The CIO's Moment of Truth

Being a CIO of an Indian corporate at this point of time is, well,
interesting (for want of a better word). It is a big challengetough economic
environment always is, for everybody. But it is a bigger opportunity.

Yes, there is a tighter cost control which has affected all parts of business
and IT is no exception. But that is a challenge CIOs have faced earlier, many
times.

What is new this time is that the CEOs are proactively reaching out to CIOs
to seek help for managing the slowdownwhatever that means.

For the first time, the CIO is being acknowledged as someone who is more than
a cost center head who, in tough times, is expected to manage his (read IT) cost
a little better. Now he is being asked how he can help achieve cost savings for
the enterprise in all areas, be it marketing, procurement, supply chainWhy,
many services firms are even expecting CIOs to play active roles even on the
revenue sidecreate new revenue areas, reduce credit risk, and minimize revenue
leakage.

And why not? For the last few years, CEOs have been constantly told that IT
can transform their business and achieve business goals. And they want that
badly and quickly. This call for help is probably their way of saying we trust
you. It is the definite sign of a growing confidence in IT.

Isnt that the day that CIOs have always dreamt of?

Defining the Indian Slowdown

It started as sub-prime crisis in the US, before becoming a credit crunch.
The fall of Lehman changed the crisis to the level of financial meltdown. Now it
is a full-fledged economic recession that the new President will have to tackle.

To be clearvery clearit is nothing of that sort in India. At least not yet.
Yes, India is not isolated in the global scenario and hence there is impact on
the Indian financial system. Export industriesespecially IT and BPOhave been
facing the heat. But domestic consumption is still growing at a healthy rate.
With inflation cooling off in the last few weeks, even temporary problems should
be sorted out.

	The focus is on managing the short-term risks. With credit risk coming on top of that, IT has been instrumental in enforcing measures to curb higher exposure
Sukanta Nayak, AVP, IT
Type: Part of Usha Shriram Group (India) Sector: Manufacturing/Consumer appliances Impact: Impact on cash flow and credit; fear of demand slowing down What IT is doing: Has built into SAP system in enterprise provision to automatically warn and escalate supply of products to distributors with not-so-good credit history. To save energy cots, separated 24x7 applications. Impact on IT investments: Existing planned investment to continue; new projects has been put on hold for review

However, there is fear. Fear creates its own problems. Stock markets have
tumbled. That has fueled fear further. Many companiesthat have not been
hithave also started taking measures for a possible slowdown. While that has
created a little slowdown in some areas, it has brought in a little more
prudence. That, hopefully, will result in better business efficiency.

Yes, the liquidity issue with lenders has led to tight cash flow situations
in many enterprises. That has suddenly made cash flow management the most
important task for the C level executives.

But most enterprises realize that the India growth story is not diluted yet;
if anything it has got delayed a bit. In some cases, even that has not happened.
Take Spencers Retail, the retail arm of RPG Group. The company has a target of
400 stores by December-end and is well positioned to achieve that. It has not
revised its JFM rollout target. We want to add another 300-350 stores by March
2009, and there has been no revision in the target, informs Amit Mukherjee, CIO
of Spencers. Needless to say, his IT cannot afford not to make investments for
that kind of rollout. That certainly is not what the West calls slowdown.

This is the fundamental way the Indian slowdown is different from that of the
West. If the US fears a complete coming to halt of its economy, the worst fear
of Indian companies is a longer period of cash flow and slower growth.

Take the much-discussed worst-affected IT/BPO sector. It has been growing
at 25% plus rate in the last few years. This year, it expects that to slow down
to 15% or so. By the Western standard, that is outstanding growth. Growth is a
little less than last year. But we are still adding people. We will still add
25,000 people that we said we would do this year, by March, says Kris
Gopalakrishann, CEO of Infosys, Indias second largest IT exporter.

Whether 25% or 15%, it is still growth at the end of the day and we cannot
afford not to invest on IT, says Laxman Badiga, corporate vice president and
CIO, Wipro, Indias second largest IT company and third largest exporter.

Most importantly, Indian companies realize that they cannot deviate from
their long-term growth oriented strategy because of the short-term issues of
fear and cash flow. Both fear and cash flow are essentially short-term issues,
says an analyst with an investment firm, who did not want to be named and you
cannot tackle short-term issues by changing long- term strategic shift. They
have to be dealt with in a tactical manner.

That is what CEOs expect IT to help them dobalance between long-term growth
targets and short-term challenges of cash flow.

And, guess what? CIOs in India Inc are beginning to deliver, though the jury
is still out on how effectively they can play through the entireinnings.

ITs Mission

There are two reasons why slowdown is so much top-of-the-mind for the Indian
IT communityfor both users and vendors. One is a good reason: CIOs are being
asked to help directly and vendors need to support them with quick change of
tactics on what they should push. The other is the fact that Indian industry is
services-driven. Services sector account for 55% of Indias GDP and 68% of
Indian industry (that is GDP minus agriculture). IT is the prime infrastructure
for the services sector. So any cost cutting would impact IT overall in India
more than in markets with large manufacturing industries.

	As long as growth is happeningand it is certainly happening, even though it may have slowed down a bitno services business can afford to compromise on IT investment. IT is not an enhancement tool for services business. It is a fundamental building block
Laxman Badiga, Corporate VP and CIO
Type: Part of Wipro (India) Sector: IT services and products Impact: Slowdown in the US has started affecting the export business that is a much larger part What IT is doing: Working on process efficiency; aggressively pursuing a proactive Green IT strategy Impact on IT investments: Not too much on planned investment; making investment on areas like collaboration to build virtual team capability across the globe

So, what is the CIOs response?

A slowdown like this gives you an opportunity to look at the whole system
more closely and improve, says Badiga of Wipro.

Agrees Spencers Mukherjee, It allows us to tighten processes. Sometimes
that requires tough decisions, which are difficult to take when everything is
going fine for everybody.

Large companies like Wipro and RPG have of course are using the opportunity
to improve the processes for long-term. For example, Wipro is not just using the
slowdown to remove inefficiencies from the system, it is working in parallel to
create IT systems to cater to the needs of a post-slowdown market.

	Slowdown allows you to tighten the processes and enhance operational efficiency, that requires some tough decisions, difficult to take in normal times
Amit Mukherjee, CIO, Spencers Retail
Type: Part of RPG Group (India) Sector: Retail Impact: Not much so far in sales, the expansion plan continues What IT is doing: With little worry on topline, the focus has been to guard the bottomline. IT is helping in creating processes and tools to get the maximum return from existing investment. Has initiated pilot project to study how it can measure and use energy more efficiently in stores. Impact on IT investments: No cut in IT investments, at least for next 5/6 months

Business models often change completely after a period of crisis/slowdown,
says Badiga. You have to prepare yourself for that today, he says. Wipro, for
example, is working on how it can use collaborative tools in a global scale to
create virtual global delivery models wherein people will work in close
cooperation in a seamless fashion, sitting across geographies. That will not
happen just by reducing travel, it would result in reducing carbon emission,
something many companies have taken very seriously, both from the point of view
of corporate social responsibility and short-term and long-term business
benefits.

Green IT is hot. Spencers has, for example, undertaken a project, on pilot
basis, to study how it can save on energy costs on lighting, air conditioning
and IT in its stores.

But most companies have initiated short-term measures that would show quicker
results. Take Usha International, the maker of household appliances such as
sewing machines, fans, kitchen appliances, auto parts and the like. Its business
requires it to supply to distributors who pay later for the goods. With tight
cash flow situation, many of the distributors are faltering on on-time payment.
The average receivable time has increased.

The company has decided to balance supply in the short-term. It has changed
from aggressive push to cautious. Not only has the company gone for a stricter
credit policy, it has used IT to enforce that more effectively. We have built
into our SAP rules that will automatically tell the executives the credit
history of the distributor and will even escalate it in case of a distributor
with bad credit record, says Sukanta Nayak, AVP, IS, Usha International. He
says many controls have been built into the IT system to manage credit risk and
short-term cash flow by being more prudent on receivables and payables.

Nayak says while there has been no cut in his (IT) budget, the demand to get
more from those investments is coming from the management. However, he says
investment in areas that they wanted to experiment on, have been put on hold for
the time being. There is no dilution in existing planned investment, he says.

However, to save energy costs on IT, the company has separated its 24x7
applications and other applications and put them into different servers. The
other servers are just shut down when there is no need for them, informs Nayak.

Rajiv Nandwani, VP, managed services, with Religare Technova, an IT services
firm owned by the Religare Group of Malvinder Singh which services group firms,
especially in the financial services and also sells financial products and
solutions too echoes the same sentiments. There is no dilution in existing IT
investment; simply because there is no dilution in growth targets, he says
adding that short-term cost cutting by server virtualization, better bargaining
with vendors are on, though. The company is also looking at how it can use IT to
bring down cost of operation in other areas.

	The slowdown has not meant any revision of growth targets; hence no revision in IT budget. But the focus is to get more from every investment
Rajiv Nandwani, VP, Managed Services
Type: Part of Religare Group (India) Sector: Domestic IT services Impact: Little impact on newer businesses, some slowdown in the established businesses of parent company What IT is doing: Has undertaken energy efficient practices; since many new IT contracts are being signed, is trying to take advantage of slowdown to get far better rates Impact on IT investments: No revision in IT investment; more focus on energy efficient technologies

Insurance major Aviva India too is looking at short-term, tactical
cost-cutting while streamlining operations. We prefer inhouse development to
outsourcing, and are re-prioritising IT investment timelines, says Abhay
Johorey, Chief Operating Officer, Aviva India. The company has introduced
practices like black and white printing instead of colour, closer monitoring on
user printing requirements etc to save on cost. The company has also introduced
in-house training sessions to manage resources and expenses more efficiently.

All the CIOs agree that their companies have still not gone for budget cuts
in planned expenditure. At least, not yet.

There is a broad consensus on certain areas.

• Management has asked IT to help in managing the slowdown
• Short-term tactical measures to cut costs and streamline revenue is being
  done through IT
• No major IT budget cut has been initiated yet
• Energy efficiency/managing energy costs has become important
• Absolutely no adjustment to planned investment in expansion, especially
  for newer companies

To summarize, the slowdown has transformed the CIO from an onlooker and
guardian of his own cost to an active player in corporate strategy making. While
the first signs are that they are responding well, only time will tell if they
can emerge as the definite strategic guys after the end of this phase.

One thing is for sure. The slowdown may be different things to different
people. For the Indian CIO, it is the moment of truth.

Shyamanuja Das

shyamanujad@cybermedia.co.in