“The World Is Becoming More Colorful”

July 17, 2008 by Johannes Gillar

SAP INFO: What trends and topics are currently dominating the retail industry?

jörg Becker: For a long time, a well-defined profile was important. Companies positioned themselves either as a discounter or a specialist offering advice, with prices to match. However, they are gradually realizing that positioning themselves between these extremes can also be an attractive option. In other words, “hybrid” retail companies are emerging that offer both advice and good prices.

One example is home improvement stores that offer professional services for certain products: If customers buy plants, they can also hire landscape gardeners to redesign their gardens. We can observe this development – offering services alongside products – in industries besides retail. There, it’s known as performance contracting. Another example is when a company simply rents out retail space to vendors. Overall, the world of retail is becoming more colorful.

SAP INFO: Are large retailers joining up with smaller ones to form business networks, as we are seeing in other industries?

Becker: Yes, they are. Retailers will form partnerships and sell their products under one roof, while installers, for example, will offer their services in the same place. This trend is also influencing logistics: Closer contact is required, and information systems need to be more inte grated with each other.

SAP INFO: How can retailers form these networks? How do their partners provide the required delivery services? And how satisfied are companies with their software systems?

Becker: There are good retailing systems available for many sectors and sizes of company. However, large companies face quite a restricted choice. Solutions for groups that enable interaction between cooperatives and their central body, between franchisees and franchisors, or between stores and the headquarters need better system performance and integration. Not all solutions do very well in these areas, and I include SAP’s here. But when it comes to the commercial processes, the systems are excellently designed – especially SAP’s.

SAP INFO: What is the situation with software such as the SAP NetWeaver technology platform, the SAP Customer Relationship Management application, or service-oriented architecture (SOA)? Do they come into play in retail?

Becker: The term “SOA” is too high-level. Of course, the right thing to do is to encapsulate functions and make it easier to integrate them, but you don’t have to call this SOA. Let’s go back to stores connecting to headquarters: If they use heterogeneous systems, they need encapsulated functions – and that’s the underlying principle of SOA. But to bring this idea to life, you need standards. How far does a Web service extend? Is it just a database query? This, of course, wouldn’t be enough.

But if all the retailprocesses are meant – including goods-receipt posting, deviation posting, and invoice verification – that would undoubtedly be going too far. A service for verifying invoices, with or without orders, would be feasible. There’s still a lot of work to be done on finding services that can be combined as originally intended.

SAP INFO: To what extent do you enter into dialog with vendors like SAP?

Becker: We maintain close contacts both with SAP and other software manufacturers. For example, we introduced the pilot customer to SAP for the enhanced SAP for Retail solution portfolio. A few of the concepts in the portfolio are a result of cooperation with our faculty. We also contribute our project experience to other software manufacturers’ products.

SAP INFO: Many retailers are small or midsize enterprises. Are they interested in the same topics as their larger counterparts?

Becker: The topics are similar, but the scale is different. Take internationalization. A retail chain might set itself the ambitious goal of expanding its operations into two new countries each year. But the pace is much slower in the midmarket. Nonetheless, whatever their size, companies must work with and consolidate the foreign currencies involved. When it comes to technology, smaller companies tend to wait to see whether innovations, such as radio frequency identification (RFID), work for the large companies before they decide whether to adopt them themselves.

SAP INFO: You mentioned RFID. A while ago, everyone was talking about this contact-free form of data transfer, but now there’s little mention. Do RFID tags still play a role in retail? What are their benefits?

Becker: It’s the same with any technological innovation. The testing phase follows the hype, resulting in disillusionment. Eventually it becomes clear where the new technology is useful and where it isn’t. Two areas in which RFID will be used are the transport of large-volume products and pallets and the accurate labeling of vehicle components. But it won’t catch on unless the technology works 100 percent, which means the scanners don’t misread the tags. What’s more, it must be possible to fully integrate RFID with the retailing systems.

SAP INFO: How important are new markets such as Brazil, Russia, India, and China?

Becker: For large companies, these emerging markets represent opportunities for expansion. In Germany, for example, we are still seeing growth in retailing space but not in revenue – which puts the brakes on margin and profit increases. Some segments are also experiencing a surplus, as is the case with home improvement stores in the east of the country.

In contrast, Russia, India, and China still hold huge potential. Of course, we have to assume that the companies there will look for opportunities to expand abroad, too. I’m sure we’ll soon see Indian and Chinese car makers pushing into our markets, as Japanese manufacturers did in the past.

SAP INFO: What topics will become critical in retail over the next five years, and how can the IT industry support them?

Becker: Retailers need to decide whether they want to sell goods and services or just services. They can then develop their unique selling points. At the moment, it doesn’t make much of a difference to customers whether they buy a product from retailer A or B. Differentiation comes from the services accompanying the goods. This is particularly true for small and midsize enterprises. Because they’ll never be able to buy as cheaply as the large com panies, they have to do something on the selling side. Retail currently focuses too strongly on purchasing. If I offer something in terms of selling, I can demand higher prices.

This compensates for my disadvantages in purchasing. Another trend is individualization. In the foreseeable future, customers will, for example, be able to design tiles on their home computers and collect them from the store three days later. Made-to-measure products are feasible in many areas. The fashion industry already has them. As a result, consumers will turn into “prosumers” – playing the role of both producer and consumer.

Professor Jörg Becker is director of the Department of Information Systems, University of Münster, Germany, where he holds a chair in information systems and information management. He is also managing director of the European Research Center for Information Systems.

His areas of research include information management, information modeling, data management, logistics, and trade information systems. He is involved in strategic IT consulting and projects with industrial, service, and trade companies.

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