DQ TOP 20 Volume II by Dataquest

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VeRticalS

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`100

The Business of Infotech

Vol XXX No 15 I August 15, 2012

HigH MoMentuM India Inc is poised for growth. Most verticals show positive outlook

Government Automotive Banking Education Construction Manufacturing

VOL-II

Retail Telecom

VeRticalS 124 pages including cover

Special Subscription offer on page 120

THE DQ 20

Contents August 15, 2012

30 Cover Story

Vol- II

The High Momentum Verticals IT—or rather part of it—is now inseparable from business; DQ Top 20 brings you analyses of verticals which are witnessing a potentially high impact of IT, both in its approach and growth as well 42|Banking Best Foot Forward

34|Automotive In Search of Frugal-IT? India is the global auto industry’s favorite new engineering center. Indian auto industry is leveraging this trend to market itself globally. And succeeding. In this new transformation, technology is playing the most crucial role | August 15, 2012

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Indian banking is world class. But two challenges lie before it to convert India’s cash economy to electronic means and to reach out to the 40% unbanked population. Technology is the prime enabler of both

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THE DQ 20

60|Education ICT is the Stated Strategy

70|Construction

Education remains the most challenging segment despite its high potential. Unlike other verticals, one cannot import the models of the developed markets and make them work here

The industry remains largely underpenetrated by IT while the outlook does not seem too great

87|Retail Continuing to Grow In terms of margin, Indian retailers are way above the large retailers in the West and driving growth is far more top-of-the-mind than trying to improve margins

74|Manufacturing Will IT Bring in the Renaissance? Much of the factors that would make manufacturing in India competitive going forward, are very different from what made some others competitive in the 20th century, and a lot of those factors have to do with IT

92|Telecom A Lot of Potential Telecom is already one of the biggest spenders on IT. With the lines blurring between telecom and IT, expect more

104|CIO of the Month Fear of the Cloud

16|Government Beyond E-governance

Vendor Lock-in is as Old as the IT Industry Itself

While CSCs and SWANs may be dominating the discussions about IT in governance, a fundamentally new approach is underway to meet decadesold economic challenges leveraging technology

—Sharat Airani, chief, IT (systems and security), Forbes Marshall

Move to Cloud has to be a Thoughtful One Rather than Just Riding the Bandwagon —Mehmood Mansoori, head, information technology, HDFC ERGO General Insurance Company

97|Event Next-gen Technology Finally Making Waves After numerous discussions on the validity, need, and concerns about cloud and new infrastructure models, the clear message that came out is that the industry wants them and is working on ways to adopt them

Reliable and Professional User-Vendor Relation is Ideal for the Industry —Shreesh Patwardhan, vice president (IT), Dynamic Logistics

REGULARS Edit...................................................10 Inbox.................................................12 Ganesha............................................14 News...............................................108 Last Matter.....................................122

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Vol XXX No 15

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Ibrahim Ahmad

The Corruption Opportunities

ibrahima@cybermedia.co.in

he other day, I was talking to some industry seniors, and was amused at their perspective of the corruption scenario in India. According to them, if the Government of India decides to fight corruption in government offices and services, it will have to deploy `6,000 crore worth of ICT solutions for the next 15 years. This would include the whole spectrum—from computerization for e-tendering to check corruption in government contracts, to cameras and storage racks for security and surveillance. A quick back of the envelope calculation for the private sector (which too is not untouched by this problem) revealed that here also a big amount would go in. Jokingly, one of them said he has been approached by an ‘agent’ for fixing a multi-crore surveillance camera deal. It’s okay to get emotional but corruption is the new opportunity. Needless to say, like so many others I am not really saddened to see how anti-corruption crusaders—first Anna and team, and then Baba Ramdev—were packed up last month. This entire movement was really not heading anywhere, and becoming more of a circus. Losing steam is perhaps a more accurate description. Somebody announcing launching a political party, and somebody taking only opposition parties along...created more confusion. Am not sure how many people will take them seriously now. What is really sad and unfortunate is that the UPA government sees this as its victory. The government seems to be busy settling scores with Anna and Ramdev, but I hope it does not seriously believe that the common man really does not bother about corruption in the country. Corruption is a big pain for all sections of people, from rich to poor. The government should have taken this moment to announce some big and believable steps for tackling this menace. Nobody now believes the story about a constitutional amendment or a white paper. This government’s seriousness about challenging corruption continues to be a question mark. I don’t think, in the near term, governments will fall or there will be a people’s revolution, if corruption is not addressed. But if corruption is addressed in a credible time bound manner, and people begin to see results, then let me guarantee that there will be a revolution—perhaps mass voting for this government to come back to power with a thumping majority. Obviously any government which decides to take on corruption, will have to have the courage to take its own ministers and officers head on first. That IT can bring in more transparency and efficiency in governance is a nobrainer. One suggestion for speeding up and increasing IT deployment would be to select some key areas—parliament, judiciary, police etc—which are perceived to be directly connected to corruption. And go after them whole hog. Once these people get to experience the power of IT, there will be lots of top down. Remember, government spending on IT is expected to be upwards of `30,000 crore, and lot’s of it is for fighting corruption.

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JUly 31, 2012

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The Business of Infotech

July 31, 2012

A tough YeAr Exports at 29% growth. Domestic at 9%.

Hearty congragulations to the team for bringing up with an amazing edition. Excellent content with an impressive layout. Great work!

Manoj Sharma, Noida

Overall growth down from 26% to 18%.

Dead End...No Way!

DQ Top 20, vol-I

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DATAQUEST

Vol XXX No 15

Vol XXX No 14

VeRticalS

IT Exports 29% 2011-12

33% 2008-09

22% 2010-11 14% 2009-10

Domestic 23% 2010-11

VOL-I

8% 2009-10

9% 2011-12

RankingS 154 pages including cover

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DQ Top20: A Tough Year

I enjoyed the last issue of DQ Top20 volume I (Dataquest, July 31, 2012). The ranking methodology used by Dataquest seems to be perfect. And the magazine has adopted a wider perspective, taking actual facts into consideration. The layout was very good and the analysis done on each of the Top20 companies is very apt and informative, with focus on the company’s current ventures.

Kavita Kapoor, Bengaluru

I really appreciate the whole Dataquest team for this wonderful edition. (Dataquest, July 31, 2012). It was really a well-defined and well composed edition providing an in-depth analysis of the whole IT industry. I liked the flow of the whole edition. Keep it up guys!

Suchitra Nair, Mumbai

Corrigendum n This

is with reference to The DQ 50 Acer India profile (Dataquest, July 31, 2012). Harish Kohli was the MD of Acer Harish Kohli India at the time of MD, Acer India writing and not WS Mukund. n This is with reference to The DQ Top20 Infinite Computer Systems profile (Dataquest, July 31, 2012). In the rankings page, the company CEO’s name should read as Upinder Zutshi.

An interesting article ‘Dead End... No Way!’ (Dataquest, July 15, 2012) on how the e-commerce market is just heating up in India as numerous players are jumping on to the bandwagon. But for the industry to expand further, it is important for the government to recognize it as an industry. I would further like to add that the e-commerce model in India is more price-oriented as compared to the ones operating globally. Reports suggest that the e-commerce market has been grown at an average rate of 70% annually and has grown over 500% since 2007. In a nutshell, a well-written piece.

Anju Mahendru, Gurgaon

The Nightmare Continues

I found your article ‘The Nightmare Continues’ (Dataquest, July 15, 2012) very interesting. I completely agree that DLP solutions have evolved over the years and have also gained a holistic approach in monitoring data.

Mayank Agarwal, New Delhi

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ganesha

IT and the God Particle DR GANESH NATARAJAN

The concept of mass and matter could potentially find some purchase within our IT industry today

The author is vice chairman & CEO of Zensar Technologies and chairman of the National Knowledge Committee of the CII. He can be reached at maildqindia@cybermedia.co.in

he fourth of July has always been known for fireworks but nobody quite expected the crackling discovery that CERN announced with the Higgs Boson, coming close to laying to rest all speculation about the creation of the universe. Of course, the spiritualists in our country can never be denied and after a series of heated debates about the potential negation of the existence of God, a happy co-existence seems to have emerged, at least in the minds of the philosophers. A recent article by Jaggi Vasudev of the Isha Foundation draws a very interesting parallel between the interaction of Shiva and Shakti leading to the Rudra and Hara stages of cosmic creation. As I was telling my daughter’s fiancé Hugh, a scientist who has spent 3 years of his Cambridge PhD and a year of his post-doc on the CERN team, if only they had asked an Indian Guru first, it would have not needed so many scientists to make this significant discovery! The concept of mass and matter could also potentially find some purchase within our industry today where every Infosys result puts analysts into a spin, giving them the conviction that the software exports sector will be thrown out of orbit for the foreseeable future. After the depressing Infosys performance and outlook in the first week of the results season, a lens of suspicion seems to have been created through which even good news coming from other companies is being viewed—the excellent outlook presented by TCS and the return to good revenues by iGate are just 2 examples! In the past, mass was provided to the whirling projects of the industry by a couple of million-dollar deal announcements, but in today’s economic situation, it is more likely that there will be multiple 14 | August 15, 2012

Most far-sighted companies are using this period of longer business generation cycles to build new and sharply focused value propositions in areas ranging from cloud, enterprise social media, etc smaller opportunities that will continue to add matter and substance to the company’s top and bottom lines but not quite give the assurance to the naysayers that all is well! There is an old cliché that a crisis is too good to waste and most far-sighted companies are using this period of longer business generation cycles to build new and sharply focused value propositions in areas ranging from cloud, enterprise social media, mobility to big data, and business analytics. Reengineering of end-to-end customer facing business processes and use of technology to transform service delivery in the IT industry will also enable us to steal a march over wannabe outsourcing destinations when the demand does pick up around the world! Finally back to the God particle and as the real scientific work begins with the analysis of the results of the first phases of discovery, the machinery in CERN will be halted this fall with the promise of a higher speed particle accelerator being set up for the next phase late next year. The new velocity of collisions is also likely to accelerate the discovery process. Hopefully, that will also coincide with the dust settling on Europe and the post– election resolution of the fiscal cliff problem in the US and industry growth will accelerate back to the 20+ levels. Till then, let’s keep the faith!

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GovernMENT

Transforming the way Industry works!

Government

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August 15, 2012 | 15

GovernMENT

Beyond E-governance While CSCs and SWANs may be dominating the discussions about IT in governance, a fundamentally new approach is underway to meet decades-old economic challenges leveraging technology

ranab Mukherjee, the former finance minister, and now India’s 13th President, may be known for many things. Among them are his administrative abilities as a minister, his loyalty to the Gandhi family, his effectiveness as the chief troubleshooter in UPA, and his personal integrity in such a long innings in politics. But few would associate Pranabda’s name with technology—trying something big with it to solve national problems. For one, reliance on technology to deliver solutions to problems that the country has been grappling with for decades—such as subsidizing of 16 | August 15, 2012

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GovernMENT

kerosene and fertilizer—requires certain conviction, clear political risk taking, and willingness to invest massively on new projects. All his good qualities notwithstanding, Mukherjee is known to be a fiscal conservative at heart. But what his 3 years of experimentation has shown that while he may not exactly be a ‘reformist’, like say P Chidambaram—the man most likely to take over the charge at finance ministry—his willingness to try newer means to achieve the old socialist dream of inclusion, has already achieved significant milestones. For the first time since independence, it seems we are on top of the problems, even though it may take a while before we can completely solve it. While Pranabda’s term as finance minister in UPA II has been marked by high inflation, general economic slowdown, the country will realize the long-term impact of these initiatives only in years to come. He has shown that ideology is one thing but pragmatism and openness are another. But what exactly are we talking about? We are talking about a new approach to solve huge economic/ socio-economic problems, with technology at the core of that solution. We are talking about an old-fashioned Nehruvian finance minister’s definite decision to traverse that path. On top of those initiatives, of course, is Aadhaar or the Unique ID project. Not the brainchild of Mukherjee, for sure, it however, has seen huge support from him, not just in generous budgetary allocations year after year, but his willingness to make that as the platform for many of government’s development programs—be it NREGA disbursement or direct transfer of subsidy; financial inclusion or strengthening PDS net18 | August 15, 2012

E-gov 2.0—New Governance or Beyond?

work. Not only has Aadhaar turned into the platform for development in India under UPA regime, he has used the expertise of its chief Nandan Nilekani to try out muchneeded reforms in many areas of economy by asking him to suggest ways and means of carrying out those changes. Nilekani probably is the only person in India whose name has featured in 3 consecutive budget speeches—from 2010 to 2012. Yes, behind (and somehow a little dissociated from) the more familiar phraseology associated with e-governance—and lest we forget, right in the midst of the now-infamous policy paralysis—India has been trying to break new grounds with how technology could be applied to meet tough economic (and socio-economic) challenges. If Pranabda was the patronizing figure behind that effort, and Nandan Nilekani his trusted lieutenant in creating the blueprints, RBI—now globally recognized as one of the best financial regulators in the world—has been providing able support, working in tandem. Much of what they have done remains to be implemented, and hence to be tested. But the progress in terms of the planning has been significant. visit www.dqindia.com

Wikipedia defines e-governance as the application of ICT for delivering government services, exchange of information communication transactions, integration various standone systems and services between Government-to-Citizens (G2C), Government-to-Business (G2B), Government-to-Government (G2G) as well as back office processes and interactions within the entire government framework. Going by this definition, e-governance is all around government services. Or at best, ensuring (maybe, in the background) all that is needed to ensure efficient and effective government services. Indian approach to e-governance, too, has been on similar lines. The National e-Governance Plan (NeGP), approved in May 2006, comprises of 27 mission mode projects—10 of them in center, 10 in states, and 7 integrated. Phase I of implementation— which is by and large over—marked building up of the infrastructure—the State Wide Area Networks (SWANs), State Data Centers (SDCs), State Service Delivery Gateways (SSDGs), and the Common Service Centers (CSCs) in villages to deliver multiple government services. While how successful the CSCs

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GovernMENT

have been is still being debated, by and large, the basic infrastructure is in place. The objective in this phase was to enable electronic delivery services of government services so that those services become accessible and available to the citizens. Phase II of the e-governance implementation aims at making those services getting delivered more efficiently. That is not possible without right processes in place, the movement of information within government is faster and artificial bottlenecks are removed. This phase focuses on creating better processes and implementation of G2G networks and integrated systems, as implemented in an enterprise. While CSCs, SWANs, SDCs did not require major thinking by individual government departments—though they had to make some changes to make their services available—this phase requires that 20 | August 15, 2012

the departments take the ownership. While a few ministries and departments have taken the lead in creating those systems and networks, many others do not even have a basic IT plan in place. Technically speaking, we are currently in this phase of implementation, but one can hardly name a handful of such systems that have been/are being implemented. Those that stand out are the Crime and Criminal Tracking Network & Systems (CCTNS), driven by the Union Home Ministry but a significant part of the roll out being implemented by states; the National Knowledge Network, a network of universities and educational institutions to share knowledge; and FINNet, the network to curb financial crime by the Finance Intelligence Unit–India (FIU-IND), the central national agency for analyzing information regarding suspect financial transacvisit www.dqindia.com

tions. But such systems and still few and far between. On the other hand, the Ministry of Statistics and Program Implementation (MOSPI), which should have been one of the first ministries to create a solid information system has become at the receiving end for announcing wrong data, more than once in recent past. In many countries, the next goal of e-governance has all been about openness—open data, open governance. It is not just about transparency and curbing corruption, open access by all to huge raw data collected by government has also helped in fostering innovative application by third parties, helping citizens. India is in a peculiar position as far as open governance is concerned. On one hand, it is yet to join the Open Government Partnership program—a multilateral initiative that aims to ‘secure concrete commitments from governments to promote transparency, empower citizens, fight corruption, and harness new technologies to strengthen governance’. On the other, the US has collaborated with India to create what is called an open government platform to enable open data initiatives (the likes of the US’ data.gov) by any country that wishes to create it without any hassle. India’s own data.gov.in is not yet launched. According to sources, it is ready and is getting tested and may be launched any time soon. Indian cabinet did approve national data sharing and accessibility policy in February and it has since been notified. But where the initiatives make a slight departure from the tried and tested path is what we have referred to in the beginning—the new approach being tried to solve major national issues that we have grappled for decades using technology. In most cases, it has either involved the RBI or Nilekani or

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GovernMENT

both. This approach goes beyond the traditional approach of first finding a path and then applying technology to automate. Rather, it takes into account the new capabilities that technology brings in and tries to solve the problem leveraging those capabilities. Whether it can be called e-governance or something much broader—especially considering the somewhat narrow meaning that e-governance has come to assume over the years—is a matter of debate. But it most certainly is the new, new governance. Its objective is to foster economic growth with more effective governance. This is identified with the following: n A proactive approach in applying technology n An earlier involvement of professionals often, though not necessarily, involving multiple areas of governance/multiple government entities But a vision or a new approach cannot achieve things by themselves. The implementation has to be in sync with the new approach. Since technology is critical to these new projects, there has to be a whole new way of leveraging the power of technology for these ‘unique’ projects. In his budget speech in 2010, Mukherjee announced the setting up what was called Technology Advisory Group for Unique Projects (TAGUP) with Nilekani as the chairman. The brief was to ‘look into various technological and systemic issues’. The committee submitted its report in January 2011, suggesting a framework of ways and means that could arguably be termed one of the most complete and comprehensive publicly available frameworks for handling complex government projects with technology at the core, prepared anywhere in the world. While the group was set up to suggest the approach needed to handle finance DATAQUEST | A CyberMedia Publication

The US has collaborated with India to create what is called an open government platform to enable open data initiatives (the likes of the US’ data. gov) by any country that wishes to create it without any hassle ministry projects, the framework could be applied to any large government project. At the core of its suggestion was to take the middle path in terms of technology partnerships. Instead of the old, inefficient way of inhouse projects and its alternative of outsourced/MSP model, it suggested what it called creation of National Information Utilities (see box). Earlier mindset was to solve the problem inside the government and then calling an external vendor to implement the solution.

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The new model suggested is to create entities (NIUs) that are partnerships among government, stakeholders, and private entities— but unlike the SPVs so popular in construction and other sectors, here the clear recommendation from the group was to keep IT companies out of the ownership, because of conflicting interests. Some of the examples—as the report too quoted—that come close to this model are entities like National Payment Corporation of India (NPCI) and National Securities Depository (NSDL). While the report touched various aspects of the structure of the NIUs, the agreements with those NIUs and their obligations, the role of government and government teams working on the project, governance of the project, appraisal criteria, right up to various aspects of technology strategies such as selection, mapping policy changes to technology, data quality, information security, interoperability, and platforms approach where needed. It even addressed openness separately. One significant point worth noting—about which nothing concrete has been heard from the government after the report was submitted—is its recommendation to set up a database of all IT projects implemented in the public sector, including the PSUs. This database, according to recommendation by TAGUP, should contain comprehensive details of the individual projects and the key personnel associated with the project. “Such a database will assist in identifying the IT talent available in the country, which can be tapped to meet the specific or general requirements of any similar project of national importance. Further, the task of drawing IT professionals on deputation from different departments and PSUs as also on contract basis from the private sector would be facilitated,” it noted. August 15, 2012 | 21

GovernMENT

National Inform T

he Technology Advisory Group for Unique Projects (TAGUP) under the ministry of finance, headed by Nandan Nilekani, chairman, UIDAI recommended formation of what it called National Information Utilities (NIU) to handle all aspects of IT systems for complex projects The Technology Advisory Group for Unique Projects (TAGUP) under the ministry of finance, headed by Nandan Nilekani, chairman, UIDAI recommended formation of what it called National Information Utilities (NIU) to handle all aspects of IT systems for complex projects. This was to take the advantage of expertise of private sector in implementing projects while retaining strategic control by government. An NIU, as envisaged by the TAGUP, ‘would participate in high-level design, specification of requirements, proof-of-concept studies’. This is in contrast to the traditional outsourced vendor/MSP model where the vendor is called in after all specifications are decided. For actual implementation, the NIU then contracts with vendors from the market for specialized services while being completely responsible to the government for committed deliverables and service levels. The group believed that the NIU model would substantially overcome the problems faced by the government in implementing the projects with in-house skills or through the MSP/ vendor model. Projects that can benefit from an NIU structure may have one or more of the following characteristics, according to the report: #1 Projects that span multiple levels of governments—central, state, local. #2 Projects that span multiple government departments. #3 Projects that span multiple stakeholders, where the network externalities of a thriving ecosystem around the government developed platform is essential for success. #4 Projects that require significant business process re-engineering to leverage technology. #5 Projects that aid a sovereign function of government. As conceived by the Group, NIUs would be private companies with a public purpose: Profit-making, but not profit maximizing. The TAGUP recommended the following for structuring the NIUs: #1 Total private ownership within NIUs should be at least 51%. As a paying customer, the government would be free to take its business to another NIU, if necessary. At the same time, the government could moderate the functioning of the NIU by virtue of being the owner, through its position on the board. #2 The ownership share of the government in an NIU should be at least 26%. #3 No single private entity should own more than 25% of the shares in an NIU. Institutions that have a direct conflict of interest (IT companies) should not be permitted to be shareholders. #4 An NIU should not go for an initial public offering or list itself on public exchanges.

22 | August 15, 2012

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GovernMENT

ation Utilities #5 NIUs should be dispersed-shareholding corporations with a professional management team who are not owners. #6 A re-mutualization approach may be thought of, wherein the shareholders of an NIU are the entities who stand to greatly benefit indirectly from its success. This would help align their incentives to the impact of the NIU upon society, as opposed to a focus on dividends and valuation. #7 An NIU should preferably have a net worth of `300 crore. This will ensure that the NIU is well-capitalized, can hire the best people at competitive salaries, and invest adequately in infrastructure, so that it can manage large-scale national projects. #8 The articles of association of the NIU may include a cap on dividend payouts, to ensure that the incentives of the owners do not drive it towards profit maximization. However the group was also sensitive to the fact that because of the nature of task, they are set up as natural monopolies. But in future, there may be need/emergence of a competing NIU. The group also suggested that the NIUs must be obliged to provide access/interoperability to newer merging NIUs, when they emerge. Some of the desirable features for effective functioning of an NIU, as listed by the report, are: #1 Self-financing: The NIU should be capable of self-financing its operations and providing for its sustenance in the near future. #2 Make Reasonable Profits: The NIU should endeavor to generate reasonable profits in order to be self-sustaining. The NIU should levy reasonable charges on its users without abusing its dominant position. The NIU must not maximize profit or valuation. Salaries of employees should not be linked to profits. The salaries should be competitive and market driven, to ensure that the best quality of people for the job can be hired. #3 Net Worth: The net worth of the NIU should be available as a last resort to meet exigencies and ensure that it is able to remain as a going concern. #4 Professional Standards and Competitive Practices: The NIU must maintain the same professional standards in all its dealings including dealings with its competitors, its technology providers, and related entities. It must be able to maintain its integrity by being unbiased while dealing with all such entities. #5 Transparency: The NIU should maintain utmost transparency in its operations. The NIU on its website should at least make disclosures that are mandated for a listed company. #6 Technology: The NIU should be willing to invest in technology for increasing efficiency, reach, and economies of scale. #7 Competition: NIUs would have characteristics similar to those of monopolies. Hence, it is essential to create enabling conditions that allow new entrants to enter the market, with necessary safeguards in place. While the TAGUP report itself gives example of National Securities Depository (NSDL), National Payment Corporation of India (NPCI), and Center for Railways Information Systems (CRIS) as being close to an NIU, CRIS may not be the right model to follow, as it is wholly owned by the railways. NPCI, the newest among the three, is probably closest to what the group has envisaged.

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The Technology Advisory Group for Unique Projects (TAGUP) under the ministry of finance, headed by Nandan Nilekani, chairman, UIDAI recommended formation of what it called National Information Utilities (NIU) to handle all aspects of IT systems for complex projects. This was to take the advantage of expertise of private sector in implementing projects while retaining strategic control by government

August 15, 2012 | 23

GovernMENT

Apart from TAGUP, Nilekani also headed a task force to suggest direct transfer of subsidies on kerosene, LPG, and fertilizers to the beneficiary. The task force, in its interim report, released in June last year recommended fully electronic service delivery and use of Aadhaar. It suggested creation of a core subsidy management system, like the core banking system in a bank. Nilekani was also entrusted with suggesting the model for the NIU for GST Network, one of the projects that was part of consideration by the TAGUP. While the final report is expected later this year, a draft report available suggests that NSDL may incubate the NIU. Nilekani had also recommended using of Aadhaar to create a centralized public distribution system network (PDSN) as an NIU. The draft Food Security Bill too endorses this viewpoint. “It is extremely important to explore the synergies between these two programs which will go a long way in streamlining the food delivery mechanism,” it says. However, since many states have already undertaken their

The problem is, today Aadhaar is so well entrenched in all of government’s development programs that to proceed without it, each of these programs have to go a few steps backward. And for a government already ridiculed for its indecisiveness and ‘policy paralysis’, that will be a huge negative PDS modernization system, there has been some concerns by them. There has been media reports that the food ministry is opposed to the Aadhaar-based system and wants to go for the NIC solution already created. Pranab Mukherjee was backing the UIDbased model. There have been reports that a few other ministries—such as external affairs ministry—are creating some such projects, leveraging technology. As of now, the Finance Ministry leads the change.

The Future?

So far, so good. But with Pranab Mukherjee out of the finance ministry, what is the future of these plans? “The question is not Pranab or no Pranab; 24 | August 15, 2012

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the question is the future with possibly Chidamabram as the finance minister,” says someone familiar with the affairs. As home minister, Chidambaram has openly voiced his reservations about UID project. He has even written to the prime minister a few times accusing UID and Nilekani of trying to stall the NPR rollout. In addition to his not-so-cordial relationship with UIDAI, he is also known to have strong opinions. While Pranab stuck to the core promise of UPA and sincerely worked to fulfill that—using professionals like Nilekani to help—Chidambaram’s priority may well be reforms, if he assumes charge of the ministry. The corporate lobby is wanting reforms, the middle class was neglected by Pranab. With elections in early 2014, that may be the new FM’s agenda. While some areas like GST fit into that agenda, some others like PDS reforms, direct subsidy etc may not be such a high priority. More importantly, while the TAGUP recommendations had been accepted ‘in principle’, much depends on how the projects are rolled out. Whether the new finance minister—and especially if it is Chidambaram—will go by those recommendations is itself a big question. The problem is, today Aadhaar is so well entrenched in all of government’s development programs that to proceed without it, each of these programs have to go a few steps backward. And for a government already ridiculed for its indecisiveness and ‘policy paralysis’, that will be a huge negative. For India as a country, it will prove the cynics right—yahan kuchh nahin ho sakta.

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GovernMENT

New Governance Projects Crime and Criminal Tracking Network & Systems (CCTNS)

(Under implementation; http://ncrb. gov.in/cctns.htm) CCTNS is a ministry of home mission mode project under NeGP, aimed at creating a network that would facilitate smoother information sharing among police stations across the country, thus helping track criminal activities more effectively and helping in speedy investigation of crimes. First conceptualized in 2008, during UPA-I, it was approved by CCEA in June 2009, with an allocation of `2,000 crore.

The key objectives of the CCTNS project, as listed by DG, National Crime Record Bureau, in his original letter to states include:  Providing enhanced information technology tools for investigation, crime prevention, law and order maintenance, and other functions  Increasing operational efficiency by reducing manual and repetitive tasks (data to be entered only once which would automatically prepare all the registers)  Better communication and automation at the back-end  Sharing crime and criminals’ databases across the country at state and central levels  Sharing intelligence on realtime basis DATAQUEST | A CyberMedia Publication

 Improving service delivery to the public and other stakeholders  When fully functional, the system is expected to provide the following

Citizen Services

Ease of accessing services provided by the police department  Traceability of requests through use of IT 

Police Department Services

Quick responses to inter-district, inter-state and inter-departmental service requests  Quick response to queries for efficient policing for example unidentified dead bodies, chance finger prints, missing persons, stolen vehicles, stolen arms etc  Generate alarms at police station and supervisory ranks  Quick feedback from senior officers on identified crime patterns  Easy compilation of crime data and reporting including daily, weekly, fortnightly, quarterly, and annual reports  Less time spent on non-core back office tasks thereby leaving you more time for law and order duties  Increasing the overall image of efficient, modern and citizen friendly police In June 2010, a contract was signed with Wipro to develop the core application software (CAS) for the project. As of information from the ministry in May this year, the first version of the Core Application Software has been released to the States/UTs for their study purpose. As many as 17 States/UTs have signed their contracts with their selected system in

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tegrators. An agreement with BSNL for providing pan-India connectivity has been signed. STQC has certified the data migration utility for CAS. According to the Minister of State, a total of `418.87 crore had been released for the project and a total of 4.54 lakh personnel have been trained under various types of training.

GST Network (GSTN)

One of the five projects studied by the TAGUP headed by Nandan Nilekani for ministry of finance, the GST Network is envisaged as an NIU. But since there is still some unresolved issues within GST concept itself among some states, the project may get a little delayed. Planning Commission deputy chairman and Bihar deputy chief minister and finance minister Sushil Modi, who heads the empowered committee of state finance ministers on GST rollout, seem optimistic that the system may come into place in 2013. That requires passing off of the 115th Constitution Amendment Bill in either the monsoon or the winter session of the Parliament. But meanwhile, a draft report of an empowered group headed by Nandan Nilekani to work out IT strategies for GST, which is likely to submit its report in September/October, gives a glimpse of the way it is being planned. The group has recomAugust 15, 2012 | 25

GovernMENT

mended a common GST portal, operated by GSTN, as that is the most cost-effective way to provide common PAN-based registration, common returns, and common challans for all stakeholders. The group thinks that it can marry the taxpayers standard interface with the varied systems of the tax administrations. Each tax authority will have full flexibility in using this data for in-house automation, integration, and enforcement. The basic solution architecture suggested by the draft report is as follows: #1 Taxpayer files through a standardized taxpayer interface. #2 States and Central Board of Excise and Customs (CBEC) implement tax administration systems for assessments, audits, and enforcement within their domain. This is desirable but not a pre-condition since the GSTN can provide support for states that do not have the necessary IT systems in place. #3 The taxpayer and tax authority systems are connected with a Common GST Portal, operated by GSTN. #4 Policy decisions are captured in GST business rules engine that defines the tax rates, revenue sharing rules, and exceptions for all parties. “The business rules engine is a component of the solution architecture that spans all entities. It codifies policies and business rules such as the rates of taxation, the revenue sharing between states and centre, a framework for exemption, 26 | August 15, 2012

and thresholds, among other things. All systems in the rest of the solution architecture will be designed so that they load business rules from the business rules engine. This decoupling of the business rules from the rest of the solution architecture allows for a great deal of flexibility. At a later date, if rates are changed or new items are added to the list of taxable items, or if existing items are exempted; these changes can be reflected in the business rules engine, without affecting the rest of the system. This also makes it possible to start the design and implementation of all IT systems, even while policies and rates are debated. Once the policies and rates are fixed, they can simply be reflected in the business rules engine,” according the draft report. In addition to common registration, returns, and challans, the common GST portal will provision for selected information needs of states. The group is of the opinion that GSTN could be incubated under NSDL. (Source: A draft report, The IT Strategy for GST by Empowered Group on IT Infrastructure on GST headed by Nandan Nilekani)

Core Subsidy Management System (CSMS)

The basic concept of core subsidy management system (CSMS) was suggested in an interim report dated June 2011 by the Task Force on direct transfer of subsidies on kerosene, LPG, and fertilizers, headed by Nandan Nilekani. As of now, it has been launched on a pilot basis in a few states. This was referred to by the then finance minister Pranab Mukherjee in his budget speech in 2011. The concept is similar to the Core Banking Systems (CBS) implemented by banks. The CSMS would automate all business processes related to direct subsidy transfer. But since the spevisit www.dqindia.com

cific policies and business rules will continue to be framed by the policy makers in the respective ministries, it recommended high customizability for the system so that various stakeholders can customize the CSMS for their own requirements, and extend it to integrate with their own processes. The CSMS would maintain the subsidy accounts of all beneficiaries, and all policies related to subsidy management, the report suggested. The CSMS would be capable to support all forms of direct transfers of subsidies such as non-cash transfers, conditional cash transfers, direct cash transfers, etc. In addition to maintaining the subsidy accounts, it would need to be integrated with a number of other external systems of other government departments, partners, and service providers to effectively monitor the scheme, and ensure the desired quality of service, the report outlined. The CSMS will contain the following modules, some of which may need to integrate with external systems. The basic modules of CSMS would include: #1 Business rules engine #2 Beneficiary and family identification module (adhaar integration) #3 Product movement and stock tracking module (ERP systems integration) #4 Direct subsidy transfer module (integration with nodal bank and payments gateway) #5 Transparency module (Data. gov.in integration) #6 Contact Center module #7 Training, education,and outreach module #8 Logistics module #9 MIS module #10 Module to integrate with other subsidy management systems The report clarified that the CSMS would not replace any existing systems, but would complement them, by extending their functionality and integrating various modules. n

DATAQUEST | A CyberMedia Publication

Cover Story

The author is ex-editor, Dataquest maildqindia@cybermedia.co.in

or a long time, DQ Top 20 has been the final word on the IT industry—that is, the supply side of IT. While in the past, there has been some coverage of vertical-wise IT trends, they were limited to analysts views, focusing on narrow areas like IT spend and a few contracts. Part of the reason was historical—DQ Top 20 has always been an IT industry round-up and hence the vertical analyses—even when we included them, were inside-out views. But a more significant reason was that IT was an isolated thing as far as business was concerned. It was deployed to automate certain processes and more 30 | August 15, 2012

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DATAQUEST | A CyberMedia Publication

Cover Story

Vertical

FY12 IT Spend (`crore)

FY13 Forecast (`crore)

Banking

7,650

8,278

Manufacturing

9,150

9,562

4.5

Vast disparity in IT usage; penetration will still drive growth

Telecom

5,300

6,013

Not-so-good market sentiment, IT growth driven by blurring of boundaries between IT and telecom technologies

Construction

1,050

1,058

0.8

IT usage restricted to a few; huge potential

Education

3,300

3,930

Just beginning to spend on tech; IT can transform; sustainable growth

Automotive

1,950

2,200

An industry fast globalizing, tech spend helping the globalization

Retail

1,800

2,150

Both organized and semi-organized sectors offer huge potential; lowhanging fruits would soon get exhausted

efficiently store and process information. It was never thought of as a solution to a business challenge, a business problem. That has most definitely changed. IT is now interwoven with business, not only finding solutions to existing business problems but also finding out new opportunities for business. In short, IT—or rather part of it—is now inseparable from business. And that explains the fundamental shift in our approach to analyses of the businesses. Each of the analyses starts with the state of the business, going into challenges and opportunities, and identifies areas where and how IT is being/can be applied, finally, of course, estimating the total IT spend by the industry— an outside-in view as far as IT industry is concerned. Ask any IT industry sales guy and he would admit—today he needs to know his client’s business better than he needs to know his company’s products and services; at least he has specialists to back him up for the latter. In each of the analyses, you will find: n A rough sizing of the industry n Characteristics of the industry such as competition/fragmentation, how global is it n Major business drivers/ma32 | August 15, 2012

Growth (%)

Comment Mature IT user; pockets of white space

IT is now interwoven with business, not only finding solutions to existing business problems but also finding out new opportunities for business jor value drivers n Current challenges faced n Use of IT to solve challenges/leverage opportunities n What areas of IT the industry is spending on including any specific new trends n Total IT spend by the industry last year n Forecast of IT spend for the current year (FY13) And of course, from segment to segment certain points are likely to vary; manufacturing is a broad sector whereas telecom is focused and well-regulated; segments like construction and retail are dominated by unorganized sectors; education, that is dominated by government and so on. There is bound to be difference in how the IT industry visit www.dqindia.com

approaches these verticals. Not surprisingly, you will find a slight difference in approach when it comes to analyses of these verticals. And of course, the big question. How did we select these verticals? By and large, we selected the high momentum and potentially high momentum verticals as far as IT is concerned. Here is what we considered. Size: It is only when large sectors like banking, telecom and manufacturing take to IT, the industry moves. A BPO industry may be a far more sophisticated user of IT but it cannot move the industry the way the large industries can move IT Adoption: An industry can be big but it may be very low on IT usage. However, here we have taken industries that are on the threshold of going for IT in a big way, even if the overall penetration may be low. These industries include education. Potential of IT Creating Transformational Changes: Some industries like construction may not have yet got too much penetration but the leaders have done it and the international experience shows that it can impact a lot. So, they are included. n

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Transforming the way Automotive Industry works!

automotive

AUTOMOTIVE

In Search of Frugal-IT? India is the global auto industry’s favorite new engineering center. Indian auto industry is leveraging this trend to market itself globally. And succeeding. In this new transformation, technology is playing the most crucial role

ndian automotive industry—comprising of the OEMs and the component makers—has surely emerged as the star in the Indian manufacturing sector in the last few years. This is probably the only industry that has successfully put to test the oft-discussed engineering-led manufacturing strategy to create a competitive advantage for itself. Not only has India become the sixth largest producer of motor vehicles, overtaking Brazil, it has become a significant exporter of passenger and off-road vehicles. Exports accounted for one-seventh of all the passengers vehicles manufactured in the country. That is quite an achievement for a country whose exports was almost negligible just a decade back. 34 | August 15, 2012

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AUTOMOTIVE

According to the OEM industry association, Society of Indian Automobile Manufacturers (SIAM), the Indian automakers produced 20,366,432 vehicles in FY12 (April-March), growing by close to 14% over the production last year. Passenger vehicles accounted for close to 15% of the total production, while two-wheelers still accounted for a whopping 76% of the total production. While domestic sales grew about 12%, because of a sub 5% growth by the passenger vehicles segments, exports grew by an impressive 25.5%. Car exports crossed half-a-million mark for the first time. In terms of value, the industry stood at $58.6 bn in FY11, according to SIAM. According to Dataquest estimates based on financials of top players, the figure for 2011-12 stands at close to $65 bn. According to the component industry association, Automotive Component Manufacturers Association of India (ACMA), the turnover of the auto component industry stood at `182,127 crore ($39.9 bn) for the period April 2010 to March 2011. This includes the captive suppliers to the OEMs and the unorganized & smaller players. The figure for FY11, excluding those segments was $26 bn, according to a report by India Brand Equity Foundation. Based on the results of listed players, Dataquest estimates the organized, third-party component industry size to be close to $29 bn. The two segments together account for more than 6% of India’s GDP and employ more than 600,000 people directly and more than 12 mn people indirectly. According to the Automotive Mission Plan 2006-16 prepared by the released in 2006, in DATAQUEST | A CyberMedia Publication

Key Takeaways

 According to SIAM, the Indian automakers produced 20,366,432 vehicles in FY12 (April-March), growing by close to 14% over the production last year  According to Dataquest estimates based on financials of top players, the auto industry value for 201112 stands at close to $65 bn  In India, automakers have been more mature users of technology than other sectors in manufacturing and are looking at leveraging technology to connect with their end customers  BI/Analytics is being rolled out in most large auto companies, including in some large component companies

consultation with the industry, the target is to reach the $145 bn mark by 2016, accounting for more than 10% of the GDP, and providing additional employment to 25 mn people by 2016. Going by the current industry size, that is about one and half times growth from today—tough but possible. The exports are growing extremely well and penetration in the domestic market is low. For a country that is the sixth largest producer of motor vehicles, India’s position among countries in car penetration is 132nd. Domestic opportunity, in itself, hence is immense. Further, the engineering-led approach is just beginning to gain momentum. For the Indian engineering services industry, automotive as a vertical remains the biggest, accounting for more than 30% of the total revenue, and contributed an estimated $1.5 bn in FY12. Many of the engineering services vendors/captives are now working on ‘art-to-part’ kind of projects whereas they don’t just design/engineer the product, but get it manufactured locally. Most global OEMs now have visit www.dqindia.com

their captive engineering/R&D centers in India. Not only has India become a hot destination for ‘frugal engineering’ championed by Nissan-Renault boss Carlos Ghosn, most of the new research on hubrid/electric/green technology has an India research component. Nano has also helped to project India as a solid engineering center for frugal engineering. Played well, India could convert that to a manufacturing oppportunity. Further, the passenger car itself is going through a transformation, with share of electronics in it increasing. India, already one of the biggest destinations of embedded design, is now seriously targeting the ESDM space. Globally, auto industry—OEMs and tier1s—remain one of the biggest customers of semiconductors. If India succeeds in attracting semiconductor manufacturing, that will be a further boost to its auto manufacturing dream. In short, the metamorphosis that the global auto industry is undergoing from an efficiency/ supply chain driven industry to a knowledge-driven industry is actually significantly being driven from the shores of India. How well that translates to actual revenue of the industry still remains to be seen.

IT Playing a Vital Role

But one thing for sure, IT will play a far more important role in the evolution of the automotive industry from here than it has traditionally played. India, which is just emerging as a manufacturing destination and has a big IT base, will see IT playing transformational role in the industry. The engineering/design remains the first and most imporAugust 15, 2012 | 35

AUTOMOTIVE

Growth of Automobile Sector (By Volume) (All units in mn, share and growth in %) 14%

27%

26%

NA 11

FY08

FY09

FY10

FY11

FY12

Source: SIAM

Total No of Units (mn)

Two-wheelers Share

Commercial Vehicles Share

Passenger Vehicles Share

Three-wheelers Share

Growth of Automotive Sector (By Value)

(All figures are in US$ bn)

43 37 33 29

26 22 18

FY08 OEMs1

FY09

FY10

FY11

Source: 1SIAM, 2IBEF, * DQ Estimates

FY12

Components (Non-OEMs only)2

tant pillars for the automotive companies as far as spending on technology is concerned. The second area that is seeing a lot of interest from passenger car makers is that, for the first time, they are looking at leveraging technology to reach out to and connect with their end customers. The traditional CRM definition synonymous with dealer management system is undergoing a huge transformation as car makers now embrace internet/ 36 | August 15, 2012

social media to study consumer behavior/market the new products/better connect with them. This is not surprising considering most consumers are now using internet to research while taking a car buying decision. According to a study by consulting firm, Capgemini, Cars Online 11/12, released earlier this year, the percentage of users who say they use internet to research before buying a car has sharply increased from just visit www.dqindia.com

about 20% in 2002 to 94% in 2011. Interestingly, the importance that buyers attach to usergenerated content has also gone up substantially. Those buyers who say user generated content is very important/important in influencing their buying decision has gone up from 65% in 2010 to 73% in 2011. In fact, among all the countries surveyed by the study, Indian buyers seemed to attach the most importance to this, with as many as 83% saying this is important/very important. The findings highlight the increasing importance of “managing, monitoring (by vehicle brands/ models, themes, positive/negative sentiment, purchase intent, consumer demographics, etc) and analyzing social media content.” The report also shows where all this is leading to: Online buying. As much as 42% of the surveyed say that they are likely/very likely to buy vehicles online. Surprisingly, it is developing world markets that are more open to buying online, with Brazil, China, and India respondents leading in terms of their openness to buy online. As much as 53% in India say they are likely to buy online. And this number has shown a steady rise in the last three years, unlike in China and Brazil. No surprise, marketers are increasingly using these channels to reach out to customers. While these decisions are taken by marketing department, unlike the engineering/design IT, it is not isolated from the enterprise IT, as there has to be a smooth integration with enterprise analytics/CRM and decision making. CIOs, in most cases, are involved in supporting these. And finally, traditional enter

DATAQUEST | A CyberMedia Publication

AUTOMOTIVE

IT Spend (Vehicle Makers and Auto Components)

Outlook on Indian Automotive Sector for 2012-13

(All figures are in `crore) 13%

The Indian macroeconomic environment continues to supply a confounding array of mixed signals (especially the uncertainty in fuel prices), the automotive market will steadily emerge from a temporary slowdown in growth from August, buoyed by the festive demand. Also, the demand for diesel vehicles is likely to remain strong, as long as the steep difference between diesel and petrol prices exists in India. However, capacity constraints (in diesel) can limit sales in the near term. To maximize opportunity in the current market conditions, companies need to cater to the rising rural consumer base. Few automakers after being exposed to perils of a joint venture/strategic alliance no longer wish to continue that relationship and are instead willing to drive their Indian strategy on their own by pumping in billions of dollars of investment. Similar to China, India has placed curbing inflation atop its economic agenda. With nearly 3 out of 4 vehicles sold in India being financed, interest rate hikes have had a significant and direct impact on automotive sales. Deregulation of gasoline prices have also impacted the operational costs for vehicle ownership, eroding demand at the entry level of the market. As a net result, Indian light vehicle sales is likely to see a single-digit growth rate in the range of 6 to 8% this fiscal ie, FY13. Going forward, both OEMs and suppliers should focus on win-win relationships with competitors to exploit strengths as opposed to perceived weaknesses such as the lack of an effective sales and distribution strategy. They should allow both cooperation and competition to exist within the alliance by clearly determining the objectives. Only through such alliances, companies will be able to fill knowledge gaps in areas such as alternative fuels, electric vehicles, and powertrain. Through such initiative they will be able to implement a new business model balancing precarious near-term volume estimates with long-term visions of sustainable and profitable growth. With long-term demand fundamentals still intact (rapid economic growth, growing middle-class, rising disposable incomes and low penetration rates) the Indian industry will regain its stride by the end of the year.

prise IT remains an important tool (the third pillar) to bring in more efficiency, enable better decision making, running more effective enterprise functions such as HR, enable sourcing and so on. Like most industries, automotive too is seeing a lot of interest in BI and analytics. Newer systems in supply chain functions/sourcing continue to remain important, while one area that has gained momentum is MES-ERP integration. The automotive industry leads manufacturing industry on this aspect. In India, of late, a lot of focus has gone to HR and with the industry transforming itself 38 | August 15, 2012

to a knowledge-driven industry (more so in India), the importance of HR will only increase in time to come. This also remains another area for technology application.

State of the Tech

As far as enterprise IT is concerned, Indian automotive companies—especially OEMs—spend much less than their global counterparts in the West and Japan. On an average, Indian automakers spend less than 1% of their revenue in technology as compared to the 1.5-1.7% of the revenue that many global automakers especially those in visit www.dqindia.com

1,950

2,200

FY12

FY13

Source: DQ Estimates

—Abdul Majeed, leader, automotive practice, PwC India

America and Japan spend. In Japan, in some cases, it is even more. Of course, part of the reason is because Indian companies (and especially the ecosystem) is not as sophisticated. But it is also because the way they have implemented IT. Most Indian automakers have implemented IT in the last 20 years and hence have gone largely for standardized software, unlike most large global automakers, which had implemented IT before many of the standard software of today made their debut/were not so mature. So, a large part of the IT in those companies are homegrown. As a result, it is not just high maintenance cost that explains their high recurring expenditure on IT, but also implementations of newer applications that requires significant services help— thus costing more. Indian companies typically do not require that. Also, lower cost of manpower makes services cheaper. Further, in India, since most of the dealers and suppliers are still new to IT, they are influenced heavily by the OEMs, for going for standardized software. Many even intervene in terms of negotiating with IT vendors on their behalf.

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AUTOMOTIVE

However, to some extent, this is changing, as Indian companies acquire—especially in mature markets (like Jaguar Land Rover). Disparate IT systems will come to their fold with acquisitions and that will make it necessary to spend on services. Many CIOs say that this is where they are looking at how cloud model can be creatively used. So, Indian auto companies, on an average, spend only about 40-60% on systems, services, and infrastructure, as compared to 70-80% by their global counterparts. Like most industries, auto makers too are looking at getting the best out of their existing IT investment. Tougher economic condition only reinforces that need. BI/ Analytics, hence, is being rolled out in most large auto companies, including in some large component companies. With competition and tougher market conditions, there is pressure on margins for most. That is leading them to focus again on enhancing efficiency. Those investments are going towards newer applications in the supply chain. Both HR and finance are being relooked at, with some IT deployment. Another area that is seeing interest is better integration/integration of MES with enterprise IT for more effective decision systems. On both CRM and SCM side, many automakers in India are exploring to better leverage mobile technologies, though on ground, very little has happened beyond some pilots. In any case, with the slowdown, the attention has shifted to core systems efficiency than new, discretionary systems. Another interesting trend is beginning to be seen in some 40 | August 15, 2012

In India, automakers have been more mature users of technology than other sectors in manufacturing, partly because of the nature of the industry and partly because of unique factors associated with Indian automotive industry companies: Research on emerging technologies in the interface of automotive/IT areas, such as telematics/navigation systems/ newer control systems and so on. We may well see dedicated CoE models in these areas, possibly in partnership with service providers. While there is a lot of buzz about internet/social media, and some marketing spend is beginning to go towards that, in terms of IT investment, it has not seen any significant traction. In the next 12 months or so, if the economic situation improves, there may be some investment in areas such as mobility and retail. If the conditions remain tough, spend on BI/analytics would continue. In auto components industry, that is far less mature in IT implementations, many are still rolling out basic systems such as ERP and SCM. This segment will drive growth of systems and visit www.dqindia.com

infrastructure, in the near to medium term.

Industry IT Spend

According to Dataquest estimates, IT spend by the automotive sector in FY12, as a whole fell short of `2,000-crore mark. This does not include spend on MES and engineering/design. The latter itself could be almost as high as this. The figure also does not include IT spend by foreign subsidiaries of Indian auto companies such as Jaguar/Land Rover. Further, it also does not include the IT spend by captive engineering/R&D centers of global auto majors. As outlined above, internet/social media related IT spend has been negligible. This is likely to see a modest growth of 13% in FY13, assuming the tough economic condition prevails. There are already budget cuts happening. In India, automakers have been more mature users of technology than other sectors in manufacturing, partly because of the nature of the industry and partly because of unique factors associated with Indian automotive industry— which is globalizing fast and has taken a significant lead in transforming itself into a knowledgedriven industry. Yet, use of IT still remains mostly distributed between the most essential IT systems and some tactical solutions. IT is yet to be used for strategic differentiation—either in design or customer relationship/retail. One company that has taken some steps along this direction, among automakers, is M&M. The industry, as a whole, has a long way to go. Indian automotive is in an extremely important phase of its evolution. The next few years will see technology becoming far more strategic. n

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Banking

Best Foot Forward

n a way, the sophistication of the financial system in a country is a pointer to the maturity and robustness of its economy. India’s a typical case. Like in its society, diversity is the keyword in Indian banking. While some of the banks here are comparable to the best in the world when it comes to their use of technology and newer channels, it is also a fact that, despite quite some progress on the financial inclusion front in the last couple of years, as much as 40% of Indian population is still unbanked. Yet, as a developing country, India’s track record in financial services is better compared to its peers or for that matter, its other institutional frameworks. India which ranked 56th among 142 countries in the 2011-12 World Economic Forum’s Global Competitiveness report fared better than most developing countries in the broader area of financial markets, ranking 32nd globally in terms of soundness of banks, 32nd in affordability of financial services, 35th in ease of access to loans, and 45th in availability of financial services. This was the only area where all sub-parameters were considered as ‘strengths’. Indian banking industry, in most business parameters, too is comparable to its global counterparts. According to a report by 42 | August 15, 2012

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Banking

Boston Consulting Group (BCG), Being Five Star in Productivity Roadmap for Excellence in Indian Banking, released in August 2011, the Indian banking industry ‘stands out for its relatively robust balance sheet and sound performance’. The report says that ‘Indian banks’ profitability leans towards the higher end of the spectrum, while its cost–to–income ratio leans towards the lower end. In addition, bad debt charged to P&L remains moderate and valuation is sound. It concludes that on the quality and soundness of financial services sector, India has an edge over other emerging markets. A lot of this has been made possible by a very balanced approach to regulation by the Indian regulator, the Reserve Bank of India (RBI). The fact is that it plays 3 roles—one is of an economic advisor to the government, monetary policy maker, and the regulator of banking—only adds to its effectiveness. One aspect of that effectiveness—ensuring that Indian banks were not too affected by the global financial crisis of 200809—has been hailed globally. However what is still largely an unsung story is the way RBI

Distribution of ATMs Share in %

has proactively promoted use of technology in all aspects of banking. It has gone beyond just issuing mandates and guidelines to actually help banks implement key IT strategies by establishing a center for excellence in the form of Institute for Development & Research in Banking Technology (IDRBT), which has helped banks get the benefit of technology in various ways. RBI also worked with Indian Banks’ Association (IBA) to set up National Payment Corporation of India (NPCI) which is aimed at creating an affordable payment mechanism. IDRBT and NPCI have succeeded in bringing down the cost of ATM transactions drastically and NPCI is now targeting to repeat the story in debit card payments. To someone familiar with developed markets dynamics, it may sound strange that a regulator is championing technology adoption, but in the peculiar landscape of Indian banking—with a significant number of public sector banks that have traditionally not operated with a typical commercial mindset—it would have been virtually impossible to ensure adoption of best practices in technology without a

strong regulatory thrust. However, that does not mean that all Indian banks are led by regulation/compliance when it comes to technology adoption. Almost all new private sector banks and a few public sector and old private sector banks are using technology for competitive advantage.

Miles to Go, Still

While the BCG report does indicate that in most business parameters Indian banking industry matches the global industry, part of it is due to the peculiarity pointed above—the large disparity among Indian banks. So, a good arithmetic average does not automatically mean a healthy overall industry. #2, while some of the ratios may look healthy, the banks do not necessarily operate in the most efficient manner; the inefficiency gets hidden as banks do not reach out yet to the lower income groups. #3, low cost is often a result of low cost of manpower. What is worrying, however, is the efficiency of customer processes. The same BCG report points out that most Indian banks—83% of them—take more than 3 days to sanction a mortgage application, while as much

Growth of ATMs

28%

ATMs Base Foreign Banks 1.5% 24%

38%

New Private Sector Banks 31.7%

Nationalized Banks 32.4%

26%

95,686

28%

74,505

34%

60,153 43,651

State Bank Group 28.4% Old Private Sector Banks 6%

(As of March 2012)

DATAQUEST | A CyberMedia Publication

34,789 20,267

FY06

27,088

FY07

FY08

visit www.dqindia.com

FY09

FY10

FY11

FY12

August 15, 2012 | 43

Banking

Financial Inclusion: The ICT Push The thrust on financial inclusion in India follows directly from the government’s thrust on social inclusion. Unlike in mainstream banking, the financial inclusion plans had no proven model to follow. India, after a lot of deliberations, chose to go by the bank-led model. RBI allowed banks to appoint business correspondents (BCs). RBI tried to promote ICT based approach which encouraged BCs and banks to try out ICT based models. RBI relaxed many rules to enable opening up of small, often what is called no-frills accounts. The government linked it with the Unique ID program to ensure that even the government subsidies, loans, and pensions were dispatched through the financial system, encouraging people to come to the banking system. RBI aggressively followed up with banks to ensure that the financial inclusion targets are met. As a result, all banks created a 3-year financial inclusion plans from April 2010 to March 2013, which included opening up of rural branches and opening up of no-frill accounts through BCs. After completion of 2 years (March 2012), the progress, in terms of numbers, does not look bad. Almost all (99.7%) of the 74,000 plus villages with a population of 2,000 plus that were identified as unbanked, have been covered by banking. In the next phase, the target is to cover villages with less than 2,000 population. A total of 3,171 rural branches opened during the 2-year period. In the same period, number of BCs tripled from 33,000 to more than 96,000. The number of no-frills account more than double from 49 mn to 103 mn—a net addition of 54 mn. The number of ICT based accounts in that went up from 12.5 mn to 52 mn—that is 25% of the total to 50% of the total no-frills accounts. No denying ICT is playing a major role in achieving financial inclusion. However numbers tell only half the story. Many banks have seen this more as an obligation than an opportunity and have not taken it seriously beyond opening accounts. RBI realizes this and has announced in the monetary policy of 2012-13 that going forward, the focus will be more on the number and value of transactions in no-frills accounts and credit disbursed through the ICT based BC outlets, and not merely on number of accounts opened. Some technology issues such as availability of handheld devices and cards remain. Also, the ICT solutions used are mostly point solutions. Today, the transactions in most cases do not happen on banks CBS on real-time. The focus is too much on the last mile technology. While once the data comes to CBS through some batch mode, it is treated like any other customer data, in between, there is no standard approach by BCs. That raises the risk of security and brings in operational glitches. If the bank has to work with multiple BCs, it has to do a lot of consolidation at its end. If banks have to seriously look at the opportunity at the bottom of the pyramid, the ICT approach has to be more standardized, and the accounts have to be full services rather than no-frills. Part of it would be solved once Aadhaar numbers become widely available and all the accounts linked to the Aadhaar number. The government is now insisting that all large payments would be made to bank accounts and that is likely to push up the usage of these accounts. If subsidies are directly credited to bank account—as it has been done on a pilot basis in some states—that would also people to use the accounts more. NPCI, IBA, and UIDAI are working together to create a network of 1.4 mn micro ATMs. Banks will do the authorization while UIDAI will do the authentication. India’s experimentation in financial inclusion is being followed by the global community with a lot of interest. What works effectively in India has the potential of being taken to other emerging markets.

as 55% of the international banks that it took as a sample, do that in less than a day—some 15% within one hour. The BCG report categorically states that process excellence critically depends upon the underlying technology platforms. On an average, Indian banks spend only about 2% of their revenues on technology, says the report. The figure is bit higher for new private sector banks, at 4%. The median expenditure on IT as a percentage of revenues in Europe, on the other hand, is about 9%, it says quoting a survey of leading European banks. Indian banks have already got the benefit of the first phase of ‘technology’ investment—in ATMs. It has considerably re44 | August 15, 2012

duced the visit to branches. ATM deployment has seen phenomenal growth in the last 5-6 years, growing almost 5-fold between 2006 and 2012. In 2010-11, the number of ATMs deployed overtook the number of branches for scheduled commercial banks. However, there too, PSU banks other than the State Bank group have to do a lot of catch up. The allowing of white label ATM operators by RBI is going to further boost ATM transactions, thereby reducing stress on branches. ATMs, online banking, and branch office automation/implementing core banking solution have shown banks what technology could do. So far, so good. But to compete, as the BCG study shows, they have to drastically visit www.dqindia.com

up investment in IT. Before one gets into where and how, one thing must be clarified. Most take for granted that the CBS implementation phase is over. While that statement may be true for commercial banks, India is home to thousands of RRB and cooperative bank branches. Their story is equally interesting though the numbers involved are much smaller.

CBS Market: Alive and Kicking

Most commercial banks have, by and large, implemented core banking. But core banking solutions vendors still have a field day as a host of regional rural banks (RRBs) and cooperative banks started the journey much later. RRBs, thanks to their more

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Banking

organized nature, got a little more attention from RBI early on. A task force on empowering RRBs for Operational Efficiency, headed by Dr KG Karmakar observed in 2007 that technology adoption by the RRBs is lagging. The next year, RBI formed a working group specifically to recommend technology upgradation strategies for RRBs. One of the main terms of reference for the committee was to determine the nature of core banking solutions required for RRBs. The RBI had earlier mandated that all RRBs should be on core banking systems by September 2011. NABARD, through the Financial Inclusion Technology Fund, funded a few weak RRBs for implementing core banking. NABARD reported in its annual report of FY12 that it helped 26 out of 28 weak RRBs implement core banking last year. Cooperative banks are more diverse. While some of the large Coop banks have CBS even before a few PSU banks, most of them have looked at it in the last couple of years. Interestingly, in what could be a model for the developing world, most of them have gone for core banking solutions on an ASP model. In April 2011, NABARD had invited applications from tech vendors for implementing Core Banking Solution (CBS) including financial inclusion on an ASP model including procurement, customization, installation, and maintenance of CBS in cooperative banks. It is learnt that it is targeting close to 140 state and central cooperative banks which have a total of 4,600 branches. In January this year, it announced that 4 central cooperative banks from Latur, Kolhapur, Buldhana, 46 | August 15, 2012

Adoption of well structured IT governance models will assist banks in enabling better alignment between IT and business, create efficiencies, enhance conformity to internationally accepted best practices, and improve overall IT performance, as also enable better control and security and Nagpur districts have signed an agreement with Wipro for implementing CBS. According to NABARD, all the 4 banks, with about 500 branches in Maharashtra, are expected to be on the

CBS platform by early 2013. In February, the Gujarat State Cooperative Bank (GSCB) and 10 district cooperative banks signed an agreement with TCS for providing core banking on an ASP model. Maharashtra and Gujarat together account for close to 50% of the Coop banks. Before that, the apex body of urban cooperative banks, National Federation of Urban Cooperative Banks, and Credit Societies (NAFCUB) also, through a similar exercise selected 4 technology vendors—Encore, C-Edge, TCS, and Mindmill—to provide CBS on an ASP model to coop banks. Any coop bank could take the solution from one of these vendors. Later, it added 2 more vendors HCL Infosystems and Polaris to the list. In even more interesting experiments, some cooperative banks have hosted CBS solutions on ASP model and are providing it as a service to other cooperative banks. A cooperative bank near Mumbai is successfully doing that with a CBS solution provider as partner. ASP model has become the de facto standard among the small cooperative banks.

IT Spending Break-up by Type of Bank

Banking: IT Spending IT Spend (`crore)

Share in %

COOP BANKS 7%

PRIVATE & FOREIGN BANKS 39%

7,650

PSU BANKS 54%

FY12

FY13

(As of March 2012)

Total: `7,650 crore (2011-12)

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8,278

DATAQUEST | A CyberMedia Publication

Banking

Payment and Settlement Systems: Transfer @ Speed of Thought Large Value Clearing System (RTGS): Growth Over the Years 1,011,699.31

1,079,623.07

48 | August 15, 2012

941,039.34

482,945.59 13.38

246,191.80 40,661.84

19.65

115,408.36

FY04

FY05

5.85 3.88

1.77

0.46

0.00

FY06

FY07

FY08

FY09

FY10

FY11

FY12

No of transactions (in mn)

Amount (`bn)

Interbank Mobile Payment Services: Beginning to Take Off

1,104.37

1,122.65

998.26 31,553

30,137 816.11

22,997

24,922

725.48 15,759 12,281 12,440 11,853 8,903 379.06

6,014 290.65

19,101 530.02

419.47

9,989

317.08

Total Amount (`Lakh) No of Transactions

249.68

t2 01 Se 1 pt em be r2 01 1 Oc to be r2 0 No 11 ve m be r2 01 De 1 ce m be r2 01 1 Ja nu ar y 20 12 Fe br ua ry 20 12 Ma rc h 20 12 Ap ril 20 12 Ma y 20 12

Au gu s

Ju ly

20 11

174.95

A few significant happenings recently on this front are:

 Launch of RuPay, a debit card, by NPCI. This is expected to bring down the cost of debit card transactions significantly. RBI is trying to convince banks not to charge any transaction fees in debit card transactions  Launch of Aadhaar Payments Bridge System (APBS) by NPCI. APBS is a centralized electronic benefit transfer system to undertake direct mandates from respective sponsors or accredited banks attached to various government departments for the purpose of disbursing entitlements using Aadhaar numbers  Release of guidelines for independent white label ATM operators Payment Systems Vision 2012-15: Salient Points With the basic systems in place, the draft Payment Systems Vision document, released for public consultation, focuses on 3 areas: Efficiency Enhancement in the Payment Systems The document does not talk of any major new payment systems, though it acknowledges that they may be there. The focus is to enhance efficiency of the existing systems in the short run. Standardization, Portability, and Interoperability It is here that the vision lists a number of possible courses of action.

55.04

49.27

33.25

611,399.12

Ju ne 20 11

Globally, the move towards electronic payments has been driven by the need to provide customer convenience and enhance efficiency and productivity. In India, while those reasons are valid, there is another big—somewhat unique—reason to move towards electronic payment. One of the biggest reasons why black money thrives in India is because most of our transactions happen by cash. Moving from a cash economy to an electronic payment regime would greatly arrest the flow of black money. In a white paper that former finance minister Pranab Mukherjee unveiled earlier this year, there was a strong argument for moving towards electronic payments including debit card for the same reason. Electronic payments would provide those vital checks needed to stall the growth of black money ecosystem. In addition to the above reasons, electronic payments reduce the cost of transactions over time. These are the thoughts that have driven RBI’s Payment Systems Vision 2005-08 and subsequently, RBI’s Payment Systems Vision 2009-12. The recently released draft Payment Systems Vision 2012-15 takes it further along that path. While in 2004, in Payment Systems Vision 2005-08, RBI started with a somehow modest objective of ‘establishment of safe, secure, sound, and efficient payment and settlement systems for the country’ in the next vision document, it became bold and more demanding, as the mission statement changed to ‘ensure that all the payment and settlement systems operating in the country are safe, secure, sound, efficient, accessible, and authorized’. The new 2009-12 draft adds ‘interoperable’, ‘inclusive’, and ‘compliant with international standards’ to the list. The various electronic payment systems that have been promoted by RBI over the years include Electronic Clearing Services, National Electronic Fund Transfer (NEFT) for retail transfers, and Realtime Gross Settlement (RTGS) for bulk transfers through Clearing Corporation of India. In addition, card payments, online and point of sales payments, ATM transactions, and of late mobile banking have emerged as newer means of payment. RBI has set up National Payment Corporation of India (NPCI) as bank’s owned entity to help create more efficient payment mechanism and would further bring down the cost of transactions which were earlier very high.

Some of the specific ideas listed are standardization of message formats across payment systems, development of standardized message formats facilitating person to person, person to business, business to person, person to government, and government to person across payment systems, standardization of PoS/micro-ATMs, harmonization of routing codes such as MICR and IFSC, standardization of bank account numbers, standardization of bill payments, possible creation of a standard setting body, and seamless portability among different payment systems, and possible creation of a payment hub. Development of Infrastructure and Integrated Payment System The draft vision document lists a number of possible action points such as capacity building of existing payment infrastructure and capacity building in terms of human resources, expansion of payment infrastructure, and finally building an integrated payment systems. The document also stresses upon the need to ensure safety, enhance affordability, increase awareness about newer systems, and ultimately moving towards a cashless society. Nothing will signify our transformation to a digital economy as effectively as the shift to a pervasive and effective electronic payment regime.

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Banking

Retail Electronic Payment: Growth Over the Years 22,075

Value of Transactions (`bn)

13,087

ECS credit ECS debit

10,420

NEFT Credit card Debit card 6,849

5,003

2,357 1,088

1,464

521

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

1,160

Number of Transactions (in mn)

909

ECS credit 718

ECS debit 668

NEFT Credit card Debit card

535

379 285 229 167

FY04

FY05

50 | August 15, 2012

FY06

FY07

FY08

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FY09

FY10

FY11

FY12

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Banking

Commercial Banks: Beyond Core petitiveness by enhancing efficiency, increase customer lifetime Banking

immediate and hence most banks do not see it that way. The banks here have the advantage of a center of excellence, IDRBT, and actively helping out in creating frameworks and guidelines. RBI formed a working group on information security, electronic banking, technology risk management, and cyber frauds which submitted its report last year with detailed recommendations. The group made its recommendations in 9 broad areas: IT governance, information security, IS audit, IT operations, IT services outsourcing, cyber fraud, business continuity planning, customer awareness program, and legal issues. Among the major recommendations were for creating an IT strategy with an exclusive board-level IT strategy committee with a minimum of 2 directors as members, one of whom should

52 | August 15, 2012

Nothing sums up the technology outlook of PSU banks and old private sector banks than these 3 words—beyond core banking, the most common way in which the banks as well as RBI refer to the new thrust on technology. What does it mean? Today, it is a well-known fact that the most important enabler of competitive advantage for a bank is how well it leverages technology—whether it is in serving a customer better, creating and positioning new products based on better understanding of the customer, and further enhancing productivity or simply effectively battling security threats. Beyond core banking refers to all these collectively. For Indian banks, the path from here is largely 2-fold. One, they need to enhance their com-

value (CLV), reach out to new customers, and be ready to quickly create new products and solutions and thus enhance effectiveness, ie, in short, the business reasons. #2, RBI has been pushing them aggressively for taking steps to minimize security threats, build business continuity plans, implementing automated data flow, and achieve defined targets in financial inclusion; ie, reaching out to population that is hitherto unserved by the financial system. Broadly, they can be called the regulatory and compliance reasons. Interestingly, all of the above, in the long run, are business issues that will only help the banks. This has been decisively proven in the developed markets. It is just that they are not visit www.dqindia.com

DATAQUEST | A CyberMedia Publication

Banking be an independent director. It also recommended creation of an IT steering committee with representations from various IT functions, HR, legal, and business functions as appropriate. The group also recommended creation of a separate information security function within each bank to focus exclusively on information security management with a designated Chief Information Security Officer (CISO). It was unequivocal in suggesting that the CISO should not have a direct reporting relationship with the CIO. While RBI released its IT Vision 2011-17 last year, this year’s monetary policy sent out a clear message to banks that it is not just a statement of intent and banks need to be serious about implementing the vision. ‘Information Technology Vision Document 2011-2017, which was released in February 2011, also sets priorities for commercial banks to move forward from usage of CBS for front-end customer service to areas such as management information system (MIS), regulatory reporting, overall risk management, financial inclusion, and customer relationship management,” said the Monetary Policy of 2012-23. ‘Recognizing that possible operational risks arising out of adopting technology in the banking sector could have some impact on financial stability, the document has emphasized the need for internal controls, risk mitigation systems, and BCPs. Towards this, banks may work in improving their IT governance structures, and evolve well-defined information technology policies as well as information security (IS) frameworks,’ it added. It also stressed the need to create proper governance models. ‘Adoption of well-structured IT governance models will assist 54 | August 15, 2012

BCG report indicates that Indian banks spend only about 2% of their revenue on technology while the figure is bit higher in case of new private sector banks, at 4% banks in enabling better alignment between IT and business, create efficiencies, enhance conformity to internationally accepted best practices, and improve overall IT performance, as it would also enable better control and security. IT governance objectives may be translated effectively and efficiently into improved performance. In order to achieve the above, banks need to move towards adoption of well-structured IT governance models,’ the monetary policy said. It also urged banks to implement automated data flow by the earlier given deadline of March 31, 2013. The fact that risk IT investments—as they are often called— are extremely important as it is a global realization in the wake of recent experiences. ‘Risk IT investments must not be sidelined by necessary upgrades to finance and customer data systems. Instead, they must be integrated and prioritized. Given that for many large firms, necessary investments will run to several billion dollars over the coming years, boards may need to rethink their approach to evaluating management’s visit www.dqindia.com

investment in core IT spending,” noted a recent G-30 report titled Towards Effective Governance of Financial Institutions. In a June 2012 letter to all banks, RBI ‘reminded’ banks about these obligations.

Restructuring: The Final Frontier

One area about which RBI has been, by and large, silent, is restructuring of banks. While PSU banks have a lot to catch up on many things on the customer service/product/automated data flow side, it is difficult to believe that significant productivity gains will happen without changing the way service is delivered. For almost all PSU banks, branches are still the nerve centers. Any ideas regarding centralization have been opposed saying it would compromise customer relationships, which are largely with the bank. The argument itself is self defeating. There is no value accrued to the customer if the back-office operations of a bank are performed in the branch. In fact, if anything, a branch should completely be reorganized around the customer with each employee in a branch catering to the customer’s needs. Performing back-office operations in a branch is not just inefficient, it has potential to compromise both quality and security. However, earlier, there was no other option. With seamless connectivity, that is no more a handicap. Banks would immensely enhance their efficiency if they centralize their back-office operations in a few centers. It will not only bring in better economy of scale, but would also make skill training easier, quality checks easier, and it would be easy to ensure better information security. Once they

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Banking

proceed on that path, they would even be able to separate non-core from core operations and bring in further efficiency by outsourcing non-core processes and benefit from technology changes. Most of the new private banks are, by and large, built on this model. But most PSU banks have not even taken first steps on this path. RBI, aggressively pushing IT adoption in many areas, has also maintained a silence when it comes to bank restructuring, knowing the sensitivity of the issue, especially as it relates to manpower. Though it may not require shedding manpower in the near future, it may require heavy movement of manpower. At present, clerical staff in most PSU banks are not transferred outside the city/200 km. However banks can always take the first steps trying out with the new structure on a soft landing basis. While banks may still gain in overall efficiency because of certain technological changes—such as less number of people visiting branches—it is very difficult to attain major improvements in productivity without centralizing back-offices and do some sort of outsourcing.

Beyond Automation and Risk Management: New Priorities

‘One of the shortcomings that has been observed,’ noted RBI IT Vision 2007-11 unequivocally and clearly, ‘is a disconnect between the Information (I) and Technology (T).’ Nothing sums up the challenge better. Banks have used technology mostly to automate basic processes, that has given customers some convenience and has resulted in some indirect cost saving for banks. But banks have not been able to reduce cost of small value transactions, let 58 | August 15, 2012

alone use the information effectively (capturing, analyzing) for decision making. The RBI IT Vision 2011-17 role of IT in banking sector needs to be revisited with focus on the following: n Introducing technologies that balance 3 Cs—Cost, Control, and Customer Service n Implementing data warehouse and business intelligence that meets all internal MIS requirements as well as the information needs of the regulator n Adoption of technology based strategies for financial inclusion n Usage of analytics for improvement of Customer Relationship Management (CRM), risk management, and fraud detection/prevention n This is beyond what it can force them to do as a regulator, such as financial inclusion, compliance, automated data flow, BCP, etc.

The Market

Going by various inputs—some RBI transaction data, some real IT investment info from banks, some vendor data, and a reliable analysis of cost of transaction data—we estimate that the Indian scheduled commercial banks and RRBs spent close to `7,100 crore on IT in FY12—that accounts for close to one-sixth of their total expenditure. That figure is not as high in any other sector. PSU banks account for close to 58% of that IT spending, according to our estimates. It is difficult to estimate the actual spend by cooperative banks because of the way they are structured and also because most of them have gone for the cloud model. For our calculation purpose, our rough estimates for Cooperative banks’ spending was visit www.dqindia.com

close to `550 crore in FY12. This is, by and large, in sync with the `1,300 crore estimate of the market opportunity (spread over 2-3 years) in the Coop Bank segment that Dataquest did in April 2010. The areas where there is going to be investment by banks include: n Information Security: While RBI has been aggressively pushing for it, most banks today realize the criticality of a good IS framework n Datawarehousing, BI, and Big Data: With phrases like customer lifetime value (CLV) ruling the roost, there will be an increased effort by PSU banks to create some sort of business intelligence out of customer data n Governance, Risk, and Control (GRC): With RBI aggressively pushing banks to create security and IT governance models, most banks will have to invest on GRC. We expect some big investments towards the end of the year or early next year. n Mobile Banking: Experimentation will continue in the area of mobile banking, especially on the financial inclusion front. n CBS for Coop Banks: ASP model will continue to rule as more and more coop banks go for CBS If the economic conditions improve, we expect some of the bigger decisions to happen this year. In that case (optimistic case), the market is likely to grow 10-12%. In the most likely case, the growth will be around 8%. While that may not look that impressive, it is because we do not expect too much high value infrastructure investment. That is because not too much refresh is expected. Most of the growth will come from investments on newer and more sophisticated solutions as well as maintenance. n

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Education

ICT is the Stated Strategy Education remains the most challenging segment despite its high potential. Unlike other verticals, one cannot import the models of the developed markets and make them work here

ndia’s education sector is the third largest in the world, and its higher education the second largest. An estimated close to 250 mn students enroll for various schools and educational institutes every year, with as many as 235 mn of those students being in KG-12 level. It has more than a million schools and close to 25,000 higher education institutes. The spending on education as a percentage of national GDP is a little less than 4%. The size of the formal education market in India is estimated to be $45 bn while the informal education segment accounts for another $7 bn, according to the estimates. Yet, with its billion plus population and uneven penetration, India ranks a lowly 148 in the Education Index of UNDP’s Human Development Index rankings, incidentally below its overall ranking of 134. While part of that is because of low adult literacy, it is also because of low gross enrolment ratios in schools and colleges. India is a young country with close to one third of its population below the age of 14. The access to quality education by these young people will determine how well India of tomorrow shapes up, and equally importantly, how well it plays in a world that is fast ageing and looking to countries like India for people in the working age. The Eleventh Plan talked of universal enrollment of 6-14 age group children including hard to reach segment and aimed to eliminate dropout at primary 60 | August 15, 2012

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Education

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government schemes. Now, with the government realizing the ground reality and mandating that 25% of their seats should be reserved for economically backward students. In higher education too, the thrust is on quality, while ensuring that the enrollment too goes up. The 12th Plan approach paper says, “There must be a strategic shift from mere expansion to improvement in quality higher education. For this, the focus should be not only on larger enrollment, but also on the quality of the expansion. During the Twelfth-Plan period, an additional enrolment of 10 mn could be targeted in higher education equivalent to 3 mn additional seats for each age cohort entering the higher education system. This would significantly increase the GER bringing it broadly in line with the global average.” About 18% of all government education spending or about 1.12% of GDP is spent on higher education today. The 12th Plan approach paper suggests that this should be raised to 25% of total spend on education; that is 1.5% of GDP. An increase of 0.38% of GDP means an additional allocation of about `25,000 crore to higher edu-

IT Spend by Education Sector (`crore)

19%

cation for the center and the states taken together, it estimates. It is unequivocal about the use of ICT in education. “Information and Communication Technologies (ICTs) should be harnessed to enrich teaching learning experience, to extend and diversify delivery, improve research quality and collaboration by making knowledge and information widely available, and ensure effective governance both at the institutional and systemic level. Student services need to be significantly improved and admissions should be streamlined,” it notes. A National Policy on ICT in school education is in the making. Going by the latest draft (March 2012), the direction is clear. The government’s focus to leverage technology now seems to be more than connecting to schools and having a couple of PCs in schools. It recognizes that ICT can play a far more important role in all aspects of school education such as content distribution and knowledge sharing, digital delivery of educational content, capacity building/teacher training, using interactive tools and applications for improving basic skills in students, helping students with special needs, distance education, creating vocational courses, and above all more efficient management of schools and the ecosystem. The draft paper addresses each of these issues quite exhaustively.

The Structure & Technology Usage

3,300

3,930

FY12

FY13

visit www.dqindia.com

Source: DQ Estimates

school level. The Right to Education (RTE) Act made it a fundamental right to have free and compulsory education for all children in that age bracket. Decades of effort have yielded some results. According to Annual Status of Education Report (ASER)—Rural, 2011, the proportion of students in age group of 6-14 enroled in schools in rural areas is 96.7%. But just enrolments do not ensure education. What is lacking is quality of education, basic infrastructure, and inadequate number of teachers at the school level. This is what is the primary objective as far as education is concerned, in the 12th Plan. “Despite improvements in access and retention, the learning outcomes for a majority of children continue to be an area of serious concern. Several studies suggest that nearly half the children in grade 5 are unable to read a grade 2 text. Concerted efforts are required to ensure that a minimum set of cognitive skills are acquired by all children during 8 years of elementary education. Thus, quality issues and determinants thereof such as ensuring availability of trained teachers, good curriculum, and innovative pedagogy that impact upon learning outcomes of the children must be addressed on priority basis,” the approach paper to 12th Plan notes. In secondary level, even enrolment is low at around 60%. That has to be improved. The government for the first time is thinking along the lines of using the private schools effectively to achieve the objective. While private schools have existed and the enrollment in such schools even in rural areas is as high as 25% according to ASER 2011, they have not been part of any

The Indian education system can be broadly divided into 2 categories: Formal education and informal education. Formal education consists of school education (K-12) and higher education, while the informal education consists August 15, 2012 | 61

Education

Government Spend on Education 2006-07

2007-08

2008-09

2009-10

2010-111

2011-122

116,933

127,547

161,360

197,070

249,343

276,866

Govt Spend (as a % of GDP)

2.72

2.56

2.87

3.05

3.25

3.11

Govt Spend (as a % of Expenditure)

10.5

9.7

10.1

10.6

11.1

11.5

Govt Spend (as a % of Social Expenditure)

48.9

43.3

42.4

44.1

44.3

46.1

Govt Spend (`crore)

Revised Estimates, Budget Estimates

Source: Economic Survey 2012

of a fast-growing coaching class segment, vocational education, and the booming pre-school education. As much as 80% of the formal education is still controlled by government schools and colleges. The rest is with private sector. In informal education, the government is present in only vocational education along with private players. In the 12th plan approach paper, it talks of integrating pre-school education with government-owned schools. Of course, the level and maturity of technology usage is quite different (see table). There are primarily 5 areas in which technology is deployed in educational set-ups. They have different levels of maturity in different segments. Here is a round-up. n Management, Administration & Academic Operations: In developed markets, where they are still experimenting with new ways of imparting technologyleveraged education, this part of technology usage, however, is mature. India, thanks to its late exposure to technology, this is something that is still very nascent. While most top private schools, colleges, and institutes are quite mature on their technology usage as far as management goes, it is almost not there in government schools. While that is understandable, what is surprising is that, even in top technology institutes carrying out technology research and having access to all the latest technology, 62 | August 15, 2012

IT Spend Break-up Informal Sector 5%

Private Formal (including pre-school) 16%

Government Sector 79%

the maturity of usage of technology in academic operations and management is very low. The reason is partly little importance to this aspect and the less than enthusiastic staff response. With the underlying infrastructure in place, it just requires a little push to get this done. n Education Delivery: This is the most challenging part and there is no solution that fits all. There are fundamental issues within our education system: Availability of teachers, quality of teachers, access to schools, access to good educational content, access to vocational education. While the experiment continues, in the last decade or so, some models have been successful. Companies like Educomp and Everonn have done a good job of putting all the components together to take it to schools. These are deployed directly by private visit www.dqindia.com

schools and the companies work with governments to implement them in government schools. However even they are not adequate. They bring the students to a special room rather than taking technology to the classroom. Some efforts are being made by some vendors on this regard. This is the area that is seeing most experimentation and is one of the hottest opportunities for the tech community, if they could figure it out. Since this requires very localized solutions—not just local language content—this is the space that will see the next boom in entrepreneurial opportunity. The potential is huge. It is still nascent and may take a while to gain momentum. n Digitization of Content: Digitization of content and its delivery in the right format/channel is not an innovation challenge but provides a huge opportunities, considering the volume of content, number of languages India has, and the different levels of technology adoption at different levels. Will soon become a volume/efficiency game. This will most likely be centralized. How the new value chain emerges remains to be seen. n Helping in Capacity Building: The most underrated and underdeveloped out of all areas, it speaks volume of the far-sightedness of Indian policymakers to think of using ICT for achieving this. While how it pans out remains to be seen, a branded program

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Education

National Knowledge Network Seamless networking has made it possible to carry out collaborative research. The National Knowledge Network (NKN) is India’s response to that growing trend. Designed as a very high bandwidth network created to cater to the needs of academic and research communities, it connects, as of now, more than 800 academic and research institutions. Those which are connected to it include 27 central universities, 151 state universities, 25 private universities, 44 institutes under CSIR, 42 institutes/organizations under ICAR, 10 IITs/IIITs, 11 IIMs, 43 government engineering colleges, 16 research labs of DRDO, and even institutes of repute in non S&T areas like NIFT (fashion) and IIMC (media). The NKN is designed to have reliability and availability, with redundancy built in. A hierarchical network, divided into 3 basic layers—core, distribution, and edge—it is planned to have 18 core PoPs and 25 distribution PoPs across the country, with each distribution PoP connecting to multiple core PoPs using different NLD providers’ networks. NKN will use raw bandwidth from multiple service providers, with service provisioning remaining internal to NKN. The core of the NKN is an ultra-high speed (multiples of 10 Gbps) network. The backbone is created by using multiple bandwidth providers and the edges can be provided by any service provider, if the interface and feature set are in conformance with NKN design. In addition, there is plan to connect the 4 metros using dark fiber for future requirements. The end-user institutions connecting to respective PoPs (core or distribution) will have the option to operate at speeds from 100 Mbps—1 Gbps per connection. As far as possible, the last mile connection to the respective institute shall be on a protected link. In other words, link protection would be built by the NLD itself for the institute. Multiple such links from the institute, with different bandwidths (1 Gbps or 100 Mbps) will also be possible.

Advanced applications in areas such as health, education, S&T, grid computing, bioinformatics, agriculture, and governance would run on NKN. The entire network would integrate with the global scientific community at multiple gigabits per second speed. Apart from knowledge and information sharing per se, it will help in collaborative research, facilitate distance education, bridge the gap between academic research and research in government

organizations such as CSIR and DRDO. The government also plans to use it for using information sharing for certain egovernance applications. Once data.gov.in becomes operational, it is expected that it would play a major role in involving students to create innovative applications. NKN, according to the government, will also act as a test bed for research in the area of network, security, and delivery models for various services.

Technical Features:

 It is a protocol independent network and is designed to carry multi-protocol traffic.  It is capable of offering hierarchical Quality of Service (QoS) for real-time traffic (voice and video) and guaranteed bandwidth for business critical applications. NKN governance backs it up by Service Level Agreements (SLAs) for the users.  NKN design supports IPv6 transport, IPv6 networking, and IPv6 MPLS VPN services in addition to the similar facilities based on traditional IPv4.  NKN design, implementation, management, and control is such that service provisioning is internal to the NKN network and does not depend on telecom service providers from whom ‘raw’ bandwidth or fiber is likely to be leased.  Its design supports multicast enabled VPN for running multicast applications, both in IPv4 and IPv6.  NKN management is capable of handling provisioning for the central services such as multimedia conferencing, e-access, digital library, and central data center to all users.  It will provide access to secure data center with information assurance.

with participation of central, state governments as well as private sector may be the way to go. n Research & Collaboration/Knowledge Sharing: 64 | August 15, 2012

Research is an area where India compares with the best in the world, especially when it comes to technologies such as ICT, biotech, and material science. visit www.dqindia.com

However traditionally research was carried out in silos. The new seamless connectivity has made it possible to make research a collaborative effort. Research

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Education

Opportunities in the Industry

—Dhiraj Mathur, leader education, PwC India

Market Segment

Opportunity

Pre-school

 Largely unorganized market with presence of a few branded players  The market is expected to witness a shift from unorganized to organized

K-12

 Market is dominated by reg.ional players. Significant number of private schools  This segment is governed by numerous regulations with ownership mandated to reside in not-for-profit vehicles

Tutoring and Test Preparation

 The market is gradually getting organized with entry of many branded for-profit players  No regulatory restrictions

Higher Education

 Increasing demand for higher education and lack of government funds had led to increasing private participation in the higher education sector. However lack of faculty, poor employment opportunities and quality issues are leading to poor enrollment and closure of several engineering and management institutes  Highly regulated sector

Vocational/Job Oriented Training

   

Support Services

 Providing content and other support services to schools and other educational institutions  This includes specialized content, total solutions as well as distribution technology solutions like VSAT linked classrooms  Highly competitive

Dominated by branded players. Less regulated Entry of many new players in the recent past Rapid growth Highly fragmented

Key Trends in the Industry

Industry Academia Partnerships: India has seen a limited but growing number of industry-academia collaborations in the recent years as some of the well known institutes have tapped into corporate tie ups for areas that span across training, research, and internships. Some examples:  A number of good private and public higher education institutions have got into academic tie-ups with foreign universities  But many foreign universities are waiting for clarity on regulations governing their participation in Indian education sector before firming up entry strategies

Key Challenges        

Lack of trained faculty Course content not in line with the expectations of the industry Extremely high capital expenditure requirements Excessive and multiple regulators and regulations ‘Not-for-Profit’ requirement UGC not open to recognizing foreign universities Limited choice of entity—Trust, Society or Section 25 company AICTE does not allow JVs

MDI Gurgaon

BITS Pilani

Areas: Training, consulting, and research

Areas: Industry internships Areas:Training and for students research

Areas:Training, curriculum design, and research

Maruti Suzuki

Biocon

ICICI

IBM India

Hero Honda Motors

Idea Cellular

National Stock Exchange

Infosys

and academic institutes across the world are trying to create that connectivity and networks dedicated to the research community. India too, after a few isolated efforts, is creating what is called the National Knowledge 66 | August 15, 2012

Manipal

Network (NKN), an ultra high bandwidth network that not just connects the research and academia but would have applications to facilitate collaborative research (see box). This will see huge investments in near term visit www.dqindia.com

Thapar University

and offers a great opportunity for tech vendors.

Spending on IT

According to our estimates, the total spend on IT (excluding expenditure on communications

DATAQUEST | A CyberMedia Publication

Education

Technology Adoption Formal

Informal

School

Higher & Technical

Pre-school

Vocational

Coaching

Government

Low

Very high

Negligible presence

Low

Not present

Private

Medium

High

Medium

Low

High

services) was `3,300 crore by the education segment, with a whopping 96% of it being spent by the formal education segment. Out of that, the schools and institutes in government sector spent 79% while the private sector in the formal education segment spent 16% of the total IT spend. We expect a 19% rise in spend by this segment in FY13. While the government is still spending largely on infrastructure, the private sector has a higher ratio of applications to infrastructure spend. Our estimate is based on top down approach for government spend and an average spend approach for private institutions. This has been validated by comparing with the actual spend in a few selected government higher education institutes, private higher education institutes, and private schools. That has not been done in the case of government schools as the decision on most IT purchase is not taken at the school level. It must be noted that this does not include the spend incurred towards national knowledge network. That itself would see a significant spend. This also does not include the spend on IT—primarily PCs and other accessories—by the student community from the open market. Technically, that is not a B2B spend by the education segment. A rough estimate would put that at another `200-250 crore. There is a peculiar problem that exists in the government 68 | August 15, 2012

schools in rural and semi-urban areas. While the government is spending on computers and networking, very often the support provided by vendors—selected on L1 basis—is poor. In many cases, a basic technical problem in a PC takes days to get rectified. While many government schools now have computers, they remain a novelty for the students and there is a long way to go before they get integrated with the actual delivery of education. In some cases, where the government has taken special initiative to address this challenge—many do not even realize that the challenge exists—this is being innovatively tackled, as in the case of Kerala. In many schools, which larger NGOs are working with, of course, the problem has been identified and there are efforts to make computers part of actual imparting of education. Lack of broadband access is another issue that is impacting any effective use of ICT beyond teaching the basics of computers. Most schools having computers do not have a working internet connection despite the services being available in the area. Without access to internet, a PC has got limited utility. That is a challenge that the government should try to address in the 12th plan. In urban areas, most schools have some internet access and many even have wireless LAN. In the coming 12-18 months, the spending on education would be driven by spending on PCs/PC visit www.dqindia.com

software, networking equipment/ SAN/wireless LAN, and some sort of spending on digital content enablement, which will vary across regions. Services remain an untapped opportunity. In applications, some spending will happen on library management systems in government colleges and higher education institutes. With most admissions being now done online, there will be spending on that account. In addition to individual education departments, we expect considerable spending by education authorities and regulators such as state boards. The education departments in many states are going for unified admission systems and that offers an opportunity. According to our rough estimates, in the next 3 years, PCs, system, and storage will account for 35% of IT spending, networking equipment for about 20% of spending, services including digitalization for another 25% of spending and 20% for applications. This does not take into account spend on packaged content, telecommunications. For the IT industry, education is the classic balancing factor. The segment—except some part of informal education—is not vulnerable to any economic slowdown. In the slowdown of 2008-09, this trend was clearly observed. Those with high exposure to government and education survived the slowdown as the spending continued in this area. Technology in education remains the biggest opportunity as well as challenge for a country like India. Unlike in other verticals, where it is just a matter of time, in education, no generic strategy will work. We expect new experimentations and innovations some of which could be carried to other emerging countries. n

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CONSTRUCTION

Transforming the way Construction Industry works!

Construction

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August 15, 2012 | 69

CONSTRUCTION

The industry remains largely under-penetrated by IT while the outlook does not seem too great

or a country that is likely to be the third largest economy globally in a matter of few years, India’s infrastructure is abysmally inadequate. The first half of last decade saw growth being driven by some services such as financial services, telecommunications, and exports of IT/ITeS—sectors which are not critically dependent on physical infrastructure for growth.

Construction Sector

While the government attached importance to infrastructure build-up, there was no widespread recognition that the economic growth is not sustainable without growth in infrastructure. The Eleventh Plan (200712) put a lot of emphasis on infrastructure. Since the construction sector accounts for more than half the investment required for setting up critical infrastructure like power projects, ports, railways, roads, and bridges, it has become the most crucial sector in the last 5-6 years. In FY12, like the overall GDP itself, which saw a sharp decline in growth, construction sector too saw growth slowing down from 70 | August 15, 2012

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CONSTRUCTION

8% in FY11 to just about 5.3% (at 2004-05 prices). The total size of the construction sector stood at `404,617 crore at those prices. That accounted for about 7.7% of India’s GDP. The slow growth was a result of factors like the imminent recession in Europe, hardening of interest rates in India, and challenges associated with land acquisition in some places. The sector provides employment (including indirect employment) to around 33 mn people. It is estimated that about 70% of these are employed in the infrastructure segment and the remaining 30% in the real estate segment. According to industry estimates, the sector is expected to generate additional employment of 47 mn, with the total number of persons em-

Indian Construction: Over the Years 5%

355,717

381,199

404,617

FY10

FY11

FY12

Source: Economic Survey, MSPO

Indian construction sector slowed down keeping in line with the overall economy

Construction: IT Spending 1%

1,058 Source: DQ Estimates

1,050

FY12

FY13

Going by the current indications, IT spending growth will remain flat in the current year

DATAQUEST | A CyberMedia Publication

Highlights  Construction sector provides employment (including indirect employment) to around 33 mn people  The sector saw growth slowing down from 8% in FY11 to just about 5.3% (at 2004-05 prices)  Most of the large construction players such as L&T, GMR, etc, have entered the infrastructure space through PPP projects

ployed in the sector reaching 83 mn by 2022. The construction sector is fragmented, with a handful of major companies involved in construction activities across all segments; medium-sized companies specializing in niche activities; and small and medium contractors who actually work on subcontract basis and carry out the work in the field. Most of the players other than the very large players do not use any sort of technology. So, the penetration of IT is very, very less in the segment. What has made the industry a little more organized in the last few years is the emergence of the Public Private Partnership (PPP) model. This is the core strategy adopted by the government for building public infrastructure in the Eleventh Plan, though it has existed since 2000, when the sector was given industry status. The PPP model has resulted in more private ownership of build-operate-transfer (BOT), build-operate-own-transfer (BOOT), and build-operatelease-transfer (BOLT) projects. The government has also allowed FDI up to 100% under the automatic route in townships, housing, built-up infrastructure, and construction of development projects (which include housing, visit www.dqindia.com

commercial premises, educational institutions, and recreational facilities). In the first 9 months of FY12, the sector attracted `7,635 crore ($1.6 bn) of FDI—about 53% higher than it was in FY11, in rupee terms. According to the data from Secretariat of Infrastructure, as of March 31, 2011, a total of 432 PPP projects with a cost of `1,098,187 crore were under different stages of implementation in India, out of which 11% (by cost) were completed and 34% (by cost) were under implementation while the rest were in pipeline. About 340 projects were in state sector while the rest were in central sector. The lion’s share (32%) was in roads. Power, urban infrastructure, etc, accounted for the other big investments. It is expected that the investment in urban infrastructure will rise with government’s initiative to develop mass rapid transport systems (MRTS) in cities with 20 lakh population. Water management is also emerging as another potential PPP area. Most of the large construction players such as L&T, GMR, Lanco, GS Construction, and Punj Lloyd have entered the infrastructure space through PPP projects. However, in this analysis, the IT investment which are owned by the special purpose vehicles (SPVs) are not included, as they are very difficult to track without getting into each of these projects separately.

Where’s IT?

Construction industry is highly fragmented. In addition, a large part of the industry is still unorganized. These companies have no ‘enterprise spending’ on IT, though they may have invested on PCs, productivity tools, etc. August 15, 2012 | 71

CONSTRUCTION

While estimating the investment in IT for any industry that is fragmented through extrapolation of the large players’ investment is always an approximation, that may be more so for an industry, which is only partially organized. For example, our estimation of the spend of top players in infrastructure on IT is just about `1,050 crore, of course, not including the IT investment in the SPVs (for example, it includes IT spend by GMR but not by Delhi International Airports). Taken as a percentage of the total sector, it comes to about 0.2% of the industry revenue. But taken as a percentage of revenue of the organized players, the average IT spend is about 1% of their revenue. That is probably a better indicator, though that is still less than the global benchmark. Even among large players, the IT maturity is fairly low, as compared to their international counterparts. Most of them have invested in the basic IT infrastructure—such as systems, storage, networking—in the last few years and many have also gone for basic enterprise software like ERP systems. Interestingly though, unlike large manufacturing companies, which are by and large using ERP enterprise-wide, the real usage of ERP systems by executives in construction is still low. Yet, many large players are in different stages of implementing some sort of project management and monitoring applications. Going by the early trends, this is something the industry is likely to use more, as this is part of its core activities. Most construction executives still think in terms of projects and enterprise, for them, practically, is a collection of projects. 72 | August 15, 2012

The government has also allowed FDI up to 100% under the automatic route in townships, housing, built-up infrastructure, and construction of development projects That also explains why despite such low IT penetration, the industry is already experimenting with some advanced industry-specific applications such as equipment and tool management, land pool management, etc. The average construction executive in India is able to appreciate these tools far better than enterprise IT tools. Interestingly, what may push the usage of IT, though, is the tough economic conditions. Top executives are increasingly getting sensitized about project progress, as slight delay in progress now means huge costs, thanks to large capital intensive infrastructure projects coupled with high interest costs. IT is helping them to get an almost real-time view of the project, with BI and analytics tools even helping in taking decisions. CEOs are able to get reports that took 5 days just a couple of years back, almost on demand now. That has made them interested in IT. Some CIOs are beginning to experiment with predictive analytics. If successful, that may set the tone for the next stage of IT usage in these companies. While the large companies visit www.dqindia.com

are likely to invest on sophisticated applications, a large part of the industry potentially can go for basic IT. Unfortunately, the situation has not improved in the first 2 quarters and based on the visibility of the first 2 quarters, it is not expected that many of the small players will go for large IT investments. This is because unlike the large players who have already done large investments and can look forward to get real RoI on investments in applications, it is difficult for them to get the RoI soon by investing on capex. Unlike in many other industries, IT is not critical for basic running of the business operations. So, the possibility of capex investment is low. For some reasons, the IT vendors too are not convinced about the sector and unlike manufacturing and other verticals where there is a lot of cloud offering, few IT vendors are looking beyond the top players in construction seriously. But even the larger players are not expected to go for capex. In the last 2-3 years, infrastructure accounted for 40%, applications for 30%, and maintenance for the rest in IT investment. The share of maintenance is likely to go up this year, while IT infrastructure share is likely to come down. While it may not be much in terms of actual investment, industry-specific applications will begin to see some deployments this year. Apart from SAP and Oracle, some specialized players like IFS and Aurigo may make a mark. Consolidation of IT portfolio, investment on some analytics, some variabilization strategy, and selective outsourcing will mark the IT strategy of these players in FY13. We expect the investment to remain flat. n

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Transforming the way Manufacturing Industry works!

Manufacturing

Will IT Bring in the Renaissance?

Much of the factors that would make manufacturing in India competitive going forward, are very different from what made some others competitive in the 20th century, and a lot of those factors have to do with IT

n a way, the story of Indian manufacturing is like the story of Indian society itself. Intellectually rich, with diversity aplenty; occasionally laden with a lot of hope and some celebrations— but at the end, slow to move. But yes, the Indian society seems to have moved on; and it seems today, for the first time, Indian manufacturing may follow a similar path. You cannot be blamed if you start with a sceptic note, reading the optimistic overtone in the beginning, in an issue, that largely analyzes a year just gone by, in which Indian manufacturing grew merely 2.5%, much slower than the general economy, which itself had one of 74 | August 15, 2012

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Manufacturing

its worst performances in recent years, growing by just 6.5%. And even if one ignores one year’s performance, the growth of manufacturing—whether in the short-term or long-term—has not been anything spectacular ever. Like most of the newly independent countries, India had a predominant share of its GDP coming from agriculture in the 50s. While that share has come down from a high of 56% in 1950-51 to just about 14% in 2011-12, much of that has been taken over by services. Manufacturing continues to hover in the range of 14-16% of GDP share (15.3% in FY12), occasionally going up by a percentage point. Many countries in the region, on the other hand, have since then grown primarily led by growth in their manufacturing. One ratio probably shows most definitely where Indian manufacturing stands: that is the services to manufacturing ratio in the economy. No major country other than France and the US—both highly mature economies—has services contributing almost 4 times of what manufacturing contributes. In hindsight, analyses may point to many factors such as lack of infrastructure, lack of power, lack of a vision for manufacturing, and even occasionally concluding that Indians are too intellectual to ‘restrict themselves’ to the ‘too mechanical’ manufacturing. And none of the reasons are particularly wrong. And some of them may actually offer a clue to why we may now see the sector taking off! One big reason, however, is that, unlike the developed countries known for their technology/engineering, most developing countries that grew DATAQUEST | A CyberMedia Publication

Key Takeaways

 The Indian manufacturing sector accounted for 15.3% of the GDP in FY12  With a growth of 2.5% over the previous year, size of Indian manufacturing stood at `795,984 crore in FY12  The manufacturing industry (excluding mining/oil), as a whole spent, about `9,150 crore on IT in the year FY12  The companies that are still largely under-penetrated by IT are expected to be go for cloud solutions. In some industry sub sectors such as food processing, gems & jewelry, small textiles, this trend is already visible  The MES (Manufacturing Execution Systems) market in India iss roughly about $5 bn in FY12  Engineering-led manufacturing being the prime driver of growth in India, digital manufacturing will come as a natural fit

their economy through growing manufacturing had to do that by going global; looking at exports markets and by being globally competitive. Whether it is China, Korea, Malaysia or even tiny Taiwan, they grew manufacturing by being global. Indian manufacturing, thanks to the combination of protectionism, bureaucracy, and licence raj, never really looked at the global market. When a couple of visionary leaders and bureaucrats removed those obstacles for the IT industry in its baby years, see where it took itself and the country! The reason one is hopeful that manufacturing is finally going to break free is that in the last 10 years or so, the sector has become global in outlook. With fairly liberalized policies of today, and its inherent strengths, which are different from what worked for others in the last century, Indian manufacturing has become extremely competitive. In the latest (2010) report published jointly by the US Council of Competitiveness and Deloitte, India was ranked #2 visit www.dqindia.com

in global manufacturing competitiveness, behind China but significantly ahead of Korea and the US which occupied the #3 and #4 spots, respectively. What is more, in the next 5 years, the report said, the gap between the competitiveness scores of China and India would narrow down. So, while it would continue to remain #2, its relative competiveness vis-a-vis China will improve. The reason Dataquest has gone into all this analysis is that IT/ITES is playing—and will continue to play—a very crucial role in making that change happen. That is because much of the factors that would make manufacturing in India—or for that matter in any country—competitive going forward are very different from what made some others competitive in the 20th century. And a lot of those have to do with IT and our so called ‘intellectual approach.’ This is not some armchair analysis by an IT industry magazine. This is what the same report says, “Perhaps more surprising is that India is now positioned at number two—and gaining an even stronger foothold on that position over the next five years. India’s rich talent pool of scientists, researchers, and engineers as well as its large, well-educated English-speaking workforce and democratic regime make it an attractive destination for manufacturers. Since the mid-1990s, India’s software industry has escalated to new heights and post-economic liberation has also opened a pathway to unprecedented market opportunities for Indian manufacturing. Moreover, beyond low-cost Indian manufacturers gained experience in quality improvement and Japanese principles of quality August 15, 2012 | 75

Manufacturing

MES & Digital Manufacturing As an idea, Manufacturing Execution Systems (MES) is not new in India. Many large manufacturing companies have gone for it. According to different estimates, MES market in India is roughly about $5 bn in FY12. However, much of this is in the oil and gas industry, not included in this analysis. Digital manufacturing is a comparatively new idea. According to the definition provided by Siemens, a major player in PLM solutions. In a way, digital manufacturing is briding the gap between today’s PLM solutions and the actual shopfloor processes, enabling the exchange of product-related information between design and manufacturing groups. It reduces time to market significantly. In India, Tata Motors was one of the first to go for it and today, many others have deployed it. In case of Tata Motors, it has been estimated to save cost and time between 20-30%. While it is difficult to put a number to the market size yet, with engineering-led manufacturing being the prime driver of growth in India, digital manufacturing will come as a natural fit. Many of the new manufacturing units may debut with it from day one.

management, with the largest number of Deming Award winners outside of Japan. The country is also rapidly expanding its capabilities in engineering design and development and embedded software development, which form an integral part of many modern-day manufactured products.” As the report notes, engineering design and embedded software development is becoming an integral part of manufacturing now. So, India will compete creating new rules and not just by becoming a little lower than the other destinations. “Strength in research and development—paired with engineering, software, and technology integration abilities—are viewed by global executives as a vital element of the talent-driven and innovative manufacturing enterprise of the 21st century,” the report further adds, talking about India. While the present analysis will restrict itself to the traditional enterprise IT while estimating the IT spend size, the value that 76 | August 15, 2012

IT brings in to manufacturing, going forward, will need to be measured in a very different way, as most manufacturing companies will add significant design and engineering capabilities to themselves, and those functions are completely IT-leveraged.

The Dynamics

The Indian manufacturing sector accounted for 15.3% of the GDP in FY12, according to recently released data. With a growth of 2.5% over the previous year, size of Indian manufacturing stood at `795,984 crore in FY12. At an average exchange rate of `48 per USD, that is only $166 bn, excluding mining. Out of this, close to 15% is accounted for by the informal sector. So, the formal manufacturing sector accounts for `676,586 crore or $141 bn. Manufacturing can broadly be divided into 2 sub-segments: Process manufacturing and discreet manufacturing. But a better classification, especially from the point of view of their IT adoption, is to look at them as visit www.dqindia.com

manufacturer of consumer goods and capital goods. Over the last few years—especially since the reforms started showing results—we have seen the strategies of the two sets of companies evolving along two different paths. Capital goods, metals and all such industries continue to see them as ‘manufacturing’ companies and the thrust is on efficiency and productivity with technology being seen as an enabler of more efficient operations. On the other hand, the consumer goods companies are establishing themselves as customer focused companies and their strategies are evolving around that. Their approach to technology is also reflecting that change. They are looking to deploy more IT on the customer side. For some industries, that has crossed a critical threshold and they have almost transformed themselves to completely consumer companies.These are typically in the areas of high-value consumer goods, that are differentiated. While the change happened in some areas like white goods decades back, one industry that has recently seen this change is automotive—which is looking beyond supply chain and ERP to try out new customer focused applications, including in internet and social media. For that reason, automotive is treated separately as a vertical in this issue.

IT Adoption Trends

Not only are there huge differences between the large and small players, there are differences in outlook towards IT between different sub-sectors of manufacturing. But most large players in sub segments that are large and capital intensive have all completed their core IT demployment such as ERP and supply chain. While

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Manufacturing

The Global Brigade (The manufacturing industries that are likely to go for global markets) Traditionally, gems & jewelry and textiles have dominated India’s exports. In recent years, exports of engineering goods and chemicals and pharma sectors have grown very fast. In recent years, engineering goods have emerged as the largest sector from India when it comes to exports. While gems and jewelry is still the second largest segment, chemicals has become the third largest segment, followed by textiles and textile products. These 4 segments account for more than 90% of the manufacturing exports from India. While the prime reason for gems & jewelry and textiles demand from India in global markets is because of their ethnic values, for the other two, it is definitely not so. It is clearly their global competitiveness that make them stand out. But with the new emerging dynamics, there are certain industries that are looking at global markets for their growth. And if we go by the reasons given by the US Council for Competitiveness and Deloitte report cited in the story, there are certain industries that could look to be more competitive in near future. The report identifies two reasons why global executives are looking at India for their manufacturing strategy. One, of course, is its engineering prowess. The second is its ability to offer a local market where new products could be tested. India, with an extremely heterogenous demographics (multiple languages, lifestyles, income ranges), offers a good microcosm of the emerging world to product makers for testing their products. This too is driving many to experiment in India. And it is already happening. Here is a list of some segments which are becoming more global in their outlook. As you can see, almost all of them are driven by one or both of the two reasons cited above. The reason we discuss these industries is that these are the verticals within manufacturing that will see a lot of action in terms of leveraging technology to enhance competitiveness.

Aerospace:

This may look surprising coming on top—though alphabets determined the sequence—as India has not been even a minor aerospace base. But here too, it is the dual forces of local demand (India’s big MMRCA purchase plans and the associated offset requirements) and strength in space research, that are beginning to create an opportunity for India. This industry is likely to go for heavy automation and a lot of PLM/design products.

Auto Components:

It is already fairly global and with engineering design happening out of India, in many cases, we are seeing end-to-end design-tosourcing deals which are boosting local manufacturing. An interesting segment to watch. And one of the first segments to go as a whole for big manufacturing automation and IT overhaul.

Automotive:

There are multiple reasons—local demand/test market, engineering capability, and the need for a new low-cost research-to-manufacturing base that is driving the global auto industry to India. With Nano as a showcase and Carlos Ghosn as brand ambassador for frugal engineering, it could be India’s biggest story of success. While the IT usage of this segment is already high, increasingly, we will see more deployment of analytic tools, sophisticated shopfloor systems.

Engineering Goods/Machine Tools:

Already the largest exports segment from India, engineering capability is what is boosting the segment. While the basic ERP is there, in the long run, it has to go for efficiency, in addition to knowledge. An overall big market for IT in the medium term.

Electronics/Semiconductor:

Companies like Nokia have proven to the world what India could do in electronics manufacturing. With government determined to bring in semiconductor manufacturing, another component of the ecosystem will be in place. Globally, this segment is one of the most sophisticated users of IT and there is no reason why it will be different in India.

Medical Equipment:

It may be the dark horse. Theoretically, both the major reasons for India’s manufacturing competitiveness, engineering, and ability to test locally before taking it global, hold true for this segment. It is a little long-term dream to talk specifically about IT.

Chemical & Pharma:

After the initial run, in the last 5 years or so, pharma has not gone for major investments in IT. While basic systems are there on the supply chain/manufacturing side, global pharma industry is today one of the most sophisticated users of analytics and planning tools. This remains a big opportunity for those solutions in India too. 80 | August 15, 2012

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Manufacturing

the ecosystem/sub contractors are still not IT savvy in all cases and the supply chain optimization journey continues, there are some areas that are getting attention as far as IT deployment goes, cutting across all sub-sectors. One area that is seeing a lot of interest is integration of MES systems with enterprise IT for the purpose of turning the IT system into a decision support system. In some industries, the companies are trying to integrate their PLC/SCADA systems with ERP. Many others are starting with centralizing monitoring and management of the shopfloor systems. Mobility is playing an important role in many of these solutions with handhelds in shopfloors being deployed to capture data. But this is still in the experimentation stage and except for in some industries, these may not go into next level. Asset optimization and ensuring availability/uptime is a top-ofthe-mind issue for most manufacturing set-ups. But traditionally, it has been done manually. Increas-

Digital manufacturing is the use of an integrated, computer-based system comprised of simulation, 3D visualization, analytics, and various collaboration tools to create product and manufacturing process definitions simultaneously ingly, IT is being applied there. One new trend being seen across all sectors is an increasing sensitization towards sustainability and energy management. Three factors—cost, social responsibility, and the possibility of imminent regulatory thrust—are driving this. Most large companies are trying to measure their carbon footprint at an organi-

Performance of Selected Sub-segments CAGR (FY05-12)

Sub-segments Textiles

Wood Products Food & Beverage

Manufacturing (Overall) Basic Metals Machinery and Equipment

Motor Vehicles Within manufacturing, the performance of various sub-sectors varies significantly

82 | August 15, 2012

visit www.dqindia.com

Source: IBEF, Central Statistical Organization, Aranca Research

zational level, plant level and translating that to product level, as is being done in the developed countries. We expect a lot of IT deployment to happen in this area in the near-to-medium term. Like all industries (not just manufacturing), the senior management is now beginning to ask the CIOs to help them in getting visibility of what is happening on the ground through IT. That is going to be the single most important driving factor for IT deployment in manufacturing in the next few years. It means deployment of analytics and BI for sure, but unlike in some industries such as consumer products, retail, and banking, where data is being captured in some form or the other, and the CIOs just have to integrate them, in manufacturing there are blind spots and we expect those areas seeing some basic IT deployment so as to integrate with the rest of the enterprise. In some sub-sectors like food processing, gems and jewelry, those kind of deployments have already started. As pointed out above, some industries, that are more focused on consumer side, are begining to invest on customer side—in CRM, analytics, branding and such areas. The trend is likely to be more prominent this year. Manufacturing automation as an idea in India is still restricted to a few sub segments. While we do not see major changes to that this year, with more manufacturing industries going global (see Box, The Global Brigade), that will be a must for bringing in efficiency in production process and thus help in raising their global competitiveness. One new area that will see a lot of action with India becoming a design-led manufacturing base is investment in PLM and design

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Manufacturing

Outlook on Indian Manufacturing Sector for 2012-13 —Mohan Verma, executive director, consulting, PwC India

Key Trends in the Industry n Rupee depreciation and high domestic inflation are exerting sustained cost pressure on account of higher cost of imported raw materials (esp. commodities such as coal, oil & petroleum derivatives), labor wages, etc. n A sluggish global economy and rising protectionism, is negatively impacting demand—manufacturers are reporting lower volumes and drop in new orders n Volatile demand, lack of clarity on global recovery and domestic reforms is slowing down strategic decisions on expansion, consolidation or acquisitions.

Opportunities in the Industry n Indian manufacturers should consider consolidation or agglomeration through strategic tie-ups and leveraging shared infrastructure— this will help the industry to rise up the product value chain while easing cost pressures for all players n Chinese manufacturing sector has started contracting due to declining global demand—Indian manufacturers need to position themselves quickly to leverage opportunities for new suppliers when global demand bounces back

Key Challenges n Lack of decisiveness by GOI on any major reforms that could reshape markets and industries n Volatile political climate leading up to the 2014 general elections could scuttle any major reforms that will boost global investments n Infrastructure (esp. energy and transport) deficit that impedes optimal capacity utilization and supply chain effectiveness n Crawling pace of policy implementation by central & state governments–eg, National Manufacturing Policy n Sustained financial pressure on manufacturers due to high input costs, interest rates and volatility in forex markets—will stress working capital requirement and possibly stall expansion plans n While domestic market could cushion the blow seen in the export market, truth is domestic market is also experiencing weakness

Predictions for the Next 12-18 Months n Weakness in the manufacturing sector is expected to persist over the next 2-3 quarters in view of the volatile and unclear direction in the domestic or international economies n While interest rate cut could be expected in 1-2 quarters, inflationary pressure is likely to continue over the following year n Manufacturers will continue to experience softness in demand and production could therefore decline; however it is expected that some manufacturers will use this opportunity to explore flexible production lines and thus expand product portfolio on existing capacity n Global investor sentiment will continue to remain weak till end of 2012

tools. In some industries such as automotive, it is already happening. Aerospace is one area where action is expected. In addition, many other industries such as capital goods will see investment in those products, if, as pointed out by the report by Deloitte and US Council of Competitiveness, India really leverages its engineering and R&D strength to surge ahead in manufacturing. 84 | August 15, 2012

IT Spending

The big question. How much did manufacturing industry spend on IT collectively? Our estimates show that contrary to the big figures that is floating around in the market, the manufacturing industry (excluding mining/oil), as a whole spent, about `9,150 crore on IT in the year FY12. Calculated as a percentage visit www.dqindia.com

of sales, it comes too be 1.3% of manufacturing industry sales in the organized sector—not bad as all, for a country like India, where banking industry spends just about 2.5% of sales on IT. But the average, at the end, is an average. It is because of significant spending by a few large corporations. This does not include the spending on manufacturing execution systems (MES), digital

DATAQUEST | A CyberMedia Publication

Manufacturing

Indian Manufacturing: Over The Years Size (`crore), Growth (in %) 3%

9% 5% 3%

663,847

680,443

713,104

776,570

795,984

FY08

FY09

FY10

FY11

FY12

Source: Economic Survey, MSPO

Except for in FY 11, manufacturing has always had had a lower growth than overall GDP in recent times

DATAQUEST | A CyberMedia Publication

Manufacturing: IT Spending IT Spend (`crore), Growth (in %) 5%

9,150

9,562

FY12

FY13

Source: DQ Estimates

manufacturing, and such manufacturing IT systems. Despite all such talk on level of sophistication rising, more than two-thirds was spent on IT infrastructure and maintenance while the rest went to applications. Within applications, it is still basic ERP that had the lion’s share. The first quarter has not shown encouraging signs, as far as growth is concerned. But with Prime Minister Dr Manmohan Singh going all out to repair the economy, manufacturing may get a boost. While it is difficult to estimate FY13 spend on IT, going by present situation, in the most likely scenario, IT investment will grow by about 4.5%. Most of it would be on applications and maintenance and on expansion, with little capital refresh. In fact, those companies that are still largely under-penetrated by IT, are expected to be go for cloud solutions. In some industry sub sectors such as food processing, gems & jewelry, small textiles, this trend is already visible. An interesting change is

The IT spend will be mostly in maintenance and applications while smaller companies may go for cloud solutions

taking place in the budgeting. Large manufacturing companies are now trying to link their IT investment with performance and IT budgets are being fixed as a percentage of EBITDA and not as a percentage of revenue. While that will make IT investment linked more to the performance, for the IT industry, it means more fluctuations in IT budgets as EBITDA is more volatile than sales on a y-o-y basis. n visit www.dqindia.com

August 15, 2012 | 85

Retail

Continuing to Grow

In terms of margin, Indian retailers are way above the large retailers in the West and driving growth is far more top-of-the-mind than trying to improve margins 86 | August 15, 2012

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Retail

othing is a more visible manifestation of the growing affluence in an economy than growth in an organized retail. With an economic growth that is among the best in the world, it is not surprising that India has seen accelerated activities in an organized retail. Not only do the early entrants such as Shoppers Stop and Pantaloon Retail (owner of Big Bazaar) continue to grow, almost all major business groups such as Tata, Reliance, Aditya Birla, RPG, and Bharti have entered the business. India features at 5th spot in the Global Retail Development Index 2012 of AT Kearney. A more tangible indicator of the activity happening on the ground probably is actual development in shopping centers. According to a June 2012 report of global realty consultant CB Richard Ellis, all the top 3 Indian cities— Mumbai, Bengaluru, and New Delhi—feature among the most active cities in this aspect, based on the total area of completed construction of shopping centers in 2011. Chennai and Hyderabad join the top 3 cities when it comes to shopping centers under construction. In fact, Chennai leads Mumbai and Bengaluru, denoting it may soon be among the top shopping centers. But all these activities in the organized retail notwithstanding, the penetration of India’s organized retail still remains very low. Yet, India remains one of the markets least penetrated by organized retail. Only about 6% of the India’s estimated $450 bn retail market is organized, as compared to 20% in China, 30% in Indonesia, and 55% in Malaysia, according to a report by India Brand Equity Foundation (IBEF). The low penetration of DATAQUEST | A CyberMedia Publication

organized retail is a combination of culture, regulation, and infrastructural issues. The organized retail industry sales in India—including all segments—stood at $27 bn in 2011-12. According to estimates by research firm JuxtConsult, which conducts the annual India Online survey, the online retail market in the same period was about $0.6 bn. In fact, the online retail market—popularly called non-travel e-commerce in India—is still very nascent. India, which features among the top 5 in AT Kearney’s retail development index cited above does not even feature among the top 10 when it comes to the same firm’s global e-comerce index, released recently, it is the only BRIC country not to feature among the top. Despite the low penetration of organized retail and the fact that e-commerce is yet to become a major retail channel, the growth potential remains very high in the near to medium term, as evident from the high interest shown by the VC community in both offline and online retail. According to IBEF, India’s retail market is expected to grow at 7% over 10 years, reaching a size of $850 bn by 2020. By that time, the share of organized retail is expected to be 24%, from today’s 6%. That means a growth of 25% y-o-y growth for

Key Takeaways

n A report by IBEF states that India’s retail market is expected to grow at 7% over 10 years, reaching a size of $850 bn by 2020 n Indian large retailers have invested on standard technology rather than home-grown applications which require heavy maintenance cost and are vulnerable to revenue leakage and inefficiency visit www.dqindia.com

August 15, 2012 | 87

Retail

Growth of Retail Sector

IT Spend (Offline Retail) (In `crore, Growth%)

(All figures are in US$ bn)

368

425

450

FY06

FY08

FY10

FY12

these segment. While there are policy roadblocks such as delay in allowing FDI in multi-brand retail, the outlook for this sector remains bullish.

Applying IT

Like many other sectors of the Indian economy, the late development of Indian organized retail has resulted in Indian retail players leapfrogging in terms of applications of technology. In developed markets, most large retailers began well before development of some of the today’s technologies and more importantly before businesses fully realized the value that IT could bring into a business. In developed markets, IT, at that time, to some extent even now, was primarily an automation enabler; an efficiency enhancer. So, most of them, when they looked at IT, applied it to enhance efficiency in areas that pinched them most—supply chain. For quite some time, the role of IT in retail in developed markets remained restricted to front office automation, supply chain, and to some extent in loyalty management. It is only now that they are realizing its potential as a tool to drive sales, create reliable forecasting, and 88 | August 15, 2012

1,800

2,150

FY12

FY13

Source: DQ Estimates

321

Source: IBEF, DQ Estimates

19%

Like many other sectors of the Indian economy, the late development of Indian organized retail has resulted in Indian retail players leapfrogging in terms of applications of technology enable decision making at different levels. Large Indian retailers, on the other hand, have gone for all these simultaneously. Apart from the late start, what probably has prompted them to deploy IT in all areas—especially in customer facing and decision making functions—is that, unlike the mature markets of developed countries, India is a growth market and expansion is the top-of-mind issue, not margins. In fact, the 8-12% margin that Shoppers Stop and Pantaloons retail make, is way above what large retailers in the West do. So, visit www.dqindia.com

for an Indian retail CEO, driving growth is far more top-of-mind than trying to improve margins—not to mean that protecting margins is not important. Interestingly, smaller retailers (especially those that operate multiple, small private label stores) too have gone for some kind of customer relationship management solutions, with some analytics capability, from very early on. In fact, this has given rise to small local IT product companies. No other vertical has so many niche IT players playing in the Indian market as retail. That speaks of the sustainability of this trend. Most large retailers have their financial ERP/SCM (merchandise management) systems in place. They are now going for upgradation/revamp of the same as well as investing on niche applications. A look at the technology investment of Shoppers Stop, arguably the leader in technology deployment in the retail segment, gives an idea of where the investments are going. According to its annual report, it upgraded its JDA MMS, implemented Hyperion BI, upgraded Oracle Financials, entered into an outsourcing agreement with IBM, invested on an EMC back-up with deduplication, and invested on governance/compliance solutions. The fact that it has given a detailed listing of its technology investments in its annual report shows how much strategic importance it attaches to technology. Like in some other sectors, in retail too, most Indian large retailers, have invested on standard technology rather than home-grown applications which require heavy maintenance cost and are vulnerable to revenue

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Retail

Outlook on Indian Retail and Consumer Sector for 2012-13

—Rohit Bhasin, partner, leader retail and consumer, PwC India

Key Trends

The economic uncertainty and rising inflation are increasing the appeal for private labels. Most Indian retailers are bullish about the success of their private label for food and nonfood categories. They are launching new labels, enhancing private label portfolios, and launching promotional offers to support their brands. E-retail has opened up huge choices for consumers, not just in terms of what they buy, but how they buy it. Indian consumers are generally perceived as price-driven and valueconscious. The Indian consumer is evolving into a more quality conscious consumer and someone who is not afraid to try out new products or new ways of buying them. With increasing number of retailers entering the Indian market, product innovation and pricing will be the key differentiators.

Opportunities

Health and wellness is one area which is occupying a lot of consumer mind space. Wellness today is not just a ‘metro’ phenomenon. Young consumers across tier-2 and -3 cities and even pockets of rural India are today seeking wellness solutions to meet their lifestyle challenges. Retailers need to formulate robust strategies for the largely untapped growing emerging middle class and the rural Indian segment. Localization is the key to reach consumers in India’s diverse socio-economic circumstance.

Challenges

Infrastructure still remains a key challenge for the sector. India is a large and fragmented country and the absence of strong infrastructure and logistics systems make it challenging to reach consumers located across vast distances.

Industry Outlook

In single brand FDI, the government is working around some of the sourcing and other challenging clauses keeping in view the demands of global players and the best interest of Indian public. In multi-brand FDI, the government is trying to build a political consensus for its approval. Once these are resolved, the sector is set to witness the entry of many global retailers eyeing the Indian market. Another key milestone on the wish list for this sector is the implementation of GST. This is likely to be a big boon for the retail sector since it will allow retailers to make use of a seamless credit on all input taxes and pass on the benefit of these tax savings to consumers.

leakage and inefficiency. We expect that most of them will go for outsourcing in the next 2-3 years for back-end infrastructure and systems, while in-house teams will shift their attention to business enabling applications. However an equally big opportunity for the IT vendors lies DATAQUEST | A CyberMedia Publication

in automating those outside the radar. They are some new niche retail stores (chains as well as individual stores), kirana stores being revamped by the younger generations in families that run them; and sometimes even big stores doing high volumes of business but restricted to one geography. Most of them would visit www.dqindia.com

August 15, 2012 | 89

Retail

like to be organized in some way or other. One of the biggest trends seen is that many of them now want to make the shops more customer-friendly by allowing more space for movement/billing, etc, as compared to traditional model where 80% of the store space being allocated to inventory. For this to happen without significant addition of space means managing inventory better, with distributors now more that willing to oblige to demands of more frequent replenishment. IT can help them in this objective. The large garment/jewelery stores on the other hand want to formalize their customer relationships. There are unique needs but a little customization and leveraging cloud model can open a great opportunity in this segment of the market. There are examples of older but reputed niche stores having dramatic increase in sales using cloud model, with exceptionally high RoI. The online retailers are still on the investment phase as far as the business goes. Since there is an IT-enabled business, their investment on IT is extremely high, if one measures the spend that they incur on technology talent. However most of them have gone for outsourcing logistics, which means they do not have to spend much on supply chain. Since web as a channel offers most of the abilities such as customer segmentation, analytics, etc, inherently, they do not have to spend explicitly on that. Most of the traditional IT vendors who are trying to get into that space, price themselves too high to offfer marginal increase in value. It is too early to report or predict a definite IT trend there, though most of the start90 | August 15, 2012

Like in some other sectors, in retail too, most Indian large retailers, have invested on standard technology rather than home-grown applications which require heavy maintenance cost and are vulnerable to revenue leakage and inefficiency

ups in this space do attach a lot of importance to ‘technology’ around the web and mostly have in-house teams. However offline retailers who are now exploiting this channel may go for technologies that will try to have common sourcing, storage, and supply chain while taking a unified view of the customer irrespective of whether he shops in the store or the website. That has, by and large, not happened yet.

How Big is IT?

According to our estimates, offline retail invested about `1,800 crore on technology. Since, this calculation is based on information from both demand side (the retailers) as well as suppliers, this is not strictly by what is called organized retail. This includes small PoS solutions by traditional grocery stores and pharma stores as well. But a significant percentage of this investment is by organized retail. That makes retail one of the highest spenders on IT visit www.dqindia.com

among all verticals where the basic product cannot be converted into electrons and waves (like banking and telecom). This does not include the IT spend by online retailers as there is very little demarcation between IT and non-IT in many of those companies. We expect the IT spend in retail to grow by 19% to reach `2,150 crore—that is the highest growth we foresee across sectors. This forecast is based on the assumption that a decision on allowing multi-branded retail not to happen by December 2012. This is primarily on account of expansion by large players and investments by smaller players, though some upgradation and investment on new applications will also take place. The technology areas that are likely to see most action are n BI and analytics by large retailers n Investment/upgrataion of SCM by mid-tier vendors n Experimentation on mobile technologies n Loyalty management solutions n Cloud will be leveraged to deliver many of these applications to small retailers n We do not expect the GST rollout to happen this year. So any customization to comply with that is not expected this year In retail, the ability to derive from value is restricted only by imagination. Right from product display to signage and loyalty programs to merchandizing, IT can play a huge role here. India could well be a market where a lot of those experimentations may happen and get exported to the rest of the world, especially other emerging markets. Meanwhile, e-commerce remains another potentially explosive opportunity. n

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Telecom

A Lot of Potential

Telecom is already one of the biggest spenders on IT. With the lines blurring between telecom and IT, expect more

he telecommunications services industry, in the last 18 months or so, has hit the headlines for all the wrong reasons: A big scam that saw the minister-in-charge being sent to the jail; some explosive tapes associated with it that questioned the credibility of some of the big businessmen and media persons in the country; and a few business partnerships falling apart, DATAQUEST | A CyberMedia Publication

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August 15, 2012 | 91

Telecom

along with other controversies such as operators reporting higher than actual mobile subscribers base and the like. Yet, despite all the bad news surrounding it, the telecom services industry in India managed to grow 7% in FY12, to reach `182,459 crore, according to estimates by VOICE&DATA, sister publication of Dataquest. This was driven entirely by mobile services segment that accounts for close to two-thirds of the overall industry. Mobile services grew 17% in revenue terms, adding more than 107 mn new connections. However the scam and the cancellation of licenses—with foreign investors not too sure about in which direction things will move—the prevalent mood in the industry is that of confu92 | August 15, 2012

The telecom services industry in India managed to grow 7% in FY12 and this was driven entirely by mobile services segment that accounts for close to two-thirds of the overall industry sion, if not hopelessness. That has taken its toll on the business too—including in the star performer, mobile. Last year was the first full year that even after number portability was too slow to take off, though it accelerated later. 3G, launched visit www.dqindia.com

with much fanfare, accompanied by some high-pitch marketing campaigns, was another non-starter, with the active user base by the end of the year not even touching 5% of the total mobile subscribers’ base. While high prices get the blame, it is too simplistic to assume the main reasons for that. Lack of speed, lack of applications, and the operators’ own indecisiveness in the wake of introducing the so-called 4G services are bigger reasons for the lack of success. The wait for 4G just continues. With decisions for license cancellations as well as no clarity about policies, companies are holding investments back, sometimes even in critical areas such as network expansion. Last year saw QoS dropping significantly. With more competition, it

DATAQUEST | A CyberMedia Publication

Telecom

Outlook on Indian Telecom Sector 2012-13

—Mohammad Chowdhury, leader telecoms, PwC India

The Indian telecom industry is going through an interesting phase. Acquisitions in urban areas have slowed down and operators are looking at other geographies and services to maintain revenue growth. While there are significant opportunities for continued growth, an uncertain regulatory environment and structural issues have to be overcome.

Opportunities in the Industry

Rural teledensity is at 37% and has potential to drive growth for the next 2-3 years. The rural subscriber seeks value, however, does not generally indulge in deal seeking behavior and would have a better age on network and yield. Thus, there are opportunities on being the first entrant in rural markets and gaining customer loyalty. Among those using data services, rural subscribers also exhibit higher consumption since mobile data is often their primary access to the internet. However there is a lack of localized content in vernacular languages to cater to their needs and operators/ VAS providers have an opportunity to meet this need by creating an ecosystem for vernacular applications. Mobile broadband is also viewed as the next driver for growth in telecom. While the initial uptake of 3G services was slow, it is gaining pace driven by price correction, smartphone penetration, and better coverage. The proliferation of mobile broadband also brings forth opportunities in mobile health, education, and governance which can be tapped through partnerships and jointly go to the market with players in these verticals.

Key Challenges

Meeting these opportunities presents operators with a diverse set of challenges. Operating profitably in rural markets needs a bare-bone service structure with radical business model innovation. Ecosystem creation for localized content and applications requires a platform encouraging developers to quickly create applications for small user sets and make profits. Mobile broadband will grow but risks being commoditized thus relegating value to the Over the Top (OTT) players.

Predictions for the Next 12-18 Months

Over the next 12-18 months, the regulatory uncertainty may partially be clear bringing focus back to growth. While the rollout in rural areas will continue, operators might focus more on base management to optimize value from existing customer sets and retain profitable segments. We also expect more launches from operators in the areas of mobile health and education to monetize broadband services better.

seems, finally, the industry is seeing the ‘Rule of Three’ unfolding for itself, what with both Vodafone and Idea growing much faster than the leader, airtel, and grabbing market share. For the uninitiated, the ‘Rule of Three’, is a market phenomenon, suggested by marketing guru, Jagdish Sheth and Rajendra Sisodia, which states that in a mature DATAQUEST | A CyberMedia Publication

market, there will normally be 3 major competitors and several others, which will only succeed if they are able to create some niche for themselves. That means Indian telecom market is now close to a very mature market. The success of companies like MTS in a segment shows that with a niche positioning, even a new provider can succeed. visit www.dqindia.com

August 15, 2012 | 93

Telecom

ingly turned to outsourcing as the predominant IT management technique—with all but one large private operators not going for it. It is difficult to say, however, whether outsourcing is the cause of effect of the increasing IT-ization of telecommunications.

Where’s IT?

Key Challenges

 3G, launched with much fanfare, accompanied by some high-pitch marketing campaigns, was another non-starter, with the active user base by the end of the year not even touching 5% of the total mobile subscribers’ base.  Lack of speed, lack of applications, and the operators’ own indecisiveness in the wake of introducing the so-called 4G services are bigger reasons for the lack of success.

The story of fixedline business is worrying. With plain vanilla voice telephony almost entirely switching to mobile, the segment should have found newer avenues such as consumer broadband with content and applications, small business solutions, providing pipes for cloud, data centers, and so on. However almost all fixedline service providers have found their sweet spot in plucking the low-hanging fruits—providing fatter and fatter pipes to large enterprises, sometimes with a little value addition. While all that is being experimented with, the segment is yet to find its killer app and continues to shrink. 94 | August 15, 2012

The good thing is whether it is fixedline or mobile, all the solutions that the industry is experimenting with, to get out of the sticky situation, is IT and at the core of it there are two things. One, despite the prevalent slowdown in the industry, IT can still grow in telecom, as it penetrates more and more into core of telecom technology. Two, as we realized while doing this estimation—it would be increasingly difficult to separate IT and telecom technologies. Maybe, the reason why the most visible trend in the telecom industry as far as IT is concerned is that this is the only vertical that has overwhelmvisit www.dqindia.com

Telecom is the only segment other than banking in our analysis, where the basic product can be converted to electrons and/or waves. While the overall spending on IT may still be less in telecom, as compared to banking, it already has gone past banking when it comes to IT spending as a percentage of revenue. According to our estimates, the telecom industry spent a total of approximately `5,300 crore on IT in FY12, and is likely to see a growth of 13-14% in FY13, despite the confusion and slowdown. As pointed above, it is the penetration and not expansion that will drive the growth. Notice that as a percentage of the total industry revenue, it is close to 3%. And that is significantly higher than even banking’s spend on IT, though what explains this is, in banking, there are different types of banks and the disparity among them is very high. That is not the case in telecom. Contrary to popular belief that everything is outsourced in telecom, the total outgoes to outsourcing providers out of this is less than half. The rest is what is spent on areas that are ‘strategic’, ‘pilot’, or ‘part of the solution’. All IT spending by telecom service providers can be broadly classified into 4 areas: OSS/BSS (the traditional IT application areas); enterprise IT (same as in other industries but increasingly being integrated with BSS and OSS); new services (such as

DATAQUEST | A CyberMedia Publication

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Telecom

Growth of Telecom

IT Spend in Telecom

18%

171

183

FY10

FY11

FY12

(All figures are in `thousand crore)

VAS); and solution offerings with IT at the core (SaaS, IaaS, data center hosting, etc). Enterprise IT spending for a telecom operator is increasingly targeting areas hitherto not penetrated, such as efficiency of field force, energy management (energy is a big spending head for a telco), and providing predictive input for decision making. But the way it is different is that since all actual business (that is customer usage and network) is already generating huge volumes of data, the expectation is huge; data collection per se—a challenge in most other industries—is not a problem at all. Most telcos are spending on this front. Solutions include BI and analytics. While no major investment is being made on basic OSS/BSS systems—not because they are satisfied with them—but because the migration is a big task and most operators are continuously adding to the capability, especially on the BSS side. Newer CRM apps, customer analytics, and even social media interfaces are being experimented with, though the actual usage of social media is still restricted to branding and grievance management. It may be noted here that all the large operators are among the most 96 | August 15, 2012

5,300

6,013

FY12

FY13

Source: DQ Estimates

145

Source: VOICE&DATA

13%

(All figures are in `thousand crore)

With consumerization of IT in enterprises as well as greater penetration of newer consumer devices, the industry needs to quickly innovate, looking beyond building fatter and fatter pipes, and becoming a gatekeeper to a collection or share of anyone who innovates responsive brands in the social media circuit—especially Twitter. The third major area is the creation of new services. Traditionally, not called IT, we have also not included this in our estimation of the IT spend. Most operators are worried about the way 3G is unfolding. They now realize the need for applications and content. This is where the traditional IT outsourcing cannot help much. A lot of experimentation is happening, though any visit www.dqindia.com

killer app has not emerged. Since most businesses are now going for some kind of mobility, there is a thought that may be 3G solutioning for them would unlock its value; but the efforts of most operators are focused on searching for the ‘potentially big’ killer consumer apps, which continues to evade them. If 4G comes, they can no more ignore the business and government applications. Finally, fixedline operators are realizing that the only way to have margins is by providing enterprises what they want. Most fixedline operators have gone ahead building enterprise IT offering to their customers—yes, they compete with and complement the typical IT infrastructure players—by building huge data centers and offering data center hosting, applications as a service, and even infrastructure as a service. Reliance and airtel have been very aggressive on the infrastructure outsourcing front while Tata Teleservices has built a solution portfolio to offer a lot of applications as a service. We believe that IT in telecom is a journey, as the lines blur even further. With consumerization of IT in enterprises as well as greater penetration of newer consumer devices, the industry needs to quickly innovate, looking beyond building fatter and fatter pipes, and becoming a gatekeeper to a collection or share of anyone who innovates. If anything, they will have to actively encourage ecosystems. If the telecom industry moves out of the confusion and uncertainties, we expect it to work with emerging areas such as financial inclusion in banking, remote education, and areas such as governance and healthcare to potentially create killer solutions. A lot of IT will go into those. n

DATAQUEST | A CyberMedia Publication

CIO SERIES

BT-Cisco-Dataquest Event

Next-gen Technology Finally Making Waves After numerous discussions on the validity, need, and concerns about cloud and new infrastructure models, the clear message that came out is that the industry wants them and is working on ways to adopt them

Rukhsar Saleem rukhsars@cybermedia.co.in

ew models of IT infrastructure hold the promise of making the organization more agile, responsive, and competitive. There are also cases where IT infrastructure is aligned to the needs of specific businesses. For example, customer-centric enterprises (enterprises that have customer interactions as a lever for value) need to have flexible and scalable infrastructure. Further, these models also operate on differing economic equations, which is a key consideration in choosing one model over the other. Dataquest hosted an event along with BT to examine the potential and issues related to infrastructure models. DATAQUEST | A CyberMedia Publication

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August 15, 2012 | 97

CIO SERIES

Ed Nair, editor, Dataquest, inaugurating the event

Abhishek Mathur, DGM, infrastructure, Wartsila India

(L to R) Ed Nair, editor, Dataquest; Prasanto Kumar Roy, chief editor, Cybermedia; Harsh Marwah, country lead, sales & BD, BT India

Ilango, senior manager, group IT, Aditya Birla Group

98 | August 15, 2012

Need is the mother of most of the inventions. The global as well as Indian IT industry too are witnessing the same. Mridul Srivastava, director, marketing, BT India, outlined the major trends—rise of analytics, proliferation of social media, redundancy of PCs, and consumerization of IT. Primary reasons for the formation of these trends have been the urge of enterprise and individual customers to have better service, efficiency, and convenience. Srivastava explained that, “BT has always adopted structured approach to meet these challenges and equip the industry as changing needs and trends.” The unprecedented spread of social media brings loads of challenges for the CIOS. Harsh Marwah, director, sales & business development, BT India, cited possible solutions to meet these challenges. He echoed the CIO’s predicament, “Do more with Less” and stressed on the need for end-to-end solutions. Such solutions are absolutely vital for organizations undergoing IT infrastructure transitions or planning to go into one. Mobile technology has been the major force in altering the dynamics of the operations in the enterprises. It has helped as well as challenged the existing traditional IT infrastructure to undergo transition and find newer and newer solutions to its problems. It is high time for the enterprises to marry mobile technology and work upon the need to bring fresh air to old infrastructure. Having an in-house IT department or on premise infrastructure will ensure data security is actually a myth. Professionally managed services and hosted contact centers have proved their efficiency and utility as they are easily scalable and cost effective. When you talk about infrastructure transitions, it is often about using cloud computing and some models thereof. Dinesh Verma, director, business transformation, BT India, shared BT’s learning through its experience about the cloud computing. He said, “Cloud is about adoption; it is more than just being cheaper, faster, and scalable; it is about innovation and keeping pace with technological developments; and finally it is about services, not technology only.” BT officials claimed that BT’s technology and service offerings in cloud (IaaS, PaaS, CaaS, SaaS) are geared towards not only serving its own customers but also its customer’s customer.

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DATAQUEST | A CyberMedia Publication

CIO SERIES MUMBAI

Current Infrastructure Break-up Of Organizations

Future Preference For Infrastructure

Preference For Hosted Contact Center

50%

75% 67%

85%

33%

25% 50%

25% 25%

33%

40%

9% Pure in-house data centers Managed services Operating from co-locations Dedicated hosting contact centers Cloud computing

Increased adoption of cloud based infrastructure models Managed services Increased usage of cloud apps and services Dedicated hosting

Actively seeking contact center deployment Not at all considering this option Did not answer.

Future Preference For The Organization's Infrastructure

Preference Of Hosted Contact Center

DELHI

Current Infrastructure Of The Organization

81%

67% 52%

62%

33% 43%

57%

67%

28%

33%

24%

Operating from co-locations Cloud computing Managed Services Dedicated hosting and server management

Yes No

Cloud adoption Cloud services Managed services Co-location Dedicated hosting

BENGALURU

Future Preference For The Organization's Infrastructure

Current Infrastructure Of The Organization

50%

78% 36%

36% 71% 21%

Top Concerns of the CIOs n Security n Cost Efficiency n Return on Investment (RoI) n Network Availability n Service level agreements (SLAs) n Performance Analysis n Scalability n Affordability DATAQUEST | A CyberMedia Publication

22%

21%

50%

21%

28% 50%

21% Operating from co-locations Cloud computing Managed services Dedicated hosting and server management Co-location services

Preference Of Hosted Contact Center

Cloud adoption Cloud based services and apps Managed services Co-location Dedicated hosting

Security and network availability remained the top concerns for the technical heads in Mumbai, which happens to be the major nerve center of BFSI industry in India. Whereas Delhi technical chiefs were more apprehensive about the cost involved and service level agreements (SLAs) with the users, which has major concentration of visit www.dqindia.com

Yes No Did not answer

government and corporate sector. And lastly, officials from Bengaluru, which is the IT hub of India, expressed inclination towards security and SLAs. BT and Cisco agreed with most of the apprehensions of the users but resolved the queries with the argument—organizations should first prioritize and classify their data August 15, 2012 | 99

CIO SERIES

Kashinath Shahane, senior manager, Volkswagen India

Minhaj Zia, country lead, Unified Communications, Cisco Systems India

Dinesh Verma, director, business transformation, BT India

Mridul Srivastava, director, marketing, BT India

Harsh Marwah, director, sales & business development, BT India, addressing the audience

Neeraj Jain, AVP, technology, EXL Services, raises a concern

and accordingly move on to cloud in phases. Consensus is to adopt middle path, ie, neither to move on to cloud in one go nor there is any benefit in staying away from better available technology services and platform today. With reference to major security breach of LinkedIn, Prasanto Kumar Roy validated the point that professionals are able to handle such crisis in a better way. All the leaked LinkedIn passwords had double hashed strings and the company was already using best practices to ensure any major loss. Therefore, loss was not actually so high. Another big concern in the industry is about the network availability at the last mile. No matter what ever advanced solution an organization may have but if it is not able to deliver it to its remote customer due to challenged connectivity, then its of no use. So it is important for solu-

tion providers to ensure end-to-end connectivity. To these security and network related queries, Marwah reverted, ‘BT takes ownership for end-to-end connectivity, and for that the customer should also needs to be very specific about its security concerns and expectations from the vendor.’ It is difficult for any service provider to develop pan-global infrastructure, but can partly develop, own, and manage it with the other service providers. Therefore vendors need to provide preemptive and proactive approach in case of any anticipated fallout. When the other major issue of return on investment (RoI) is concerned, cloud based model does not seem to be cost effective, in fact, turns out to be a costly proposition. Similarly, strict cyber laws pose a stringent regulatory compliance on the vendors as well as on the users.

In that case, opting for an alternate platform or customer-centric contact center demands the industry leaders to propagate awareness about the business benefits and ease of operations among the policy makers. Eventually answers to these concerns and challenges lie in adopting cloud computing in an integrated and classified manner; opting for managed services and hosted contact centers; and synchronizing and consistent use of social media. Prasanto Kumar, chief editor, CyberMedia India concluded that customers should clearly argue and then decide (on the basis of affordability and present and future needs of the business) which infrastructure (hosted contact center, managed services or cloud) model will completely or partially suit them. And accordingly opt for it to reap its maximum benefits. n

100 | August 15, 2012

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DATAQUEST | A CyberMedia Publication

CASE STUDY

Delta Ultron NT Series helps make Ripe Components more productive… Background:

Ripe Component Technologies Private Limited is a multinational company manufacturer of Mobile Devices (Mobile Cases, Mobile Charger and Mobile Battery) accredited with ISO 9001:2008, exclusively working for Samsung India Electronic Limited and is the single source vendor in India.

4% to 7% and saves on operational cost.

With Delta spreading business across verticals catering to different applications, Delta once again surfaced as a partner of choice for Ripe Components in plastic molding applications, with first of its kind of installation at Greater Noida plant of Ripe Components. 5 million Samsung handsets are manufactured with seamless support of Delta UPS.

For extremely critical loads (which cannot use utility input mains neutral), the inbuilt isolation transformer helps to generate a “freshly derived neutral” which is galvanically isolated from the input mains neutral. Thereby nullifying any input/ source electrical disturbances being reflected at the connected output critical loads on the UPS.

Challenge:

Result:

Plastic moldings are among the most demanding work environments in any industry. Equipment used in molding has to endure specific heat, chemical reactions and abrasion. Delta Ultron NT Series 20-4000kVA UPS stands up to these specific conditions, helping almost nil downtime and increase productivity. To ensure 99.9% uptime of Ripe Component’s productivity, Ultron NT has been installed at their plant which provides required reliability and efficiency. Initially Emerson pitched for Hi-Pulse model UPS for the mentioned applications. However, Delta’s goodwill and technical competency helped to get the project.

Solution:

Industrial application UPS needs to be rugged, suitable to operate in industrial environment. Manufacturers need UPS systems that are reliable and efficient which can support their critical loads and can work under extreme defying conditions. To meet the demand of Ripe Components, Delta offered Ultron NT Series three phase UPS which are available in range from 20kVA to 4000kVA. The Ultron NT series is a True Online double-conversion UPS using IGBT and featuring customized input / output configuration for various applications. Ultron NT Series UPS with in-buit isolation transformer acts as an electrical firewall between the incoming utility power and sensitive loads. With N+X parallel capability for redundancy or capacity expansion, it guarantees high availability and reliability for customer businesses. The Ultron NT series offers continued and seamless protection for your equipment even under 100% unbalanced loading conditions. The economy mode further improves efficiency by

Mr. Suhas Joshi, Director, Delta Power Solutions (India) Pvt. Ltd.

Delta has been associated with Ripe Component for over 6 years as “a single supplier” and has a strong installation base of Ultron NT close to about 4MVA installed for molding applications at their Noida and Greater Noida plants. Having good experience with Ultron NT, Ripe Component is also considering Delta products for their upcoming expansion and new projects. “We are associated with Delta for past 6 years and Delta Ultron NT UPS systems are used for our molding machine applications. Reliable performance has made Delta a standard accessory product for Ripe Components. Delta UPS performance & the after sales support has been excellent. The extra mile they walk to fulfill our needs even in odd hours has been very impressive for all these years” says Mr. Ramakant Mittal, Head- Operations, Ripe Components. Delta’s strengths are quality, support, and providing clients with outstanding products and customized solutions at a competitive ROI and TCO. Based on this association, Delta looks forward to receiving more projects from the manufacturing sector. Supported by good customer insights in solid solution offering, Delta has established itself as the power behind the most competitive manufacturers.

CIO of the Month

Fear of the Cloud

The greatest category of fear or anxiety that plagues mankind is the ‘fear of the unknown’. Early stages of development where legacy, maturity, and experiences are relatively young elevate this anxiety further. Up to an extent, even in non-cloud environments we do lock ourselves to a technology or a vendor. However the anxiety is not so severe since one knows where one is venturing and knows the extent of flexibility available in the future. The fear of lock in reality surfaces when there is limited visibility related to the way ahead. In the cloud environment today, the level of anxiety is probably a bit higher and on the other hand there is limited visibility with respect to the flexibility and options that are available. This increases the anxiety associated with vendor lock-in. In this column, we try to grab a pulse of the industry on vendor lock-in. Shilpa Shanbhag shilpas@cybermedia.co.in Product Design Services & Solution Company www.einfochips.com

Vendor Lock-in is as Old as the IT Industry Itself

—Sharat Airani, chief, IT (systems and

security), Forbes Marshall

104 | August 15, 2012

T vendor lock-in can be described as being as old as the IT industry itself. For instance, ERP solutions, laptops, desktops, etc— vendor lock-in exists even in these cases but we have accepted it. However cloud computing has assumed greater importance. Cloud being a new solution has been grabbing all the attention in relation to vendor lock-in, as it has been witnessing an acceptance drive since the last decade enabling adoption of a single solution on a common protocol regardless of the vendor. Despite the presence of Opensource, we have managed to get locked in. For example, the platforms like Twitter, Facebook, Linkedin, etc, have been able to promise better integration. Vendor lock-in as a challenge has created such an emphatic presence that it has even gained more importance than security issues. In order to prevent cases in relation to lock-in, the industry is required to have an open platform. But on a strong note, I would like to mention that companies have the tendency to purchase many solutions from a single vendor owing to reasons like discounts offered. When companies bite the bait on such important topics on the basis of discounts offered, they unknowingly have walked into a trap called, ‘voluntary vendor lockin’. Many companies using cloud computing are in for a rude wake-up shock.

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DATAQUEST | A CyberMedia Publication

CIO of the Month

Move to Cloud has to be a Thoughtful One Rather than Just Riding the Bandwagon

endor lock-in and the associated challenges depend on the model and largely going to be unavoidable. But should that be cause for real concern? Will that really hinder cloud adoption? We have seen large enterprises adopting cloud solutions. Further the issues of vendor lock-in are no more onerous than what customers already face with in traditional inhouse scenarios. Largely, enterprises are locked-in with the platform they are on. It is never so easy to migrate from one application/platform to another. I have seen the vendor playing hardball on product AMC once the initial multi-year contract period is over. You end up in fierce negotiations and compromise on numbers. On the other hand, there are vendors who clearly spell out y-o-y increase often linked with inflation index. Yes! it is going to get complicated a little more in cloud scenario. There is always a risk, more so on something which is not yet fully mature. From the vendor perspective, there are initial investments that they need to make to flatten the costs for the customers over a period of time. If a lock-in is not in place, vendors tend to lose. Adoption is not picking up not just because of this, but this certainly is a constraint for large enterprise class deployments. Customers need to have a larger 5-7 year‘s view. Questions which —Mehmood Mansoori, head, information technology, customers face are; what if the vendor is not able to HDFC ERGO General Insurance Company deliver? What if the model itself does not succeed? I have seen this hesitation in vendors in India more so because they yet have not been able to make it From customers’ perspective, the choice of commercially lucrative. And all because, they tend to business application that you would like to put on sell something like converting cloud is critical. Select few vs all capex to opex. That may be an apps or hybrid model and their attraction to some but not for interoperability with increasing many large enterprises. needs should be clearly So how do we address the identified and factored before Product Design Services & Solution Company situation? A bit of flexibility choosing cloud as a solution. www.einfochips.com from the vendors is a must. The customer needs to factor They have to figure out a way in overall RoI with a long-term to make it commercially viable view with clarity on the changing for them and be clear in their long-term proposition technology landscape and the cost impact it would to customers. A clarity and firm commitment on bring. Else, it would be difficult to estimate fully and roadmap on various aspects is a must. Needs of a wise guess is important. Customers need to have customers are going to increase, how would they a clear view of life span for a PaaS/SaaS chosen, ensure that those are fully met, and business is and a potential migration to a newer platform at the least impacted. Vendors should have larger canvass end of the life, as may be required. This may be with to support multiple technologies and commitment to the same vendor or any different one. Once these support customer’s integration needs. Commitment aspects are clear they can do better RoI estimates to upgrades to new releases as they come are and take a judicious call. necessary, otherwise, customers will be deprived of What needs to be clearly established before signing efficiencies such upgrades bring. such a deal is the exit paths that are available. In case DATAQUEST | A CyberMedia Publication

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August 15, 2012 | 105

CIO of the Month

of SaaS, migration to new SaaS platform or in-house application. In case of PaaS, portability of business app on newer platforms is required. In case of SaaS, data migration would be a real challenge, more so because of the dependency on cloud providers and their willingness to cooperate. Full documentation to enable migration to new platform would become critical. Future growth on platform must keep all these factors

in mind, otherwise, even if the contract is favorable migration would be a daunting task. The contract must have a clear commitment from the vendor to cooperate on such migration. There are lot of talks about open standard based cloud platforms. I think the standards are evolving, it will take a while, and at the end may not be effective too, to solve any of vendor lock-in issues.

Reliable and Professional User-Vendor Relation is Ideal for the Industry

heoretically, with advent of new ‘platform neutral’ solutions and standardized hardware one should be able to avoid vendor lock-in. But reality proves otherwise. Even though there are enough standards and most of vendors choose to stick to the broad standards, vendors derive differentiation with what they call ‘innovative and unique’ features. These differentiators are going to be non-standard and sometimes may provide exceptional user value. But all of them without exception are designed to be unique to the software/hardware/service the particular vendor is offering, providing customer retention; in other words, ensuring vendor lock-in. Even though most of the people feel vendor lock-in is undesirable, if the vendor is reliable and professional, vendor-user relation is managed professionally from both sides and users leverage the relationships and long-term partnering with vendor may actually be ideal situation for an industry. Whenever one talks to any decision maker about cloud adoption, the topmost concerns are about the security of data residing outside direct control of organization and vendor lock-in. Vendor lock-in concern is mainly because cloud being a new way of working, people are not aware of potential problems and pitfalls in the system. The concern is that if a cloud-sourced system does not —Shreesh Patwardhan, vice president (IT), meet the expectations, how can I move it to some other Dynamic Logistics vendor’s service or worse still how can I bring it back in. Most cloud service providers are mind during the whole exercise is not in a position to give sufficiently the age-old adage ‘Prevention is assuring answers to both the Better than Cure’. questions. One often finds third If properly handled a so-called parties offering services of vendor lock-in can actually cut Product Design Services & Solution Company migration and the questions about down the IT budget of a company. www.einfochips.com time and cost involved in such Except for a few greedy big exercises are left hazy. players, most of the service There is no quick-fix solution providers and vendors would prefer to give better rates to this problem. As true portability across vendors to steady and long-term customers. If initial selection is almost impossible to achieve, what can bring little is fairly right and both work towards building better relief to users is that all the systems evolving towards ecosystem then TCO in a long-term relation will definitely common standards will offer easier and less painful be far less than one in where there is ample portability migrations. The most important lesson to be kept in and repeated changes �� are made.� n 106 | August 15, 2012

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DATAQUEST | A CyberMedia Publication

Application and Web servers Databases

File Servers

Laptop/Mobile Handset

Mainframes

SafeNet DataSecure

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Worrisome Lifestyle

A 24/7 working environment and unhealthy eating habits are making the IT workforce more prone to chronic disorders

lmost 55% of the young workforce engaged in India’s IT and ITeS sector are stricken with lifestyle disorders due to unhealthy eating habits, hectic work schedule, tight deadlines, irregular and associated stress, says a study conducted by Assocham. With 35% of the total respondents admitting that they visit doctors at least twice a month with complaints of stomach ache, bloating, acidity, etc, while 15% of the respondents blame work related stress leading to compulsive habits like alcohol abuse, substance abuse, smoking, and chewing tobacco. What is adding to the woes is that the IT workforce is not doing much effort to come over the paralyzed lifestyle. When interviewed, 45% of the respondents across these cities said that they do not exercise at all, whereas 30% said that they exercise at least 4 days a week, while only 25% said they follow a strict diet and exercise regime. “Lack of concern for nutritional value of food, irregular food timings, and frequent snack breaks during office hours together with rampant consumption of greasy, spicy food leads to health problems like diabetes, hypertension, depression, anxiety, and cardiovascular diseases,” the study says. Many of these problems arise due to no fixed meal hours and non-stop tel108 | August 15, 2012

ephonic sessions, causing gastric problems together with fatigue and headaches. Nearly 3,000 employees in the age group of 2230 years were interviewed by the industry body’s Social Development Foundation to ascertain the extent of junk food addiction among the techies in India. The survey was carried out in Bengaluru, Chennai, Hyderabad, Gurgaon, Noida, and Pune. The employees were largely from BPO companies, IT/ITeS in the domains of FMCG, auto, hospitality, pharma, BFSI, manufacturing, energy, and infrastructure sectors. Commenting over the study, Assocham’s national secretary general DS Rawat says, “Excessive intake of junk food, lack of physical exercise, long working hours, and lack of sleep together with unbound mental fatigue is telling on the health of BPO and IT professionals in the cities.” He further says that hypertension and stress levels increase manifold due to odd working hours and unhealthy habits, consequently increasing the number of young people suffering from heart problems.

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‘Mobility seen as the biggest IT risk, says survey’ What was the purpose of the ‘Symantec’s 2012 State of Mobility Survey’? A few years ago, internet completely changed the way we did business. And now we are seeing it again, with mobile devices as the catalyst. Once mostly forbidden by IT, smartphone usage to meet both business and personal connectivity needs is growing at an incredible pace. This is further corroborated by the findings of research firm IDC which places India among the top 5 country markets for smartphone shipments by 2016. Symantec commissioned the 2012 State of Mobility survey to gauge how organizations are coping with this trend. What were the key results of this survey? According to the 2012 Symantec State of Mobility survey, mobility ranked as the leading IT risk among organizations, being cited as one of the top 3 risk areas by 40% of the respondents followed by public cloud computing, data center consolidation, and business intelligence. More than half of the organizations we surveyed see mobile computing as 110 | August 15, 2012

—Shantanu Ghosh VP and MD, India product operations, Symantec

a challenge requiring effort to manage. The main concerns include device loss, data leakage, unauthorized access to corporate resources, and malware infection. Forty percent ranked mobility in their top 3 IT risks, making it the leading risk cited by organizations. The priorities for organizations are security, reducing the cost/complexity of managing mobile computing, and supporting as many devices employees want to use as possible. Seventy six percent of respondents revealed

that they were in the discussion stage of rolling out a private ‘app store’ where employees can get officially supported applications for their mobile devices. The survey estimates average annual cost of mobile incidents for Indian companies, including data loss, damage to the brand, productivity loss, and loss of customer trust at `42.32 lakh per organization. With the number of vulnerabilities in the mobile space rising and malware threats, what are the security

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softwares and devices presently used? Today’s enterprise IT infrastructure would likely be unrecognizable to even the most progressive of CIOs from just 5 years ago. In large part, the incredible advances in mobile device technology, the massive adoption of these devices, and the BYOD trend have spurred this rapid evolution of enterprise IT. Device loss, data breach, and mobile malware are some of the chief concerns. And these concerns are not unfounded. For the 12-month period leading up to the survey, the average cost of enterprise losses associated with mobility was $429,000. There are many solutions available and considerations should include whether managed or unmanaged services are needed, the separation of corporate and personal information required, and the impact of cloud services. Mobile application management and mobile device management are necessary solutions to safeguard against the potential hazards involved with BYOD. Akanksha Singh

akankshas@cybermedia.co.in DATAQUEST | A CyberMedia Publication

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How IT Powered the London 2012 Olympics Dataquest finds out how well IT powered the games in the midst of all the glitter and the pressure to deliver the thrust needed by this mammoth event The London Olympics 2012 not only proved as the ultimate test of human endurance in sports but also became the stress test for information and communication technology. Technology often goes unnoticed and yet is absolutely critical to the success of the games. The Technology Operations Center (TOC) at the Games’ headquarters in Canary Wharf is buzzing with activity. The TOC was the command center and provided central monitoring and control for all the IT systems and telecoms supporting the games, with 450 staff from the London Organizing Committee’s IT team and key partners, with up to 180 workers overseeing operations. During the games, the TOC oversaw critical applications such as the Commentator Information System and the organizers’ intranet, as well as monitoring 900 servers, 1,000 network and security devices, and 9,500 PCs. In total

over 5,000 technology staff including 2,500 volunteers were involved in the Olympics IT. Atos was the IT services partner for the Olympic games. Atos, as the lead integrator,

computers deployed to support London 2012. Other IT suppliers involved were Omega for timing and scoring systems, Cisco for network infrastructure, Airwave for radio systems provider,

project manager, and IT operations manager has focused on 2 key IT areas namely, games management systems and information diffusion systems for the games. Atos has the experience of managing the games on 4 earlier occasions and brings in wealth of expertise and skills. According to Atos, there were 900 servers, 1,000 network and security devices, and more than 10,000

Panasonic to provide audio visual, TV, and video, Samsung for mobile communications equipment, and Acer for systems. British telecom (BT) as the official communications services partner hooked up a single communications network across 94 locations (including 34 competition venues). They provided 80,000 connections across 94 locations, 16,500 fixed

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telephone lines, 14,000 mobile SIM cards, 10,000 cable TV outlets, 5,500km of internal cabling, and 1,550 wireless access points. BT also installed a fiber network for 2,818 flats in the athletes village, making the athletes and coaches who stay there some of the first beneficiaries of superfast broadband. Cisco’s network infrastructure delivered the voice, video, and data traffic for London 2012 that was carried over BT’s communications services network. They also provided network infrastructure equipment to support the games time and administration applications on the LOCOG network. This included network security appliances, routing and switching equipment, wireless access points and controllers, IP telephony, handsets, and the call manager system via Hosted Unified Collaboration Service (HUCS from BT). Akanksha Singh

akankshas@cybermedia.co.in August 15, 2012 | 111

news

‘Increased requirement for functional safety standards fuel our growth’ How would you describe FY12 for your company? In FY12, we reported approximately 30% growth compared to the same period last year. We have also significantly expanded our engineering team and marketing capabilities over this period. What are the challenges and market trends that you have witnessed during the previous fiscal? Like most other companies, we have had to cope with the global economy, however, an increased requirement for functional safety standards such as ISO 26262 and IEC 61508, and software coding standards such as MISRA, JSF, and HIC++ have helped to

—Paul Blundell CEO, PRQA

fuel our strong growth. What are the future plans? PRQA has recently announced the certification of QA·C 8.0 and QA·C++ 3.0 with MISRA compliance and modules to the IEC 61508 and ratified version of ISO 26262 standards. QA·C 8.0 with MISRA-C:1998 or MISRA-C:2004 compliance modules and QA·C++ 3.0 with

MISRA-C++:2008 compliance module have been certified by TÜV SÜD as ‘fit for purpose’ for achieving compliance with ISO 26262:2011 and IEC 61508:2010. This certification dramatically reduces the time and cost of meeting the requirements of these standards during the software development phase. Our new QA·Verify offering leverages the success of QA·C and QA·C++, extending the functionality of these static analysis tools towards a quality management system and also extending the audience beyond the core traditional developers, and quality professionals to encompass other key stakeholders, such

as development leads, architects, project managers, senior management, and even external customers and suppliers. How would you describe the Indian market with respect to the company’s revenues? India is a key market and we have had a local sales presence here for many years. We are anticipating further strong growth especially as more companies are outsourcing (higher quality) mission-critical and commercial-critical software development to India. We are seeing a lot of traction from segments like aerospace, defense, medical equipment, consumer market, among others. SHILPA SHANBHAG

shilpas@cybermedia.co.in

Union Minister Vilasrao Deshmukh Passes Away Union Minister of Science and Technology, and Earth Sciences; and former chief minister of Maharashtra, Vilasrao Deshmukh, died at a Chennai hospital on Tuesday afternoon. He was suffering from a serious liver and kidney ailment, and was admitted at Global Hospitals and Health City in Perumbakkam. Vilasrao Deshmukh was a Member of Parliament of Rajya Shabha. He has previously held the posts of Minister of Rural Development and Minister of Panchayati Raj, Government of India and Minister of Heavy Industries and Public Enterprises, Government of India. 112 | August 15, 2012

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Olympics’ Bullies over Twitter The game is over...but it is still left over to those 140 characters where the famous hashtag helped to continue the inning. Either for better or worse, it has changed over what happened to be in Beijing 4 years ago. Where the Jamaican megastar Usain Bolt tweeted about his craving for chicken, the American hurdler Lolo Jones revealed she’s a virgin. The social network is now at the fingertips of 140 mn users and there happened to be more than 10 mn tweets mentioning the Olympics during the first few days of the games. But there is lot more to the crunchier tweets where abusive tweets became the energy

intake for many players and the fans pushed with their threatening tweets. Here are some examples. Swiss player Michel Morganella commented after Switzerland lost to South Korea: ‘South Koreans ‘can go burn’ and referred to them as a ‘bunch of mongoloids?’ A fan was arrested after a series of threatening posts, including one in which he vowed to drown

a British diver, and another in which he told the athlete he had failed his dead father by not winning. Women’s soccer goalkeeper Hope Solo launched a Twitter outburst against Brandi Chastain, the former American soccer player who is now an analyst on NBC. “It’s 2 bad we can’t have commentators who better represent the team and know more about the game,” Solo wrote. A greek triple jumper Voula Papachristou tweeted “With so many Africans in Greece, the West Nile mosquitoes will be getting home food.” However he was kicked out of the Olympics 2 days before the official opening after

he tweets about African immigrants. Athletes’ Twitter campaign objecting to sponsorship restrictions that went viral under the hashtag “We Demand Change”. It is not that everything is negative on Twitter. Far from it, many tweets also urged athletes to celebrate their achievements, commiserated with them when things go bad, and shared their triumphs. When 17-year old swimming sensation Missy Franklin won her first gold medal, she got a tweet from teen sensation Justin Bieber telling her he is her fan. He wrote, “I just died!” Franklin tweeted back. “Thankyou!” Inder Kumar

Inderk@cybermedia.co.in

Chennai Becomes R&D Hub for Dell Dell is planning to spend over $700 mn on R&D globally and also turning its R&D center in Chennai into a Center of Excellence in networking for the company. Following the acquisition of Force10 Networks in August 2011, Chennai has become a critical R&D hub for Dell’s networking business, leading transformation projects in 3 domains: Servers, networking, and storage. This will enhance its expertise in routing, switching, network operating system, network management, and reference architecture. The center will facilitate a complete end-to-end networking product development platform, which will be cost effective and value-driven with capabilities across development, design, quality assurance, product management, and support. DATAQUEST | A CyberMedia Publication

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August 15, 2012 | 113

news

‘We will grow over 100% this year’ Can you give us an idea about the range of products that Panasonic offers in India in the ICT space? Our range of products in IT and office automation, which I look after, is very wide. From cordless phones to feature phones, EPABX, fax machines, laser and MF printers, scanners, we have plasma TVs, and projectors. In security we have surveillance cameras, IP cameras, and broadcasting cameras. The focus now is to increase our portfolio. Share some highlights of Panasonic’s India achievements in the last 12 months? Last year was a very good year for us, and we grew in most of the areas. What we are doing now is focusing

—Rizhkant Jha, director, system sales division, Panasonic India

on baseline product categories which were not available earlier. In high end we have good market share, and we want that in baseline models too. Last year, with about `450 crore, we grew by over 70% and this year we are targeting over 100% growth. Times are tough but we have done fairly well so far. What were some of your big wins in the

enterprise or B2B space? In the EPABX space for instance we were known for small businesses but we got good deals in the Leela group, Reliance Communications, Tata Teleservices, and Mahindra&Mahindra. We have opened big customer experience showrooms in Gurgaon and Mumbai where even big customers are coming for the experience. With increasing focus on enterprise, are you looking at any change in your distribution model? Over 70% of our business happens through our regional distribution channels, which includes a family of over 5,000 plain distributors as well as systems integrators,

depending on the nature of the product. In in case of large customers our policy is to sell through channels. There are already strong established players in categories like EPABX, printers, scanners, and cameras. Competition will be very tough... There has been a perception in the market regarding Panasonic product portfolio and product lines. We have technically superior high-end EPABX or videoconferencing but in the market it is mostly lower end Panasonic which sells, so that is how perceptions are made. Customers often do not know and our job is to make them aware. Ibrahim Ahmad

ibrahima@cybermedia.co.in

Intel and Futures Group Collaborate for Healthcare Intel and Futures Group are transforming healthcare in Africa through mHealth solutions with eLearning. Intel technology will help create a robust electronic medical records package that will be used to track essential patient health information in rural and hard to reach areas. On August 2, in Nigeria, Intel and the Futures group will be hosting a workshop that will bring together the government, the private sector, donors, and the international development community to review current eHealth projects and national strategies in Kenya, Nigeria, and Tanzania.

Cisco to Invest $15 mn in Brazil Cisco is likely to invest $15 mn in Brazil in venture capital fund redpoint e.ventures. Cisco has announced a plan to invest over $1 bn over the next 4 years in Brazil. Redpoint e.ventures represent the first of these investments. 116 | August 15, 2012

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nEwS

Industry to Give IT Support to Kochi Start up Village IT and telecom companies have pledged institutional and technological support to foster next-generation telecom and internet start-ups at the Kochi start up village. Being in Public Private Partnership (PPP) model, it is seen as one of the key pilots by the Central Government to scale up innovation and entrepreneurship in the country. The start up village aims to promote 1,000 telecom-internet product start ups in the 18-25 age groups in 10 years. India has been able to produce only 65 incubators during the last 28 years and is now looking to leapfrog to at least 1,000 in the country.

Juniper and Riverbed Sign Tech Partnership for $75 mn Juniper Networks is licensing Riverbed’s application delivery controller (ADC) technology for approximately $75 mn. This technology partnership will enhance Juniper’s capabilities in key network domains across the enterprise, including the data center, across WANs, and consumer and business devices through new application networking technologies that better manage, scale, and optimize any application’s use of the network. Riverbed and Juniper will begin a joint effort to integrate Riverbed’s Steelhead Mobile technology into the Juniper Networks Junos Pulse client to provide a mobile acceleration solution for mobile phones and tablets. The partnership will enable both companies to strengthen their respective application acceleration.

SAP Q2 Performance Exceeds `1 bn in Software Revenue SAP Software revenue increased 26% to `1,059 mn. Cloud momentum continued with a 112% increase y-o-y in 12 months new and up sell subscription billings for SuccessFactors on a standalone basis. SAP recorded `85 mn and mobile revenue was `54 mn in SAP HANA revenue putting the company on track to meet full-year expectations of at least `320 mn and `220 mn. SAP saw significant traction in strategic industries, with financial services and retail both growing more than 60% in software revenue and solid growth across the manufacturing sectors, which grew more than 20% in software revenue. DATAQUEST | A CyberMedia Publication

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56,57

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123

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28,29

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107

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124

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August 15, 2012 | 117

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‘Unmanaged software can result in inefficient operations and overspending on licenses’ The Business Software Alliance (BSA) is an organization dedicated to promoting safe and legal digital world. BSA is referred as the voice of the world’s commercial software industry and its hardware partners before governments and in the international marketplace. Its members represent one of the fastest growing industries in the world. In an exclusive interview to Dataquest, Lizum Mishra, director, BSA India, talks about some of the key trends in this space. Excerpts Do IT services companies need to focus more on nonlinearity? When we talk about transformation, we mean the movement from a service provider nation to a country that takes pride in itself as being synonymous with market moving and game changing software products. India’s software industry needs to move up the value chain and enter the niche area of product development, but there exist challenges with relation to copyright and IP protection ecosystem. These challenges deter software developers to invest in development of new products in India. On IT competitiveness among nations... We think specialized intellectual property (IP) courts would be important for expediting cases that infringe and violate IP, a national task force focused on nurturing and protecting IP as well consumer awareness to develop a mindset 118 | August 15, 2012

hurt productivity within the enterprise and that software needs to be managed like an asset. Additionally, education on licensing terms and conditions of software products is critical for enterprises not to absorb any financial or legal liabilities, thereby mitigating risk.

—Lizum Mishra, director, BSA India

that respects IP. In the end, such measures are important for developing an ecosystem that encourages investment and monetization of IP. What are the current dynamics? As Indian firms compete in global markets they need to be cautious about managing their assets properly. Unmanaged software can result in inefficient operations and overspending on unneeded licenses, increasing risks, and business investments. IT governance leads

to a better ecosystem. Software is a huge asset and Software Asset Management (SAM) is a critical part of managing the software within an enterprise. It is directly linked to productivity and security of the computer network. What are some of the key challenges? The biggest challenge is awareness. Awareness that software is an asset and that the use of pirated software introduces all types of security risks— malware, viruses, and intrusions—that could

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Can you talk about the initiatives BSA is taking in this space? BSA is working with the government and enterprise consumers in India to raise awareness about software piracy in the country. We are witnessing tremendous involvement from the department of IT, Government of India and the government is leading by example of managing its own software, and taking this example directly to private enterprises. Such programs have already happened in 3 states and we are also working with the central government to educate SMBs and government users. SHRIKANTH G

shrikanthg@cybermedia.co.in

DATAQUEST | A CyberMedia Publication

LAST MATTER

Networks & Databases— Theory and Practice Ed Nair,

The author is Editor of Dataquest ed@cybermedia.co.in

he header might sound like the title of a textbook used in undergraduate engineering courses. But the two words—networks and databases—symbolize the power and potential for innovation. And much of this innovation would be more suited and helpful to countries like India and many other emerging ones to address development issues using ICT. The recent deal by India Post about its transformation in the financial services area is a case in point. The deal involves India Post transforming its age-old deposits business into a model that vastly enhances its reach and relevance across India. The initiative aims to address issues such as digital inclusion and financial inclusion of the vast under-served segments in India. The large-scale technology project involves a complete overhaul of India Post’s business to make it a financial services and insurance business with coverage wide and deep. I was speaking with CN Raghunath, head, India business, Infosys who is involved with the deal. India Post’s deal chose Infosys’ Finacle, a core banking software, which will serve as the ‘platform’ for the transformation, Raghunath revealed. Our conversation led to the core of a different topic about how other industries or institutions can be transformed using technology and the potential such transformation holds in solving some development challenges for countries. 122 | August 15, 2012

Like India Post, there are many organizations that network the country. Examples include networks of primary healthcare centers, ration shops, regional transport offices, municipal schools, police stations and many others, beyond the obvious ones like banks, power, railways, and telecom. Theoretically, these are network-based organizations. Each of these organizations already hold a database of its users or if not, it can be created. What is needed to unify the organization is a platform that brings together the networks and the databases in such a way that services can be delivered. The platform is the driver for innovation and transformation; many Indian companies have created many such platforms to solve challenging problems across the world. Let us go a step further. What if we overlay one platform over another, that is, interface one organization with another? For example, if the health network is overlaid with the insurance network or the school network with libraries or ration shops with banks. The possibilities are huge. Add to this heady mixture, a layer of analytics—the possibilities are even greater. I agree that some of these may be conceptual or theoretical or even a figment of my imagination and may yield nought. But the ones that work out will create economic miracles. After all, for India, these platforms would be more fruitful than platforms such as Anna, Ramdev, etc, to make a difference to the people and society.

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