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Issue of June 2006 
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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.

CIO take: Rationale for aligning IT with business goals

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.

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.

NM Recommends
  • If your organisation has not started focussing on IT’s alignment with the business, it is high time efforts are made in that direction.
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  • 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.

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.

CIO take: the essential differentiator
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.

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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