Stop Cleaning The Potatoes
Retailers are already drowning in data, most of it noisy, inaccurate, blind to opportunity, and therefore wrong. The solution isn't more data, but a whole new approach to analytics.
Decades ago, Japanese scientists studying Macaque monkeys on Koshima island would bring dirty sweet potatoes to try to bond with the animals. On one visit an amazing thing happened; the scientists saw one Macaque starting to use water to clean off the dirt. Soon, other Macaques learned to wash their potatoes too.
Year after year the Macaque monkeys would wash their potatoes. It even became a tourist attraction. It has been years since the scientists brought dirty potatoes to Koshima (today, you can only buy cleaned potatoes in Japan). But what do the monkeys do? These creatures of habit still keep washing their potatoes, doing things as they have always done them, even if it no longer makes sense. Canadian retail experiences the same phenomenon today.
The need for Canadian retailers to adopt a new school of thinking has never been more urgent. The simple truth is that retailers in Canada don't grow like they used to. The times of a rising tide raising all ships is over, and it's not likely to come back any soon. Yet the same approach to business planning persists many retailers continue to wash the potatoes. They aren't looking to do things differently; they are looking to do more of the same at a faster pace.
Many traditional retailers are shrinking or closing. They used to increase same-store-sales-growth at an average rate of 6 to 8 percent per year. In the past few years, though, growth has been reduced to between zero and 2 percent. Most retailers have grown by opening more and more stores, to the point where they can't count on retail expansion as their main source for growth. With easy growth gone, they need to focus on stealing share from others.
Why is growth slowing? There are many larger economic reasons beyond the control of individual retail CEOs. But a lot of the problems are homegrown, and failure to apply a proper strategic approach to decision making leads the charge.
The solution to date has been "do even more of the same, and do it faster". One example is today's infatuation with "big data". Today the world produces data in the range of one Exabyte every single day. Five Exabytes equals "all words ever spoken by human beings", according to a 2003 research study . Software vendors are pitching retailers on the incredible potential of tapping into this massive amount of data, and the ability to slice and dice more data in more ways. But more insight does not necessarily equal meaningful insight.
Ever since computers have been introduced to businesses, retailers have tracked sales data and come up with innovative ways to crunch more numbers more quickly. Since then, the amount of data has increased by leaps and bounds, but the strategic thinking and the habits of data analysis have largely stayed the same. Retailers install new information technology and hire more analysts to "better wash the potatoes", yet nobody steps back to ask whether the potatoes are already clean, need to be washed differently, or should be replaced by another edible plant.
The outcome is that many retailers are spending vast amounts of money and resources answering the wrong questions, doing even more of the same, and doing it faster. All the while CEOs are left without the information they need to find new growth opportunities.
Many retail executives we talk to feel they are just going through the motions. They go to the weekly Monday sales review meetings because they have to, and they know they are just reviewing the "noise" from last week. In this type of analysis, a merchant is a hero one week for hitting the numbers due to a money-losing promotion, and a loser the next week as they roll over a strong number from last year. Many executives view these reviews as a game they have to play while drowning in a sea of noise and meetings.
But it goes beyond the weekly sales meeting ritual. Strategic planning itself is not effective. Many managers are asking themselves "Why does strategic planning consume so much time and have so little impact on company actions?" . This issue needs to be addressed, so that the CEO and the executive team get the right information: analysis that is not limited by departmental bias or the tendency to be "precisely wrong" instead of "directionally right".
We are not arguing that retailers shouldn't strive to make decisions based on data, logic and analytics; on the contrary. It is the approach of how data and analytics are used that is flawed. As long as retailers don't restructure their organizations for better decision making, they have little need for detailed loyalty data and customer insights, or for more and faster data of any kind. The retail landscape in Canada is in the middle of dramatic change, and only a few retailers have embraced the proper usage of analytics in a way that truly gives them a competitive edge.
If retailers do only one thing next year, they must shift their thinking on how they make decisions. They must learn to stop cleaning the potatoes and change their approach to how decisions are made.