Spending on new retail technology continues to grow year-over-year. PwC predicts that from 2015 to 2020 investments in digitization will increase the financial value of a typical retail company’s supply chain by 60%. Retailers, especially those selling high-tech products, are survivors. They understand agility matters.
Today’s greatest challenge isn’t embracing disruption, but being able to navigate the hype of Retail 4.0 when making strategic investments in new technologies.
Retail is experiencing a revolution. Business practices, and, in some cases, entire business models are being fundamentally disrupted. With the forces of innovation coming from every direction and at unprecedented speed, it is easy to lose sight of the fact that the underlying technological characteristics of Industry 4.0 are evolutionary.
According to Venture Scanner, a company that monitors start-up investment activity, over 1,500 retail technology start-ups are operating in the marketplace in Q1 2017. The solutions these companies have developed address more than twenty distinct categories of retail-specific functionality. The pace of innovation and number of options available to retailers is remarkable.
To navigate this overwhelming landscape, Ron Adner and Rahul Kapour of the Harvard Business Review argue companies should pay attention to dynamics within the ecosystems of new and existing technologies rather than emphasizing how new solutions stack up against one another.
Existing technologies operate within ecosystems that have proved to be durable. Emerging technologies are embedded in emergent ecosystems. A new solution can fail if it depends too much on other emerging technologies in its ecosystem that prove to be inadequately robust or unstable. Similarly, an existing technology becomes obsolete when its ecosystem stops being able to support innovation.
The emergent technologies of Industry 4.0 are being developed and deployed on top of foundational technologies that include robust networking hardware, smartphone technology, ubiquitous communication infrastructure, and established cloud services and data storage. It isn’t just the chronology of development that is important. These foundational technologies have a successful history of adoption and ongoing use that defines and enhances their ecosystem. Early adopters like Amazon pioneered e-commerce. SaaS began with business functions like CRM and EDI for which a compelling case could be made.
At the dawn of Industry 4.0, e-retail has become table stakes, and many companies have moved their entire ERP and WMS systems into the cloud. Harvard Business Review describes the business case for migrating enterprise software to the cloud as a ‘slam dunk.’ In their survey, 71% of companies reported that the move improved agility, and 84% reported increasing their use of cloud services. Our own study together with the University of Tennessee’s Global Supply Chain Institute found 94% of companies using SaaS to manage EDI transactions reported improved supply chain discipline, and 88% reported that their costs went down or stayed the same.
The ecosystem of existing technologies has evolved through the eras of the Internet of Services and the Internet of People. It is the technological foundation that supports the innovations of the Internet of Things. Thanks to open development and the emergence of small and inexpensive sensors, solution providers can rapidly develop and deploy new apps, services, and M2M tools. Plug-and-play is important not just because it allows multi-dimensional interconnections between the new technologies themselves, but because plug-and-play also allows the emergent ecosystem of new technologies to gradually become included in the robust ecosystem of existing business technology.
The business case for managed services is well established. My hope is that the tools being developed today will realize the full potential of APIs and the cloud. As a seamless and individualized omnichannel experience comes closer to reality for shoppers, a more nuanced reality for the supply chain will also emerge. Retail 4.0 will demand more intricate models for procurement and inventory management, new fulfillment options, and increased data capture complexity.
Decisions are easier when a new technology follows best industry practices or is intended to introduce incremental change. Early adopters often have no choice but to evaluate new technologies that offer strategically valuable functionality, but have few case studies to support them. Navigating the hype of Industry 4.0 is a part of today’s decision making process. Examining the dynamics of emergent and existing ecosystems can help.