“I never viewed computers as anything more than necessary overhead,” Sam Walton once said. Nevertheless, after I wrote “IT Doesn’t Matter” back in 2003, critics would routinely present Wal-Mart as the killer counter example to my argument that information technology rarely provides a competitive edge anymore. Wal-Mart had famously set itself apart from its retailing rivals, IT analysts would point out, by building a lot of highly customized IT systems that its competitors were hard-pressed to match.
It was true, but it was also telling that the most prominent counter example relied on systems built years earlier, when business software was in a much earlier stage of maturation and commoditization.
Now, with commodity software greatly advanced, Wal-Mart’s custom systems have turned from advantage to disadvantage, and the IT analysts have changed their tune. As CIO magazine’s Thomas Wailgum writes in How Wal-Mart Lost Its Technology Edge:
“Wal-Mart was making their margins on sourcing and great technology systems, but everyone has got that now,” says Patricia Edwards, a portfolio manager and managing director at Wentworth, Hauser and Violich who focuses on retail … Furthermore, analysts say that Wal-Mart’s reliance on homegrown IT systems—and its conviction of their superiority—needs to change. [CIO Rollin] Ford and his team, they say, must bring in best-of-breed commercial applications, such as BI and price-optimization tools, that can help it compete with rising retail superstars such as Target, JCPenney and Tesco. “We cannot overestimate how much packaged software can help them right now,” says Paula Rosenblum, an analyst and managing partner with Retail Systems Research.
And switching from homegrown systems to packaged software is exactly what Wal-Mart is doing. The company has recently purchased off-the-shelf pricing and business-intelligence software from Oracle and HP, and on Thursday it announced it would install an SAP system for financial management and reporting. It was, as Wailgum reports, “another piece of evidence that the IT strategy of the world’s biggest retailer is shifting in favor of packaged applications.” SAP, in a press release, noted that the software would “replace some legacy systems.” That’s the way it is with IT: the custom systems that once set you apart are now the “legacy systems” that hold you back.