Do IT More – Do IT Faster (and … Do IT Better!)
Retailers’ information technology (IT) function is the source of both hope and frustration for key decision makers. On the one hand, automation has enabled today’s retailers to achieve economies of scale and geographic reaches unimagined by their predecessors. On the other hand, IT is challenged to keep up with increased demands from both within and outside their organizations.
In a survey conducted by Retail Systems Research LLC (RSR) in May 2007, “Software-as-a-Service and the Need for Speed—Benchmark Study: July 2007,” 44% of all survey respondents expressed dissatisfaction with their company’s abilities to keep up with demands, and 70% of underperforming companies expressed dissatisfaction. And that dissatisfaction isn’t confined to underperformers; retail “winners” (those companies that outperform their competition) express concern that their legacy technologies will inhibit further growth. For example, in RSR’s report, “Finding the Integrated Multi-Channel Retailer: Benchmark Study 2008,” winners expressed concern that their legacy applications portfolios are so inflexible that changes required to enable cross-channel data visibility and functionality will come too slowly to meet increasing consumer demands for a consistent experience across all the channels.
The application of IT to business practices has the potential to create strategic value by turning technical advantage into long-term market dominance (for example, Wal-Mart’s use of technology in the extended supply chain). But even if companies don’t want to lead with IT-enabled innovation, they can certainly find themselves strategically disadvantaged by the failure of IT function to deliver efficiencies that enable them to focus on other, more strategic initiatives. At the same time, companies are continually challenged to “do more with less, and do it faster,” and this applies to IT, too. It is no surprise then that retailers have looked at many different approaches to reducing the backlog of pending application projects, from in-house proprietary development, to best-of-breed integration, ERP implementation, outsourcing and software-as-a-service delivery options.
To get to the bottom of what retail IT shops are “really” doing to position themselves to address the challenges that their retail businesses face, RSR launched a study in March called the “Future of Application Delivery in Retail.” Based on an analysis of survey responses, there is evidence that retailers are slowly but surely transforming their application portfolios to utilize more “best of breed” (BOB) solutions integrated with proprietary applications over middleware in order to gain some flexibility in their deployments and to lower integration costs. Whereas in a 2006 study, 44% of retailers indicated that they deployed a mix of proprietary and BOB solutions with point-to-point integrations, in 2008 only 27% make that claim. However, 34% are now using a middleware-integration layer compared to just 15% in the 2006 study.
Does it help? Perhaps. Even though all respondents said that they continue to be seriously challenged to deliver projects on time, within budget and with promised functionality, retail winners have a better track record. Forty-one percent of winners report that 50% to 75% of their projects get delivered on time vs. 26% for all other respondents (18% of winners and 15% of all others report that their projects are completed on time more than 75% of the time). When it comes to budget, 41% of winners indicate that more than 75% of their projects finish within budget, compared to only 26% for all others. In terms of promised functionality, only 41% of winners claim that projects delivered more than 75% of promised business functionality, and only 24% of all others make that assertion.
What does all of this boil down to? The results suggest that retailers continue to spend more, wait longer and get less from IT development projects than they want or expect. But more importantly, these results, which were offered up primarily by retailer ITers, reflect what business leaders have told us in virtually every survey that RSR conducts, and that is, that retailers are really concerned about their IT’s ability to keep up with the business.
What stands in the way? Aside from the “elephant in the room” issue of brittle legacy technology portfolios, winners cite conflicting demands from line-of-business executives that stretch IT resources, while others point to lack of strategic priorities from the business. This gets to the issue of proper IT governance. As recently “retired” AutoZone CIO Ken Brame said to RSR, “If you don’t have a good governance process, you’ll die! You’ll never survive as a CIO if you’re constantly saying ‘no’. You’ve got to have a governance process that says ‘no’.”
What’s the answer? Even while there’s more focus on BOB solutions and suites, the biggest opportunity is in achieving alignment of expectations and capabilities via the executive steering committee. That’s not new news, but it’s still surprisingly relevant.
Visit www.retailsystemsresearch.com for “The Future of Application Delivery in Retail—2008 Benchmark,” due this month.
OfficeMax 1Q sales fall on weak economy
NAPERVILLE, Ill. OfficeMax announced that for its first quarter ended March 29, total sales decreased 5.5% to $2.3 billion compared to the first quarter of 2007. Net income increased in the first quarter of 2008 to $63.3 million, or 81 cents per diluted share, from $58.5 million, or 76 cents per diluted share, in the first quarter of 2007.
OfficeMax Retail segment sales decreased 5.5% to $1.11 billion in the first quarter of 2008 compared to the first quarter of 2007, reflecting a same-store sales decrease of 8.7% partially offset by sales from new stores. Retail same-store sales for the first quarter of 2008 declined across all major product categories due to weaker U.S. consumer and small business spending and the negative impact of the Easter holiday occurring in the first quarter of 2008.
IKEA to open first U.S. manufacturing facility
DANVILLE, Va. IKEA, through its subsidiary Swedwood, announced that it will open its first U.S. furniture manufacturing facility on May 21 in Danville, Va. The 930,000 square-foot Swedwood factory will produce a variety of wood-based IKEA products, the company reported.
“We made excellent progress on construction last year and our installation of equipment and machinery has gone very smoothly,” said Bengt Danielsson, North American president of Swedwood. “Now our primary objective is to complete appropriate operational training for 175 coworkers as well as to ensure a seamless production and packaging process.”