August 20, 2004

Is Retail IT Being Killed by Complacency?

By Evan Schuman, eWEEK

Opinion: When Europe and Asia are on the cutting edge more than the United States, U.S. IT execs need to answer some unpleasant questions.

Are retail IT execs too comfortable and timid to be effective? Are legacy systems so extensive, the fundamental infrastructure so adequate and the margins so tight that modernization is too much work and too risky?

Those decidedly uncomfortable questions were raised by the CIO of Discover Financial in an interview. She pointed to successful experimentation in Europe and Asia as a glimpse into where U.S. retail IT should be going, and said global technological dominance may be in our rearview mirrors.

Most of her concerns dealt with retail payment systems—making it tempting for me to ask if U.S. retail IT is too tender to effectively tender, but I'll try to resist (this is the case despite the fact that my favorite business headline was for a story about an acquisitions specialist: "It takes a tough man to make a tender offer," but I just really disgressed.).

In the United States, the basic approach to POS (point of sale) systems has barely changed in 15 years. "I think our entire culture is totally conditioned and very comfortable transacting with the mechanisms they have. It's convenient," said Diane Offereins, CIO and executive vice president at Morgan Stanley's Discover Financial Services unit. "It's a big investment to go out there and take out your whole point-of-sale device infrastructure and replace it with something, because it is changing quite a bit."

Overseas is a different story, Offereins said. "In Europe, there is a movement mandating the use of chip cards and PINs. In Asia, we see lots of examples of different devices making payments: cell phones and proximity kinds of things. The [tender] space is becoming very interesting in terms of an infusion of new technology."

She cited infrastructure differences as one of the major reasons, pointing out that the stronger infrastructure in the United States—plus the extensive and expensive legacy systems—makes it harder to cost-justify the improvements.

Granted, that's all true, but is that the full answer? This is a country where publicly held companies—often the nation's largest and most sophisticated firms—routinely manage quarter to quarter, sacrificing long-term performance for short-term stock activity.

When companies announce large layoffs—a move that should signal trouble with either management, the market or both—Wall Street typically sends the stock soaring, applauding the ultimate short-term solution.

Are IT execs at large American retailers doing what's right for their businesses, or doing what is safe and easy?

The reason our initially stronger infrastructure is causing complacency is a lack of day-to-day operational obstacles. Without a challenge to overcome, businesses put off modernization. Is the threat of Wal-Mart (for everyone other than Wal-Mart) a good thing? Is it giving companies a reason to be aggressive technologically again, if only for self-survival?

That all said, there's also an interesting argument on the opposite side. Are IT companies in general buying into a culture created by technology vendors that says companies need to constantly upgrade and buy high-end systems—whether or not they need them or will even use them?

My favorite quip on upgrades is several years old. When Microsoft announced that it was dubbing its then-new operating system "Windows 95," one industry columnist quipped, "They don't really expect us to buy a new operating system every year, do they?"

In retail IT, this issue is often seen with CRM, which is frequently purchased by retailers who rarely end up actually connecting with their customers directly.

What is the right balance? There is no simple answer, but asking the hard questions is a good place to start. When upgrades or new applications are pitched, are realistic and persistent ROI (return on investment) issues dealt with?

Difficult ROI questions are not just ways to prevent ill-advised purchases. Especially in retail, they need to prevent ill-advised inaction. Store management should have to justify the current IT operation both ways.

Is this the best we can do? Have we anticipated all likely future challenges? What are our rivals planning? Is our current platform likely to be abandoned, giving us systems we can neither sell, service nor upgrade and forcing us to pay for a new approach on the vendor's timetable?

Once management understands that it will need to defend inaction as well as action, complacency suddenly won't feel so comfortable.