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Study Says Silos to Blame for Poor Omnichannel Operations

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There’s no shortage of factors to blame for poor retail performance in 2015—weather, currency, non-spending consumers—but the biggest problem a new study points to when it comes to creating the omnichannel environments retail demands today are silos.

Organizations still saddled with departments that don’t want to share information with others in the company are naturally lacking efficiency, but more than that, they are forgoing their competitive advantage.

In a new study conducted by PricewaterhouseCoopers for supply chain planning solutions company JDA Software Group, only 18 percent of CEOs at the world’s leading companies have cut out operational silos.

And, the report said, “These companies expressed greater confidence in future revenue and profit growth than their peers, while achieving significant competitive advantage though lower costs and increased investments in customer-centric services.”

Of that 18 percent of companies sans silos, 63 percent said they are confident in profit growth for the coming year, compared to 43 percent of the overall CEOs surveyed.

“With the ease of market entrance for e-commerce retailers, the growing demands for omnichannel delivery speed and fulfillment options, and the continued rise of Amazon.com, there are plenty of external threats and internal challenges to keep CEOs up at night.”

But CEOs that have silo-less work environments where internal departments communicate and share relevant information, seem to be sleeping better at night.

Only 20 percent of CEOs who have removed silos from their organizations felt that failure to manage the costs of e-commerce fulfillment would greatly impact their business, versus 28 percent of CEOs as a whole who felt that way.

“Not only are CEOs who have removed business silos less concerned about the impact of omnichannel operations, they also appear to have significant cost advantage over those companies still operating in silos,” JDA noted.

Seventy-three percent of CEOs at companies still operating in silos say their costs for omnichannel fulfillment are increasing, while only 59 percent of those that have cut silos out point to costs going up.

Among no-silo CEOs, 32 percent said their highest cost for omnichannel fulfillment is shipping direct to consumer from a distribution center, compared to 45 percent of those with silos. The cost of returns was also a top concern, but 66 percent of silo-saddled companies said it was one of their greatest cost factors, compared to 51 percent of those without silos.

“This data strongly suggests that removing silos from omnichannel operations can give companies a competitive cost advantage,” the study noted.

Omnichannel has become a retail imperative as all things must be simple, seamless and speedy, and companies that haven’t joined the bandwagon now have a sense of urgency to meet these omnichannel demands.

“CEOs’ investment intentions are higher for the next 12 months than they are over the following three years, especially for the critical omnichannel functions of extending the range of customer fulfillment options and providing seamless customer shopping experiences,” according to the report. “The emerging markets in particular are spending heavily in these areas, as well as in understanding social media, improving supply chains and creating new in-store experiences.”

Leaders in the space—apart from operating organizations without silos—are investing in more customer-focused capabilities that will increase competitiveness and profitability. Some have even added chief customer officers or chief digital officers to their corporate rosters to help highlight customer-centric efforts in the boardroom.

Winning with omnichannel means these leaders are working on ways to deliver richer customer shopping experiences and continuously innovating to keep ahead of their peers.

“Those companies who want to successfully compete with these leaders, therefore, must not only remove the business silos that prevent seamless operations, but also rapidly increase their investments in omnichannel capabilities before they fall further behind the omnichannel leaders,” according to the report. “These actions will define retail winners and losers going forward.”

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