Complexity: Ignore It at Your Own Risk

Blog | September 13, 2011 by SAP News

In his study of world affairs, distinguished professor James N. Rosenau captured the irreducible complexity[i] on the world stage in 1997 by observing that “history is not one damn thing after another so much as it is many damn things simultaneously.”   Those managing retail operations can easily substitute ‘retail’ for ‘history’ and thus capture the complexity of being a retailer. In that spirit, retailers will not find any panaceas in our emergent age of contradictions with the absolute and unprecedented rise of consumer power. 

Simplistic formulas addressing the uncertainties inherent in consumer behavior — the weather, the supply chain, the economy, etc. — cannot reduce this dynamic environment to a handful of linearly-based, cause-effect statements.  The complexity that stems from the millions of possible interactions and connections among variables of product characteristics, consumers, competitors, stores, and the web turn retail into “many damn things simultaneously.”

Although such complexity cannot be eliminated, you can take steps to help reduce the impact of the inevitable surprises while turning these into opportunities for innovation and generating customer value.  Complexity researchers, including the world-renowned Santa Fe Institute, advise increasing the level of variety, or diversity, internal to the organization so as to allow not only for efficiencies but more importantly to enable exploration of the environment and future adaptive success.

As an example, imagine if you have established a superior business model (and past success proves this) and have your people, processes, systems, and technology decisions beautifully aligned and locked into a fixed way to optimally squeeze market efficiencies.  But then something changes in your world (e.g., rise of mobile consumers, increased price transparency, 24×7 shopping, ubiquitous connections via social media platforms, even the addition of a new type of competitor, etc.), now this fixation to a once world-class process may become your company’s doom, unless infusion of variety and new explorations are quickly added in order to better match your dynamic environment.  No one can persistently predict the future, it is in constant flux, but one can be sufficiently flexible and nimble, with the right building blocks and decision tool sets to navigate the uncharted waters of complexity.

To help get you through the minefields of complexity, consciously insert flexibility in your decision time horizon along the continuum of the immediate now through the short-term, to the mid- and long-range.  Your POS data captured in the stores, and the rich online consumer interactions offer abundant information on your customers linking their past behavior to future opportunities through real-time loyalty and promotional offers.  Taking action on your own data within a trade area can inform your assortment and range decisions at headquarters, keep inventory flowing based on demand, and confirm your pricing image.   Moving out to the long-range horizon, your strategy along customer-facing processes and systems of records and engagement as well as your supply chain bringing goods and services to the market need constant monitoring through your financial and operational reporting.  Both top-down planning and the realities of bottom-up inputs and insights need to come together in an executable plan and process at headquarters and store levels.  Along this entire continuum, SAP can help with full range of modular, fast ROI retail solutions that increase your strategic and operational flexibility.

Some guidelines:

  • Focus on your organization’s capacity to develop greater awareness to changes in your operating environment – don’t discount the new, the novel, the unexpected
  • Work on faster decision cycles to test, assess, and learn from your actions – small pilots and quick evaluation
  • Although macro economic trends are powerful, you must pay attention to what these mean to your specific segment of the market; in other words, macro trends may not wholly transfer to your own set of customers and segments – have to ‘read’ your own trends using your Big Data
  • Don’t be shackled with legacy decisions, systems, or processes – Strategy is not ‘make and forget,’ it must adapt continuously to your probing of the environment and understanding of your customers and competitors
  • Differentiate between doing things right and doing the right things – perfect execution of the former doesn’t guarantee success unless they are the right things to focus on
  • Keep some ‘powder dry’ to make opportunistic moves and adaptations in your trajectory

 

To summarize, retail is all about details and they all seem to happen at the same time.  The complexity derived in this dynamic, the journey along the path to profitability and higher same store comps has to do with your ability to respond to daily changes – expected and the unexpected – through a series of decision horizons and people-centered applications impacting your assortments, promotions, pricing, replenishment in a way that adds perceived value for your specific customer segments.  The SAP industry solutions specific to the retail industry, in concert with SAP Business Suite and foundational technology of NetWeaver, the Line of Business solutions, and ongoing innovation vectors in mobility, in-memory computing, and the cloud, come together to meet your many needs today and tomorrow.

 


[i] . For a review of complexity literature, see:  Ilya Prigogine and Isabelle Stengers (1984). Order out of Chaos. New York, NY, Bantam Books;  M. Mitchell Waldrop (1992). Complexity. New York, NY, Simon & Schuster; Ralph D. Stacey (1992). Managing the Unknowable. San Francisco, CA, Jossey-Bass; John Holland (1995). Hidden Order. New York, NY, Basic Books.

 

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