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Infrastructure Strategies '06
Inside the Indian IT budget
We examine the spend patterns that our Infrastructure Strategies
2006 captured for the previous financial year and the forecast for the current
fiscal. By Anil Patrick
 Infrastructure
Strategies 2006 (IS 2006) turned up some interesting trends. While an increase
in the IT budget for FY2006-07 in the average range of around Rs 1.54 crore
is interesting, more heartening is the increase in the number of organisations
which have reported a close alignment of business goals with IT. About 41 percent
of the surveyed organisations believe that their business goals and IT are very
closely aligned. With another 44 percent of organisations having their business
goals closely aligned with IT, it is safe to say that India Inc has finally
risen up to international standards on the use of IT as a highly effective business
enabler. (See pie-chart: Alignment of IT with business goals)
FMCG/consumer durables and IT/ITeS lead the pack when it
comes to very close alignment of IT with business with 58 percent and 53 percent
of surveyed organisations respectively. The manufacturing & engineering/auto
segment follows closely behind with 44 percent of organisations very closely
aligned.
The leaders on the closely aligned front are the usual suspects—telecom
and BFSI. 56 percent of the telecom and 49 percent of the BFSI segments believe
that IT is closely aligned with their business goals.
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 S
Srinivasan, Senior General Manager, Business Strategy & Systems, Sundram
Fasteners, gives his opinion on the results of Infrastructure Strategies
2006.
In any organisation, information technology is not
a stand-alone function. It is integral to the business and its impact
will be felt across the organisation in most of its activities, hence
it is neither advisable nor practical to see it divorced from operations.
Similar to other areas, IT departments are also
under pressure to quickly deliver cost-effective solutions to business
operations. In this scenario, it is natural that IT departments seek to
bring solutions to the table that will meet the end-user’s expectations
immediately.
Considering both these points, it is not surprising that
the survey reflects a view that IT goals and business goals must be the
same. In fact, if there is any IT activity that is skewed and independent
of the business, it should be examined for its existence and validity.
This can be justified selectively in the case of, say, well-identified
technology or applications which are somewhat futuristic and which may
require some development work. Otherwise, any other type of IT activity
that is not directly relevant to the business is likely to remain only
of academic value.
The logical way to align business needs and the introduction
of technology is sometimes a matter of debate. Ideally, operations must
articulate their pain areas and identify what they would like to achieve
or optimise. IT must meet this need through an appropriate method and
technology. This will ensure participation and ownership of the end-results.
Reasons for concern A lapse in security may result in leakage of information
to competition. The IT system may also have to be temporarily shut down,
causing great inconvenience. Worse, this can lead to loss of credibility
of the organisation with serious consequences in the long-term.
Laws are also becoming more stringent in terms of data
security, hence the concern on data security expressed by 53 percent of
the respondents is understandable and justified.
Islands of information systems were unavoidable
to an extent earlier, but they have outlived their usefulness now. Today
there can be no compromise on the quality and integrity of information.
It has to be current and cannot await the hassles of periodic updation.
Every entity of an organisation must interface and respond to the external
world in a uniform manner. All these are only possible with a robust enterprise-wide
information system. Consequently, interest in ERP is high.
From the outside, the fall in software and implementation
costs is driving the interest in comprehensive integrated solutions. Connectivity
has improved substantially over the years, making solutions more manageable.
Since most large organisations have already switched over, vendors have
to deal with a larger number of smaller customers. As a result, they have
become more aggressive and are targeting as many customers as possible.
With high awareness and interest, it is natural that ERP is figuring on
the agenda of several organisations.
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It is not hard to see why these figures make sense. A booming
economy has translated to significant growth plans for these five verticals.
Foreign investments are at an all-time-high as are organisations branching out
of India to set up subsidiaries or all-new operations.
Let’s go sector-wise on this analysis. The
FMCG/Consumer durables, telecom and BFSI segments at present focus on enhancing
their presence and marketshare by tapping the increased spending power of Indian
consumers. Disposable incomes are at an all-time-high, and along with it has
come product discernment among buyers. This means that every company faces the
uphill challenge of retaining consumer loyalty levels.
Another challenge that these verticals face is the entry (present and expected)
of foreign players. These giants bring in competence levels that make it essential
for Indian organisations to get their act together on all fronts.
In the case of banking and telecom (as well as FMCG to some extent), regulations
have also made it essential that alignment is in place. Transactional systems
like core banking and CRM have also mandated the alignment factor, hence it
is clear why these segments accord an important role to IT’s alignment
with business.
The IT/ITeS segment’s lead on the alignment front is easy to explain. This
vertical has been at the forefront of IT’s alignment with business for
a long time, in fact earlier than many of the other verticals.
The first reason behind this is the industry’s nascent as well as tech-savvy
nature. This has helped them put IT and business in the right perspective. The
second reason is that most of Indian IT/ITeS companies deal with foreign clients.
This makes it imperative for them to be ready for audits and regulations which
call for the IT-business alignment.
On the manufacturing & engineering/auto front, the main need for this alignment
has been rapid growth and use of automation systems like ERP. These dictate
the need for alignment, and can be considered the main reason.
Many of these industries have also started dealing with international
companies in a major way. India is being looked at as a sourcing destination
for high-end manufacturing/design/auto parts which is yet another factor behind
this trend.
- If your organisation has not started focussing
on IT’s alignment with the business, it is high time efforts are
made in that direction.
- When planning a security strategy, start from
the human side (users and IT team) before moving to the technical side.
- With most vendors focussing on increasing their
bottom-lines through reduced prices and lower entry-barrier product
ranges, this is the year for medium businesses to capitalise on attractive
offers that may come their way if they negotiate right.
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Cases of Non-Alignment
While the alignment aspect is by far clear, worrisome are the companies that
do not have proper alignment—12 percent of organisations state they are
‘somewhat aligned,’ 2 percent say they have a ‘loosely aligned’
structure, and 1 percent do not have alignment of IT with their business.
So what are the reasons why these companies not getting there? The top reason
for non-alignment is that business goals are considered more important (38 percent
of organisations). This is followed by 31 percent stating that alignment is
not the main objective of the company. 25 percent say that they are currently
working on bringing IT and business goals together.
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 Meheriar
Patel, DGM & Head, Information Technology, Globus Stores, shares his
views on the Infrastructure Strategy Survey 2006.
Business goals are always considered most important.
IT has established its credentials as a crucial enabler to achieve these
goals. This is evident from the fact that 44 percent of organisations
consider themselves as having their business goals and IT very closely
aligned, while another 41 percent have achieved close alignment.
Today, most organisations focus on customer experience
enhancement, and technology is the aid to fruitfully achieve that goal.
This will be usually in the form of an indirect aid that helps generate
increased revenues. While on this path it is necessary to consider technology
innovation. You must be distinctively different from the rest of your
competition on the technology front if you want to make a difference.
The emergence of ERP as a priority area (48 percent)
is what’s needed. As organisations try to grow exponentially, they
will need these systems to achieve the competitive edge.
For example, many retail organisations already have transactional
systems. Retailers are bringing in CRM, e-commerce and the like which
run on the existing back-end systems. This is because customer loyalty
can be brought in only through the alignment of IT with the business.
These Point of Sale systems are already aligned with
loyalty programmes. This is why the retail segment will see more of building
and updating to new requirements.
A secure way to grow
The market is growing with even small players deliberating
expansion. This is true even in the retail segment where small outfits
are thinking in terms of new branches.
For all this to happen, you need a trustable infrastructure
in place which is possible only by having security as the core focus.
Proper processes and procedures are part of security, and if these are
not in place it is not possible to have a proper infrastructure.
It also becomes difficult to build and scale up
without this essential component. That’s why it is clearly evident
from the survey that security is the top priority for most organisations.
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Money Talk
 It
is now time to discuss the money factor. So how much did India Inc spend during
FY2005-06 and how much will it spend during the coming year?
There is good news on this front. The average IT budget has
taken a long leap from Rs 3.86 crore during FY2005-06 to Rs 5.4 crore. The pie-charts
alongside for FY2005-06 vs 2006-07 have a detailed snapshot of the IT budget
scenario for the two years.
Looking at the past year, most of the organisations (60 percent)
spent less than 1.5 crore. This is followed by around 17 percent of companies
which spent between Rs 1.5 crore to Rs 3 crore during FY2005-06. The picture
is similar for the present year as well, with 59 percent planning to invest
less than Rs 1.5 crore and 16 percent planning spends in the range of Rs 1.5
crore to Rs 3 crore.
Hardware leads the spending chart followed by security. 59 percent of organisations
plan to spend on enterprise hardware during this year. Security follows closely
with 57 percent and bandwidth with 55 percent.
Till FY2005-06, the major focus area for spending was on
hardware (74 percent) followed by bandwidth (72 percent). Security came a distant
third with only 56 percent of organisations having investments on that front.
More Secure Times
The sudden rise in the emphasis on security is again but an indicator of the
times. Information’s value has become paramount for businesses due to the
competitive marketplace. Recent security breach revelations as well as threats
such as phishing and botnets have also opened many an organisation’s eyes
to the need for effective security.
This is clear from a look at the IT priorities list for the IS 2006 participants.
Security leads the way with 53 percent of organisations saying that security
is their top priority followed by ERP at 48 percent. Servers come a distant
third with only 29 percent of organisations according it top priority.
Securing business is increasingly becoming necessary to attain consumer acceptance
since most corporates use digital interfaces for customer interaction. Upcoming
regulations like Basel II (for the banking industry) will also be prime drivers
of this trend.
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