GHQ: Shopping for Growth
By Len Lewis
Through
a special arrangement, what follows is an excerpt of a current article
from Grocery Headquarters magazine, presented here for discussion.
During
any crisis, fiscal or otherwise, there is a natural tendency in business
to slash budgets and pull in your horns. The real danger is burying your
head in the sand when it comes to IT spending which, for some, may be
the best growth strategy out there.
Yet, in conversations
with retailers and vendors both inside and outside the supermarket industry,
I keep hearing the phrase “you’d be surprised”
when talk turns to how many companies are still wrestling with old legacy
systems and outdated software. This is not the stuff that helps support new
IT infrastructures and technologies such as wireless networks, RFID tagging
and tracking, in-store kiosks, smart cards, lighting and energy management
systems or new POS equipment.
However, I think the
question now is not whether you spend the money or even how much, but where
to get the best return on the investment for your particular operation.
For example, recent recalls
have prompted tremendous interest in traceability. But are you really capable
of tracking product quickly through your supply chain? The Produce Marketing
Association is spearheading a move called the Produce Tracing Initiative
(PTI) that will use Global Trade Identification Numbers (GTIN) on all shipments.
The goal is industrywide global electronic traceability
by 2012 — first through a human readable number, then barcodes and,
ultimately, RFID tags. At the very least, PTI will require companies to
capture and store additional data. This means database changes and updated
warehouse management systems.
Aside from recalls, rising
fuel and commodity costs and a slowdown in consumer purchasing mean that
better inventory and space management systems are a business imperative,
not an option. And, can current systems support more sophisticated loyalty
marketing programs or payment systems that will soon include digital media
like mobile phones?
IT is even going green
as more companies make the connection between energy consumption and computing
needs. Basically, the more servers you have, the greater the need for energy
to run and cool them down. Interestingly, Gartner Research has said that
by the end of next year environmental sustainability will be one of the
top buying criteria for one-third of all IT organizations.
Then, there’s the laundry
list of other daily IT functions that I haven’t yet addressed. Among them:
Labor scheduling; back-office management; pharmacy systems and price verification,
not to mention equipment such as deli ordering kiosks and self-service
checkouts.
This is not about buying
technology simply for the sake of technology. I’m talking about practical
and cost effective expenditures that will feed long-term innovations not
short-term hype — things that will improve the shopping experience
for your customers and keep the business vibrant and growing.
Discussion Questions:
Do you also find retailers clinging to old legacy systems and outdated
software? What’s driving this hesitancy to invest? Where
should retailers put their IT spending these days?
The problem with technology is that there is rarely truly “transformational technology” and when it does occur it takes a very long time to implement. Initial adopters are faced with a lot of extra expense as they resolve issues with new technologies and must adapt to evolving standards. As retailers, it is not always wise to be at the front of the vanguard, remember “it is the second mouse who gets the cheese.”
For the vast majority of technology it is like choosing between vanilla and chocolate. There are no really clear features that make one POS answer better than the others. The choice of what technology to implement has much to do with the corporate culture and the ability of personnel to embrace and adopt it. Combine this with the decline in marginal benefits which occurs as new versions of technology are implemented and it makes sense for retailers to postpone new technology investment in uncertain times.
As a retailer, now is a good time to make sure you are getting the most from what you already own. Check your training programs and the frequency of training and retraining programs to make sure people who are currently using the technology have been properly prepared. I often see situations where the employee currently using an application was trained by the previous user instead of someone who knows all the capabilities of the application. Previous users have developed their own methods and may have forgotten or never even known about important features of an application. In some situations, the relatively simple implementation of a new version of an existing application or piece of hardware may help employees achieve more from existing investments.
It’s too early in this crisis to make reasoned decisions about major spending. When the shape of this seems more clear, however, the best companies will look at how best to deploy capital to make themselves stronger and more efficient. Those companies will weather the storm better and come out the other side on top. It should be a good time to get the best price on equipment, software, and integration as well.
There are a lot of CIOs who will fight as hard as they can for technology projects, because they make money for retail companies.
The days are long gone when tech was a cost center. There are whole categories of technology–optimization comes to mind–that generate new revenue for retailers. It isn’t in retail companies’ best interest to reduce spending on technology projects now. The companies that continue or expand IT’s ability to transform the company will see the results.
On the one hand, constant technology changes make organizations want to keep their current systems as long as possible before committing to new systems. On the other hand, at some point the legacy systems have to be replaced and some research indicates that waiting is more expensive. Systems that have scalability and flexibility built in are likely to be the most attractive when replacement is necessary. At some point it is not worth spending more money on patchwork solutions that only delay the inevitable replacement decision.
There are many retailers that have old legacy systems and they just add patch on top of patch and continue to grow their IT departments because not one person knows what the original software looks like any more.
IT infrastructure is where a big cost is for many because of the legacy system the IT departments let spread like a deadly virus. Then when the operations or marketing people need a new program to enhance their efficiency or effectiveness they respond with “sorry, no more IT projects for the next two years.” Unfortunately, two years could be too late because the retailer will fall behind in competitiveness.
The hesitancy to invest is being driven on fear of change, lots of intangibles in a return on investment analysis, and a lack of vision on the power of software to accomplish overall initiatives.
Inventory management and marketing are two great areas that will cut costs and improve customer sales.
Unfortunately, IT spending right now is divided up by urgent or critical. And when big cap ex investments, change management and a need for a clear ROI is attached to a spend, sometimes it’s the first thing to hit the editing floor. The sad thing is that these are the investments that can make retailers more profitable and more competitive.
I agree: while I have not seen retailers taking on transformative, bet-the-farm kind of ERP implementations, I have seen solid support for particular kinds of IT investments. The ROI calculation has to be very tight, the return has to be big and fast, but investments are definitely still being made. Pricing, workforce management, BI/analytics (particularly around customer data), and transportation management are the projects of interest that I’ve seen. The end goals of localized assortments and effective–but also efficient–customer service are what are driving IT investments.
However, that said, we’re sort of on the dark side of the moon right now, waiting to make contact with Houston on the other side–between the election and retail IT lockdown for the holidays, we’re not really going to know until January what 2009 will hold for IT spending.