20 Jul 2006View Comments
High-street retailer Boots has spent £350m and three years overhauling its IT infrastructure to improve efficiency and deliver new services to customers.
The company has completed its transformation and is now preparing to enter what it describes as the realisation phase.
Group IT director Rob Fraser says Boots is focusing on reducing IT spending and making the most of existing investment.
‘We invested about £100m a year in the past three years and now want to drop down to £25m or £30m, but this includes building on the foundations we have put in place,’ he said.
Fraser says Boots has touched nearly every element of its IT infrastructure, including the outsourcing of its data centre, in-store systems and networks.
It has also replaced ageing central legacy systems with enterprise resource planning (ERP) software from vendor SAP, which is serving as the backbone of its operational IT system.
The company has installed new PCs in its back office, replaced the store network and introduced touchscreen tills.
‘This renewal took our IT infrastructure to industry-leading levels. Now we need to get it to work for us and derive the value from our systems,’ said Fraser.
‘We designed the contracts for a big transformation, but we are entering a phase where we expect to spend less on IT infrastructure, so we needed to change the contracts to reflect where we are heading,’ said Fraser.
‘We now have different needs and, having spent the money, one of the benefits we want is a more efficient IT operation.’
Boots wants its outsourcing partners to help to reduce its IT spending. But this will inevitably mean they are paid less, so Fraser says it is important that incentives are put in place.
‘Unless we do something different, such as gain-sharing on efficiency savings, there is little incentive to help,’ he said. ‘But it is not a trivial matter, because every gain share we do erodes the savings we are making.’
Boots has also employed Indian outsourcer Tata Consulting Services. The retailer offers work to more than one partner to increase competition, with a view to cutting costs and getting the best value from contracts.
Fraser says Boots’ IT investment for the next few years will be determined by cross-industry and local trends.
‘Cross-industry trends include the government’s IT agenda on health, which requires a response from all pharmacies,’ he said.
Company-level trends are determined by the retailer’s market position.
‘One of the biggest areas of spending in the coming year will be development of IT for healthcare alongside the NHS,’ said Fraser. ‘This includes eprescriptions and a new scheme launched in Scotland this month.’
The minor ailment electronic scheme is intended to provide basic tests and treatment for ailments at pharmacies such as Boots rather than at a GP’s surgery. Boots can register people online and access patient records from a national database.
Local issues that will give the retailer the opportunity to move ahead of its competitors include improved fraud detection, deriving greater benefit from SAP applications, and rationalising its supply chain following its merger with Alliance UniChem.
‘Alliance UniChem’s supply chain is very good at taking medical products to stores, while ours is good at supplying beauty products,’ said Fraser. ‘We won’t replace one supply chain, but rather optimise both.’
Fraser says the biggest challenge for IT departments in retail in coming years will be moving IT out of the back office and adding value on the front end.
‘If we can use tools to spotlight promotions that make money, identify those that don’t, and offer insight into our retail trade, we can add value to the company,’ he said.
Ovum analyst Gary Barnett says the investment Boots has made has ensured a leading-edge IT infrastructure.
But other pharmacies are catching up fast, as the sector looks to diversify into other areas such as health, and increases services such as basic tests and screenings to take some pressure off GPs.
‘This makes Boots’ IT requirements more complex,’ said Barnet. ‘Having discarded its old technology for a new, more stable infrastructure it must have the flexibility to integrate new technology not considered at the time of renewal.’
He says Boots’ plan to get the most out of its assets is a sound strategy, particularly in retail, where margins are tight; and its £350m investment now makes its IT a significant asset.
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