Relevance of IT products in global value creation

While services can become commoditised in a short span, IT products have the capability to create both real value in the present knowledge economy and perceived value through branding. Ravi Teja explains how this can happen

Value creation in the present era needs to be understood from the perspective of a knowledge economy. Nations, industries, companies, institutes, groups and human beings are global entities for whom value needs to be created. As per the Living Systems Theory, the primary purpose and goal of these entities is to ‘survive’ and ‘grow’. And to achieve this goal, they need to have the capability to adapt themselves to the changing needs of the environment. They need to interact with the environment, take feedback from it and continuously learn, innovate and adapt themselves. In short, they need to be sensitive to the environment.

Survival and growth of these entities means sustainable development and performance of these entities, which could only be achieved through continuous value creation (see Figure 1). Leveraging and implementing ‘best practices’ leading to continuous improvement would lead to value creation. Unfortunately, continuous improvement can’t happen without innovation in all areas. Innovation demands a strong urge for learning and knowledge acquisition. Learning requires content (both structured and unstructured content) that could be delivered by IT products and applications; and it also requires the right intent to share and collaborate. All this happens in the context of the business purpose of each of the entities.

Knowledge economy

Value in the agricultural economy was about land, resources and labour. Individuals were the key focus and they could produce value almost single-handedly. In the industrial economy, assets were focused towards money and machines and the concept of workgroups was introduced. But in today’s knowledge economy, the assets that create value are intangibles such as experience, intuition, idea generation, innovation, collaboration, capability enhancement, etc. Value creation happens through networks, boundary-less entities, and through high levels of collaboration and sharing. In fact, the share of value generated by intangibles in today’s economy is a staggering 85 percent vis-à-vis the share of tangibles, which is only 15 percent. This is the reason why all great companies worldwide have their market value far greater than their book value. Global statistics say that the rate of return on intangibles is 10.7 percent and, in comparison, the rate of return on tangibles is 7 percent and that of financials is 4.5 percent.

Peter F Drucker in ‘Managing for Results’ said, “Tangible resources, money or physical equipment do not confer any distinction. What does make a business distinct and what is its peculiar resource is its ability to use knowledge of all kinds—from scientific and technical knowledge to social, economic, and managerial knowledge. It is only in respect to knowledge that a business can be distinct, can therefore produce something that has a value in the market place.”

New IT products

New IT products and technologies may help to reduce the gap for some of those who are disadvantaged or marginalised by enabling collaboration and learning at a strategic level. Developing countries are proving to be partners eager to extend the IT market by becoming suppliers and investors in IT products. As suppliers, they are keen to take advantage of export-led growth. As investors, they are providing the infrastructure for modern global business, good governance and lifelong learning.

Enterprises today use the motto of ancient Olympians. They want to be faster, as they strive for real-time capabilities that remove latency from processes in support of more-connected business models, which demand accurate and timely information. They demand higher return on investment and earnings per share via cost cutting, modified business models and a renewed focus on core competencies. They show bravery in the form of collaboration, customer and supplier portals, marketplaces and fundamentally more open business models and application architectures. The impact of the above is to apply substantial changes to IT products to serve virtual and real-time enterprises.

Verna Allee, a well-known Knowledge Management guru in the USA said, “The really big return on knowledge-based IT products is building capability for the future. That requires different measures for RoI.” Capabilities are the precursors to sustainable performance. Capabilities represent the link between strategies and performance. Capabilities that generate other capabilities are collaborating and learning. Thus, IT products of today need to support both collaboration and learning that would lead to knowledge exploitation and knowledge creation, which in turn would lead to the creation and leveraging of best practices. IT products need to specifically cater to the following:

• Accelerate the generation of capabilities. Shape a ‘boundary-less’ culture for greater synergy.
• Connect people into a network for greater speed. Promote innovation through collaboration and problem-solving situated in work.
• Prevent knowledge loss from the organisation through exchange of cross-generational expertise.

The key functionality and features of these IT products are collaboration, learning, knowledge creation and exploitation, discussion, real-time messaging, structured and non-structured knowledge, document management, analytics, and integration to transaction applications. Some of the key IT products that have contributed to an organisation’s success are enterprise business applications, enterprise integration, workflow and process automation, electronic commerce, e-learning, intranet and groupware, document management and imaging, customer relationship management, supply chain management, analytics and business intelligence.

Thus, IT products in the knowledge age support collaboration and analytics. They have triggered convergence of computers, communication and content; in comparison, IT products in the industrial age were restricted to automation of transactions.

Levels of IT products

IT products serve purposes at three main levels: operational, tactical and strategic. IT products at an operational level help in codifying routine information to connect knowledge to people who need it. At an operational level, all the products that have been mentioned above are relevant. IT products at a tactical level would support creation, usage and application of knowledge by connecting people to share good ideas. They support communities of practice, story-telling, collaborative tools, virtual team tools, group processes and knowledge maps, and sharing best practices. IT products at a strategic level create value by leveraging knowledge in the business model and in relationships. They support intangible scorecards, value networks, business modelling, scenario building, dialogue and planning tools, and systems mapping.

Products as brand ambassadors

Someone has said: “A great brand taps into emotions. Emotions drive most, if not all, of our decisions. A brand reaches out with a powerful connecting experience. It’s an emotional connecting point that transcends the product. A great brand is a story that’s never completely told. A brand is a metaphorical story that connects with something very deep—a fundamental appreciation of mythology. Stories create the emotional context people need to locate themselves in a larger experience.”

Unlike IT projects, IT products have the capability to become great brands and touch the emotions of people. The Indian IT industry is just emerging to become a product-based IT economy rather than a pure service-based industry. Some successful Indian companies with product examples are i-flex, Ramco, Talisma and others.

Jeffrey Young, in the book Cisco Unauthorized, said, “The real story at Cisco is about perception: convincing customers that it has an almost mystical insight into this New World of the Internet and that buying Cisco gear will rub some of that magic off on the buyer. (‘Buy from us and feel good about this wild and crazy world of the Internet.’) It’s about a brand name that exudes aura and invincibility and solidity. IBM pulled off the same trick in the sixties.”

Thus, IT products could have the capability to create both real value in the present knowledge economy and perceived value (through branding). India is in the best position to take advantage of this and leapfrog into a prosperous future.

Ravi Teja is the practice head for Enterprise Transformation at Nihilent Technologies. He can be contacted at rteja@nihilent.com