It is a chicken and egg question: are outsourcers increasing their retail expertise because retailers demand their services, or are retailers demanding the services of outsourcers more because the service providers have hired all the retail IT talent?
Last week, Phones 4U confirmed it would be outsourcing its IT operations to Indian IT services firm Tata Consultancy Services (TCS). And while it is large scale strategic outsourcing deals like this that make headlines, behind the scenes it seems that retailers are increasingly turning to technology firms for help with specific projects.
Off the record, many mid-size retailers express concern about their ability to recruit the increasing range of skills they need. At a webinar Retail Week hosted on outsourcing, Zavvi IT director Tony Johnson said that while outsourcing the entire IT operation doesn’t make financial sense, neither does having internal expertise covering all aspects of his IT portfolio – not least because he finds the recruitment and retention of skilled IT staff increasingly difficult.
One of the biggest recent outsourcing deals to have been struck in the European retail industry was between IT services firm EDS and German retail and travel giant Arcandor.
Last year, Arcandor sold EDS a majority stake in ITellium, a 700-strong company it had created to separate its IT department from the rest of the company. This deal does not just affect Arcandor, as EDS is now actively selling the specialist retail technology services of ITellium across Europe.
EDS EMEA industry leader for consumer industries and retail Sion Roberts explains: “Contractually, all we have got to do is deliver on the reduced cost [for Arcandor], but it doesn’t make sense to leave SAP-skilled staff sat in Germany underworked. It makes sense to sell their services into the UK and other markets.
“Since last year, we have been turning an internal IT department into a market-facing firm. It has got SAP and store systems credibility. We haven’t bought it to do Aldata or Oracle Retail, we have brought it in to do SAP.”
Several retailers, including Carphone Warehouse, Marks & Spencer and Tesco, are well known for their use of outsourcers to help with specific projects and the rest of the market seems to be following their lead. EDS, for example, is focusing on smaller projects supplementing in-house teams.
Roberts says: “The biggest prospects are in the UK and in Sweden. I know of a certain UK retailer that is struggling because it can’t get its software vendor to give the company the attention it needs,” he says.
In January, Retail Week revealed that Morrisons was planning to recruit more than 500 IT staff and consultants to work on its technology-led business transformation project, including the implementation of Oracle Retail software (RW Online, January 30).
Skills shortage
Wipro Retail European general manager Mike Davies says that retailers with large transformation programmes under way – which they might embark on only once every 10 years or so – are finding it a challenge to recruit all the skills they need.
“As you go through a transformation, it is necessary to have staff with deep retail expertise, but even in a steady state you need a retail wraparound,” he says, meaning that you can’t get away with only having staff with general IT experience.
Davies explains that retailers might find themselves without the skills they need when they embark on mergers and acquisitions or divestments of companies. “They tend not to carry these skills. If they do, they have probably not got the volume required,” he says.
TCS finds that retailers call on its expertise not just for the wholesale outsourcing deals but also to help teach their own staff new skills and for tactical activities.
TCS head of retail industry solutions unit for Europe Shankar Narayanan says that retailers are experiencing severe skills shortages within their e-commerce platforms and when they are trying to migrate to ERP packages such as Oracle and SAP. This is the case for both tier-one and tier-two retailers.
Demand for these skills is likely to intensify in the next few years as more large retail chains spring up in the emerging economies. Narayanan warns that Western retailers that don’t start building relationships with outsourcers now could find it more difficult to call on their talent pool further down the line.
In such cost-conscious times, it might not be appropriate for retailers to hire and maintain skills in-house that will not be regularly called upon. And, in fact, Davies argues that they would find it difficult to retain staff if they couldn’t move their careers forward in any case.
“People have to get excitement and stimulation,” he says. “It is not just about money. If a retailer carries skills that are not used regularly, it is not just about the cost they are carrying but also whether they can attract and retain the right people.”
Davies explains that IT staff are in such demand that they are able to pick and choose the projects they work on. Conversely, retailers and outsourcers are often competing to recruit the same talent.
Roberts adds: “We are in competition, because the people that we want are the same people that Tesco, M&S and Sainsbury’s all want.
“If you work for Tesco or M&S, that is a powerful addition to your CV. But that company can only offer a career in that organisation. In a service provider, you can apply yourself to different projects and customers, and in different countries. We can offer a better career in the longer term.” However, Roberts concedes that working for large retailers remains a highly attractive proposition.
Davies, who started his career on the supply side before working directly within retail and then moving back, believes that IT professionals can benefit from working for both retail and technology employers. “I would encourage people to get both supply-side and client-side experience,” he says.
There is some dispute about the skills that it is essential to retain in-house and those that can be acquired through outsourcers. Roberts claims that outsourcers can have in-depth industry knowledge, especially if the company invests in staff who have worked within retail – as EDS has with ITellium.
Roberts explains that EDS is keen to hire people who have worked on problematic projects in the past and have learnt from their mistakes. “I could show research that proves outsourcers are the best project managers. If you have people with their own war stories they de-risk the project.”
Narayanan says that about 10 per cent of TCS’s 125,000-strong workforce is focused on the retail sector and within this group there are degrees of retail understanding. He says: “About 10 per cent will be experts and another 15 to 20 per cent will be experienced. We also have business analysts who have hardcore business experience working with particular retailers, or who have worked directly for retailers and can call on their experience.”
Davies says that architects, relationship managers and business analysts should be retail-specific, whereas technical skills are easier to buy in. He adds: “Can retailers afford to pay for skills that the market rates? I think they have to. They must have some of these people in their own teams.”
Diamond Management and Technology Consultants partner Scott Bauer says it is crucial for retailers to retain certain skills in-house, regardless of outsourcing arrangements, because although outsourcers are good at taking direction, they are not as good at defining the requirements for technology projects.
In particular, Diamond believes that to maintain the integrity of an IT department, it is important to retain four “keystone” skills in-house: project and programme management; business analysis; technology analysis and architecture; and quality assurance testing.
Bauer says: “There is a need to retain an extremely tight connection to business changes and nuances across the organisation, which the four keystone skills enable.”
Bauer claims that many retailers that have outsourced these skills are now realising they need to bring them back in-house. “What we have seen is that retailers thought that many of their delivery and execution problems would be solved by their outsourcers – the problems shifted to a new location but are not yet resolved,” he explains.
It seems inevitable that retailers will have to work with third parties for some of their IT needs, but the message that comes through loud and clear from both retailers and outsourcers is that a strong core IT team is still essential, whatever the cost.
IT staff churn expected to fall
72 per cent of IT leaders are actively looking for a new job or would entertain a call from a head hunter, according to an annual survey of more than 360 UK chief information officers and senior technology professionals.
The survey, by recruitment consultancy Harvey Nash, also found that 63 per cent are expecting to move on from their job within two years.
However, Harvey Nash points out that while similar levels of staff are looking at new roles, fewer are actually moving than in previous years.
Harvey Nash director of UK regions Matt Smith said: “Our analysis over the past few years has shown a significant amount of job browsing by senior IT professionals, but decreasing levels of actual movement. As the economic climate continues to worsen, we expect nervousness among CIOs and IT leaders will result in fewer seeking new positions and a subsequent reduction in the number of empty roles.”
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