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Flevy Management Insights Case Study
Security Protocol Strategy for High-End Retail Chains in Europe

There are countless scenarios that require Target Operating Model. Fortune 500 companies typically bring on global consulting firms, like McKinsey, BCG, Bain, Deloitte, and Accenture, or boutique consulting firms specializing in Target Operating Model to thoroughly analyze their unique business challenges and competitive situations. These firms provide strategic recommendations based on consulting frameworks, subject matter expertise, benchmark data, best practices, and other tools developed from past client work. Let us analyze the following scenario.

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Consider this scenario: A leading high-end retail chain in Europe is revising its target operating model to address significant security challenges.

These challenges include a 20% increase in inventory losses due to theft and a 30% rise in cybersecurity threats over the past two years. Additionally, the organization is contending with a lack of integrated security protocols across its physical and digital operations. The primary strategic objective is to enhance security measures to protect assets, reduce losses, and ensure a safe shopping environment for customers.

The organization in question is confronting stagnation in security protocol effectiveness, which is evident from rising losses and increased vulnerability to cyber-attacks. This situation signals a critical need for a comprehensive overhaul of its security strategy, focusing on both physical and digital safeguards. The lack of integration between these two areas suggests that the root cause may be an outdated operational model that no longer aligns with the current retail landscape, characterized by the blurring lines between brick-and-mortar and online shopping experiences.

Competitive Market Analysis

The retail industry, particularly the high-end segment, is highly competitive, with brands vying for customer loyalty through exceptional service and experience. However, security concerns have become a significant differentiator.

  • Internal Rivalry: Competition is fierce, with many players offering similar luxury products which heightens the importance of a secure shopping experience as a competitive advantage.
  • Supplier Power: High-end brands often have significant bargaining power over retailers, but security requirements can alter this dynamic, necessitating closer collaboration.
  • Buyer Power: Customers of high-end retail have high expectations for security and privacy, significantly influencing retailers' investments in security measures.
  • Threat of New Entrants: The high barrier to entry in high-end retail due to brand reputation and customer loyalty mitigates this threat somewhat, though online platforms present a new challenge.
  • Threat of Substitutes: The threat is moderate, as the unique value proposition of high-end retail can't be fully replicated by lower-end substitutes, but online counterfeit goods pose a significant risk.

  • Increasing reliance on digital technologies opens new fronts for cyber threats, necessitating advanced cybersecurity measures.
  • The global nature of supply chains introduces complexities in ensuring end-to-end security.
  • Customer expectations for privacy and data security are rising, aligning with broader regulatory trends.

A PEST analysis reveals that technological advancements are accelerating, regulatory pressures regarding data protection are intensifying, and social shifts towards online shopping are influencing retail security needs. Economic fluctuations also play a role, as they impact customer spending patterns and, consequently, retail security investments.

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Internal Assessment

The organization has a strong brand reputation and customer loyalty but lacks a cohesive security strategy that integrates physical security with cybersecurity.

SWOT Analysis: Strengths include a loyal customer base and a strong brand presence in the high-end market. Opportunities lie in leveraging technology for advanced security measures and enhancing customer trust. Weaknesses encompass outdated security protocols and a lack of integration between physical and digital security. Threats involve escalating cyber threats and sophisticated theft techniques targeting high-end goods.

Jobs to Be Done (JTBD) Analysis: Customers expect a seamless, secure shopping experience, whether in-store or online. Addressing this requires an integrated security approach that protects against physical theft and cyber threats, enhancing customer trust and loyalty.

Digital Transformation Analysis: The organization must embrace digital transformation in its security strategy, integrating advanced technologies like AI and blockchain for real-time threat detection, inventory tracking, and data protection. This shift will not only address current vulnerabilities but also future-proof the organization against evolving threats.

Learn more about Digital Transformation Customer Loyalty Data Protection

Strategic Initiatives

  • Develop an Integrated Security Protocol: This initiative aims to unify physical and digital security measures, enhancing overall asset protection and customer safety. The intended impact is a reduction in losses due to theft and cyber-attacks, alongside improved customer trust. Value creation stems from leveraging technology to streamline security operations, expected to reduce operational costs and enhance brand reputation. This will require investments in technology, training, and process redesign.
  • Enhance Cybersecurity Measures: Strengthen the cybersecurity framework to address current vulnerabilities and anticipate future threats. This initiative will increase data protection for customers, fostering trust and loyalty. Value creation comes from safeguarding the brand's reputation and minimizing financial losses due to cyber incidents. Resources needed include cybersecurity expertise, advanced software solutions, and continuous employee training.
  • Target Operating Model Optimization: Realign the organization's operating model to integrate security as a core component of business operations, aiming for operational excellence and resilience. The strategic goal is to make security a seamless aspect of the customer experience, without impeding convenience. This initiative requires a reevaluation of current processes, roles, and technology, aligning them towards a security-centric approach.

Learn more about Operational Excellence Customer Experience Employee Training

Target Operating Model Implementation KPIs

KPIS are crucial throughout the implementation process. They provide quantifiable checkpoints to validate the alignment of operational activities with our strategic goals, ensuring that execution is not just activity-driven, but results-oriented. Further, these KPIs act as early indicators of progress or deviation, enabling agile decision-making and course correction if needed.

Efficiency is doing better what is already being done.
     – Peter Drucker

  • Reduction in Inventory Losses: A decrease in inventory losses will indicate effective theft prevention and asset protection.
  • Incident Response Time: Improvement in incident response time will reflect a more agile and effective security operation.
  • Customer Trust Index: An increase in this index will signal successful enhancement of customer perceptions regarding security.

Monitoring these KPIs will provide insights into the effectiveness of the new security strategy, highlighting areas of success and those requiring further attention. It will enable the organization to adapt its approach in real-time, ensuring continuous improvement in security operations.

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Stakeholder Management

Successful implementation of strategic initiatives relies on the engagement and collaboration of both internal and external stakeholders, including IT teams, store management, and security partners.

  • Employees: Store staff and management are critical for implementing and maintaining physical security measures.
  • IT Department: Essential for deploying and managing cybersecurity solutions.
  • Security Partners: External vendors and consultants providing specialized security services.
  • Customers: Their feedback is vital for refining security measures and ensuring they enhance rather than detract from the shopping experience.
  • Regulatory Bodies: Ensuring compliance with data protection and privacy laws.
Stakeholder GroupsRACI
IT Department
Security Partners
Regulatory Bodies

We've only identified the primary stakeholder groups above. There are also participants and groups involved for various activities in each of the strategic initiatives.

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Target Operating Model Best Practices

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Target Operating Model Deliverables

These are a selection of deliverables across all the strategic initiatives.

  • Integrated Security Protocol Framework (PPT)
  • Cybersecurity Enhancement Plan (PPT)
  • Target Operating Model Revision Document (PPT)
  • Security Training and Awareness Program (PPT)
  • Security Investment Financial Model (Excel)

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Develop an Integrated Security Protocol

The organization opted for the Value Chain Analysis as a critical framework to enhance its integrated security protocol. Value Chain Analysis, initially conceptualized by Michael Porter, is instrumental in dissecting an organization's activities to understand where value is added and how operations can be optimized for maximum efficiency and effectiveness. This framework was particularly useful for identifying vulnerabilities within the organization's operations that could be mitigated through an integrated security approach. Following this analysis:

  • Each primary and support activity in the organization's value chain was mapped out, with particular attention paid to those with significant security implications.
  • Security vulnerabilities were identified at different stages of the value chain, from inbound logistics to after-sales services, highlighting areas where integration between physical and digital security measures could be improved.
  • Customized security protocols were then developed for each identified vulnerability, ensuring a cohesive approach that leverages both physical and digital security measures.

Additionally, the organization applied the Resource-Based View (RBV) to this strategic initiative. RBV focuses on leveraging a firm's internal resources as a source of competitive advantage. It was used to identify which of the organization's resources—such as proprietary technology, skilled personnel, or unique processes—could be utilized or enhanced to support the integrated security protocol. The application of RBV involved:

  • Conducting an internal audit to catalog all resources related to security, categorizing them as either physical or digital assets.
  • Evaluating these resources in terms of their rarity, value, imitability, and organization (VRIO) to determine their potential to provide a sustained competitive advantage in security.
  • Developing strategies to strengthen these key resources, such as training programs for security personnel and investments in cybersecurity technologies.

The implementation of these frameworks resulted in a comprehensive and integrated security protocol that not only addressed the organization's immediate vulnerabilities but also positioned it to better respond to future security challenges. The Value Chain Analysis provided a clear roadmap for where and how security measures could be integrated across the organization, while the Resource-Based View ensured that these measures were supported by a strong foundation of internal resources, leading to a marked improvement in overall security posture and operational resilience.

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Enhance Cybersecurity Measures

The Capability Maturity Model Integration (CMMI) was selected to guide the enhancement of cybersecurity measures. CMMI is a process and behavioral model that helps organizations streamline process improvement and encourage productive, efficient behaviors that decrease risks in software, product, and service development. The model was deemed highly suitable for systematically improving the organization's cybersecurity practices. The organization proceeded by:

  • Assessing current cybersecurity processes against the CMMI levels, ranging from Initial to Optimizing, to understand the maturity of its cybersecurity practices.
  • Identifying specific areas within cybersecurity that required process improvement to move to the next maturity level.
  • Implementing targeted improvements, such as developing standardized cybersecurity procedures and enhancing incident response capabilities.

Additionally, the organization utilized the Cybersecurity Framework (CSF) from the National Institute of Standards and Technology (NIST). The NIST CSF provides a policy framework of computer security guidance for how private sector organizations in the U.S. can assess and improve their ability to prevent, detect, and respond to cyber attacks. The steps taken included:

  • Identifying existing cybersecurity policies and practices and aligning them with the five functions of the NIST CSF: Identify, Protect, Detect, Respond, and Recover.
  • Creating a gap analysis to pinpoint areas of weakness and developing an action plan to address these gaps.
  • Implementing the action plan, with a particular focus on enhancing detection capabilities and response strategies for cybersecurity incidents.

The application of the CMMI and NIST CSF frameworks significantly enhanced the organization's cybersecurity measures. By systematically improving cybersecurity processes and aligning them with industry best practices, the organization was able to reduce its vulnerability to cyber attacks and improve its ability to respond to incidents swiftly and effectively. These efforts not only protected the organization's digital assets but also reinforced customer trust in the brand's commitment to data security.

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Target Operating Model Optimization

For the optimization of the Target Operating Model, the organization employed the McKinsey 7S Framework. This framework examines seven internal elements of an organization—Strategy, Structure, Systems, Shared Values, Skills, Style, and Staff—as a means of understanding how well these elements align with each other. It's particularly beneficial for ensuring that any changes to the operating model are holistic and coherent. The organization took the following steps:

  • Conducted a comprehensive review of the current Target Operating Model in the context of the 7S elements to identify misalignments and areas for improvement.
  • Developed a plan to realign the elements, focusing particularly on enhancing Systems to support a more integrated approach to security and optimizing Staff skills and competencies in security management.
  • Implemented changes in a phased manner, monitoring the impact on the organization's operations and making adjustments as necessary.

Concurrently, the organization applied the Organizational Project Management Maturity Model (OPM3) to ensure that its project management capabilities were sufficiently mature to support the changes being made to the Target Operating Model. This involved:

  • Assessing the maturity of the organization's project management processes and identifying gaps.
  • Developing a roadmap for improving project management capabilities, including training for project managers and the introduction of standardized project management tools and methodologies.
  • Implementing the roadmap and continuously monitoring progress to ensure ongoing improvement.

The successful application of the McKinsey 7S Framework and OPM3 resulted in a Target Operating Model that was not only more aligned with the organization's strategic goals but also supported by improved project management capabilities. This optimization facilitated a more agile and responsive organization, capable of adapting to changes in the security landscape and better positioned to achieve its strategic objectives.

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Key Findings and Results

Here is a summary of the key results of this case study:

  • Reduced inventory losses by 15% through the implementation of an Integrated Security Protocol, surpassing the initial target.
  • Decreased incident response time from 48 hours to 24 hours, enhancing the organization's agility in addressing security breaches.
  • Improved the Customer Trust Index by 20%, reflecting heightened customer confidence in the organization's security measures.
  • Identified and mitigated vulnerabilities across the entire value chain, significantly reducing the risk of theft and cyber-attacks.
  • Enhanced cybersecurity measures led to a 25% reduction in cyber incidents within a year, safeguarding digital assets and customer data.
  • Optimized the Target Operating Model, leading to a more integrated approach to security and a 10% reduction in operational costs related to security management.

The strategic initiatives undertaken by the organization to overhaul its security protocols have yielded significant results, notably in reducing inventory losses and enhancing customer trust. The reduction in incident response time and the decrease in cyber incidents are particularly commendable, demonstrating the effectiveness of the enhanced cybersecurity measures and the integrated security protocol. However, while the improvements in the Customer Trust Index are positive, the 20% increase suggests there is still room for growth in customer perceptions of security, indicating that ongoing efforts to communicate and demonstrate security enhancements to customers are necessary. The successful mitigation of vulnerabilities across the value chain and the optimization of the Target Operating Model are critical steps forward, yet the 10% reduction in operational costs, while beneficial, suggests that there may be additional inefficiencies to address. Alternative strategies, such as further leveraging technology like machine learning for predictive threat analysis or more deeply integrating customer feedback mechanisms into security protocol adjustments, could potentially enhance outcomes further.

Given the results and the analysis, the recommended next steps include a continued focus on technological innovation in security measures, particularly in areas of predictive analytics and AI, to stay ahead of emerging threats. Additionally, increasing customer engagement and feedback loops regarding security measures can further enhance the Customer Trust Index. It would also be prudent to conduct a periodic review of the integrated security protocol and the cybersecurity framework to ensure they evolve in line with technological advancements and emerging threat patterns. Finally, exploring further cost optimization opportunities within the security operations without compromising the effectiveness of security measures will be essential for maintaining operational efficiency.

Source: Security Protocol Strategy for High-End Retail Chains in Europe, Flevy Management Insights, 2024

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