Avoiding IT Overspend
The strategic role that IT plays in retail is evident as retailers across the board continue to up their technology investments. And with retail innovation being driven largely by tech-related advances in customer analytics, mobile and social commerce, and cross-channel strategies, IT spending is expected to remain a top priority.
But with increased investment comes the risk of overspending, warned NPI, a spend-management consulting firm that works with large retailers to maximize IT and telecom spending.
“In the first half of 2012, NPI witnessed an increase in overspending as retailers invested in new IT initiatives, as well as the infrastructure upgrades they typically drive,” said Jeff Muscarella, executive VP IT, NPI, Atlanta.
Key to maximizing IT investment spend, Muscarella said, is to match your business needs to the product or service that is being sold and to think the process through. Equally important: Planning far enough ahead so that you can buy on your time line.
“Buy at opportune quarters and at quarter ends,” he added. “And always make sure you don’t overbuy.”
These are some of the top ways that retailers will overspend on IT in the next 18 months, according to Muscarella:
• Overbuying Support: In many instances, retailers buy more software and hardware support than they need or fail to evaluate third-party support providers.
• BI/Customer Analytics: These are big ticket items, and you need to take a rigorous approach as to what you really need to accomplish with your business objectives, Muscarella said, as opposed to taking a scattershot approach.
• Fixed-fee Engagements for Professional Services: NPI recommends bidding them on a time- and materials-basis to better understand the cost.
“The ability to approach it from a time- and materials-basis instead of a fixed-fee reduces your risk and gives you insight into how the company prices the project,” Muscarella added.
• E-commerce Platforms: It’s no secret that scalability, mobile shopping and mobile payments are forcing large-scale upgrades and new investments in this area.
“You need to do it, but it’s important to understand what you need and to buy only what you need,” Muscarella said.
• SaaS: Minimum purchase clauses, data ownership/migration costs and renewal rate increases have some companies negating the short-term savings of SaaS before the ink is dry, according to Muscarella.
“SaaS is great if you have a standard set of needs that are well defined and aren’t going to change too quickly,” he added. “But for something that is new and unique, you might want to have it in-house for a while and then later move it to a SaaS model.”
• Wireless and Data Networking: The average enterprise overspends by 20% to 50% on wireless, according to NPI, with the top culprits being paying consumer rates, not negotiating for incentives, failure to pool minutes and failure to audit usage monthly. For data, high pricing and inadequate planning are common, as retailers hastily invest in solutions such as WDM and HA. IT and sourcing teams should partner to analyze their long-term bandwidth needs for maximum negotiation leverage.
• Storage: High demand and lack of enterprise planning give vendors the upper hand in this category.
“Retailers are spending a lot on storage, which is catching them by surprise because of how fast it is growing,” Muscarella said. “To get a better deal, you need to predict your storage needs well in advance of when you buy it. You should have a six-month road map of your storage needs.”
• End-User Computing: For many retailers, POS terminals, desktops, laptops and software are in dire need of upgrades and updates. And given the interest in mobile retail strategies and payments, retailers are “mobilizing” the entire retail experience in the next 18 to 24 months.
“Before IT buyers invest in upgrades, they should establish how new computing trends will factor into their long-term strategy,” Muscarella said. “You don’t want to spend money on a technology that could be outdated in a year.”
But many retailers can’t wait. They need to upgrade their POS equipment now.
“Knowing which technology will win with your customer really comes back to knowing your customers’ needs,” Muscarella said.