A typical retailer spends between 1 – 2% of their revenue on IT. This makes IT one of the largest above-store costs for a retailer. In an industry that is still more about process work than knowledge work, retail executives always feel they are spending too much on technology. So it is very important for the IT team to have a coherent strategy that is clear to the executive, and which addresses their concerns.
I have seen (and been responsible for) IT strategies that do not work. An IT strategy should NOT simply be a list of projects the IT team would like to do, or for which “the business” have asked. Nor should it be a reforming of the overall Business Strategy into IT or Technology terms – in reality, very little of a Retailer’s Business Strategy really depends on IT to execute it.
So what should be in the ideal retail IT strategy? Here in my view are four key essentials that should be part of any retailer’s IT strategy:
- Firstly, there must be a financial plan. This plan must start with the imperative of reducing the like-for-like cost of IT. To compensate for organic growth of the business, the like-for-like cost should be expressed as the percentage of IT cost to sales. Reducing this figure gives IT leadership credibility with the executive, and provides head room for future IT investments.
- Secondly, the strategy must detail how the IT team will evolve. What capabilities can be considered as commodities and purchased from the market, compared to capabilities that are strategic to the business and should be invested in? As a rule, this part of the strategy should continually seek to move the IT skill set away from purely technical roles to business support and knowledge management roles.
- Thirdly, how will the technology evolve? Graphics showing technologies changing from red to green over time are a great way of representing the intention. The objective here is to consolidate and simplify. This may include moving to common platforms (application and technology); migrating processing to the cloud; or upgrading to latest versions (although version upgrades need to be justified carefully; never upgrade just to keep current)
- Finally, what is the new technology investment the IT team is recommending? Having freed up costs in the first part of the strategy, this section demonstrates how the savings can be re-invested in new technology to further enable the business. This should not be a long list of projects; it should be the two or three strategic projects that will significantly enhance the business.
An IT Strategy framed in this way becomes a steady state process; it can be renewed and updated each year, but the thrust stays the same. The four elements play to each other: each year, like-for-like costs are reduced, freeing funds to invest in new technology, resulting in landed costs which over time become part of the like-for-like costs to be reduced in the next cycle. The team is constantly upgrading its skills as more and more aspects of technology becomes commodities that can be purchased and the team focuses more on business value add. And along the way, the technology is constantly being updated, simplified and consolidated to drive the required savings.
Does your experience match with mine? Are there other elements you feel are essential to a retailer’s IT Strategy? Please let me know what you would include in your Retail IT Strategy.