Why Lowe’s and Target Brought Their Technology Teams In-House

At the National Retail Federation’s event in New York this week, the chief information officers (CIOs) of Lowe’s and Target discussed what prompted them to bring IT in-house in recent years and how the move has impacted their organizations for the better.

Two tech reckonings on Cyber Monday

Mike McNamara, executive vice president and CIO at Target, described his first Cyber Monday with the retailer in 2015 as a “fairly grim affair,” in part because Target had to throttle web traffic all day long.

“We had a lot of trade that day, but it was not necessarily a celebration,” he said.

The retailer was also dealing with some other problems.

“The Target I joined, the business had lost its confidence a bit,” he said. “Morale was not super, the IT team was a bit bloated and broken. In reality, it was still reeling from the data breach of 2013, which shattered its confidence. It was in early recovery mode with lots and lots of people [in IT], mostly outsourced. We had almost 10,000 heads total, which is way too many for Target.”

McNamara spent the next year bringing everything back in-house and reducing the number of projects by focusing on those that made the biggest difference to Target shoppers.

Seemantini Godbole, evp and CIO at Lowe’s, joined in 2018 and said the home improvement retailer was in a comparable position after it, too, had outsourced its IT needs. Cyber Week 2018 was her second week on the job and she, too, said it “didn’t go so well,” but didn’t elaborate.

That’s when Godbole started talking about “putting our fingerprints on our experience [instead of using off-the-shelf technology],” adding, “Some of the technology out there is great if you’re a smaller size retailer, but, as you grow in scale, the products don’t keep up.”

Tech is where growth is happening

It was after those Cyber Mondays that each retailer had their tech epiphany.

“Technology is such a core part of our customer proposition,” McNamara said. “Two-thirds of our growth is through digital. We are by and large about tech [and realized we] have to build that ourselves.”

On a similar note, Godbole said Lowe’s CEO Marvin Ellison spent his first week on the job in 2018 in stores and saw staff working with different products to serve customers, which was “a painful sight to watch.” Meanwhile, the retailer faced additional challenges on Lowes.com.

The CIOs said in-housing was therefore not a hard sell.

In McNamara’s case, Target reduced the number of engineers from 10,000 to between 3,000 and 4000, which saved hundreds of millions of dollars and “buys you two friends: the CEO and the CFO.”

Because Target is seeing a lot of growth from buy online pick up in store (BOPIS) orders, McNamara said the retailer is focused on how to get stuff to shoppers quickly and easily, which includes supply chain and fulfillment—but not accounting and payroll.

“We build everything except for stuff that is not retail-specific,” he added. “The reality is at a certain point of scale, you really do have to build it yourself. There’s also a competitive advantage in being first. Target is certainly ahead of the market [in combining] digital and physical. I’m still waiting for that to be a commodity offering.”

Target has also invested in its data science team and has 1,000 people working with AI alone in functions like pricing and forecasting, and has incorporated machine learning to solve a range of problems, such as “making sure graphic T-shirts don’t say anything naughty,” McNamara said.

According to Godbole, Lowe’s hired close to 1,000 technologists in 2019 and has similar plans for 2020.

Last year, the home improvement retailer rolled out new devices for in-store associates because in part of the “fairly dense interaction” between associates and customers who are planning home improvement projects. The constant back-and-forth to answer questions broke up the sales process, but now associates have apps to help answer questions while they are standing with customers in aisles.

Lowe’s has also integrated “every piece of software with AI and machine learning,” Godbole said. That includes help with pricing decisions and choosing the most effective promotions, as well as predicting sell-through.

The benefits of insourcing

In-housing has also brought some culture change.

Target has since opened what it calls The Dojo, an educational environment in which staff receives intensive coaching for six weeks at a time.

“It was a huge investment in training and learning, but it more than paid off,” McNamara said. “We can produce technology at a speed unimaginable a few years ago [to the tune of weekly releases]—and speed really matters. When you’re trying to create new features and functionality, you want them to come out as quickly as you can—that’s what makes money at the end of the day.”

Godbole likened the process of IT development to a long car trip. When you start out in the morning everyone is happy, and the last half an hour is good because you’re reaching your destination. The middle, however, can be messy.

“I feel like at Lowe’s we are in the messy middle, but we are creating points to show we’ve made progress and we’re marching in the right direction,” she said. “During the last holiday season, the Cyber Monday we just had, [Ellison] came down and spoke for a bit, and then we have a selfie he took with 200 to 300 of our team members. He posted it on Twitter and it went viral. It was nice, the teams needed it … to remind [ourselves that] we are making progress and culture change is constant.”

While Lowe’s and Target are big enough to cover a lot of ground on their own, McNamara’s advice to smaller retailers is to look at what’s most important to insource.

“We may choose to write our own warehouse management system. If you’re not [the size of a] Target, you probably wouldn’t and can settle for commodity in that area,” McNamara said. “Work out the most valuable thing for you as a company—insource that and buy the other things.”

Godbole said to invest in talent.

“When insourcing, you need phenomenal talent,” she said. “Invest in talent, and make your workforce is learning.”