CNET interview of Robert Fort, CIO of Virgin Entertainment Group

Robert Fort, CIO Virgin Entertainment Group

Innovating within a retail industry disrupted by the Web Description: CIO of Virgin Entertainment Group, Robert Fort says that risk-taking and innovation are at the heart of his company’s culture. Fort is responsible for the switch from analog CD listening stations to digital kiosks in Virgin Megastores where listeners can now browse the entire store inventory online. Fort talks with ZDNet editor in chief Dan Farber in a CIO Vision Series interview.

Transcript

Dan Farber:

Robert thanks for joining me.

Robert Fort:

Well, thanks for having me.

Dan Farber:

Virgin is a very large and diverse company based in the U.K., and you’re CIO for Virgin Entertainment Group.What precisely is in that group?

Robert Fort:

Virgin Entertainment Group is predominantly the Virgin Megastores here in the United States.

Dan Farber:

And tell me a little bit more about the stores, how many stores, how many employees, the kind of revenues you generate.

Robert Fort:

We have 14 stores at present, with about 1500 employees. And obviously a home office staff, as well as employees out at all of our store locations, front office and back office. Sales associates on the floor, and merchandisers and receivers in the back room.We have about 200million dollars in revenue, and, as I said, 14 stores.

Dan Farber:

Now you’re in a business that’s really under a lot of distress right now. The music, films, certainly being disrupted by the internet, and all kinds of new business models. Some people are saying that traditional

entertainment retail companies are dinosaurs. Do you really think that’s the case?

Robert Fort:

Well I don’t know about the internet play specifically, I do know that we at Virgin Megastores are certainly understanding that we are being impacted by that, and we’re making adjustments towards that. From one we’ve diversified over the past couple years here, we have more fashion brought into our stores now, we have more consumer electronics.We’re looking at ourselves more as a lifestyle play in our stores, but I do believe that the customers still want to go out and touch and feel and get involved with product. Our place too, it’s media gratification. The CD’s right there in the bin. You don’t have to wait for shipping times and so forth.

Dan Farber:

Innovation, I assume, is pretty important, how do you think about innovation, how do you define it?

Robert Fort:

Well it’s interesting at Virgin, I’ve contemplated this. It’s not something that we just openly talk about. I mean obviously we’re under the Richard Branson umbrella, and he sort of set the tone for all of our businesses.

Dan Farber:

How does one man set the tone for the entire company?

Robert Fort:

First off, my attraction to Virgin was Richard Branson, and obviously that sort of freedom sort of thinking, that forward thinking that he has, he just has a unique way of thinking about things, and that just sort of permeates through our business. You know, at no time do we really talk about being innovative, we just sort of think differently.We think a little outside of the box, or,my favorite phrase there is “what box?”We just sort of keep looking at new ways of doing things.

Dan Farber:

So give me an example about how you’ve innovated, thinking out of the box, and created something that gave you a sustainable advantage.

Robert Fort:

Well, back to your question about the internet: the internet obviously is having an impact on our business, and one of the things we have to do is how do we keep the store experience exciting for our customer? Why would they want to go into our store when they obviously can buy a fair amount of products still online. So we have to do something to add to that experience, so our digital listening stations that we’ve implemented in Time Square and our Hollywood location, I mean, 150 listening stations and kiosks in one location is a substantial different experience than most people see. So that’s what we focused on there: how do we make the listening experience, the sampling experience, for our CD customer even better.

Dan Farber:

Now, how is that listening experience different than, let’s say, what you would get at a Borders store, or even through the internet itself?

Robert Fort:

Well it used to be, in the Virgin store, that we had the analog listening stations. They were essentially a CD player behind the scenes, and of course a CD player has 1 to 5 CDs in it. So that’s all the customer is

capable of hearing. And if you walked in and listened to our Top 20 wall for example, and let’s say that Madonna was the title that you wanted to listen to, but somebody else was already there, you were unable to listen to it. So what we’ve done now with our digital stations is we now made it so that the entire catalogue, our entire inventory of the store is available at one location.

Dan Farber:

So you’re talking about millions of songs available through-

Robert Fort:

Absolutely

Dan Farber:

-digitally available through these listening stations.

Robert Fort:

Right, and DVD trailers, and interactive games – information on interactive games.

Dan Farber:

What was the technology basis, can you say that any of the technology used to create those listening stations led to an innovation, or was it just that the technology was mature enough that you could pull this off?

Robert Fort:

What I like about what we did is that we didn’t actually go and create any of the new technologies, and didn’t even get too “bleeding-edge” with anything.What we did was just integrate, successfully integrate a number of things.We took an IBM “mini-place” kiosk, which is a fully self-contained unit, which is very retail-hardened for us, because when you consider we have 10 to 15,000 people a day going through our Time Square location, you have to make sure that this stuff is retail-hardened. It had built-in scanners to it.We used the Microsoft WEPOS operating system, which would keep down our administrative cost, and since we are a Microsoft centric shop it was very easy for us to add that into our environment.We then use a Cisco ACNS solution, it’s their content caching solution, which helps make the experience faster for the customer. And then we’re just using basic back-end technology,

and then we use a data provider to provide us a lot of the metadata and the sample content, so it’s really just, I think where our innovation came from was just pulling all those parts together.

Dan Farber:

So innovation isn’t necessarily going to be just technology, but how you think about products and services and how is your organization structured to become more innovative?

Robert Fort:

I think there’s a certain looseness to our structure, there’s a flatness too, so we’re not having to go through layers of approvals and so forth.We have very open access to our CEO, and to our board, which I’m a member of, and the communication is just very free flowing.

Dan Farber:

Now is R&D coming out of a special group – you were talking about how Richard Branson permeates the entire company with his attitude and style of management, but is there an R&D group? Or just a small SWAT team that goes out and figures out, how can we innovate? How can we get an edge against our competitors?

Robert Fort:

Well with the Virgin Megastores in the US, no. It’s pretty much all of us have an opportunity to contribute. It’s very fun actually to sit in certain meetings and board meetings especially and listen to the ideas that are coming forward. I mean, I try to encourage throughout my entire department that there’s always somebody can bring up the ideas.We don’t have any one person that has that responsibility.

Dan Farber:

When I hear about innovation, I also think about entrepreneurship, in that how do you build entrepreneurship from within? In other words, are there new businesses that have been started, or new products that have germinated out of your group?

Robert Fort:

Well, Virgin has traditionally been, we’ll we’re one of the world’s premiere entertainment specialty retailers. And so, we’ve been CD’s and DVD’s for years. But now we’ve started to stretch our product lines.We’re now into consumer electronics and fashion. And if you look at our fashion area for example, the folks that have been brought in there have been given a lot of autonomy. I mean, there are some basic guidelines given, but then they’re out there going, and given the freedom to go off and try things, and some don’t work, and sometimes we retreat out of that, but then we keep pushing forward. So that’s an example, I mean just the culture itself is headed up that there’s no constraints really. Obviously we’re a commercial business, we have to produce revenue from this, and obviously that revenue has to be higher than our cost. But still we try things, and that’s important.

Dan Farber:

Now, often times we hear innovation talked about in two forms. One is sustaining innovation where you’re able to maintain your market share,maintain whatever leadership you might have through difficult times as I think the entertainment business has today. And the other is disruptive innovation where you’re actually creating new markets or changing how a market behaves.Where would you put yourselves?

Robert Fort:

We’ve definitely been more in the sustaining mode. I mean, when you look at our kiosk, our digital listening stations, they were really a refresh of the technology that we already had. That technology was pretty innovative when it first went out 12- 13 years ago, when you could go in a Virgin Megastore and there would be a CD-based listening station and they’d be around the perimeter of the store, I mean hundreds of them. So what we needed to do though, as I said earlier, is improve that experience so that customer could go to a single kiosk and have the entire inventory of the store available to them. And the disruptive side, you know you’ve had Virgin Mobile out there before, which went ahead and started creating the pay-as-you-go type of plan. So, there are parts of Virgin that are definitely more towards the disruptive side and creating new markets.

Dan Farber:

Now what are some of the other technology areas where you’ve invested and you’ve gotten a decent payback, where you’ve taken some risk. Any areas you can point to?

Robert Fort:

Well converged voice and data network and voice-over-IP. It was about a year ago, ironically I was here in San Francisco, and I was attending an event where I was listening to a lot of the analysts speak about voice-over-IP, and we were already contemplating it, but I was concerned about whether it was still bleeding-edge or leading-edge. And it seemed obvious to me that the way we should focus is one, did we have a business case? and two, were we setting ourselves up for the future? And evaluating it we clearly had a business case, we’re saving about $700,000 a year in telecommunications cost immediately, and also we’re improving the cost of our stores by as much as 60% in some cases. And we went ahead then and said okay, this technology seems far enough along that we can take this as a calculated risk. And so we converged both our voice and data networks into one, and we’re using voice-over-IP technology, we’re using unified messaging now, and we’re getting quite a benefit out of it.

Dan Farber:

What’s you’re impression overall of the industry you’re in, in terms of how it’s innovating?

Robert Fort:

Well in our case, we know that technology is actually going to be part of the differentiator for us and our competitors. When you go into a Virgin Megastore it’s a very dynamic environment. There’s music pumping, there’s videos pumping, there’s the kiosks there and so forth. So, clearly we know that we have to work there. If you look at retail as a whole though, and back up and just look at all retail, you’ll see that there’s a lot of technology innovation going on. The digital sign age capabilities, you know just the traffic counting type of technology that’s being used. There’s just a lot of innovation.

Dan Farber:

You’re talking about traffic counting, that’s obviously very important, and you’ve invested a lot in your data warehouse. Are there any specific innovations that you can point to?

Robert Fort:

Well the big shift when we implemented our data warehouse was to move away from just reviewing results, and to looking at them after the fact, and actually move towards a more real-time environment. So we actually are counting are customers as they come in and out of the doors, which is a technology that’s been around for a while. And then we’re taking all of our sales information and we’re bringing it up to our centralized servers every 15 minutes. That information is immediately pumped right back out to the stores. So our stores can go and query what is the top selling items in their store today by the various areas of the store. They can see what their sales are, they can monitor all their KPI’s. And the big thing that we’re saying is that now that we’ve got this information during

the course of the day, that we can start influencing our results. Our store managers can for example could go and look at the numbers and realize that their sales are a little off, or that their conversion rate, that being the number of customers that come in that we’ve actually converted into a sale, they can see that that’s a little off, and they can go around and talk with their employees and incentivize them in various ways to try and hit those targets. So all of that implementation, all of that technology

has been very beneficial to us.We saw a true lift out of that.

Dan Farber:

What’s your internet presence, and how is that tied into the retail stores?

Robert Fort:

We have a very limited internet presence. We are contemplating some new things there and obviously we’ll benefit from what we’ve been seeing with a lot of the other retail players who are using the internet. Clearly what we’d want to do is devise a strategy so that the customer experience will be quite synergistic between the store and the internet environment. An example of that would be is that if they acquire a product online, that if they were near one of our stores they might be able to go into the store and pick it up. Or if they’re in our store, and they’re at the kiosk and they’re looking at something or listening to something, and that product, we could tell them right then and there

through our warehouse – we can tell them that the product is in stock. Because remember that at our kiosk they might be listening to something or searching for something that’s not a product that they

have in their hand. So we can tell them that it’s in stock, or we can them that it’s not, and that we’d actually be able to order it. And that ordering experience should be synergistic to what they’d see outside the store.

Dan Farber:

Now what do you see as the greatest risks to being in a company where innovation is a primary working force, maybe at the expense of some other things?

Robert Fort:

It’s always present. You always know that you need to be creative, and that’s obviously an attraction to me, but that you have to be creative.

Dan Farber: Does it increase the chance of failure and is failure an accepted mode of behavior?

Robert Fort:

It does increase the chance of failure, because you have to take the risk. Again you have to have a calculated risk, and yes it is accepted, but we are a business, you know you’re not going to go out there and foolishly just throw money at something.We are very cautious about that. But it’s still certainly a risk

Dan Farber:

So what are some of the new areas of innovation you’re looking into at this point?

Robert Fort:

Well we’ve been focused right now on our back room technology mostly. Just sort of doing some house cleaning in that area. But if you look at our data warehouse, you look at VoIP, and you look at our kiosk

for example, and our new POS that we’ve been rolling out, these are sort of pillars. And what I’m looking to do now is start to use those platforms and see what benefit we get from integrating them. As I just pointed out, if you go to our digital listening station, as customers are actually listening to things, we are keeping metrics.We have telemetry in a sense on what they’re listening to. One idea would be to feed that information right back to the customer, so if you walked into a store, you would

be able to see what are the top selling products in our store, and what are the top listened to products in our store. That kind of information helps the customer who’s usually trying to keep up with trends.

Dan Farber:

And finally do you have any recommendations for people who may not be as innovative, or who may not be so risk-taking?

Robert Fort:

You have to sort of release yourself a little bit. I think you have to give yourself - it’s okay to make a mistake. Again, make it as a cautious and calculated mistake, but it’s okay to make mistakes. You’ve got to take risks. Just keep your eyes and ears open. It’s always fun to look at every place. For example, we look at the consumer electronics world and ask ourselves, what of those electronics can we actually put in our store to help out with our store environment? Obviously big screens are a big factor and we have many of them, we have over 60 of them in our Time Square store. But it’s just always having your eyes and ears open, and then be willing to take some risks.

Dan Farber:

Well Robert, thanks very much for speaking with me.

Robert Fort:

Thank you.

Dan Farber:

I’ve been speaking with Robert Fort who is the CIO for Virgin Entertainment Group. For CIO sessions. I’m Dan Farber, thanks for watching.