CENTRAL CONTROL - LOCAL FREEDOM

In retail it is essential to find the right balance between central control and local freedom. A key component to achieving this is the implementation of tailored digital tools.

The challenge

"The retail industry is characterized and challenged by two apparently contradictory factors: A centrally controlling corporation and small individual business units with a need to be able to operate according to local conditions".

Tom Kortegaard is a partner in exacto, and he is responsible for the development and adaptation of digital solutions to support the processes for budgets and forecasts for the retail industry.

According to Tom Kortegaard, retail is among the most thoroughly digitized industries in Denmark:

"These are corporations that consider all procedures from a digital perspective. All processes and decisions are made in a digital framework, and all touchpoints are part of a tightly integrated digital infrastructure. There is a constant focus on optimizing the ability to extract and analyze data via centrally defined automated processes without the need for manual handling and administration".

As a consequence of this, according to Tom Kortegaard, the retail industry can be challenged when striving to meet the need for each business unit to operate in its own right:

"It is a question of designing digital solutions which, on the one hand, provide the data that is necessary for corporate management to have easy and quick access to robust data for all business-critical factors and thus to be able to make data-driven decisions both on the long and short term, and yet maintain having a decentralized agility with the ability to carry out individual procedures and decision-making processes that are based on a local anchoring and customer knowledge. These two considerations must be taken into account equally".

The balance

The business model with centralized management and shared support systems that handle purchasing, logistics, salary etc. delivers a significant administrative relief to the individual store owner and gives management the ability to optimize the profit margin e.g., by joint purchases and thus the possibility of economies of scale. This is also where campaigns, offers etc. are planned and marketed with offers leaflets and membership bonuses. According to Tom Kortegaard, the central management uses the data collected across all store units to target this:

"Based on ongoing forecasts, where one extracts historical data for sales and pair them with current movements in the market, management can both work strategically with long perspectives that relate to season, holidays etc. and tactically on the very short term, where changes in the value chains or fluctuating market prices can be included as a decision basis and thus optimize the profit margin".

However, there may be factors that affect the profit margin that cannot be immediately derived from the data that has been defined as business-critical and the basis for the corporate decision-making process:

"The retail industry is based on good merchantmanship, and I find that there is a fundamental understanding that it is an organizational structure where each store operates in a local market with some unique conditions, a special catchment area and local traditions. These are factors that are only relevant to the individual store, which is why it does not make sense to extract data and use it as input for universal decisions that impact across the organization. Thus, the goal is to design a process for identifying which data impact the individual store and how it can be easily and seamlessly made available locally".

According to Tom Kortegaard, this depends on establishing the balance between centralized and agile:

"Standardized solutions for budgeting and forecasts rarely offer the degree of individualization that the retail industry demands. Not if one wants to maintain a high degree of central control and automation across the entire value chain. The key is to use digital platforms with broad availability and an option to carry out individual data extraction and filtering that can support the optimization of the local business unit", concludes Tom Kortegaard.