I am looking at a killer business case for a new piece of retail technology. Based on a pilot test, this technology will deliver an average of 3 percent to the bottom line of every retail outlet. It has a payback of 18 months and a 60 percent ROI. Sounds great, right?
I wish 10 percent of my business cases looked this good. The problem is that even before I present the business case, I know that the project will never even get off the ground. Why? Because it crosses the IDM Threshold.
I’m talking about the “It Doesn’t Matter” Threshold, which consists of the four critical components of an IT business case: Price; Level of Effort (LOE); Perceived Need; and Credibility. Each one of these components has an invisible threshold that, if crossed, dramatically decreases your probability of success with a technology program.
The IDM Threshold actually exists in many aspects of our lives and it's based on our expectations. Let’s say you have decided that it’s finally time to buy a new flat-panel TV. You go to your local electronics superstore and tell the salesman that you are looking to buy a high-quality TV for a good price. The salesman excitedly tells you about the absolutely best TV in the store.
It has the best picture quality, sound quality and reliability. This incredible TV has been marked down, for today only, a whopping 80 percent off the retail price. You start to get excited.
"Wow, this is a monster deal! I won’t have to be ashamed to have the guys over to watch the game again. This is great," you think. As the salesman is walking you over to your new dream TV, he continues: “As I was saying, this TV has been marked down from $50,000 to just $10,000."
Whoa. What just happened? A $10,000 TV? I don’t think so. I don’t care how good of a picture it has or how reliable it is. There is no way I am spending $10,000 on a TV. That is absolutely nuts.
You’ve just crossed the IDM Threshold. You have crossed an internal barrier that your expectations have set about buying a TV. I’m not sure what your IDM Threshold for TV prices is, but most people will tell you that it is less than $10,000. We all have these internal expectations. When we breach these barriers significantly, we can fall off a sort of mental cliff. It's called, “Are you kidding me?”
When it comes to retail technology in a franchise environment, understanding and managing the individual and group IDM Thresholds are key to the CIO's success. In my experience, franchisees have a technology IDM Threshold that is about 1.5 percent to 2.5 percent of sales. If you ask a franchisee to outlay more than 2.5 percent of one year’s sales on any technology project, you have crossed their IDM Threshold for price.
In the example I opened this column with, the business case had a three percent annual profit growth and an 18-month payback. That equates to a 4.5 percent outlay for the technology. Even though a 3 percent profit increase would be absolutely amazing, I’m not sure I’ll ever see the day when a large group of franchisees voluntarily agrees to invest 4.5 percent of one year's sales in technology.
When it comes to the IDM Threshold for Level of Effort (LOE), I believe that most franchisees have a barrier at about 1 to 1.5 hours per week. If a technology project is going to require focused attention of someone in the retail location for more than an hour and a half per week, you have crossed an IDM Threshold.
I worked on a project that clearly showed where an hour of effort every week was shown to deliver $200 in savings, and the adoption rate was pitiful. It seemed crazy to me at the time. A lot of this has to with habits and routine. Forming new habits, even if the benefits are great, is difficult. The best analogy for this is losing weight. Most of us know that the key to losing weight is diet and exercise, but we still do not change our eating habits or make the time to be more active.
When it comes to Perceived Need, there are both an individual IDM Threshold and a group IDM Threshold. If a franchisee doesn’t believe there is a need to implement the technology, the benefits of the system often become irrelevant. In turn, if the majority (50 percent +) of the franchisees do not believe that the problem needs solving, it is very difficult to get adoption.
A good example of this would be advanced video surveillance technologies that tie into the POS. Although these systems have shown dramatic ROI, many franchisees do not believe that they have a theft problem. “I don’t need it. Those guys who don’t know how to manage their stores have problems with theft, not me.” This is an IDM Threshold.Lastly, when it comes to technology projects, the historical success of implementing technology for both the organization and the CIO creates another IDM Threshold. If the organization or the CIO has historically failed (in the franchisee's mind) at implementing technology in the past, then the business case is in trouble. This causes debate on an emotional level rather than on an empirical level. Although this one is harder to quantify, the fact is that if the franchisees do not believe the organization either has the capability to successfully deploy a new technology or will deliver the promised results, then “It Doesn’t Matter” how good the business case is.
You may be thinking, “So should retail franchise IT only focus on delivering cheap and easy-to-use approaches?” In most cases, I would say, “Yes.” I do, however, believe that IDM Thresholds can be managed and changed over time. I think it is important for organizations to have explicit goals to manage IDM Thresholds. Here are some ways to improve your organizations IDM Thresholds:
So the next time you work with your partners in operations or marketing on a new technology package for your retail locations, talk to them about the organization's IDM Thresholds. Make it part of how your company thinks about technology projects in the future. In the end, you will be better prepared to discuss the business case with your franchisees by openly talking about the hidden line on the business case.
What do you think? Love it or hate it, I’d love to gain some additional perspectives. Leave a comment, or E-mail me at [email protected].