OH, to have been a fly on the wall at that first meeting of the Hudson’s Bay Co. Strategic Technology Alliance. There they were: IBM, Microsoft and Oracle, all in the same room together, making nice — though no doubt some attendees were grinding their teeth at the sheer contrariness of the proceedings.
The alliance, a brainchild of HBC CIO Gary Davenport, doesn’t look at first blush to be a promising idea. You bring five big, often competing technology vendors together — Cisco and Symbol joined shortly after the alliance was formed — and tell them they’ll each have an exclusive on certain chunks of the HBC IT business. The catch is, they have to agree to stop trying to fleece the customer, stop competing with each other and start working together — really collaborating — for the good of all.
“”It’s a fascinating process to work with five competitors and have them sit in on strategy councils with you,”” Davenport says. “”They see in depth our business and technology strategies and we see in depth where they’re going. It’s a very beneficial way of doing business, one we’ve been advocating whenever we get the chance.””
The HBC vendor alliance actually does seem to be beneficial. Over the last four years, the 350-year-old retailer has implemented a string of often innovative IT applications and projects. In the last year alone, Davenport and his IT group have won four industry awards.
The company’s Listed Inventory Database System (LIDS), for example, won Best Corporate System at the sixth annual Retail Systems Achievement Awards last year. LIDS is a wireless “”replenishment and stockroom management system”” that is cleverly integrated with other retail systems in HBC’s Zellers stores.
LIDS keeps track of what’s in the warehouse on a SKU-by-SKU basis. It knows what’s selling that day and knows how much stock can fit on the shelf. From this it automatically generates pick lists for warehouse workers. LIDS dramatically reduced warehouse inventory, made workers more efficient and helped ensure product was on store shelves so customers could buy it.
Davenport conservatively estimates the system saves HBC $5 million a year. It cost less than that to develop and implement.
In the last several years, thanks to a number of related IT initiatives, the company has reduced inventory value per square foot by 10 per cent across all of its operations, an estimated saving of $160 million. In-stock levels have increased between 95 and 98 per cent.
LIDS, which integrates middleware from IBM, SQL database systems from Microsoft and wireless handheld devices from Symbol, is just one example of how the alliance has helped produce innovative, tightly integrated solutions that work.
“”You’ll find pieces of the alliance in the fabric of all those awards,”” Davenport says. “”We’re convinced we couldn’t have accomplished what we have in the last few years without it.””
With its formalized procedures, contractual obligations and apparently deep levels of trust, the alliance appears to be unique, says James McKeen, a professor in the School of Business at Queen’s University in Kingston, Ont. McKeen, director of the school’s Monieson Centre research institute, is working with a Harvard Business School colleague on a detailed case study of HBC. He’s enthusiastic about the alliance in particular.
“”I think this is a model you could roll out in any number of other places,”” he says. “”And not just with IT.””
HBC’s objectives when it formed the alliance in 2000 were threefold. It wanted to reduce the time and effort expended in traditional vendor relationships on haggling over price. It expected to drive costs out of its IT spending.
And it wanted to foster collaboration at a strategic level in order to ensure HBC got the latest and best technology and consulting.
HBC was at the beginning of a comprehensive, long-term overhaul of systems and infrastructure, mainly in response to the entry of Wal-Mart
into the Canadian market. The Wal-Mart invasion forever changed how Canadian retailers viewed IT, McKeen says. Until then, most saw it as a cost centre to be pared down. Wal-Mart demonstrated how vital IT could be in driving out costs.
“”At very high levels in companies like Sears, HBC and Canadian Tire at that time, people were asking, ‘How can (Wal-Mart) get goods on the shelf at 20 cents on the dollar when it costs us 38 cents?’ McKeen says. “”The answer was vendor-managed inventories, cross-docking and the like. And the honchos would say, ‘Can we do that?’ Sure. ‘How fast and how much will it cost?’ The answer was quite often millions of dollars, but quite often senior management said, ‘OK, let’s do it.’ And that was unheard of before.””
In the beginning, the alliance idea probably sounded slightly cockamamie to just about everyone except Davenport and his team. For example, what was in it for vendors?
Most important was the guarantee of first crack at significant chunks of the HBC business. The company has a significant IT spend — $275 million between 1998 and 2003. The company reduced the number of major vendors
it worked with so there would be more money for each. Alliance members have all seen an increase in their share of HBC’s IT spending, Davenport says.
Eliminating drawn-out haggling over price saved the vendors significant time and effort as well. They agree in effect to present their best price first time, and they don’t get a second chance.
If HBC doesn’t like what it sees, it can go outside.
Davenport also convinced them they would be able to take the best practices, ideas and technology developed with the alliance and recycle them to customers in other markets, notably the U.S. “”I think their offerings to the retail market have generally gotten better as a result of this collaboration,”” Davenport says.
Alliance members have not always been happy with their piece of the pie, Davenport concedes. “”There have
been times, too, when we’ve not found any of their solutions to be as competitive as they needed to be, and we’ve gone outside. We always have interesting discussions when that happens,”” he says. “”But in the end, we have to do what’s right for our business. We’re not going to buy a solution that’s not as good as something else or that costs a lot more just because it comes from an alliance member.””
There were bumps along the way. In some cases, for example, internal incentive plans in vendor organizations were working against the alliance’s objectives and had to be adjusted.
Those problems have now been resolved. “”We feel it’s working for us,”” Davenport says. “”We’re quite happy.””