Keeping Technology ‘Out of House’ with ITO
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.
When Two Systems are a Crowd
The process of retailing across different customer channels has gradually shifted from being called “multichannel” to being called “omnichannel.” This is not a mere semantic change; evolving customer expectations require retailers to not only offer a linked customer experience across different channels, but a seamlessly identical one. Calgary, Alberta-based specialty sporting apparel/merchandise retailer Jersey City found itself facing the need to switch from providing a multichannel customer experience to providing an omnichannel customer experience a couple of years ago.
“A big issue was that we had two systems, one for the Web and one for the stores,” said Ron Pratt, IT director of Jersey City. “All along it has been an issue, but not one worth pursuing until our site got so busy we couldn’t run two separate systems anymore. If we made a change to the back end, it needed to automatically get to the site.”
The company, which in addition to 39 brick-and-mortar stores runs three e-commerce sites (the main company site, as well as a specialty headgear site and a site dedicated to licensed apparel for the Canadian Football League), decided to look for a different way of doing things. In late 2011, it began researching options to rectify what was becoming a serious situation.
“We had two basic options,” Pratt said. “Either find a different retail software provider or find something we could integrate with our existing systems.”
In fall 2012, Jersey City selected CAM Commerce Retail Star, a Java-based platform that supports omnichannel areas of the business, including POS, back office, inventory management, warehouse, distribution center, allocation, e-commerce/ kiosk, and data mining in a single integrated system. The most crucial feature of the CAM Commerce system that drove the selection was its real-time inventory management capabilities, according to Pratt.
“It gave us the ability to use current store inventory for the site,” he explained. “If an item was out of stock at the store, we could remove it from the site. We fill less popular items from the store and more common goods from the warehouse.”
Following a step-by-step implementation plan from CAM Commerce, Jersey City was able to go live with RetailStar, as well as the iCelerant e-commerce hosting solution from Celerant Technology, on its Canadian Football League site.
In addition to allowing store fulfillment of online orders, Jersey City also selected solution features, including a “floating shopping cart” drop-down menu that hovers over a cart at the click of a mouse, customer product reviews, Google and PayPal checkout, and the ability to check the actual shipping rate in real time. Jersey City also leveraged the solution to extend its omnichannel capabilities a little further.
“Stores can use the website as a catalog,” Pratt said. “Associates can show customers items on the site using fixed terminals.”
Pratt said that since going live with RetailStar and iCelerant in June, Jersey City has had better sales on its CFL site, and has also integrated the solution’s functionality into its store on Amazon.com. Other benefits include streamlined back-end operations and improved site usability and navigability for customers.
“We’ll begin rolling out the solution to our next two sites after the holidays,” Pratt said in a final vote of confidence.
Learning and Helping
Of the many reasons retail IT professionals attend the annual National Retail Federation (NRF) Convention & Expo each January in New York City, keeping current with all the latest industry topics and trends is surely at the top. Each year, RetailROI independently offers SuperSaturday, a one-day event held the Saturday before the official Sunday kickoff to the NRF Convention.
This year, SuperSaturday falls on Jan. 11. Held at the PwC Auditorium in New York from 9 a.m. to 4 p.m., SuperSaturday brings together top retail analysts and C-level executives to converge on retail trends in marketing, technology, mobile and social media, with all proceeds from vendor sponsorships donated directly to RetailROI. SuperSaturday is the conference before the conference, and in addition to providing valuable data in a forum you won’t find anywhere else, it also provides even more return on hope for some of the world’s most deserving and least advantaged inhabitants. What could be a more profitable way to spend the day?
Learn more about attending and getting involved with SuperSaturday at Retailroi.org/supersaturday.