Show Me the Money

The business press touts Total Cost of Ownership (TCO) analysis as the “one right way” to make any technology decision. Understanding the true cost to own any technology is especially important for retailers when making decisions regarding in-store technologies.

However, by tying in the “multiplier factor” (the cost of the technology asset multiplied by the number of stores multiplied by the number of locations within each store), which is inherent in the retail business model, retailers are gaining another way to turn even minor technology acquisitions into major expenditures.

When considering any new technology acquisition that is targeted for implementation at the store level, every retailer has to consider features, functionality and the acquisition cost of the technology. In addition, retailers should all remain mindful of the cost to integrate that technology with the current production environment, and the cost to maintain that technology over several years.

Due to the fast pace of change in technology price and performance ratios, most retailers look to amortize the capital costs of technology over five years or less. Typically, most retailers fully expect to operate that technology for a much longer period of time, usually seven to 10 years. As these technologies get older, the support and maintenance costs can be expected to rise, not diminish, even as the “book” asset value of the technology depreciates.

Therefore, retailers choosing new store-level technologies should consider a number of factors beyond features, functionality and initial acquisition costs, including hardware- and software-maintenance costs and support-staff costs. There are also intangibles to consider, including confidence in the solution provider, availability of secondary support providers, integration capabilities and ongoing training costs.

The Retail Systems Alert Group conducted a small survey of retailers in December 2006, to understand the extent of how well TCO disciplines are being used to make in-store technology decisions. Analysis of the TCO survey results yielded the following recommendations:

First, retailers must answer the question, “Does it work?” Feature and function are still the most important aspects of any in-store technology, followed by acquisition cost and ease of integration with other systems.

Pay attention to the human costs related to ongoing maintenance and support. Also, explore options for cost savings. Tier-1 retailers centralize much of their in-store technology support functions. Smaller retailers can take advantage of this strategy, too, even without large central support groups. They can accomplish this by choosing a solution set that has market-available support options (for example, third-party Value Added Resellers can be contracted to help the retailer support and maintain the in-store environment).

Manageability matters. In-store technology solutions should have the same network-enabled management capabilities (automated patch management, automated software packaging and delivery, and integrated systems management frameworks) that are now available for most corporate desktop environments.

“One Neck to Choke.” Retailers are relying more on their in-store technology solutions providers than in the past. Accountability is key, and retailers need to know how the vendor will support them. They also must be willing to pay for that support.

Use the TCO discipline for all in-store technology decisions. Seventy-six percent of our survey respondents use TCO as part of a cost/benefit discipline, either “frequently” or “for comparative-cost purposes.”