Friday, April 07, 2006

An inside peek at Wal-Mart's IT systems

Wal-Mart's CIO, Linda Dillman, gave a keynote in Las Vegas at the Forrester IT Forum 2006 earlier this week, and I found it to be one of the highlights of the conference. Dillman wasn't the typical keynote speaker, talking about "my vision for the future of IT." Rather, she presented practical insights into the IT function for one of the world's largest and most successful businesses.

IT strategy
Dillman outlined three principles for IT at Walmart. These reflect Wal-Mart's strategic "IT maxims" (although she didn't use that term), which guide development and deployment of all IT systems and capabilities.
  • Merchants first. IT personnel at Wal-Mart should be merchants first, and technologists second. IT talks to customers (users) not in terms of technology but in terms of the business. "Our users don't know much about our technology platforms or tools. They shouldn't care whether we are running mainframes or UNIX," she said.
  • Run common systems and common platforms. Wal-Mart runs a single system with a single set of code worldwide. "The first thing we do when beginning operations in a new country is to migrate store operations to our code," she said. "The cost advantages are huge: Our IT budget is well less than one-half a percent of sales. We can do this because we do not have to invest in multiple systems."

    In addition to the cost benefits, the single-system approach allows Wal-Mart to leverage best practices, which are embedded in the system, across regions. When up-and-coming executives transfer to a different part of the world, they have the same system and processes that they have been used to in their old job. This supports Wal-Mart's leveraging of human resources worldwide.
  • Centralized information systems. Wal-Mart runs all worldwide information systems out of its headquarters in Arkansas, with a second data center providing backup and failover. "A point-of-sale transaction entered in China comes back to Arkansas for credit card authorization and then returns to China to complete the sale," she said. "The whole process takes place in less than half a second."

    One benefit of this approach is that most of Wal-Mart's developers are in one place, allowing them to more easily collaborate. The second benefit is that the developers are located in the heart of the business, eating lunch with buyers and talking about issues in retailing. This keeps the developers tuned in with the real concerns and needs of the business.
Regarding best practices, Wal-Mart takes a middle ground. On the one hand, it does not force all regions worldwide to do things exactly the same way. Nor does it let each region do its own thing. The middle ground is to define the best practices specifically for each region.

Wal-Mart believes that some core functions apply to all regions. For example, "every day low price" can and should be applied in all markets, regardless of what the local managers think from their past experience. They do not need to do special price promotions. "When local managers change over to every day low pricing, they find that it does work and they never look back," she said. "This is non-negotiable."

Other practices can vary by market, and when Wal-Mart finds a new best practice in a local market, the developers program it into the core system. "Localization is handled by turning things on or off. In some cases, we turn off large blocks of functionality for small markets, because it would just hurt their productivity," she said.

Wal-Mart's supplier network
Dillman spoke about the growth of Walmart's digital network, now known as RetailLink, which was initiated in 1991 as a data warehouse providing daily sales data. According to Dillman, at the time, if they had done an ROI analysis on this initiative, they would have never approved it. "We just did it on gut instinct," she said.

The development of Retail Link, by which suppliers today have access to sales, shipment, orders, returns and other data on their products in Wal-Mart stores, flies in the face of retail mentality. Traditionally, because knowledge is power, retailers and suppliers do not share information. But Retail Link has shown the value to both parties of making information available.

Wal-Mart's RFID initiative has also shown the benefits of information sharing. Gillette, for example was able to tell from RFID data which stores did not get product out to the selling floor in time for a new product launch date and was able to discount such stores from their sales analysis. A smaller supplier that provides Christmas seasonal merchandise was able to track pallets through Wal-Mart's distribution chain. They saw that a group of pallets went into a DC but were not moving out to stores. They alerted the DC to the problem, which was able to expedite delivery to stores in time for the holiday season, saving the supplier from having to suffer lost sales and mark-downs.

Wal-Mart's development practices
Dillman was asked about Wal-Mart's view of buying versus building its applications and whether it was making use of service-oriented architectures (SOA) in development. She indicated that Wal-Mart does use some packaged applications for some functions, but for the "core" system, it is all in-house developed code.

Regarding SOA, she took a pragmatic view. She indicated that SOA as a technology will not by itself lead to faster and more flexible software development. She attributed Wal-Mart's success in developing and extending its core systems to the fact that they write all their own code and do so in a highly modular approach. In recent years, as Wal-Mart's IT group has gotten much larger, it has had to formalize its best practices so that they can be promoted among all staff members. This, in her view, is more important than the technology of SOA.

Dillman's presentation gave me a different perspective on Wal-Mart. Wal-Mart has long been known as a company that pushes its suppliers to do business electronically, and much of what is written about Wal-Mart in the technology press is from the perspective of the supplier that has to comply with Wal-Mart's mandates. But Dillman's presentation provides a different perspective--from inside Wal-Mart--and it shows how one very large organization uses IT to a competitive advantage, while spending much less on IT than most of its competitors.

Related posts
Wal-Mart launches RFID pilot, but will privacy concerns stall adoption?
Outsourcing: what would Wal-Mart do?
Wal-mart suppliers face October deadline for Internet-based EDI

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