With more than 150,000 retail stores expected to close their doors this year as a result of the current economic crisis, should retailers consider look to outsourcing IT services to help cut costs and stay in business?
Outsourcing contracts in the retail market were up 40% from last year, but average and total values of deals signed in the retail industry actually dropped to their lowest levels in five years, according to a 2009 study by TPI, an outsourcing services advisory firm.
Outsourcing does have the potential to yield more than 30% savings for retail stores that outsource finance and administration, HR, procurement and/or IT. “Outsourcing the IT function can also free up capital and human resources, allowing retailers to focus on their core competencies, their customers and their bottom line,” said Micky Houston, managing director of retail practice at Alsbridge Inc., a global advisory firm specializing in outsourcing and benchmarking.
“Retailers should definitely be outsourcing in this economy,” according to Houston. “When the volume of the business is going down, the back office has to ramp down at the same pace.” This is a challenge for many retail stores that are still providing all IT services themselves.
Traditionally, retailers have been slow to use outsourcing services for many reasons, Houston said, including the belief that by doing everything internally, their back-end services remain confidential and therefore give them a competitive edge. But times have changed and those retail stores that are hiding behind their “confidential” services are actually missing out on better services that will improve the business, Houston said.
Many retail stores are finding success in outsourcing IT services such as support of the infrastructure, field locations and data centers.
Online retailer iStorez.com swears by the savings it’s seen from outsourcing services. According to Anand Jagannathan, CEO of iStorez.com, the online retailer has saved 60% in costs since outsourcing all of its product development and product engineering to Persistent, an Indian outsourcing provider.
When they first launched the site, Jagannathan knew he had the expertise and vision to succeed on the front end and sell clothing online. However, he did not have the technology expertise to succeed on the back end. That’s what led to his decision to outsource to Persistent. By outsourcing, iStorez became a technology leader and leveraged Persistent’s expertise to get to market quicker with new products and efficiently react to market changes, Jagannathan said.
Some small to midsized retail stores are also taking advantage of multiple sourcing vendors for best of breed. For instance, if you wanted to install a new point-of-sale system at 500 stores, how do you get that done quickly? By outsourcing integration and ongoing support, retailers can now take advantage of cost and additional capabilities.
Outsourcing IT is one way retail stores can cut costs and remain competitive in this economy. But is it enough?
“IT governance IS about the money,” said Michael Cohn, who currently heads up an eight-person IT governance committee at his accounting firm. “The IT governance committee should focus on the top initiatives that will bring the best ROI to the business,” said Cohn.
At last week’s Babson College Center for Information Management Studies (CIMS) executive session on IT governance, attendee Cohn voiced his opinion about the real goal of IT governance. “The business assumes within a budget year that capacity is fixed; if you need more capacity, you will likely require more money.”
Cohn, who is the director of the WolfPAC Integrated Risk Management Solution group at Boston-based Wolf & Company PC, said the governance process can be a long one and always ends up being a decision about the money. One example he offered was a request for smartphones with email. According to Cohn, it took months to get this request approved by the IT governance committee. The governance process dragged out because “they needed to know everything about the costs — for encryption requirements, compliance and anything that would affect the business bottom line,” said Cohn.
However, featured speaker Alex Cullen, who is also vice president, research director at Forrester Research, disagreed with Cohn’s comments. According to Cullen, IT governance is only partially about ROI and the money. “ROI is not the most complete way to gauge value of an investment,” said Cullen. Rather, governance is a process of processes and is really more about portfolios, he said.
According to the IT Governance Institute, “IT governance is an integral part of enterprise governance and consists of the leadership and organizational structures and processes that ensure that the organization’s IT sustains and extends the organization’s strategies and objectives.” Although money is not mentioned in this definition, you can’t deny the fact that achieving greater ROI and lowering costs are all critical decision factors when evaluating any IT decision that will affect the business.
Do you agree, then, that IT governance is about projects that will bring the most value to the business — and that in today’s economy, value is measured by money?
Cloud computing is at that early stage where there’s much discussion of taxonomy: Is it infrastructure? Is it Software as a Service? Is it a platform? All well and good, but little discussed so far is “Whatever it is, where does it fit in the lifecycle of corporate IT?”
Talking to IT folks who attended last night’s MIT Innovation Series forum on cloud computing, I got much more of a sense that some see cloud computing more as a staging area for new projects or businesses than as a permanent platform. Startup companies, which spend most of their first years as small to midmarket firms, are being touted as one of the early markets for cloud computing. Speaking to one startup technology director, his view of cloud computing was instructive. He is trying to walk between a rock and a hard place: provision too few servers and his company’s customers will have a bad experience online and never come back; provision too many servers and the company will run out of funding too soon.
His interest in cloud was as a prototype environment, therefore. He can find the right amount of capacity for a given number of users of his website without heavy capital investment. Later, he is likely to bring the operation in-house. He’s more impressed by the flexibility of cloud computing then by the cost: He says cloud capacity costs about 30% more than owning it, but that’s just comparing raw capacity costs, not including labor or real estate.
Still, it was evident at the forum that a lot of midmarket service providers in the technology space — development tools and middleware companies, contract developers and integrators and Web design firms, to name a few — are likely to convert their offerings to cloud offerings. Instead of buying a boutique tool vendor’s product, you’ll use it in the cloud as part of a whole stack. Hundreds of companies, literally, are lining up to offer such services on top of Amazon, and ultimately on top of other providers as they emerge. Their goal is to get you to stay in the cloud, using (and paying for) their portion of the stack indefinitely.
Looking for ways to do more with less? Drive innovation? Develop some overall new ideas? A new study suggests having a “socially distinct newcomer” in your team can help with decision making.
The study, recently published in the Personality and Social Psychology Bulletin, asked groups of students from different sororities and fraternities to solve a murder mystery. Each group contained an “outsider.” In this case, the outsider was someone from a different social circle – someone who stood out within the crowd. The study authors found that whenever a member of the original group agreed with the outsider, that original group member tended to elaborate and explain why they agreed with the newcomer to prevent alienation from the rest of the original group.
How does this pertain to you? We all work with someone similar to Dwight Schrute on NBC’s The Office (if you think you don’t, that person is probably you. Congratulations!) But don’t ostracize, embrace! The study concluded that the incorporation of new workers with different backgrounds and perspectives helps existing teams make better decisions by encouraging more discussion and analysis.
So if a restructuring or merger introduces a new member to your group or team who isn’t quite like everyone else, welcome the diversity. Part of being a good leader, after all, is leading a high-performing team, and diversity produces better discussions and results.
Did you know that the cost of not finding information is $3,300 per employee per year, according to IDC research? That’s crazy! IDC’s research credits ineffective searches; poor, inconsistent access tools; re-created content; reformats; and revisions as factors in causing employees to not find the information they need. So if you’re a midsized company with 500 employees, you’re talking $1,650,000 in productivity losses each year. In this economy, who can afford to take such a hit?
Many midmarket IT organizations are looking at collaboration tools like Microsoft’s SharePoint and social technology platforms to help centralize documents, manage people, tasks and time, and ultimately improve employee productivity. But can collaboration tools actually eliminate or lessen the $3,300 per-employee productivity loss companies are experiencing?
Increased productivity is one of the benefits of collaboration tools, because users travel less and spend less time searching for relevant information and expertise, said Rob Koplowitz, principal analyst at Forrester Research. But these benefits are rarely measured in terms of a formal ROI. Business owners really want to know “if I work with IT, will things work better?” he said.
But some midmarket companies are actually seeing measurable ROI from their investment in collaboration tools. One company is Los Angeles-based Equipois Inc., which manufactures a “zero gravity” mechanical arm technology for use in industrial and biomedical applications. Equipois uses Central Desktop for collaboration among three offices across the country for nearly all operational aspects of the business, from R&D to purchasing to customer project management.
“The cost of hardware, software and staffing to replicate this collaboration would be roughly 40 to 60 times our current annual expenditures, giving us an astronomical ROI,” said Eric Golden, Equipios’s CEO. Using these collaboration tools, “we’ve seen $40,000 to $70,000 in one-time cost savings and $65,000 savings in recurring costs.”
How does he know? Central Desktop’s SaaS social technology platform comes with an ROI calculator that computes weekly and annual savings in terms of system administrator hours reduced, estimated dollars spent on servers and number of hours employees saved not needing to rework documents and manage revisions. Based on feedback from customers, “many companies are seeing ROI savings of one to two hours per day, per employee, using our product,” said Isaac Garcia, CEO and co-founder of Central Desktop.
Golden didn’t say what he’s spending on Central Desktop, but the company’s pricing chart indicates you can have up to 100 users on it for, at most, about $25 a month each. That’s about $300 a year — less than 10% of that $3,300 number we cited earlier.
Central Desktop is just one of many collaboration tools out there, and none are a panacea for every productivity challenge. But as midmarket companies continue looking for ways to cut costs and remain productive in this tough economy, chipping away at that $1,650,000 is one way to boost IT’s contribution in today’s business environment.
Midmarket companies may think that putting processes around purchase orders, claims or employee onboarding and offboarding is akin to having a business process management (BPM) strategy, but in fact those projects are really just traditional workflow management.
At least according to Forrester Research, which defines BPM as designing, executing and optimizing cross-functional business activities that incorporate people, application systems and even business partners.
An example from Forrester analyst Ken Vollmer: automating a manual mortgage application processing process, incorporating steps like having the loan specialist check a credit report. “Or you could even have the client go in through a website to trigger a BPM process that automatically goes and captures all the related information in 10 minutes, versus three weeks,” Vollmer says.
Now that all sounds great – but in the midmarket, companies are taking a more departmental or niche approach. It’s what Janelle Hill, an analyst at Stamford, Conn.-based Gartner, calls workflow coordination as opposed to true BPM meant to redesign and transform business processes.
And in any case, midsized organizations aren’t turning to enterprise BPM, content management or repository technologies to do this work – tools like Documentum and FileNet, Lombardi Software and Savvion, webMethods and Oracle (each set aligned, respectively, with what Forrester calls document-centric, human-centric or process optimization BPM).
Instead, midmarket companies are relying mainly on Microsoft SharePoint to handle departmental and manual workflow processes such as approval processes for purchasing or travel, Hill says.
Vollmer agrees; he says Microsoft technologies were listed as one of the top choices for BPM by 164 architects surveyed last year. Now since Microsoft does not have a BPM package, the assumption is they are using SharePoint and BizTalk, Vollmer says.
On paper, Microsoft SharePoint, Windows Workflow services, InfoPath and BizTalk Server are appealing to the midmarket, but SharePoint was not built for BPM purposes. “People using SharePoint have to build a lot of the logic themselves, whereas a BPM tool has logic prebuilt,” Vollmer says.
Midmarket organizations may cite cost cutting and lack of skills and IT resources as the reason for not looking beyond Microsoft, but that’s not all. “Many [midmarket companies] are Microsoft-centric, and they follow and wait for Microsoft to do everything, whether it is new business applications or SharePoint,” Hill says. “The more they can consolidate and leverage Microsoft technology investments, the easier their lives become.”
In comparison with the features and functionality of, say, Documentum or FileNet, SharePoint is weak, Hill says. “There’s very much a mentality amongst midmarket companies that [SharePoint] is good enough; we don’t have to push the envelope or take a big risk and be the first to try things.”
Cost savings and cost cutting continue to be the No. 1 and No. 2 concerns for CIOs, so it’s no surprise given the economy that Microsoft technology, which is easily 20% to 30% less expensive than Java equivalents in the area of BPM and content management, wins out with midmarket organizations, she says.
Are you in that group of companies sticking with Microsoft for business process management? Do you have advice for peers for its usage, or regarding BPM in general? Is BPM a strategy that’s top of mind at your company this year, and do you agree with the analysts’ definition?
March Madness has officially started. Offices are buzzing with pick-to-win pools, friendly competition amongst peers and co-workers — and the network slowdown caused by streaming live videos of the game. Is your network up to snuff and prepared to handle the rush of the game as March Madness progresses?
The NCAA will be streaming live video of every game, from the round to the last – including a new high-quality option (requiring a Microsoft Silverlight download). CBS will also be providing the live games online, something it has been providing for free for the past four years. Just to provide some scope for how many people will be streaming this game online this year: In 2008, the online audience for the NCAA men’s tournament grew 165% over 2007 with 4.8 million viewers (way up from the 2006 number of 1.3 million people).
Streaming video, as opposed to another productivity buster like online shopping, affects the entire network. According to one calculation on the effect streaming video can have on the network, in a company of 10,000 employees, if 75 of them (on a 100-megabit network) were streaming video at the same time (on decent-quality video streams with other Internet apps going on), the network could be slowed down to a stop.
One company I talked to experienced a 2x increase in bandwidth utilization on Thursday; its normal average of 15MB increased to 30MB. This IT director told me there wasn’t a noticeable slowdown because the company is able to burst to 45MB, but if usage increased further, he was going to lower the priority of CBS SportsLine on the firewall to make the user experience poor and give more important applications better performance.
So that’s one approach to handling NCAA enthusiasts. What else can you do before or during non-work events likely to cause a network slowdown?
Strategically plan for the event with public viewing areas. Set up televisions within the office so employees can keep up with the live footage during breaks. The workplace can only go so far in accommodating employee interests during the day, but for some public interest events like the inauguration or national disaster updates, providing the televisions can help separate work from other things.
Limit the access with policies. Block video during the workday, providing only a limited window of opportunity for streaming or downloading (8-10 a.m. or 1-2 p.m., etc.). This may be away to provide a positive work experience while safeguarding the company from loss of productivity and network overload.
Block it. For many the hassles and risks are just not worth it, and blocking video on the network is a quick fix. The flip side of this? Some employees may try to access the video through less reputable sites, posing a security/virus risk.
The good news is, if you’re thinking about how to handle network slowdowns before it becomes a problem, you’re already strategically planning. Monitoring, preparing and understanding the risks are important when it comes to staying on top of your IT game.
As the national job market continues to founder, with total jobless claims reaching a record high of 5.5 million, IT professionals can take solace in a recent report from Forrester Research Inc. analyst Andrew Bartels. The report shows that there are IT job opportunities out there, with some skills more in demand than others. (CIO wasn’t on any of the lists.)
The Forrester report predicts that total jobs in IT will drop by only 1.2% this year. Indeed, compared with past recessions, the impact on IT “will be relatively mild” this time around. That’s largely due to the bloodletting IT has been going through since the 2001 tech recession. Most IT departments are already quite lean, Forrester notes.
After three consecutive years when IT jobs grew more than 2.5%, 2009 will be a down year. This is especially true for IT occupations at IT vendors, where jobs are expected to fall almost 3% in 2009. On the other hand, IT jobs in IT departments will decrease by only 0.7%. Still, both these numbers are substantially less than the 4+% job shrinkage after the dot-com bubble burst in 2001.
The good news is that a number of IT occupations will add jobs in 2009, according to the Forrester analysis of Labor Department figures. Some of the IT job opportunities are as follows:
- Systems analysts, the largest U.S. IT occupation, will grow from 580,000 jobs in 2008 to 600,000 in 2009.
- Network systems and data communications analyst jobs will increase from 230,000 in 2008 to 240,000 this year.
- Network and computer systems administrators, an occupation that has seen steady growth over the past decade (even during the tech bust) will increase “slightly” in 2009, due to continued growth in networks and systems that have to be managed.
Conversely, job opportunities in four areas will decline: software engineers for applications and for systems, computer research scientists, database administrators and help desks.
It’s the network, stupid
The job picture tells you a lot about what IT departments will look like in the future, according to Bartels.
The areas of growth and the areas of contraction reflect the changing face of IT. Network analysts are in high demand because of the rise in mobile technology and workers who are either based at home or on the road. Companies need IT experts who understand the security and communications requirements of a workforce that is becoming more and more extramural.
The part of IT that is contracting — computer programming, computer operations and research — tells you how much outside vendors (commercial software companies as well as outsourcing providers) have co-opted these responsibilities.
We are curious to know if your experience matches the job data described above. Is the recession hurting the IT job picture in your company? Have you been laid off?
Microsoft ERP software upgrades were, needless to say, a focus of this week’s Microsoft Convergence conference, where some 7,000 customers and partners converged on New Orleans for Redmond’s annual confab. Two of the four flavors of Microsoft’s ERP software – Dynamics AX, from the Microsoft Axapta acquisition, and Dynamics NAV, from the Navision acquisition – had significant upgrades released last year, as did Microsoft’s CRM product, which is also under the Dynamics label.
Of course, knowing that many IT capital budgets are history this year, I was curious as to how those upgrades are going. The Microsoft executive I had access to, Craig Dewar, responded that upgrades are included free in Microsoft’s software maintenance packages, so cost is restricted to services for the upgrade. (We didn’t discuss those maintenance packages, which are a whole other ball of wax.) He assured me that the company was “seeing a huge amount of interest in ERP now,” especially because the best time to upgrade core systems is when business is slower.
I don’t dispute that logic – many cyclical industries already have a discrete window of downtime each year in which to perform significant systems work, and it’s a reasonable assumption that is there some business “downtime” out there now. But I have a hard time believing that given how strapped I’m hearing many IT shops are, they’re adding ERP upgrades to their to-do lists.
So hear ye, Dynamics AX and NAV users: Are you upgrading to these latest versions, and if so, when? Is there functionality you found worth the time and expense to go after now, or is your upgrading a function of Microsoft’s release philosophy and the fact that you have the time do it now?
President Obama selected Vivek Kundra as his first federal CIO. Kundra, formerly chief technology officer for the District of Columbia, has been recognized among the top 25 CTOs in the country and as the 2008 IT Executive of the Year.
Is he an example of the next generation of CIOs?
Kundra, who refers to citizens as “co-creators,” has received a lot of attention in his 19 months of service with D.C. mayor Adrian M. Fenty – adopting the latest computing trends and introducing popular social media tools into his bureaucratic processes.
Keeping up with the ever-changing beat of technology, engaging citizens, lowering the cost of government operations and spearheading innovative projects are some of the many things that make Kundra stand out.
Young and change-oriented, Kundra uses YouTube to post the bidding process for city contracts and Twitter in the office, and he wants to let drivers pay parking tickets on Facebook. Imagine that: Accept a new friend request and pay your fine, all in one login.
For midcareer CIOs who don’t use social media and may not be making innovation and big change a priority, especially in this economy, Kundra and others like him may feel like a threat. CIOs get replaced because they become too comfortable in the way things are and are unable to see new opportunities for change and transformation, or are unable to make it happen.
Granted, Kundra’s big ideas and plans may be so forward thinking as to be naive, given his resources and the potential four-year shelf life of his position as federal CIO. But there is something to be said about a big-dreamer with fresh ideas who is able look beyond the tried and true. Kundra launched a contest in October called Apps for Democracy and got developers to submit 47 Web applications to provide residents with city data. According to The Washington Post, Kundra said he spent $50,000 for the contest, including prize money, but he estimates saving $2.6 million by not hiring contract developers.
Willing to take risks and able to visualize new ideas and situations, Kundra was able to engage citizens, save money and come up with a series of applications for the people in his last job. As he demonstrates similar gusto as the federal CIO, do you applaud his youthful energy and ideas as a welcome reprieve from everyday government, or foresee him having to learn hard lessons about change, resources and the politics of IT, as many of you have in the trenches of corporate America?