A BUSINESS CASE FOR TRANSFORMING RETAIL IT

WHITE PAPER

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 info@logicinfo.com

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