6 Drivers in Restructuring Retail ITO Relationships
The last several years have ushered in a seismic, technology led transformation in retail industries. Retail leaders are using technology to reimagine the traditional concept of the storefront as just one aspect of the omni-channel customer experience. As retail and CPG IT needs have changed, so have supporting technologies led by mobility, cloud, analytics, and cybersecurity.
It should come as no surprise that traditional IT managed services have struggled to keep up with the rapid pace of change. Traditional IT outsourcing (ITO) relationships are based on long-term efficiencies and labor arbitrage within slowly maturing services. According to IDC, major retail IT outsourcing deals declined by more than 25% in 2015, as retail CIOs look to new tech partners. Today’s retail IT needs a differentiated approach to IT partnering that delivers the agility to keep up with advancing business expectations. Enaxis Consulting’s research has identified six key drivers leading retail industry CIOs to rethink their ITO partnering models:
- Advanced Analytics and Business Intelligence
The shift to omni-channel is empowering consumers, and at the heart of this change, customers expect greater intimacy and personalization of the shopping experience. To capitalize on these changes, retailers need new, advanced analytic abilities to collect, manage and analyze vast amounts of data. In many cases, this calls for data management platforms, analytics and visualization, new expertise and agile delivery model data for science and modeling. Today’s retail IT outsourcing deals must tap into the capabilities of existing service providers, while allowing the flexibility to partner with some of the newest leaders in the data science and analytics.
With the high-profile security breaches of the past year, cybersecurity has become a critical area of focus within consumer industries, and it will influence outsourcing strategies in 2016. Threat vectors will only increase in complexity as the Internet of Things (IoT) becomes more integrated into consumer and commercial products. Too often retailers suffer from data breaches, with one company suffering a 46% reduction in profits during the quarter following the attack. Service providers have often become the weakest links of a company’s security, and retail industries will increasingly look to specialized security vendors with Security-as-a-Service capabilities.
- Automation and Robotics
Robotic Process Automation (RPA) will have a profound impact on the outsourcing industry. According to the International Association of Outsourcing Professionals, almost 50% of outsourcing roles can be automated in the next two decades, including 85% of customer interactions by 2020. ITO contracts designed to purchase people will need to reconcile their contracts to this new world. Both customers and providers will have to rethink their deals and redefine roles and skill requirements for human jobs as they integrate more robotic process automation (RPA) into IT service delivery.
- Hybrid Cloud and As-a-Service
As cloud models continue to prove their value, more IT organizations will shift to As-a-service models. By 2018, at least 50% of global IT spending is forecast to be cloud-based, with over 50% of enterprises expected to create or partner with cloud providers. Competition among cloud providers will be based on bundling infrastructure, software, and business process to create a platform that is much more modular, scalable and intelligent. Retail and CPG ITO contracts will require considerably more flexibility than they have shown in the past, to accommodate these changes.
- Bimodal IT
Bimodal IT is the concept of making IT more responsive to the business by separating it into Run-and-Maintain vs. Grow-and-Innovate. Innovation has typically been treated as an afterthought in traditional outsourcing contracts. As retailers shift to bimodal IT, they must update their ITO deals to enable Grow-and-Innovate. New contract structures must create strong incentives for transformation and innovation.
- Insourcing and Captive Models
To deal with needs for greater flexibility and agility in their service models, many retailers have been moving to insourced models. For some, this means a shift to “out-tasking” where select roles, based on key expertise and intellectual capital, are moved in-house. Others have established their own captive offshore center to achieve labor arbitrage on their own terms, without the additional margins of a service provider.
As the number and complexity of drivers change the outsourcing landscape, it is vital to have a flexible, agile approach to analyzing your ITO vendor portfolio for strategic partnerships. Enaxis Consulting’s Outsourcing Advisory Practice is an established leader providing strategic insights and guidance in vendor selection, transition and value management.
About The Authors
Drew Upah is a Senior Consultant at Enaxis Consulting with a Bachelor of Business Administration in Supply Chain Management from the University of Texas at Austin. Drew is a Tableau Qualified Associate that has extensive experience creating analytical BI Reports to drive progress and compliance across a Global ERP Implementation and a multi-year Transformation Program. Drew has experience within a multitude of industries, performing program management, organizational change management, information technology and data management, business intelligence reporting and SAP implementation.
Jonathan Zanger is a Principal at Enaxis Consulting who has led a number of IT strategy initiatives. Jonathan has over 20 years of experience as a senior IT advisor enabling innovative information management and operations strategies for leading global companies across a number of industries. Jonathan’s areas of expertise include Operations and Technology Strategy, Technology Process, Organizational Design, M&A Integration and Divestiture, and Value Assurance.