Architecture & Attitude

Office Depot uses a six-step approach to achieve multidemensional business transformation

Most retail businesses are trying to transform themselves in multiple ways, through new formats, a greater focus on the customer, acquisitions, merchandising, IT accountability and so forth. As competition in the retail space and the pace of change continue to intensify, a retailer's ability to transform itself — continually and effectively — is becoming a necessary core competency for any large retailer that will ultimately survive.

Few retailers however, successfully transform themselves in multiple ways simultaneously. In some cases, IT tries to be the change-driver, but encounters resistance, while in others, IT needs to transform itself first for the business transformation to succeed. About two years ago, Office Depot, the $13 billion seller of office products, recruited CIO Patty Morrison from Quaker Oats. The company was seeking an IT leader who could bring IT to the core of a major business transformation process. Morrison, who is responsible for directing, overseeing and managing Office Depot's global information systems, including its highly successful global e-commerce platform, was up to the task. Today, Office Depot has succeeded in transforming itself in multiple directions at once and Morrison has made IT the core of the solution. Over the past three years, Office Depot has gained $100 million in efficiency gains in the supply chain, while bringing substantial organic growth to the European side of its business.

"Transforming the architecture at a growing company like Office Depot is challenging," says Morrison. "It's like changing the wheels on a bus while it's accelerating." When Morrison came aboard, the Office Depot bus had thinning tread on six wheels in full motion. Her success and the transformational success of the retailer, required some quick changes everywhere the wheels met the road.

1. Aligning Strategies

Morrison helps the company align its strategic business and IT strategies for greater success. "IT is strategic to Office Depot," says Morrison, "We want to spend more on IT, but need to demonstrate delivered value and increase our flexibility." She notes that the company's business models continuously change and grow, "so we conduct formal business and functional strategy reviews regularly, which includes IT strategy, to keep everything aligned."

"One of the challenges to aligning strategy is making choices about what is most important, what is going to move the needle in the business. There are so many opportunities, but limited resources," Morrison comments. In Office Depot's IT group that means being ready for ongoing change in architecture and organization, plus a focus on delivering value. "This is a huge transition for the IT organization," explains Morrison. "We are working differently, and we are held accountable for more things."

2. Standards-Based Vision

Like most large retailers, Office Depot's IT group has traditionally responded to ever-growing demands from business units. But the group had never developed a formal, long-term IT vision with end-state architecture and standards.

"We now have an IT end-state vision," says Morrison, "and a strategy that is aligned with the business and functional group strategies." Office Depot's IT vision clarifies the ideal toward which all IT projects should be building. It is an architecture and an attitude, and it encompasses the ideal data model, standards, integration, metrics and especially accountability.

At most companies, the data model is the most neglected area of transformation, but tending to it is critical for transformation success. A great deal of time is easily wasted arguing over what data is correct or accessing needed information. Office Depot has designed a long-term data model that enables initiatives for customer-centric service, multichannel, multi-format operations and scorecards. Global standards enable spreading best practices. At this point, Office Depot is the worldwide leader in integrating with other companies' e-procurement processes and open standards. The company uses IBM's WebSphere, XML, and SOAP to make it cost effective to meet every customer's individual needs. The Office Depot end-state vision includes standards for HR and financials, Retek running on Sun for merchandising, Teradata for database, Manhattan Associates for WMS and MicroStrategy for business intelligence. However, Morrison believes in best-of-breed and will accept justifications for using a valuable new application that does not fit the standards-based vision.

3. Upgrading IT Governance

Since IT is highly strategic at Office Depot, IT governance is handled at the c-level. CIO Morrison changed the IT governance structure early on in her tenure. It now permanently involves Morrison and Charlie Brown, Office Depot's CFO. The two executives co-lead the governance process working closely with the entire executive team. The new c-level governance structure determines IT priorities and limits political wrangling for favorite projects. In addition, Morrison has changed the leadership structure at Office Depot for individual IT projects. Comments Morrison: "The kiss of death for an IT project is to call it 'an IT project.'"

4. Portfolio Management

The internal demand for IT at Office Depot greatly outdistances supply. "I spend about 50 percent of my time managing the IT portfolio," says Morrison. A rigorous, formal approach prioritizes business- and IT-related initiatives. Every IT project is reviewed for alignment with the business strategies and IT vision — plus its ROI. Rigorous return calculations are yielding substantial returns. With its portfolio management upgraded, the company can now look at operational improvements and growth initiatives to make sure they have the right balance of investments. Office Depot "is making enormous investments to drive savings in the supply chain," says Morrison. "We will continue to invest in driving productivity in the cross-utilization of our 24 customer delivery centers and store cross-docks, as well as SKU rationalization and transportation reductions." At the same time, the company looks at a hurdle rate for growth initiatives that is different from the one applied to operational improvements. "We look at where we can better meet customer needs to make sure IT has the capacity to add speed to market. IT is a critical success factor in growth opportunities and the portfolio process insures we manage resources for the biggest wins."

5. Establishing Accountability

In addition to strategy, vision, governance and portfolio management, Office Depot has clarified the roles, goals and metrics (with balanced scorecards) for business and IT managers. "The biggest step to creating value is accountability," says Morrison. "Make everyone accountable. Managers have dashboards with metrics tracking their performance on their project or other areas of focus."

Ongoing quarterly reviews of every project make sure its position in the portfolio still makes sense. Morrison stops or adds to projects if they are not making their goals. Closure meetings go over performance against plan with an eye to improving portfolio management and improving managers' skills.

At Office Depot, performance measures are for everyone, not just business managers. IT is accountable for its own efficiency as well. "If everyone in IT is measured on saving $5,000, everyone can find ways," says Morrison. "It makes IT more efficient and frees up funds for investing in long-term architecture and organizational development that do not have direct, hard-dollar business benefits solely on their own."

6. Organization Development

Transitioning to a new vision and accountability changes the skill sets needed by Office Depot IT. The IT group needs many more people with excellent project management, business/financial and leadership skills. "I spend the other 50 percent of my time on the people side, developing the organization," says Morrison. That includes coaching individuals in their work on business cases and project execution, as well as recruiting and improving training regimens.

The IT organization also has new specialized groups. "We have built a professional data management organization for creating and enforcing a new visionary data model and making the complex migration from legacy to a single source of truth," says Morrison. Morrison has also created a professional contract negotiation group to improve contracts with technology vendors. "The 'DNA' of the Office Depot IT culture requires constant benchmarking, looking at outsourcing for everything," continues Morrison, "but we only end up doing a lot of 'out tasking.'" Morrison's teams contract out for location support, legacy application support, support for an Australian divestiture, etc. It's all part of the transformation that leading retailers like Office Depot must continually evolve through to survive and thrive. In the case of Office Depot, IT is at the center of the solution.