Brazilian retail giant Lojas Renner has adopted a global sourcing strategy to support the company’s increasing growth. Chief management and technology officer Leandro Balbinot tells IT Decisions about the company’s technology journey.
One of the largest retail chains in Brazil, Lojas Renner is moving to a global delivery model as part of a transformation designed to support business growth and an upcoming merger.
The company, which currently specializes in clothes and accessories, posted revenue of R$ 2.4bn ($ 1.5bn) last year and is set for further expansion after the acquisition of home utilities firm Camicado last month, so IT is experiencing an interesting time.
Seasoned IT executive Leandro Balbinot leads the technology operations at the firm as chief management and technology officer. He joined Renner just over two years ago after spending several years in Europe leading the global IT operations at brewing giant InBev.
Balbinot is implementing the strategy that he put together as soon as he joined, the main headlines being standardization of systems, as well as a mass move to cloud computing and significant usage of global resources.
“Renner was very much focused on small, niche players for corporate systems and we realized that would become a constraint for growth. We need to have a more professional and robust technology support for our operations,” Balbinot told IT Decisions.
Moving to global services
One of the most significant changes in Renner’s sourcing is the partnership with Indian supplier HCL for application management and infrastructure for the company’s Oracle portfolio. This was a deal signed two years ago, around the time the vendor began operations in Brazil.
The company organized its systems into Oracle – which represents about 60% of the company’s applications and databases – and non-Oracle systems. The latter group includes Java, Sybase and web-based Microsoft applications that are managed by Mexican firm Sofftek, which commenced service two months ago.
According to Balbinot, the competitive tenders included some Brazilian players, but the local companies did not seem strong enough to meet the company’s expectations and were not very tenacious in terms of the competition itself.
“We did look at some local players, we always do that and we do work with some small players in the south of Brazil for niche areas such as web development. But in general, we see that the international players are much more eager and powerful to complete deals and actually get the contract,” Balbinot said.
“The thing is, we are having such a good moment in Brazil and most IT companies are looking to increase their market share here. But the investment power of Brazilian companies seems to be smaller, global firms seem much more keen to invest in Brazil and grow here than the local players” he said.
The project agenda
Renner has already moved its commodity systems into the cloud, with collaboration tools under Google Apps, for example. The retailer is now consolidating and migrating the remaining systems to an infrastructure-as-a-service (IaaS) model hosted by HCL in partnership with UOL-Diveo. The last leg of the migration will take most of this year to complete.
Under the project, the company is moving the systems under its enterprise resource planning (ERP) provided by Oracle to the supplier’s On Demand offering. Legacy systems such as Renner’s Linux-based, heavily customized point-of-sale system will be hosted in a private cloud fashion.
“We have become a reference in terms of cloud usage, but we never made a specific point of moving to the cloud – it was just a matter of adopting a set-up that would give the most flexibility and scalability to support growth. The model is just a consequence of that business objective,” said Balbinot.
The company’s existing datacenter, which the IT chief describes as a “very good” facility, will be used as a disaster recovery site. The idea is to get a reduction of about 10-20% on the total cost of ownership by moving to the cloud.
As many other IT decision-makers, Balbinot reckons cloud is very similar to what many would class as outsourcing, only with more collaboration and scalability. However, he generally takes vendor pitches with a grain of salt.
“Many companies are offering cloud computing services that they don’t actually have – that is the case particularly here in Brazil. Sometimes it takes a while to discover that: you usually find out when you get to the contract stage and vendors outline several penalties to terminate the contract,” he said.
“You have to careful with the [cloud] vendors you work with and we decided to go with HCL because we saw they could provide the service. But to say that cloud is mature is not correct; some companies are more mature than others.”
Renner is also involved in a three-year supply chain project, now moving to the execution stage.
“We will move our supply chain to the next level, by bringing in a lot more automation and integration. It is a major program for us, where IT will work totally integrated with supply chain processes,” said Balbinot.
New system implementation will take place in the next couple of years, including transportation management systems to control and plan Renner’s transportation fleet from suppliers to the stores. There will be automation taking place across its distribution centers and warehouse management systems will be upgraded.
Most of Renner’s supply chain systems are packaged and provided by Oracle. These will be migrated from its own datacenter to the HCL-run cloud. There is also a possibility of upgrading those applications to Oracle’s On Demand set-up.
“The main intention is to make IT simple to run and very lean. I used to say that my dream is to just have an “IT datacenter” and be able to focus on the contribution IT can really provide to the business, rather than configuring email servers and just running technology,” said Balbinot.
The Camicado integration
It is still early days when it comes to the Camicado IT integration, but the main headlines around uniting both technology estates is that there will be a new shared services center to support the merged business - Camicado already uses a third-party datacenter.
According to Balbinot, Camicado’s systems are quite different to Renner’s and there is no plan to integrate all of the latter’s systems.
“We will look at this from a process standpoint, not IT. We don’t know what we will be integrating, but if we do anything in that sense, I can tell you that cloud computing will make the integration a lot easier,” said Balbinot.
The IT boss, who worked on mergers and acquisitions (M&A) from a technology perspective previously, learned a few lessons around best practice in joining two disparate IT structures.
“[The CIO] needs to understand the business objectives and service levels needed, the technology required going forward and the processes supporting both companies. However, nothing needs to start from IT in an M&A – you have to start from the processes, then look at IT,” he said.
According to Balbinot, such an intense body of work needed expertise, which is something that Renner just could not get access to in its pre-global sourcing days.
“One big issue that we faced was the lack of skilled specialists available in the [Brazilian] market. We have certain Oracle systems that not a lot of Brazilian companies use, so we found it extremely difficult to find people that could work with these platforms,” Balbinot said.
“It is much easier to find them in India and US – for these specific systems, using global partners has helped us a lot,” he said.
“We were very much in-house oriented and had a constraint in terms of specialists, datacenter space, structure requirements. We were depending so much on our own resources and that was a very dangerous situation to be in.”
Renner employs about 80 people in-house and the transition to the new sourcing model has been tricky, mainly due to cultural differences and the novelty factor.
“Moving from an IT team focused on technical issues to a business-minded department is not an easy change for the IT staff or for the company, so you need a very good change management plan as you spend a lot of time convincing people of a new way of doing things,” said Balbinot.
As an international CIO working for global companies, Balbinot said the main difference when returning to Brazil as an IT leader was dealing with the difficulty in doing IT business with non-Brazilian partners.
“My main shock was the avoidance of usage of global partners. Brasil two kinds of different paradigms, are we a delivery center or a global customer? Should we provide services to the rest of the world or use those resources as well?” the CIO questioned.
“We had some discussions around whether Indian partners were expensive or if it was possible to [offshore]. My view is that it is possible, European companies use Indian resource, why shouldn’t we use it too? Brazilian companies are not quite there yet in terms of thinking global and understanding the opportunities that can provided.”
Difficulty to manage cultural differences is a common theme across IT departments worldwide, but Balbinot’s opinion is that since Brazil is a global delivery center for many companies, local companies should not have a problem in tapping into that global services pool.
Commenting on the differences in the Brazilian-Indian modus operandi in terms of IT, Balbinot goes back to his point of processes.
“Brazilian IT companies have good people, but are not very good at processes, whereas with Indians, you need to stick to processes otherwise you cannot work with them. For IT [at Renner] this was very difficult and it took a few months for the team to adapt,” he said.
“You can see a move to processes and standardization in many companies but especially in Brazil, where the ‘Brazilian knack’ prevails – people love to bypass processes here – that can be difficult. But when you go to a global sourcing model, this is just not possible; you cannot allow it to happen.”
In the next 12 months, Balbinot says Renner’s IT will move further towards its objective of having a very robust and agile IT structure that is cheaper, simpler to run and ready to accommodate business demands.
When the company’s IT reaches that efficiency ‘nirvana’, would it be time for Balbinot to jump ship and move to a more interesting challenge?
“Before I think about changing jobs, I prefer to help the company grow and the job itself is evolving as a consequence of that. Renner is growing a lot, so we will definitely face a lot more challenges and that will also make our life in IT more interesting.”
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