How Tesco shops for value from IT

The pressure for businesses to innovate can be intense and urgent and IT is partly to blame. Given its pervasiveness in organisations, a gain in staff productivity could mistakenly be mapped to installing a faster server with a faster processor, along with the latest version of an operating system. All this without a thought to the practical problems facing staff and customers.

The pressure for businesses to innovate can be intense and urgent and IT is partly to blame. Given its pervasiveness in organisations, a gain in staff productivity could mistakenly be mapped to installing a faster server with a faster processor, along with the latest version of an operating system. All this without a thought to the practical problems facing staff and customers.

"Organisations being technology-led rather than business-led is one of the main reasons why IT projects fail," said Tesco group IT director Colin Cobain.

"Companies tend to be blinded by the glare of new technology, whereas Tesco is only interested in IT if it supports our processes and ultimately delivers value for our staff or our customers."

Throughout his career Cobain has been involved in both IT and non-IT projects, and this has shaped his view on how technology should be implemented. In his role at Tesco, he is responsible for delivering the strategic investment of IT for the UK's largest retailer.

"Our business objectives are closely aligned with our IT systems but we are not technology led," he said. When asked how Tesco decides to invest in an IT project, Cobain is quick to point out that the company does not invest in IT, it invests in solving problems.

"We go through a straightforward checklist: is it easier for customers, is it easier for our staff and does it add value for Tesco?" Cobain said.

Asking basic questions about how much easier an application would make life for staff and customers is an approach supported by statistics from analyst firm Gartner.

These show that 30% of IT projects fail because the features of an IT system are not aligned with the needs of its end-users. The survey also found that projects which do not clearly define its end benefits are delivered over budget and fail to deliver some of the promised functionality. Part of this problem can be having no clear metrics to measure the effectiveness of an IT system. As the old management axiom has it: you cannot manage what you do not measure.

Cobain seems to have this aspect well under control. "Tesco defines its measurements well in advance and in five main segments customers, operations, people, finance and community," said Cobain.

A case that illustrates how Tesco realised benefits for its stakeholders through IT was when the company rolled out technology to improve its "one in front" initiative, which it implemented in 1994.

Last month Tesco won a Retail Week Customer Service Initiative of the Year award for its use of IT to further develop and strengthen this initiative.

Tesco deployed cameras from Irisys that use thermal imaging technology to measure and predict customers' arrival at checkouts. This enables managers to react in real-time to ensure the right number of tills are open to deliver an optimised service to customers.

"The metric was simple, it was reducing the number of customers who were not receiving a one-in-front service," said Cobain.

"A quarter of a million more customers every week do not have to queue now because we can manage the service they get much more precisely."

Recently, Terry Leahy, chief executive of Tesco, even credited the IT system as being a key factor in the company's half-year pre-tax profits, rising 10% to £1.092bn.

Promoting the success of an IT system to the board is no mean feat. Seventy per cent of senior executives who responded to a Gartner survey stated that while they regard IT as critical to growth, some jointly view IT as a constraint to that growth.

This suggests a separation in views about the value of IT between IT directors and other board members. Just what can CIOs do to make sure proposals for new systems carry weight?

"IT directors should not sell IT to the board they should work with them to solve problems. Part of this involves the IT leader having a clear vision of where the business is heading and to make sure that they leverage the most relevant technologies to this end," said Cobain.

He emphasises that companies have to leverage the most out of their existing IT systems, before looking to new technology.

For example, Tesco is in the process of porting its legacy supply chain software to run on IBM servers, rather than on more expensive mainframe systems, to support its launch in the US later this year.

With 1,897 stores in the UK, Tesco is expanding its operations internationally. It already has 281 stores in Thailand, 111 in Japan and eight in Turkey, but its biggest push will come later this year when it launches in the US.

Central to its plans is the ability to run its UK inventory application - which Cobain describes as the "beating heart" of the company - abroad.

The company's continuous replenishment application currently manages inventory and stock control for all of its UK stores. Over time, the software has been optimised to work in line with its business processes and best practices.

However, the application was built on a mainframe system in the UK, which would be expensive to replicate at international sites given the choice of modern servers now available.

What is more, the application was coded in Cobol, which meant there was a need for the software to be re-purposed - rather than rewritten - to run on new servers and to talk to modern technologies such as .net, Java and Websphere.

The continuous replenishment application is part of the "Tesco-in-a-box" suite of bespoke systems, designed to deploy a common operating model worldwide. This requires standardising the IT systems which support the stores, said Cobain.

Tesco-in-a-box was developed in Tesco's Turkish business, going live in March 2005. The system is designed to provide international stores with all the systems required to operate key Tesco processes, such as supply chains and replenishment.

Ensuring the application can handle regional data types - foreign languages, character sets and regional customisations for compliance - is where the project is currently at.

"The global roll-out of a domestic application requires modifications such as the standardising of data, and this is something that we are working through in preparation for a US launch," said Cobain.

In expanding abroad, Tesco could have outsourced the building of a new continuous replenishment application to a third party. But because its existing software had been refined to work alongside its business processes, Cobain felt the company would have lost a competitive edge.

"We believe we have a degree of specialisation with our continuous replenishment application. We could buy a new application off the shelf or we could outsource, but we would lose that specialisation by using technology our competitors have access to," he said.

His comments contrast with research from Forrester, which showed that UK retail firms outsourced more than financial service firms. "Thirteen per cent of the total known deals came from retail firms. Some, such as Boots, DSGi, and WHSmith have even signed several outsourcing contracts over the past nine quarters," said Sonoko Takahashi, an associate analyst at Forrester.

However, this was mainly in helpdesk and support services which outpaced the demand for other services such as customer relationship management systems.

So, what does Cobain see as the next big thing on the CIO's agenda?

"They should not be looking at the next big thing they should be focusing on what is best for the business first and how IT can meet these needs. It is as simple as that."

Related article: Tesco takes Direct route to effective data management

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