CIO Profile: M&S CIO Darrell Stein on benefits-driven strategies

This is not just food, it’s M&S food,” the well known advertising slogan intones. The success of this campaign and the products it promoted was down to the fact that it showed that with a little effort you could add — to borrow another slogan — a little magic and sparkle to the ordinary staple diet.

The semantics of ‘hand-prepared’, ‘slow-braised’ and ‘21-day matured’ lift these products from the commodity market into the hallowed premium arena.

Marks & Spencer (M&S) prides itself on being a premium department store in a commodity supermarket-dominated retail scene.

But after complacency very nearly cost it its crown, the 126-year old company has pursued one of the most aggressive renaissance programmes in the business world.

Darrell Stein, CIO and supply chain chief of M&S knows a thing or two about renaissance: as a long-suffering Tottenham Hotspur fan he is enjoying the club’s recent return to form, while his return to his working roots at M&S has given him a licence to experiment with new management techniques as he modernises the IT and supply chain seams that hold M&S together and are essential to the retailer’s re-emergence as a serious contender.

“People buy M&S underwear because they know it won’t fall apart in the wash. The company seems to have the same quality,” the Financial Times said in April.

The bounce-back from a series of damaging profit warnings back in 2004 at M&S is on-going. There is still a long journey ahead, non-food sales fell by four per cent in the April 2011 results.

But the ambitious Plan A to cut the environmental damage the retailer causes has already made the business £50m.

Much of the bounceback at M&S is credited to Sir Stuart Rose, the chief executive who left the company in July 2011 having already handed the hot seat over to ex-Morrisons boss Marc Bolland.

Rose refocused M&S and won back younger shoppers, which helped keep the business independent as bidders such as Sir Philip Green aimed their acquisition sites on the department store.

Rose’s refocus hasn’t just been about good ads and branding, he instigated a root and branch overhaul of the entire company, remodelling shop interiors, product lines, back office functions and Stein’s IT and supply chain functions.

A comfortable fit “I think we are becoming a lot more comfortable with change. You have to be brave as sometimes it can be a bit bumpy,” Stein says of the journey he and the company have been through since he returned after 12 years away in 2006.

“We told the city in October 2009 that we would spend £1bn on IT and the supply chain for five to seven years and from that there would be £250m in cost savings per year by 2015. We have now increased the savings target to £300m two years into the project.

“Some of the money doesn’t go on cost savings, some goes on increasing sales,” he explains of the disparity. To achieve such considerable savings, Stein has had to rethink the way he manages the transformation of IT and supply chain at M&S.

“Rather than base the IT project objectives on a set of dates, I have given them a business benefit target. What that does is it focuses the minds of IT people.

“You have a certain amount of money to spend and you have benefits to achieve. If you are not getting the benefits then you have to find another benefit.”

Stein describes the method as “a big mindset shift” and admits that it’s not a management method he has used before.

“Running two functions of the business has helped me and taught me that it’s a better way to manage a back office function,” Stein explains.

On the wall of his office is a chart of the 2020 benefits targets, which the CIO describes as being a more important chart than the considerably smaller IT structure chart that sits next to it.

Stein’s benefits culture has extended beyond his dealings with internal projects teams. He recently used it to negotiate a preferential deal with a vendor.

“We had a project for a fraud tracking system to analyse all the data from our tills. We had no money to spend on the project so we asked the software firm to be paid on the benefits,” and, he says, they readily agreed.

“It is good business training, and it has made people understand the business case,” he says. “I don’t get requirements to spend on things that we don’t get benefits from. There is always pressure on the back office to reduce costs and I always ask our guys ‘How many jumpers will they have to sell to pay for something?’.”

Stein likens the method to the M&S Plan A ambition. The CIO’s specific Plan A targets are to improve the energy efficiency of the tills and systems used and for his supply chain role to reduce the impact of logistics.

“The IT supplier base has changed significantly. We had over 100 suppliers, and because of the silo nature of the business, each had their own IT supplier,” Stein says of the old structure which saw food and general merchandise operate as separate entities. Today Stein has strategic deals with TCS for development, Cognizant for support and integrated application and infrastructure management, while Fujitsu and Cable & Wireless provide store systems and networks respectively. Unlike some CIOs, Stein is reducing the number of niche vendors that M&S uses.

When we met, Stein had just returned from visiting Cognizant and TCS in India, and he is enthused by the quality of workmanship the country offers.

“I encourage many of the management team to head out there and work together. The multicultural aspect is very important in IT,” he adds.

SAP’s strong spine

Forming a central thread to IT at M&S is an SAP ERP system, although Stein says M&S would not go “wall-to-wall” SAP. “We put SAP into finance and non-merchandise procurement in 2007 and by the end of 2011 we will have all the ERP in. There is a big decommissioning plan going through as part of that as well. That was a lesson learned. You should always be bold when you decommission, otherwise you end up making old systems work in your new architecture.”

With its move to SAP, M&S is moving away from an architecture that relied on major mainframe components, and Stein admits that reducing mainframe usage was not an easy decision.

“Old mainframes cost nothing to run. SAP costs a lot to run. But the mainframe systems were constricting the business, especially around data transparency,” he explains. SAP will provide M&S with greater stock visibility and more control over procurement processes, which will provide a return on the investment.

“We did a big exercise with SAP and Oracle and there was not much in it. Finance had already gone with SAP, that helped swing it,” Stein says of the final decision process. This is Stein’s first major SAP install after being a long-time Oracle adopter, so to ensure SAP fits M&S comfortably, he has hired the former CTO of Boots, Alan French. Stein is keen promoter of the common CIO view that you succeed by hiring people with a good track record.

The IT team at M&S is divided into three groups: trading and supply, e-commerce and multi-channel, and foundation, which is the ERP project. Stein says these will change as transformation becomes the norm. Stein has an internal staff of 300, which includes an in-house helpdesk.

“I’ve kept helpdesk as I want the people the stores to know that we understand their environment. I could have saved money, around £1m by outsourcing it, but the service would be worse and I don’t think that is the right thing to do,” he explains.

“Our helpdesk is staffed by people that typically come from the stores. There is a lot more empathy and it’s a good training ground for IT people.”

Retail revolution

M&S has certainly been on a fast-track modernisation programme: it wasn’t that long ago that the stores didn’t accept credit cards, but today the brand is a multi-channel retailer, which naturally means it boasts an important online presence and has ambitions beyond the shores of Great Britain.

“China and India are very exciting. We have a new International Director and we see a lot of growth potential,” says Stein. In 2004, M&S struck a deal with Amazon, which still hosts the M&S online presence. At the time M&S had no capital to invest in an online infrastructure and Amazon already had a proven platform. Today, however, M&S is developing its own e-commerce platform and online revenues are targeted to reach £800m in the next three years.

“We will spend £100m to £150m on a multi-channel platform which we will own. Amazon has been fantastic with scale and security and they are the two things that worry me most,” he says.

Stein took on responsibility for M&S’s supply chain in 2008 when the then CFO Ian Dyson asked him to increase his portfolio. At the time the food part of the department stores had its own supply chain, as did the general merchandise and home goods sections.

“I said we need to run them together to save costs. I had done it with IT,” he says of how he was chosen to head supply chain and logistics.

“There are big synergies between the two roles. You have big operational budgets, so the back office has to as cheap as possible: it is a service function. Also a third of it is outsourced, so all the supplier management skills are required. There was a lot of change and project management required.”

Stein says the stark difference was in the culture of the two departments: “The skillset in IT is very structured, so the project skills are inbuilt to IT people. In supply chain I had to do a lot more training about what a project office is and how to achieve benefits and reduce costs. In IT you learn that as you go through the grades.”

The challenge that M&S faced was that in general merchandise it had a large supply chain that often handled goods multiple times before they got to the store or to the customer, which increased costs. Today M&S is totally transforming its supply chain, slashing the number of warehouses it operates from 110 to fewer than 10, and will be operating four ‘megasheds’ – there are two already up and running in Bradford and Castle Donnington and two more to come.

These new warehouse operations are major IT projects for the CIO. They are fully automated and boast mechanical picking machines.

Although he wears two hats for M&S, the CIO reports to the CFO, but is sanguine about not reporting to the CEO. “The CFO reports to the main board. It makes no difference who you work for. I have had two bosses since I came here and I have never concerned myself with it.” Stein gets out to a store or one of the warehouses every couple of weeks and spent Christmas Eve on the tills at Brent Cross, learning first-hand how his systems stood up to the busiest day in the national retail calendar.

Stein is like an M&S store, he’s bright and the pace is fast as the sentences tumble from him. The CIO embodies the culture of M&S in 2011: you can be bright, modern, fast and effective, yet still true to your traditional values.

CV: Darrell Stein

2006-present: CIO, Marks and Spencer 2001-2006: CIO – UK IT, Vodafone 1996-2001: IT and Change Programme Leader in the financial services, retail and utility sectors, Ernst & Young 1994-1996: Project Manager, Mars 1990-1994: Analyst and programmer, Marks & Spencer