IT for sustainable competitive advantage

CEOs need to take a long hard look at their IT vision and increase spending if they wish to sustain business competitiveness, says Rangnath Salgame

The outlook for the Indian economy remains optimistic. Robust GDP growth (7.4 percent) in the AMJ quarter of 2004-05 was driven primarily by manufacturing and services sectors. Services, now, account for almost half of the GDP. In keeping with the upbeat Indian economy, and largely responsible for its growth, is the export driven software services sector. With $16 billion in foreign exchange earnings by end of this year, the software and the information technology (IT)-enabled service sectors are now the biggest export earners for the country. The paradox, however, is the low IT-spend by Indian companies.

Corporates spend less than 1 percent of their revenues on IT, compared to the developed world average of 8 percent. Indian industry has to look beyond their domestic rivals, as competition now comes from the best-in-class global companies. To succeed, they need to bring their IT infrastructure on par with that of their global counterparts.

Why does it matter for a CEO to have a strong IT infrastructure? The answer lies in the ability of the company to react quickly to changes in the business environment and be able to compete effectively. Automotive giant, Ford, for example, developed an integrated Demand Sensing and Incentives Management (active response) system which allowed it to minimise losses of operations in North America.

Consider another example from the same industry. The rationalisation of its application layer helped General Motors (GM) reduce new-vehicle engineering time from an average of 40 months to just 18. Assembly line defects dropped 25 percent while inventory costs came down by 20. (Source: Network World). Numerous such examples exist to prove the effectiveness of investing in a strong IT backbone.

Investments in building a strong and agile IT infrastructure translates into efficient business processes—supply chain, distribution, sales and support, customer contact, time-to-market are just a few areas that can exploit IT to increase efficiency levels.

Effective and efficient IT infrastructure is not limited to large companies. Small and medium-sized firms need it too. The market has suddenly expanded for Indian firms. In a post-WTO world, every sector will have to face the same situation and compete in all spheres including technology. For instance, the much talked about textile opportunity will only come about if our industry can provide world quality material but at the same time be able to match competitors in IT infrastructure. A small-scale textile manufacturer in Coimbatore and an automobile component maker in Pune can now aim to be global suppliers to Wal-Mart and auto majors in Detroit.

To compete successfully means investing in an IT infrastructure that enables a strong supply chain, distribution and customer support network. An effective supply chain brings innumerable benefits such as improvements in delivery, cycle time, cost controls, and product quality. When Wal-Mart recently came calling to India to freeze on suppliers, only those who were electronically-ready were allowed to participate in the preliminary round of discussions.

With brand India growing in popularity, the Wal-Mart kind of opportunity is just the beginning of what promises to be a deluge of global business orders. The best way to capitalise on it is to make a planned investment in IT. Indian enterprises need to strategically build their IT infrastructure to suit their business needs.

IT can be of strategic help not only in consolidating and growing existing business, but also capitalising on new emerging opportunities. For domestic companies operating within the Indian border, the challenge is to ward off competition from across the globe. MNCs are backed by proven business processes, a strong IT infrastructure and renowned brands.

An agile infrastructure is a prerogative not only because the business demands it, but also because companies now have to deal with an ever-changing market scenario. Indian companies therefore need to quickly understand the importance of having a well-defined IT vision, one that will make them nimble enough to match or even better competition.

While a clutch of Indian corporates have embraced IT, vast majority of them are laggards. While a few, in reaction to competition, are investing in IT, the majority is yet to react. Indian companies need to adopt a proactive IT approach.

The author is President, India & SAARC Region, Cisco Systems India. He can be reached at rangu@cisco.com