SN Roundtable: The Evolving Role of IT in Supermarket Retailing

MICHAEL GARRY

To maintain their competitive edge, retailers need more than ever to leverage the latest developments in technology. This means that the IT department is playing a much greater role in a retailer's ongoing success. But what is the nature of this role? How is the IT department helping retailers take advantage of the sweeping changes in business and consumer technology?

To get some answers, SN queried three knowledgeable IT executives: John Keeley, vice president of information technologies, Bozzuto's, a food wholesaler based in Cheshire, Conn.; Greg Buzek, president of IHL Consulting, Franklin, Tenn., which tracks IT spending throughout food retailing; and Thomas Murphy, a former IT executive at Kroger who is now president of Peak Tech Consulting, Colorado Springs.

SN: People in the business areas of a retail/wholesale company often don't understand the IT department — and the IT department may not understand the business areas. This “failure to communicate” sometimes makes it difficult for IT to play an effective role in the company. How does a company bridge this communications gap?

KEELEY: In our company, we have a few things going for us. First, I have IT teams that are aligned with specific business channels, and we have experienced business analysts who are great technicians. Our IT team members are assigned to business areas and interact directly with the internal user or with our external retail merchant customers. IT holds project review sessions, and gets involved with departmental goals.

Second, I am fortunate to have a boss who looks at technology as a key component of making things work faster, and more efficiently. He keeps me involved with all areas of the business and gives me the latitude to decide on the best technical solution/direction to support the business opportunity.

BUZEK: The IT department needs to learn from the best-selling book, “Men Are from Mars and Women Are from Venus.” Of course, I am being facetious, but the onus is on the IT department. They serve the business units, so it is incumbent on the IT department to learn the business and how to speak their language. IT personnel need to realize that the people often using their systems went to the part of the university where math or MIS were not required subjects. Their skill sets have to do with marketing, merchandising, style, etc.

MURPHY: This is a top-level executive problem that starts when the CEO is hiring the CIO. A CEO who does not understand the value provided by IT and the role technology can play will normally be looking for an order taker, and not a change agent. When this happens, the IT department will suffer, but the business value and flexibility will be a bigger loser. If the CIO is a change agent, 80% of the job is building relationships with top business executives, understanding their problems, educating them on what is needed for IT and the business to be successful as business partners.

SN: How has the recession impacted the IT department, and will this change next year?

KEELEY: The recession has forced us all to rethink our standard ways of doing things and find less expensive and more efficient ways to complete our assignments. We have reviewed all of our operating expenses and contracts, and renegotiated for a reduction in expenses. We are being challenged with staffing, wages and rewards. Keeping this in mind, we have done more with off-shore contractors and interns than ever.

BUZEK: IT is being asked to do more with less. Each project requires a quick and demonstrated ROI. This means that often they are trying to keep outdated technology in place and in good health when better alternatives are available. It also means more time is spent on projects that keep the lights on. On the positive side, the department often needs to deal less with staff turnover that is voluntary.

MURPHY: Most CIOs I speak to say that their departmental expenses were flat-lined in 2009 and will be again in 2010. However, they are shifting their allotted dollars to projects that have immediate business impact, such as price optimization. Also, projects are tending to be shorter-term and immediate-value in nature.

SN: Compared with five years ago, how has the role of the IT department changed?

KEELEY: I would like to think that we are now seen as a needed part of the organization and not just the “geeks” down the hall. We have shown our value in bringing solutions to the table and that we can be a valuable business partner. Specifically in our company, with the challenges of growth we have had, I am proud of how my teams have stepped up, became engaged, and were in the middle of the success we have experienced within our business.

BUZEK: It has become even more challenging because of the expectations on the department to truly understand the business. The returns from simply deploying technology are long gone. Now, it is only the integration of the technology into the business process — and the business process changing to take advantage of the technology — that brings the returns on investment. This is why 75% of all IT projects never reach their ROI projections. Few companies have the discipline or time to do the hard part of process change.

MURPHY: Generally, business executives in the industry have figured out that first, technology is necessary to stay competitive; and second, technology is not a silver bullet, but must be partnered with business-process change to provide value. In addition, IT personnel have become more oriented to serving as an “internal consultant” and engaging in “consultative selling” within the business units.

SN: Is the IT department being asked to support areas that it hasn't previously engaged in, such as food safety or energy management?

KEELEY: I think that we have always been engaged with food safety and the freshness of product via the warehouse inventory and selection systems we have to maintain. In addition, product recall — and the ability to know what went where — has been center stage more than ever over the past couple of years. At the retail level, nutrition and allergy labeling is a huge area that needs more attention: Less costly, more accessible central databases of information for smaller business owners and the public are needed.

As for energy management, we have always been engaged with the systems used to manage and monitor energy at the warehouse. Going green with virtualization technology that reduces the number of servers is also important.

MURPHY: Certainly, there is a move to engage IT in these areas as they often provide the infrastructure for the solution, if not the solution itself. Many IT departments have found that by practicing their own “green initiatives” they not only save company dollars but can set a leadership example for the rest of the company.

SN: How much more emphasis does the IT department place on data security/PCI (Payment Card Industry) data security compliance than it did in the past?

KEELEY: Tons more emphasis! This is a huge issue and topic for us. We not only take our internal compliance seriously, but we feel it is our responsibility to make sure all our retail merchant customers are at least thinking about it. We try to be an advocate for compliance. I always talk about it as I go out and visit our customers.

BUZEK: Unfortunately, there's way too much emphasis on PCI and not enough on overall security. Many of the PCI requirements are good, but others are really nonsense and add cost without adding security. PCI is only a subset of security and often only gives the illusion of security. Most of the major data breaches have come in companies that were certified PCI compliant.

MURPHY: Not enough emphasis has been placed here. Although this area has more focus as a result of recent data theft and transaction fraud, C-level executives look at the cost of doing this right and squirm. They still view it as an insurance policy — nice to have if you can afford it, but a waste if you don't need it.

SN: What are the biggest pain points IT is dealing with these days?

KEELEY: Some are day-to-day issues like expense management, doing more with less and expanding services to our retail merchants. Some issues are strategic such as Windows 7, virtualization, AT&T network services and new capital investments. Some are industrywide: PCI, the iPhone, electronic coupons and intrusion protection.

SN: What are the technologies — such as mobile phones, RFID, social networks, cloud computing, virtualization, Linux, the DataBar, in-store shopping devices, new payment methods — that will have the greatest impact on the food retail business in the next few years?

KEELEY: All of the above! All of these technologies are in the front of our discussions on new projects and areas of support. I think that it indicates a general increase in the industry for more information as well as more timely information that offers “instant gratification.”

BUZEK: In a positive way, fresh-item management systems and private-label management systems are the two greatest technologies that are beginning to drive value because they greatly enhance the bottom line profitability when done right. After that, the enablement of the consumer's mobile device would be the fastest up-and-coming technology for the food business.

MURPHY: The one that should, but probably won't, is cloud computing. Today's retailers have way too much investment in physical store devices and infrastructures that hinder flexibility and drive ongoing support costs through the roof. This depletes both financial and human resources.