The past two years have marked a period of IT renaissance at Marks & Spencer (M&S), with the high street giant undergoing a transformation of its technology setup to remain competitive.

Despite the fact the retailer intends to reduce its overall capital spending, it will still spend about £400m of its £700m budget on supply chain and IT systems in 2009/10.

When IT and logistics director Darrell Stein – a nominee for this year’s IT Leader of the Year prize in the Computing Awards for Excellence – returned to his M&S roots in 2006 (See Career path: Darrell Stein, below), there was a “disconnect between IT and the business”, caused by a period of under-investment in equipment and systems as well as the need to modernise the group and understand IT spending.

The first area where Stein introduced change was personnel. At the time, the business relied heavily on 420 daily paid contractors who, in some cases, had been working for the company for 25 years. By comparison, the business had about 300 permanent IT staff.

“We had a set of people who had not been in a position to execute change, mainly because M&S had introduced a number of new systems between 1988 and 1994 then did nothing major until 2006,” says Stein. “So we recruited a stronger management team that would be more capable of executing change.”

On his second day, Stein gathered together all the IT staff. Halfway through his presentation, he asked all the contractors to leave the room to illustrate the issue.

“I do not think the permanent staff realised how many contractors we had. Contractors were paid regardless of whether they delivered the job, whereas the business did not get the value if a project was not completed,” says Stein.

“So we put a much stricter process in place to better manage our contractor work, ensuring there was a strong business case for every contract so we got the best value.”

A major recruitment campaign, dubbed “IT transformed”, was launched, alongside a graduate scheme, mainly funded from the reduction of contractors. Today, M&S employs a little fewer than 100 freelancers and the same number of in-house workers.

The creation of a new IT strategy took place at the same time as the staff review, as M&S started to transform its old setup, which had different systems for food, merchandising and retail, into a more centralised technology structure.

A review of the supplier base was also required to deliver “more for less”. All contracts were reassessed and tactical sourcing changes made in the strategy – such as a £19m managed services deal with Computacenter, where some contractor services were bundled up to generate savings. As a result, the group’s base of 200 vendors was reduced to about 40 companies.

A big part of the new plan was establishing a better relationship between IT and the business, which involved technology staff based at the IT department in Stockley Park and at the company’s headquarters in central London.

To that end, a “store buddy” programme was introduced, where the top 100 IT staff ranked by salary – including Stein – are responsible for the smooth running of one store out of the group’s 600-strong network.

“A lot of our IT staff at Stockley had never had the opportunity to work instore, and if you have not done that you won’t necessarily know what a till looks like,” says Stein. “So this programme was a way to encourage IT staff out of the office and closer to the business.”

The strategy initially focused on refreshing customer-facing systems. Highlights of the results delivered since summer 2007 include the replacement of 14,000 ageing tills and the relaunch of an e-commerce platform in partnership with Amazon, which improved functionality, searching and navigation.

“It was all about focusing on projects that drive customer value first and doing the rest later. We are now moving into the middle back-office stage, looking at supply chain platforms and other systems such as human resources,” says Stein.

M&S is also driving efficiency in infrastructure by carrying out an optimisation programme at its two datacentres using virtualisation software from VMware, which is playing an increasingly prominent role in new applications as the legacy estate is replaced.

Logistics, Stein’s other responsibility, will also be transformed under the same model used for IT, though that division has a much bigger spend in comparison with technology.

“It is a different part of the business, but a lot of the challenges are the same, such as how new investment is funded, how to build new capability to change things and how to establish a good relationship with the business as a service function,” says Stein.

“We will use IT as a key enabler for change in that area. When you move to a modern logistics function, the first thing to do is to put new systems in place to support it and we are in the process of doing that.”

As the transformation continues, the hardest part of Stein’s job is ensuring that M&S keeps a close eye on its cash.

“You are in an area that must be visible, so people know that you are able to deliver projects in a cost-effective manner,” says Stein.

“It is very easy to be a cost cutter. But the real challenge at M&S and for most IT leaders at the moment is to be a cost cutter and an investor at the same time, without compromising service levels.”

See page 2 for more on how M&S balanced its IT budget