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Sun, Oct 21, 2007 22:01 EDT
IT and Wal-Mart's Meta-Story
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Posted by: Elana Varon in Best Practices Topic: Enterprise ManagementBlog: Innovation and IT Strategy
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I just finished working with my colleague Tom Wailgum on our package of articles about how Wal-Mart lost its technology edge. There's a big lesson there about IT strategy, and not just for big companies.
Wal-Mart placed the right bets on supply chain technology at a time when it could provide them with competitive advantage. I think the reason that Wal-Mart's management recognized the bang they would get from their supply chain had mostly to do with it's meta-story--the overarching story the company told about itself as a low-cost retailer. Supply-chain dominance became a logical chapter in that story.
It certainly worked in their favor to be first with a lot of the technology. But if you look at the technology timeline that accompanies Tom's article, it's pretty clear that almost every major breakthrough Wal-Mart made with IT supported who they believed they were. I think you can trace its recent problems to the persistence of that vision despite massive changes in the retail industry in the past 10 years.
Nick Carr writes in his blog that Wal-Mart's decline, and its recent decisions to choose packaged software from SAP, HP and Oracle, is a triumph of commodity software over homegrown legacy systems. But I think the significance of Wal-Mart's decision isn't only, or even primarily, to do with packaged software being as good or better than what they build themselves. They need new IT, and fast, to tell a new story about themselves. Whether they'll figure out what that story is, and whether they are able to use it to put themselves back on the map as innovators remains to be seen, of course.
But getting the story – the strategy – right is the big key here. I interviewed Gary Hamel recently and his argument, that managing for efficiency won't get you competitive advantage anymore, seems apropos to me here. If efficiency is the price of entry into the marketplace now, then IT departments, like the rest of management, have to start looking elsewhere to put their companies on the map, whether or not they invent the technology that fulfills their vision.
Would love to know what others think about this.
Innovation, Nicholas Carr, strategy, supply chain, wal-Mart
Thanks for your post – it is certainly thought provoking.
Implied in the post is the notion that IT Strategy has been essentially about cost reduction and efficiency. I believe that this is a false notion.
Well conceived IT strategies are all about business value adds. Whether it be through customer facing toolsets (e.g. web sites to promote e-business), records systems (e.g. CRM), efficiency improvements (e.g. supply chain management), revenue enhancement (e.g. new products and services) or business process improvements (impacting any and all areas of the business), IT’s role is to promote adding value to the business.
For a given enterprise, there are times where strategic investments lie primarily in one or another of the areas listed above. The decisions about where to invest scarce technology investment funds need to be driven by business priorities and creating sustainable value, not by preconceived notions limiting the potential of IT investments to assisting in cost management only.
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the report on the afore mentioned subject really makes for an interesting read . appreciable work done....
Elana,
A provoking piece. Wal-Mart prides itself on the use of technology to deliver the strategic imperatives. In my view we have to look at the wheel within the wheel. If Wal-mart is going to continue to use IT to drive down costs it needs to drive down the costs of its own investment in IT.
Moving from bespoke (legacy sounds inflammatory) to hybrid makes sense as it reduces the labour bill, which is a major fraction of the overall TCO.
Once they bed down the enterprise software they can bolt on the business intelligence software. They can then pursue a cost efficiency strategy by drilling into their ocean of data.
Thus their investment would yield greater efficiencies through reduced labour and competitive advantage in terms of how to respond to market trends up till now lying hidden in their data.
Pushing this new tack across their empire will be the challenge. And for a business like Wal-Mart to use a variety of enterprise applications from end to end, is akin to outsourcing one's nervous system. Not a good idea particularly when the healthcare specialists have a mutual hatred of each other.
Author: The IT Value Stack - A boardroom guide to IT leadership
Author: IT Demystified - The IT handbook for business professionals
Columnist: Financial Times - Advising business leaders on boardroom IT issues
Advisor: Advising organisations on maximising the value from their IT investment
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