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Why RFID Isn't Being Adopted More Quickly
It's not because the ROI isn't there—it's because change takes time.
Last week, I exchanged a few e-mails with an analyst who is skeptical about the benefit of radio frequency identification. If the results achieved by American Apparel are so great, he asked, why isn't the company rolling out the technology aggressively to all of its stores? He suggested that perhaps the benefits don't scale—that is, that you could achieve a 14 percent increase in sales at one store, but not for each site across a chain of 300 stores.
The reality is that return on investment (ROI) increases with RFID as you scale up systems—and it's true whether you're tracking apparel, parts or returnable containers. That's because complexity increases with scale, and RFID allows you to better manage complexity by automating data collection and providing information regarding what's going wrong, and where. If you have one store with a dozen different products that sell for $1,000 each, and you need to replenish them once a year, that's pretty easy to handle without RFID. If you handle a billion items at a thousand stores, however, it's much more difficult to stay on top of everything.
So the question is, if RFID is so great, why aren't more people adopting it? There are many answers, but one came from Dean Frew, president of Xterprise Technology, who e-mailed me to compliment me on my recent editorial Understanding RFID's Role in an Enterprise.
Frew writes: "We are seeing more and more companies that understand the value of the visibility RFID provides, but change management involved with implementing these systems is one of the biggest hurdles. These systems are complex. They touch the physical layer with the devices they integrate with, so you have to get user buy-in, and you have to have an ROI that is large enough to push them over the top. Sometimes, that's easier than other times."
In my experience, the barrier is a lot higher with publicly traded companies, which are answerable to a large number of investors, rather than to a few or just the sole proprietor. Dov Charney, American Apparel's CEO, moved quickly to deploy RFID at five stores. But after the company went public, senior management wanted more proof that RFID would deliver, which makes sense. If Charney owns most of the shares and RFID turns out to be a bust, he suffers. But if RFID doesn't work now that the company is public, many more investors share the pain. So American Apparel is now engaging outside experts to quantify the benefits by comparing RFID-enabled stores against control stores.
I have a friend who is a behavioral psychologist, and he argues that change only comes through pain or fear. This seems like a pretty bleak view of the world to me, but when you think about it, it makes a lot of sense. If CEOs think their company will lose sales because a competitor has deployed an RFID system (or any other technology or product innovation, for that matter), they'll quickly move to adopt it. But if they don't see a threat, there's less imperative to try it.
When Wal-Mart announced plans to have its top suppliers tag pallets and cases with RFID, there was fear among its competitors. Target and Albertsons quickly announced similar mandates. Albertsons backed away when it ran into financial issues, however. And while Target did have suppliers tag shipments, it's been years since the company has made a peep about RFID. I suspect that if Wal-Mart suddenly decided it had found the way forward and was ready to roll out aggressively, we'd hear Target talking about what it planned to do as well.
I would argue that great business leaders affect change within their organizations constantly. The culture is one that embraces improvement, so change is constant and, thus, less scary. I'm pretty sure that in each industry, there will be leaders who will move forward, with the rest following once the technology is proven. It takes time, because change is difficult—but in many cases, the benefits are so compelling that leaders will not ignore them.
Mark Roberti is the founder and editor of RFID Journal. If you would like to comment on this article, click on the link below. To read more of Mark's opinions, visit the RFID Journal Blog or click here.
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