Despite unprecedented ecommerce growth, retailers are still wary of fully embracing digital transformation to meet the customers’ changing needs and optimize business operations. What are the reasons behind merchants’ fear to tackle ecommerce development projects and how can sound project management help? Read more in this report.
Worldwide ecommerce sales are expected to exceed $5 trillion in 2022, accounting for more than a fifth of overall retail sales.
In layman’s terms, digital transformation refers to the general idea of integrating digital components into business and retail to facilitate success. And retailers admit the importance of it in the post-pandemic world.
Retailers Show Enthusiasm for Change
According to a McKinsey survey, 64% of the companies recognize that their business models are becoming obsolete and plan to build new digital businesses to stay economically viable through 2023. Only 11% believe their current business models will bring profits in the future, while 21% refer to the need to embed digital technologies in their current business model.
Enthusiastic but Fearful
Surprisingly, the enthusiasm for digital transformation rarely translates into the actual retailers’ success. A recent Xero study found that five out of 10 UK businesses are reluctant to accept the risk of negative outcomes from tech-related decisions. Similar data was revealed in a global survey of Xero, and the majority of respondents specified their day-to-day survival as a business priority.
Opting to maintain the status quo is understandable for small businesses. After a turbulent couple of years, small retailers are anxious about how complex and costly the change process might be.
But for mid-sized and enterprise-level businesses, digital transformation also means 30% to 80% of the risk of failure, whereby after the massive amounts of time, effort, and money, the project falls short of its objectives.
What Makes Digital Projects Fail?
Digital transformation projects are difficult to execute. Here you can apply all the challenges any IT/software development project faces: cost overhead, misaligned timelines, unreasonably high investment with low profits, etc. Other barriers to successful implementation include but are not limited to:
- Obsolete or incompatible software
- Lack of expertise and skills
- Lack of vision and clarity
- Lack of buy-in, i.e. insufficient engagement of all stakeholders responsible for decision making
- Integrating and customizing systems
- The right development partner
All Eyes on Project Management
Effective project management can help resolve most (if not all) of the aforementioned issues. Digital transformation requires significant investment, so clarity of direction is essential for the project to be successful.
Even such decisions as “should I buy software or build it from scratch” should be faced before the project starts; otherwise, any digital transformation effort will be simply ineffective and risky.
“Typically, it is the PM [project manager] responsible for implementing a project within time, scope, and budget,” says Oksana Yakovlieva, head of PMO and R&D at Elogic Commerce. “But there’s more to that. My job is always to grow eCommerce professionals, not just project managers. Using the domain-driven development approach, our PMs can solve any problem or task from a business and technical perspective.”
Ecommerce Strategy to Set You Off to a Good Start
A “thousand flowers blooming” approach doesn’t always work. You need to have your eye on clearly established business goals, mission, and vision to access an array of where-to-play and how-to-win case scenarios.
On average, 22% of digital transformation value loss occurs during the initial phase of development, meaning that the full potential of the project is compromised before companies even get started.
A case study of one large retailer suggests that they began a $1.4 billion IT modernization project only to find out that maintenance was so highly customized that maintenance would drain their budget without serving their business objectives.
The retailer then switched to a new system for supply-chain management, investing yet another $600 million. Both efforts failed, and the store had to file for bankruptcy.
Strategy Guides Technology Investment
The management systems, their capabilities, and architecture must be aligned with the strategic goals and business vision. This fosters not only agility and scalability but also shares accountability for the project results among all business and technology stakeholders.
The 2022 eCommerce Executive Key Initiatives Survey reports that 86% of brands plan to spend between $100k and $500k to improve their digital experience in 2022. This implies an extensive integration of technologies, specifically in the area of data security/privacy, site speed, and site analytics.
Retailers are also increasingly paying heed to customer experience (CX) and optimizing business processes. Having established such goals in their ecommerce strategy, the choice of technology comes naturally. About 42% of merchants invest in integration with other business systems, 37% in analytics and reporting, and 37% in scalability, among others.
Strategy Beats Uncertainty
Global events like the pandemics, wars, market shocks, and technological shifts all contribute to the instability we live in — now more than ever. In fact, the International Monetary Fund and Stanford University establish that uncertainty has been increasing for more than 30 years, particularly over the past 10.
This uncertainty is the very reason you need an ecommerce strategy. Plotting a successful strategy means considering the odds of success, market forces, and the industry headwinds in addition to the inside view of a company. The essential elements of any ecommerce strategy include:
- Identifying business needs and goals
- Completing market and competitors analysis
- Getting stakeholder buy-in
- Analyzing the as-is and to-be state of business
- Establishing priorities and fundamental projects/tasks to achieve the KPIs
- Creating a roadmap to hit the key milestones and deadlines
Change Management Prioritized
Ecommerce strategy isn’t the only thing ensuring a project’s success. Retailers must also embrace effective change management, which can often be more difficult than we might imagine.
It is being reported that while a vast majority of the global brands (89%) have the motivation and willingness to initiate change, most still lack support in implementing it on the part of senior management or those overseeing the process.
However, the need to manage change is inevitable, and major players use organizational alignment and staff training to mitigate the risks. A few cases to prove the point:
- Deckers Brands bridged the online and brick-and-mortar businesses by enabling the endless aisle → Aligning people in retail channels and processes in ecommerce helped to drive digital technology in stores
- Longs Drugs implemented new software to optimize its store and warehouse management → Engaging ecommerce consultants to train the staff on the software use minimized resistance to the rollout and instigated a cultural shift within a brand
- Netflix switched to a subscription model seeing a drop in stock numbers → Sticking to a well-defined plan and a digital transformation roadmap helped the business grow to 221.64 million subscribers in 2022
What if Change Happens in the Middle of Project Execution?
Any change in the project execution will always bear additional costs and time. Even so, a change might bring a better impact on your overall business processes, especially if managed by an expert project manager or a head of PMO.
Project Management Institute (PMI) recommends handling changes in the following way:
1. Receive request/demand for change in process on a project, including:
- Any supporting documentation
2. Assess change request/demand with a focus on project budget regarding:
- Any relevant permit requirements
- Time lost/gained
3. Prepare and present to project shareholders/liaison your recommendations for how to proceed relative to request(s)
4. Receive shareholder decision approval or declination to proceed
In ecommerce project development, Lean and Agile management strategies are commonly used to curb unexpected changes. There is a common misconception that both models are mutually exclusive because of fundamentally different principles and approaches.
However, they both work to build a common mindset on the project, connect talent, and unlock value. The case of one mining company deploying a new operating system shows a 200% increase in engineering velocity and $10 million of value within the first three months after combining lean management with agile.
Apparently, as retailers set themselves to modernize their tech stack, it puts a strain on the budgets. Plus, if the development process is ongoing, high costs always recur.
To roll out the plans effectively, initiatives from the management must be transformational in terms of the budget spanning essential business functions like marketing, supply chain management, retail operations, data analytics, development, etc.
Cost Overrun as a Risk of Ecommerce Development Projects
On average, 45% of all large IT projects run over budget while delivering 56% less value than predicted.
In fact, the study of McKinsey and BT Centre of Major Programme Management at the University of Oxford shows that over 5,400 IT projects have a cost overrun of $66 billion, more than the GDP of Luxemburg. The reasons for cost overruns vary from the lack of business focus to an unaligned team.
“Cost overrun is a very common thing in ecommerce projects. Underestimation of the project complexity or its dependencies are common and acceptable,” reiterates Oksana Yakovlieva. “To mitigate this issue, we use the risk management and lean approach, where all the project is divided into phases. We do not try to implement the whole product roadmap in a single bite. The more it is broken down into pieces, the more accurate the estimates and budgets will be.”
Returns Drain the Revenue, Hence the Budget
The average marketing budget is about 7-12% of the revenue. In 2022, returns are among the primary yet overlooked source of losses in ecommerce, costing retailers more than a trillion dollars a year.
The costs of returns include the physical labor needed to process the return, issue a refund, and prepare the returned item for sale or, if it’s damaged, a write-off. “Shoppers return 5% to 10% of what they purchase in store but 15% to 40% of what they buy online,” David Sobie, co-founder and CEO of Happy Returns once told CNBC.
And consequently, retailers feel forced to cut their marketing budgets.
In fact, Gartner reports that marketing budgets have plummeted to their lowest recorded level of 6.4% of overall company revenue in 2021. This is particularly true for large enterprises with revenue of more than $2 billion; such companies reported the lowest average marketing budget of just 5.7%.
One way to tackle this issue is to reprioritize the spending commitments and invest in digital sales channels rather than offline ones.
Reuse-Replace-Rethink Model to Gain Better Control of Run Costs
As companies become more digital, technology is deployed more often to grow the business. And it’s not just a website. To create uncompromised customer experiences and to reap the benefits of digital transformation, retailers should look for a comprehensive implementation that features AI-powered bots, AR/VR options, headless commerce, and mobile POS.
Experts suggest using the reuse-replace-rethink model to manage the rising technology costs prudently:
- Reduce: Short-term reductions that might recapture 10% to 20% costs without substantially changing the business; e.g. hiring freezes, pausing nonstrategic projects, tightening spending.
- Replace: Medium-term replacements that swap out about 20%-30% technology costs for lower-priced alternatives; e.g. move the website to cloud services, outsource instead of hiring in-house, shift from on-premise licenses to SaaS subscriptions.
- Rethink: Long-term changes that reimagine the business to reset costs can save up to 30%-40% of costs; e.g. changing technology architectures, reengineering processes, and altering business models.
Human Resources: Addressing Gaps in Employee Talent
The leaders of Fortune 500 companies view the talent shortage as the top threat to business. Over 87% of executives experience skill gaps in their workforce and predict this trend for years to come. Unfortunately, few of them have a clear sense of how to address the problem.
Re-Skilling and Upskilling as a Way to Go
Amid the growing pressure on retailers to optimize costs and increase margins, merchants aim to automate various aspects of business which calls for the subsequent measures regarding the staff. About 47% of retailers now reorient their workforce towards strategic initiatives, 39% develop a strategy for an AI-enabled workforce, and other 38% comprehensively re-evaluate roles.
The measure of upskilling the workforce evolves alongside substantial budget cuts on hiring.
“A majority of companies (72%) would rather take the time to reskill current employees for production needs than hire new ones from outside the organization,” according to Sept. 8 survey results from The Harris Poll for Express Employment Professionals.
Some most common ways to re-skill and upskill include company-led training sessions, on-the-job training by other employees, and courses from third parties.
Cross-Functional Collaboration Encouraged
Companies can benefit from bringing together capabilities from across organizations to align employees with critical business processes. Deloitte survey proves that, in 69% of the cases, such cross-functional teams at digitally maturing companies are more likely to have considerable autonomy regarding how to accomplish goals.
However, Michael Arena, former chief talent officer at General Motors, points at certain peculiarities of such a team collaboration model. Cross-functional teams may be brought together to address one aspect of innovation, but team members may have a different role within a company.
“It could be that, for six weeks, we’re pulling people together for a specific purpose,” Arena explains. “They’ve got these milestones and, for six weeks, they’re dedicated to getting something across the finish line and that’s the design for that six-week interval. Then those team members are going back to their steady-state jobs where we’re going to ask them to help diffuse this out across the broader organization.”
Still, if implemented right, talent rotations and cross-functional labs can help organizations realize their strategic goals and inspire the staff for continuous learning.
Outsourcing vs Outstaffing to Meet the Talent Need
While outsourcing implies subcontracting a third-party agency for a specific project, outstaffing allows you to “borrow” an expert and temporarily incorporate him/her into your team. Both models are increasingly popular among IT ecommerce projects and allow you to fill the expertise gap.
Besides bringing the best talent to your team, both models also add significant advantages for business:
- Outsourcing helps businesses save up to 70% of operational expenses in the long run
- If the talent is not available locally, outstaffing will open possibilities to hiring globally
- A retailer shares operational risks with a service provider, who will take care of all compliances and tasks needed
- Outsourcing will ensure your business continuity in case of calamities, as was the case of the pandemic
Eventually, a well-trained staff leads to fewer errors and missed chances or deadlines. Choosing the right development partner may be a trigger to a smooth digital transformation of your business.
Ecommerce has been seeing ups and downs in the past years, leaving many brands teetering on the edge of a cliff. Online businesses that manage to survive in the highly competitive industry put significant effort into digital transformation.
Only investing time and resources to re-establish one’s ecommerce strategy, analyzing cost drivers, and enacting sound project management will help ecommerce projects achieve their full potential.