Managing your IT

Whilst very large retail organisations can afford to fund fully structured in-house IT departments, smaller retailers often struggle to get the expected results from their internal IT. Typical issues include the dependency on a few key staff, high salaries needed to retain them, lack of internal procedures, lack of infrastructure and poor documentation. It is difficult for a retail organisation to achieve core competency in IT. However, many retailers are still trying.

In the 1980s is was a reasonable proposition to develop core systems in-house. The introduction of minicomputers such as DEC, Prime, or Data General, made it faster and more practical to develop systems in-house than it was possible in the old mainframe environment. The skill set required to operate and set up such systems was greatly reduced. Furthermore, the typical shortcomings of minicomputers were gradually overcome by lots of cheap hardware: fast processors, large random access memory, and large, low cost disks.

However, in the 1990s two new factors appeared:

• Cost pressures within retail businesses continued, yet the saving delivered by the move from mainframes to minicomputers had already been realised.
• With the introduction of Microsoft Windows, the complexity of system development became (at least) as bad as in the old mainframe days; a good Windows application takes a lot of knowledgeable effort to develop.

As a result, today it is once again no longer viable for all but possibly the largest retailers to successfully develop and maintain systems in house.

For example, to do the job properly (ie allow for formal requirements gathering, structured design, documentation, release management, and testing) a $50 million (per annum) retailer would have to employ between 10 and 15 IT staff. Unfortunately, the cost of labour alone would be at least twice as high as the maximum level of a reasonable IT expenditure for such a retailer. When hardware and other infrastructure costs are added to the cost of labour, you can expect that the overall cost of IT would be around 3% of turnover. This is well beyond the ‘rule of thumb’ that a retailer should spend 1% to 2% of turnover on their technology needs.

As the complexities increase (EDI, EFT, more system integration) it is clear that the model for the next decade has to be based on modern, high quality software packages. This will allow retailers to achieve results with minimum staff levels in their IT departments, and to reduce their exposure and dependency on a few, core individuals.

For example, some Retail Directions customers have no IT staff at all, whilst larger organisations have only a few staff members, mainly to handle their first line support. This is the only way you can focus on what you are best at: your retail business.