Over the past 12 months, we have witnessed the acquisition of 28 software or software-as-a-service (SaaS) firms globally, compared with only 13 IT services or BPO firms (see the figure below). The Forrsights Budgets and Priorities Survey, Q4 2012 indicated that 67% of business decision-makers in India planned to increase their department’s spending on SaaS and other as-a-service offerings in 2013 through the IT organization. Anticipating the market’s growing shift to the cloud, large enterprise software players like Oracle and SAP are acquiring SaaS-based products and solutions (Taleo, Ariba, SuccessFactors, etc.) to help them shift their business model to meet the growing market preference for SaaS subscription software over traditional licensed software products.
CIOs in India must capitalize on this gradual global shift in M&A — away from pure IT services and toward cloud-based services — in order to fundamentally shift the way IT is delivered in their organizations. CIOs should adopt a three-pronged strategy to gain full advantage of global technology M&A trends:
Information workers in India are increasingly using their personal devices, applications, and web services to accomplish both personal and work-related activities. Results from Forrester’s Forrsights Workforce Employee Survey, Q4 2012 indicate that at least 85% of employees use phone/tablet applications and web-based services for both purposes which is putting corporate information security under serious threat.
My interactions with numerous infrastructure and operations (I&O) professionals from large enterprises in India over the past six months have revealed that there is a high degree of awareness of the need to develop a bring-your-own-technology (BYOT) policy. However, actual implementations aren’t yet common, as I&O professionals are unable to address management’s three key concerns. These are, in order of priority:
How can we ensure that information on employee-owned hardware and software is secure?
My colleague Manish Bahl is wrapping up a report on midmarket IT budgets and spending trends in India for the 2013-2014 fiscal year, which runs from April 1, 2013 to March 31, 2014. I analyzed the survey data for collaboration-related trends and noticed something interesting: 68% of the Indian midmarket firms (those with 400 to 2,500 employees) surveyed have already adopted or are planning to adopt software-as-a-service (SaaS) for collaboration in the next one to two years (see Figure 1). In fact, collaboration-as-a-service (CaaS) tops all categories by a considerable margin.
This data reinforces the key findings from my recently published blog post highlighting the growing importance of cloud collaboration services in Asia Pacific. While the popularity of CaaS is growing across all industries, it’s interesting to note that traditionally cloud-wary verticals, such as financial services and insurance and the public sector (including education and healthcare), are starting to warm up to cloud-based collaboration services: 80% and 67%, respectively, of the surveyed midmarket organizations in those verticals are either already using or planning to adopt CaaS over the next one to two years.
As part of the research for my upcoming report on midmarket IT budgets in India, we collected responses on big data adoption trends and maturity levels from 430 midmarket businesses (those with 400 to 2,500 employees) in the country. Our research shows that around 35% of Indian midmarket firms plan to invest in big data technologies and solutions in the coming one to two years, but we also found that many of them focus on reducing costs (30%) or optimizing asset utilization (25%) as the business outcomes expected. Moreover, only 8% of midmarket CIOs who plan to invest in big data have a projected or proven ROI for their big data investments — showing that many Indian organizations are getting caught up in big data hype.
India’s weakening economic conditions have put tremendous pressure on businesses to be more competitive and drive growth. As competition in the midmarket increases, business leaders will expect new IT capabilities to respond to customer needs better, faster, and cheaper. The pressure is now firmly on CIOs to deliver clear business outcomes on their big data investments. Our survey and my discussions with Indian CIOs have led me to the following recommendations for midmarket CIOs investing in big data:
Many Indian CIOs and their infrastructure and operations (I&O) teams are in the market for a new data center as their existing data centers are running low on space, power, and cooling capacity. Forrester finds that data growth, virtualization, and consolidation are the main culprits behind these capacity challenges in India. For instance:
Data growth increases data center storage investments. Forrester estimates that storage consumes somewhere between 5% and 15% of the total power consumed in the data center and that the volume of data is growing by 30% to 50% per year.
Virtualization drives higher-density infrastructure architecture. Organizations face pressure to support more extreme compute densities and experiment with new infrastructure architectures.
Data center consolidation puts more pressure on centralized facilities. Per Forrester’s Forrsights Budgets and Priorities Survey, Q4 2012, consolidating IT infrastructure was a critical or high priority for nearly 70% of Indian IT decision-makers. This means more power, cooling, and space for centralized sites.
I’m currently in the process of wrapping up a report on midmarket IT budgets and spending trends in India for the 2013-2014 fiscal year (April 1, 2013 to March 31, 2014). For this report, we collected extensive data from 430 midmarket businesses (those with 400 to 2,500 employees) in the country to examine IT and business priorities among IT decision-makers. In addition to analyzing spending plans across standard IT categories (software, hardware, and services), we also analyze the likely impact on IT spending of key initiatives, including computing, mobility, and big data.
Despite increasing economic and political uncertainties in India, our survey found that midmarket companies are continuing to invest in IT to drive competitive differentiation. Our survey also signaled a changing attitude among Indian midmarket companies who are increasingly viewing IT as a means to better engage digitally enabled constituents. This is fueling a fundamental shift in the way Indian midmarket firms interact with customers. Here are some key highlights from the report:
The majority of Indian midmarket firms will increase IT spending in 2013-2014. Among all the companies surveyed, 61% of firms surveyed expect to increase their spending on IT by 5% to 10% in the current fiscal year. New IT initiatives and expansion of capacity will contribute to an increase in IT capital budgets as the current fiscal year’s budget is evenly split between new IT initiatives and expansion of existing capacity to better support growth initiatives. The need to modernize infrastructure and improve business applications to grow business will drive hardware and software spending from Indian midmarket firms.
On August 6, 2013, the Indian rupee plunged to a record low of INR61.80 to 1USD. In fact, since January 2013, the Indian rupee has depreciated by 10% against USD and is expected to slide further as India is challenged by political gridlock, serious infrastructure bottlenecks, and decreased investor confidence, all of which are contributing to a slowdown in economic growth. The declining rupee leads directly to increases in the cost of doing business, which has risen by 8-10% over the past year.
The difficult economic landscape has forced Indian firms to look for new and innovative ways to grow their businesses, create efficiencies, and improve responsiveness. This is driving changes in how Indian business leaders view technology – with many increasingly viewing technology as a far more critical means to differentiate their organizations and drive business growth. The pressure is now firmly on CIOs to deliver technology-led business outcomes for their organizations. To exploit this opportunity, CIOs should do the following:
- Develop a ‘business outcomes’ matrix and map existing and planned technology projects against it to build credibility with business leaders: ROI templates are generally developed to gain approvals and are typically limited to cost savings, but very few CIOs actually link their IT spending to clearly defined business outcomes. Define what business outcome means to your organization (e.g., increase in sales, revenue, customer acquisition, customer satisfaction to name few) and map each of your projects against the matrix to prioritize those with greatest business outcomes. This will help CIOs win buy-in from business stakeholders on project funding and priorities, while ensuring that IT is viewed as an equal and capable business partner.
Our research shows that 70% of Indian CIOs or top IT executives will report to CEOs or the senior-most executives in their organizations by the end of 2016. As the boundary between IT and business further blurs, successful CEOs must get more directly involved in business-led technology discussions as a means to differentiate their organization, drive business growth and measure technology success by the business outcomes it delivers. This is driving a fundamental shift in the CIO role as it moves from classic "plan, build, run" cycle management to a business outcome oriented, customer obsessed leadership position. With this backdrop, Forrester holds its second series of CIO summit across Asia Pacific in August and September; the India summit is scheduled for September 3 in Mumbai and the theme of the summit is “Mastering Tomorrow’s Business Outcomes”.
We have an action-packed agenda for the India summit with great mix of Forrester analysts (Dane Anderson, Nigel Fenwick, Bobby Cameron, and Duncan Jones) and industry keynote speakers (Arun Gupta,Chief Information Officer, Cipla; Ram Medury,Vice President, Head of IT, ICICI Lombard; Rajeev Seoni, Chief Information Officer, Ernst & Young). Throughout the day, we will have interactive discussions on how digitally-empowered customers are creating urgency for change by redefining how business is won and what role CIOs can master to digitally disrupt their markets by applying technology to deliver targeted customer value faster, better, and cheaper for potential business outcomes.
Coca-Cola recently announced that it is jumping into the red-hot Indian online retail arena by selling directly to consumers and small businesses, a first for a FMCG (CPG) company in India. While the Indian online retail story is still being written and Forrester is bullish about the long-term prospects for this channel, the immediate challenges need to be managed effectively.
Logistics and fulfillment are the largest challenges of them all in India, with more than half of all online retail sales being done using cash on delivery (COD). While COD is essential in a nascent eCommerce market, it can have a large negative impact on business margins. This is exacerbated in a nascent market where consumers are testing this new medium of ordering goods, as the return rates can be quite high. In India, reportedly, the return rates can vary from 5% to more than 25%, depending on the category, the demographics of the online buyers, and their online tenure (experience with the Internet).
The continued economic viability of software development in India, whether by independent software vendors (ISVs) or “captive” business units, depends less on pure labor arbitrage and more on delivering time-to-market advantage for clients. The pressure of meeting business expectations demands that software firms harness creative capability wherever they can find it. The increased focus on Business Technology innovation and customer experience over mere cost savings presents both a threat and an opportunity to software configuration and development business units (BUs) in India.This is the key finding from my just-published report.
Forrester developed its software innovation assessment workbook to assess software innovation capability of firms. We provided this tool to members of NASSCOM (the industry association for the IT BPO sector in India), comprising both ISVs and captive development BUs in India, and surveyed them to assess the most important process, organizational, cultural, geographical, and staffing practices that promote software innovation. We also interviewed a dozen selected respondents in greater depth to better understand how innovation capability contributes to business success in India. We found evidence of widespread adoption of the practices correlated with software innovation capability, helping to drive a rapidly changing role for Indian business in the global software supply chain.
Innovators in India that were engaged in software development and configuration received high scores for many of the practices that drive effective innovation. They demonstrated strength in:
Listening to the voice of the customer
Making the development process more iterative and responsive