Follower retailers say they expect to compete against the same companies as they do now.
Of any group we surveyed, only European industrial manufacturers are more focused (at 85%) on their current, existing slate of competitors than retail Digital Followers are.
The Retail Industry’s Corporate Culture(s)
Nearly two-thirds of retail CIOs said their corporate culture was highly or greatly focused on such things as product and service innovations, operations, and brand marketing—and overall, they ranked focusing on customers more highly than any other aspect of their culture. (Only 2% of retail respondents said a customer focus was “not at all” a characterization of their company.)
Yet CIOs in retail were the least likely of any industry to say their company was especially concerned with customer experience issues—even though 79% of Digital Leaders’ CIOs said improving the customer experience was key to future growth, and it was the top choice for importance (at 86%) among Digital Followers’ CIOs.
In fact, barely more than a quarter would call their company customer experience-focused—contrasting sharply with CIOs in such industries as banking, high-tech, telecommunications, travel and hospitality, 70% or more of whom said that the customer’s experience of interacting with their company was of paramount importance to its workforce. Subtracting out the views of CIOs who said a focus on customer experience reflected their corporate culture only to a minor degree or “not at all,” it was the only cultural factor among retail respondents to end up with a negative score.
While there were several discernible differences between the cultures of retail Digital Leader companies and those of Digital Followers, the greatest difference lies in the focus on distribution. In an era when two-day, next-day, in-store, and even same-day delivery are considered competitive advantages with customers, Digital Leader retailers place a premium on distribution channels—just as they do on operations and customers themselves. These last two factors garner only lukewarm interest from retail’s Digital Followers. And the follower companies’ disregard for distribution is second only to their—and their industry’s—lack of identification with customer experience as a priority.
How We Conducted This Study
The TCS 2020 CIO Study asked senior IT executives in 11 industries about their work, their company’s digital success, and where they’re focused strategically for the future.
Of the 1,010 companies surveyed, 12% (121) were retail companies, drawn from among e-commerce firms, mass merchandisers, groceries, pharmacies, and other types of retailers.
The annual revenues of the retail companies in our study ranged from $500 million to $50 billion or greater, with two-thirds reporting more than $1 billion in revenues.
The IT budgets of the CIOs in these retail companies ranged from less than $25 million to more than $1 billion.