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EUROPEAN CHAINS HIKE IT OUTSOURCING: STUDY

BRUSSELS, Belgium (FNS) -- To cope with rising demands on information technology departments, supermarket retailers in Europe are turning to outsourcing to handle more data processing operations.That was the finding of a study of IT use among retailers in Europe presented at a conference here sponsored by CIES: The Food Business Forum, Paris. The study was conducted by the Nolan Norton Institute,

BRUSSELS, Belgium (FNS) -- To cope with rising demands on information technology departments, supermarket retailers in Europe are turning to outsourcing to handle more data processing operations.

That was the finding of a study of IT use among retailers in Europe presented at a conference here sponsored by CIES: The Food Business Forum, Paris. The study was conducted by the Nolan Norton Institute, Utrecht, the Netherlands, and funded by CIES.

The study, based on responses from 29 companies, found that 30% of retailers now outsource at least some of their data processing operations, up from 25% two years ago.

More striking, retailers using third-party IT firms said that on average they outsource 30% of their operations, a sharp jump from just 5% two years ago. Some firms indicated they outsource up to 60% of their IT and data processing needs.

"The IT department must follow with changes in business. But the migration of IT departments to new technical skills puts a strain on those departments. Outsourcing may be an option, although there are risks as well as benefits," said Marc Van den Berg, senior manager at Nolan Norton.

The risks include loss of control, he said, but the benefits range from an enhanced ability of data processing departments to focus on core strategic IT operations to better economies of scale.

Another speaker at the conference, Urban Strand, corporate IT manager at KF, a cooperative chain of 1,400 stores in Sweden, said his company began outsourcing three years ago as part of a major reorganization with the goal of better integrating its wholesale and retail divisions.

As a result, KF now is able to devote much more attention to critical programs in areas such as Efficient Consumer Response, cross docking and category management as well as to customer-related initiatives such as shopper loyalty programs and electronic payment options.

"All these require increased IT support and we realized IT was of strategic business importance," Strand said. "But we also realized providing IT services is not a core business of KF and it required significant investment in people and technology."

So the cooperative, which has 2.3 million members and sales of about $7 billion a year, formed a 10-year partnership with Electronic Data Systems, Dallas, to outsource all its existing IT services including production, maintenance and new project development. EDS also got right of first refusal on providing KF with new IT services, Strand said. All applications are still owned by KF, however. "We wanted one main supplier and someone with whom we could share our business strategies," he said.

The benefits to KF are a single integrated and flexible IT environment, improved level of service, and freeing resources to concentrate on other core business issues, Strand said.

There also is increased control of IT operations from a cost viewpoint because EDS itemizes the price of each service, which then can be evaluated individually.

One major risk, on the other hand, is that KF could become too dependent on EDS, and so the Swedish firm has insisted that EDS use only standard and open, rather than proprietary, systems.

Not all retailers at the conference, though, were sure that outsourcing of IT functions was the right way to go. Henk van der Geest, board member of Vendex, the Netherlands, which owns the Edah supermarket chain, for example, said the company definitely is not interested in outsourcing.

"IT is more and more a strategic issue. It is a key competency. As a result, we are not keen on outsourcing. Advanced systems are a condition for modern technology. To know the clients and stay in control, the retailer must take the lead," Geest said.