Many happy returns

Investing in IT can actually prove beneficial to a company, and returns on IT investments are seen not just in tangibles like lower staff cost but also in intangible benefits like better customer relations and reduced time-to-market, says Navin Chandra

“What India needs today, are more roads and bridges, not IT.” I have heard this cynical lament often enough. Yet my experience has been that in order to build more roads and bridges, and that too in a quicker, more cost-effective manner, it is IT that India needs most. Let me explain with a concrete example.

The designing of roads and bridges, as any expert will vouchsafe, has traditionally been a long drawn out process. Until IT stepped in. I have personally been involved in developing a parametric design software, which, based on pre-determined survey parameters, can produce a design—together with a bill of materials—within an hour instead of the few months that it traditionally takes to develop such a design.

The additional advantage is that designs can be transported, discussed or changed over geographical distances almost instantaneously and can be stored in digital mode rather than as huge paper drawings.

It is no one’s case that IT can substitute basic industrial activities, but the fact is that in today’s fast-changing world, any activity, be it manufacturing, marketing, inventory management or HR management, cannot retain its cutting edge without using IT as an enabler. Whether it is automobiles or auto parts, textile mills or garments, jewellery designing, news media or even agriculture, so great is the dependence on IT that without IT, the process would move at a snail’s pace.

Like the ubiquitous wheel, IT is everywhere—a prime mover of growth and development. An apt example is that of staff costs in banks as a percentage of interest earned. Figures published for the quarter ending September 30, 2001, show that banks with superior IT infrastructure have incurred far lower costs (HDFC Bank at 6-9 percent, UTI Bank at 5.7 percent, ICICI Bank at 4.2 percent) as against those without effective IT systems in place (Syndicate Bank at 29.9 percent, UCO Bank at 26.3 percent, Dena Bank at 23 percent).

Yet paradoxically, at a time when innovative and cutting-edge technology is the need of the hour, budget-tightening trends in a recession-ridden economy are prompting reductions in IT spending.

In such a scenario, the pressure to demonstrate return on investment (RoI) in IT (clearly and irrevocably) is highly intense. At the same time there is no gold standard in place for calculating RoI. There are only pointers to the way.

Establish a baseline
A clearly articulated cost structure baseline should include not only hardware and software costs, but also untracked costs such as downtime, system administration costs, upgradation and maintenance costs.

Integrate IT solutions
Wherever IT solutions are logically planned to integrate with the IT infrastructure of the rest of the organisation, right from the beginning, RoI deliverables are easier to measure. Measuring RoI on one particular solution such as customer relationship management or supply chain management, being implemented for the sake of stand-alone returns on that solution, is extremely difficult to measure because invariably the company would find itself spending money on tweaking the whole system.

Intangibles
Often things that are most important are the most difficult to measure. How do you define and measure RoI when unstructured intangibles like customer relations, increase in the knowledge base, value of information, reduction in expected opportunity loss or improved decision-making, come into the picture? When improvements cannot be seen and only felt in terms of improved efficiency, customer satisfaction, better response time, reduced time-to-market, reduction in inventory etc?

Establishing a baseline becomes all the more important when IT project results are expected mostly in the area of intangibles.

Other intangibles that need to be taken into account include the utilisation rate—how soon will people start using the system, and finally, the opportunity cost of not investing in IT.

Squeezing maximum value
To stay ahead of competition, companies have to take a lead not only in deploying new technologies but also in managing a complexity of new and legacy systems.

Ultimately, it is only the bottomline that matters. In a recession-ridden economy when business survival itself is at stake, unless IT managers are in sync with business thinking and learn to clearly demonstrate RoI on IT spending, the going for them is bound to get tougher.

The author is the CEO (India Operations) of Infinite Computer Solutions. He can be contacted on navinch@infics.com