Tesco is focusing on technology improvements as a key driver for growth in the UK and overseas. Tesco's CIO, Mike McNamara, tells Angelica Mari about the retail giant's IT strategy in his first interview since taking the job in January 2011.
Having a boss that "gets" technology is the dream of every chief information officer, especially when the employer is the third largest retailer in the world by revenue. This is good news for Tesco's new CIO Mike McNamara, as the company focuses on delivering improved web solutions and IT supporting new markets and international expansion.
McNamara, an IT veteran who helped set up Tesco.com in the late 1990s, was recently elevated to the top post in retail technology after previous incumbent Philip Clarke took over as chief executive in March this year.
According to the CIO, who is also responsible for operations development at the company, being part of an executive board with extensive experience in IT is an undeniable advantage.
"Philip Clarke is, above all, a fantastic retailer more than an IT guy. But I think it is great that we have someone at the top of the organisation who really understands technology and what it can do," McNamara told Computer Weekly.
"He is one of the few FTSE100 top executives who has solid experience in IT and this is clearly a great thing for us, given the huge role that technology plays in our business."
Former CIO Clarke - voted the most influential person in UK IT according to Computer Weekly's UKtech50 2010 - reached the top of the organisation and inspired many IT leaders worldwide. But that does not mean techies get special treatment when it comes to succession planning across different business areas.
"In general terms, you will find that we move senior people about in Tesco about quite a lot. If I look at my direct reports, many of them have worked in other parts of the business, in roles such as store managers," said McNamara.
"Certainly that's normal to the way we operate and that approach applies for people in all areas: marketing, operations staff and also IT."
Increased web focus
Earlier this month, Clarke outlined key points of his vision for Tesco. One of the firm's strategic targets to be "an international retailer" was updated to "be an outstanding international retailer in stores and online".
McNamara says a key objective for the company is to further develop Tesco's online operations, which have an annual turnover of about £1.5bn in the UK alone, serving 400,000 customers every week.
"The change of gear in the strategy that Philip has brought about means far more emphasis on online. We already have a very strong presence on the internet in the UK and have successfully exported some of that food internet business to the Republic of Ireland and South Korea - in the next 12 months, that will spread out to other countries in which we operate," said McNamara.
"We have already recognised that online is very important and we have very solid plans to bring that into our international businesses. Likewise, our general merchandising and clothing online is doing well and we are looking at how to bring that overseas too."
According to McNamara, the rise in use of mobile devices - particularly smartphones and tablets - has prompted a pronounced shift in how Tesco sells its products online and also at its stores, so becoming a multichannel retailer is another key goal.
The company has emphasised mobility in recent years and already offers tools that include an iPhone grocery app for customers, developed by its research and development team. McNamara said there will be further developments in that area in due course.
"We see more and more consumers checking prices online - particularly on big ticket items. As people go into our stores, you see them checking reviews, our prices and the prices of our competitors through their mobile phones," said McNamara.
"You now have total price transparency and social reviews accessible to customers in our stores - we already see that happening and we want to help those processes, not hinder them."
To that end, Tesco will extend its customer-facing Wi-Fi across the store network in the next 12 to 24 months, said McNamara, while kiosks will also be introduced to help customers shop in-store, online or on the move, said McNamara.
McNamara says the main difference between Tesco and its competitors, when it comes to mobile and web customer-facing offerings, is Tesco's dogged determination to make that area of the business succeed over a long period of time.
"We took a very practical, customer-first approach and tended to do things that work for customers, ensuring products online cost the same as they would in-store, getting stock availability right as well as on-time delivery," said McNamara.
"But we didn't start off with a huge master plan and a massive warehouse doing all sorts of whizzy things - it was a very down-to-earth and incremental approach, and we had customers along the whole journey," he said.
"And that has proved to be very successful - we have the biggest internet grocery business in the world and still the only profitable one."
Major milestones ahead
Over the next 12 months, McNamara will be leading a range of IT projects, but three major undertakings are top of his to-do list.
One is completing the work of supporting Tesco Bank. Tesco's total capital spend in the UK for 2010 was £1.7bn, with an additional £200m spent in the banking business, mainly for re-platforming systems. According to the IT chief, his team is half way through the migration of former partner Royal Bank of Scotland's systems onto Tesco's set-up.
Tesco will also be launching a lot more websites in the next 12 months as part of a major initiative to improve the way it sells general merchandising and clothing online. Another strand of work is around bringing the Tesco operating model to its international operations.
To that end, there will be a huge amount of infrastructure to be rolled out, says McNamara, in relation to items such as network servers and databases.
"We also have a lot of software to write and to integrate, as well as a lot of people to train," he said.
About 80%-90% of Tesco's infrastructure is managed in-house. The company has a highly virtualised set-up and spent the last couple of years building what McNamara describes as an internal cloud.
"Tesco has a fairly good and substantial foundation in terms of virtual infrastructure, which is very easy to expand," he said.
"I can see in the years ahead - not in the next year or two, though - that some of that infrastructure will be outsourced and we will start using some public cloud services."
But he stressed that the possibility of handing over some of Tesco's infrastructure to a third-party supplier does not mean any negotiations are currently taking place.
"We have very close relationships with the key vendors and [cloud] is a constant topic of conversation between us and the major hardware and software suppliers, but we are not going down any sort of vendor selection right now," he said.
Indian IT centre keeps growing
Tesco needs all the IT skills it can get to deliver its ambitious project agenda. According to McNamara, one way the company has found to meet its knowledge needs is by getting access to expertise from suppliers.
"We work with many software and hardware vendors on research and development projects and we have reasonably close links with most major companies," he said.
Another key pillar of Tesco's IT strategy - which also gives the firm access to a vast skills pool - is the Hindustan Service Centre (HSC), a Bangalore-based captive facility that provides IT and business services.
"[HSC] is a fantastic capability for us. From an IT point of view, it just gives us all kinds of skills to build things, which can be used not just in the UK, but in other countries such as South Korea and China," said McNamara.
When Tesco acquired its banking subsidiary from partner Royal Bank of Scotland for £950m in 2008, it was expected the retailer would use HSC as a key resource for the core technology work supporting Tesco Bank.
"We built the new bank infrastructure in-house. Physically, that infrastructure is sitting in the UK, but it is managed and operated from the HSC in India, so we delivered on that promise," said McNamara.
The CIO also mentioned HSC is not only involved in IT work, but some back-office tasks, as well as innovation.
"The Bangalore site brings a huge amount of innovation to Tesco. They do get a very unique view of the world, as they look at our operations globally and not just one country in particular," he said.
Tesco already employs thousands of Indian staff at HSC and expects to continue hiring hundreds more staff every year to keep up with demand. McNamara said the retailer will be also looking to hire more IT staff in the UK this year.