Going through my Inbox in preparation for getting back in the saddle after a long and hot holiday weekend, I was greeted by the usual “just-push-the-delete-key ” e-mails with subjects like “25 life-changing food prep tricks “, “How to Get Windows 8.1 Now “, and the always popular “It’s The Event Of The Season! ” But one subject line did catch my eye: “Why Does IT Struggle To Innovate? “, from Retail Week (a UK-based retail news website & e-newsletter). The headline is yet another version of an industry-favorite question, “why isn’t IT more effective in delivering business value? ” My RSR partner Paula Rosenblum and I (both recovering CIO’s), were the primary authors of RSR’s IT focused studies in the company’s early years, but we decided to discontinue the study in 2011 because frankly the answers to that question never changed.

The answer is actually quite simple, and the white paper that Retail Week is promoting (from Outsystems), puts it right out there for all to see: 80-85% of the IT spend in retail goes to “keeping the lights on “. You CAN’T be surprised. But rather than go on the typical exploration about this’n’that operational inefficiency, I thought it might be useful to put the discussion into the overall context of commercial computing, and relate it back to Retail. So, ‚Äòhere goes….

Where We Are

In our “Selling Technology Value to Retailers ” seminars, there’s one picture that always gets a laugh. Here it is:

Aside from all the fun we can have with questions like, “where’s the Mouse? ” or “what are all those dials for? “, there is one important piece of information in the footnote, and that is that the Rand Corporation made its projection about home computing in 1954 – just about 60 years ago. That’s about the time that the idea of commercial computing first started to be taken seriously by businesses generally.

There’s a thought-piece from 2009 by Steve Duplessie of ESG, a research firm focused on technology trends, that spells out what has happened technology-wise in the intervening 60 years since Rand’s futuristic projection. According to Duplessie, the first phase of commercial computing was the Transactional Computing Era, and computing’s value was in accounting and core process automation. Then came the Distributed Computing Era, which was driven by one business objective: to cut costs and increase efficiency.Next up was (and still is) the Internet Computing Era, characterized by the fact that “anything and everything that can connect to the network has the potential to create, access, and move data. ” Of course, this is where “big data ” is coming from (see Paula’s Forbes blog posting for a discussion about “big data ” in retail).

You can plot your own company’s progress through these phases (and by the way, remember that companies didn’t abandon their transactional computing capabilities when they moved to distributed computing, and didn’t drop them both when the Internet became viable for business or consumer use), but one thing ought to be clear: commercial computing is driven by a still-emerging set of technologies. In other words, commercial computing hasn’t yet matured to the point of stability that other industries have (or example, manufacturing or oil refining). New technologies are being announced virtually every day.

Code: Still Written by Humans

Back in the late-80’s, I had the chance to see one of my personal heroes speak, Gerald Weinberg. Weinberg wrote two books that helped me to get focused on becoming a professional IT’er, The Psychology Of Computer Programming (1971), and Becoming a Technical Leader: An Organic Problem-Solving Approach (1986). At the podium on that day, Weinberg solemnly said, “I’m going to prove to you that computer programming is harder than brain surgery “. After the laughter subsided, he intoned, “I’m perfectly serious “, and then explained that while the human brain could recover full functionality after thousands of neurons (biological off/on switches) were removed in the process of removing a tumor, it only took one bit (an electronic off/on switch) to be out of place to cause the then-prevalent commercial computer operating system, IBM’s MVS, to crash. Weinberg estimated that the human brain and MVS had roughly the same number of off/on switches. Ergo, “computer programming is harder than brain surgery “.

That dynamic hasn’t changed one iota since then- code is still written by humans, and humans make mistakes. And that is the single biggest reason for those well-known maintenance percentages quoted by Retail Week. The white paper calls that “wasted money “. Really? This is not an excuse for IT’ers, it’s a fact. Deal with it.

IT Spending in Retail

I asked our good friend Greg Buzek, President of IHL Group (a company that focuses on customized business intelligence for retailers and retail technology vendors with particular expertise in supply chain and store level systems), what the general estimate of retail IT spending is as a percent of sales (on a cash basis, to include both P&L and capital spending). His answer: 1.6% (to give this some perspective, about 30% of revenue is reportedly spent on IT at Amazon). Applying the afore-mentioned percentage of average spend devoted to keeping-the-lights-on, that means that something in the area of 1/3 of 1% of revenue is going towards new stuff.

Put simply, even the best, most “business-aligned ” CIO can’t make something from nothing. But all is not as hopeless as it might seem. In RSR’s June 27^th webinar (where we ID’ed five over-arching themes from the Spring’s many conferences: Next Generation POS/Store/Ecommerce Engine, The Buy Side of Omni Channel, The User Experience, High Performance Computing, and The Cloud), I mentioned that while the logic of moving the company’s computing capabilities to the cloud might not be enough to convince retail IT departments to let go of their insistence on having everything on-premise, necessity might.

InformationWeek recently published a non-industry-specific study on IT spending trends for 2013, and several seemingly “infrastructural ” (as in, “geeky “) projects are top priorities for IT shops. They are:

• Improve Security
• Upgrade Network Infrastructure
• Upgrade Wireless LAN
• Upgrade WAN
• Adopt or increase use of public Cloud services

It could certainly be argued that the first four make the fifth do-able. But here’s the interesting part: all of these projects have the long-term objective of lowering operational costs, i.e. the cost of “keeping the lights on “.

Additionally, two other projects (Server Virtualization, and Upgrade Store Infrastructure) that are related to another of the themes RSR identified – High Performance Computing – also have the long term objective of lowering operational costs.

All well and good. But here’s the big challenge for IT leaders. There are very few retailers that won’t want to “bank ” any expense-side saving that can be squeezed out of operations. But CIOs need to convince their business partners to resist that urge, and to instead re-direct the savings towards value-adding projects. Short of turning on the money spigot, that it the only other way that retailers will ever be able to change the dynamic that causes the business to ask, “why isn’t IT more effective? “