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To Survive, Retailers Need To Kill The IT Budget And Burn The Boats
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.
-Marc
September 4th, 2012 at 8:56 pm
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.
September 6th, 2012 at 7:21 am
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
September 6th, 2012 at 12:47 pm
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!