Technology Strategy

More Than You Want to Know About State Street Bank’s Technology Strategy Part 3

This article is a continuation of my earlier analyses (Part 1, Part 2 here) where I waded into State Street’s strategy for Technology Infrastructure, IT Capability and Staffing, Information Risk & Security, Stakeholder Requirements, and Project ROI. In this final part of my three part series I will broach the company’s strategy for Data Acquisition, Social Media, Organizational Change Management and Project Strategy. State Street’s cloud implementation and virtualization initiative is a worthy example of business strategy/need influencing the firm’s information technology strategy.

State Street: Strategy for Data Acquisition and Impact on Business Processes:

The nature of State Street’s business as a custodian bank with trillions of dollars under custody management and multiple clients distributed worldwide means that the organization houses and processes a tremendous amount of data (internally generated and externally collected). The sheer volume and complexity of this data presents challenges as the bank looks to file regulatory reports and provide data back to its clients. The company receives an untenable 50,000 faxes a month from its client base (Garber, 2016). According to consulting firm Accenture, “(State Street) was unable to adequately track trades through each step in the trading lifecycle because there were multiple reconciliation systems, some reconciliation work was still being done manually and there was no system of record. To maintain industry leadership and comply with regulations, the company’s IT platform had to advance” (Alter, Daugherty, Harris, & Modruson, 2016).

The bank’s cloud initiative helped facilitate and speed up the burdensome process of transferring data back and forth between its clients. In addition, (as of 2016) a new digital initiative (code named State Street Beacon) will potentially help drive more cost savings. The cloud architecture project was a boon to data analysis capabilities as it enabled clients to access their data in the State Street cloud and subsequently enrich the data from multiple sources to support forecasting (Camhi, 2014). In this case, the bank’s infrastructure as a service (IaaS) enabled platform as a service (PaaS) capabilities.

The bank has embarked upon the development of 70 multiple mobile apps and services that support its PaaS strategy. In one case, the bank developed a tablet and mobile accessible app for its client base named State Street Springboard. This application put investment portfolio data in the hands of its client base. Additionally, “Since State Street’s core competency is transaction processing, its Gold Copy app is one of the most important new tools it offers: The app lets a manager follow a single ‘gold’ version of a transaction as it moves through all of the company’s many departments and office locations — say, as it makes it way through trading, accounting, and reporting offices globally” (Hogan, 2012). This capability of the Gold Copy app enables more effective management of counterparty risk as an asset moves through the trading process.

State Street’s new infrastructure and massive data collection provides the bank with new big data capabilities that can better inform business units in the area of risk management. Data insights can potentially fortify stress testing, “What-If” and “Black Swan” scenario modeling. As we’ve seen in the recent 2016 case of Britain’s pending withdrawal from the European Union (i.e. “Brexit”), uncertainty in global financial markets is a certainty.

State Street: Strategy for Social Media/Web Presence:

            State Street has traditional Facebook, LinkedIn and Twitter social presences but it has also used other social platforms to support various aims such as employee interaction and brand awareness. The bank was named a “Social Business Leader for 2013” by Information Week. As part of a “social IT” strategy (in which technology supports a collaboration initiative), the company held an “Innovation Rally” on its eight internal online forums to gather employee ideas on how best to improve its business. From 12,000 total submitted postings, employees could attempt to build a business case around the best ideas for executive management to implement (Carr, 2013). The company also launched an internal “State Street Collaborate” platform with the aim of crowdsourcing employee knowledge to help people find an appropriate in-house expert regarding diverse work related topics of interest.

Additional social initiatives include a partnership with TED to provide employees the opportunity to give a “Ted Talk” in front of their peers; the aim is to promote knowledge sharing within the organization. The bank also experiments with a presence on the (almost defunct) video sharing platform “Vine” where it can showcase the organization in quick six second sound bites. This approach caters to clients and the future millennial talent base.

State Street: Strategy for Organizational Change Management, Project Strategy and Complexity:

            As stated earlier in this series, State Street started migrating its new cloud applications to production by selecting those with low volume and low complexity and then gradually ramped up to migrating the more complex applications (McKendrick, 2013). The standardization and virtualization aspects of cloud infrastructure that the bank implemented is conducive to agile development. Standardization and a reusable code approach reduces complexity by limiting development choices, simplifying maintenance and enabling new technology staff to get up to speed on fewer systems. Developers are placed in agile teams with business subject matter experts to provide guidance and to increase stakeholder buy-in. Per Perretta, “We circle the agile approach with additional governance to ensure that the investments are paying off in the appropriate timeframe” (High, 2016).

Another key approach the State Street uses to gauge project complexity is that of predictive analytics. The bank can help its internal business teams better understand the project costs and delivery timetables by analyzing historical data on all of the projects implemented over the years. The predictive analytics model uses inputs such as “…scope, team sizes, capability of the team, the amount of hours each team member spent, and ultimately, how well it delivered on these programs” (Merrett, 2015). As the business teams list their project requirements, the predictive model is created in real time which provides all parties with additional clarity.

Finally, it would be remiss to mention banking and transformation in the same breath without mentioning the requisite layoffs and outsourcing activities. For all the benefits of the bank’s cloud computing initiatives, technology workers who do not fit in with the new paradigm find themselves subjected to domestic and non-domestic outsourcing activities. A standardized infrastructure platform leads to fewer distinct systems in the technology ecosystem, an emphasis on code reuse and increased automation. This perfect storm of efficiency gains has lead to roughly 850 IT employees shuffled out of the organization to either IBM, India based Wipro or outright unemployment. Staffing cuts occurred amongst the employees who maintained and monitored mainframes and worked with other non-cloud based infrastructure systems. The bank was interested in shifting fixed costs for variable costs by unloading IT staff who were perceived as not working on innovative cutting edge technologies. The layoffs amount to “21% of State Street’s 4,000 IT employees worldwide” (Tucci, 2011b).

References:

Alter, A., Daugherty, R., Harris, J., & Modruson, F., (2016). A Fresh Start for Enterprise IT. Accenture. Retrieved from https://www.accenture.com/us-en/insight-outlook-journal-fresh-start-enterprise-it

 

Camhi, J. (2014). Chris Perretta Builds Non-Stop Change Into State Street’s DNA. Bank Systems & technology. Retrieved from http://www.banktech.com/infrastructure/chris-perretta-builds-non-stop-change-into-state-streets-dna/d/d-id/1317880

Carr, D. (May 30, 2013). State Street: Social Business Leader Of 2013. Retrieved 6/25/16 from http://www.informationweek.com/enterprise/state-street-social-business-leader-of-2013/d/d-id/1110179?

 

Garber, K. (February 29, 2016). State Street doubles down on digital. SNL Bank and Thrift Daily. Retrieved from Factiva 6/20/16.

High, P. (February 8, 2016). State Street Emphasizes Importance Of Data Analytics And Digital Innovation In New Role. Retrieved from http://www.forbes.com/sites/peterhigh/2016/02/08/state-street-emphasizes-importance-of-data-analytics-and-digital-innovation-in-new-role/#a211b1320481

Hogan, M. (September 3, 2012). State Street’s Trip to the Cloud. Barron’s. Retrieved from Factiva 6/20/16

McKendrick, J. (January 7, 2013). State Street’s Transformation Unfolds, Driven by Cloud Computing. Forbes. Retrieved from http://www.forbes.com/sites/joemckendrick/2013/01/07/state-streets-transformation-unfolds-driven-by-cloud-computing/#408e1acf64cf

Merrett, R. (April 2, 2015). How predictive analytics helped State Street avoid additional IT project costs. CIO. Retrieved from http://www.cio.com.au/article/571826/how-predictive-analytics-helped-state-street-avoid-additional-it-project-costs/

Tucci. L. (July, 20, 2011). State Street tech layoffs: IT transformation’s dark side. Retrieved from http://searchcio.techtarget.com/blog/TotalCIO/State-Street-tech-layoffs-IT-transformations-dark-side

More Than You Want to Know About State Street Bank’s Technology Strategy Part 2

This article is a continuation of my earlier analysis (Part 1 here) where I waded into State Street’s strategy for Technology Infrastructure and IT Capability and Staffing. In this second part of my three part series I will broach the company’s strategy for information risk and security, stakeholder requirements and project return on investment. State Street’s cloud implementation and virtualization initiative is a good example of business strategy/need influencing the firm’s information technology strategy.

State Street: Strategy for Information Risk & Security:

State Street has acquired a substantial client base and houses sensitive financial data that is subjected to regulatory scrutiny. Given the sensitive nature of its data and operations, the cloud infrastructure that the bank chose to implement was that of a virtualized private cloud. Former Chief Innovation Officer Madge Meyer stated, “We’re totally virtualized, our network is a virtual private IP network. Our servers are 72 percent virtualized and our storage is all virtualized for structured/unstructured data” (Burger, 2011). For State Street, a private cloud offers the benefits of a public cloud with the added benefit of being owned and operated by the bank (i.e. exclusive dedication). While no architecture is 100% secure, the risk of an information breach is mitigated as the controlling organization’s data can be completely isolated from the data of another organization.

Additionally, the cloud implementation and virtualization initiative gave rise to shared services that are centrally managed but enforced across the enterprise. This single security framework can be applied across all of the application touch points precluding the need for multiple security frameworks across disparate systems.

State Street: Strategy for Stakeholder Requirements, Testing & Training/Support:

The architecture group within State Street works together with the business to tie together strategic objectives. The idea to embrace cloud implementation (and the additional data functionality it enabled for the bank’s clients) emanated in the architecture group. Thus, the business and the board of directors were key stakeholders in the initiative. The board of directors has a special dedicated technology committee that receives “a complete rundown of the technology strategy and the work that we (IT group) are doing in terms of digitizing the business” (High, 2016). According to Perretta, “They (architecture group) created a proof of concept with an eye toward: Here are the capabilities that our entire organization is going to need, here are the technologies that we can deploy, and here’s how to make them operational” (Camhi, 2014).

State Street started migrating its new cloud applications to production by selecting those with low volume and low complexity and then gradually ramped up to migrating the more complex applications (McKendrick, 2013). Dual pilots of the cloud architecture were conducted using roughly 100 machines. Once favorable results were achieved, a larger pilot consisting of 500 machines was stood up. Approximately 120 use cases were tested in the pilot in order to let the development team understand the failure points of the system (Tucci, 2011a).

The standardization and virtualization aspects of the cloud infrastructure the bank implemented was conducive to agile development. Virtual machines on the cloud allowed development teams to spin up multiple server instances as opposed to physically installing a new box in the legacy non-virtualized environment. Contention between teams waiting for server use is virtually eliminated. “When adding cloud computing to agile development, builds are faster and less painful, which encourages experimentation” (Kannan, 2012). The relative ease at which development and testing servers can be instantiated promotes “spur of the moment” experimental builds that could yield additional innovative features and capabilities.

State Street: Project ROI and Key Success Measures:

Prior to State Street’s cloud infrastructure upgrade initiatives, potential operating cost savings were projected to be $575 million to $625 million by the end of 2014; which State Street is on track to achieve. “The bank had pretax run-rate expense savings from the initiative of $86 million in 2011, $112 million in 2012, and $220 million in 2013” (Camhi, 2014).

When the IT group makes a budget request for substantial investments, they must lay out the potential benefits to the business. Some of the benefits are timely payback, regulatory compliance, data quality improvement and faster development cycle times (providing features and functionality with re-use and less coding). The ultimate aim is to connect the IT strategy to business results in a way that yields advantage for the organization.

In 2011, State Street published a matrix on the advantages of cloud computing vs. traditional IT. The following figure provides insight into State Street’s IT and business unit considerations with respect to making an investment in a fixed or variable cost infrastructure (Pryor, 2011).

Traditional IT Cloud Computing
Cash Flow Hardware / software purchased upfront Costs incurred on a pay-as-you-go basis
Risk Entire risk taken upfront with uncertain return Financial risk is taken incrementally and matched to return
Income Statement Impact Maintenance and depreciated capital expense Maintenance costs only
Balance Sheet Impact Hardware / software carried as a long-term asset Cost incurred on a pay-as-you-go basis

From a funding perspective, State Street employs the chargeback funding method for its private cloud initiative. Architectural capabilities empower end-users to automatically provision virtualized servers for usage. There are policies in place that determine how long a virtual server may remain instantiated and how much load balancing is performed across the infrastructure. Server usage is monitored, measured and chargeback is calculated based upon end-user processing time. Subsequently, the usage is billed back to the end-user’s respective business unit. “In short, it puts a management layer of software over the virtualized servers and operates them in a highly automated, low touch, fashion” (Babcock, 2011).

Don’t miss part 3 of the analysis:
More Than You Want to Know About State Street Bank’s Technology Strategy Part 3

References:

Babcock, C. (November 9, 2011). 6 big questions for private cloud projects. Information Week. Retrieved from Factiva.

Burger, K. (October, 1, 2011). Riding The Innovation Wave; Technology innovation has been key to State Street Corp.’s success, according to chief innovation officer Madge Meyer — and she’s been willing to take some risks to prove it. Bank Systems + Technology. Retrieved from Factiva

Camhi, J. (2014). Chris Perretta Builds Non-Stop Change Into State Street’s DNA. Bank Systems & technology. Retrieved from http://www.banktech.com/infrastructure/chris-perretta-builds-non-stop-change-into-state-streets-dna/d/d-id/1317880

High, P. (February 8, 2016). State Street Emphasizes Importance Of Data Analytics And Digital Innovation In New Role. Retrieved from http://www.forbes.com/sites/peterhigh/2016/02/08/state-street-emphasizes-importance-of-data-analytics-and-digital-innovation-in-new-role/#a211b1320481

Kannan, N. (August 20, 2012). 6 Ways the Cloud Enhances Agile Software Development. CIO. Retrieved from http://www.cio.com/article/2393022/enterprise-architecture/6-ways-the-cloud-enhances-agile-software-development.html

McKendrick, J. (January 7, 2013). State Street’s Transformation Unfolds, Driven by Cloud Computing. Forbes. Retrieved from http://www.forbes.com/sites/joemckendrick/2013/01/07/state-streets-transformation-unfolds-driven-by-cloud-computing/#408e1acf64cf

Tucci. L. (July, 2011a). In search of speed, State Street’s CIO builds a private cloud. Retrieved from http://searchcio.techtarget.com/podcast/In-search-of-speed-State-Streets-CIO-builds-a-private-cloud

More Than You Want to Know About State Street Bank’s Technology Strategy Part 1

Introduction:

In November of 2010, Investment Management firm State Street Bank publicly announced an overall transformation of its technology infrastructure. State Street is a massively sized transaction services provider to both mutual and pension fund managers. The custodian bank holds $23 trillion in investor accounts in 29 countries around the world. In an organization with a massive store of data (most of it subjected to regulatory oversight), enterprise wide data conformity and accessibility is a challenge.

In a case of business strategy/need influencing information technology strategy, State Street’s COO in 2009 (Jay Hooley) wanted to help an institutional client calculate its exposure to a particular market. The information request was highly urgent given the financial consequences of late reactions during the great recession. “Getting the numbers turned into a painful exercise as State Street’s middle- and front-office staffers reconciled disparate data sets housed in different client systems and in nine of State Street’s 29 global locations” (Fest 2013). This failure to deliver for the client in an instantaneous manner spurred Hooley to call upon his information technology leadership to present a strategy to address this business need. The result of the IT leadership planning effort was the idea to move the bank’s diverse legacy infrastructure to a more standardized and nimble cloud computing architecture.

State Street: Strategy for Technology Infrastructure:

Former State Street CIO Chris Perretta, who as of 2016 holds a similar position at MUFG America’s Holdings Corporation, spent a considerable amount of time evangelizing the benefits of cloud computing to both the business and the bank’s board members. In its early stages, the technology vision resulting from the COO’s planning request was to position an updated infrastructure as a competitive advantage for the business in terms of cost savings, automation, and future development efficiency. Furthermore, the updated infrastructure could be an enabler of new product revenue streams. It should be noted that a shift to the cloud for a financial organization the size of State Street was unusual. “Too Big to Fail” sized banks are not typically known for their innovative technology development. Derisively, the bank has been known as “Staid Street” for its conservative manner. Within financial services, innovation is usually the domain of smaller, nimbler “fintech” startups looking for scalability and speed to market.

From an infrastructure perspective, State Street embarked upon migrating from disparate legacy data centers running proprietary Unix servers to a standardized cloud architecture based upon commoditized x86 servers running Linux. The initial cloud service was built from a Massachusetts based disaster recovery center and the bank currently has six major data centers in the U.S., Europe and Asia along with three backup facilities (Brodkin, 2011). In addition to the rollout of virtualization capabilities and distributed database functionality, Perretta states, “New tools for provisioning, change control, load balancing, a common security framework and various types of instrumentation to enable multi-tenant infrastructures are all part of the mix” (Brodkin, 2011).

Traditionally State Street has relied upon the “build rather than buy” approach as it builds customized software (development traditionally accounting for ~20%-25% of annual IT budget) to meet its needs (CMP TechWeb, 2012). The standardized cloud platform now enables developers to reuse code for future development which can shorten project timeframes.

State Street: Strategy for IT Capability & Staffing:

State Street’s IT organizational structure can be characterized as federalism. With the federalist approach, the organization gains the benefit of having centralized leadership and vision at the “top of the house”, yet allows decentralized co-located IT groups to remain responsive to their respective divisions. As described by former CIO Perretta, “We line up delivery capacity with each unit, and each CIO is responsible for delivering business services to that unit” (MacSweeney, 2009). For example, The CIO has a direct report on the ground in China where the company operates a subsidiary (State Street Technology Zhejiang Co). Furthermore, the bank is tolerant of “skunk works” style projects that organically develop in different IT divisions throughout the enterprise (MacSweeny, 2009).

On the centralized side of the federalist equation, the bank operates a shared services group that is responsible for technical necessities distributed throughout the enterprise (i.e. security, information and communications). This federalized approach makes sense for a sprawling organization that is comprised of disparate business operations across its custodian bank, investment management, investment research and global divisions.

With the introduction of the cloud infrastructure at State Street, the technology staffing vision is to acquire individuals with architectural knowledge who can think “big picture” yet are able to wallow in the details as necessary. The bank employs a chief architect whose aim is to drive technology innovation that leads to strategies that will impact the business in an advantageous manner. Perretta states, “We don’t use him to manage projects; we use him to come up with the ideas that make sense for our business community. Now he does those pilots, and then we industrialize them for the rest of the organization” (Tucci, 2011).

To be continued in Part 2 and Part 3 where I address additional areas such as:

  • Strategy for Information Risk & Security
  • Strategy for Stakeholder Requirements, Testing & Training/Support
  • Project ROI and Key Success Measures
  • Strategy for Data Acquisition and Impact on Business Processes
  • Strategy for Social Media/Web Presence
  • Strategy for Organizational Change Management, Project Strategy and Complexity

References:

Brodken, J. (April, 14, 2011). State Street modernizing with cloud, Linux technologies; Virtualization, open source drive cloud project at State Street. Network World Fusion. Retrieved from Factiva 6/19/2016

CMP TechWeb. (June, 25, 2012). State Street Private Cloud: $600 Million Savings Goal. Retrieved from Factiva 6/19/2016

Fest, G. (January 1, 2013). State Street’s Dig (Data); Championed by CEO Jay Hooley, boston-based state street is remapping a huge technology infrastructure to reap the benefits of the cloud and big data. American Banker Magazine. Vol.123, No.1. Retrieved from Factiva

MacSweeney, G. (August, 1, 2009). Serious Innovation; CIO Christopher Perretta supports all of State Street’s IT needs by mixing new technologies and rapid development and even encouraging ‘skunk works’ experimentation when appropriate. Wall Street & Technology. Retrieved from Factiva

Tucci. L. (July, 2011). In search of speed, State Street’s CIO builds a private cloud. Retrieved from http://searchcio.techtarget.com/podcast/In-search-of-speed-State-Streets-CIO-builds-a-private-cloud

Photo courtesy of DAVID L. RYAN/GLOBE STAFF

More Than You Want to Know About Wal-Mart’s Technology Strategy Part 3

This article is the final piece and a continuation of my earlier analyses (Part 1, Part 2) where I waded into Wal-Mart’s strategy for information risk & security, stakeholder requirements and project ROI. Whether you love or hate Wal-Mart, no one can argue that historically the organization has been highly innovative, effective and efficient. In this third part of my three part series I will broach the company’s strategy for data acquisition, social media, and project execution.

Wal-Mart: Strategy for Data Acquisition and Impact on Business Processes:

Wal-Mart has always been on the forefront of how an organization acquires, handles and shares data with internal and external parties. The company’s information technology spans across their 11,500 stores operating under 63 banners in 28 countries and e-Commerce websites in 11 countries (Wal-Mart Stores, Inc, 2015). This diverse assortment of digital and traditional brick and mortar assets services 260 million customers. The company’s sprawling POS system must remain highly operable and robust enough to harvest daily sales data across its global footprint. In order to accommodate data from a substantial customer base of millions of shoppers, the company must have the requisite back end storage infrastructure. As of 2015, Wal-Mart is embarking on a plan to build a massive private cloud which is expected to make 40 petabytes of data available everyday (Buvat et al., 2015). From a strategic standpoint the in-house cloud build-out makes sense, as employing Amazon Web Services would be making the company reliant on a key competitor’s technology offering to house sensitive data.

The data acquired from its POS systems allows the company to better allocate its product mix in real time. For example, on “Black Friday”, which is typically the busiest shopping day of the year, the company’s buyers mine the day’s sales data as early as 6am on the East Coast in order to optimize the company’s product offerings for the day (Sullivan, 2004).

From a data acquisition perspective, Wal-Mart pioneered the use of bar code scanners. The usage of scanners and Universal Product Codes was not just to register the price and make the cashier’s job of processing customers faster (as its early competitors had used the technology); Wal-Mart realized that bar codes enabled the company to determine where and how sales were made. In order to link POS, inventory and supply chain management data together with headquarters, the company invested in its own personal satellite system in 1984 (Sherman, 2013). This investment impacted in-store business processes as analytics could be run against purchase data to determine customer market basket mix and product to product correlations. Being on the forefront of purchasing data analytics allowed the company to more effectively place products in-stores that customers demanded.

This information linkage enabled by Wal-Mart’s satellite investment also led to profound business practice impacts with respect to its supply chain management process. As mentioned earlier in this analysis, with the development of Retail Link, Wal-Mart led the industry by providing first P&G and then the rest of its supplier network with direct visibility to real time store-shelf data. This was a highly innovative move as suppliers and internal buyers could work together on “forecasting, planning, producing, and shipping products as needed” (Sherman 2013). Enabled by its new technology system, the data sharing of information between supplier partners allowed those suppliers to manage inventory at Wal-Mart stores with a more comprehensive understanding of product demand, while Wal-Mart benefited from lower inventory storage costs.

Wal-Mart: Strategy for Social Media/Web Presence:

Wal-Mart operates e-commerce web presences across 11 different countries. Although it is by far the biggest brick and mortar retailer in the world, it has struggled to compete with online “e-tail”, competitors such as Amazon and Target. Updating its digital know-how and refreshing its digital properties will be a requirement in order to keep pace in a shifting industry dynamic. To this end, Wal-Mart has embarked upon a number of strategies to keep itself relevant and enhance its digital capabilities. The company is leveraging its web properties to not only analyze purchasing behavior but also review customer search histories and customer social media interactions. The latter activities are aimed at boosting its online sales and predicting customer demand for its brick and mortar locations.

“Teams at WalmartLabs use visualization techniques to analyze social activity to capture insights that may indicate changes in product demand. Walmart can then use these insights to stock extra inventory at locations where it expects higher demand and reduce it from locations with lower demand” (Buvat et al., 2015).

Wal-Mart has also embarked upon a strategy of purchasing startup companies with the intention of adding to the retailer’s knowledge in the mobile, analytics and social media realm. The retailer purchased a company called Kosmix, whose founders had sold a digital company to Amazon in the late 1990’s. Kosmix is a social media data aggregator which analyzes data from Twitter and other social networks with the aim of helping the company understand the relationship between customers and products. Shortly after the Kosmix acquisition, a small team at @WalmartLabs prototyped a new search capability code-named “Polaris”. Polaris helps to determines customer intent when embedded within Walmart.com. “As a result, if a user types in the word ‘denim’, it returns results on ‘jeans’ while ‘chlorine tablets’ returns results related to pool equipment (Ribiero, 2012). Within 9 months the prototype was production ready as it replaced an Oracle based product (Endeca) whose search functionality was simply keyword based. The company claims that it sees a 10% – 15% boost in shoppers completing a purchase using the Polaris search algorithm.

One recent splashy acquisition in the e-tail space involved Wal-Mart’s purchase of Jet.com for 3 billion in cash. Wal-Mart realizes that customer preferences have shifted to the online retailer space while Wal-Mart has a substantial legacy footprint in brick and mortar locations. According to the Wall Street Journal, “The retailer gains access to a larger group of young, wealthy, urban shoppers through Jet” (Nassau, 2016). The company also gains access to a startup minded employee talent base, startup executive experience and Jet.com’s proprietary pricing software and customer data.

Additional social project activities employed by Wal-Mart include adding a ratings review capability to its products on Walmart.com and a partnership with Facebook to offer individual pages for each of the retailer’s 3,500 stores. The company has also used the hashtag #lovedata to appeal to potential technology hires.

From an employee social engagement perspective, Wal-Mart developed an internal web site called mywalmart.com with the aim of developing an employee social media community where employees are allowed to blog and answer questions related to the company. Roughly 75% of the company’s 1.4 million U.S. based associates log on to the site (Tuttle, 2010). This effort required integrating multiple disparate websites running on different web platforms (for example payroll and benefits sites).

It should be noted that although the company is taking positive steps in the social media space, its initial attempts in the early 2000’s were clumsily executed. “Its Walmarting Across America blog in 2006, about two Wal-Mart enthusiasts traveling around the U.S. in an RV, was revealed to be less than authentic when it was learned that Wal-Mart paid for the flights, the RV and the gas of the two protagonists. ‘The Hub,’ a MySpace-like clone, closed in October 2006, just 10 weeks after it launched, while a Wal-Mart sponsored Facebook group reportedly had lackluster results” (Edelson & Karr, 2011).

Wal-Mart: Strategy for Organizational Change Management, Project Strategy and Complexity:

Best practice project management principles for handling complexity include implementing risk management practices and analyzing project risk/rewards. This series has already addressed Wal-Mart’s heavy reliance on ROI as a measure of project success. But Wal-Mart also has the advantage of running a common information systems platform for its global operations. This has allowed the company to offset the higher costs of developing in-house systems by building a system once and then rolling it out along with the respective business processes enterprise wide.

The company also lowers IT project complexity by closely examining the current process that the system is supposed to improve. This activity has been described by former CIO Kevin Turner as “eliminate before we automate”.

“Eliminate steps, processes, reports, keystrokes; eliminate any activity that you possibly can for two reasons: One, you’ll end up building a whole lot better system that’s easier to support, and two, invariably you will have a better solution that’s more [user] friendly” (Lundberg, 2002).

Once the system is built, then a piloting phase occurs amongst the stores, distribution centers and customers that will present the most challenges. If the challenges are caught and addressed by pilot builds in the most trying situations, then installing at less challenging locations should experience minimal interruptions.

From an Enterprise Risk Management standpoint Wal-Mart uses a 5 step process that allows its ERM group to work with the business to mitigate many of the risks that the company faces. “The five-step ERM process involves: 1. risk identification, 2. risk mitigation, 3. action planning, 4. performance metrics, and 5. shareholder value” (Atkinson, 2003).

An additional project strategy is to funnel all IT projects through the central IT office with a single enterprise-wide portfolio overseen directly by the CIO. King (2014) asserts that objectively ranking projects by using an automated spreadsheet tool helps to eliminates politically-driven decisions. Resources are assigned to projects based upon criticality and available funds. When available employees and funds are exhausted for the quarter, remaining projects on the list do not make the cut. Technology resources are asked to remain flexible as they rotate to different jobs within the company to gain additional skills. The flexibility of IT resources is a boon to change management plans as resources can be swapped out without minimal interruption to the overall project plan.

In case you missed something, make sure to revisit Part 1 & Part 2 of the series.

If you’re interested in Business Intelligence & Tableau check out my videos here: Anthony B. Smoak

References:

Atkinson, W. (December, 1, 2003). Enterprise Risk Management at Wal-Mart. Risk Management. Retrieved from Factiva.

Buvat, J., Khadikar, A., KVJ, S. (2015). Walmart: Where Digital Meets Physical. Capgemini Consulting. Retrieved from https://www.capgemini-consulting.com/walmart-where-digital-meets-physical

Edelson, S., & Karr, A. (April, 19, 2011). Wal-Mart to Buy Kosmix. Retrieved from Factiva.

King, R. (October 2014). Wal-Mart Becomes Agile But Finds Some Limits. Dow Jones Institutional News. Retrieved from Factiva

Lundberg. A. (July 1, 2002). Wal-Mart: IT Inside the World’s Biggest Company. CIO magazine. Retrieved from http://www.cio.com/article/2440726/it-organization/wal-mart–it-inside-the-world-s-biggest-company.html?page=2

Nassau, Sarah (2016). Wal-Mart to Acquire Jet.com for $3.3 Billion in Cash, Stock. Wall Street Journal http://www.wsj.com/articles/wal-mart-to-acquire-jet-com-for-3-3-billion-in-cash-stock-1470659763

Sherman, Richard J.. ( © 2013). Supply chain transformation: practical roadmap to best practice results. [Books24x7 version] Available from http://common.books24x7.com.libezproxy2.syr.edu/toc.aspx?bookid=49746.

Ribeiro, J. (August 31, 2012). Walmart rolls out semantic search engine, sees business boost. Retrieved from http://www.computerworld.com/article/2491897/internet/walmart-rolls-out-semantic-search-engine–sees-business-boost.html

Sullivan, L. (September 24, 2004). Wal-Mart’s Way: Heavyweight retailer looks inward to stay innovative in business technology. Retrieved 6/17/16 from http://www.informationweek.com/wal-marts-way/d/d-id/1027448?

Tuttle, D. (February, 17, 2010). Wal-Mart’s social media community earns accolades. Retrieved 6/17/16 from Factiva

WAL-MART STORES, INC. (January 31, 2016). FORM 10-K. Retrieved from https://www.sec.gov/Archives/edgar/data/104169/000010416915000011/wmtform10-kx13115.htm

Photo Copyright: dutourdumonde / 123RF Stock Photo

More Than You Want to Know About Wal-Mart’s Technology Strategy Part 2

This article is a continuation of my earlier analysis (Part 1 here, continued here at Part 3) where I waded into Wal-Mart’s strategy for technology infrastructure and strategy for IT capability & staffing. Whether you love or hate Wal-Mart, no one can argue that historically the organization has been highly innovative, effective and efficient. In this second part of my three part series I will broach the company’s strategy for information risk and security, stakeholder requirements and project return on investment.

Wal-Mart: Strategy for Information Risk & Security:

Wal-Mart operates a massive information system infrastructure that has been called the largest private computer system in the country. As such, the company must be strategic in implementing the proper information security protocols and vigilant in order to react to attempted compromises to its confidential information. Any compromise of sensitive customer information could lead to a significant expense in compensating affected parties and lead to updating systems, processes and procedures to restore customer confidence. This scenario is especially relevant as Wal-Mart’s extensive point of sale system, from a black hat hacker’s perspective, registers a veritable treasure trove of customer debit, credit and gift card information.

In order to mitigate the aforementioned risks, Wal-Mart has complied with the PCI DSS or Payment Card Industry Data Security Standard. PCI DSS offers, “compliance guidelines and standards with regard to our (Wal-Mart’s) security surrounding the physical and electronic storage, processing and transmission of individual cardholder data” (Wal-Mart Stores Inc., 2016). Some operational system components of PCI DSS include maintaining a secure network via use of firewalls to protect sensitive data, encrypting cardholder data that is transmitted across public networks, regularly updating anti-virus software as well as tracking and monitoring all access to network resources and cardholder data. (PCI Security Standards Council, 2016). Former CIO Turner has stated, “Necessity is the mother of invention, and we’ve invested a lot of knowledge and capital in intrusion detection and playing as much offense as we can to make sure that we’re protecting our company. Personally, every day I spend time on security” (Lundberg, 2002).

From a disaster recovery perspective, Wal-Mart maintains redundant primary and secondary information systems to mitigate the risks of operational downtime and/or significant loss of information. The organization keeps primary and secondary information systems physically separated. In 2005, the company was lauded for its disaster recovery and business continuity efforts in the wake of Hurricane Katrina. The company stood up satellite links for its retail centers enabling those centers to correspond with headquarters despite the loss of phone lines and internet connectivity (Worhten, 2005). Wal-Mart also maintains an Emergency Operations Center (EOC) established in the wake of the September 11, 2001 terror attacks. The organization has a central EOC located at headquarters in Arkansas which works in concert with decentralized EOCs at a division level. During Hurricane Sandy, the organization was successful in moving generators across state lines in order to reopen stores and provide systems operability in a timely manner (PricewaterhouseCoopers, 2005).

Wal-Mart: Strategy for Stakeholder Requirements, Testing & Training/Support:

Wal-Mart’s immense size allows it considerable influence over its supplier stakeholders. Typically, suppliers reside in an inferior position (Wal-Mart can end the supplier relationship or demand sub-optimal concessions from the supplier) which enables the retailing behemoth to dictate industry wide changes in how suppliers and merchants interact. This unbalanced power relationship allows the company to micromanage its supply chain partners from a business process and respective information technology project perspective. When the power balance is more on an equal footing, Wal-Mart is willing to work collectively with a supplier.

Case in point is the lauded cooperation between Procter & Gamble and Wal-Mart in the late 1980’s to implement Retail-Link. Retail-Link was a joint business process and related technology systems project between the two organizations for mutually beneficial gains. Wal-Mart’s in-store point of sale data acted as a pull to automatically trigger manufacturing orders to P&G when stocks were low (Wailgum, 2007). When this concept proved successful, Wal-Mart dictated to 2,000 supplier stakeholders that they must all update their information systems to integrate with Retail-Link. The integration and information sharing with Retail-Link was a boon to Wal-Mart’s suppliers as it provided predictable volumes and constantly humming factories, but the takeaway is that Wal-Mart mandated the terms to stakeholders based upon its asymmetrically favorable power position.

In some cases, Wal-Mart’s technical project mandates to suppliers did not yield mutually beneficial Return on Investment (ROI). An example of this scenario is embodied in the much publicized initiative to have its suppliers adopt RFID in the mid 2000’s. Wal-Mart was seeking to increase its inventory visibility at the warehouse and in its stores. In this case, Wal-Mart did not adequately consider stakeholder technology implementation concerns before issuing its RFID mandate. A supplier is on record stating that the consumer packaged goods industry was not the best early adaptor for RFID and that the small margins and project complexities didn’t offer compelling ROI (Wailgum, 2007). The ROI that could be established from a supplier standpoint was to continue doing business with Wal-Mart while only investing the bare minimum in upgrades required to implement RFID. A Gartner analyst has estimated that the implementation costs of RFID for smaller companies would cost between $100,00 to $300,000, while larger manufacturers could experience investment costs of up to $20 million (Network World, 2008).

Once a critical mass of important supplier stakeholders decided that their operating costs were being negatively impacted, Wal-Mart decided to back down from its mandate. Only when the favorable power dynamic shifted from Wal-Mart to the supplier network, did the company walk back its mandate.

From a development standpoint, Wal-Mart traditionally used the more structured Systems Development Lifecycle (SDLC) methodology. All systems within the company require testing & validation. According to former CIO Turner, “In any development effort, our [IS] people are expected to get out and do the function before they do the system specification, design or change analysis. The key there is to do the function, not just observe it. So we actually insert them into the business roles. As a result, they come back with a lot more empathy and a whole lot better understanding and vision of where we need to go and how we need to proceed” (Lundberg, 2002). Turner also eschews testing systems in low volume stores or with the easiest customers.

Recently, in its more cutting edge Silicon Valley based development division (@WalmartLabs) the company has moved to adopt an Agile development methodology. Agile methodology allows the group to react faster to changing market conditions with respect to the much slower SDLC methodology. This approach is necessary in a cut-throat marketplace where competitors such as Amazon have been using Scrum for over a decade (King, 2014).

Wal-Mart: Project ROI and Key Success Measures:

Despite the less than successful analysis and grasp of intended project benefits related to its RFID initiative, Wal-Mart relies heavily on ROI as a measure of project success. Cost is a major driver of IT related expenses thus a reliance on ROI is a sensible approach. Former CIO Turner has stated that 33% of Wal-Mart development projects are canceled before they are completed and that 56% of completed projects are subjected to budget overruns of 189%. “One of the problems is that a lot of companies don’t require an ROI except for major purchases. ‘At Wal-Mart, everything has to pay its way, even infrastructure [investments]. A lot of people say you can’t cost-justify infrastructure, but you can. There is a way. You have to make ROI the center of what you’re about, to begin to pay your way’” (Power, 1998). At Wal-Mart all technology implementations are assigned a payback analysis and the savings from the analysis must be incorporated into the business plan. A quarterly report on each project is shared at the executive level to ensure that business unit profit and loss statements reflect the investment value that was initially calculated. The mentality at Wal-Mart is a focus on turning information technology from a traditional cost center to a profit center.

Additionally, the centralized information technology group at Wal-Mart does not saddle its divisions with a chargeback funding method. The company takes a holistic enterprise wide view approach with respect to determining which projects make sense for the company. Wal-Mart can be said to employ the corporate budget funding method where IT managers have considerable control over the entire IT budget. When it’s time to implement a project, the divisions with the largest budgets are treated the same as divisions where resources are more scarce. As of 2004, the organization lacked an IT steering committee which helped speed up the project selection process (Sullivan, 2004). The drawback to this funding method approach is that IT competes with all other budgeted items for funds (Pearlson, Galletta & Saunders, 2016).

Project completion dates in the organization’s nomenclature are referred to as “end dates”. All projects are tracked against the end dates and problem projects are scrutinized when they fall behind schedule. When new systems are deployed it is not uncommon for high level management to solicit feedback from line employees involved in using the system. When necessary, personnel are replaced on project teams in order to increase project effectiveness (Lundberg, 2002).

To be continued in Part 3 where I address these three areas:

  • Strategy for Data Acquisition and Impact on Business Processes
  • Strategy for Social Media/Web Presence
  • Strategy for Organizational Change Management, Project Strategy and Complexity

If you’re interested in Business Intelligence & Tableau check out my videos here: Anthony B. Smoak

References:

King, R. (October 2014). Wal-Mart Becomes Agile But Finds Some Limits. Dow Jones Institutional News. Retrieved from Factiva

Lundberg. A. (July 1, 2002). Wal-Mart: IT Inside the World’s Biggest Company. CIO magazine. Retrieved from http://www.cio.com/article/2440726/it-organization/wal-mart–it-inside-the-world-s-biggest-company.html?page=2

Network World. (September, 2008). “Wal-Mart’s RFID revolution a tough sell; Even for the world’s biggest retailer, championing an unproven technology with no clear ROI has been difficult” Retrieved from Factiva on June 13/16

PCI Security Standard Council. (2016). Maintaining Payment Security. Retrieved from https://www.pcisecuritystandards.org/pci_security/maintaining_payment_security

PricewaterhouseCoopers. (September, 2013). Interview with Mark Cooper. Walmart takes collaborative approach to disaster recovery. Retrieved from http://www.pwc.com/gx/en/industries/capital-projects-infrastructure/disaster-resilience/walmart-disaster-response-strategy.html

Power, D. (June, 1998). WAL-MART: TECHNOLOGY PAYBACK IS IMPERATIVE. Supermarket News. Retrieved from Factiva

Pearlson, K., Galletta, D., & Saunders, C. (January, 2016). Managing and Using Information Systems: A Strategic Approach, Binder Ready Version, 6th Edition

Sullivan, L. (September 24, 2004). Wal-Mart’s Way: Heavyweight retailer looks inward to stay innovative in business technology. Retrieved 6/17/16 from http://www.informationweek.com/wal-marts-way/d/d-id/1027448?

Wailgum, T. (October 2007). How Wal-Mart Lost Its Technology Edge. Retrieved from http://www.cio.com/article/2437953/strategy/how-wal-mart-lost-its-technology-edge.html

WAL-MART STORES, INC. (January 31, 2016). FORM 10-K. Retrieved from https://www.sec.gov/Archives/edgar/data/104169/000010416915000011/wmtform10-kx13115.htm

Worthen, B. (November 1, 2005). How Wal-Mart Beat Feds to New Orleans. CIO Magazine.Retrieved from http://www.cio.com/article/2448237/supply-chain-management/how-wal-mart-beat-feds-to-new-orleans.html

More Than You Want to Know About Wal-Mart’s Technology Strategy Part 1

Wal-Mart has long been associated with innovations in its home-grown information technology systems, which in turn have exerted tremendous influence on its business strategy of everyday low prices. The company was a pioneer in bar code scanning and analyzing point of sale information which was housed in its massive data warehouses. Wal-Mart launched its own satellite network in the mid 1980’s which led to profound business practice impacts with respect to its supply chain management process. Strategic systems such as Retail-Link, spearheaded by industry luminary Kevin Turner, enabled data integration and sharing between Wal-Mart and its suppliers. These systems also enabled the concept of vendor managed inventory. However, not every technology project in which the company invests significant resources turns to gold as Wal-Mart encountered missteps with its RFID technology initiative. Despite the less than stellar ROI and supplier adoption rate of RFID, that effort demonstrated the willingness of its technology to push the envelope in exerting tremendous changes on business processes not only within Wal-Mart but throughout the industry.

Storm clouds are on the horizon as consumer preferences change from “big-box” brick and mortar stores to online retail platforms such as Amazon. To counter Amazon’s online dominance, the company must continue to invest in its digital know-how. Adding new capabilities to its online presences and refreshing its digital properties will be a requirement in order to keep pace in a shifting industry dynamic.

Wal-Mart: Strategy for Technology Infrastructure:

Wal-Mart’s architectural philosophy can be classified by the twin sentiments of “build rather than buy” (the organization has historically held the belief that their information systems provide a competitive advantage over other industry players) and one of innovation. Recently, as consumer preferences have shifted away from “big-box” brick and mortar stores to the convenience of online “e-tail”, competitors such as Amazon and Target have begun to erode Wal-Mart’s retail dominance. In order to react, Wal-Mart has been allocating resources to invest in digital capabilities that will allow the organization to effectively compete and become better aligned with consumer shopping preferences.

Historically, Wal-Mart’s information technology strategy has long favored an internal “build rather than buy” approach which has spawned innovative business strategies. Wal-Mart prefers to build in house strategic systems that allow the company to gain competitive advantages. Retailers are known to prefer home-grown systems and Wal-Mart’s immense size has traditionally been a hindrance in running off the shelf packages (Wailgum, 2007). Globally, the company runs a heavily modified version of IBM’s elderly point of sale (POS) supermarket application at all of its checkouts with the exception of Japan (Zetter, 2009). The in-house systems approach has been a source of competitive advantage for Wal-Mart. “Wal-Mart was a pioneer in applying information and communications technology to support decision making and promote efficiency and customer responsiveness within each of its business functions and between functions” (Ustundag, 2013).

The advantage of an in-house strategic system is that it offers tight alignment between the company’s business strategy and the finished solution. Another advantage of in-house strategic systems as opposed to running off the shelf packages from third parties is the ability to keep proprietary business process and systems knowledge out of the hands of competitors. A third party developer would have no problem advertising a system that was in use at Wal-Mat and then selling that system to competitors. The advantages of the in-house development approach must be weighed against the downsides, namely the higher cost of development and the internal staffing required for new innovative development and on-going maintenance.

Recently, as Wal-Mart tries to use its geographic reach and existing retail infrastructure to compete with Amazon, it is making a move to ramp up its cloud based technology assets. In keeping with its “build rather than buy” approach, the company built its own data centers and developed supporting cloud based commerce applications using open source tools. “‘We took back control of the technology and largely built it ourselves,’ explained Jeremy King, chief technology officer for global e-commerce at Walmart” (Lohr, 2015). Additionally, as of 2015, the company is in the middle of an IT systems overhaul called Pangaea that “includes a hybrid cloud platform and search technology” (Nash 2015). King, in keeping with the Wal-Mart approach has stated, “Most people don’t replace entire systems in one shot, especially with from-scratch development…but given how rapidly this place is changing, we didn’t have time to screw around” (Nash 2015).

Wal-Mart: Strategy for IT Capability & Staffing:

Wal-Mart is not a technology company, but it is a company in which technology is a key enabler of business strategies. Since technology has been a crucial component of the organization’s competitive advantage, its IT governance archetype can be characterized as an IT duopoly. The IT duopoly arrangement allows technology executives and business unit leaders to collaborate on technology projects and decisions. Kevin Turner, who was a Wal-Mart vice president for application development, a former CIO and current CEO of Citadel Securities, has stated that technology payback figures for Wal-Mart initiatives are put into writing, “which in turn requires the affected business units to acknowledge savings and work them into their business plan — or dispute the savings and work with the IT department toward a resolution” (Power, 1998). “‘Do the [business units] always agree with us? No. Will they work with us? Yes. If they don’t, we won’t do anything more for them in the future. And I’ll tell you, that works,’ said Turner” (Power, 1998).

Traditionally, Wal-Mart’s IT staff have a background in other non-technology areas of the business. The company looks to promote its staff out of the IT department which allows a technological “cross-pollination” of knowledge to occur across the organization. When Wal-Mart is looking to develop new systems it dispatches its top engineers to perform “regular” operations jobs so they can gain working hand knowledge of the challenges that line employees face (Boyer, 2003).

As Wal-Mart has looked to withstand new online retail challenges from chief competitors Amazon and Target, its technology staffing mix and organizational structure have had to adapt in order to remain competitive. Former CEO Mike Duke was looking to combine the organization’s stores, information technology assets and logistics expertise into one channel in order to drive growth (Buvat, Khadikar, & KVJ, 2015). Wal-Mart was cognizant that it could not realistically expect the technical staff that it required in order to compete with Amazon, to relocate to Bentonville Arkansas. Therefore, in 2010 Wal-Mart re-organized and consolidated its worldwide e-commerce staff into a new Global division located in Silicon Valley California. Historically, the company has favored a centralized Information Systems structure coupled with an in-house development approach. Former Wal-Mart CIO Turner has stated, “What we’ve come up with is a model of decentralized decisions but centralized systems and controls. We will have a common system and a common platform, but we have to allow a great deal of flexibility in our systems so that the people in those local markets can do their job in the best, most effective way” (Lundberg, 2002).

The new Global E-Commerce initiative is in keeping with that philosophy as the new division’s key responsibilities include, “running Walmart’s ten websites worldwide, building and testing cutting-edge technology at @WalmartLabs, and building Walmart’s eCommerce capabilities” (Buvat et al., 2015). Additionally, in order to bolster its e-commerce staff, Wal-Mart has purchased 14 companies primarily for the purpose of gaining access to engineering personnel. As a result of Wal-Mart’s emphasis on ramping up e-commerce talent, its e-commerce sales grew from 4.9 billion to 12.2 billion dollars between 2011 and 2014; an increase of nearly 150% (Buvat et al., 2015).

To be continued in Part 2 and Part 3 where I address additional areas such as:

  • Strategy for Information Risk & Security
  • Strategy for Stakeholder Requirements, Testing & Training/Support
  • Project ROI and Key Success Measures
  • Strategy for Data Acquisition and Impact on Business Processes
  • Strategy for Social Media/Web Presence
  • Strategy for Organizational Change Management, Project Strategy and Complexity

If you’re interested in Business Intelligence & Tableau check out my videos here: Anthony B. Smoak

References:

Boyer, J. (February, 2003). Technology Helps Stores Order Only As Much As They’ll Sell. Albany Times Union. Retrieved from Factiva

Buvat, J., Khadikar, A., KVJ, S. (2015). Walmart: Where Digital Meets Physical. Capgemini Consulting. Retrieved from https://www.capgemini-consulting.com/walmart-where-digital-meets-physical

Lohr, S. (October 2015). Walmart Takes Aim at ‘Cloud Lock-in’ Retrieved from http://bits.blogs.nytimes.com/2015/10/14/walmart-takes-aim-at-cloud-lock-in/

Lundberg. A. (July 1, 2002). Wal-Mart: IT Inside the World’s Biggest Company. CIO magazine. Retrieved from http://www.cio.com/article/2440726/it-organization/wal-mart–it-inside-the-world-s-biggest-company.html?page=2

Nash, K. (October, 2015). “Wal-Mart to Pour $2 Billion into E-Commerce Over Next Two Years.”, Dow Jones & Company, Inc. Retrieved from Factiva

Power, D. (June, 1998). WAL-MART: TECHNOLOGY PAYBACK IS IMPERATIVE. Supermarket News. Retrieved from Factiva

(ed), Alp Ustundag. ( © 2013). The value of rfid: benefits vs. costs. [Books24x7 version] Available from http://common.books24x7.com.libezproxy2.syr.edu/toc.aspx?bookid=49466.

Wailgum, T. (October 2007). How Wal-Mart Lost Its Technology Edge. Retrieved from http://www.cio.com/article/2437953/strategy/how-wal-mart-lost-its-technology-edge.html

Zetter, K. (October 13, 2009). BIG-BOX BREACH: THE INSIDE STORY OF WAL-MART’S HACKER ATTACK. Wired. Retrieved from https://www.wired.com/2009/10/walmart-hack/