10 Things Retailers Can Do Now to Fund IT Innovation in 2015
By Jon Winsett, NPI
As we barrel towards the holiday season, few retail IT executives have as much time as they’d like to work on the challenges that will be waiting for them in first quarter 2015 — including limited funding for IT innovation. Retailers are projected to spend more in the coming year, but nearly three-quarters of that budget will be committed to maintaining the status quo. That leaves little to fund game-changing new IT initiatives that can drive competitive advantage, customer loyalty and profits.
Between now and Dec. 31, retail IT and sourcing executives have a window of opportunity to take specific actions that will make the 2015 budget stretch further. The recommendations provided below are practical, non-invasive and routinely drive seven-figure savings that can be funneled to new IT projects.
1. Get smart about SMAC component pricing. In 2015, retailers will continue to spend more on social, mobile, analytics and cloud computing (SMAC). While these technologies have advanced tremendously over the last several years, they still represent “the wild west” of retail IT purchasing. Several trends in the vendor landscape have given rise to pricing discrepancy and contractual complexity. The trends include new players entering the market, consolidation among existing vendors, and recent changes to licensing and product use rights from vendors like Microsoft and Oracle as a way to monetize SMAC-related access to their solutions. Right now, it’s critical that retailers ask the following questions: Am I getting fair market value pricing and terms? Is there a better licensing option available for our needs? How are evolving product use rights impacting my SMAC spend?
2. Cut support costs and explore third-party support alternatives. Take a close look at your maintenance and support agreements, and you’ll see that these costs are consuming a staggering portion of your IT budget. It wasn’t long ago that the average support fee on enterprise software was 17% or even 15% of license costs (some of us remember 12%). Today, retailers are paying somewhere in the ballpark of 22%.
The good news is they don’t have to. Start with you’re your largest software and hardware agreements and benchmark support pricing to see if it’s in line with fair market value. Those that are not should be renegotiated immediately. Consider forgoing or downgrading support on non-critical applications as well as using third-party support options that offer a competitive level of service (in some cases, better) for a fraction of the cost.
3. Stop e-commerce overbuying. Pay only for what you need, especially when it comes to e-commerce offerings and services like content delivery networks (CDN) and optimization for mobile devices. Vendors often quote a robust platform that is based on 2x, 3x or as much as 10x the capacity that’s actually required by the retailer. Why pay for 10 million page views if you only need 4 million? Why pay for 2Gbps of CDN bandwidth all year if you only need it during the peak shopping season?
4. Double-check your cloud and on-premise storage pricing. In 1985, the average cost per gigabyte was $105,000. Today, that cost is a mere $0.05. From 2010 to 2014, the cost of storage dropped 44$. Double-check your storage pricing – whether cloud or on-premise – and, if needed, renegotiate your storage rates.
5. Rent hardware during peaks. Why should you pay for servers, storage and networking hardware that are underutilized most of the year? Rather than purchase hardware to accommodate a seasonal surge in online traffic and supply chain activity, consider renting through reseller partners. For maximum savings, bundle short-term leases with third-party support.
6. Put pressure on incumbent broadband providers. Just as social, mobile and cloud computing have driven retailers’ broadband costs upwards, some relief is in sight. Rampant consolidation within the telecom industry has made room for new, smaller players to enter the market, while regional players gain the ability to serve the enterprise customer on a national footprint. Retailers should leverage the current market competitiveness and pressure incumbents to offer more competitive deals or reward new players with a piece of their business.
7. Revisit licensing for all major software deployments. When it comes to software licensing, one size does not fit all. Categorize your licenses based on usage profiles and align them accordingly. How many licenses are assigned to power users versus light users? Production users versus non-production? Employees versus partners? In many cases, retailers can downgrade certain users to a license type that offers less functionality for less cost.
This is also an excellent time for retailers to conduct an internal audit to ensure contractual and licensing compliance. Enterprise IT vendors are on the prowl for noncompliance penalties – either through formal audits or unofficial “software asset management” engagements. Perform self-assessments to identify potential non-compliance, and take your own corrective action.
8. Demand pricing transparency from resellers. Buying through a reseller has its advantages, but it also adds another layer of complexity to the process. Most resellers have access to special OEM discounts. It’s up to the reseller to determine what amount of those incentives to pass on to customers. By demanding resellers reveal the incentives and discounts they’re receiving from OEMs, retailers can increase negotiation leverage to secure more favorable pricing, discounts and terms.
9. Bring rogue purchasing out of the shadows. As technology budgets shift from IT to marketing, IT sourcing as a function has become decentralized. Marketing, as well as other departmental users, frustrated by the quality and speed of traditional IT sourcing processes, are taking matters into their own hands – but often at the expense of vendor management and negotiation leverage.
Retailers need to address this growing disconnect and require a cross-functional approach where procurement, IT and the business stakeholders collaborate throughout the buying process – each bringing their expertise to the table so the company achieves the best possible outcome: right product, right price, quickly.
10. Benchmark pricing and terms for every IT purchase and renewal over $50K. As noted before, it’s critical for retailers to confirm they’re paying a competitive price and receiving best-in-market business terms for their IT purchases and renewals.
Jon Winsett is CEO of NPI, an IT spend management consultancy.