Tesco expects Bengaluru to up competitive edge

05 Jul,2012

By N Shivapriya & Harsimran Julka


The proposal to permit FDI in multi-brand retail may have come a cropper but as technology becomes the next big battleground for retailers, India may well be where these battles are fought.


Tesco, the world’s third-largest retailer, is building a crack team in Bangalore as shopping goes online and supply-chain efficiencies become more critical in keeping prices affordable.


From scheduling transportation in Thailand to floor planning for its stores in UK, there’s a bit of Bangalore in everything Tesco does, and its Chief Information Officer (CIO), Mike McNamara, only sees that growing in the days to come. “Digital and technology will be big battlegrounds within each of the markets,” McNamara told ET in an exclusive interview, and he sees the Bangalore office playing a central role in giving it that competitive edge.


The centre started in 2004 and Tesco was one of the first retailers to set up a captive unit here. The world’s largest retailer, Walmart, also followed setting up Walmart Labs in Bangalore but only a few years ago. Both of them, as well as other global retailers, use Indian service providers for parts of their IT and analytics.


Mr McNamara himself is averse to calling Tesco’s centre a captive because he finds it subservient. “We’ve watched it blossom from a fairly solid operations centre into something that’s doing this very sophisticated work,” he said.


The centre employs over 6,000 people, who work on functions as varied as online advertising, mobile applications, store design and transport scheduling, in addition to IT and back-office functions.


A team of mathematicians in Bangalore and UK work on algorithms for sophisticated supply chain systems that take into account everything from weather patterns to sporting events and seasonal variations. “If we don’t get the mathematics exactly right for the fresh foods, it goes waste. Getting it right is a tricky business – it’s a huge leverage on profitability,” said Mr McNamara.


Mr McNamara, who is on Tesco’s executive committee, wants to centralise all the skills Tesco has learnt from its 100 years of retailing experience in UK at its facility in India and run the supply chain for its Asian markets from here. These markets are relatively newer for Tesco but they are already key markets from a revenue point. Korea, where it is the second-largest retailer, is also its second-largest market after UK.


In US, where its business is struggling, the Bangalore office helped to launch a loyalty scheme, which is entirely digital. Most of the IT for US is done entirely from Bangalore. “The US team is very small,” said Mr McNamara. Overall, 70 per cent of the IT across the Tesco Group is from India and that’s likely to increase rather than decrease, he added.


The centre currently services every single country in the Tesco Group, including new businesses such as banking, where it has built new systems and completed a massive programme to migrate over 2 million credit card customers. Over time, he expects the banking business, which is relatively younger, will do more work out of India.


As CIO for Tesco, most of Mr McNamara’s time is now spent in marketing and commercial functions as compared to five years ago when it was mostly operations and productivity. “It’s not so much a digital strategy any more but a retailing strategy that is becoming digital. And that’s a very important distinction,” he says, “It’s not just about applications selling things on the internet but about helping people buy things in shops as well.”


While many global companies are looking to cut down on IT spending, retailers such as Tesco are increasing it. “It’s a good time to be an IT guy in retail. In other industries, IT budgets are under more pressure. In retail, because we need to meet the consumer need for mobile apps, for social views, for all of these things, spending is on the rise.”


Tesco has switched investments from property to technology, says Mr McNamara.


“We would typically invest in the billions in property. You don’t have to shift too much of that into technology to make a difference. We have increased our technology spends quite significantly. And much of that increase is going into customer facing technology,” he added.


Tesco is also unique because it is one of the companies, which has a former CIO, Philip Clarke, as its CEO. Mr McNamara describes Mr Clarke as a retailer by background who’s a technophile and himself as technologist who loves retail. “He (Clarke) has a very deep understanding of what technology can do for business. It’s a huge positive when there’s somebody else in the executive team who speaks the same language as you.”


In retail, the tough part is to get economies of scale in operations, says Mr McNamara. “You can get them in buying, no doubt. But to leverage your operational skill across countries, that is difficult. Just because you manage supply chain well in UK, doesn’t mean you can do the same China,” he said.


And this what Mr McNamara is trying to do through Tesco’s India centre – put the skills in one place where it can service Europe and China and leverage the operational skill across the entire group, rather than teach it in every country. The battle lines are being drawn.


Source: The Economic Times

Copyright © 2012, Bennett, Coleman & Co. Ltd. All Rights Reserved


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