{"id":4665,"date":"2019-04-19T07:04:23","date_gmt":"2019-04-19T12:04:23","guid":{"rendered":"http:\/\/flevy.com\/blog\/?p=4665"},"modified":"2020-12-19T20:25:33","modified_gmt":"2020-12-20T01:25:33","slug":"retail-strategy-how-to-effectively-manage-it-costs","status":"publish","type":"post","link":"https:\/\/flevy.com\/blog\/retail-strategy-how-to-effectively-manage-it-costs\/","title":{"rendered":"Retail Strategy: How to Effectively Manage IT Costs"},"content":{"rendered":"

\"\"The Retail industry is under constant pressure by low margins and ever-increasing rivalry.\u00a0 Weak consumer spending; saturated markets; increased consumers demands for service and lower prices; and intense competition has put significant strain on retail bottom lines and growth avenues.\u00a0 Thus, Retail Strategy<\/a> must evolve to accommodate these market changes.<\/p>\n

Such low margins force the retailers to save costs across the operations, including IT, which is vital for the success of every strategic endeavor\u2014be it enhancing customer experience, customer loyalty, or cross-channel integration.\u00a0 Resultantly, IT budgets are also shrinking.\u00a0 Thus sustaining a cost-effective, efficient, and customer-centric IT function is a priority for every retail leader.<\/p>\n

The Retail industry faces quite a few IT challenges\u2014e.g., hundreds of discrete locations, numerous applications, and diverse technology infrastructure and systems.\u00a0 The IT function needs to integrate various disjointed applications, including store-based point-of-sale, supply chain, and human resource management with their core systems.\u00a0 Rational utilization of technology is important to achieve customer loyalty with clusters of customers across the store, online, and catalog channels. \u00a0It is equally important for the retailers to become more cost-centric in their operations, particularly IT.<\/p>\n

Most retailers count on cumbersome bespoke ERP systems to deal with merchandising systems and price management, which further add to costs and complexity. \u00a0The apprehensions for customer privacy and data security, and dependence on traditional ERP systems limit the retail sector to take full advantage of offshore IT infrastructure and solutions delivery services.<\/p>\n

Regardless of the ever-increasing rivalry and the challenges associated with technology, retail CIOs should prioritize IT Cost Management<\/a> and improved IT capabilities.\u00a0 They can utilize the 4 efficiency and effectiveness levers to improve IT capabilities, drive IT efficiency, achieve cost reduction<\/a>, and secure differential advantage. The levers are:<\/p>\n

    \n
  1. Strategic Sourcing<\/strong><\/li>\n
  2. Application & Infrastructure Simplification<\/strong><\/li>\n
  3. Demand Management<\/strong><\/li>\n
  4. Lean IT Organization<\/strong><\/li>\n<\/ol>\n

    \"\"<\/a><\/p>\n

    Let\u2019s discuss the first 2 levers in detail.<\/p>\n

    Strategic Sourcing <\/strong><\/h2>\n

    Strategic Sourcing<\/a> of IT services is an effective cost cutting method. \u00a0The selection of services to be outsourced depends on how strategic or transactional the service is.\u00a0 Many retail organizations outsource their infrastructure, software systems, and business processes to partners, since they offer focused, tailored solutions (at appropriate, need-based service levels) to assist in core retail operations, financial reporting, merchandizing, and much more. \u00a0An ideal sourcing strategy should entail carefully considering what to outsource, meticulously selecting the appropriate partner(s), outsourcing specific application development phases to unlock savings, blending in-house talent with service provider\u2019s competencies, and nurturing relationships to drive profits. \u00a0Service providers offer significant cost benefits to the retailers.<\/p>\n

    Application & Infrastructure Simplification<\/strong><\/h2>\n

    Retailers typically have excessively complex operations and rely on custom-built applications. \u00a0In the past, commercial off-the-shelf programs, specifically for the retail sector, were quite limited, which pushed the retailers to develop large custom-built legacy systems.\u00a0 Some even created Microsoft Access \/ Excel\u2013based programs, to fulfill their mission-critical functions. \u00a0With growing business, the functionality of these systems was simply extended to manage additional product lines. \u00a0All of this resulted in makeshift, fragmented IT ecosystem, lack of standardization, increased application support costs, redundancies, and limited scaling opportunities.<\/p>\n

    Even today, IT ecosystem at most retailers consists of fragmented applications\u2014running on varied platforms\u2014and unorganized data.\u00a0 Latest retail applications are costly but valuable for portfolio consolidation and simplification.\u00a0 A variety of advanced retail ERP products are available today that offer portfolio simplification and are able to consolidate the fragmented legacy systems on a common platform.\u00a0 These systems provide integrated retail functionalities including merchandising, warehouse management, POS systems, workforce and financial management.<\/p>\n

    Interested in learning more about the 4 efficiency and effectiveness levers to improve IT capabilities in detail?\u00a0 You can download an editable PowerPoint on Retail Strategy: IT Cost Management<\/strong> here<\/a> on the Flevy documents marketplace<\/a>.<\/p>\n

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    \u2013 Omar Hern\u00e1n Montes Parra, CEO at Quantum SFE<\/p>\n<\/blockquote>\n","protected":false},"excerpt":{"rendered":"

    The Retail industry is under constant pressure by low margins and ever-increasing rivalry.\u00a0 Weak consumer spending; saturated markets; increased consumers demands for service and lower prices; and intense competition has put significant strain on retail bottom lines and growth avenues.\u00a0 Thus, Retail Strategy must evolve to accommodate these market changes. Such low margins force the… Retail Strategy: How to Effectively Manage IT Costs<\/span><\/a><\/p>\n","protected":false},"author":110,"featured_media":4804,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"neve_meta_sidebar":"","neve_meta_container":"","neve_meta_enable_content_width":"","neve_meta_content_width":0,"neve_meta_title_alignment":"","neve_meta_author_avatar":"","neve_post_elements_order":"","neve_meta_disable_header":"","neve_meta_disable_footer":"","neve_meta_disable_title":"","footnotes":""},"categories":[84,87,81],"tags":[1531,1530,1532,605,23,453,763],"class_list":["post-4665","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-information-technology","category-outsourcing","category-strategy","tag-application-infrastructure-simplification","tag-cross-channel-integration","tag-demand-management","tag-erp","tag-lean","tag-retail-strategy","tag-strategic-sourcing"],"_links":{"self":[{"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/posts\/4665","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/users\/110"}],"replies":[{"embeddable":true,"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/comments?post=4665"}],"version-history":[{"count":8,"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/posts\/4665\/revisions"}],"predecessor-version":[{"id":7901,"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/posts\/4665\/revisions\/7901"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/media\/4804"}],"wp:attachment":[{"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/media?parent=4665"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/categories?post=4665"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/tags?post=4665"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}