Listen to the pundits and they will tell you where things are heading -- how in the future you might want to call yourself a Chief Process Officer rather than CIO. That's old news for Owen McCall, CIO at The Warehouse. For him, the future is already here. The only difference is that McCall thinks of his CPOs as IT domain leaders or, if you like, mini-CIOs.
McCall's forward-thinking approach stems from a desire to get his IT team to put business considerations ahead of pure IT. "We had no business focus when I arrived here two years ago," he says. "We were very, very technology-orientated. We would sit within our IT walls and wait for our customers to come to us and say, 'I need this. Can you do it?' And typically our answer was well, yes, can do it but it will take 'X' amount of time. And 'X' was always far too long because by the time the business had figured out what it wanted it was too late for IT. The business wanted it yesterday and needed it done yesterday. So we were always seen as blockers. We weren't enabling the business to go forward. We needed to change that paradigm. We needed to get out in front."
After talking to his staff, McCall came up with what he calls a very nontraditional IS model. Rather than continue with the usual development, architecture and support teams, he would establish centers of excellence focused on business processes. These centers he would call domains. Each center would have end-to-end responsibility for the processes within its domain. There would be a domain for retail analytics, focusing on planning and decision-making and supporting the decision-making within its core value chain. The domain team would work predominantly with the Teradata platform. A second team would be in charge of the retail operations domain and would look after business processes related to physically doing business -- raising a purchase order, checking stock in, pushing goods to the stores, taking transactions and pushing data back into the Teradata system to be available for further decision processes. A third domain would handle business support and infrastructure, with a focus on corporate, finance and HR applications, property and infrastructure.
"Within each domain you have end-to-end responsibility," says McCall. "Domain teams work with the business to define strategically what we need to be doing with the systems under their control to support the business. For each domain, it's a cradle to the grave situation."
It doesn't end there, of course. The domain teams drive two support functions. One is a service management group, which owns and implements ITIL and processes across the domains. As McCall says, it is all very well to have three mini-CIOs, rulers of their own domains, but he needs a consistent way of doing business. The encompassing service management function allows him to do that.
The other support function is the service desk. The call center allows McCall to ensure a consistent customer experience, underpinned by ITIL disciplines.
Finally, McCall employs one group architect. "I don't have a whole lot of them sitting around. Our group architect's job is to look at where we are going and how we want to develop our systems over time to get the best advantage."
It hasn't been easy for The Warehouse's IT team to get to this point, and the job isn't finished yet. In truth, it's never likely to finish. Change is a fact of life in the retail business today. If you think you have finished it probably just means you are running short of invention or inspiration.
McCall's innovations are being promulgated against a background of retail war. Australian operations, a challenging part of the business, are showing some positive signs but at the same time the entire business is under attack from other large retail outlets. McCall lists a couple of aspects that had been holding back the analytics side across the Tasman. "One issue was to make the data available. Another was having the people and strategies in place to execute them. Certainly, until two years ago there was a high turnover in the Australian merchandising area. We had to get consistency with our people to be able to use the data to drive our decisions. I think you are starting to see some of that consistency returning in the latest results."
Meanwhile the Australian arm suffers from the usual restrictions that apply in businesses that are seen to be under-performing. The core business systems used by the Red Sheds, as the New Zealand outlets are called, have been set up across the Tasman but further enhancements continue to wait for the go-ahead. "We are continuing to enhance the systems around the fringes and we are starting to get reasonably good traction," says McCall. "But there are a lot of systems that we have here and they don't have in Australia. The long-term plan is to roll those out over time. While the Australian outlets continue to lose money there isn't a huge appetite to invest money in IT there. I think that's appropriate."
In terms of the overall operation, a major force impacting on the business over the next few years will be convergence. Anybody who goes into a regular supermarket can see it -- general merchandise, including TVs and exercise machines, between the regular rows of household food and goods. The same thing has been happening with The Warehouse as it adds food and other household goods to the general mix.
Does this mean The Warehouse is turning into just another retailer? "I hope not," McCall responds. "We've always got to stay true to what we are as a company. We've got to stay true to the bargain. We've got to present those bargains and the excitement that goes with this sort of merchandising. We've got to get better at executing our core business around making sure that products meant to be there every day are in fact on the shelves. We have to do all those things a supermarket or the overseas general merchandise providers do, at least as well as them if not better. And we've also got to provide the bargain hunt that The Warehouse is known for."
The Warehouse group consists of three main operating companies -- The Warehouse Ltd., made up of the familiar Red Sheds, Warehouse Australia and Warehouse Stationery. Warehouse Australia has independent IT groups that report to their brand chief executives, with McCall playing an oversight and mentoring role. He can't force his Aussie team to do what he wants, but he can stop them from doing something if he finds it objectionable.
McCall's own views of his job is that he is there to try to work out what to do from a technology perspective to help the business attain success in its strategies. "I work with the business and my key managers to make that happen. The goal of business and IT alignment is interesting because it's something you can never quite attain. What I can tell you, though, is that alignment is much simpler when your business knows what it is doing and where it is going. Having a clearly defined strategy that everyone is aligned to makes your life busy because everyone knows what they want and need. But it also makes prioritization simple because everyone understands the goals and priorities and open to discussion on them."
McCall's own background includes 18 years with Deloitte Consulting, most of it in the IT area. "I spent a year as an auditor, hated it and got into consulting about the time of the corporatization of the government departments." Based in Wellington, he helped those departments implement accrual accounting systems, "and it just went from there." In 1994 he helped to set up an SAP implementation practice for Deloittes in New Zealand and ended up being responsible for the firm's outsourcing practice on both sides of the Tasman.
McCall says he spent his first six weeks at The Warehouse just trying to understand the business and talking to managers both within and outside IT. His discussions and observations led him to work on a number of changes. The structure of the IT group he had inherited was a temporary one pending the arrival of a new CIO. The role had been vacant for a while.
"We needed to understand what we were doing from a strategic point of view and to improve our service delivery. In the first 60 days I was there, more or less, we had 62 P1s (Priority One incidents). We had to fix that situation."
McCall set his sights on reforming the IT structure, which is where ITIL entered the picture. He sees it as providing a framework for operations improvement, although it doesn't really address strategic issues. Still, operations process management was immature. Despite everyone's best endeavors, there was a lack of data integrity and a lack of any improvement path. The situation wasn't helped by what McCall describes as a hero culture, where a person might be hoisted high on the shoulders of his peers because he had stayed all night to fix something that had broken for perhaps the 17th time. "We were very reactive, we did virtually no proactive work at all. As a result, we were perceived as adding cost rather than adding value."
McCall describes the progress he and his peers have made as a journey. It's not over yet and probably never will be as the business undergoes continuous transformation. But, with ITIL and process domain leadership, the tide has turned. Domain leaders are working proactively with their customers to try to understand what they want to do and how they can help them be successful. "If you don't do those things you will always be regarded as reactive and a cost-add," says McCall. "Otherwise, where's the value from a customer perspective if you are not helping them be successful?"
Despite his initial disappointment in the IT structure, McCall recalls that it wasn't all bad. The business still operated reasonably effectively and had "okay" availability. But the IT department had been hobbled together from various legacy groups, each with a different way of doing things, and the results were unpredictable and typically unrepeatable. So he brought his team together and they devised a mission statement along the lines that they would know when they were successful by their leadership in retail. The initials IT were deliberately kept out of statement. Of course, McCall correctly saw IT as an essential part of The Warehouse and integral to its success, but it wasn't the business. IT's mission would be to become customer focused and proactive, and easy to do business with. It would provide excellence and efficiency in delivering solutions. Its people would be honest and trustworthy. In short, it would be an enjoyable, challenging and motivating place to work in.
From this perspective emerged the domain concept. It wasn't easy for everyone to adapt to but eventually those who didn't like the idea exited, to be replaced by enthusiastic new team members. Backing them up was ITIL, ensuring a robust IT management process that ensured timely support for the business, improved processes and a culture of continuous improvement.
McCall emphasizes that he is not using ITIL as a primary way of driving business alignment. To a large degree the domain structure is doing that for him already, built as it is around a loose definition of business processes and supporting business functions in tandem with the underlying systems.
"The structure itself is business-focused, and I use that very much as a statement of intent. The other thing we use to drive alignment is a variety of steering committees. These work through and drive priorities within the teams. There's nothing very flash about it -- it's just a standard steering committee process. We take system requests to the team and say, 'Here is a list of system requests, we know our strategies, here is our assessment of priorities...' Tell me if I am right or wrong and reprioritize according to that.' It's not very sophisticated but it works."
McCall emphasizes that he is not an ITIL fanatic. He believes that the first thing you must do if you want to add value to the business is demonstrate your professional competence. If you can't prove that you don't deserve a seat at the top table. ITIL does, however, play a role in providing a framework to drive continuous improvements and helping IT prove its competence. The one thing he and his team don't need is to be regarded as being less than professional.
McCall tells how he told attendees at the IT Service Management forum he didn't really care about ITIL.
"I am not doing this for ITIL. I am doing this for efficiency and effectiveness within IT. ITIL is a good framework because it is there and I don't have to recreate it. It's independent and it is a good rallying call for staff in terms of what we are doing and why we are doing it. Really, it helps me take care of the basics and lets me focus on adding value to the business."
As for his funding, McCall is not unhappy. Spending is about where it should be for a business of that size. Unlike the best performers, however, too much is going on maintenance and not enough on new initiatives. The best performers spend less but invest more, he says. "What that tells me is that they are incredibly efficient at their core operations, which lets them free up funds to invest in high value-add activities that will improve productivity and drive earnings growth."
The Warehouse's systems are predominantly best of breed, although the company doesn't have an ERP system. McCall is happy with that situation too. The time is not right for an ERP system, he believes. It might be ready in 10 years' time, although by then it might be possible to achieve the same things via enhancements to current systems.
Considering that so many aspects of the business are best of breed, it seems reasonable to ask why operating costs remain so high. McCall has an answer: it's because there has been no continuous improvement. Things that are broken fail again and again, and get repaired again and again. "We do have some legacy platforms that cost us more than they should, and that needs to be fixed. It takes a long time to change large systems.
Does he include, among those, proprietary platforms such as the Teradata system? McCall smiles. "Someone once told me that every system that goes live is a legacy system. And it doesn't concern me that it is proprietary. If I saw the Teradata system falling significantly out of line with its competitors I would be concerned but that's not the case. There are competitors in the marketplace but they are proprietary too. The Teradata system is the platform of choice for large retailers. I don't see us switching out of that."
Another part of the business that looks ready for change is the point-of-sale technology. It's DOS-based and is about 18 years old. McCall can't see a clear migration for it as chip and PIN cards start to debut. By Christmas he expects all of the 486-based technology to be taken out of the stores. Many of them are at least 10 years old and still work fine. However, it's not getting any easier to find replacements.
Then there is the old LINC-based inventory system, TUI (Technology Used Intelligently), implemented in 1995. It is no longer world-class but it still does the job. At a practical level, it is hardly likely to attract developers but fortunately Unisys still has a capable pool of LINC technicians on hand.
One new system is going in now, however. That is a service desk tool, of which phase one has already been implemented. Aimed partly at complementing the ITIL platform, it handles incident management, problem management and service level management. Phase two is under way, covering configuration, availability, change release, self-service and the knowledge base. It is due to go live about this time.
"But let's remember that this is just a tool," says McCall. "It's not the important part, the process itself."
As McCall sees it, there are no secrets in what he has done so far, despite his innovative style. "We haven't been particularly smart. We have tried to communicate, as much as we can, what we are doing and why we are doing it. And, yes, we have still under-communicated."
One thing he reiterates, though: there is no option about whether to go along with the ITIL journey. It is a journey into change and, having made the decision, everybody must fall into line. "We will be supportive and help people as much as we can. There is a positive aspect in the change and a negative one if you decide not to go on the journey. We have invested heavily in training. Staff understand the terminology and why we are doing it."
Are staff likely to become too focused on ITIL, spending more time on the ITIL process rather than on the outcomes? "I don't want my people to be ITIL fanatics," says McCall. "I want them to be business fanatics. Everyone's objectives include an ITIL maturity score, not that ITIL maturity in and of itself is important. What it does do is provide a good, independent way of measuring progress. Everyone has a goal and we pay a bonus once a certain level has been achieved. The intention is to set the objectives on a six-monthly basis."
McCall says he has not made a big song and dance about what he has been doing at The Warehouse. Results will speak louder than words, he believes. Service level agreements are being established among staff, and once they are implemented the business should notice the difference. In the past it had been impossible to commit to SLAs.
At the moment everything is still in its formative stages. McCall hopes that in time it becomes just part of the way the business works. He wants the new regimes to reach a point where they would not fall apart if he or his SLA manager left. "It's a journey to IS operational excellence."
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