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Thursday 17 October 2019

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Payments Awards 2019

Catching up

Written by Glynn Davis
08/08/11

Although reports such as that from Everest Group - showing overall outsourcing in Europe grew by 36 per cent between 2004 and 2009 - have highlighted increased adoption of the practice, Brad Poulson, principle consultant at Wipro Retail, suggests other industries like financial services have a more “grown up attitude” to IT and that this has driven their uptake of outsourcing.

“I’m not sure retailers give IT the credit and importance it deserves, which means it’s not considered as essential and not necessarily the core of their business. You could say, ‘well, why do they not outsource’, but retailers are also hierarchical so they like to see the work being done and do not like third parties (doing it),” says Poulson.

But although retail is lagging behind other sectors, he suggests there is an inevitability that it will grow over the next few years as “technology is becoming more pervasive and the hyping of the cloud is accelerating this trend. It will grow but from a low base and there is no sense of a strong appetite from retailers for outsourcing their whole IT so outsourcing on a selective basis will be more prominent,” believes Poulson.

The problem with the former is the complicated infrastructures of many retailers and the fact that many of them will over the years have developed a plethora of applications, which often have poor documentation. Matthew Bain, head of business consulting at ICM, recognises this scenario:

“Retailers have many bespoke applications and you can never outsource the architecture of these applications. You’ve also got to own the change management and the technical assurance. If the outsourcer says they’ve a fantastic new solution, then you need to have the ability to make decisions about this internally.”

He also points to the issue over the integration between IT and logistics and the fact there are few outsourcers who handle both these areas of expertise. “Even if you outsourced your entire IT, including the ERP, you’ll still have the problem of integrating it with the logistics (infrastructure),” suggests Bain.

It takes two
This is why the Aurora Fashions outsourcing deal has involved two outsourcers - Retail Assist for IT and WT for logistics. However, such integration between the two is not regarded as a problem by Ishan Patel, strategic development director at Aurora Fashions, who suggests the rationale behind the deal was very specific to the circumstances of the group.

Its various brands - including Oasis, Warehouse and Coast - require a centralised IT resource but because of their diverging strategies the group also wanted them to be able to tap into an external resource that would provide them with extra capability when needed and to also access a broader base of expertise. The 10-year deal places the remit and accountability of the IT team with Retail Assist although the 50 IT personnel affected will still be located over the two Aurora sites. And the existing arrangements remain intact between Aurora and its specialist vendors including BT Expedite.

“We wanted to keep today’s elements - the economies (leveraged) between the brands - and for each of the different brands we may need to draw down expertise from Retail Assist. The deal is an eye to the longer term strategy of the brands,” explains Patel.

Alan Morris, managing director and co-founder of Retail Assist, says the deal has the objective of trying to both maintain Aurora’s systems on a day-to-day basis while also freeing up resources for development projects. “It will aid this balance,” he suggests. He believes there will be more outsourcing deals in the retail sector but suggests the “jury is out” on whether they will be total outsourcing deals or selective arrangements.

“We’ve some decent sized retailers weighing up the options,” says Morris.

There is little weighing-up required on the outsourcing of certain areas of retailers’ businesses, with Morris highlighting “everything that is done outside the normal hours of working” as ripe for outsourcing. This includes 24-hour help desks on Saturday and Sunday, and out-of-hours maintenance of IT equipment.

Huw Thomas, managing director at PMC, says hardware maintenance should always be outsourced as it can be passed onto a specialist who will have the necessary expertise and also enjoy the economies of scale from providing outsourcing to various retailers.

“It’s the commodity jobs that do not add value that can be outsourced such as the regular checks that are made by IT teams on whether cash has been settled, whether payments have been sent etc,” he says. Thomas believes cash management will be an area of growth as PCI responsibility has put pressure on IT teams and is quite onerous: “People like The Logic Group will have service-to-go solutions so retailers could pay for their cash to be acquired by such a third party.”

Such activity will grow as he says retail IT departments are typically stretched from having very small teams and the desire of the people to “work on new things while the hand-cranked thing in the background gets no attention.” Part of the reason there has been a relatively slow take-up of outsourcing in retail is the stigma that has been attached to it.

Selective outsourcing has been tarnished by the massive earlier trend for call centres to move offshore. Among other things offshoring led to misunderstanding between the outsourcer and retailers, especially where the time zones left little working hours overlap between the two countries.

Bain believes offshoring is fine for things like software and programming and where the “right” partner has been selected. He cites the case of his client Phones 4u where the IT director went to India and lived with the director of the Indian programming company for two weeks before outsourcing to him and his business.

Outsourcing entire IT services has been equally stigmatised - from a couple of massive deals some years ago. The Boots/IBM and Sainsbury’s/Accenture deals ultimately ended up with both retailers in-sourcing again some years later. But this clearly did not put off Patel who suggests there was a “phobia when outsourcing was mixed up with offshoring and the high profile cases where things did not go according to plan” but he now believes the industry has “matured.”

This maturity combined with the recognition that outsourcing will not solve a problem in a company’s operations - it will simply pass on to the outsourcer - should lead to more outsourcing activity in UK retail. But whether the industry follows other sectors in their higher levels of adoption will undoubtedly be helped by signs of success emanating from Aurora and Retail Assist, which could finally put the memory of the Boots and Sainsbury’s damp squibs to rest.


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