There is just no way for retailers to keep pace with what the software industry can do for them. I’ve seen so many situations where solutions were built in-house at tremendous cost in both money and human resources where they did not deliver the intended result. It is much more important to pick the right solution partner while having internal resources prepare for how they will blend the best of outside resources with the infrastructure developed in-house. Technology changes too fast for internal resources to be expected to run the legacy and operational systems while trying to learn the best ways to handle their digital transformation. There may be pieces of the process that can and perhaps should be done in-house but always with a well thought-out plan for who does what and when.

Target is an interesting company to watch on the subject of insourcing IT, because at one point they had thousands of developers working in India. Every retailer will have to be agile to compete; insourcing is one way to achieve that.

Insourcing is not a silver bullet. But the competence and expertise in digital strategy and architecture should not be outsourced. The challenge and opportunity is, there are now tons of pieces of software, each playing a small role in an overall system. That means there has to be an overall vision and understanding of how each of these small pieces fits into the overall puzzle. The ability to be agile in innovating by leveraging new software is key. That skill has to be in-house.

But building software is a different story. Insourcing to build software in-house is a regressive step in terms of speed and go-to-market strategy.

Balance. Internal teams tasked with the ability and freedom to reinvent IT under decades-old structures and policy politics sounds good! The challenge is that internal dialogues leading to good accomplishments are always subject to the human dynamic. Politics, leadership, groupthink, and design by committee all seem to find a home within organizations. It is like a race. Everyone starts out full of enthusiasm, ideas, goals, and then the day-to-day sets in. The balance requires a concerted effort to evangelize forward-thinking by consistently refreshing the internal playing field utilizing relevantly outsourced thought leaders and vendors.

I lead software development departments. I have also acquired external solutions. Then I started to observe how the businesses of retail and of IT were changing and I decided that retailers should not be in the business of developing software but should rather provide solutions to the business so it can thrive.

If a retailer does, in fact, have “a secret sauce” then that would be the exception to my rule. But otherwise, technology is changing constantly and I believe it is much easier for those who develop for a large base of customers to stay current (they must, by virtue of the number of customers they have) than it is for individual companies to try to do so.

In some sense, large established retailers that are thinking about digital solutions and software now are already behind the curve. One aspect of digital that is critical is that level of customization that fits with the business. Too often, companies buy off-the-shelf products that can cause more problems down the road. While 80 percent of a business might be comparable to the next, it’s the remaining 20 percent that can make the biggest difference in success of implementation and using data, analytics and software to drive business decisions.

More and more, retailers are becoming tech companies in that their world is revolving around gathering data and deriving customer insights from that data. This means speed and agility are more important than ever or the insights derived will become too stale before retailers can act on them. One way to gain this agility is to insource the tech development and proficiency required to achieve this. That means bringing in new IT talent that retailers aren’t used to hiring. So yes, if you’re Target or Lowe’s or a retailer of similar size and depth in resources and budget you can insource successfully. However, if you’re a specialty retailer dwarfed in size by Target or Lowe’s, then you won’t be able to compete at a basic level (e.g. salary) enough to compete for acquiring that talent. Remember, more often than not, retailers are competing with software tech companies for the same talent pool for data science, data analytics, etc. types of roles. It’s tough to expect most retailers to compete with the likes of Google, Microsoft,… Read more »

Very often, the art of the possible can’t be conceived of by internal teams whose knowledge extends only to the art of “here’s what we do here.” This is a balancing act for sure. Outsourcing can provide key learnings on new capabilities, technologies, and oftentimes is faster and less expensive. The correct answer is “balance.”

I believe one of the more important factors to consider with software development is the fact that one size does not fit all. There are indeed plenty of external software developers whose core competency is development (a key differentiator vs. retailers whose core competency is not software development, typically) and these firms can be very agile to build tools swiftly as business needs demand. However, there are also instances where development may make sense to execute internally — a detailed objective list of desired outcomes should drive that decision.

10 years ago I would have said yes, IT insourcing is more important. It provides you an advantage in the marketplace. What’s changed is that there is a constant rise in innovation, new expectations, and of course, hype. This constantly changing landscape for retail eliminates the advantages of in-house IT for agility because most retailers can’t afford it, can’t support it, and can’t deliver on it. The Targets and Amazons are exceptions, not the rule. Moreover, the difficulty in hiring, staffing, and building the right capabilities in house are monumental. Projects that are unique to the firm or brand of the firm are the ones that can use in-house vision, but here it’s usually not tech vision, but rather a business view. Some believe that retail is so embedded with tech and digital that it’s become a tech industry — this is profoundly untrue. Tech is still a tool, and retail is the business that decides when and how to use the tool. Sometimes the business will take on tech as a key competency, but… Read more »