RSR Research: IT Spending - In Spite or Because of Economic Uncertainty?
By Brian Kilcourse, Managing Partner, Retail Systems Research
Through a special arrangement, what follows is an excerpt of a current article from Retail Paradox, RSR Research's weekly analysis on emerging issues facing retailers, presented here for discussion.
Last week, a well-known analyst firm warned companies to start now to cut back on IT spending in the face of what looks like rocky economic times. While it's certainly understandable that companies might respond in that fashion, recent RSR research suggests that a more measured approach might be in order, for these reasons:
First, capital is cheap at the moment.
Second, our recent research, for example in a soon-to-be released analysis on multi-channel retailing, suggests that retailers are at a point where the appropriate use of new technologies to enable their business processes actually lowers their operational costs, not raises them (and, the cost of money helps this!).
Third, technology is not the solution, but the enabler. If the business redesigns a process to eliminate handoffs and streamline the path between start and finish, then the thoughtful application of information technology makes that process go much faster and enables the business to scale it up and accelerate value delivery.
A fourth reason is that the IT organizations in many companies, and in retail companies particularly, have spent the last several years in deep "cost control" mode, which was the result of overspending in the "dot-com" era. In an earlier Retail Paradox weekly article, Restoration Hardware CIO Jim Brownell stated, "In the Y2K and dot-com period, we more-or-less drove the bus, and the truth is, we spent way too much money. So our penance for that was to be pushed back into the organization, and be a cost management organization reporting to CFO's - IT took a back seat." The above mentioned analyst firm's advice presupposes a certain lack of fiscal discipline - which shouldn't be the case after so many years of "penance."
In a RSR survey of over 100 retailers concerning their multi-channel efforts, responses indicated that while most have improved the cost structure that supports multi-channel operations and have turned those efficiencies into delivering more profitable customers in the last two years, improving operational efficiencies remains a high priority for all retailers. When we asked retailers, "What are the top organizational inhibitors that currently present a barrier to your company becoming an efficient multi-channel retailer?," their responses make it clear that their legacy technologies are a stubborn inhibitor to progress, and one that they seek to address in order to meet consumers' expectations that all channels work together to enable a seamless experience.
The multi-channel example is indicative of the bigger issue, and that is that winners accelerate business value delivery during times of economic uncertainty while laggards hunker down. If the past is prologue, winners will focus on pragmatic "today" technology decisions that:
- Are able to be implemented in less than a year
- Consider lease/finance options
- Deliver a quick return.
RSR research shows that specific "Quick Hit Choices" include:
- Task Management
- BI Everywhere
- Price Optimization
- Recruiting/On-Boarding
Discussion Question: Should retailers be decreasing, maintaining or increasing IT budgets during more uncertain economic times? Should the IT investment strategy change where certain areas are stressed over others? Is there something different about where we are in technology adoption that makes investment strategies different for this economic downturn?