I love strolling the malls around the places which I visit

Retail is not CPG and innovative models ...

In India since there was a dearth of real retail talent in the initial time organized retail took its roots most of the talent which was recruited by the retailers were from the FMCG/CPG background as it was closest to what retail was perceived to be. These managers set up FMCG/CPG distribution type of processes in Indian retail. This also reflected in their selection of systems as initially it was SAP dominated. Since most of the parent organizations of these retail chains were in the CPG/FMCG industries they inherited their preference of SAP. SAP is the de facto leader in the CPG/FMCG segment but worldwide for pure leader SAP still has some way to go. They are furiously working in the lab to bolt on the retail processes but they are handicapped by what is considered their strength in other industries - a tight integrated ERP.

 

Regarding to the processes, my personal experience has been very frustrating in now explaining to Indian retailers that the CPG /FMCG process and systems are not the real McCoy of retail. In retail you are directly selling to the customer while in FMCG/CPG the customer is not directly interacting with the processes. This is the fundamental difference in retail and FMCG/CPG processes. Thus channel push sales, distribution of bulk supply chain systems cannot be replicated from CPG/FMCG to retail. Retail has its own nuances which only a person who has worked in retail can understand while a manager who comes in from experienced CPG/FMCG background cannot comprehend the retail nuances.

 

This is true for IT systems as much for business process managers who come from CPG/FMCG background.

 

The other developments in India which I forecast in the coming years are the emergence of different models of retail which are already relevant in the west. The franchisee model which had witnessed a decline in India is bound to come back as retailers face cash crunch in investing in new  stores on their own steam. I believe the current retail biggies like Reliance had started to roll out the franchisee models but they slowed down as they faced increased complexity in management.

 

The other models like co-operative buying model, franchisee model bring their own challenges for retail IT solutions. Since the franchisee cannot invest large amounts in enterprise systems but at the same time the centralized procurement aggregation needs to have a robust Tier system in place I see a whitespace here in this segment for IT vendors to come out with innovative solutions. SaaS is the ideal business model to address this issue. Recently I interacted with a leading retailer in India who was pushing aggressively in the franchisee model. They are facing a tough situation where their current Tier 1 enterprise application cannot be adopted by their franchisees who are mom and pop stores to a collection of master franchises. They need to innovate to find a solution to this issue as their model involves sales thru their own to their franchisees and also involves aggregation of demand of FMCG products and then placing orders to a few large FMCG players to supply directly to their franchisees. No standard retail system satisfies this need.

I also see emergence of some unique business models and the most recent one I saw in India and which I really admire is of a chain of pharmacy shops. The unique business model is in the fact that these pharmacy shops are approx 300 sq feet and there are 650 store in addition to the stores they are adding poly clinics and wellness clinics where the customer can be member and these members can go across any of their stores with a common membership card and avail different promotions and discounts. These guys opened 50 stores per month for one entire year in India. This year they have stopped expansion and focus on process maturity and operational efficiency before going back to their expansion spree. I am truly impressed by these guys.

These guys have developed their own system completely based on open source platform which is one smarter thing. Since they have a unique business model, this is what their business enabler is. It also keeps their IT costs real low. They will have challenges to scale up their home grown IT platform but they are aware of this and will take plans to do necessary updates to the platform. 

I hope more such models emerge in coming years in India.

Say yes to Buffalo and no to Bangalore!

Obama’s new mantra – “Say yes to Buffalo and no to Bangalore!”. Are the Indian IT outsourcing majors understanding this change … I do not think so. The days of easy 40% margins are gone along with the days of high growth. The Indian IT majors need to understand that adding fresh labor by recruiting graduates with no business understanding is not going to guarantee them clients. Its high time that the Indian IT companies need to wake up and start creating real value for clients with IP creation and domain specialization. Today the client need is going to be how can a IT partner make us more efficient or add more value to my business rather than just provide me with a army of coders.

This is a complete paradigm shift and I don’t think its happening in the Indian IT majors. The IT majors may say that they are going up the value chain by investing in IP creation or having domain based solutions but  I see this more of a half baked half hearted attempt.

I recently had a interaction with one of India’s largest IT major which had plans to create IP led retail solutions for the small and medium (SMB) market segment in APAC. This segment is stated to be having the highest growth rate as per analysts in the coming years.

The IT major had plans to create pre built solutions for this segment which is the right way of going forward but just after December 2008 it shelved the plans as due to the slow down all the investments were shut. This is what I mean when I say a half baked, half hatred attempt. The IT major started on the right note but ended up not believing in its own approach. The recession needs to be taken up as a opportunity and the IT major has the necessary resources to invest in this time. But alas it has fallen in the cost cutting trap.

Addressing the SMB segment has its own challenges. The traditional time and material (T&M) or traditional fixed bid (FB) ways of developing solutions will never work as the costing will just not work out in the SMB segment. Addressing this segment requires upfront investment in creating IP and then patience as ROI cannot be in 2-3 quarters which the IT majors are today expecting. It needs a longer term investment and focus but only those majors who start today will survive over the longer run. The double digit growth rates of IT from business from the west is over and so are the 40+% margin projects. Thus the need for the hour is to invest from the spoils from the good times in IP led domain solutions.

Hope the Indian IT industry wakes up and amend their ways.