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By John Roach, Editor, Retail Solutions Online

Prashanth Palakurthi, founder and CEO of software vendor Reflexis Systems, Inc., holds no illusions of grandeur regarding why his privately held company just enjoyed its best quarter in company history. "There are two answers: One is that I'm a genius," Palakurthi told me with a laugh. "And the second one, which is more truthful, is that I'm a lucky son of a gun. As CEOs, we make decisions, and then a whole lot of things happen in the market that we don't control, and we end up looking good."

Reflexis and Palakurthi are more than just lucky. Bookings from continuing operations for the second quarter of 2009 were the highest in company history — 60 percent higher than the same period last year. Palakurthi started Reflexis in 2001 and retailers now use its scalable software solutions in more than 30,000 stores in North America, Latin America, Europe, Asia, and Australia. The Dedham, MA-based company, with almost 400 employees, also has offices in Kennesaw, GA; England; Germany; and India.

The Reflexis Retail Execution Platform coordinates retailers' merchandising, store, and vendor operations to improve store- and corporate-level performance, generate sales, and increase profitability. I spoke with Palakurthi, who has more than 20 years' experience as a retail software professional, about the difficulties retailers face today with execution management and how the right software can address those concerns.

Why is store-level execution so important to retailers today?

People talk about gross margin, net margin, profit margin, but do you know what the most important margin is? Margin of execution error; it should be zero. Right now, retail grocers, for example, are operating at such fine margins in a down economy that they can't afford to have something go wrong by a little bit. In the retail golden days, when everyone was dancing and picking daisies in the sunshine, if you grew by 11% vs. 11.5%, the lower figure didn't make a significant difference. But today that .5% difference means job losses, store closures, and distress. So a zero margin of execution error is the key and that's what our products can provide.

How has your company evolved to meet that pain point?

Institutionalized execution was never a hallmark in the retail industry. The reason I started the company in 2001 was because I went to a store to buy something and couldn't find it. So I asked for the manager, and he was in the back room doing a lot of nonsense work; the best salesperson was in the back room instead of on the floor helping customers. That gave me the idea for creating Reflexis — to bridge the gap between corporate intent and store level execution. There's a huge market for maximizing execution at the store level.

After we created programs to improve store-level execution, we realized that for store managers to do better, corporate processes needed to be better aligned. So we built our corporate planning model that enabled retailers to synchronize planning with execution. In an environment where retailers had spent millions of dollars on business intelligence tools, we realized that few retailers were actually able to tie store-level execution to business metrics. Therefore, we built out the metrics platform that is action-based and not reporting-driven. So, retailers could respond to metrics by changing behavior at stores rather than analyzing reports, post-mortem.

It sounds like you create products based on hands-on experience with retailers. Do you visit your customers' retail locations?

Absolutely, I personally do that. That's the most fun part of my job, to see what's happening in the stores and how our products fare. Once in a while, they even challenge us. Six months ago, I went to Toys "R" Us, and they said our product stunk because of a few things they couldn't do without "quirky manipulation" of the software package. I looked at it and told them they were absolutely right. So we re-wrote several programs because I believed it was a genuine issue that could help other retailers as well.

What was their response when you made the changes?

They loved it, and now it's part of the standard product. I love that part of the job. We think we are the best company in the world because we devote significant organizational efforts to R&D. The percentage of what we spend on R&D is probably the highest in the industry, and we'll continue to build on that. The R&D spend required to build an easy-to-use, scalable product is so significantly high that most software vendors shirk it. But we don't. That's what we do and that's why we are consistently rated among the best in the industry by our customers.

What differentiates your Retail Execution Platform software in the market?

Here's the reality in our business: Retail is about selling. It's clear to us that execution is always tougher unless you are able to allocate the right people to deal with customers. How do you identify the best employees and get them focused on improving customer service? So we focus on helping retailers sell more on the floor by using a better way to understand the customer experience and improve it. We build our products from the ground up with that focus.

Secondly, when retailers come to Reflexis, they're guaranteed implementation quickly. The software landscape is full of companies who promise implementation in 2, 3, or 5 years — we call them the "long march to Beijing" kind of projects. We think a Tier 1 retailer should be able to start rolling out an implementation in 12 to 13 weeks, and within 39 weeks from start, they should have everything working. The fastest we've ever implemented was with a well-known consumer electronics manufacturer and retailer, when we rolled out worldwide in four weeks. And as for ROI, I'd be shocked if a retailer doesn't see ROI eight weeks after full implementation.

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