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How Amazon Will Use Analytics To Shake Up The Supermarket Industry

Forbes Leadership Forum , Contributor News, Commentary, and Advice About Leadership Opinions expressed by Forbes Contributors are their own.

This article is by Professors Eric Anderson and Florian Zettelmeyer of the Kellogg School of Management at Northwestern University.

On the first day of its acquisition of Whole Foods, Amazon lowered the store's prices on beef, organic eggs, and avocados. But that was only a start. Judging from Amazon’s legacy of employing analytics to drive sales, it could shake-up the entire supermarket industry. That is, if it pulls the right levers, introduces analytics in a strategic way, and gains employee support for the wide-ranging change.

Big change is coming to this store and every one like it. (Credit: Patrick T. Fallon/Bloomberg)

Legacy supermarkets, such as Kroger and Safeway, have ingrained practices that often have existed for decades. They range from how they set prices to how they pick what to offer, how they organize their stores, and how they evaluate success and failure. With the Whole Foods acquisition, many of these industry practices will be challenged.

Amazon manages its online retail site in a way fundamentally different from how most retail supermarkets operate. For example, at Amazon the customer is a central unit of analysis, but in many supermarkets the products are the focus. Many retailers employ sophisticated category management practices, but they are far less involved with sophisticated customer management programs.

It would not surprise us if Amazon shook up Whole Foods stores in dramatic ways. In the Amazon-Whole Foods universe, expect the variety of products within each store to shrink but the online selection to increase. Expect stores to reallocate some square footage to local delivery, further enhancing Amazon’s tremendous supply chain and delivery system. Expect the customer rather than the category to become the core focus. In sum, expect Amazon to slowly migrate away from both what is sold and how it is sold, and toward its customers.

To support this transformation, Amazon will rely on big data and analytics. What makes the situation unique is that Amazon will now face the same challenges that have frustrated large legacy firms that have attempted to grow using big data and analytics.

For example, Whole Foods has no customer database. Amazon has tremendous detail on its customers who purchase online, but it begins its transformation of Whole Foods with no historical customer information.

Amazon is going to need to win over Whole Foods employees and help them adjust to a new way of making decisions. For example, the Whole Foods manager who orders produce by talking to a supplier to see what’s fresh may need to be retrained. In some cases a new, data-driven model may know when the avocados are delivered fresh from California and the oranges from Florida without anyone talking to suppliers.

When most companies introduce big data projects into their organizations, they expect that the right technology and tools will lead to success. But they too often fail to recognize that establishing analytics across the firm requires a wide-ranging, cultural change. Analytics disrupts an organization in innumerable ways, such as affecting its decision-making, lessening the impact of politics, and altering profit and loss centers.

To succeed, analytics needs deft leadership. Chief executives, senior executives, managers, and project managers must understand the ramifications of introducing data science across the organization. Introducing analytics, like toppling dominoes, touches every department—finance, marketing, research, you name it. Without proper leadership and training, analytics won’t flourish in any organization.

For a company to truly embrace analytics, its leaders need to dramatically change the way they make decisions to deliver growth.  They must develop new processes, incentives, and organizational structures. But culture is at the heart of it.

Leaders have to initiate at least two major cultural changes, instituting (1) evidence-based decision-making versus opinions and gut feel, and (2) a new sense of accountability for determining whether an initiative works.

For big data to flourish, everyone must feel empowered to question conventional wisdom.  Managers must shift their thinking from “Do I think I have the best idea?” to “Do I know I have the best idea?” Data, analytics, and science become the guiding lights for making decisions.

The cultural transformation needed to support these decisions cannot be underestimated. We recently spoke with an executive at a large electronics retailer who implemented a careful experiment to test a new way of promoting products. The experimental results clearly showed that the new method beat the old method. But when pressed to implement the new approach, managers resisted and stuck with what they found familiar and comfortable—the traditional way of making decisions.

We often hear similar stories at businesses that are struggling to make analytics stick. In our experience, large legacy businesses often struggle on this front. In contrast, Amazon created a culture in which analytics was at the core from the outset. Trying to develop a data-driven analytics culture at Whole Foods is inevitable. To make it stick, Amazon will need to carefully manage a dramatic cultural transformation.

Reprinted from https://www.forbes.com/sites/forbesleadershipforum/2017/09/06/how-amazon-will-use-analytics-to-shake-up-the-supermarket-industry/#2d7b61155be9

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