The technology departments of retailers and manufacturers face common obstacles that can torpedo the bottom line.
A major problem chief information officers face is “coralized” agendas. “That’s ‘coral’ as in ‘coral reef,’” said Thornton May, a corporate futurist. Companies that grew organically or by acquisition can go years without pruning or refining IT processes. “Before you can do great things, you have to stop doing stupid things,” he said.
Apparel manufacturers are particularly vulnerable to this pitfall because of the nature of how brand portfolios are built, said Kathryn Cullen, principal at Kurt Salmon Associates.
“Examples of this are Jones Apparel Group and Liz Claiborne, where they made lots of acquisitions over the years and have multiple and duplicate [IT] activity going on in each division,” Cullen said. “Because the divisions tend to be so focused on merchandising and product development, there is not a lot of impetus to streamline, coordinate sourcing, or try and get product development calendars aligned” across the whole organization.
Phillips-Van Heusen, Warnaco and Estée Lauder are other examples of companies that grew by acquisition and might be reluctant to tweak IT processes that could jeopardize the brand, she added.
During its high-growth mode, The Home Depot failed to develop an integrated data model, which led to conflicting definitions for data components such as “item.” “‘Item’ might mean one thing in the merchandising system and something different in the distribution system,” said Ron Griffin, former Home Depot cio and now principal of Griffin Anderson & Co.
“This had three deleterious impacts,” he said. “We spent a lot of time arguing over whose reports were right versus making fact-based decisions.” Technology introductions took longer and quality was substandard as a result.
Lack of self-knowledge is another pesky pitfall, May said. Retailers should know their IT strengths and weaknesses, as well as disposition. That also goes for any potential acquisitions.
The merger of brokerage firms Wachovia Securities and Prudential Securities led to computer breakdowns in September, when the two units moved to a single system, according to The Wall Street Journal.“I have great respect for Wachovia,” said May, “but there was no self-knowledge in the [IT] mess they acquired. They did not know what they bought. I am not sure if IT was involved in the due diligence.”
Unleveraged internal knowledge is another common tripping-up point, May said. Wal-Mart might have avoided this pitfall had it tapped local knowledge in overseas markets. In Brazil, Wal-Mart stores’ point-of-sale systems were written in Spanish, rather than Portuguese, said Silvio Laban, a former Wal-Mart executive and now cio at Brazil’s largest retailer, Companhia Brasileira de Distribuição Grupo Pão de Açúcar.
In Argentina, where it’s customary to display final prices on shelves, rather than pretax prices as seen in the U.S., he said, the POS was configured to add tax, surprising shoppers with an unwelcome, “higher” price at checkout. May said, “A question to ask is, ‘Are you connected to all the smart people working on problems of interest?’ What we found is that people are so bunkered up.”
Another stumbling block is what May terms “piece-of-meat relationship with vendors.” Retailers that negotiate hard for the lowest technology cost often cheat themselves out of valued expertise a vendor can deliver. Jeff Orton, cio of Wilsons The Leather Experts, agrees some retailers fall into this trap, but Wilsons sees a better way. “We have tried to eliminate all ‘transaction-based’ relationships and surround ourselves with suppliers who are extensions of our enterprise, invested in our success.”
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