In the most testing economic climate that our sectorhas experienced in a long time, the majority of retailers continue to 'go italone' and try to fully fund the technology infrastructure and skills thattheir company needs.


Alan Morris argues that this is folly and urges themto wake up to the cost and efficiency benefits that come from using sharedservices and applications.


As retailers come to terms with a number of grim realities,including in some cases a question mark over their continued place on the highstreet, they need to absorb one more, possibly unpalatable fact: it is cheaperto outsource certain areas of their IT to specialist companies who can offereconomies of scale than it is to employ staff to manage them in-house.


With turnover and profits down and volume increases not anoption, all eyes are focused on protecting margins. Finance Directors arewalking the corridors, looking for functions to trim, and will moot the idea ofcutting IT if they have not already done so. A sensible benchmark for IT spendswithin the retail sector is between 0.9% and 1.9% of turnover, but the problemcomes when turnover dips and IT costs remain static and thereforedisproportionate.


At the same time, the IT Director is struggling to keep thewheels on the car in terms of day-to-day, mission-critical processing whilstbeing under the cosh to deliver new projects which may help the business tosurvive hard times. The company may even be in the middle of a largeimplementation that is haemorrhaging cash and which it can't afford to finish.


Having held senior IT roles in retail businesses, I canrelate to these pressures all too well. I know that, if I was still an ITDirector, I would not run my own Help Desk, host and manage my servers andsystems, and employ code-cutters in-house. It simply isn't cost-effective andit isn't necessary.


So, whilst this may seem counter-intuitive, now could be theright time to make a further investment in IT, by outsourcing certain servicesand opting for a 'Software as a Service' (SaaS) model for certain applications.


Let's look at services such as Help Desk. When managed in-house,this can be one of the least cost-effective areas. The Desk has to be fully-resourcedall the time, 'just in case', but the reality is that skills are needed onlyfor a percentage of the working week. Although the outsourced, shared servicecost-per-person may be higher, you only pay for a small element of staff timeas specialist skills (and costs) are split across a number of retailers.


The same rules apply to the Data Centre, where you need anumber of full-time staff to manage operations to required service levels. Thereality is that you could have a service that matches, or most likely exceeds,what you currently achieve by hosting your hardware and software within ashared Data Centre. Retailers not familiar with this concept often cite loss ofsecurity and competitive advantage as obstacles. In fact, they have nothing tofear, as their machines and operations will be completely ring-fenced.


IT needs to be constantly reviewed, in hard times as in goodand, as I have suggested, a recession may be the best time to invest inoutsourced IT. Many businesses will now find themselves with an infrastructureor systems that are past their sell-by date yet they have no capital to investin renewal. At the same time, any development plans may be constrained by in-houseskill sets.


In fact, what retailers need is an IT gene pool that canexpand and retract to match trading ebbs and flows and, unlike contractorshired for a project, provides individuals that will be available after theproject is finished. The shared services model does this.


In the case of applications, the SaaS approach is ideal.Interestingly enough, research conducted recently by Prologic highlighted thatmore than half the fashion retailers they interviewed had not heard of SaaSbut, when the concept was explained to them, agreed that it was a good way tobuy software. With SaaS, you tap immediately into the latest versions of softwareproducts for less than the cost of acquiring, integrating and maintaining themin-house, and they will be kept constantly up to date. SaaS enables you to buyjust what you need, when you need it, without carrying unnecessary overheads interms of software licensing or staff costs.


In all this, you need to view outsourcing as a criticalrelationship and not a 'one size fits all' solution. Cultural fit is moreimportant than anything else, so it's critical to select a partner with whomyou feel very comfortable, preferably one who has specialist retail knowledgeand who can work to the structures and timetables imposed by retail.


Taking the example of Adams Kids, they describe the benefitsof outsourcing as "immediate, measurable and sustained". They havequantified a 25% increase in warehouse throughout through systems re-engineering,an average increase to 99% of stores polling successfully each night, and amassive one-third reduction in annual IT operating costs right from the firstyear.


Be in no doubt, using shared services or SaaS applications,you will get more functionality for less cost and more service for less cost.It really is a case of share the pain: share the gain.



AlanMorris is Managing Director of retail solutions and services provider, RetailAssist.