Future-Ready Retail 1
Are you ready for the retail of tomorrow?
FUTURE-READY RETAIL:
Future-Ready Retail 2
IntroductionThe retail business is changing faster than almost any other.
Consumer behaviour, always heavily trend-driven, is adapting rapidly to new technological possibilities and financial constraints. A generational shift in attitude is seeing new, social drivers of commerce take prominence. Simultaneously, the competitive environment and supply chain are being disrupted on an almost daily basis by transformational innovations in manufacturing, distribution, service, and payments.
Operating in this fast flux is not easy. There’s no
new paradigm to aim for: by the time you achieve
tomorrow’s model it will already be history. Instead
today’s retailer has to be adaptive, agile and nimble
– able to change fast and optimise faster.
In this exploration of tomorrow’s retail environment,
we look at what it means to be ‘future-ready’. We
examine the five primary vectors of change that are
transforming retail from supplier to service. We talk to
key retail players to understand how they are preparing
for tomorrow. And we offer some simple tools to help
brands and retailers gauge their preparedness.
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Are you future-ready? No-one knows what tomorrow will bring. So how do you prepare?
This is the dilemma that has always faced business leaders in every sector. In a retail market increasingly characterised by disruption and change, the challenge is particularly acute.
The answer is this: if you can’t prepare for tomorrow, then prepare for change. This sounds simplistic, but there are practical steps that brands and retailers alike can take to ensure that when change comes, as it inevitably does, they are the ones riding the wave, not drowning beneath it.
The first step is to understand the vectors of
change, the undercurrents swelling the tide. Though
we cannot know the exact impact that they will
have, nor can we say with great specificity when
their impact will land, we can at least discern
general directions.
Technology, and particularly its rapid adoption by
consumers, has been one of the great engines of
change in retail.
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Technology Effects: Accelerate, Connect, InformWhat does technology do?
First of all, it accelerates. It speeds the flow of
information from consumer to chief executive and
beyond into the supply chain. The same is true in
reverse. Trends, preferences, and patterns move at
the speed of light and consumers expect a response
in a similar time frame.
Secondly, technology connects. Over three billion
consumers are now linked in a global community
of shoppers, with more than half of them accessing
the internet from mobile devices. Trendsetters can
create instant ripples that spread internationally.
Brands can reach, and sell to, their audience
directly, bypassing traditional channels.
Thirdly, technology informs. Consumers no longer
need to rely on the retailer to educate them about
products and services - or prices.
They have a world of data at their disposal, just a
few clicks, swipes or voice commands away. Today
Google indexes more than 45 billion web pages.
The amount of data available is growing at an
unprecedented rate: 1.8bn photos are uploaded every
day, alongside 16 hours of video to YouTube alone.
Technology Trends for Today and TomorrowIt’s fair to assume that these technology trends will
not fade soon. Moore’s Law, the recognition that the
available computing ‘bang per buck’ doubles every
year, remains true. As dgroup’s Olaf Rotax points
out, the idea of a technological ‘singularity’ gains
plausibility with each year of continued development.
If true, this idea of the rate of progress continuing on
its exponential path suggests that recent trends will
accelerate: we are about to enter a further technology
shift, as a plethora of wearable technologies begin
to enhance and even replace the more ‘traditional’
screen-based interfaces.
Inside the organisation, the march of the cloud
continues. IDC estimates that almost a third of
enterprise applications will be cloud-based by 2018,
up from 16.6% at the end of 2013. This shift is as
much about culture as technology. Pre-internet
retail systems were all about large scale and deep
integration. Monolithic engines of commerce that
tried to pull every process into a single software
stack. These closed platforms cannot possibly
adapt to the proliferation of digital, mobile and social
channels of the post-Internet age. Instead the cloud
brings post-internet thinking: open platforms and
interfaces. Rapid development, testing and adaptation.
The point is not about picking winners from individual
technologies, products, devices or sales channels.
It’s about a culture of readiness: controlled costs,
clear customer focus, the tools to listen and respond.
An ability to adjust, test new ways of working, reject
those that don’t work and scale those that do.
The customer is truly empowered. They have a world of data at their disposal, just a few clicks, swipes or voice commands away.” – Martin Newman, Practicology, CEO
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Undercurrents and Rising TidesTechnology is not the only driver of change, but it is
unparalleled in reach and impact. It is the conduit
for other key trends, such as the increasingly direct
connection between brand and consumer. Only by
analysing shifts in technology can we understand
how changes like this have come about and where
they might take us next.
Technology change, and the response to it, is
illustrative of a company’s future-readiness.
Technology is the visible expression of otherwise
hidden trends.
Are you tracking the undercurrents? Looking for the
long term implications, not the tactical impacts? Is
your organisation capable of seeing change in the
data, and responding rapidly?
Do you have the agility to adapt to these changes
and rapid shifts in consumer trends? Because this is
what it takes to be future-ready.
Vectors of Change The variety of influencing factors is what makes predicting the future hard.
Trying to account for every economic, social and
political influence would surpass the power of the
greatest minds and all the supercomputers in the
world combined. But we can identify key issues and
priorities worthy of our attention, themes that will
characterise tomorrow.
Below we lay out five key vectors of change that
we believe will characterise the future of retail.
Recognising and responding to these vectors will be
a key success factor for every retailer and brand.
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Every new channel brings new opportunities
1. Diversity
When web commerce first arrived in the mid 90s, retailers could have been forgiven for believing it was the future – the only future. If you’ve read the newspapers or watched the stock market, it would have been easy to be convinced that all shopping would be digital and web-based by now. Web commerce was the new paradigm.
But rather than supplanting the high street store,
web commerce supplemented it. A proportion of
spend moved online, but for most retailers the
answer was clearly to support both channels, not
one or the other. Suddenly traditional retailers are
competing on two fronts, and competing with a raft
of new entrants, against whom they now hold much
smaller advantages.
Then along comes mobile commerce. Another
channel to support. Mobile commerce is briefly
held up as the new paradigm. Until Facebook
arrives. Then apps, in-game stores, and a plethora
of other social networks. Every new channel brings
new opportunities but also new challenges, and
new challengers.
The modern consumer has been fast to adapt to
this array of choices. He or she doesn’t differentiate
between high street and web, mobile and social. It is
just ‘the world’ to them, and they expect to find the
brands they seek anywhere they look in this world.1
Exacerbating the challenge of consumer-facing
channels is the proliferation of options behind
the scenes. Traditional channels are fracturing
and becoming hybridised as brands balance the
needs of their channels with their own need to
communicate directly with customers. Fulfilment
options abound: drop-shipping, click and collect,
digital delivery. It won’t be long before consumers
can select a digital design and have it 3D printed at
the bureau of their choice.
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Traditional retailers are under pressure from three
sides. From the left, new competitors like Amazon
bring unlimited reach, and unlimited resources, both
in terms of capital and technology development –
something the retailers just don’t have. From the
right, retailers are challenged by the brands, now
going directly to consumers, eliminating the retailers’
margin. Add these new challengers to the retailers’
traditional peers and it’s a tough environment in
which to differentiate.
Brands have their own challenge: they need to learn
how retail works. Brands know how to ship one
container of a thousand shirts, but now they are
selling single shirts and getting returns. Few have
had the processes or the partners to handle this.
Now that they can have a direct digital connection
to consumers, brands want this touchpoint but it’s a
completely new world.
Key Takeaway: Trying to compete on every front and do it all yourself is incredibly expensive. Retailers and
brands alike need to look carefully at what they can and should do themselves, and where
they need to partner. Careful prioritisation is important as it is impossible to chase every
opportunity. Consider using a simple ‘2x rule’: only address those areas where there is an
opportunity (or risk) to double or halve sales, profit, or customer satisfaction.
Be cautious about ‘omnichannel’, systems-first approaches, which are often based on
solving your pain, not your customers’ needs. Start by addressing the customer need and
then fill in the blanks in your own processes and systems.
1 http://www.lithium.com/company/news-room/press-releases/2012/consumers-expect-more-engagement-from-brands-through-social-media-lithium-social-survey-finds
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Building a core platform that can support multiple retail channels
2. Agility
Consumers have proven that they adapt rapidly to new technology. And so they should: Huge amounts of time, money and effort are invested in making new consumer technologies as simple and intuitive as possible. That means that when a new digital retail channel opens up, consumers are likely to adopt it faster than retailers and brands.
This presents a challenge: how fast can you open up a new front? Can you do so in a way that doesn’t damage your operational efficiency elsewhere?
Adaptation Over Optimisation For years the challenge in retail has been to optimise
the performance of a single channel, driving out
cost, pushing up standards and ensuring the
optimum flow of the right products. But now it is
arguably more important to be able to adapt quickly
than it is to optimise, for two reasons.
Firstly, there is the issue of audience: as channels
proliferate, audiences will be increasingly
fragmented and transient. Maintaining a consistent
audience for your proposition will mean following
customers as they leap between channels. As the
research highlighted in the previous section shows,
customers want their preferred retailers to reach
them in their channel of choice.
Secondly, there is the issue of brand. Not many
retailers will have the luxury of waiting to enter new
channels: John Lewis in the UK was arguably late
to the digital market, but when it entered it did so
deliberately and with great success. This is the
exception rather than the rule: across Europe there
are examples of retailers that have been too slow to
transform, damaging not just their reach and relative
operational efficiency, but also their brand.
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Being ‘retro’ is a small niche with limited customer
appeal. Tomorrow’s retailer will need to be nimble,
able to quickly leap into a new channel with limited
expenditure and risk.
Being responsive is about having systems in place
that can cope with the pace of change. This is rarely
achieved with a ‘big bang’ solution. Instead it’s
about continuous innovation, enabled by openness:
open platforms that can be quickly and cheaply
connected into other systems.
The preached message of the ‘omnichannel’ retailer
for the past few years has been about integration:
building a core platform that can support multiple
retail channels. One set of customer data, product
data, billing data upon which new channels can be
added as simply a thin presentation layer.
But not every new channel will prove to be a
success. Agility doesn’t just mean adding channels
– sometimes experiments with channels will fail, or
the channel itself will just fall out of fashion. A few
years ago it might have been MySpace. Now it’s
Facebook. What next? Neither brands nor retailers
can afford to throw away a big investment every
three years. Yet some retailers are trying to become
software companies in order to compete with
Amazon, spending hundreds of millions of Euros
on new platforms. Agility is about being able to
experiment and not being afraid to fail, but learning
to fail fast and move on.
The selection of this approach, retailer as software
company, has been popularised by those
looking at the success of Amazon and eBay and
understandably wanting to replicate it. But it is
a costly, high-risk strategy predicated on scale.
Executives need to consider whether they can
compete on price or resources, or whether instead
their play is around niches and agility.
Key Takeaway: Retailers have always been responsive to customer demands and ‘small A agility’ is about
maintaining and accelerating that behaviour: ensure you’re listening and take action on
suppliers, platforms, channels, products and price.
‘Big A agility’ is about formalising the process through which that response happens. Leverage
processes developed in the software market that today have broad applications across the
business: mainly rapid development, iterative improvement and constant evaluation.
The ability to adapt quickly is crucial for sustaining competitive advantage.”Scott Galloway, Clinical Professor of Marketing, NYU Stern
There are two sorts of agility – responding to customer demands with a big A, and process improvement with a small A.” – Ashley Friedlien, eConsultancy
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Performance is about time: getting in front of your customers
3. Performance
In the early days of e-commerce, we had what was known as the ‘seven second rule’. If a web page didn’t load within seven seconds, you’d lost the customer. These days, 40% of visitors will abandon a page that doesn’t load within three seconds.2
Performance is about time: getting in front of your
customers and prospects within that limited window
of attention, whether it’s online or off. But it’s also
about precision. There’s no point putting the effort
into reaching a customer quickly with the wrong
proposition. In this age of ‘metail’, customers expect
you to deliver them a very targeted proposition.
They won’t work as hard to find the products they’re
looking for. If you want the profit you have to do the
work to put the product in front of them.
Data-Driven RetailThese days retailers and brands have access to a
lot of data. Processing that data into intelligence,
and acting on it fast is what leads to precision: the
right products in front of the right people at the
right time. Whether it’s changing the product mix,
taking advantage of a major news event, or putting
the right products in front of each customer on their
home page, precision is key.
Performance data used to be hard to get. But
in an increasingly digitised retail, supply and
marketing environment, performance is increasingly
measurable. Combine velocity and precision and
you have the benchmark for future performance.
Delivering this level of performance is about having
the technical capability and skills to collect and
analyse data. But it’s also about devolving the
power to the right people in order to act on that
data. In a high street environment, creating a shop
window campaign or promotion might involve tens
of people, lots of partners. Online, it should be a one
person job. One person can tweak the logic and use
templates to create campaigns fast.
2 https://blog.kissmetrics.com/loading-time/)
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One option is for retailers to have ‘macro’ and
‘micro’ calendars, with the latter being about
reacting very quickly to trends. What should not
happen is that IT ends up drowning in change
requests: change should be controlled and managed
by the people with the market knowledge.
Dynamic, data-driven content should be easy to
implement. Imagine you’re operating in Italy in early
autumn. Customers coming from southern Italy
may still want t-shirts, while those from northern
Italy may want coats. A smart site should be able to
respond to this level of granularity.
Few retailers reach the ideal levels of performance
today: a promotional campaign in reaction to
something on TV typically takes five days to
turnaround when it should be possible in one hour.
Five days is not reactive. One hour is reactive.
Smaller businesses may have an advantage here:
the moment Mo Farah crosses the finish line, his
sponsor’s shirt should be on the front page of the
website. It takes a big brand three weeks to approve
something like that. An SME may be able to do that
in a fraction of the time.
Key Takeaway: Achieving performance requires two things: real-time intelligence and rapid response times.
Ensure that the right information flows quickly through your organisation from customer to
CEO and back again without too much gloss being applied as it travels. And look to devolve
power as close to the customer as possible to enable rapid response to opportunities. It
carries risks but well managed, they should be more than outweighed by the returns.
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4. Ubiquity
If there is a technology available that can help to carve out some form of advantage, then at some point, someone in your market will apply it. The early adopters might not get it right (though they might get kudos for trying) but eventually that new piece of tech will become a differentiator.
This disruptive reality has been proven over and over
again in recent history, every time leading to change
at a more or less radical scale. At one end of the
spectrum, the adoption of social media by fast-growing
companies like AO.com has enabled a markedly
greater engagement with customers than anyone
thought possible for a white goods retailer. At the other,
the introduction of the iTunes store by Apple largely
decimated the market for physical music media.
In the retail market, as the examples above suggest,
established companies have often been slow to
adopt innovations. They work under the assumption
that technological change is expensive and risky, a
worrying combination. But this is driven by a largely
pre-internet mindset.
There’s a great deal of hesitation around new
technology. Retailers believe it is very expensive to
test something, often because of monolithic legacy
systems. But organisations need to be able to test
new channels and approaches because no-one
knows what will work until they do.
The internet didn’t just bring a new set of
technologies into play, it has changed the culture
of technology. Open platforms and agile, iterative
development are now the order of the day. The risk
of failure remains, but when a technology project
fails, it should do so quickly, leaving lessons for the
next round of development at minimal cost.
Experiments won’t always be a commercial success
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Live ExperimentationThis experimentation isn’t limited to the digital
store front. The volatile high street environment
means high turnover, freeing up premium retail
space for periods of four to six weeks - ideal for
pop-up shops. Supporting these experiments with
legacy systems would be extremely challenging,
but using e-commerce systems they can be very
fast and cheap to set up. These experiments won’t
always be a commercial success, but they are a
great opportunity to test new formats, which often
generate good media coverage and as a result, drive
more traffic to the website for online transactions.
Building a solid set of foundations is the key:
work out how you collect, store and process data.
Without this, social media and other forms of
outreach risk being unprovable gloss.
New technological solutions become viable all the
time, driven by increasing computing power, falling
price and open innovation. If a function can be
automated then eventually someone will implement
it, usually gaining an advantage in performance
and cost. Knowing which parts of your organisation
could be, and should be, automated, and when to
move, is an increasingly valuable capability. This
knowledge comes largely through experimentation
but recognising opportunities is also about a mindset.
Key Takeaway: Responding to the ubiquitous reach and disruptive power of technology doesn’t mean hiring
an army of millennials to set your strategy. But it does mean having an open mind, and
being able to take controlled risks to see what works and what might be able to disrupt your
competition, before it disrupts you.
Applying the agile processes and devolved power structures described above, it should
be possible to experiment efficiently. If data is moving fast through your organisation, you’ll
soon know if something is working.
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Barriers to entry into new markets are falling
5. Scale
The world is shrinking fast, driven by increasing connectivity, global media and social networks. Geography is becoming less of a barrier than ever before, and at the same time, the barriers between market sectors are starting to fall. As Amazon and others have shown, once you have a brand and an infrastructure for efficient selling, there’s no limit to how you can use that platform - even making the platform itself part of the proposition.
InternationalCross-border competition is an increasing
reality, and one that will only be augmented by
international globalisation efforts and new language
and payment technologies.
The barriers to entry into new markets, at least
from a technology perspective, are falling. But not
all companies are taking advantage. While not all
European retailers are moving into international
markets, brands are, and quickly. Companies
like Adidas have built solid back-end integration,
meaning the front-end should never be a problem.
This back-end, front-end split is key to cost-
effective expansion.
Evidence from Demandware customers suggests
that a new site for a new territory should cost
less than £100,000 and the back-end should
be identical. Companies are going live with new
international sites within four weeks from making
a decision. Another retailer has launched thirty
international sites within a year.
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How fast European retailers are attacking
international markets depends in part on the size
of their domestic market. For example, German
retailers with access to 80 million domestic
customers have been noticeably slower than their
British counterparts. Domestic retailers in some
countries have seen their native language as a
barrier to foreign entrants, but this barrier is lowering
all the time. All are subject to challenge from new
entrants from the US and Asia.
Inter-marketThe current shape of the online market places great
power in the hands of a small number of brands.
If you can build a relationship with a customer,
that means you are one of the handful of places
to which they automatically turn, then you have
an opportunity to be a gateway to a huge range of
goods. This has been the approach of Amazon and
eBay and with it they have achieved great success.
But it shouldn’t be assumed that this dominance is
complete, or that it will endure.
The speed at which consumer channels of
communication and operation are changing means
that there will always be new opportunities to
establish a foothold, whether it’s in a new medium,
social media space, communications tool, or
hardware platform.
Key Takeaway: Retailers need to understand how to truly own a local market (or many hyper-local markets),
or start to challenge in the international arena. Doing so is a question of having the right
infrastructure and partners in place, but also a question of innovation – and patience. For
example, Tchibo, the German retailer, entered the UK market offering a weekly-changing
selection of goods. It didn’t work a decade ago, but the middle aisles of fast-growing Lidl
and Aldi supermarkets in the UK are run on the same principles.
If you have a relationship that drives regular interaction with the customer, look for
opportunities to expand the scope of those interactions. Can you become their gateway to
trusted products?
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The View from the High Street
One company that clearly recognises the challenges and opportunities that this vision of the future represents is Lacoste. Two years ago Lacoste was two companies, with the brand separated from manufacturing and distribution. The businesses re-merged, beginning a process of transformation and unification around a common customer experience, worldwide. Lacoste France CEO Joelle Grunberg told us what diversity, agility, performance, scale and ubiquity mean for her.
DiversityThe challenge of presenting a consistent brand to customers across diverse channels is particularly acute at
Lacoste after years as a divided company.
Lacoste is in a very specific market situation.
It’s only two years since the merger between
the brand and the licencee that produced
and manufactured products. Now we’re both
brand and retailer we are looking at challenges
in a very different way. The core strategy is to
present one, unified image of our brand that is
the same across every channel.
In the past, different channels were run by entirely
different business units and now we need to be
homogeneous: the customer should see the same
brand experience, wherever he sees it. This is a big
organisational challenge to go from lots of different
approaches to one.”
Joelle Grunberg
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AgilityTransforming an organisation to meet this
opportunity is a question of people, systems
and leadership,” says Grunberg, highlighting
that technology alone cannot equip an
organisation for a fast-changing marketplace.
You need to have a clear organisational structure
with the right person at the top. Someone with a
strong will and a precise vision.”
Technology definitely has a strong role to play
though, and the more established a company
is, the harder it can be to bring systems up to
21st century standards:
There is undoubtedly an IT challenge. Systems
and processes need to evolve. When you have
an organisation with an 80 year legacy, there is
a lot of evolution required.
Our customers now reach us through on
and offline marketplaces and we have to
make a lot of changes to get to one unified
experience. It’s challenging to change fast.
As well as systems you have to get people to
evolve. If the people can’t change, you have to
change the people.”
PerformanceOn the issue of performance, particularly with regards to real-time data, Grunberg is frank:
It’s early days for us in connecting up all of
the different aspects of the business. I can’t
say that the movement of data around the
organisation is as effective right now as we would
like. But we have a vision of where we can be that
we know we will achieve.”
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UbiquityTechnology has a big role to play in Lacoste’s future, in part to connect the different channels in a seamless fashion:
The big challenge remains operating cross
channel. Right now our customers cannot
buy online and collect products in store, or
order from our online range from the store
and have them delivered. Stores are still on
one side and internet on the other.
There are technology issues to overcome as well
as structural and people challenges: some of our
stores are directly owned, while others remain
franchises. But our goal is to achieve as much
transparency as possible between the physical and
digital channels.”
ScaleWith a company of Lacoste’s size and reach it takes focus to achieve efficiencies of scale while responding to
the unique traits of each different market.
Lacoste is structured in four different zones.
France because of its scale and legacy as
a market is a zone in its own right. Then we
have the rest of Europe, the US and Asia. The
CEOs of each of these markets all have the
same boss and we work closely together because we
recognise that our customers are international.
There are lots of commonalities between the zones
but also very local challenges: different competition
and different channels.”
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ConclusionChange is vital because consumers are innovating
In a world of accelerating, technology-driven change, the only way to grow sustainably is to engineer agility into a business. Agility is not a natural state for most organisations, which naturally become less agile as they grow. Creating it requires focus from management and an innovation culture present from the ground up.
Consumers are innovating so change becomes the
necessary norm. As individuals they are responding
quickly to the accelerated nature of modern life,
where answers are instant. Even those who might
be reluctant members of the ‘now’ fraternity are
being swept along by global cultural currents in the
increasingly connected market. Every customer now
has much more information about products and
prices than they ever had before, from you, your
competitors, your suppliers and their peers.
Being agile will give you the ability to support
the diversifying markets. To perform experiments
on minimal capital and learn about new channels,
markets and technologies. It will allow you to scale
faster, at the right moment.
Structuring for agility will boost your performance.
Agile organisations need to be transparent, allowing
managers to see the inputs, outputs and processes
at every tier of the business. Only then can they see
problems early and identify clearly new opportunities
for interaction, integration and expansion. Though
optimisation may move down the executive priority
list, it is often an implicit benefit of greater agility.
Though it is not the answer in itself,
technology should be your ally throughout this
transformation. The pace of change of technology
continues to grow exponentially, driving it out into
every fringe of the retail network. It is the force
behind much of the wider change and a force that
you need to harness.
With this campaign we hope to help you harness
the power of technology and support you in this
fast-changing environment. This paper is just the
start. We will be producing guides for different
markets and different countries with specific advice
and more examples of best practice from around
the globe.
We look forward to working with you, as you become Future-Ready.