By Brian Kilcourse, Managing Partner
3/24/2008
Technology solutions vendors continue to smack their foreheads in frustration over retailers’ dogged insistence that their business models are different. Indeed, when it comes to IT business applications, retailers often fail to differentiate between what is important and what is merely interesting, and demand custom modifications of the base package that ultimately result in huge maintenance costs borne over the real life of the software asset. At the same time, the rate of change in the retail world continues to speed up, and so retail IT leaders are constantly struggling to devote more of their budgets towards new work rather than in supporting the existing portfolio. So, the logic goes, why don’t retailers just change their internal processes to conform to what the applications can do?
According to recent RSR research data, retailers’ portfolios are by-and-large made up of a mix of proprietary and best-of-breed applications that are either integrated point-to-point or using an integration layer. Is that right or wrong?
At least for one industry veteran, these questions are not so simple, and the answers not quite as apparent as it might seem to an industry outsider. Ken Brame recently retired as CIO of Autozone while at the top of his game. A lifelong retailer, Ken has worked half his career on the IT side (as CIO at Autozone, Bass Pro Shops, and Service Merchandise) and the other half on the business side. Ken also did a stint on the solution side of the technology value chain as a CTO, and is past chair of the Retail Industry Leaders Assn.’s (RILA) Technology Leader’s Council and the Association for Retail Technology Standards (ARTS). Ken is now in his “post-CIO” period, advising retailers and technology firms, and speaking out on challenges that the industry is facing. Ken was speaking at the SAS Global Forum in San Antonio last week, when we caught up.
Is “Best-of-Breed” Best of Breed?
According to Ken, “If you’re a smaller retailer, you don’t have the luxury of doing the integration work yourself. So buying something that’s pre-integrated is probably your best hope. If you’re a larger retailer and have the resources and the expertise, a best-of-breed approach is better.” What about if your company already has an ERP suite installed? “Even if you have an ERP system for your base merchandise application, this is a good approach,” says Ken. “After all, that’s what the ERP vendors themselves have done – they bought this or that solution and integrated them. Some are good and some aren’t. If what you’re looking at is strategic to your business, it absolutely makes sense to go with the best-of-breed and integrate it.”
And although IT leaders are focusing more of their development resources on new work (as opposed to maintaining existing operational systems), the backlog of pending requests continues to grow (most retailers report a backlog of at least 12-18 months). Does this mean that retailers are falling ever further behind? According to the CIO, “What we found is that there was a constant re-prioritization and we were constantly moving higher priority stuff to the front of the line and the lower priority stuff continued to stay on the list. It’s very difficult to get the business to kill a project, and some of these just stay on the list, and quite frankly quite a few of them will never get done.”
This is not to say that Ken’s company lacked a strategic direction. “Retailing is a fast business,” says Ken. “Guys who raise trees have a twenty year plan. Manufacturing guys have a three to five year plan that doesn’t change much, because it takes that long to build the factories and produce the products. But retailers have to act quickly. I used to joke that there are two kinds of retailers – the quick and the dead. Because we have to react quickly doesn’t mean we don’t have a strategy.”
Have a Governance Process that Says ‘No’
Retail IT’ers often complain that conflicting demands from line-of-business leaders stretch IT assets to the breaking point. “Definitely,” exclaims Ken, “that gets to the issue of IT governance. 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 about the complaint that retailers often fail to plan for process re-engineering and training, so that the company can take advantage of new technologies? “You’re right - those costs are usually not included in the beginning when projects are justified,” says the CIO. “Retailers don’t do a good job of estimating the change management and the training needed, and making that part of the project. I’ve had to say, ‘you need to fully consider these costs; if you’re not willing to re-think your business processes and take the time to get people to change, the project will fail’.” Has that dynamic improved for retailers? “We’re getting there,” says Ken.
Advice for Retail Leaders
Ken has been a thought leader in the retail industry for many years, and so we would be remiss if we didn’t ask the veteran to share his perspective on today’s hot issues. So, what will deliver the most value for the IT effort right now? “Price optimization would be #1, and then assortment planning. I’m talking about tuning the assortment on a per-store or per-cluster basis, based on selling patterns, and climate, for example. The same for pricing, for example, targeting markdowns. You need the business intelligence capabilities to do these things.”
Number three? According to Ken, “That would be to make sure that you move from multi-channel to merged channel retailing – get your channels to work seamlessly for the customer. The biggest single thing that’s happening now is that customers are researching on the Internet and then buying in the store. Retailers don’t get it yet – their channels are siloed.”
What about advice to up-and-coming CIO’s? “Absolutely the first thing you’ve got to do is get the governance model in place. Secondly, you’ve got to be willing to invest in good project managers – it’s the single most important role you have in-house. So many retailers I see will go out and buy a software package and throw project management completely over to someone from outside of the company. I always wanted to have my own internal line to the truth. And those people know the people and the culture of the company – they’ll be more effective.”
Final advice? “Remember that it’s all about your people,” says Ken. “Technologies come and go.”
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