Chain Store Age recently had the chance to discuss the increasing prevalence of information technology outsourcing (ITO) in the retail industry with Vijay Iyer, senior VP and global head at international technology and services provider HCL America Inc. Iyer explained how outsourcing various IT functions can help retailers better control technology cost and performance.
Is ITO becoming prevalent among retailers?
Yes, ITO is becoming prevalent, with 26% of retail IT deals in 2011 being ITO-marked deals, and that figure is expected to grow to 37% ITO-marked deals in a market of $251 billion in 2015, according to Gartner projections. Retailers are looking for immediate variabilization of their IT costs. In the medium-size retail segment, IT cost is about 5% to 6% of total revenue, according to Gartner estimates.
Does ITO offer specific benefits to the retail industry?
Specific benefits for the retail industry include the immediate tying of significant IT infrastructure, apps and data management costs to in-store sales across regions. Any provider who can crack this can win deals.
Also handling the variability of IT expenses across geographic operations is a benefit for retailers. For example, if a retailer is experiencing revenue loss in one region and revenue growth in another region, the retailer expects its IT and data management costs to match accordingly. This includes the software licensing portions, which most smaller cloud providers can’t provide as ERP at this point. Retailers are keeping “cloud” in their mind-set, especially medium-sized retailers.
What kinds of IT systems/processes are retailers outsourcing?
Regarding IT outsourcing, retailers can be put together with fast-moving consumer goods (FMCG) companies, and their primary needs have traditionally been remote infrastructure management, master data management, Big Data and support, supply chain execution services, mobility solutions tied to social media (“Socialytics”), and data security monitoring and solutions.
According to current Gartner estimates, these six big areas are contributing to a market of $18.5 billion by 2018. The positioning of multinational corporations around this has been tied to cloud solution providers, with hosted private cloud solutions having the biggest uptake.
What do you think the retail ITO landscape will look like in five years?
There will be dramatic change with data management, analytics and cloud all moving into one, and both coverage and service providers with seamless integration abilities will be in a great position to cash in. The most important offering will be strategic intelligence (SI) capabilities that take into account cloud capabilities (such as HCL’s myCLoud), the Internet of Things, and increased marketing interest in IT services like self-service BI, and how new age, cloud-based IT solutions can enable that.
In addition, retailers will look at alternative models. The market will see more co-sourcing than outsourcing, and I believe we will see fee-based models wherever possible. Retailers will look for shorter cycle times for ROI of initiatives, and benefits management will become a top priority. The focus will be on ROMI, or return on marketing investment, to track marketing expenditures, which are perceived to be a drain on margins.
How is HCL trying to meet the outsourcing needs of retail clients?
Our ALT ASM application environment delivers cost savings and business-aligned IT. Our multichannel commerce offerings include Big Data solutions built around our ROAR (Real-Time Operational Analytics and Reporting) tool with a complete operational metadata management framework.
We also offer our zCMO proposition that provides technology for marketing operations around multichannel content management and distribution, predictive analytics and system integration. In addition, we offer a variety of supply chain management services and tools, including a partnership with Cisco around intelligent supply chain management. Other supply chain management offerings include inventory management, product lifecycle management (PLM), transportation management, vendor-managed inventory (VMI), the SAP advanced planner optimizer (APO) tool and critically important compliance tools.