Infrastructure Strategies '06

Slicing the IT rupee

Let's put the Infrastructure Strategies results under the microscope. by Anil Patrick R

As we discussed in “Inside the Indian IT budget”, FY 2006-07 is the year of rising IT budgets. With budgets taking a leap from Rs 3.86 crore in 2005-06 to an estimated Rs 5.39 crore in 2006-07, it is interesting to see where and how these investments will manifest themselves. But before looking at the investments made during the last year and the estimates for the current year, we need to look at how the IT budget was distributed till FY 2005-06. This will give insights on the status of the Indian enterprise so far on the IT spends side.

Spends so far

Till FY 2005-06, the biggest technical spends for most enterprises have been on enterprise hardware (74 percent of organisations) and bandwidth/connectivity (72 percent). Close on the heels of these investments were security and enterprise packaged software with 56 and 52 percent of enterprises having invested in them.

The graph, Technology areas invested in during the last year is a good pointer to how the distribution among technology areas was made. It is evident that outsourcing is becoming popular in India with 34 percent of organisations having opted for it till date.

“Profitability is driving IT budgets”

M K Mittal DGM-IT, IFCI M K Mittal highlights some of the reasons that have contributed to the increase in IT budgets and outsourcing. The Indian economy is booming and as a result, profitability has also gone up. This is the main reason why IT budgets are increasing. IT spends are increasing in BFSI because of the segment’s high dependence on IT and rapid rates of expansion. Regulations like Basel II are also on the horizon which means that new systems will have to be put in place. Spends will substantially go up in the vertical during this year. Outsourcing is becoming a need for most organisations. Technical expertise which might not exist in-house has to be outsourced. Adding to the need are the high attrition rates of IT personnel and costs which are a major problem.

Vertical spenders

The biggest spenders on enterprise hardware so far were the BFSI (84 percent) and telecom (79 percent) verticals. These verticals were among the biggest spenders on bandwidth with 77 percent of organisations having invested in it.

However, it was the IT/ITeS segment which spent the most on bandwidth (82 percent). Significant expansion has taken place in these verticals over the past couple of years and these figures bear ample testimony to these efforts.

Security has been a priority over the years for the service industry (71 percent), followed by telecom (64 percent), BFSI (63 percent) and IT/ITeS (63 percent). Significant enterprise packaged software investments were made by the services (71 percent), BFSI (70 percent) and chemical & pharma (55 percent) verticals till date.

However, it is not a positive sign that IT training has remained a low priority for most organisations so far. Only 31 percent of organisations have invested to date on this crucial aspect. The situation on this front among verticals is not encouraging either with the highest spends having been made by FMCG/Consumer durables (38 percent) and manufacturing & engineering/auto (37 percent).

Investments in technology (2006-07)

Top positions this fiscal

When comparing FY 2005-06 spends with those of FY 2006-07, it is evident that most Indian enterprises are well equipped on the IT infrastructure front. Most technology investments are on the lower side indicating that focus is largely on new implementations and upgradation/maintenance rather than initial set-ups as the graph Investment in technology areas last vs current fiscal clearly indicates.

Investments in hardware remains the highest spend (27 percent of organisations) this year. However, there has been a marginal drop on this front from 29 percent during FY 2005-06. IT/ITeS leads the pack with 66 percent of organisations having hardware investment plans this fiscal. This is followed by telecom (64 percent) and government/PSU at 63 percent. It is interesting that the government/PSU segment has significant plans on this front clearly indicating the role IT will play this fiscal.

At second place on the budget front is enterprise packaged software (EPS) with 23 percent of organisations giving it priority in their plans. EPS has retained status quo position when compared with last year. The biggest spenders on this front are the services vertical (71 percent) followed by government/PSU (56 percent) and IT/ITeS (50 percent) respectively.

Enterprise wide Applications (EWA) come in third with 22 percent of organisations planning to invest this year. This is marginally lower than the 25 percent figure for the previous fiscal. These investments are likely to be among the mid-end enterprises since most of the large enterprises are through with their EWA rollouts. Services vertical tops this area with 71 percent of organisations having EWA plans followed by government/PSU at 56 percent and IT/ITeS at 50 percent.

IT training needs are important

Subhojit Roy, Head-IT, SBI Mutual Fund Subhojit Roy gives his take on the rise of security and outsourcing as well as the need to give priority to IT training. Security was not much of a priority for many an organisation earlier because of multiple reasons. First of all, most of the infrastructure was within the LAN, and branches were usually isolated. Security is also quite an expensive affair, so it was sidelined. Now most organisations have centralised their applications and a common infrastructure is in use. Web-based applications are also being widely used to hook up with customers and business partners. It has brought in problems on the security front. This is why security has become the topmost IT priority this year. When we talk about outsourcing, it is usually on the facility management side, especially desktop and network management. Outsourcing takes place as companies do not want permanent staff but still require good service. With this approach in-house skill sets are not required and the company can save on costs. This is why you can see a lot of companies outsourcing such activities to those with a national presence. On the training side, importance needs to be given to IT training. IT training is of two types—for the IT team as well as the end users. The IT team especially needs ongoing training to keep them updated. So do end users. However, this does not happen in most places since training decisions are usually taken by the HR team. It is often the case that IT training gets a lower priority on their list. This needs to change and IT training needs to have a higher priority than what it has at present.

Upward bound

Four technologies are witnessing an uptrend. Although the increase is marginal in most cases, it is worth making a note of due to a shift in focus among enterprises from the initial implementation phases to one of optimising the infrastructure in place.

First among the ones on the growth path is storage, which is up from 17 percent of organisations having invested in it last fiscal to 21 percent this fiscal. The services segment clocks the highest (71 percent) followed by BFSI (63 percent) and IT/ITeS (61 percent). Rapid expansion is clearly the driver of this spend pattern.

Next in line is security, which is up from an investment for 17 percent of organisations to an estimated 20 percent this fiscal. This is not surprising since security has emerged as the topmost priority for most organisations this fiscal. Government/PSU seems to be the vertical with biggest security investment plans this fiscal (75 percent) followed by services (71 percent), IT/ITeS (66 percent), BFSI (60 percent) and FMCG (60 percent). Considering the sensitive nature of information in these verticals, it is natural that this reflects in their budgets.

Third on the northbound chart is Convergence (16 percent last fiscal to 19 percent this fiscal). Organisations are clearly showing more interest in convergence as the technology is maturing. Proposed investments are highest in the services vertical (57 percent).

In the fourth place is training with a marginal increase from 13 percent last fiscal to a planned 15 percent this fiscal. Leading on this front is the FMCG/consumer durables segment with 40 percent of organisations planning training investments this fiscal followed by IT/ITeS (37 percent) and manufacturing & engineering/auto (33 percent). While the overall figures are still dismal, it is good to see the above mentioned industry verticals taking a significant effort on the training front.

Although there is significant interest from Indian enterprises on the outsourcing front, investment levels have been stationary at 19 percent (last fiscal vs present). Services are the most bullish about outsourcing with 71 percent of organisations planning to do so this fiscal. FMCG/consumer durables, IT/ITeS and BFSI segments follow up with planned investments by 40 percent, 38 percent, and 37 percent of companies respectively.