Byting the IT bullet

How much on an average do corporations in the US or European countries spend on IT? The figure is around 5 to 6 per cent of the annual budget, say IT consultants.

Compare this to spending on IT by Indian corporations "" the majority of the large corporations spend less than 1 per cent of their turnover on IT, according to industry association Nasscom (National Association of Software and Service Companies). Clearly, the boom in the Indian IT software and services exports sector (30 per cent growth for 2003-04) hasn't translated into increased domestic spending.

Are Indian companies leveraging IT to its potential? Why are companies still shying away from spending that extra buck that can bring in those crucial leaps in productivity? We analyse the reasons along with some business cases on how companies in different verticals are using IT to reap benefits.

Talk to any CEO, and he'll speak highly of the commitments his company has to technology. But ask him about the company's IT spending as percentage of the turnover, and you'll never get a straightforward figure "" "we have invested heavily in IT".

How heavily? Well, last year Nasscom conducted an IT user survey involving over 100 large corporations, where they asked these corporations the same question "" 40 per cent chose not to respond, while 44 per cent said it's less than 1 per cent of their annual turnover. Seventy-eight per cent had a documented IT policy "" showing that while on paper there is thrust on IT, companies are hesitant to make big investments.

Says Nasscom Vice President Sangeeta Gupta, "IT usage has matured very slowly in Indian corporations. The budgets have increased only gradually. Moreover, the benefits of IT implementation is not going down to all levels in the organisation. Say, for example, in a large company of 10,000, there may be an IT group of 100 people who may have implemented technologies but it not percolating to all the departments of the organisation. The imperative is not only of the CIO (chief information officer), but also of the CEO to see that IT is implemented and utilised across the organisation."

In fact, many in the industry to argue that the role of the CEO or the business manager needs to evolve. Since technology is no longer just a support function "" rather the applications are a part of business functions and processes mostly connecting to partners and clients "" business managers should call the shots.

They should take on the responsibility to make technology implementation decisions, their impact and spending "" of course, in consultation with the CIO. That's perhaps when they'll understand the impact technology can make to their business, and give it a higher priority.

As Gupta pointed out, a large number of companies manage their IT functions distinct from the business. Often, except the CIO, others in the IT department have little to do with business units although they handle business applications and functions.

Experts argue that there is a need to create a collaborative workspace where both business and IT managers work closely. They say IT managers should be drawn more closely into the business units and "" just as business leaders should answer for the performance of IT "" be made more accountable for business performance.

Another reason for the low spending is perhaps that Indian corporations still have not faced competition at the same level as their counterparts in the West, which operate globally.

As a result, to an extent, corporations have only slowly felt the need to increase tech investment. "But now with deregulation and privatisation, competition is driving IT usage in corporations," says Nasscom's Gupta.

She cites the BFSI (banking, financial services and insurance) sector as an example: IT spending has been the maximum here. And now, with the introduction of the new patent regime in the pharmaceutical industry from 2005 and the dismantling of export quotas under the Multi-Fibre Agreement, again in 2005, in the context of the textile industry, companies in these sectors will face stiff competition.

"This will certainly drive IT spending," she adds. Spending is projected to grow from the current level of 11 per cent a year to 15 per cent in the next three years.

In most large corporations, the areas that are currently driving significant investments are integration and automation of IT systems in the enterprise. Integration no longer implies merely connecting systems; rather it means marrying IT strategy to business goals.

A couple of years ago, companies had a tendency to put ERP, CRM, SCM, KM and other systems in place to solve their immediate business problems, without much thought on how, in the future, these systems will work together, how they'll talk to each other to streamline processes and achieve greater business goals. Integration, thus, has been a major drive in corporations.

According to the Nasscom survey, over 75 per cent of the companies polled say that most processes in key departments have been integrated with each other; 38 per cent of that claim to have integrated most processes in all departments.

Automating complex processes "" inventory control, sales or pay-roll processing, analysing sales forecast and so on "" has been another thrust area.

While 58 per cent of the corporations have automated most processes in all departments, 34 per cent claim to have automated most processes in key departments.

Who does what
Based on its IT user survey, Nasscom last year conducted the first IT User Awards, highlighting companies that have implemented IT intelligently and are using it innovatively to create value for the enterprise.

We tracked three top-performers "" HDFC Bank, ITC Ltd and Shoppers' Stop "" from the banking, FMCG and retail sectors, showcasing how they are using IT to create value for the enterprise.

HDFC Bank: Making IT a 'partner'
Perhaps what differentiates HDFC Bank from many others is its world-class IT infrastructure, which analysts claim is better than many others even in the developed world. When the bank started operations in 1994, its immediate challenge was to decide on a core banking system.

Since Indian-built solutions were being widely adopted by international banks, HDFC was keen on a local partner with a package that had international aspirations.

Second, it wanted its tech framework to be based on open, scalable standards that gave it a wide choice of hardware to run on "" this was in alignment with the company's business plan to deliver products across multiple channels to customers with an increasing variety of access devices, at the same time eliminating the impact of geography.

The third priority was that the system also provides up-to-the-minute MIS that would enable it to manage the business in an on-line real-time mode and take advantage of changes in the market.

Says the bank's IT head C N Ram, "The challenge was to align business with IT and to make IT a partner for business. This required a transformation in the traditional way that IT was viewed as merely a tool for making more efficient back-offices."

Against conventional wisdom (to decentralise operations), the bank decided to centralise both its data-processing and operations "" a step taken keeping in mind anywhere, anytime banking and rapid growth.

This was done despite higher initial costs "" in fact, company sources say, Ram had brought a price-tag to the management that was close to five times a competitor would spend. But he was able to convince that sub-optimal software would result in sub-optimal hardware use, which would ultimately cost five times the original expenses.

As for software systems, the bank's corporate banking business is supported by Flexcube, while retail banking is supported by Finware, both from i-flex Solutions Ltd "" both, open, scalable and web-enabled.

"We've excelled in containing the costs of technology to the minimum by choosing appropriate systems, partnering with our vendors and making the best use of current technologies like imaging, middleware and so on, and demonstrated that IT alignment is a very powerful strategic differentiator in the marketplace," says Ram.

He claims that many banks that started at the same time as HDFC, and used different approaches to their IT needs, are making change in their core setup. "An effective initial strategy helped us channelise our energies to expanding the business."

IT is one of the key reasons HDFC Bank consistently ranks among the top banks in terms of efficiency parameters. Today, the bank has over 326 branches spread over 167 cities across the country "" all linked on a real-time basis.

Customers in 90 locations are serviced through phone-banking. Besides, the bank has some 900 networked ATMs. Thanks largely to IT, currently the bank is able to open 80 to 100 branches in a year.

ITC: IT as an enabler
IT usage at ITC, the private sector company with strong presence in cigarettes, hotels, agri-business, apparel, packaged foods and FMCG products, is almost three decades old, starting with sharing mainframe computer time from institutions such as Jadavpur University.

But it was only in the late 1990s when PCs proliferated and easy adoption of various solutions started yielding positive results that the company started focusing on more investment-heavy but business-transforming strategic solutions.

The challenge, says V V R Babu, ITC Group's CIO, "was to move IT from simply automating business processes to making it an enabler of business."

This, he says, involved transforming business processes at different levels "" revamping customer-facing processes and supply-chain management and manufacturing systems; enhancing internal operating efficiencies; and efficiently capturing and disseminating knowledge contained within the company.

Another challenge was to web-enable various solutions so that business managers could access information at ease, anytime, anywhere.

The strategy to overcome this challenge was to implement online, real-time, decision-supporting systems that drive business.

Business-critical apps such as SCM and ERP for the FMCG business, shop-floor automation for the paperboard business, domain-specific ERPs for commodity trading, leisurewear and leaf tobacco businesses were developed and implemented.

Another feather in ITC's cap is its "e-choupal" agri-business project based on the traditional concept of knowledge-sharing at choupals or "meeting place for farmers".

Soya farmers in Madhya Pradesh were provided with a virtual marketplace "" through a PC and a Net connection in a village, and a website dedicated to farmers "" as an alternative to mandis that helped eliminate the middlemen and cost inflation.

The project brought benefits to both ITC and the farmers; currently the company is focusing on expanding the e-choupals and creating more rural marketing hubs.

Some clear-cut benefits of IT implementation: working capital has reduced by half for the FMCG business; processed material wastage has declined by 25 per cent due to shop floor automation in the paperboard business; potential stock-outs in the marketplace have reduced by almost 50 per cent for nearly all businesses.

Shoppers' Stop: Are you being servered?
Every day, more than 25,000 customers walk into the various Shoppers' Stop outlets across the country. Catering to them are about 2,100 employees, creating revenues of Rs 404 crore in FY 2004 (up from Rs 303 crore the previous year).

When Shoppers' Stop started operations in 1991, it was with a software application that was developed on Xbase database using Novell Netware as a local area network solution with customised versions for each store.

The biggest hurdle was data consolidation, which often resulted in inaccurate and delayed MIS. Modifications in the software also took time, resulting in a loss of revenue opportunity since retail is a heavily time-sensitive business.

The need of the hour was to frame an IT strategy that would link and operate online various processes and utilise some of the leading technologies available to deliver overall control and efficiency.

The IT systems would have to not only monitor customer purchase patterns, but also allow optimal utilisation of resources, including store space, inventory, manpower and overall capital deployed.

Money was not a constraint, since the thinking in the company at the time was that the costs for IT should be spread across the benefits the organisation would reap over the next 10 years. In 1999, Shoppers' Stop set aside more than Rs 15 crore to overhaul its IT systems.

One of the first steps was the sourcing of the J D Armstrong ERP in 1999, on the AS 400 platform sourced from IBM. The fully integrated system takes care of the supply chain from a manufacturer to the end customer by using back-end and front-end systems like MMS (Merchandise Management System) and WinDSS (Windows Distributed Stores Systems).

The entire organisation was networked, with the stores and distribution centres linked to the services office through a high speed leased line.

The ERP also linked the operations of the stores and distribution centres with service operations in merchandise buying, product ordering, receipt confirmation, stock transfer, inventory management and event management. The WMS module of JDA enabled space planning and integrated SKU location to facilitate faster retrieval of merchandise SKUs in the distribution centres.

The biggest advantage of the ERP, say company sources, was that controls within the ERP drew management attention to exceptions anywhere in the operating system. That ensured clarity in operational processes and a high level of discipline.

The implementation of the IT solutions have resulted in significant benefits at Shoppers' Stop. Company sources point to improvements in gross margins and inventory control.

That's critical, since the chain operates 15 stores across the country and stocks highly dynamic merchandise that has to change constantly in keeping with the latest trends. Shrinkage "" loss of inventory due to pilferage and theft "" has dropped to 0.5 per cent and revenue is growing at 30 per cent, year on year.