Best Buy made headlines more than a month ago with its decision to outsource its IT operations to Accenture--a deal that could have deep repercussions throughout the retail sector as top retailers reassess what's core and what's not for them.
Important though they may be, Best Buy has concluded it is better off handing the bulk of its IT operations to a third party. This comes on the heels of Best Buy's decision to accelerate an internal initiative to more tightly align the company with its customers, which manifested itself in a pilot program in 32 stores.
David Hill, partner at Accenture Products Operating Group, believes more in retail are likely to follow suit and also seek greater outside IT help. "We think this is the first of many stories to come," Hill says. "Outsourcing is increasingly becoming an important strategic initiative for retailers as a way for them to gain competitive advantage and increase cost efficiencies."
A survey of retail executives by Accenture found that IT was the most common process to be outsourced, followed by the supply chain and human resources. But according to the research, cost efficiencies aren't the only driving factor behind the decision to outsource. The top reason behind the decision to outsource is to focus more on core activities.
Retail executives also are turning to outsourcing as a means to gain control, according to the Accenture research, with one-quarter of those surveyed reporting increased control immediately after signing an outsourcing agreement. Another 29 percent reported a control gain once the transition of operations was complete, in about six to eight months, with another 29 percent seeing an increase after performance objectives were met and both sides developed a mutual trust.
In terms of benefits achieved through outsourcing, the main expected benefit was faster achievement of business objectives, followed again by cost savings. In addition, retailers are looking for innovation, better response time and ongoing process improvements when outsourcing.
The Accenture research also found that retail executives are more likely to measure the success of a solution-provider relationship based on service-level agreements rather than on business outcomes.
That brings us back to Best Buy. Hill says its decision is an interesting move for a company in a position of strength.
"Best Buy is a high-performing retailer, but they are saying, "We want to do more, strive for the next plateau and empower employees to deliver on this customer-centric strategy,'" Hill says. "They've chosen to partner with Accenture in order to allow them to focus their full energy on this strategy and depend on Accenture for flexible staffing and scalable solutions."
Best Buy also seeks to reduce total cost of ownership for IT systems, Hill adds. "In the supply-chain area, for example, we're focused on demand forecasting, reducing distribution costs and increasing the flexibility of stores as they move over to the new model," he says. And, speaking of the supply chain and efficiency, Hill says that Accenture is in the beginning phases of consulting on an RFID strategy.
While Accenture is just getting started on the vision for Best Buy's IT going forward, Hill says that it is already driving toward a more simplified operating platform. The Accenture agreement will cover Best Buy's IT systems, infrastructure, application development and maintenance, with 600 Best Buy employees transferring to Accenture. Best Buy will retain a core group of approximately 40 IT professionals at the leadership level.
We'll keep you posted if other retailers follow suit.