May 6, 2009
RIS Study: Retail IT Budgets Holding Up
By Tom Ryan
According to the 19th annual 2009
RIS Retail Technology Trends Study, IT budgets won’t likely be slashed
in 2009 but retailers “will
definitely reassess, redirect, reallocate and remove costs as much as
possible.”
Writing the executive summary in
the report, Jeff Roster, VP IMS Retail at Gartner Research, which analyzed
the findings, cited three key reasons why he doesn’t see IT budgets decreasing
dramatically in 2009. First, he said “customer-centricity is still the
dominant strategy today in retailing. In all but the smallest retail formats
this requires technology enablement to successfully carry out.”
Second, PCI compliance has become
a major focus across retail and “requires ongoing investments in consulting,
hardware and software.” Finally, Mr. Roster noted that predominance
of “first-generation e-commerce platforms still exists across all
tiers and subsectors, which requires significant upgrading or replacement.”
Looking at major themes culled
from the survey of more than 80 individuals with responsibility for IT
budgets, Mr. Roster said Customer Satisfaction and Experience had occupied
the top slot on the list of key strategies for the last few years. He called
that “a very positive sign that even in these economic times these
high-level strategies remain on the front burner.”
He also noted that while cost reductions “are sweeping
across organizations,” IT is in a better position than most other departments
since many cost-cutting initiatives are technology-enabled.
Mr. Roster also expects that “multi-channel
initiatives will get significant attention over the next three years, which
represents an ongoing transformation that shows no signs of slowing down
even in a challenging economy.”
Asked what obstacles stand in the
way of improving efficiency, capital constraints not surprisingly led the
way, cited by 69 percent of respondents. Other leading obstacles included “spaghetti” application
architecture (cited by 44 percent), insufficient skills or people resources
(38 percent) and legacy hardware or software isn’t being replaced at corporate
(34 percent).
Regarding what IT
initiatives retailers were planning to start in 2009, Mr. Roster lamented
that “nothing” was the most common answer he had received over
the last six months from his blog and twitter efforts. But the survey found some more
optimistic plans.
“The new initiatives can be
summed up in two words: customers and data,” wrote Mr. Roster. “A
fair number of retailers are still wrestling with long-term POS and kiosk
projects, which focus on improving customer service and satisfaction. And
a larger block of retailers is wrestling with concerns surrounding data:
How to find it, speed it up, and make it available to wider audiences within
the organization.”
Discussion
Question: Are you similarly bullish that retail IT budgets will hold
up in the downturn? What areas do you particularly see IT budgets supporting?
What areas do you wish more IT budgets were funding?
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From talking to IT execs both inside supermarkets and in other retail segments, there’s no denying Gartner’s results. There’s going to be a lot of elimination of redundant technologies, and re-purposing of existing systems. Also, with such tight budgets, companies are not going to be inclined to simply scoop up the next generation of some software that only offers a couple of extra bells and whistles.
However, from what I hear, there’s a lot of pent-up demand in different areas of technology and going into 2010, hopefully sooner, the floodgates are going to open and buying will be brisk. I can think of a couple of great companies whose IT systems leave a lot to be desired and their expansion will require updated, streamlined systems.
I will take the time to review the RIS study over the next few days, but at a quick glance there seems to be a big piece missing. Specifically, I am talking about the evolution of “cloud computing” and Software as a Service. Unless you are large enough to justify a custom software environment, if you are buying applications now you will be switching to subscriptions in the future. Internal IT departments must change their focus from providing services to enabling them. Instead of writing the labor scheduling software or buying it, they will provide the sales forecast and personnel availability to an outside service who will optimize the scheduling. Instead of preparing item sales forecasts, they will feed their promotion plans to an outside service who also has market data that enables them to prepare better estimates.
The way to move to this new paradigm will be to first outsource computer operations to an outside service provider. Next the retailer will need to build an “Enterprise Service Bus,” but unlike the traditional ESB used internally to connect various proprietary solutions, this ESB will be designed to feed data to the outside service providers. Finally, the IT department must work with the various internal departments to explain the technical capabilities of their ESB and the service providers who are technically compatible. This lets the operating departments choose the solution that most meets their needs and can be implemented with the retailer’s technology.
A lot said in two paragraphs….
Bill’s comment about the Software-as-a-Service (SaaS) trend is an interesting one. 5 years ago, you’d be hard pressed to find a chain willing to let their data outside the four walls of their data center. Today, we’re starting to see significant momentum building behind the move to the SaaS model. I think this is driven by a number of factors:
– Retailer IT groups are already stretched thin doing the “care and feeding” for existing legacy systems, so the prospect of bringing new hardware and software in house is not appealing
– Narrow margins in the retail space mean that subscription-based pricing is more appealing than the traditional CAPEX associated with the buy-and-maintain model
– SaaS is gaining widespread adoption in most other industries, including security-conscious verticals such as health care and financial services, which is helping calm security fears.
I suspect over the next 5 years we’ll see a dramatic shift away from the data center and towards the cloud. As to how that will affect IT budgets–I think it’s too early to tell.
You’ve got to put the jalopy on a lift and perform preventative maintenance from time to time. Otherwise, you’ll be walking. As others have mentioned, you’ve got to maintain even the IT systems you’ve grown to hate, because they’re so requisite for every store function. So do that. Then, someone’s got to get a spreadsheet and perform a cost/benefit analysis on upgrading or replacing every system node that’s problematic. And this is not easy. I saw an analysis on TV recently that examined ditching a diesel pickup for a small hybrid car. The cost/benefit review showed it would take 14 years to offset the purchase price of the hybrid by saving money on fuel. You’ve really gotta’ want that hybrid, just as you’ve really gotta’ want that new IT system.
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From talking to IT execs both inside supermarkets and in other retail segments, there’s no denying Gartner’s results. There’s going to be a lot of elimination of redundant technologies, and re-purposing of existing systems. Also, with such tight budgets, companies are not going to be inclined to simply scoop up the next generation of some software that only offers a couple of extra bells and whistles.
However, from what I hear, there’s a lot of pent-up demand in different areas of technology and going into 2010, hopefully sooner, the floodgates are going to open and buying will be brisk. I can think of a couple of great companies whose IT systems leave a lot to be desired and their expansion will require updated, streamlined systems.
I will take the time to review the RIS study over the next few days, but at a quick glance there seems to be a big piece missing. Specifically, I am talking about the evolution of “cloud computing” and Software as a Service. Unless you are large enough to justify a custom software environment, if you are buying applications now you will be switching to subscriptions in the future. Internal IT departments must change their focus from providing services to enabling them. Instead of writing the labor scheduling software or buying it, they will provide the sales forecast and personnel availability to an outside service who will optimize the scheduling. Instead of preparing item sales forecasts, they will feed their promotion plans to an outside service who also has market data that enables them to prepare better estimates.
The way to move to this new paradigm will be to first outsource computer operations to an outside service provider. Next the retailer will need to build an “Enterprise Service Bus,” but unlike the traditional ESB used internally to connect various proprietary solutions, this ESB will be designed to feed data to the outside service providers. Finally, the IT department must work with the various internal departments to explain the technical capabilities of their ESB and the service providers who are technically compatible. This lets the operating departments choose the solution that most meets their needs and can be implemented with the retailer’s technology.
A lot said in two paragraphs….
Bill’s comment about the Software-as-a-Service (SaaS) trend is an interesting one. 5 years ago, you’d be hard pressed to find a chain willing to let their data outside the four walls of their data center. Today, we’re starting to see significant momentum building behind the move to the SaaS model. I think this is driven by a number of factors:
– Retailer IT groups are already stretched thin doing the “care and feeding” for existing legacy systems, so the prospect of bringing new hardware and software in house is not appealing
– Narrow margins in the retail space mean that subscription-based pricing is more appealing than the traditional CAPEX associated with the buy-and-maintain model
– SaaS is gaining widespread adoption in most other industries, including security-conscious verticals such as health care and financial services, which is helping calm security fears.
I suspect over the next 5 years we’ll see a dramatic shift away from the data center and towards the cloud. As to how that will affect IT budgets–I think it’s too early to tell.
You’ve got to put the jalopy on a lift and perform preventative maintenance from time to time. Otherwise, you’ll be walking. As others have mentioned, you’ve got to maintain even the IT systems you’ve grown to hate, because they’re so requisite for every store function. So do that. Then, someone’s got to get a spreadsheet and perform a cost/benefit analysis on upgrading or replacing every system node that’s problematic. And this is not easy. I saw an analysis on TV recently that examined ditching a diesel pickup for a small hybrid car. The cost/benefit review showed it would take 14 years to offset the purchase price of the hybrid by saving money on fuel. You’ve really gotta’ want that hybrid, just as you’ve really gotta’ want that new IT system.