Keeping a Strategic View of Your Retail Data

Originally published 1 November 2006

Business intelligence is all about data. Walk into any retailer on a Monday morning and you will find people beavering away over last week’s figures. It’s funny that they are seldom seen poring over yesterday’s data, but most retail analysts don’t “do” real time very much just yet. Do you ever stop to ask yourself “Who decides what we should be looking at?” After all, any retail organisation generates millions of pieces of data every day, so who decides which bits are valuable and which can be routinely ignored? Why do we focus more on the stock to sales ratio of a key line than the number of point of sale transactions rung up by Mrs. Jones on Checkout 32? The simple answer is, of course, that “we just know” because “these are the things we always look at.” Just for a change, the simple answer isn’t the best one here though. 

The data that we should be looking at really needs to be defined by a process that starts with the retailer’s strategy and ends with action being taken. All strategic systems are intended to allow the translation of strategic goals in to tactical actions. You might think of this translation as happening like a cascade. The strategy starts at the top and flows downward throughout the organisation, until, at the end of its journey, it has been executed. Effective business intelligence will deliver real value by aligning reporting systems and technology with the overall strategy of the business to ensure that this execution takes place. 

Let’s stop for a second and consider what we mean by “strategic.” The word “strategic” is an adjective derived from the word "strategy" which in turn comes from the Greek "strategos" meaning "a general." The Universal English Dictionary defines strategy as: "The art of preparing, moving and using armed forces in a war so as to secure an initiative and ultimately to win the war. Distinguished from tactics." (Tactics are the manoeuvres that we make to implement the strategy.) As defined, strategy can appear somewhat abstract. In retail the strategy is the sum of those top level decisions taken by board level executives (or “C-level “as we must now apparently learn to call them). Whilst interesting in itself, a strategy has no value unless it can be translated into action, and, by definition, these top executives rarely have the time to spend working at the coal face. How then can they be sure that what is being done within the organisation is executing that strategy? 

This brings us to the concept of the “critical success factor” or CSF. In order to implement our strategy, we need to create a set of measurements that will allow us to chart a course and to monitor our variance from this course on a regular basis. Critical success factors are a translation of that strategy into quantifiable measurements, or targets. Put another way, we need to be able to create a set of criteria by which we will judge whether we are in fact on target or not. For example, a critical success factor for the success of our merchandising strategy might be that we need to improve our gross margin return on investment (GMROI). To do this, we might decide that we need to increase our gross margin whilst reducing our stock cover.  

When we talk about gross margin and stock cover, what we are now talking about are key performance indicators or KPIs. A key performance indicator is a quantitative measure that allows the monitoring and control of the CSFs. In the previous example, the key performance indicators would be most likely to be gross margin % and forward weeks cover. We might set targets for the KPIs, such as: "Increase our gross margin to 50% whilst reducing our stock cover to an average of 12 weeks."  

A KPI is nearly always numeric. This is necessary if we are to be able to measure these areas using currently available systems. When setting a value for the KPI, you need to ask yourself questions like: "For what product area am I setting this?" This means that, whilst a KPI measurement such as weeks forward stock cover can be applied to many product areas, it may need to be applied individually and selectively in order to be effective. For example, a week’s cover target for shoes is likely to be for a higher number of weeks than it is for T-shirts. (The reason for this is that shoes generally have more size options and therefore require more stock to cover all sizes than do T-Shirts.) 

Additionally, if you work in a distribution centre and I asked you to make a list of KPIs from the full list of strategic areas impacted by logistics planning, it is likely that you would not be able to define them fully for all of the areas as you probably do not have the required helicopter-level view of the business as a whole. 

So, when setting a value for the KPI, you also need to ask yourself questions like: "What is everybody else doing?" Why? Well, unless you are the CEO, you don't control or have input to all strategic decisions. Now assuming that you are not the CEO, it is quite reasonable that you don't know everything about all the other departments in the business. You may not even know that much about areas that you have a high impact on. This should not stop you from trying to be aware of the company's strategy and your role in executing it as part of a team. You need to communicate with and negotiate with other functional areas if the strategy is to be effective. Let's take a concrete example. There may be no point in your trying to achieve a CSF of increasing warehouse availability by 5%, when human resources are at the same time trying to achieve their CSF of reducing headcount by laying off 10% of the handling staff. Communication between these functional areas can help to ensure that goals are aligned and that tactics reflect this. Your KPI targets need to reflect the results of this communication.  

When we measure these KPIs against the targets that we set, we can then judge whether or not we are on course for success with the associated critical success factors. If that is the case, then we can relax again and start to think of those creative improvements that we never get around to. If not, then we need to be delving into our arsenal of remedial actions to do what we can to put performance back on track. 

It is worth noting that CSFs often cascade and overlap. For example, an overall business CSF may be to increase profit value. This may be broken down into several departmental CSFs. Retail operations may need to reduce store costs. Personnel may need to reduce central staff costs. Merchandising may need to reduce stockholdings, increase intake margin, reduce the number of suppliers or reduce the quantity of SKUs. In all cases though, they will link back to the overall strategy and the degree of success will be measured by looking at directly relevant KPIs. 

So, to return to the original question of “who decides what data we look at,” we can see that it should not be just “because that’s what we always look at,” but it should be a direct and intentional result of executives interpreting the business strategy and setting highly relevant goals that are then measured and acted upon. This means that (horror of horrors) things might need to change on occasion and that different strategic goals will throw different KPIs into relief. This is why it is fundamentally important that your business intelligence systems should be flexible and should allow you to react to changes imposed on the strategy by outside forces. Armed with this understanding of the relatively complex process that ought to lie behind our daily reporting, maybe we can now start to see why we talk about business “intelligence.”

  • John HobsonJohn Hobson
    John is Managing Director of The Planning Factory Ltd. and has worked on business intelligence and planning systems throughout Europe and Asia. His 25-year career includes positions with retailers House of Fraser, Tesco and Jaeger where he was Retail Operations Controller. He has also worked as a senior consultant specialising in retail planning systems design and implementation for Kurt Salmon Associates. Before setting up The Planning Factory Ltd. in 1996, he worked as Decision Support Systems Product Manager for Pennine Retail. John can be contacted at jhobson@planfact.co.uk.

Recent articles by John Hobson

 

Comments

Want to post a comment? Login or become a member today!

Be the first to comment!