Small retailers suffer an onerous IT burden. The average small retailer (earning less than $25 million in annual revenue) spends almost 7% of its revenue on IT expenses. Larger retailers typically spend between 1% and 2%. This situation sets up two opposing institutional forces that have a dramatic effect on IT operations.

Outsourcing: Attractive, But It Makes You Stupid

IT is a large cost center for small retailers. The costs of a centralized infrastructure for data and messaging cannot be distributed across a wide range of different retail outlets. Instead, the infrastructure and costs are concentrated. In this environment there is a strong incentive for management to cut costs by outsourcing infrastructure and Point-of-Sale (POS) expertise and support.

Outsourcing can introduce an unwanted organizational impact by moving key personnel and processes outside of the retailing organization. IT fulfills an important role in enterprises. The essential tasks of modeling an enterprise's...