Does Every Cloud Have a Silver Lining?
I tried to take a vacation—my mistake. The call came; I needed to get back immediately. I booked my return trip, expensive with horrible connections. Generating some anxiety was the fact that one of the segments was a two-hour flight in a six-passenger turbo-prop over the ocean.
It was a gorgeous day. The sun was shining, the sky dotted with the most beautiful clouds. We took off and I spent the first minutes of the flight taking pictures and video. It seemed my fears were unwarranted. Then it happened. As we approached our destination we saw it. An enormous cloud, very wide and reaching high into the heavens. I assumed that we would divert around it. I was wrong.
The pilot leaned back in his seat, turned his head, removed his headphones from one ear and informed us that air traffic control had denied his request to go around the cloud. We were going to go through this behemoth and he warned us to expect some turbulence. We entered the cloud and quickly found ourselves in the pages of a Stephen King novel. The plane bounced up and down, right and left, twisting back and forth like a corkscrew rollercoaster. While I struggled to maintain my composure, some of my fellow passengers started screaming. Hail pelted the aircraft. Lightning and thunder erupted all around us. It was the longest 90 seconds of my life.
As quickly as it began, it ended. We emerged shaken (literally and figuratively) but otherwise unscathed. We once again flew smoothly through the azure sky. We landed without incident.
Cirrus, Stratus and Cumulonimbus...
"The Cloud" as we have come to call it in the information technology lexicon, is much like the real one through which we flew. It is beautiful when viewed from the outside and filled with promise. Inside, however, while not as fraught with peril as my story would suggest, the Cloud has its pitfalls, challenges and complexities. The rewards of leveraging cloud services can be significant but we must take care to recognize and pay homage to critical success factors in order to realize them fully.
To frame the discussion, let's refine our definition of the Cloud. Cloud is a moniker used to describe a broad set of Internet-based shared resources. Among them are the myriad of "as a Service" options that include Infrastructure (IaaS), Platform (PaaS) and Software (SaaS). For each environment, the subscribed services— those managed by the vendor—extend to different layers of the technology stack. The associated costs and benefits vary as does the degree of control over different components of the environment.
We should also differentiate between classes of cloud services and applications. At the most granular level there is a growing cadre of standard utilities that companies can use to "assemble" applications. Netflix has recently been lauded for their use of these components and the agility it has allowed them to achieve. General purpose applications, notably financial and HR suites (e.g. Workday), are increasingly deployed in the Cloud as there exists only minimal variations in accounting and payroll processes across companies and even industries.
Another class of applications consists of those that support critical business functions and processes. In retail, this class might include merchandising, planning and allocation, purchase order and warehouse management, e-commerce, order management and fulfillment—just to name a few. At issue is that there are often significant differences between these processes as executed within each organization.
As companies take advantage of IaaS and PaaS offerings, the direct impact is generally restricted to IT, which realizes the benefits but takes on the effort and risk associated with effecting required transformations. In these cases, as well as with traditional, on-premise environments, data and application management remains the province of IT.
With SaaS, responsibility for managing data and applications rests with the technology provider. Some would use the term SaaS loosely, having it denote subscription licensing and vendor management of monolithic, single tenant applications. We must recognize, however, that hosting a traditional application in Amazon Web Services (AWS), Microsoft Azure or in a provider's datacenter does not magically make it a cloud solution. In this case, SaaS could be construed as an architectural variant of IaaS or PaaS.
In its purest form, SaaS refers to cloud-based, multi-tenant applications—think Salesforce Commerce Cloud—where responsibility for the entire technical stack as well as the data and application layers rest with the provider. Clients reap the efficiency and savings of managed infrastructure and platforms as well as the benefits of continuous development and enhancement. What they sacrifice is some ability to adapt these solutions to their specific, unique requirements.
The Winds of Change are Blowing
Why is it important to distinguish between traditional applications hosted in the Cloud and organically developed cloud applications? It is important because for all the benefits of adopting cloud applications, doing so puts constraints on subscribing organizations. Most of us experience this personally. Facebook, Google Mail and iPhones work generally the same way for all users. Our options to customize these solutions are limited. While many cloud applications are highly configurable, they often support best or more typically, most common practices and processes. The implications of this are profound.
"Adoption of cloud-based solutions doesn't eliminate change; it displaces it!"
The myth is that adopting cloud-based solutions eliminates change. Nothing could be further from the truth. In reality, adoption of best-practices and cloud-based solutions doesn't eliminate change; it displaces it! Instead of adapting software to a given set of processes, organizations must now adapt to processes supported by a given solution. It turns out that in many cases, this is a very difficult exercise.
Whereas IT was previously tasked with modifying software, the responsibility for implementing new processes is less clear and the impact much more widespread. Being successful with cloud applications requires a new approach, one that demands different skills in IT, tight collaboration between stakeholders and the depreciation of traditional roles.
Historically, when developing software or implementing on-premise solutions, the tendency has been to preserve long-standing processes. While some forward-thinking organizations have taken the opportunity to re-engineer processes and practices, the scales still often tip toward maintaining the status quo to minimize disruption and avoid creating issues within the user base.
With many cloud-based SaaS solutions, this is no longer an option. The onus is now on the business process owners to adapt. Accordingly, the most critical of success factors is recognizing the importance of change management and devoting sufficient resources and time to this activity. It also begs the question as to the role of IT and its various business partners as understanding this informs the skills and capabilities each must build to reach a successful outcome.
For IT, the focus must move from modification and implementation of solutions to a higher-level focus on architecture and integration. Business process knowledge and domain expertise may begin to surpass the importance of more technical disciplines. IT project management resources must develop strong partnerships with business process leaders and training resources to create an effective change management capability. IT resources may be called upon to help the rest of the organization adapt to a new solution and master its attendant processes.
Adoption of new processes can be a trek, a real slog. Change can generate tremendous stress in those most affected. To be successful, an organization must address not only the technical and mechanical aspects of change, but also the emotional ones. As an individual goes through a given change, they will pass through the four stages of competence according to a model developed over 30 years ago by Noel Burch, then an employee of Gordon Training International.
The question is not only who within the organization is responsible for change management but also who is best suited to the mission. Progressive IT organizations must recognize that they need to be a central part of the change management effort. However, responsibility must extend to training resources, irrespective of where they report, and to the management of each business function. It goes without saying that executive support is critical. No doubt, at some point during the transition, the project team will be accused of doing something "to" the organization, rather than "for" the organization. Having a broad and unified change management team with overt executive sponsorship will help mitigate the effects of such countercurrents.
Formalizing the change management process can help ensure achievement of intended outcomes. One framework that has gained popularity is ADKAR. This model identifies five areas of focus: awareness, desire, knowledge, ability and reinforcement. Many companies do a reasonable job of making its associates aware of a coming change and how it might affect them. Most also provide required training (i.e. knowledge) of a new process or system. However, developing the ability to perform at expected levels requires additional commitment. Reinforcing change and confirming the adoption of new solutions and processes is an ongoing effort. Often overlooked is the need to foster engagement and the importance of having people embrace change.
The complexity of undergoing significant organizational and process change eclipses the effort required to modify software. As companies move their application portfolio to the Cloud, the importance of having an effective change management capability grows commensurately. Recognizing the "people side" of change management will make your flight through the "digital transformation cloud" much smoother.
Was Darwin Wrong About Retail?
Most of us like things to evolve predictably and at a pace that gives us time to absorb change without experiencing undue stress or upsetting the status quo. If only life were that simple. All too often, events happen that shake our world and the best we can hope to achieve is a "new normal."
The most prevalent view of evolution dates back to 1859 when Darwin published On the Origin of Species. Darwinism states that evolution occurs gradually, over long periods of time via a process called Natural Selection. However, in 1972, two distinguished researchers, Stephen J. Gould and Niles Eldridge, had the audacity to question Darwin, publishing a competing theory called Punctuated Equilibrium.
Unlike Darwinism, their theory predicted long periods of evolutionary equilibrium disrupted by punctuated mutations. These mutations, if successful, would effectively create a new branch of a species, causing the old one to die out so quickly as to hide any evidence in the fossil record that the two ever coexisted.
Could Darwin have been wrong about retail? Certainly, our equilibrium has been disrupted. A new species of retailer has risen that has proven to be so dominant that it threatens the very existence of traditional brick & mortar retail that has existed, relatively unchanged for generations. Is retail as we know it undergoing a mass extinction?
Unlike the invertebrates that lived hundreds of millions of years ago, we humans have a capacity for change. Given a bit of bravery and an appropriate sense of urgency, we can adapt rapidly to a new environment. However, as foretold in the geologic record, incrementalism will not suffice; big problems demand meaningful solutions.
The theory of Creative Destruction also substantially describes what we are experiencing in the retail sector. In 1942, economist Carl Schumpeter espoused that innovation (i.e., mutations) create new opportunities that fuel the economy. However, in the process, these innovations can effectively destroy entire industries, causing them to become extinct. Examples include the omnipresence of digital photography and the demise of the film industry. Kodak and Polaroid defined an era but are today mere shadows of their former selves. Netflix almost single handedly destroyed the video rental business and helped usher in the age of media streaming.
The retail industry as we have known it, exists today under the specter of multiple threats. Consumer tastes are changing as some are choosing to spend less on possessions and allocate more of their income to experiences. The decline of the middle class has put pressure on the retailers that serve it but has buoyed the fortunes of others, especially those in the off-price segment of the market. To state the obvious, the e-commerce channel, led by Amazon, continues to explode.
Retailers that ignore the inevitable may fall victim to disintermediation as technology allows suppliers to establish direct-to-consumer relationships. I would even submit that ultimately the likes of Amazon are at risk given that they act essentially as middlemen in the supply chain, albeit exceedingly efficient ones.
Developing a cogent digital strategy is more than just a technological exercise. It needs to be rooted in a deep understanding of the market, an organization's position within it (current and desired) and operational alignment. We must also recognize that the concept of digital extends beyond the marketing function and the transition from historical mass-marketing vehicles to more directed email, text, mobile and social media platforms. Digital strategies must address every aspect of an organization from how a company engages with its customers to making the supply chain faster and more nimble. A successfully implemented digital strategy should make a company more agile and responsive to the needs of the market.
What retailers face is not, "death by a thousand cuts." Multiple incremental and tactical initiatives parading as strategic will not alter most companies' trajectories. Instead, the times mandate a bold and unfettered analysis of an organization's most valuable assets, what it can bring to the market that others cannot.
We must resist the tendency to confine discussion of potential strategies by perceived limitations. Refusing to consider every option will only serve to seal one's fate. A process founded in Appreciative Inquiry might yield better results. Rather than working to solve the problems of their current model, retailers must focus on leveraging their strengths and have the courage to shed their liabilities. As someone once told me, "Focus is choosing what not to do."
While trilobites were one of the first successful animal species and roamed the oceans for over 270 million years, it doesn't change the fact that in the end, they disappeared in a relative instant.
Lessons from the Grocery Industry and the State of Retail Today
In the late 1980s, I was leading the technology efforts at a regional grocery chain when the alarms sounded. A Walmart Supercenter was opening south of us, near Kansas City. This was a threat like we had never experienced. Fearing for our very existence, our company chartered a motor coach and we made the journey from Omaha, Nebraska to the suburbs of Kansas City to see the scourge for ourselves. As scared as we were, we were safe for the moment, we were not yet competing directly with this category killer.
Fast forward a few years to 1995. Our worst fears were realized. No, it wasn't a Walmart Supercenter. Instead, we had the honor of having the first Super Target in the nation open across the street from our newest store. Although we rallied for the fight, we were asking the same question as everyone else. How is the independent grocer to survive in this new era of massive enterprises looking to extend their mandate? Surprisingly, when the Super Target opened, our business didn't decline, it increased...significantly. The Super Target drew more business to the area and we reaped the benefits.
Our company's singular experience notwithstanding, the grocery industry was stymied, many believing that the era of the independent grocery chain had passed. For sure, things were changing. The hyper-efficient supply chains of Walmart and Target upset the market dynamics permanently and put extreme pressure on margins, especially in the center store where there was little opportunity for product differentiation. Chains that refused to recognize the inevitable languished quickly. Others chose to face the challenge.
As the initial anxiety began to wane and the industry took a collective deep breath, the tone of the discussion changed. Gone was the panic. In its place came a more studied assessment of the situation, an articulation of potential defensive tactics and a framework for success in the new paradigm. Traditional grocers came to recognize that Walmart did some things well and other less so. In the near term, they would have to meet the threat head-on, lowering prices and increasing promotional activity. To survive, grocers would have to identify areas of their respective businesses where they could differentiate themselves from the behemoths.
When I entered the supermarket industry, we made our money in the center store, selling cans of peas at a good profit. We operated some perishable departments (e.g. deli, bakery and restaurants) at break-even or a loss. When I left, it was completely opposite. The center store became a low margin operation. We made our mark with the quality and variety of our fresh products and the customer service we provided.
We were the first in our market to launch a loyalty program, which allowed us to not only manage product categories, but also customer segments. We deployed systems to control costs, reduce inventory, automate the ordering of replenished product and tune our shelf assortments to the specific needs of our most loyal guests. The game had changed. Instead of fighting it, we not only adapted, we innovated.
Now, in 2017, we are experiencing what has been described as a "retail apocalypse." More than a few chains have declared bankruptcy and many others are struggling. At the National Retail Federation show in New York in January, I found the dialog oddly reminiscent of the conversations that had occurred when Walmart and Target entered the grocery space. Amazon was mentioned in much the same way and with disdain worthy of Voldemort in the Harry Potter films. Strangely missing, however, was any admission that we knew Amazon had been growing at an alarming rate for many years; we all should have seen this coming. Consumer shopping patterns and tastes were changing, especially in apparel. It was all there for us to see. Why some had chosen inaction, stubborn adherence to outmoded business models or incrementalism as a strategy will be debated for a long time.
There are lessons to be learned from what happened in the grocery industry years ago. History would suggest that retail is not going away, but it is changing dramatically. Retailers that want to not only survive but rather thrive in the new digital economy, in the post-Amazon world, will have to challenge every aspect of their business. Amazon, at its core, is a technology company but they are furiously working to get closer to the customer, building brick and mortar, opening stores and developing delivery methods (i.e. drones) to shorten the supply chain. Traditional retailers already have a local presence but need to focus on transforming their view of technology from a function to a capability. There is a vast difference between having a discrete and identifiable digital component to your business and becoming a digital enterprise.
Everyone in retail is pursuing the same omni-channel vision, a unified commerce model where the customer can engage the retailer at their convenience and have the same experience irrespective of channel. However, while the desired end-point may be similar, each retailer is starting from a different place. The transformations that many will have to undergo will be difficult. Achieving the agility and speed to market of the e-commerce leaders will require not only a significant investment in capital and human resources but also a commitment to changing the way a company goes to market. It will be an arduous journey, one not for the faint of heart, but achievable nevertheless.
Effecting a successful digital transformation will mandate setting aside the notion that it is a technological exercise. In some ways, technology has become the easy part. Instead, companies must challenge every aspect of their business without paying undue homage to their past, no matter how glorious. They must be willing to destroy what they have built so they may create something new, untethered to paradigms whose time has long since passed.