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1 Executive Summary
2 Background
4 The IT Delivery Model
9 Conclusions
10
11
About Logic
About the Author
CONTENTS
In today’s retail business market, the challenge of delivering
and supporting a consistent and comprehensive set of
application solutions across the enterprise has become
overwhelming and can be quite costly. The complexity of
the technologies demands specialized talent to select,
deploy and support these solutions. In retail this has
served to redirect the focus of many IT organizations
away from the activities that are most important to
the retail business: product development, supply chain
management and customer selling. Instead, these IT
organizations are focused on managing the “infrastructure”
end of the retail solution delivery stack and dedicating
enormous amounts of discretionary spending (both Opex
and Capex) to keep these solutions viable.
In an attempt to better manage their delivery capabilities
(and costs), retail CIO’s have by necessity migrated from
a best-of-breed software solution strategy, burdened
with extensive integration costs and multi-technology
platform support, to a suite-solution strategy, where
infrastructure can better be leveraged across the enterprise.
Their hope is that consolidation in the ERP software
space would solve most if not all of their integration
and multi-platform issues and that the software vendors
would shoulder the better part of the responsibility for
merging disparate solutions into their expanding portfolio.
To date, they have been proven only partially right.
The amount of consolidation in the ERP vendor space
has gone beyond most everyone’s predictions. There are
fewer ERP solution providers today than there were ten
years ago and the larger ERP solution providers have
dramatically expanded their base retail offerings with
critical acquisitions in POS, Ecommerce, CRM, Order
Management and Business Intelligence. Today, there
are only a handful of ERP solution providers with the
breadth and maturity of offerings adequate to run most
retail operations.
At the same time, the pace of acquisition in the ERP
solution space has far surpassed the ERP solution
provider’s ability to properly merge these technology
solutions in a timely way, continuing to stymie attempts
by retail CIO’s to reduce their cost of delivery. In response,
the fully-managed application hosting industry is
emerging; focused on leveraging technology assets
(people, hardware and software) across multiple clients.
This opportunity to manage costs is causing retailers to
entirely re-think the role of the IT organization.
EXECUTIVE SUMMARY
1 Executive Summary
…the fully-managed application hosting industry is emerging…
this opportunity to manage costs is causing retailers to entirely
re-think the role of the IT organization …”
BACKGROUND
2 Background
Over time, more and more components of the retail
solutions delivery stack have been commoditized by
the technology industry. By necessity and in an effort
to reduce costs, retail CIO’s have sought to migrate
these commodity services to standardized, pre-configured
solutions wherever possible. The bulk of retail cost-savings
attempts in the past ten years have been focused on
this strategy.
Typically these components have become commodities
in the technology space, and therefore offer little in
terms of differentiating strategic value to the retailer.
Additionally, the reliability of these components has
out-stripped the reliability of solutions developed and
managed internally, further adding to the push towards
standardization. Finally, the relatively lower cost of
these components has been an enabler to their adoption.
The next frontier for standardization in the retail solution
delivery stack is the applications layer. While most
retailers have adopted “packaged” ERP suite solutions
(versus custom-developed solutions), implementation
projects have long resisted “vanilla” deployments in
core ERP applications. Business executives, often not
fully recognizing the long-term financial implications
of their decisions, have consistently elected to modify
the functionality of out-of-the-box core ERP solutions
to meet their perceived needs. This direction, based on
perceptions that their business has special or different
needs, is changing.
It is worth noting that, while core ERP applications are often
customized, there are non-core applications in the retail
space that have trended towards vanilla deployment for
some time. It is unusual, for instance, to find proprietary
financial or human resources solutions in retail. In fact,
it is unusual to even see significant customizations to
these package applications as their functionality has been
standardized throughout retail and other industries as well.
The next frontier for standardization in
the retail solutions delivery stack is the
application layer…”
SOLUTIONS DELIVERY STACK
As technology advances over time, commoditization moves its way up the stack from bottom to top.
Va
lue
Pr
op
os
itio
n
Strategically Differentiating Services
Commodity Services
Then NOWUser Interface User Interface
Applications Applications
Middleware Middleware
Database Database
Virtual Machine Virtual Machine
Servers Servers
Storage Storage
Network Network
Operating System Operating System
3 Background
...as core retail ERP offerings mature, retail organizations -- in
an effort to reduce total cost of ownership -- will naturally
move towards vanilla deployments…”
It should come as no significant revelation that these
non-core applications are the first to be standardized. The
functionality contained in human resources and financial
systems is the most mature; with legal and regulatory
compliance driving their functional stability. Since these
applications typically have little impact on core retail
business processes it is often politically easier, and
always cheaper, to deploy these applications with as few
modifications as possible.
With that, it stands to reason that as core retail ERP
application offerings mature, retail organizations -- in an
effort to reduce total cost of ownership -- will naturally
move towards vanilla deployments for these applications
as well. The largest retail ERP solution providers have either
purchased or developed very deep (and standardized) core
retail functionality and a surprising array of peripheral
solutions aimed at ensuring that retailers have little
motivation to pursue point-solutions for anything but
fringe (though sometimes strategically differentiating)
components of their portfolio.
The savings implications and the overall efficiencies of a
vanilla deployment can simply no longer be ignored. With
the cost of typical ERP implementation projects running
in the many millions of dollars in implementation services,
any strategy which can dramatically lower these initial
deployment costs and the ongoing costs of upgrading must
be considered.
This investment and standardization in retail ERP core
solutions by the larger software providers has forced
other important trends supporting the best practice of
vanilla deployments. Where before it was not unusual
for retailers to simply replace their systems every dozen
years or so instead of periodically upgrading them, retailers
are now being forced to remain relatively “current” on their
software (or at least within a couple of releases) or risk
being unsupported by their vendor.
The software vendor’s cost of maintaining multiple releases
has driven them to this model and only by paying additional
support fees and/or more consulting dollars can a retailer
maintain support for an older release. In order to ensure
currency of their application portfolio, the retailer is now
in a “forced march” with respect to their ERP applications.
Not surprisingly, this “forced march” gets a lot more
expensive if the retailer has deployed their ERP applications
with extensive modifications and must carry these forward
with each upgrade.
Fortunately, most retailers today can expect an 85-90%
functionality fit with the larger retail ERP solution providers
even before any system modifications are undertaken. It
is this fact combined with the above described trends in
ERP application upgrade strategy that is setting the stage
for the next generation of best-practice ERP application
delivery and support.
The savings implications
and the overall efficiencies
of a vanilla deployment
can simply no longer
be ignored.”
THE IT DELIVERY MODEL
4 The IT Delivery Model
Information technology support has changed dramatically over the past twenty years. The advent of more complex
technology delivery platforms along with the commoditization of the “lower” levels of the Solutions Delivery Stack
and the proliferation of the graphical user interface layer as the predominant interaction mechanism continue to
challenge the typical IT executive.
As a result, the IT delivery model has also changed and must continue to change in order to meet the challenges of
today’s retail businesses. Like the retail solution delivery stack, many of the IT components critical to the delivery
of application solutions to the business have been commoditized. The figure below illustrates the past, present and
future stages of IT Transformation away from legacy IT organizations.
The first stage of IT transformation, the “delivery
outsourcing” model, occurred some time ago with the
extensive use of systems integrators for deployments
and data integration. This became the norm for IT
organizations implementing multi-level technology
platforms as they were unable to secure, train and
retain enough in-house personnel across each of the
technology layers. This successful model was greatly
facilitated by the standardization of the software
layers below the application layer.
Stage II of IT transformation, the “infrastructure-as-a
service” (IaaS) model, is nearly at full maturity and supported
by the commoditization of the hardware components in
the retail solutions delivery stack. The cost of outsourcing
the infrastructure and the management of that infrastructure
has declined to the point that it is now difficult to justify
having any of these components managed in-house.
IT TRANSFORMED
With standardization of business applications comes the opportunity to leverage outsourced IT services and re-focus in-house resources.
Retailer Owned/Managed
Outsourced
IT Delivery components
Stages
legacy future1 2 3Technology Strategy
Business Partner RelationsBusiness Partner Support
Application MaintenanceApplication Hosting
Datacenter Operations
Technical Services (network, infrastructure)
Desktop Services
IntegrationDeployment
5 The IT Delivery Model
It is the convergence of the
“Fully Hosted” model and the trend
towards vanilla ERP deployments that is
paving the way for best-in-practice,
low-cost application deployments
and cost-effective outsourced
application support...”
Stage III, the “fully hosted” model is the next level of
transformation and capitalizes on the progress of the first
two stages. Early manifestations of this stage involved
software providers hosting their applications with systems
integrators providing the necessary implementation
services. This is quickly being replaced by combination
implementation and hosting providers. Sometimes these
are software providers with services arms and sometimes
these are systems integrators with hosting arms. Either
way, retailers and providers alike have come to realize
that best practices indicate that whoever performs the
system design and installation should remain accountable
for hosting and managing the ongoing system, creating
an incentive to do things correctly, as they then have to
live with the result.
It is the convergence of the “fully hosted” model and the
trend towards vanilla ERP deployments that is paving the
way for prescriptive, low-cost application deployments
and cost-effective outsourced application hosting and
support in the retail space. This is not the first time that
IT has been challenged with a new paradigm (the move
to an off-shore development and support model comes
to mind), but this may well represent the next true
cost-containment opportunity for IT executives and the
key to transitioning to the future role of IT within the
retail enterprise.
6 The Challenge
The next step of IT transformation is less clear and may depend on how best-in-class retail IT executives evolve their
role in the business going forward. This next section focuses on understanding the pressures surrounding solution
delivery and the impact on the perceived value of the IT organization to its business partners within a retail organization.
This paper concludes with some ideas on how to strategically re-position the IT organization as a high value business enabler.
As we discussed earlier, the degree of change in the
retail technology landscape has been substantial over
the past twenty years; both in terms of the technologies
being deployed and the expectations of the end-user
and ultimately the consumer. At the same time, the cost
of internal delivery and support for increasingly complex
IT components has gone up, creating significant tension
between IT leadership and the financial executives of
the retailer.
Unfortunately, and for a variety of reasons including
the condition of the overall economy, IT leadership in
retail chose (or was forced) to respond to these changes
by increasing the focus on cost containment and risk
avoidance. With this came decreased focus on new
opportunities and business enablement. As a result,
IT is now at a proverbial fork in the road. CIO’s must
reverse the trend reinforcing the notion of IT as a cost
center by re-invigorating its value-added relationship
with the business and aggressively outsourcing commodity
capabilities. At stake is retention of the CIO’s seat at the
executive management table.
CIO’s must reverse the trends reinforcing
the notion of IT as a cost center by re-invigorating
their value-added relationship with the business
and aggressively outsourcing commodity
capabilities.”
THE IT CHALLENGE
Business Enabler
strategic Asset
Cost Center
Opportunity Realization
Risk Avoidance
Cost Management
The transformed IT organization is aligned with the business on achieving high-value objectives.
THE CHANGING ROLE OF IT
IT F
oc
us
7 The Organization of the Future
What follows is an outline of a strategic, best-in-practice
IT organization for the future. The full result cannot
always be achieved immediately, but instead may have
to be implemented over time. For those retailers on the
verge of a full ERP system refresh, the changes can be
realized more quickly. However, even retailers that are
about to embark on an ERP upgrade can capitalize on
this opportunity.
In order to take full advantage of changes to the solutions
delivery landscape and outsourcing of the IT delivery
components, the CIO will need to take some dramatic
organizational steps. These steps need to support the
notion that IT is becoming more streamlined, but also
that IT is becoming more strategic to the business. Below
is a diagram highlighting the proposed organization of
the future. At the heart of this organization is a new role
in IT called the Relationship Manager.
Of particular note is that this organizational model is
devoid of an application development organization. In
fact, if there are few customizations to your applications,
there will be little need for application developers in
IT. Additionally, significant portions of the traditional
technical services organization are also unnecessary.
Gone are the internal roles related to server and infrastructure
management as these activities now belong to the
external IT vendor who is doubling as the application
maintenance and support provider.
THE IT ORGANIZATION OF THE FUTURE
…if there are few customizations to your
applications, there will be little need for
application developers in IT.”
Corporate
Corporate
Marketing
Marketing
Distribution
Distribution
Finance
Finance
stores
stores
merchants
merchants
sourcing
sourcing
Relationship Managers
Business Areas
Internal IT Service DeliveryExternal IT Vendor Base
Teams of relationship managers make up the core of the transformed IT organization, with only very selective investment in in-house application development resources.
RELATIONSHIP MANAGERS AT THE HEART OF IT
8 The Organization of the Future
Also evident is the one-to-one relationship between
the key business areas and the Relationship Manager
organization within IT. This obvious and direct alignment
of IT resources is not by accident. The only way to be
viewed by the business as a strategic enabler is for key
IT resources to be dedicated to their needs. It is important
that these individuals live and breathe the business –
becoming as much a part of day-to-day management as
the operational business managers themselves.
What is equally critical is the role definition for the
Relationship Manager. Left unchecked, the business
will often “absorb” these individuals into their own
operations, assigning them operational responsibilities
because they are able participants. Having been freed of
the operational responsibilities of traditional IT delivery,
the Relationship Manager’s role could end up focused
on equally consuming responsibilities in business
operations. This is to be avoided so that they remain
the focal point for the relationship between IT service
delivery (both internal and external) and the business.
Key elements of responsibility for the Relationship
Manager include:
• Relationship with business operations management
• Relationship with strategic business planning
• Application administration/ownership
• Management of third-party hosting vendors
• Coordination of internal IT services
• Custodian of the architectural vision
• Project delivery including: - Requirements - Design - Development - Testing - Installation - Training - Change management
The role of Relationship Manager is not only the focal
point for the business, but is also the focal point for all
IT service delivery. This centralized role implies that the
Relationship Manager is skilled in all areas of delivery.
Generally a career technologist, the ideal person must
also have a deep operational understanding of the area
they represent. They are typically well steeped in project
management and excellent leaders. In short, this is not
an entry-level position, but a role filled by well-seasoned
IT managers with excellent communication skills. In order
to be positioned for success, they must be credible to
not only to the business executives they support, but to
the IT delivery teams and the third-party hosting providers
as well.
Having been freed of
the operational responsibilities
of traditional IT delivery, the
Relationship Manager’s role … should
be the critical focal point for the
relationship between IT Service
Delivery and the business.”
IT Relationship Managers
IT ServicesVendor Services
Business Partners
Relationship managers are experts at enabling the business by strategically leveraging the capabilities of internal IT and external vendors.
THE ROLE OF THE RELATIONSHIP MANAGER
CONCLUSION
9 Conclusion
Key to this model is the long-term partnership that
must be formed with the third-party hosting provider.
The ongoing outsourcing of critical infrastructure management
and application support for core ERP applications is not
the same as outsourcing an email system. And given
the bias towards perpetual ERP solutions (supported by
continuous upgrades), careful consideration of a retailer’s
options is in order, as the retailer may be associated with
this provider for some time to come.
Critical to this approach is the scope definition of the
third-party hosting provider agreement. Most hosting
providers will provide all of the infrastructure support
for the system once installed. Growth parameters
should be included so that business expansion costs
are anticipated and predictable. The level of application
maintenance should be explicitly defined to ensure that
everything from “hot patches” to new software releases
is included in the hosting costs.
The result leverages the investments of the third-party
hosting provider to reduce and better anticipate overall
IT delivery and support costs. It provides flexibility to the
retailer to expand (or contract) their business as needed
without the need to explicitly manage all of the technology
assets required to do so. And, finally, it allows IT to focus
on the business of retail and remain a strategic partner
to business operations.
What remains in the best-practice internal IT organization is a streamlined delivery team with a laser focus on business development and optimization, technology enablement, information delivery at the point of action, and operational change management. These are the strategic components that set the stage for successful business operations.
10 About Logic
ABOUT LOGIC
Since 1997, Logic has been the trusted systems integration partner to leading retailers around the world.
With an exclusive focus on Oracle Retail, and a team of more than 500 expert consultants who bring a
unique balance of real-world retail and IT experience, Logic is equipped to understand and deliver on a
retailer’s business and technology goals. Working with Logic, retailers benefit from people, process, and
technology solutions that increase efficiency, profitability and deliver a world-class experience for shoppers.
Whether a retailer’s enterprise is regionally focused or
extends around the world, Logic stands ready to partner
in every geography. The company maintains offices around
the globe to serve its clients and ensure alignment with
Oracle Retail’s global practice.
Logic’s clients range from mid-sized retailers to some
of the largest retailers in the world across nearly every
type of retail business model including grocery, hardlines,
softlines, fashion, and government. Whether brick-and-
mortar focused, pure-play e-commerce or multichannel,
Logic offers a complete range of services to help retailers
succeed. Logic’s end-to-end service offerings include:
• Strategic Advisory Services
• Implementation Services
• Testing Services
• Change Management & Training Services
• Cloud Services
• Managed Services
• Staffing Services
Logic’s solutions support the entire breadth of a retailer’s
business processes and are directly paired with Oracle’s
offerings in the following business areas:
• Merchandising
• Planning and Optimization
• Supply Chain Management
• Store Operations
• Commerce
• Analytics & Big Data
• Oracle E-Business Suite for Retail
Most importantly, Logic puts clients first. That means we
do the right thing for our customers. We do what we say,
and say what we do. Always.
TO LEARN MORE ABOUT HOW LOGIC
CAN HELP YOU TRANSFORM YOUR
IT ORGANIZATION & DELIVER RETAIL
SUCCESS, VISIT US TODAY AT
WWW.LOGICINFO.COM.
11 About the Author
ABOUT THE AUTHOR
Paul D. McFarren is Director of Strategic Advisory
Services at Logic.
Paul and his team provide large and mid-sized retailers
with executive-level guidance in managing key risk areas
and maximizing ERP project return by assessing the
efficacy of strategic outsourcing, improved IT/business
alignment, and enhanced operational and organizational
design early in the ERP program planning process.
Prior to Logic, Paul spent over 25 years as a thought
leader in retail technology. Paul has held senior
positions at Andersen Consulting, Gap, LVMH-SDG,
United Retail, Simply Retail Solutions and Burch
Creative Capital.
Paul holds a degree in Operations Research and
Industrial Engineering from Cornell University.
ABOUT LOGIC
Global retailers trust Logic to achieve their vision of success. Dedicated
exclusively to Oracle Retail, Logic blends technology and retail business
expertise to implement, optimize and support improvements that help
efficiency, profitability and customer experience. Logic has offices in the
USA, Latin America, Europe, India, Asia-Pacific and the Middle East.
For more Information, visit www.logicinfo.com.
3800 American Blvd West Suite 1200Bloomington, MN 55431USA
Call +1.763.762.6006Email [email protected]
Visit www.logicinfo.com
Logic Information Systems ©2015