Wal-Mart’s IT Group Has Come a Long Way: Is India Next?
Wal-Mart, famous for its high-flying IT group that until recent years refused to use packaged applications instead of home-grown apps, is now reportedly evaluating a business process outsourcing (BPO) contract in India. Outsourcing tasks such as procurement, merchandising and payroll would be a stunning new chapter in Wal-Mart's IT story.
By Thomas Wailgum
For too many years, Wal-Mart’s high-profile CIOs and much-discussed IT department were trapped in what now seems like an archaic mindset: They relied almost exclusively on retail applications that were developed in-house, because they believed that no vendor’s packaged apps could scale to meet the global retailer’s complex requirements.
In October 2007, CIO.com published “How Wal-Mart Lost Its Technology Edge,” an article that examined how Wal-Mart’s internal IT department had contributed to the retailer’s fiscal problems that began with stagnant sales in 2005 and ran into 2006 and 2007.
The ISD group, as it’s known internally, had distracted itself with a cutting-edge radio frequency identification (RFID) program that frustrated its suppliers. In addition, the ISD group had yet to adjust to the realities of the new Web 2.0 world. Consequently its online sales lagged rivals’ efforts.
Wal-Mart and its IT shop—with former CIOs and IT leaders such as Bob Martin, Randy Mott, Kevin Turner, Rick Dalzell and Linda Dillman—had been known for its killer instinct and pushing too far, too fast with some supply chain applications that flustered its suppliers and sourcing partners, those partners say.
Wal-Mart’s ISD group lost its reputation as a cutting-edge business-technology leader, the article contended, and the “take no prisoners” attitude had, in some ways, backfired. The world’s biggest retailer and the ISD group were at a crossroads.
But by late 2007 and on into 2008, Wal-Mart began to (quietly) change its one-note software tune: It purchased Oracle’s retail price-optimization application and HP’s Neoview data warehousing and BI platform to crunch the customer data it collected in its 4,000 U.S.-based stores. In addition, Wal-Mart announced that it was implementing SAP’s ERP Financials package for its global operations. (Wal-Mart brass expected the first phase of the ERP project to be rolled out in 2010.) Wal-Mart had even sought help with its Web 2.0 e-commerce efforts, which it desperately needed.
At some point, Wal-Mart also began to explore (again, quietly) a “remote sourcing model for IT activities,” according to the company, a change that was both economically sensible and a bit surprising.
Wal-Mart Considers BPO Outsourcing Deal?
Now comes news that Wal-Mart executives and ISD leaders are considering the once unthinkable: Wal-Mart is evaluating a business process outsourcing (BPO) contract worth approximately $300 million to $500 million in India, as it evaluates whether “to outsource non-core processes of procurement, merchandising, finance, accounting and payroll,” according to a recent article in The Economic Times.
Sources told The Economic Times that IBM, TCS, WNS and Wipro are in various stages of discussions with Wal-Mart. Though Wal-Mart has never signed on to a BPO or IT outsourcing deal, the current economic challenges “are making the retailer seek more cost saving options including outsourcing of non-core processes,” according to one source quoted in the article.
Without elaborating on specifics, Wal-Mart spokesman John Simley writes via e-mail to CIO.com that facts in the Economic Times article are “entirely false.” (A follow-up e-mail to Simley was not returned.)
Of course, Wal-Mart already has some presence in India. Wal-Mart states on its website that it “will expand staffing of certain elements of IT application maintenance and development with some of India’s leading information technology firms,” according to a 2008 Wal-Mart fact sheet. This being a hot-button issue for a company that tries to cultivate a pro-America image, the fact sheet also notes that the Wal-Mart is “hiring hundreds of new positions in Northwest Arkansas this year.”
“India is one of several countries that the company is targeting as part of its remote sourcing model for IT activities,” states the fact sheet. “The global expansion will encompass projects that range from the tactical to the strategic in order to provide necessary support for the company’s growing business around the globe.”
Did IT Play Role in Good Q4 Results?
In February 2008, when Wal-Mart released upbeat fourth-quarter results, then President and CEO Lee Scott attributed Wal-Mart’s recent successes to “pricing strategies” and “improved customer service,” citing cleaner stores, fewer out-of-stock products and faster checkout lanes.
The consensus from retail and IT analysts: Directly attributing Wal-Mart’s quarterly success to IT’s efforts and Wal-Mart’s newly installed retail applications wasn’t easy to determine. Although one analyst noted that the massive SAP implementation had “deleveraged” the retailer’s earnings.
Now, a year later and amid a deepening recession, Wal-Mart reported the strongest fourth-quarter results in its history, at nearly $108 billion in sales, which was an increase of 1.7 percent compared with $106.2 billion for the same quarter last year. Of course, much of that fiscal success can be attributed to the down economy and desperate consumers lured to Wal-Mart’s “everyday low prices.”
But still, the ISD group likely deserves a modicum of credit for taking advantage of robust packaged applications now available as well as the possible move toward outsourcing to India.
Will ISD get back some of that swagger that helped shape the department in its heyday? That’s yet to be determined.