Update on Shaws Supermarkets

Though my thoughts are finalized on this yet, here's an update on where I'm going with this at the moment.

Based on Scott and Prof Venkat’s comments, I have expanded my thinking away from the consumer a bit to include other ways a grocery chain can adopt its business model.   Although I still think technological changes at the consumer level could have a greater immediate impact to Shaw’s profitability, it’s true that utilizing technology to develop new ways to expand the normal “sell food” business model of grocery stores has very significant longer term potential as well.

I plan to discuss what Shaws can do on a consumer level to get up to speed and even push boundaries in terms of technology, while also exploring what B2B side services can be enabled by technology improvements throughout the value chain. 

I've previously mentioned many consumer technology related ideas.  On the business side, I have a number of ideas related to Shaw's role of data capturere and retailer of other's goods.  

For example, take the shopping data that Shaw's collects.  if Shaws were to open or sell access to real-time customer shopping data, companies could add extra value to the shopping experience through coupons and suggestions that influence other products to be purchased.  This would give the food suppliers a truly dynamic way to interact with customers and is an example of one of the ancillary revenue streams that Scott and Prof Venkat suggested.  Additional examples could include allowing other retail partners access to information such as letting Weber cross sell grill equipment to people who buy lots of hamburgers, etc...  At the core, Shaws knows food and retail, and should not deviate too far from their strength, however, creating value through the data they already collect (or will collect once their technology is updated) could be an intersting way to expand the business model.  There is one example - I'm working on developing other ideas and ways they can expand their B2B offerings and create value.

Memo to Bernard Arnault Chairman and CEO of LVMH (1st Draft)

Memo to Bernard Arnault Chairman and CEO of LVMH

Introduction

LVMH is composed of a fashion side (LV) and a spirits side (MH). This recommendation pertains to the fashion side of LVMH, though could easily be expanded to incorporate the spirits side as well. The LV side of LVMH is made up of:

Louis Vuitton, Marc Jacobs, Pucci, Fendi, StefanoBi, Thomas Pink, Donna Karen, eluxury, Dior, Loewe, Celine, Berluti, Kenzo, Givenchy, Guerlian, Benefit, Fresh, Make Up For Ever, Acqua di Parma, Tag, Zenith, HUBLOT, Fred, Chaumet, De Beers, DSF, Sephora, MCS, La Bon Marche, Samaritaine and Groupe Les Echos along with various other sub brands within these companies, such as Dior Watches.

The future of retailing is of course uncertain, but there is certainty in that the industry is evolving in multiple different directions and no one can predict exactly what path it will follow.
Without an options strategy LV will not be poised to maintain their leadership in the ever-changing retail world, as their company is a behemoth without the ability to move in one cohesive direction. Whether it is Facebook apps, RFID, mirrors that talk to your friends and make fashion recommendations, or some unforeseen game changer, LVMH is not poised to successfully operate in the future.

Basis for Recommendation: The Dire Need for Change
My recommendation is to poise LVMH be completely integrated and nimble enough to turn on a dime and adapt to any new technology. It’s a small victory to be first to implement a new retail technology, but it is a major competitive advantage to organize your internal systems to be able to quickly utilize any new technology, thus ensuring that if your competitors implement something new, you are never far behind with a better iteration. The multi-year, one-brand-at-a-time technology adoption approach is archaic, and by the time the last brand implements a change, it is already out of date.

Currently each brand operates independently or semi-independently with various levels of corporate oversight. LVMH’s role in the fashion empire is essentially to manage each brand and maximize profit. Going forward their role needs to change to one of information broker, central corporate hub, and strategic innovator. LVMH should have pristine companywide data in which to analyze trends and modify their options strategy.

When Sephora has a customer, LVMH may eventually get their customer history and run some reports, but this customer will be entered separately in every brands POS system, and the data is not truly combined in any meaningful way.

Recommendation
I am proposing that LVMH uses their massive computing power from running over 50 separate companies, thousands of servers, massive citrix farms, and multiple underground data centers, and gets into the cloud computing business. LVMH’s job would be to maintain the cloud openly within its brands allowing for mass customization and development. In the long run they could offer cloud computing as an external service. While this is currently outside the scope of this recommendation, it is a feasible option with the computing power they currently control.
LVMH would use the POS system they developed in-house called RMS and host it as SaaS for all of their brands to connect to. Instead of dozens of POS systems and databases there is now only one. Each brand would no longer need their own technicians and legacy systems and would also not need to maintain their own servers and software.

An open API would be provided to every brand to customize the POS system to fit their individual needs. This could go as far as each sales associate and manager having a completely different POS interface when they log into the system.

Data fields such as customer name and address would run from one database provided as a service to all brands. While the display is customized, the data is uniform, and you now have corporate customers instead of individual brand customers. Inventory would be coded per brand for ease of use, but visible to all brands so that a “mirror of the future” can offer suggestions in the store from any of the brands and all items can be ordered on the spot.

System Flexibility: Cascading Benefits
The goal again is not to create a system that will work with the above mentioned mirror, but to create a system that will easily adapt to any new technology that arises. Using the mirror as an example, imagine if you are in Dior buying a dress and the mirror outfits you with Benefit makeup, an LV purse, a Fendi wallet, a Tag watch, a Marc Jacob coat and a De Beers diamond necklace. You friends give you the thumbs up, and The Dior sales associate then sells you this entire order. The dress is wrapped up for you and all of the other merchandise is shipped to your house. A sale of one item now turned into a profit for seven different LVMH brands, and the sales commission of that associate just skyrocketed.

The system provides the ability for your sales associates to make more money, thus increasing their motivation and their loyalty to the company and of course corporate profit. Brands become cross-promoted and the fashion empire becomes one integrated kingdom instead of 50 separate fiefdoms.

“Facebook-like” and “Facebook the Omnipresent”
The POS system would function in the same regard as Facebook with the open API that would allow LVMH to be increasingly more nimble. With Facebook everyone logs into the same site, but everyone’s experience is completely customized with unique apps, different preferences and unique pages. Data is shared in real time and users can talk about their experiences. The LVMH POS system will act in this exact way, having a common underpinning, but allowing for both direct and indirect network effects though the ability of any associate to create value capturing application.

For example say that an associate at Fendi creates an app that allows him to track the weather during each sale. Other Fendi stores like the idea and soon Fendi’s associates and LVMH corporate are rating and talking about the benefits of this app related to staffing and merchandising. This app is of course available for all other brands to utilize.

Next a sales associate at Pucci reads one of these reviews on his homepage, and adds the app to his computer. Shortly thereafter all weather data from both Fendi and Pucci is being captured and analyzed.

If the idea catches on, more and more brands could add this app. You have now given the brands a platform to create dynamic capabilities for the entire corporation. One sales associate can now influence the entire future of LVMH though the creation of these apps.
Furthermore data capture is no longer forced onto an entire brand. If only 5-10 stores from a few brands try a new app LVMH is still provided with great data to analyze. Maybe they deduce that sales are up an average of 7% in malls when it rains since people want to be inside and thus flock to shopping havens. This nugget of info appears for all brands to see and stores that did not even know about the weather app now reap the benefits of more accurate staffing and merchandising.

Retailers have trouble with distinguishing garbage data from useful data and another issue with being able to do anything useful with either type of data. Forcing all brands to track the weather may turn out to be pointless, but if one brand proves it useful others can join in. On the other side, apps that prove fruitless can be abandoned just as easily without other brands having to test them and waste time capturing useless data. This useless data can then be purged from the source system at a much lower cost than having thousands of POS terminals remove the weather flag from their system.

The advantage that this type of data agility gives LVMH is immeasurable. In the past one brand would come with an idea, another may adapt that idea to their legacy system and later both may find out that it was useless data. Now you have two systems with useless non-compatible data. On the other hand, if the data is useful now 50 other brands need to alter their legacy systems to track this new data, thus creating 50 non-compatible databases of the same data.
This system would also be directly linked to an actual Facebook app. Customers would add the app on Facebook, search for themselves in the LVMH database or add themselves as a new customer. They can then get shopping tips, alerts about sales, and track their history. LVMH can directly communicate with each customer, and gain even more information about them.
Shopping Experience

As a customer, when I walk into Thomas Pink, the associates will have my shopping history from all LVMH brands, and will be able to analyze my needs and wants with aggregated data. I would image that being a VIP at Dior and then walking into Fendi for the first time and being treated like a nobody is a big turn off to someone who spends thousands of dollars at a time shopping. This lack of data may quite possibly cost Fendi a large sale.

This new system would adapt to stop this situation. With an RFID store card from any brand the customer is instantly recognized by the system, the sales associates are alerted to the customer name and status, and a New York 5th Avenue Fashionista, can be treated as they are expect when they walk into a new store of a new LVMH brand in LA.

The New Role of LVMH
With the creation of this system the role of LVMH changes as noted above. They are now charged with maintaining data integrity, spotting emerging trends, enabling the system to adapt to these trends, and constantly innovating and adding features that advance the industry. As Apple has migrated from a hardware/software/manufacturing company to a design firm, so will LVMH migrate from a corporate enforcer to a constant innovator and player of the options game.

RFID, Facebook and intelligent mirrors are all potential options, and LVMH can interpret the data for themselves and decide which ones to invest in. However, this integrated SaaS system in the cloud allows LVMH to take an options strategy and quickly adapt to new technologies. No longer will 50 brands across thousands of store in dozens of countries have to individually upgrade their systems, and no longer will Benefit Cosmetics have to maintain a clone install of their POS machines and reapply this clone to every register worldwide upon every tiny change. Now all cosmetic modifications can be made at the associate level, but enterprise wide upgrades are made only once and are accessible to all stores.

These enterprise-wide upgrades will be along the lines of adding RFID functionality, or creating an interface to the personal mirror. As noted LVMH will be trying to predict the future, but they will now be armed with an organization that can quickly adapt to change, can instantly test pilot ideas across the globe, and can interact as never before.

CEO Memo for Gap

Mr. Glenn Murphy, CEO of Gap,

The retail industry was originally a specialized model operating in local markets and offering limited selection – requiring shoppers to visit the local cheese shop to purchase cheese and the butcher for meat. The industry then gravitated to mass economies of scale and standardization. This had a tremendous effect on improving operational efficiencies, but at the cost of losing the intimate relationship with the customer. Today the industry, driven by the consumer’s appeal for self-identity and differentiation, is moving back towards specialization sparking initiatives of customer involvement and customization.

Gap is suffering from an identity crisis. It has terminated its unsuccessful Forth & Towne brand only a few years after its launch. For its three core brands, including its flagship Gap brand as well as Old Navy and Banana Republic, the company is undergoing store closings after years of overexpansion. No longer can it rely on producing khaki’s and chino’s on a mass scale. There are too many competent players with superior brand equity who have entered this space forcing Gap to compete on price.

Gap added piperlime.com last year as a continuing initiative to develop its online presence. By combining all three of its brands’ websites and with the addition of piperlime.com, Gap is trying to become an Amazon.com influenced one-stop marketplace for fashion apparel, accessories and footwear. Piperlime sells shoes and handbags, a market that had been underserved by Gap. Interestingly, Piperlime does not sell its own products, but rather is simply a marketplace selling third party branded products. Gap customers can select designer brand items to complete their entire wardrobe without leaving Gap’s domain. However, it is questionable whether Piperlime will be a success as it fails to help Gap differentiate itself from other competing online stores.

To succeed, I argue the need for Gap to rebuild its relationship with its customers by taking advantage of today’s interconnectedness. Gap can inexpensively leverage its scale with suppliers to offer a personalized solution to meet the popular consumer trend for customized clothing to suite the desire of individualism. Gap needs to leverage the expertise of its customer base through several social networking initiatives, two of which will be central to this memo; auction markets and customer design.

For too long retail has been getting innovation wrong by focusing on low order innovation, such as marginally improving the process of design, manufacture, or logistics. Small revolutionary retailers such as Netflix or Threadless have challenged the status quo, leaving past leading retailers behind. These unresponsive modes of behavior and self-defeating habits lead to the failure of retailers to meet the challenge of re-invention.

As a leading retailer, Gap ought to be at the forefront of this trend by innovating in ways that will create a more sustainable model of growth. A CEO ought not to focus on the lower end/reactionary innovations, but rather innovation of a different order. Simply having a Facebook page is not enough. To leverage the network through consumer engagement within their business model can be only accomplished with the stewardship of the CEO leading the transformation of Gap from a firm centric approach of design and innovation to a more network based approach.

Empowering the customer in the design process is a critical component to improving customer loyalty. Gap should offer customers a way to design and customize their clothing, such as modifying size, color, pockets, and other specs. Utilize social networking and social retailing to involve the customer in the design process. This should help control inventory by avoiding spoilage as well as reduce the need for discounting which tarnishes the brand in the long-run. Most importantly, customer design provides the customer with the feeling of involvement with the brand. Customers are more loyal to support a brand they feel a part of and have a stake in its success.

As fashion is a fickle industry it is a challenge for any design team to accurately predict the popular trends. Gap can leverage auction markets to better forecast demand. This will result in direct benefits such as a more efficient design process and an improved optimization of shelf space with the clothes that are most likely going to sell well. Having a better assessment of what will sell reduces inventory risk. Auction markets should not only be utilized prior to the new fashion season, but should be continued throughout the season to get a sense of consumer behavior, enabling Gap the flexibility to change what it manufacturers to reflect real time shifts in consumer preference and sales patterns. Speed to market and having the dynamic capabilities to adapt to changing conditions is as important as choosing the correct fashion.

Along with the auction system, Gap should consider holding design contests to help globalize their design department. This model is similar to Threadless, but with Gap’s globally recognized name, such a model could dramatically alter their design program. Rather than rely on a couple hundred designers in one of two locations, Gap could utilize millions of aspirational designers across the world. Gap’s design team decides which designs fit the Gap brand and which are feasible for production, and then allows the market to decide which design Gap should produce for the upcoming season. This should bring more traffic to the site as more and more people will be drawn to provide their input as well as should drive traffic into the stores as consumers are more willing to support a brand they feel they have a vested interest in seeing succeed.

What is most remarkable regarding the above recommendations is that they aren’t new ideas. In fact, these technologies are currently out in the marketplace and being used by companies in multiple industries across the world. With the advances we have seen in bandwidth, Metcalfe and Moore’s laws, the network infrastructure allows companies of all sizes to revolutionize their fundamental models. The critical success factor for companies is having a leader who believes in this shift to the network and is willing to change an organization that has been accustomed to its set of ways.

Textron CEO Memo Update

Textron's long history has given them years of experience designing and repairing many of their products, including the world's most popular aircraft, the Cessna 172. While I believe they have leveraged IT within their organization, I cannot find any information that they have been able to use IT to leverage their vast customer base. For example, there are clubs dedicated to many of their products where users can share their experiences and knowledge of operating Textron products, but the company itself offers no such service nor does it seem to interact with these clubs in any way. I believe creating a network for larger scale customer interaction could allow Textron to do anything from maintain good customer relations to conduct analytics on equipment performance. This would enable the company to take advantage of a vast array of information currently only accessible to owners and local repair personnel.

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In my memo, I plan to describe a strategy for the company to take advantage of many of the recent changes in information technology to allow the company to take advantage of their long running customer base. In addition to access to information, I believe this would allow Textron to pull a thread through areas of the value chain where they currently do not have a presence (such as with many localized service centers around the world).

Thoughts on CEO Memo

In thinking about my CEO memo for ThermoFisher Scientific, my mind keeps going back to the business shifts that have happened in both the financial industry and the retail industry where large amounts of processing capacity and bandwidth have dramatically altered the way that value propositions need to be made in those industries. The element that interests me the most is how the build up of processing power in the hands of Amazon led them to exploit cloud processing models, which was completely out of their original line of business, but has placed them at the forefront of an emerging new ecosystem of services.

In thinking about ThermoFisher, one of the worlds largest producers of scientific analysis equipment, I can't shake the thought that each one of these analysis assets (which is found in every biotech, pharmaceutical, hosipital, etc.) has a datasystem hooked up to it which in the past decade has been engineered to pool scientific data from multiple units for integrative analysis. If one follows the trends that we have discussed in this class to their logical conclusion, then a potential service must exist where a player could pool all of that scientific analysis together and run massive collective research functions at a cloud-based service structure and charge on a transaction basis, much in the same way Amazon is doing. This would allow for smaller laboratories to access massive amounts of research without making a huge investment in processing power (a business that ThermoFisher does not get anyway since they do not make computers) and also allow larger businesses to save money by being able to divest their server farms. This would also provide massive postive feedback effects to Thermo, since they would be able to get real-time live analysis of what kind of research is being done and therefore be able to invest their R&D dollars in the proper place (much like GE and the smart jet engines).

Is our information safe?

I was surprised to see on cnn.com this morning and article that said, "hackers stole data on Pentagon's newest fighter jet". The article went on to say that, "thousands of confidential files on the U.S. military's most technologically advanced fighter aircraft have been compromised by unknown computer hackers over the past two years". Although no classified information was accessed, it is scary to think that the US government's "most technologically advanced fighter aircraft" is not impervious to attacks.

http://www.cnn.com/2009/US/04/21/pentagon.hacked/index.html

CEO Memo - New Balance

I have decided to change the company of my CEO memo to New Balance. I interned at New Balance over the summer so I have insights into the company both as an employee and consumer. Some of the issues I will focus on are: social networks, co-creation and data management.

Health 2.0

Following up on our previous discussions on health care and the use of social networks for patients and doctors, EHR, take a look at this article on health communities:

http://www.economist.com/specialreports/displaystory.cfm?story_id=13437940

Oracle Sun Mashup

How come nobody has written about the Oracle Sun deal yet?! With this latest acquisition, Oracle will be all over that Microsoft chart from Prof. Venkat's class. This NYTimes article talks about how enterprises now prefer to get all their software and hardware needs from a single company. Although, wouldn't this make you highly dependent on your provider? They say Oracle has taken over Sun to enter into the hardware business. But along with all those cloud computing servers, comes Sun's pretty impressive software. Java, on which many software systems and mobile platforms run (including Oracle's own middleware), comes with this deal. MySQL the popular and free database from Sun, which has been a pain for database providers like Oracle, is also under Oracle's control now. Oracle could very well choose to "kill MySQL from neglect". This could have an impact on all those technologies (especially open source), which use MySQL.

Oracle acted quickly after IBM's failed attempt to grab Sun, and has put itself in an advantageous position against IBM (which is a strong competitor with its DB2).

Healthcare and IT

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There is an interesting section in the latest Economist on Healthcare and IT. The synopsis starts as follows.. "The convergence of biology and engineering is turning health care into an information industry..." It covers some of the ideas that we have discussed in class-including personalized medicine and health 2.0. It is of interest to not only the two groups that focused on the transformation of healthcare but also those developing their memos to the CEOs in the healthcare sector.