- 14 Jun 2008
Outsourcing in the retail sector
By Dan Smith, Managed Services Director of Retail Assist
Many retailers are turning to IT outsourcing as the means to control costs and improve their service delivery. Look at some of the benefits that outsourcing IT can bring and the mindset needed to make it a success:
- Cost savings from exploiting the outsourced partner’s (OP’s) shared services model
- Innovation and business improvement
- Removes distraction and allows you to focus on your core business
- More predictable budgeting
- Flexible staffing, evening out peaks and troughs in resource demand
- Keeps the business up to date with new skills and technologies
- Meeting project deadlines, including those outside mainstream IT activity
Getting the mindset right and preparing to outsource
Outsourcing can provide a fast track to excellence by introducing experts in non-core operations. Foster a balance between control and trust by viewing outsourcing as a medium- or long-term solution. Set clear and realistic targets. Define all the expected benefits financial, process and quality – and make sure they tie in to corporate objectives.
Clarify the relationship between inhouse and outsourced staff. Keep employees informed to eliminate potential concerns and get buy-in from key sponsors.
Aim for a contract that is as simple as possible and that exploits the flexibility this new relationship can bring. Define accountability and build in regular review points.
Some outsourcing contracts founder because they fail to keep up with the changing face of retail business, so it’s important to build in flexibility. The services themselves will also need to evolve and flex as the business progresses, so be wary of a contract, and a mindset, that is too rigid.
Communication is critical and must be multi-layered, to include:
- Jointly-agreed service level agreements
- Change control procedures
- Continuous performance measurement
- Disaster recovery
- Dispute resolution
Selecting a partner
Outsourcing is a critical relationship and it is not a ‘one size fits all’ solution. Cultural fit is more important than anything else so select the supplier with whom you feel most at home. Retailers should look to work with an OP who has specialist retail knowledge and can work to the structures and timetables imposed by retail, such as overnight processing and pick schedules.
Ensure that your OP is resourced by a team that understands your business challenges. Look for a critical mass of staff with the right skills, plus make sure you get continuity of key individuals.
Look at your OP’s past record with similar types and sizes of retail client. Whilst major outsourcing organisations can offer stability, they can also introduce timescale and budget issues. When you need flexibility, ask yourself whether a smaller outsourcer with fewer procedural constraints could produce a better result.
Make sure your OP is highly accredited. Ask if they adhere to the ITIL framework for service management. Check too whether they have the ‘gold standard’ of ISO 20000 accreditation which guarantees that they are indeed operating to the framework.
Managing the relationship
For an IT Director, outsourcing IT can be life-changing. It releases you from the daily management of commodity services to guiding just a few key individuals within an OP.
The new relationship of internal and external staff should be transparent to the business. Work on that relationship, asking your OP for input into your strategy. Consider, too, getting your OP to manage your third-parties for commodity items such as hardware maintenance and telecomms. They are likely to be more experienced at negotiating good deals and managing these services.
Review your contract frequently, to prevent it becoming the cause of disagreement, financial penalty and loss of service, and to reflect your changing requirements. Establish good links from the outset with the people who will be accountable for its success and make them part of the planning process.
The most important element is measuring the effectiveness of the contract. Start by agreeing what should be measured and construct the SLAs and key performance indicators together. Aim to foster a performance improvement culture; one where the service continuously improves in ways that percolate down to the business itself.
Here are some of the many measures that retailers commonly apply to an outsourced IT contract:
- Achieving SLAs relevant to your business operations eg. achieving pick times
- Supporting staff (especially front-line staff) in ways that help them to deliver a better service
- Containing costs and delivering expected savings
- Achieving the anticipated return on investment
- Protecting the business from exposure to risk
- Scaling up and down in a flexible and cost-effective manner as your needs evolve
- Providing timely and reliable reporting such as weekly sales and stock intake
Addressing unexpected problems or issues to your satisfaction
If you make a wise choice of partner, you should enjoy a positive working relationship that yields the results you seek.