Is the IT department an unloved outpost of your organisation, or critical to its success? Joanna Perry explains one new measure that has been designed to help retailers find out

IT departments are often the butt of jokes, but, at the same time, some of the world’s largest and most successful retailers – such as Metro and Tesco – are acknowledged as being technologically advanced businesses.

But how central is the IT function to most retail businesses? Diamond Consultants’ inaugural Digital IQ study has sought to find out whether IT is central to a company’s competitiveness or whether it is “simply glorified plumbing”.

More than 450 senior business executives were quizzed – half in technology and half in non-technology roles – most of who have worked for companies with revenues exceeding USStory text million (508,000) a year. Based on the responses, Diamond rated each company with a digital IQ based on the strategic and operational importance that it gives to IT.

Retail and consumer packaged goods companies rated higher than other sectors when it came to the operational importance they give to IT, but below average when it came to its strategic importance, despite nearly 90 per cent saying it played a strategic role in their success. Diamond gave Retail Week access to the retail-specific figures.

Diamond Consultants partner David Oliver says that the internet has opened many retailers’ eyes to the business opportunities afforded by technology. He says: “86 per cent said that technology was important in shaping their strategy, because it potentially ushers in new competition.”

However, while there is a general recognition that IT is important for the business and strategy, the process of linking these two elements is not yet effective. For example, 76 per cent said that advances in technology are only considered occasionally in the long-term planning of the business. Retailers’ strategic planning processes often also downplay the importance of non-traditional competitors.

Speaking at last month’s NRF conference, Michael Jones, chief information officer at 900-store North American arts and craft chain Michaels, explained the problem. “We are becoming more customer-focused as a business. My challenge is how to get ahead of the business on that. We have to be 12 to 18 months ahead of what the business wants to do, because once they decide to do it, they want to do it straight away,” he said.

Dreams IT director Lee Felton adds that a company’s relationship with IT suppliers also impacts on how effective an IT department can be. He explains: “If you work for an owner like Mike Clare and you tell him that something can’t be done, he will move heaven and earth to prove it can be. So this is what you want from a supplier too.

“15 years ago, it was about beating the supplier and getting the lowest cost. Now you have to share your forecasts with your suppliers and tell them what you are going to do – otherwise you haven’t got a hope in hell of doing it.”

There is still also a division between IT and the rest of the business in terms of communication. Oliver says that language remains a big issue. “People in technology roles tend to use it to preserve their mystique. It creates a dependency on them. A lot have found it necessary to have a translation layer and there are at least half a dozen retailers that employ staff in an account management role,” he explains.

Michael Beller, chief information officer of US discount fashion retailer Steve & Barry’s, says that communication and willingness is not enough. When he joined a year ago, the company needed an IT strategy, because business growth had outpaced its IT initiatives, he told the NRF.

He said: “We have grown so quickly that there is a widespread endorsement that we need to change. The problem is getting enough time from the business users. We have their commitment, but we don’t necessarily have their time. This is not so much resistance as it is an impediment to moving forwards.”

There has been a huge amount of consolidation in the retail sector in the past few years, but while retailers are confident that businesses can be merged, they are less sure that the IT department is up to the job of merging systems. While 64 per cent of those surveyed said that their business integration processes were highly effective, only 50 per cent thought that their IT integration was highly effective.

At Dreams, the IT department responded quickly to the purchase of eight stores in Scotland from another company in 2006. It was able to work with its supplier to get equipment shipped up there straight away that allowed the stores to connect to Dreams’ network via a 3G mobile phone connection, until it could get permanent broadband links installed.

However, Oliver stresses that aligning IT with your business and operational imperatives alone is not enough for retail success. He says: “Good retailers understand customer behaviour and finding the right product at the right price.”

Retailers, however, came out quite strongly as saying that the IT department could help create competitive advantage. 79 per cent said IT capability is a source of competitive advantage, 76 per cent said technology foresight on strategy is a source, and 72 per cent said technology foresight on operations is a source.

However, Oliver says: “They think that they can create competitive advantage. I am ambivalent, although you can definitely create competitive disadvantage.” So retailers do not always need to be first to adopt new technology, but they should keep an eye on what’s out there.

Not all successful retailers have a high digital IQ, but it seems that most who do happen to be successful.

How high is your digital IQ?

Take Retail Week’s quiz to assess how well your IT team fits into your business

1) Do you understand what your senior IT staff are talking about?
a) They speak a different language – mainly acronyms – and the e-mails they send are even less comprehensible. Do they understand plain English?
b) We are making progress on communication. The board understands that the important memo our IT director sent out on phishing had nothing to do with our consumer messaging on sustainable cod.
c) Of course I do – they talk the same way as the other executives in the business and do a great job of translating when technology suppliers try to bamboozle us.

2) Do you know what your IT director spends their time doing?
a) Not sure – certainly not getting the IT helpdesk to answer the phone.
b) When the IT director comes to board meetings, they always make sensible suggestions and can answer our questions – I’m not sure about the rest of the time. Oh yes, they are in charge of PCIDSS compliance – no one else wanted to get the blame for that one.
c) Sure, I have just got out of a meeting with our IT director on our future multichannel strategy. Their department is going to be at the heart of the change we need in the business to ensure we remain competitive.

3) At what stage in a business project does your IT department get involved?
a) We gave the IT department a months’ notice of Eastern European expansion – apparently this wasn’t enough time for them to kit out the stores and the first one opened late as a result.
b) An IT representative is always included on project teams. Once we have made decisions they go away and work out how to make the technology fit with our decisions.
c) IT often drives wider business change projects. We always second staff to the IT project team to make sure everyone in the business is happy with the result.

4) Who decides how the IT budget will be spent?
a) Technically it’s the IT director, but we don’t let them invest in any of this hi-tech stuff, so the budget is mostly spent on maintaining the systems we have been running for years.
b) The IT department, although big investments have to go via the board. We are happy to sign off projects that are going to save us money in the longer term. To be honest, we have dithered over some investment in new technology and now we are playing catch-up to internet start-ups that are eating our online lunch.
c) The IT department presents valid business cases for all major investment, whether it is to cut operational costs or to ensure we remain competitive. The board recognises that some of the budget must be spent on investigating new technology or we will fall behind quickly.

5) What part does IT play in developing new customer propositions?
a) As little as possible. We did have to get them involved when we couldn’t get a special promotion to work through our tills and that was an uphill battle.
b) IT has played a part in the launch of gift cards, in-store kiosks and the relaunch of our web site in the past year. It’s responded well to the challenges we have thrown at it.
c) Our IT department has come up with some good ideas for extra services we could launch for customers. It has also built our IT architecture so that it can add new technology and software quickly when we need it to support the ideas we have.

Mostly As – You have a low digital IQ. Your IT department will only ever react to the business – and it may not be as fast as you would like. This won’t improve without major changes in the way IT is viewed in the organisation. Certain retailers can get away with this positioning if their competitive advantage stems purely from product or pricing. Otherwise this isn’t a long-term strategy.

Mostly Bs – You have a medium digital IQ. The strategic and operational importance you place on technology is allowing you to keep up with the pack. For the most risk-averse and low-margin retailers, this may be the perfect strategy. However, you are likely to be caught short if there any major disruptions to the existing business model – such as has been seen with books and music being sold online.

Mostly Cs – You have a high digital IQ and are likely to be technologically advanced, as well as closely aligning your IT department with the rest of the business. Just don’t let this comfort with IT lead to risk-taking with unproven technology.

Post your response in our online poll: How high is your digital IQ?