Best Buy Reverses Course on Outsourcing
Best Buy, the company known for employing geeks to help shoppers with their technology issues, is looking to hire some techies to help it with its own IT challenges.
According to a Star Tribune article, the consumer electronics chain, which has outsourced much of its IT needs going back to 2004, is now looking to bring that work back in-house.
Jody Davids, Best Buy’s chief information officer, told the paper, "We need to develop a strategy of what we’re going to build. We like to take control of our destiny."
Dale Nitschke, former president of Target.com and current general partner at Ovative/group, said Best Buy is staffing up because, like other retailers, it is looking to better manage all the data being created by digitally-connected consumers.
"Typically, retailers have been organized around stores and merchandise," Mr. Nitschke told the Star Tribune. "The digital ecosystems that are now emerging have allowed retailers to focus on their most important asset: their customer base."
Whether to outsource or not has been a question retailers have been dealing with for years. A RetailWire poll in 2008 found respondents evenly divided on the issue, with 26 percent answering "yes" and the same number "no" to whether outsourcing gave companies a competitive advantage. The remaining said results were mixed.
One challenge Best Buy will face is the recruiting of talent. As the Star Tribune article pointed out, it is not the only large retailer bringing more IT under its roof.
Discussion Questions
Discussion Questions: Has the increase in connected consumers made it more important for retailers to manage IT internally? Will the competition for talent nullify cost savings for retailers, one of the primary reasons they chose to outsource in the first place?
I figure a big company like Best Buy would have unlimited IT needs. I’m surprised that most of it is outsourced considering they have their own ‘Geek Squad’ (or is their main function teaching their customers how to turn on and off their laptops?). A company of that size and need must have its own internal unit when it comes to IT.
This decision by BBY is smart and no surprise. IT has gone from being a strictly backroom function in retail to the epicenter of CRM. It is vital that at least that portion of IT related to transaction management and reporting be in-house for marketing reasons alone.
(Full disclosure — we were exposed to the initial decisions to outsource through tangential but unrelated project work at BBY. It was a smart move to outsource then, just as it is a smart move to reverse course (at least partially) now. That’s why BBY is so good. Like WMT and other aggressive retailers, they aren’t afraid to experiment and they aren’t afraid to change course.)
Retailers should be trying to understand and architect an integrated omni-channel marketing and merchandising solution and its associated workflows and governance that provides a personalized communication with their customers. This integrated complex system architecture must be holistically designed and blueprinted first! Once this is achieved, then and only then should it be given to IT for implementation. Whether managed internally or externally, IT should be implementing an omni-channel business solution designed for conducting business in a digitally empowered shopper world.
Best Buy has historically gone through this cycle every 5 years and it has always been driven by money.
There are many reasons for corporations to determine a need to bring IT back in house. The cost factors have been the driving force in outsourcing. This is changing because the well informed executives now know that the true costs for outsourcing are far more than in house facilities and employees. Outsourcing has slowed development and implementation of needed applications largely due to language barriers and delayed technical issue response due to time zone differences. Security is the foremost reason for the push to bring IT back. Total revenue loses for known and undiscovered security breaches are at disaster levels and climbing exponentially at a time when real corporate cost cutting needs are mandated. Bringing IT back is simply a continuation of cost controls as seen by executives that know the real costs of outsourcing.
Gee, sure didn’t see that coming! (LOL)
Retail companies that outsource IT think they are going to save money, but in reality they lose both vision and the ability to use IT to guide strategy. There are a lot of gifted retail IT stars who will be happy to get a call from Best Buy.
“Digital ecosystems”? Must be geekspeak, ’cause it certainly isn’t English; so I checked out the original story on the STrib site: 29 comments – mostly negative – and this one stood out: “Just another CEO who has no idea what IT is all about.”
I think the same could be said of any retailer who can’t answer for themselves today’s question.
It will be interesting to see where retailers ultimately land of this question. In our work, APT has seen retailers that have saved money but lost a significant amount of flexibility and turnaround time from outsourced IT, in a way that has become net negative to the business. Only in the past couple years have I seen some get it right — as outsourcers have developed the right level of oversight and the Wipros and TCSs of the world have gotten more of the right skill sets to better support their clients.
The TCO (total cost of ownership) is a key determiner when it comes to managing MIS resources. Why outsource your MIS needs when you are large enough to assemble and manage your own team? Clearly, this is a good decision for BB.