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

September 4th, 2012

These bureaucratic systems were often put in place during the dog-days of ERP implementations. It happened at the same time as many organizations were making the decision to move the CIO under the CFO in the reporting structure. CEOs were seeing dramatic increases in technology spending throughout the organization, and they were set on managing this “controllable expense.” This is what you do when spending is out of control, you put a leash on it and pull very tightly. So IT was wrapped up and put under the person least likely to say “yes” to a budget increase.

But times have changed. More of the way retail operates is dependent on technology. It’s less about big, costly year-long (or longer) projects and more about small projects that require quick turnarounds. Although big problems with big answers still exist, most problems have been broken down into smaller pieces with vendors attacking much smaller “chunks.” With many applications being offered via the cloud or as a service from providers, companies can enable business improvements without the hassle, aggravation or expense of the past.

So what should be happening? Instead of project lists and budgets, smart retail organizations will focus on the important business rules of IT. They will define clear IT project governance that is used both internally and for externally purchased IT services. This governance focuses on things like security, availability, performance and reliability. It uses governance structures that focus on data portability and extendability. It makes sure that everyone who is involved with technology is operating within the same structure, with the same vision.

Amazon doesn’t have this problem. Its entire business is technology, and the online retailer is exploiting this weakness. It doesn’t let technology mature past its useful life; instead, Amazon invests in technology that is ahead of its time. The company has purchased so many servers to meet its peak capacity demands that it is able to sell the excess computing cycles in the form of cloud computing. Amazon now makes more than $2 billion a year selling cloud services.

What’s the worse that happens if you decentralize IT budgets and let the CIO run IT like a business unit? What happens if the supply chain unit decides to spend 30 percent of its operating budget on technology improvements? Is that really a bad thing? What if IT has to triple its staff size to meet the demands? If IT meets its financial performance targets, does it really matter? Think about whether the fears of this world are real or just scary. Does that mean the business units can purchase IT services from an outside provider when the internal team can’t meet the needs? If you have put the right governance in place, why not?

Every time I talk to retailers who refer to Amazon as if it’s something different, or in some different retail category, I laugh. Amazon has had no more advantage in this game than any other retailer. It’s not like the rules were different for the online retailer. Amazon simply made different business decisions about how to grow its business. Any retailer could have made similar (or even better) decisions and achieved similar results. I keep coming back to the notion of retailers being afraid of technology. They have been burned too many times in the past. Too many failed projects, too many missed budgets. Too much dated technology weighing them down. But if retailers don’t come to grips with the fact that technology will also be their salvation, then they might not ever be saved.

What do you think? If you disagree (or even, heaven forbid, agree), please comment below or send me a private message. Or check out the Twitter discussion on @todd_michaud.


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