IT to Create Business Value

According to a survey by Mercury and Economist Intelligence Unit, with
technology spending increasingly devouring as much as one half of the capital
expenditure allocation, the need to drive business value out of IT has become a
top corporate priority. The IT environment is becoming ever more complex and
companies are required to optimize a mix of in-house and outsourced IT services
against exacting business requirements. A raft of regulations are also forcing
them to rebuild their systems and processes and finding ways of turning
compliance from a pure cost to a business benefit. At the same time, the
application environment is also changing. Many organizations needing to attract
new skill sets to support a complex mix of package and custom applications.

Strategic sourcing

The twin attraction of specialist skills and lower costs, offered by leading
service providers, has become a powerful driver to outsourcing. The scope of
outsourcing is growing, as more business processes are getting digitized and
automated. While we are familiar with outsourcing in the BPO context, a large
number of Indian companies have started outsourcing business processes. As the
range of outsourcing opportunities increases, there is a greater need for
decision makers (read CIOs, IT departments) to understand and measure the
business value of IT.

While IT managers have to balance business and IT in their outsourcing
decisions, the biggest challenge is the need to improve the quality of IT,
according to 64% of respondents. Measurability of IT business value followed a
close second with 54% of the respondents voting in favor. Explains C Raghuraman,
senior VP, business process excellence, Dr Reddy's, "As organizations
reorient their structure towards business processes, from the current functional
or departmental way, IT faces the challenge of delivering value to the key
business processes of the organization."

A total of 48% of the executives believe obtaining specialist IT skills that
are not available in-house is the area where outsourcing could deliver the
greatest benefit over the next two years. Says SR Balasubramanian, VP,
information systems, Hero Honda, "Rapid changes in technology places heavy
demand on in-house professionals. It is difficult to play this game of chasing
skill sets, and is better to concentrate in areas you are good at." Adds
Arindam Bose, head, IT, LG Electronics, "Every organization needs to
concentrate on things it does best and let other industry leaders contribute to
the business with their expertise and best practices." Companies like Dabur,
Bank of India and Bharti have already outsourced a chunk of their IT management
to specialized vendors. Balasubramanian sees this to be a definite trend in
India with more and more companies to follow suit in the near future. Close at
heels is quality of IT, which got thumbs up from 40% of the respondents. Says Dr
Reddy's Raghuraman, "If the outsourcing partners deliver the right
solutions and support, it will enable optimizing the total cost of
outsourcing."

Compliance

A wave of regulations is forcing CIOs worldwide to embark on complex
compliance programs that impact both the in-house and outsourced IT applications
and services. There are formal compliance requirements, such as financial
reporting, under which applications report information according to precise
procedures for accuracy, presentation and timeliness to prove that a business
processes redesigned.

Compliance is an area where the survey revealed a gulf between industries, in
terms of their response to IT. IT professionals in historically regulated
industries like banking and pharmaceuticals are highly focused on compliance
issues. Says Raghuraman of Dr Reddy's, "Compliance in IT controls is
mandatory for all companies listed on the NYSE". With Indian companies like
Wipro and Infosys already listed on the NYSE, for Indian pharmaceutical
companies nursing global ambitions, and the banking sector undergoing reforms,
compliance is a critical issue today. Says Tamal Dasgupta, CIO, Wipro,
"Compliance issues are business led and address areas like data privacy
laws, IP protection and risk mitigation."

According to the survey, 61% of the executives predict that accuracy of
financial reporting is likely to benefit businesses, while 56% predict that
compliance will deliver better visibility into enterprise risk.

Application environment

IT environments are becoming significantly more complex, with a
heterogeneous mix of legacy, package, and custom applications, all of which need
to be managed across the full application lifecycle. A total of 83% of the
respondents said their IT environment now include composite applications.
Increased complexity may explain why 50% of companies in the survey say managing
applications are the first priority or the second-highest priority for
investment in 2005. Says Raghuraman of Dr Reddy's, "SAP is the backbone
of our IT infrastructure and needs seamless integration with other enterprise
applications to get faster and accurate information." Following close
behind is security, with 23% of the organizations identifying it as the top
investment priority for 2005. A large number of CIOs in India give a lot of
weightage to infrastructure monitoring due to the geographically dispersed
nature of business.

While 54% of the IT heads consider composite applications the most difficult
to manage, responses among the Indian counterparts vary from packaged enterprise
applications like CRM and ERP to customized applications like J2EE, .Net to
composite applications to Web services. Says Tamal Dasgupta of Wipro, "None
are easy to manage. The degree of difficulty of implementation and manageability
is inversely proportional to the value any IT solution delivers to the business.
Technology is not the prime concern, but continuous upgrades to get the business
value are. "

IT departments will face a plethora of challenges in 2005. Success will
increasingly depend on the CIO's ability to measure and optimize the value of
IT to the business.

Bhaswati Chakravorty