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| 5 minutes read

Why retailers should – and shouldn’t – invest in cloud technology

Many major retailers are faced with the twin challenges of creating compelling and commercially rewarding customer experiences whilst at the same time untangling legacy IT estates. The good news is the two can and often do co-exist, with a shift to greater use of cloud services playing an important part in the solution. However, many are still struggling with the question of where to start.

It’s a conundrum circling the C-suite of many retailers playing catch up with a generation of digital native businesses. Indeed, it might seem everyone else is doing it when one considers an estimated $500bn will be spend on cloud services worldwide in 2022, according to Gartner.

Yet too often, cloud technology is promoted as merely a cost-efficient shift from on-premise data centres. The reality is that it can unlock much more than cost efficiencies as a critical component of a broader and more ambitious technology strategy.

The benefits of investing in cloud technology

Innovate and transform
Retail is arguably the most customer-centric of all industries, and successful online operators differentiate based on the sophistication of their customer-facing experiences, products and services, and the speed with which they can deploy new features as part of ongoing development and delivery efforts.

For these players, cloud-based solutions play a vital role in enabling the rapid ideation, design, build and test of Minimum Viable Products (MVPs).

If MVPs are successful, cloud infrastructure enables businesses to roll them out to customers at scale and at pace to meet growing demand. This ‘iterate, learn, deliver’ process of cloud-enabled delivery allows upgrades to be made based on near real-time customer feedback. For example, if product trialling reveals that something is not well received by customers, it can be rolled back for further development, tweaked, or be culled altogether.

New-found scalability can dramatically impact the P&LRetailers can test new sales tactics and reorganise their business with smaller up-front costs, increasing their operational spend on cloud technologies as the business grows, rather than having to invest large sums on an annual or bi-annual basis to build data centre capacity. Licensing volume agreements can further drive down costs with improved discounts as they expand their cloud usage.

E-commerce aside, many other areas of traditional retail businesses also require modernisation – supply chain and inventory management and business intelligence, for example – cloud models can help rapidly roll out new capabilities in these areas too.

Operational agility and security
From a business continuity perspective, cloud services are highly reliable, greatly reducing associated downtime risk. Removing the need to run process-hungry activities in overnight windows to minimise the impact of key applications is a distinct advantage, as is the time and effort associated with patching vulnerability in physical servers. Should transaction volumes drop for any reason, it is also relatively easy to scale back to reduce costs and avoid being left with large amounts of redundant hardware and the associated challenge of reducing a physical footprint. This agility works in reverse too, allowing retailers to launch new products and services quickly to respond to evolving consumer demand, as well as increase cloud capacity rapidly to meet spikes in day-to-day ecommerce trading volumes.

Security remains a key concern, and most simply want to know, “am I compliant and secure?”. The reality is that the cloud can be significantly more secure than on-premise set-ups. Legacy physical infrastructure can often contain accumulated security flaws and also be subject to poor management and monitoring. In the cloud, meanwhile, economies of scale afford the major providers the opportunity to staff cybersecurity teams 24/7, constantly update and patch servers and software, and implement the various other high-grade physical security features that many organisations do not have the budget to invest in on-site.

Moving to a model that incorporates cloud technology also requires fewer individuals to manage physical locations and hardware, which may solve issues around talent scarcity and/or reduce personnel costs.

Why retailers may resist cloud-based models

Despite the compelling business case, many retailers are reticent to move to wholesale cloud-based models.

There remains a lack of education and trust in the boardroom, with C-suite leaders frequently caught up in balancing the ongoing costs and complexities of maintaining legacy IT infrastructure and applications.

Shifting to cloud services requires a different mindset when it comes to Capex versus Opex considerations. We often hear, “will it cost me more in the long run to pay for a service in perpetuity?” The answer is, possibly. However, the costs must be weighed up against the business flexibility offered, the risk reduced and the rephasing of large, up-front IT investments such as new data centres and the spend on personnel to staff them.

It’s true that migrating to cloud services is not always cheaper – this is a common misconception – and that’s largely because retailers typically run systems beyond their anticipated lifespan, with maintenance costs displaced to the wider systems architecture for remedial work required before new applications can be implemented.

Three critical steps to cloud success 

With an appetite established amongst leadership to embrace the cloud as a potential solution to build greater market share and reduce operational risk, successful implementation should be the next topic of conversation – but not about cloud in isolation.

  • Understand the business case for cloud: First and foremost, is business demand driving the requirement? What do you need the technology to enable? And what will you migrate to the cloud? These questions should drive a discussion around how many of those applications are currently fit for purpose, which ones are redundant, and how much remedial IT work may be required.

  • Align with the wider technology strategy: Cloud strategy should form a part of the overarching technology strategy and enable meaningful, operational outcomes such as reducing legacy data centre footprints or consolidating apps. In turn, this rolls up to support the broader corporate strategy, which may seek to reduce operational expenditure or rationalise the overall product portfolio.

  • Understand how cloud can support a culture of innovation: The pace of technological change shows no sign of slowing, and cloud enables innovative teams to explore boundless possibilities around, for example, product and service feature enhancements; fast prototyping, development and deployment; expansion into new territories; and the design of more sophisticated customer journeys. Aligning cloud capabilities to your business ambitions could be transformational. 

Cloud technology can open up faster, more secure, and flexible routes to growth. It also results in fewer conversations about cost and reduced concern over data vulnerability. However, discussing the benefits of cloud as part of a wider technology strategy across the boardroom is critical to prevent a myopic debate about cost alone. This will ensure that key decision-makers can fully appreciate the must-have requirements for cloud adoption and expansion, plus those that will truly catalyse greater value to a business – and its end customers.

Tags

retail, cloud, emea, digital

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