At the start of 2020, most retailers experienced five years of change in just five months.
Digital transformation at breakneck speed isn’t anything new to an industry which has undergone a radical makeover throughout the past few decades. However, this time felt different.
The disruption – which has sped up digitalization of the customer experience substantially – wasn't only brought on by a global pandemic. It was a perfect storm of factors, which include:
- Dwindling brick-and-mortar presence and traffic.
- Increased e-commerce reliance and functionality.
- Thinning profit margins.
- Ageing legacy IT infrastructure.
These headwinds pushed retailers’ cart so far in front that the horse – which in this case are the technology teams behind these companies and the ability to pay for these changes – is still trying to catch up. That’s to say that retail’s digital transformation isn’t over; it has only just begun.
Many Fortune 500 retailers with large IBM IT infrastructures are looking at third-party software support to cut costs and position their IT teams for success amidst the chaos. In identifying funding to accelerate digital initiatives, and a partner to maintain uptime and help with migrations, retailers that switch to third-party support gain the agility and resiliency they’ve sorely needed.
The Perfect Technological and Budgetary Storm
In the years leading up to 2020, retailers experienced a shift from large crowds to hordes of clicks as consumer spending trended digital – especially for holidays like Black Friday.
The global pandemic accelerated the transition to an online-only experience as in-store shopping became restricted. Companies like Amazon, which had considerable infrastructure and an engaging online experience, performed well.
However, many large retailers – even those which had been successful for a number of years prior – struggled with the change. With most of them in the process of upgrading their digital infrastructures, the increased traffic weighed heavily on their legacy IT systems.
The dramatic shift to online spending isn’t changing and retailers recognize the need to upgrade their legacy IT infrastructure to more agile technology stacks. These initiatives will help reinvent the customer experience by introducing transformative technologies like augmented reality, but they won’t be easy to take on or quick to complete.
Retail faces a thinning profit margin that has fallen from roughly 4 percent in 2017 to 2.67 percent at the end of 2020, according to CSI Market. It puts companies striving for digital transformation between a rock and a hard place: they don’t have the extra budget to fund these projects, nor do they have the extra funding to hire more technical resources to carry them out.
Apart from the need to introduce new digital products on the front-end and back-end, technical teams also face the complex challenge of building resilience into their legacy IT solutions. Many IBM software stacks have been running stable versions for years, but the steady increase in traffic poses a threat to that consistent uptime.
These software solutions need to be reconfigured to handle modern-day challenges. But with time heavily split between maintenance and new initiatives, they struggle to find the capacity to accelerate these plans. Gaining a strategic IT partner can provide the support necessary to safely extend the lifecycle of legacy products – while buying your team more time and resources to tackle higher priority projects.
Identifying IT Savings and Improvements for Retailers
Retailers understand what they need to do: commit to digital transformation and supply the funding and resources to see it done successfully.
But where are they going to find the budget and technical expertise?
One area of the budget that Origina’s retail customers are evaluating is Application Infrastructure and Middleware (AIM).
Many retailers have extensive AIM software stacks, especially those that have invested heavily in omnichannel strategies. In-store inventory needs to blend seamlessly with what the website shows interested customers, and the back-end needs to be able to handle an influx of orders – whether it’s for shipping or in-store pick-up.
It shouldn’t come as a surprise then that retail is responsible for the 7th-highest amount of AIM spend in the world, according to a report by Gartner. In fact, these technologies account for roughly 5 percent of retailers’ average IT budget.
However, Origina’s research tells a different story. Through customer Feasibility Assessments – which gauge how much companies can save by switching – Origina’s data shows that retail companies with IBM software within their AIM infrastructure are spending at least 11 percent of their budget on it.
This means retailers with middleware like WebSphere are likely spending twice as much as their competitor on maintaining that software.
At many retailers, this overspend represents millions in budget that is better spent somewhere else. Identifying a way to bring those costs down without impacting IT operations or limiting service is a key advantage in the race for digital transformation.
Turning Middleware into A Competitive Advantage
Retailers should have three short-term goals to keep up with the pace of change in the industry:
- Reduce IT spend on support and maintenance for AIM (i.e., cut spend by 50 percent).
- Maximize the stability, uptime and capacity of current legacy IT infrastructure.
- Allow existing IT team members to focus on digital transformation projects.
Third-party support for IBM software positions retailers to succeed at all three. Origina saves companies 50 percent annually on software support costs, enabling them to reduce their budgetary spend on AIM by half to bring it to the industry average.
What many retailers realize once they switch to Origina though, is that third-party software support isn’t only a source of savings. With each independent Global IBM® Expert having 15+ years of experience, retailers’ IT teams also gain a trusted IBM partner with their dedicated support.
These Global IBM® Experts play an important role in helping retailers maximize their legacy IBM software investments. With years of experience – and some even serving as the initial product architects for the software they support – Origina’s support team helps retailers rearchitect their IBM software to ensure it is running as peak performance.
Subtle changes in the software configuration can result in powerful improvements to its stability. Argos, for instance, was able to eliminate downtime during Black Friday by switching to Origina – a feat that wasn’t possible while it was getting support from IBM.
At the same time, Argos was able to generate tens of millions in savings during the switch. Those funds were driven by more affordable support and maintenance costs, as well as avoiding unnecessary costs like upgrades and similar projects that are encouraged by the vendor.
Last, but not least, Origina’s dedicated IBM software support enables retailers’ IT teams to shift their focus from maintaining legacy products toward innovative new projects. These are digital initiatives that will change the customer experience radically and enable companies to remain competitive.
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The retail industry is evolving rapidly to account for changing consumer demographics and needs. However, the average IT infrastructure general perspective on legacy software has remained stagnant.
Third-party software support is the missing piece to unlock the full potential of retailers’ digital transformation strategies. By capitalizing on a new source of savings and technical expertise, retailers can gain a competitive advantage in an industry with razor-thin profit margins and few secrets.