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To Survive, Retailers Need To Kill The IT Budget And Burn The Boats

Written by Todd L. Michaud
September 4th, 2012

Todd Michaud runs Power Thinking Media, which helps retailers and restaurants tackle the convergence of social, mobile and retail technologies. He spent nine years delivering technology platforms to more than 10,000 retail locations as VP of IT for Focus and Director of Retail Technology for Dunkin’ Brands.

If a retailer really wants to compete with Amazon and the changing realities of today’s retail environment, it needs to kill the IT budget, disband the IT Steering Committee and throw away the IT project list. It’s time for IT to be moved out from under the CFO’s reigns. It’s time to let go of the past and start thinking about IT as a business enabler, unleashing its full potential to the organization.

It’s time to stop trying to plan out IT needs for an entire year at budget time and let IT scale and shrink to meet changing business demands. Smart retail organizations will give the CIO the tools necessary to solve the problems at hand, rather than trying to make sure no one runs with scissors. I think I speak for almost every CIO out there when I say that they want to be given the responsibility and accountability to fix things, without having the “we don’t trust you” strings attached.

Amazon is eating the lunch of brick-and-mortar retailers for one simple reason: It invests in its business in ways that traditional retailers don’t. Some brick-and-mortar retailers are unwilling to upgrade systems that are 10 years old, and Amazon spent three-quarters of a billion dollars on a robot company to further refine its warehouse efficiencies. If that doesn’t say it all, I don’t know what does.

Never has there been a time in my career where the need for IT resources (dollars and people) was not dramatically outstripped by demand. I’m not talking about needing 10 percent more; needing 300 percent more seems to be true-to-life. Technology has become an integral part of all aspects of retail. The business, in almost all departments, is starving for more technology and yet the entire system has been set up to ensure that doesn’t happen.

I firmly believe that to be successful and to truly compete with the likes of Amazon, retailers must stop thinking about IT like other “controllable expenses” and start thinking of the department as a service provider. They need to start thinking about how technology can enable other parts of the business. Unless you want to fail, the C-suite should not be creating IT strategy, budget and direction as a group. If you want to take your business to the next level, give your technology budgets back to the respective business units and give your CIO P&L responsibility and strategy accountability.

Within most retail organizations, typically arcane processes are in place that say IT needs to budget for a set number of projects and a set staffing level for each year. The team is typically led through some sort of multi-functioned steering committee that convenes on a regular basis to determine whether the focus and attention of the scarce IT resources need to be adjusted. These functional groups often battle over who is getting attention and who is not.

If the marketing chief, for example, identifies an important opportunity to take advantage of some new trend in social media, she may be stuck because the technology resources are already committed to overhauling an outdated supply chain system that should have been replaced five years ago. The CIO is left basically saying “no” to anything new that shows up between budget cycles.

Some organizations actually plan out “spare” capacity to handle “pop-up projects.” But, typically, any spare capacity is almost always eaten up by over-runs in existing projects. This leaves everyone frustrated, especially the business owners and the CIO. I’m not sure about you, but that doesn’t exactly strike me as nimble or competitive.


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3 Comments | Read To Survive, Retailers Need To Kill The IT Budget And Burn The Boats

  1. Fabien Tiburce Says:

    The IT budget, strictly speaking, should be limited to managing personal computers, the network and the phone system. All other initiatives, anything attributable to a revenue stream, should be paid for and largely managed by a business unit. IT has a role to play of course: assisting business stake holders with system and vendor selection, ensuring the computing environment is coherent and secure, but ultimately the money needs to flow from the business and be controlled by the business. The CIO should be the gate keeper, not the purse holder. The world is moving too fast for organizations to be held back by their own bureaucracies. Make business units accountable and in charge of their own technology purchase decisions.

  2. Greg Lucas Says:

    Todd, great article and I agree with what you are saying. However, I think the issue is that all CIO’s are not business people but typical IT people. As someone with a business background in IT, I want to and am capable of running IT as a business. Someone who has only come up from the IT ranks probably does not. Hence, it is ever important for companies today to find an IT leader with a business background who is a broad thinker and can see the bigger picture.

    Fabien, your comment seems naive. Most business units are not adept at project management so it’s not conceivable for them to execute in a world class way. IT organizations do have the skills and experience in manging projects, risk and issues. Even if we did give the business ownership of their own technology purchase decisions who do you think is going to run and support that decision after it is implemented? That’s right – the IT team.

    As a matter of fact, the trend seems to be the opposite of what you are saying with the CIO being given ownership of parts of the business. See CIO of Starbucks, Pizza Hut and others who are in General Manager roles responsbile for delivering on the business.

    Greg

  3. Todd Michaud Says:

    Greg,
    Great comments! It is a typical, “What got you here, won’t get you there” scenario (one of my favorite books). I think that part of the reason that IT does not tend to be the best “ladder” for becoming the CIO is because we are not focusing on the right training for our middle management. There comes a time in an IT leader’s career where training changes from technical in nature, to business in nature.

    Young leaders need to focus on P&L management, communications, people management and learning the business inside and out. Someone who is a Powerpoint wiz, with great interviewing skills that knows a balance sheet inside and out is going to be a better fit for CIO than someone who has written millions of lines of code or virtualized a datacenter.

    I’m a firm believer that teaching your team how to hire people and how to better communicate are the number one focus areas a CIO must have with their team.

    It is the existing in-office (seated) CIOs that must recognize this shift in IT leadership needs and make the appropriate adjustments in training their staff to be successful in their next role. IT is not a great ladder for becoming a CIO because we haven’t made it one. It absolutely can be.

    I also agree with your comments about business ownership of IT projects. It is a romantic notion to think that business partners have the capabilities to execute technology projects. Of course they “think” that they want to own it, and may even push to own it, but deep down most are hoping that the IT team will “take it off their plate”. In many cases it is purely a way to divert accountability for failure.

    I have been exposed to many retail organizations that have zero project management discipline in place. No project managers, have never seen a project plan, and have no processes what so over. It’s hard not to laugh when someone asks you what a Gant Chart is. In these organizations, it’s just a bunch of people working hard to get things done. In almost every instance it is up to IT to take the project leadership role and help guide our business partners.

    But I think that Fabien’s point about moving accountability into the business unit is a good one. They are not there today, but will find themselves well served if they can get there. They day a business unit goes “off reservation” to hire their own project manager, will be a great day.

    Thanks again for the insightful comments!

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