Spending Power

Winning a coveted crown for the first time is a notable feat,

but as most winners would vouch, retaining the crown the following year, is

doubly difficult and highly commendable. However, very few get to savor the

pleasure of a hat-trick, an achievement that can be dubbed as stupendous.

In terms of IT adoption and usage, India, Inc has just

achieved this stupendous feat; after two years of fantastic growth in 2003-04

and 2004-05, the DQ-IDC Megaspenders Survey 2006 reveals that in 2005-06, Indian

enterprises witnessed a giant leap forward, for the third time in a row. In

fact, after three years of unwavering growth, the success of IT usage by Indian

enterprises has started emanating a sense of déjà vu.

Base: 196 large enterprises DQ-IDC Megaspenders Survey 2006

India, Inc records third successive year of growth in IT usage, exceeds last year's prediction, and the momentum shows no signs of slowing down next year. The combined spend on packaged software and services exceeds spending on hardware, signifying a major paradigm shift in the top spenders' usage pattern. Outsourcing, particularly of non-core operational activities and accounts and finance, is becoming common across all enterprises. In 2006-07, most enterprises in some form or the other would also outsource HR & marketing activities. More than half of the Top 50 spenders on IT during 2005-06 were PSUs. The myth that automation can only take place after these companies are privatized is busted.

Who Were the Big Users?



The feeling of déjà vu intensifies further when the survey reveals that once
more, telecom, BFSI and IT/BPO led the rest in IT spending during 2005-06.

Sectors such as oil and petrochemicals have emerged as key spenders, this time,

thanks to the mega investments made on automation by organizations of the likes

of ONGC and BPCL. Most notably, India Inc has topped the 17% growth predicted in

the Megaspenders survey last year. The next year is going to be even better than

the year gone by. At Rs 6,611 crore, 2005-06 witnessed a healthy growth of 18%

on IT spending by India Inc, while the survey predicts a 29% growth next year,

when total spend on IT could touch Rs 8,544 crore.

No surprises that according to the DQ-IDC Megaspenders Survey

2006, BFSI at Rs 2,634 crore was at the forefront of IT spending, with other

verticals such as telecom (Rs 1,288 crore) IT/BPO (Rs 878 crore), oil and

petrochemicals (Rs 750 crore) and discrete manufacturing (Rs 416 crore)

following suit. However, at 42%, pharma and biotech recorded the maximum growth

this year.

These are also the verticals that are planning to spend the

highest in the next financial year. However, BSNL from the telecom sector

emerged as the biggest spender amongst Indian enterprises during 2005-06.

Obviously, 2005-06 witnessed large scale IT adoption by BSNL across all its

circles, thanks to a host of new initiatives it undertook.

One clarification regarding the DQ-IDC Megaspenders Survey

2006 is probably necessary here. While 196 large enterprises participated in the

survey, there were at least 15 large traditionally heavy IT users who refused to

take part. However, for authenticity of the survey, IT spendings by these

companies have been estimated to determine the overall tables. For individual

trends, the survey has stuck with the participating respondents. Those missing

from the survey include the likes of SBI, ICICI Bank, Reliance Industries and

TCS, among others.

As mentioned earlier, the highest growth in IT spend during

2005-06 was recorded in pharma and biotech (42%) and IT/BPO (31%) verticals.

This was probably due to the growing market for bioinformatics and the need for

compliance with global regulations by IT services and BPO companies. However,

the growth in IT spends over the next year would be maximum in telecom (47%) and

BFSI (35%). The Top 50 IT spenders, not surprisingly, included 16 banks

(including 13 PSUs) and five insurance companies, as well as seven telecom

service providers.

Growth Drivers



You do not need to be on the 'Kaun Banega Crorepati' hot seat to
identify the drivers that were spurring the growth across these sectors. The

drivers facilitating BFSI growth included real time gross settlement (RTGS)

network, the trend of infrastructure outsourcing, the growing competitiveness of

private insurance players as well as continued deployment of core banking in

rural far-flung branches of PSU banks. Even the two national stock depositories

and the two large bourses played an important role in pushing the adoption of IT

in the financial sector. With Basel II looming on the horizon, the scope of IT

for the BFSI sector is expected to widen further.

 

 

 

 

 

 

While the consolidation in telecom decreased the number of

service providers, it in one way ensured increase in the adoption of IT. Lesser

number of service providers meant each of them having to manage even more

subscriber data-no wonder sophisticated storage deployment became a norm in

this sector. There were other catalysts too-such as broadband becoming

mainstream, WLAN becoming a commonplace following removal of some government

restrictions, data centers and NOCs becoming important sources of revenue for

telcos, CRM with BI along with the launch of value-added services to retain

customers. The list goes on....

Patterns Across the Verticals
  Â	BFSI	Mnfg process	Mnfg discrete	IT SW, & BPO	Pharma & Biotech	Automobile & Auto Parts	Oil and Petrochemicals	Telecom	Others
IT spend per employee (Rs lakh)	0.34	0.08	0.23	0.48	0.15	0.11	0.36	0.64	0.03
IT spend as % of Revenues	0.5	0.3	0.6	4.9	0.4	0.3	0.1	2.3	0.6

Oil & petrochemical and IT/BPO invested more on packaged software; services spending would show a healthy growth in oil & petrochemical as well automobiles & auto ancillaries. Telecom and IT/BPO, quite obviously, are spending the maximum per employee on IT; again, it is no surprise that these two sectors are spending the highest portions of their revenues on IT. Though IT is strategic to oil & petrochemical sector, the ratio of IT spend to overall revenues is still very low, probably because most oil companies are very big.

What Were They Spending On?



Like the previous year, hardware continued to rule the roost across Indian

enterprises, but more importantly, there seems to be a paradigm shift towards

packaged software and services. The combined spend on the two, easily exceed

that on hardware and would do so again next year. Hardware spend is expected to

dip significantly in 2006-07 across sectors such as telecom, oil and

petrochemical and auto and auto ancillaries primarily at the expense of

increased spend on services. Maybe the emergence of Tier 2 solution providers

with consulting arms could account for this gradual spurt on services spending.

 

 

 

 

Megaspender Shopping Lists What they spent on, broadly, in 2005-06

Hardware

Packaged Software

IT Services

Consulting and System Integration

Hardware spending pattern does not show any radically discernible change. Most telecom service providers seem to have spent heavily on application solutions, while hardware & software maintenance remained the most commonly opted for service. IT consulting has become fairly popular across India Inc while even business consulting with respect to IT is gaining popularity.

Higher software and services investment is a sign that the

Indian enterprises are maturing and looking at IT beyond its traditional role of

automation. In one of the other parameters, it is interesting to note that,

increasingly, companies are looking at IT investments more from a business

consultancy perspective (read, business change) rather than just from the IT

consultancy preview.

While hardware spend was almost uniform across all verticals,

oil and petrochemicals along with IT/BPO invested more on packaged software. IT/BPO,

not surprisingly, showed lower investment on services, probably because most of

the work was done in-house.



System/infrastructure software and application solutions were the most popular
spending areas in the packaged software category. Hardware and software

maintenance, as well as network integration/system integration, were the popular

services that saw India Inc loosen its purse strings.

More Shopping Lists The specific technologies they spend their money on

Mail messaging solution is the most commonly opted technology for almost everyone, while VPN & BC/DR solutions too are gaining popularity. NAS gained traction in IT/BPO and telecom, while even Wi-Fi has started to find a few takers, especially among oil companies.

There were other areas too where specific verticals showed

added interest-telecom, IT/BPO and BFSI spent the maximum on IT storage;

telecom and IT/BPO indulged heavily on application development and tools, while

customized software development gained popularity among telecom and oil and

petrochemical companies. The future looks bright on the services front-while

45% of all organizations surveyed would employ some form of IT consulting in

future, nearly half are willing to outsource at least their desktop and hardware

management to third party providers.

The Outsourcing Story



The DQ-IDC Megaspenders Survey 2006 shows that outsourcing has become
popular among Indian enterprises. Operational activities, such as enveloping and

courier, logistics/transportation etc, are the most common trends in outsourcing

across all verticals, though it is yet to become the standard practice of the

industry. At an overall level, outsourcing in collection of payments,

credibility checking (mainly for BFSI vertical), appraisal/exit interviews are

on a rise.

Nearly half the survey respondents would like to outsource

their hardware management, primarily desktops, even application management and

network management seem to be popular services on the outsourcing wish list.

What used to traditionally called facilities management seems to re-emerging in

the new garb of infrastructure outsourcing and India Inc. across all sectors

seems eager to embrace it. While Bank of India, Bank of Baroda, Bharti, Tata

Teleservices and the likes have already done it, more seems likely in 2006-07.)