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
On February 22, the Reserve Bank of India (RBI), an institution that supervises and regulates India’s financial sector, announced guidelines allowing corporations to enter the banking sector. Private companies, public-sector groups, and nonbanking financial firms will all be eligible to apply for a banking license. We expect RBI to start issuing new bank licenses by early 2014.
RBI guidelines state that companies receiving a banking license must open at least 25% of their branches in rural areas. Despite this guideline, I believe that new entrants will primarily target the same urban and semi-urban customers that existing banks target. The reason is simple: These are the most profitable customers. This helps explain why 85% of rural bank branches in India belong to public banks; it’s simply not an attractive market for private banks.
What it means for current Indian banking CIOs: Leverage big data to grow your business or prepare to be left behind.
As competition increases, businesses will expect new IT capabilities to understand and respond to customer needs better, faster, and cheaper. Banking CIOs who embrace this change will adopt big data technologies and become true business partners. The ones who don’t will be bypassed by new entrants (when they come to play) using big data approaches and internal data from whatever market they’re currently in to analyze the banking market. These new entrants will likely influence customer preferences, question existing assumptions, and look for ways to disrupt the market. I recommend that current Indian banking CIOs:
On March 4, 2013, NASSCOM, the industry association for the IT BPO sector in India, announced a restructuring plan to help realize its goal of India becoming a $300 billion industry by 2020. The restructuring plan is based on an independent committee’s recommendations, chaired by Infosys cofounder N.R. Narayana Murthy. Key highlights from the announcement:
Realignment of the NASSCOM structure into seven verticals (IT services, business process management, global in-house centers, engineering and R&D services, Internet and mobile, products, and domestic market) and five enablers (global trade, policy advocacy, outreach, skills and talent, and regional connect).
Executive Council to be reconstituted to have adequate representation from the seven identified verticals
Formation of various councils, including national vertical councils, country councils in key markets, and strengthened regional councils to address local issues.
Set up five centers of excellence in five years for software engineering, emerging technologies, vertical solutions, eCommerce, service excellence, and governance.
Facilitate 100,000 certifications in specialist skills and domain areas.
On February 28, 2013, India (as part of its 2013-2014 budget) announced that it would increase the excise duty on mobile phones costing more than $36 to 6%, up from the current level of 1%. Forrester believes that this increase will not affect the mobile industry in India very much because:
Sub-$100 smartphones will trigger new kinds of competition in the market. As high-end mobile phones get more expensive, Forrester predicts that smartphones costing less than $100 will be in much greater demand. Moreover, handset manufacturers will absorb a large portion of the price increase to sustain their sales.
Explosive mobile Internet growth. With increasing urbanization and improving per capita income, more people will begin to use the Internet, and the use of smartphones will rise quickly. We forecast that the mobile Internet user base in India will grow by more than 30% year-on-year over the next five years.
Addicted social media youngsters. With more than 61 million Facebook users, India ranks as Facebook’s third-largest audience in the world after the US and Brazil. Half of these users are between 18 and 24 years of age, and the majority of them use their mobile phones to connect to the world.
Rapid eCommerce growth complementing the mobile sector. Forrester estimates that eCommerce revenues in India will increase more than fivefold by 2016, jumping from US$1.6 billion in 2012 to US$8.8 billion in 2016. Mobile-friendly sites from various players and eCommerce website aggregators will help accelerate mobile Internet adoption.
Across Asia Pacific (AP), expanding mobility support for employees, customers, and/or business partners will be the top strategic telecom priority for enterprises in 2013, surpassing other telecom priorities like performing network management and consolidating operations equipment, rationalizing/consolidating telecom/communications service providers, and moving communications applications to the cloud.
While enterprises will invest in a range of mobility products and services, there are five key areas in particular which will attract the most investment in 2013. Vendors need to focus on the solutions and engagement models that meet customers’ needs in these five areas and target the industries and countries where the demand will be greatest:
Business consulting services. Specifically for defining a formal enterprise mobility and/or BYOD program strategy, including devices, applications, data access, and provisioning. Moreover, AP organizations will likely need help in drafting compliance and legal policies related to enterprise mobility.
Telecom expense management solutions. This is one of the most critical telecom requirements for AP CIOs in 2013. Across the region, 50% to 60% of organizations pay the entire cost of voice and data services for company-supported Android and iOS phones and tablets. For BlackBerry phones, this proportion is nearly 70%.
Data from Forrester’s Forrsights Budgets and Priorities Tracker Survey, Q4 2012 highlights that a total of 53% of IT organizations interviewed in India plan to increase their software spending on mobile applications in 2013. Among all the countries, India ranks second only after Australia/New Zealand and considerably higher than the regional average:
It’s encouraging to see Indian CIOs start to give a high priority to mobility software spending, but our research shows that the majority of mobile application initiatives are skewed toward employees and BYOT (and, to some extent, partners) with little focus on mobile customer engagement. Forrester research findings indicate that mobile applications will be a more critical channel to reach consumer markets in Asia Pacific in the future compared to more developed western markets. This is especially true in India, where the population is younger (according to the UN, 27% of the population is between the ages of 15 and 29), the mobile Internet user base is growing at the rate of more than 30% annually, and sub-$100 smartphones are further fueling mobile Internet growth.
What It Means For CIOs:
Put customers at the center of your mobile strategy. If you’re not establishing the architectures and capabilities to reach these mobile customers now, you won’t be positioned for success three years from now. CIOs have an opportunity to lead their organizations by leveraging technology in strengthening customer relationships.