January 16th, 2007
CIO: Help my software vendors are squeezing me
There's a downside to software acquisitions. These newly bulked up giants will increase your software maintenance and support costs.
Just ask Eric Wilson, CIO for Raley's, a California supermarket chain with more than $3 billion in revenue. At a National Retail Federation panel Wilson bemoaned his escalating software costs.
"If you take labor our biggest cost is software maintenance. One of our pet peeves is how much software maintenance has gone up over the years. It used to be 10 percent a year now it's like 20 percent. Now it's going to drive us to make our own solutions."
So who is doing the squeezing? Everyone including Oracle and Red Hat. "Poll CIOs on how much their software maintenance costs have gone up," says Wilson. "It's not just me."
[POLL=44]
"These companies are selling investors on recurring revenue and delivering," says Wilson. He notes that software vendors are increasingly negotiating off of their retail list prices and bundling maintenance and support. A few years ago, a customer could pick and choose what support features they wanted.
As a result, Wilson says he's stepping up his deployments of open source software. The goal: Don't be too dependent on any one vendor. "Most of our business runs on Red Hat Linux and we're driving that to back end. We develop on Eclipse," says Wilson.
Wilson, who was on a retailing panel with Charlotte Russe CIO Ed Wong and Dick Bauer, CIO of Price Chopper, hit a nerve. Increasingly, these CIOs are looking to service oriented architecture to build components that can serve as an ERP system. These CIOs were wary of being dependent on a "monolithic vendor." Meanwhile, ERP is lacking core components such as being able to keep tabs on variable weight inventory needed for the grocery business.
"ERP vendors don't have grocery capability," says Bauer. "There's a big opportunity for those that get it right for ERP for groceries. It's not fleshed out for what need."
Among other key themes:
–Wong has replaced his company's merchandising systems, business analysis tools and data warehouse applications. He's also rolling out new point of sales systems, workforce management software and CRM. For these investments he has a few theories:
1). Buy off the shelf and customize nothing.
2). Outsource whatever you can. In Charlotte Russe's case that means "we outsourced our entire infrastructure."
3). Consider being an early adopter to keep those software costs down. "If you are an early adopter you get tremendous leverage," says Wong, who has relied on JDA Software to overhaul much of Charlotte Russe's technology.
–RFID is a non-starter. No CIO on the panel has started an RFID pilot. Returns just aren't there and the technology isn't developed enough.
–Labor is tight. Bauer has been partnering with local universities such as the University of Albany and Rochester Institute of Technology near Price Chopper's Schenectady, NY headquarters. "Help is hard to find. We needs more business analysts too," says Bauer.
Larry Dignan is Editor in Chief of ZDNet and Editorial Director of ZDNet sister site TechRepublic. See his full profile and disclosure of his industry affiliations.
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