Target CIO Mike McNamara’s Priorities: Digital And Supply Chain Innovation
- This is interview #37 in Metis Strategy’s series on CIO’s First 100 Days
(see below) - Originally published at www.forbes.com on July 5, 2016
Introduction
When Mike McNamara first learned of the chief information officer opening at $72 billion, Minneapolis-based Target, he was not entirely sure where Minneapolis was. He had built a strong reputation as CIO of Tesco in the UK, a firm that had long been thought of as among the more progressive users of technology in the bricks-and-mortar retail space. He had spent considerable time working in Europe and in Asia, but relatively in the United States.
McNamara began his tenure at Target by working at a store for a time, getting to know the experience of Target associates by living as one of them for a time. He interacted with customers, discovering what delighted them and what did not about customer experience. Since many of those same customers also visited Target’s digital channels, he garnered invaluable information to take back to headquarters.
Since then, McNamara has pushed IT to be woven into almost every facet of the business, as so much, inside and outside of the company, is delivered with and facilitated by technology.
Peter High: Mike, we are sitting in your office here at the headquarters of Target, and I have just had a chance to walk around a little bit. I was struck by the number of spaces that seem to be fit for purpose, where things have been rethought to accommodate the kind of work that would be done in this space as opposed to traditional offices and cubes. I know some of them predate your time here, but I wonder if you could take a moment to describe some of those spaces, and the way in which the company has thought about designing the office space to make people as productive in their collaborations as possible.
Mike McNamara: One of the things that struck me when I joined about nine months back was how well designed and how well architected the space is around the work that needs to take place, rather than trying to fit work into a whole heap of cubes. We have got a wonderful space called “Target Plaza Commons” which is just an open seating area. You can sit outside during the summer period, obviously you can’t do that in the cold of winter in Minnesota, but it has nice fireplaces inside. It is a great place, a relaxing place, to go meet. I have used it myself, just to bury myself in a corner over there with earphones on to get a little bit of peace and quiet.
Our product development people have their own innovative space with maker-bots. The work-spaces have absolutely been designed around the work that needs to happen there. From a technology point of view, clearly as we have moved most of the teams to agile, we are taking down all of the partitions. Teams work at long tables with electrical outlets and LAN connection points in the middle, and they are surrounded by whiteboards. Probably the best space we have in technology we call the “Dojo” where my teams go to learn more about agile and more about DevOps. It is an immersive experience, they take their work with them, they go to the Dojo and they stay in the Dojo for anything up to six weeks, but it is a huge, empty room with long tables and whiteboards. It is fabulous. It gets a bit noisy in there — probably the only downside — so people do wear their headphones when they are doing the work, but the energy is magnificent. Having twenty teams who are working together to create something is fabulous.
You mention that you joined roughly nine months ago. You joined from Tesco, an organization that historically had been progressive in its use of technology. I think that often times IT leaders have a bit of a distance from the end-customer, often referring to their colleagues as customers as opposed to recognizing that customers are the people that provide the revenue to the enterprise. I wonder if you could talk a little bit about the methods you have historically used, and recently used for that matter, in order to ensure that you and your team have that customer prospective.
I think it is far too important that you touch base with your real customers, not your business partners. I have been absolutely driven by the fact that customers are the people that come in and buy things out of our shops. They are the only customers we have, everybody else is a business partner, team member, or associate. I have always taken the time to try and understand what our customers, Target guests, want. That can involve spending weeks out in stores. In my old company I would spend a week every single year working in a store, doing all the jobs that a store team member would do. Whether that is filling the shelves, doing overnight deliveries, or working on the cash register; it is an enormously instructive period. Not only do you understand the technology that you give your teammates to do their job, but crucially how it works for the guests.
Sitting in call centers listening to calls can be an amazingly sobering experience, especially when you are riding high, thinking that you are doing well, then you get into a call center and you listen to all the things that you haven’t done quite so well for guests. That brings you back down to earth quickly. It is vitally important that you get those experiences with guests. I think that data can only tell you so much. All of the data in the world does not tell you about people’s emotional response to things, you have to go out and talk to them. Target has been fantastic, and they have set up a guest immersion experience where senior members of the team, including our chief executive Brian Cornell, go out and spend three or four hours in a guest’s home. They know that they are doing some research into retail, but they don’t know they are from Target. They certainly do not know that it is the Chief Executive of Target, and there is a big reveal at some stage during the process. But again, just by talking to people about how they lead their lives, what is in their cupboard, and what they buy, it tells you an enormous amount about whether the strategies you have at 35,000 feet make any sense whatsoever at ground level.
You have worked in the same industry now in multiple countries. You are relatively new to the US, having spent most of your career with UK-based companies. As you have gone through some of these experiences, do you find that there are many differences in customer behaviors or customer expectations in Europe as opposed to the US?
“No” is the short answer, and not only have I worked in Europe, but also throughout Asia. I think retail as an industry is changing rapidly. The catalyst for that change has been technology, no doubt about it. If you go back just over ten years, maybe fifteen years, technology in retail was all about the back office. Ultimately, like all industries, it was about Finance and Accounting in the ’70s and ’80s, and then it became ERPs and a bit of CRM in the ’90s into the early 2000s. Even the internet, although it made a big road, made a big change in the early 2000s. It has been in the last 10 years that it has changed enormously all over the world. You see that change taking place in China, Korea, and Thailand as much as you do in the UK and the United States. In fact, I am a frequent visitor to India, and they will probably skip a generation of technology, and they will use the internet for that hypermarket-type experience.
I think the overall of what guests want out of retail pretty much is universal. It is a mix of convenience, price, quality, and value. It is similar in both territories. I would say that the UK is slightly odd, in that it is far more advanced in food and grocery online than the United States, and probably internet penetration of some other categories is a little bit further advanced. It is mainly the geography, places are small, it is an island, and densely populated, so the transportation costs are relatively low. It has a few things in its favor.
For quite some time, “omnichannel” was the key buzz-word across retail. I know from recent conversations you and I have had that you believe it is a tired word. It suggests something that is unique or other than the rest of the organization, when in fact now it is part of how the company does business across the entire enterprise. Can you talk about your perspectives on that?
I am glad that the phrase is getting retired because nobody ever liked it in the first place, but nobody came up with a better one. I went to NRF this year in January and I have been going to NRF every year for quite a long while. It is interesting as you watch the change in what is being presented year-on-year. It was quite interesting this year that the world “omnichannel” almost did not get mentioned. It was not up there on the stands, and it was not in the speeches as it would have been even last year or the year before. Everybody was talking about “omnichannel”. It has disappeared because it does not matter anymore, and it is just the way you do business. There is no real digital-physical divide anymore. Our marketing is as much about what we do online or on the smartphone as it is what we do on TV and on broadcasts. We did a launch with a Finnish designer this weekend called Marimekko, and the only advertisements I saw for those were online.
Digital is now part of the fabric of major corporations, certainly of retailers. Thinking about it as two different channels does not make sense anymore. It makes no sense whatsoever. The physical fulfillment of what would have been a traditional e-commerce order goes through our existing distribution network. The distribution centers that are servicing our stores also service our guests. The stores themselves can ship to guests, or guests can come in and collect their online purchases in the store. We have moved beyond having to force two channels together, they are one and the same.
How are the topics related to digital? How is online versus offline managed? Who does that work? Is it something that is so distributed that marketing has their own team thinking about these things? Is it something that you are fulfilling on their behalf?
It is completely distributed. If you look into Marketing, I don’t think that they think about online versus offline. It is part of their marketing arsenal, it is what they do. Clearly my team has a huge amount to do in Marketing these days, as we have to build a lot of the underlying technology, but the marketing team uses that technology each and every day. There is a head of e-commerce, but the reality is that all of his team is massively distributed. We do not have different merchants, for instance, for our stores business and our online business. We just have one set of merchants for apparel and they buy for both. It is absolutely woven into the fabric of the operation throughout, and it is the same with my team. I do not specifically have a digital team, everybody is digital.
Can you talk a bit about how your team is organized? How have you divided up different segments of your team?
It is a fairly traditional-type organization in that I have got an infrastructure team, a security team, and then I have got effectively software engineering teams who are building the software for the business. Those software engineering teams are separated out by supply chain, merchandising, marketing, and retail.
The big organizational change that we have gone through in the last year or two has not been at that macro level, it has been in how we do work. We have moved everybody into agile and DevOps, and we have moved the business onto a product management-type model. We are still going through that evolution. I think in reality, it is a huge change not just for the tech team, but also for the rest of the business on how to consume and manage technology. It will probably take a year or two to complete, but we have made good progress. Now I see my colleagues in the rest of the business take ownership of the technology that supports their part of the business. We have full-time people from our retail division working day in, day out with my engineers to create new technology supporting shelf filling in the stores, stores ordering, or any number of other activities in the shops. It is a completely different way of working.
Can you talk a bit about some of your priorities for the foreseeable future? What are some of the imperatives that you and your team are working on?
I could talk about it on two levels. It is all about digital, number one, and supply chain number two. It sometimes surprises people that we have to invest so much in our supply chain. The focus and the needs of our supply chain have changed massively over the last few years as direct to guest fulfillment has become more and more important. If you go back five to ten years, our distribution network and our whole supply chain was geared around sending full cases of product from distribution centers domestically to stores domestically. That linear flow of goods from supplier to distribution center to store was the way everything was done. Now, of course, it is a network. All of our inventory is available to all our guests, all the time. We will ship from a point to a guest that makes the most economic sense, or gives the guest the shortest lead time. That means that the thing that was once linear is now a network.
The needs of our supply chain and the demands on our supply chain have changed massively over the last five or ten years, so we have a huge investment as a business into our supply chain not just from a technology point of view, but from a broader business point of view. The second one is digital, which would be of no surprise. Marketing moves from broadcast to personalized, from TV and newspaper to smartphone and tablet, so it is a huge priority for us.
You mentioned as you spoke about your team that one of the items that rolls up to you is security. Obviously, yours is an organization, predating your time here, that, like a number of prominent organizations, has had security issues in the past. I wondered if you could give an update as to how things are managed here, and your own reaction now, coming in behind all of the work that has been done since then.
Target was probably one of the first to have such a major data breach and such a public one. As you say, even since then more and more have emerged. Having had the misfortune of being first, we are clearly now the poster children for those data breaches. I think it has been traumatic for the organization, but they have responded tremendously well. They have sought out the best experts in the industry, and have hired many of them. We recruited extensively out of defense contractors, and they are bringing a defense contractor-type of organization and mindset into retail, and it needs it. I think it is one of those things you have to think about every single day. The bad guys are getting more capable as time goes by, and the tools available to criminals now were the tools that were only available to nation-states ten years ago. It has to be a huge priority for any retail CIO, and I say Target’s response has been fantastic.
What trends are particularly exciting for you as you look to two or three years out into the future? What are some of the things you are beginning to look into that you think might impact this company and this industry?
I just love open source, which has been phenomenal. Again, something that has around probably for twenty years since Linux in the mid-90s, but has blossomed in the last four or five years. The number of new technologies available to people like me to do my job has grown enormously. Only a few years ago my one choice of database was relational, but now I have graph databases, document databases, and all different types of tools to do the job. Most of those tools have been developed within the open source community.
I think that is tremendously exciting because the capability that we have as technologist to create and do different things is just growing exponentially. The palette that we have available to us today is many hued, as opposed to the four colors that we had back in the early 2000s. It is a great time to be in technology, and a great time to be in retail technology as the industry changes.
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Peter High is President of Metis Strategy, a business and IT advisory firm. His latest book, Implementing World Class IT Strategy, has just been released by Wiley Press/Jossey-Bass. He is also the author of World Class IT: Why Businesses Succeed When IT Triumphs. Peter moderates the Forum on World Class IT podcast series. He speaks at conferences around the world. Follow him on Twitter @PeterAHigh
