Information Week April 2012 Issue by Viraj Mehta

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Don’t be cruel to a sunrise industry “I must be cruel only to be kind”

— Finance Minister Pranab Mukherjee, quoting Hamlet in his Union Budget 2012-13 speech. he IT industry has indeed come a long way with much of its growth happening in the past two decades. Aggregate revenue from the IT-BPO sector has just crossed USD 100 billion. In FY 2011-12, exports were valued at USD 69 billion, recording a growth of 16.3 percent from FY 2010-11. The IT-BPO sector is one of the largest employers, directly employing 2.8 million professionals, with over 230,000 jobs added in FY 2012, according to NASSCOM. And despite the economic gloom in the West, the growth trajectory continues, reaffirming the fact that this is indeed a sunrise industry. However, there was a time when industry performance wasn’t something to write about. In the early days, the late Dewang Mehta would make numerous trips to government offices, seeking approvals and sops for the software and services industry. At a NASSCOM forum some years ago, Mehta recounted how he was snubbed by government officials to be told, “Your industry is smaller than the bucket industry in India.” And look at it now! While India scored on talent, an English speaking population, and cost arbitrage, this can no longer be its value proposition. Other nations like Philippines and Vietnam are catching up, and can offer the same value. And governments in the West are pulling the brakes on outsourcing, preferring to keep the jobs at home. So will this be a threat to the industry’s growth story? Not if we do a couple of things, and soon. Firstly, the Indian government needs to support industry growth and remove all barriers. InformationWeek India had extensive pre-budget coverage on its website (www. informationweek.in) in the first half of March 2012 — with industry captains suggesting various exemptions and introductions for Union Budget 201213. Some of these recommendations appear in this issue. Of course, many of these people were grossly disappointed once Union Budget was announced on March 16th. We are also running their mixed reactions and outpourings. Secondly, we need to look at domestic growth. There are thousands of small and medium businesses in India that offer products and services in support of e-governance. I am delighted that the Union Budget has approved an allocation of approximately ` 14,000 crore for the UID-Aadhar project. The outlay of ` 1,000 crore towards skill development is good news. Thirdly, we need to do a rebranding exercise. The ‘outsourcing’ label needs to be replaced by ‘India as a hub for global business.’ The talent pool from India can work from any country. (See ‘How the Indian IT-BPO industry can accomplish USD 500 billion’ in InformationWeek, March 2012). So Mr Mukherjee, why be cruel to an industry that has shown growth and put India on the map for global business?

Why be cruel to an industry that has shown growth and put India on the map for global business?

Will you repent, like Hamlet, when it is too late? Follow me on Twitter

@brian9p

informationweek april 2012

I do repent; but heaven hath pleas’d it so To punish me with this, and this with me

u Brian Pereira is Editor of InformationWeek India. brian.pereira@ubm.com

www.informationweek.in

contents Vo l u m e

I s s u e

0 6

A p r i l

20 1 2

24 cover story A low-key budget for the IT industry The budget offered too little too late for the industry with lots of unmet expectations and unanswered questions

‘Budget provides some hope to sail through the difficult year’ V Balakrishnan Chief Financial Officer and Member of Board, Infosys

‘The Union Budget 2012 was a non-event’ VS Parthasarathy Group CIO, EVP – Group M&A, Finance and Accounts and Member of the Group Executive Board, Mahindra & Mahindra

‘Re-introduce tax holiday for small companies’

A compilation of articles from the industry’s financial decision makers and analysts on the implications of the budget on the IT/ BPO industry including services, products and hardware

Pradeep Udhas

Cover Design : Deepjyoti Bhowmik

Partner - Advisory Services, Head - IT/BPO, KPMG

‘Gap between what was expected and what has been delivered’ Rajdeep Endow

Prerna Mohan

Managing Director, Sapient India

‘Remove all ambiguities in the definition of software’ Praveen Bhadada

Team Leader, Economic Research and Analytics, Frost & Sullivan, South Asia & Middle East

Zinnov

‘Industry expects reduction in corporate tax rates’

‘The year ahead is going to be challenging for the IT industry’ SK Jha

‘Initiative to earmark 20 percent of purchases will benefit MSEs’ P Venkatesh Director & Co-founder, Maveric Systems

Managing Director and CEO, AGC Networks

‘The government should provide tax exemptions to indigenous product companies’ Kamesh Ramamoorthy COO, Ramco Systems

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THE BUSINESS VALUE OF TECHNOLOGY

35 36 37

‘Budget could have delivered more operational clarity for IT sector’

Deepak Gupta

Manish Bahl

Head-Finance, iCreate Software

Country Manager – India, Forrester Research

‘Need for synergy between the government and the industry’

Sabyasachi Patra

Associate Director (Technology), PwC India

Executive Director, MAIT

Budget: Halfway house for the IT sector Soumen Mukerji

‘We expect more policy level support to enable domestic players’ Ashok Tripathy Vice President & Business Head, Wipro Systems & Technology and IAS

‘Union Budget fell short of the expectations of the industry’

Pradyumna Sahu

Associate Director, PwC India

What opportunities will ICT vendors get from the budget?

Education gets its due! Ninad Karpe Managing Director & CEO, Aptech

CFO’s budget wishlist Rostow Ravanan Ramesh Kamath Chief Financial Officer, MindTree

Chief Financial Officer, Aditya Birla Minacs

interview

EDITORIAL.........................................................4

‘Mahindra-Satyam has service differentiators’

INDEX..................................................................8

CP Gurnani, CEO, Mahindra Satyam

‘Being technology-savvy will be a success factor for the insurance sector’ Joydeep Roy, CEO and Wholetime Director, L&T General Insurance Company

‘70 percent of our new business would be cloud driven’ Pradeep Rathinam, CEO, Aditi Technologies

news................................................................ 12 news analysis..............................................17 cio dialog..................................................... 56 feature......................................................... 60

‘Citizens are now seeing the value of e-governance’

opinion.......................................................... 63

Ashwani Maheshwari, CEO of the India Division SBU, ITC Infotech

secret cio.................................................... 64 analyst angle........................................... 66

case study

Agri-biotech firm utilizes 3G enabled tablets to benefit farmers

Food company utilizes ERP on public cloud; saves CAPEX funds

technology & risks.................................67 global cio................................................... 68 practical analysis................................. 69 down to business..................................... 70

april 2012 i n f o r m at i o n w e e k 7

Imprint

VOLUME 1 No. 06 n April 2012

print online newsletters events research

Managing Director : Sanjeev Khaira Printer & Publisher : Sajid Yusuf Desai Director : Kailash Shirodkar Associate Publisher & Director : Anees Ahmed Editor : Brian Pereira Senior Associate Editor : Srikanth RP Principal Correspondent : Vinita Gupta Principal Correspondent : Ayushman Baruah (Bengaluru) Senior Correspondent : Amrita Premrajan (New Delhi) Copy Editor : Shweta Nanda

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Editorial index Person & Organization Ashutosh Prabhudesai, Fujitsu Consulting India �� 47 Alok Bharadwaj, MAIT �� 25

associate office- pune Jagdish Khaladkar, Sahayog Apartment 508 Narayan Peth, Patrya Maruti Chowk, Pune 411 030 Tel: 91 (020) 2445 1574 (M) 98230 38315 e-mail: jagdishk@vsnl.com

Anil Valluri, NetApp India �� 47

International Associate Offices USA Huson International Media (West) Tiffany DeBie, Tiffany.debie@husonmedia.com Tel: +1 408 879 6666, Fax: +1 408 879 6669

CP Gurnani, Mahindra Satyam �� 48

(East) Dan Manioci, dan.manioci@husonmedia.com Tel: +1 212 268 3344, Fax: +1 212 268 3355

Joydeep Roy, L&T General Insurance Company �� 50

EMEA Huson International Media Gerry Rhoades Brown, gerry.rhoadesbrown@husonmedia.com Tel: +44 19325 64999, Fax: + 44 19325 64998

Manish Bahl, Forrester Research �� 39

Japan Pacific Business (PBI) Shigenori Nagatomo, nagatomo-pbi@gol.com Tel: +81 3366 16138, Fax: +81 3366 16139

MR Suresh, Krishidhan Group of Companies �� 58

South Korea Young Media Young Baek, ymedia@chol.com Tel: +82 2227 34819; Fax : +82 2227 34866

Partha Iyengar, Gartner �� 25

Printed and Published by Sajid Yusuf Desai on behalf of UBM India Pvt Ltd, 6th floor, 615-617, Sagar Tech Plaza A, Andheri-Kurla Road, Saki Naka Junction, Andheri (E), Mumbai 400072, India. Editor: Brian Pereira, Printed at Indigo Press (India) Pvt Ltd, Plot No 1c/716, Off Dadaji Konddeo Cross Road, Byculla (E), Mumbai 400027.

Praveen Asthana, Dell �� 19

RNI NO. MAH ENG/2011/39874

Arpit Joshipura, Force10 Networks �� 18 Ashok Tripathy, Wipro Systems & Technology � 38 Ashwani Maheshwari, ITC Infotech �� 54 Deepak Gupta, iCreate Software �� 35 Dinesh Agarwal, IndiaMART.com �� 47 Jagdish Mahapatra, McAfee �� 46 Joyce Mullen, Dell �� 17

Karthik Ananth, Zinnov �� 24 Matthew Vallance, Firstsource Solutions �� 47 Michael Dell, Dell �� 17 Milind Khamkar, Sanofi �� 56 Naresh Wadhwa, Cisco India & SAARC �� 46 Ninad Karpe, Aptech �� 42 P Venkatesh, Maveric Systems �� 31 Pradeep Rathinam, Aditi Technologies �� 52 Pradeep Udhas, KPMG �� 28 Pradyumna Sahu, PwC India �� 36 Praveen Bhadada, Zinnov �� 30 Prerna Mohan, Frost & Sullivan �� 32 Rajdeep Endow, Sapient India �� 29 Ramesh Kamath, Aditya Birla Minacs �� 45 Rob Meinhardt, Dell KACE �� 19 Rostow Ravanan, MindTree �� 44 Sabyasachi Patra, MAIT �� 40

ADVERTISERS’ INDEX

Sandeep Nair, Emerson Network Power �� 47 Sanjay Chikarmane, SAP �� 22

Company name Page No.

Website Sales Contact

Interop

2 & 3

www.interop.in

Zoho

5 www.zoho.com

IFSEC

9 www.ifsecsouthindia.com pankaj.jain@ubm.com

Real Story Group

www.realstorygroup.com

www.realstorygroup.com/InfoWeek

Sushil Karwa, Krishidhan Seeds �� 58

Juniper

www.juniper@dnbindia.in

Priya Sharma

V Balakrishnan, Infosys �� 26

Cloud Connect

www.cloudconnectevent.in

surajit.bit@ubm.com

V R Ferose, SAP Labs India �� 47

IBM

71 www.ibm.com

ibm.com/cloudsolutions/in

Microsoft

72 www.microsoft.in

microsoft.in/readynow

Satvik Agarwal, Jindal Agro �� 59

salil.warior@ubm.com

SK Jha, AGC Networks, �� 33

india-sales@ManageEngien.com

Soumen Mukerji, PwC India �� 37 Srikanth Karnakota, Microsoft India �� 21 Sunil Chandna, Stellar Data Recovery �� 46

Vikas Khanvelkar, DesignTech Systems �� 46 Vinay Dwarakanath, Wipro �� 59 VS Parthasarathy, Mahindra & Mahindra �� 27

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informationweek april 2012

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BYOD compels re-framing of enterprise security policies With BYOD emerging as an undeniable trend, enterprises across the globe are being exposed to a new set of threats. Organizations are realizing the incompetency in their current security strategy and are exploring new technologies that would enable them to accommodate BYOD in a secure manner http://bit.ly/xDWItk

‘Being technology savvy will be a success factor for the insurance sector’ In an exclusive interview with InformationWeek, Joydeep Roy, CEO and Wholetime Director, L&T General Insurance Company elaborates how technological excellence and innovation have impacted his business and its customers http://bit.ly/H1hWgP

eindiainsurance tweeted:

‘Being technology savvy will be a success factor for the insurance sector’

Business tweeted:

BYOD compels re-framing of enterprise security policies: The survey reports that introduction of these new, unse...

http://bit.ly/FRgcsx

IT Blog Network tweeted:

#SOA #Blogs ‘Being technology savvy will be a success factor for the insurance sector’: With the help of our rob...

Ericom Software Inc. tweeted:

Favorite devices at workplace can boost employee efficiency

With BYOD emerging as an undeniable trend, enterprises across the globe are being exposed to a new set of threat... http://bit.ly/AA4orX

Cellrox tweeted:

BYOD compels re-framing of enterprise security policies

http://bit.ly/FQLnq4

DLP: Magic pill or myth? DLPs on their own are incapable of providing a full proof measure of data security and require complementary software, as well as process support, says Ritesh Pothan of VISTA InfoSec http://bit.ly/GDRehD

Security News tweeted:

Over 72 percent employees in India claimed to be more productive when they worked on devices of their choice, according to the research http://bit.ly/Hba161

MobileMediaMarketing tweeted:

Favorite devices at workplace can boost employee efficiency, says VMware study - InformationWeek India

http://bit.ly/H8Zfga #mobiledevices

In India tweeted:

Favorite devices at workplace can boost employee efficiency, says VMware study InformationWeek India This occurren...

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www.informationweek.in: ( InformationWeek – Security > DLP: Magic pill or myth? http://netsecu.org/#3707)

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DLP: Magic pill or myth?: DLPs on their own are incapable of providing a full proof measure of data security and...

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When asked about The Union Budget 2012-13, he wrote, “Pranab Mukherjee in his 7th budget tried his balancing act to savior the falling growth and the credibility of the government among the aam-aadmi. Subsidies and widening fiscal deficit again played spoil-sport in the financial statement, with the government trying every means from increasing excise to engulfing more services in the tax net. Rajiv Gandhi Equity Scheme came as a breather allowing deduction from taxable income of 50 percent to new retail investors investing up to Rs 50,000 directly in equities. The growth target of 7.6 percent with a projected fiscal deficit of 5.1 percent seems optimistic; although, subsidy bill targeted to be frugal by 1 percent of GDP from 3 percent to 2 percent.” Like Comment l

april 2012 i n f o r m at i o n w e e k 11

News I t- IT e s

Security

Mobile malware increased six-fold in 2011 There were six times more malware applications found on mobile devices in 2011 as compared to 2010, according to a Kaspersky Lab report. The report reveals that the number of malicious programmes, targeting mobile devices, increased 6.4 times in 2011— this includes 5,255 new malware modifications, and 178 new families identified throughout the year.

According to Kaspersky Lab report, there were more new malicious programmes targeting mobile devices, than over the entire 2004–2010 period. In addition to the dramatic growth in the number of mobile threats, 2011 also saw some qualitative changes. While unsophisticated SMS Trojans are still the dominant behaviour among all detected mobile threats — their share of all mobile threats has fallen from 44.2 percent in 2010 to 36.6

informationweek arpil 2012

Subex bags multi-million dollar deal

case of malware being spread with the help of QR codes. Due to their ease of use, cyber criminals have started using malicious QR codes with an encrypted link leading to the same threats that other traditional URLs lead to. Malicious QR codes are not only used by virus writers (or groups of virus writers), but are becoming more common among the infamous affiliate programmes — which will soon ensure that they become popular among cyber criminals.

Bangalore-headquartered Subex, a leading global provider of business support systems (BSS) for communications service providers (CSPs), announced that it has been selected to provide its revenue operations center (ROC), fraud management and revenue assurance solutions to a Middle Eastern mobile operator in a multi-million dollar deal. The financials of the deal and the name of the customer were not disclosed. “This is the sixth multiple ROC solution win for Subex in the Middle East. The wide range of Subex references in the region, as well as Subex’s expertise in the fraud management and revenue assurance domain helped secure the contract,” a statement from Subex stated. ROC fraud management solution helps wireless and wireline operators eliminate known frauds, uncover new fraud patterns, minimize fraud run time, augment internal controls and support continuous fraud management process improvement. ROC revenue assurance is designed not only to detect potential revenue loss, but also to assist an operator with its investigation, diagnosis and recovery of these revenues. It provides unprecedented automated correction capabilities to improve bottom-line results and provide a quick return-oninvestment. Over the last two months, the company has bagged similar deals around ROC solutions in Africa and Turkey.

—InformationWeek News Network

percent in 2011. Another notable trend is the surge in Backdoors, which were barely used by cyber criminals in 2010, but accounted for second most prevalent behaviour in 2011. The interest in backdoors has been sparked by virus writers’ growing interest in the Android OS, and the overwhelming majority of detected mobile backdoors targeted Android smartphones. When it came to platforms, a steady rise in the number of threats targeting Android was observed during the last six months of 2011. The third-most common mobile threat behaviour is spyware — which steals personal user data and/or data about the infected mobile device. One of the main events of 2011, was the first

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Security

Bank of India aims for BS 25999 certification Bank of India (BOI), one of the largest public sector banks in India with a network of more than 3,000 branches across the country and more than 30 branches and subsidiaries outside the country, is aiming for a certification that has not been achieved by any of its banking peers so far. The Bank is aiming for the BS 25999 certification — a Business Continuity Management standard published by the British Standards Institution (BSI). Over the period of a year, the Bank has systematically set up processes and policies in place to achieve this certification. The scope of the certification consists of more than 40 critical applications hosted in the Data Center and the Treasury function including dealing room and FOREX

operations. The Bank decided to go for the BS 25999 certification to improve its responsiveness to business disruptions. As a part of this exercise, the Bank did a detailed analysis by mapping out the critical applications, the acceptable downtime for the applications, and the possible business impact in the event of an application being unavailable. The real challenge was in communicating effectively to the owners of the applications and business units, about the importance of the BS 25999 certification requirements like periodical business impact assessments, risk assessments and crisis management plans. Accordingly, the Bank started educating all the asset owners. From the list of 40-45 applications, the Bank chose 4-5 applications as model

applications. “These applications served as catalysts and inspired other stakeholders to adhere to best practices to comply with the BS 25999 standard,” states Ratolikar. Earlier there was no governance model and no clear strategy to assess the impact on the business if an application went down. Today, the same can be done effortlessly. “It has taken us close to a year to setup the management system for achieving the BS 25999 certification. The internal audit is already over and outcome is pretty satisfactory . We expect BS25999 lead auditors next week for final audit. If we get the certification, we will be the first bank in the country to receive this prestigious certificate,” says Ratolikar. — Srikanth RP

Social Media

Organizations opening up to social media Fewer than 30 percent of large organizations will block employee access to social media sites by 2014, compared to 50 percent in 2010, according to Gartner. The number of organizations blocking access to social media is dropping by around 10 percent a year. Social media environments include mechanisms to collect, process, share and store a complete range of identity data than IAM systems. They enable a complete view of identity, one that extends beyond the bounds of organizations. For IAM managers, this is both a threat and an opportunity. Identity data and social media platforms can expose organizations and users to a wide variety of security threats, but organizations can also use this identity data to improve support for their own IAM practices and the ambitions of business stakeholders. “Organizations should not ignore social media and social identity,” said Andrew Walls, Research VP, Gartner. “We recommend that organizations ascertain how they currently use internal and external social media in both official and unofficial ways, and look for dissonance between IAM practices and the identity needs, opportunities and risks of social media.” —InformationWeek News Network

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april 2012 i n f o r m at i o n w e e k 13

News I t- I T e s

I T- I TES

Indian IT industry supporting more than 280,000 jobs in the U.S. While the overall unemployment in the U.S. has been growing, a NASSCOM report states that the direct workforce employed in the U.S., by the Indian IT sector has almost doubled in the last five years to 107,000 and estimates that industry supports more than 280,000 jobs in the U.S. Most of these indirect jobs span across various sectors and at every level in the U.S. economy. As per NASSCOM’s report India’s Tech Industry in the U.S., leading Indian companies have increased their campus recruitment efforts in the recent years and plan to increase the number of offers made by up to four times in the next two years. These companies have increased their investments in the U.S. local centers by increasing the number of seats by nearly 10 times in the last five years. The total seats are expected to grow by 50 percent in the next five years. As per the report, the Indian technology industry has paid more than USD 15 billion in taxes to the U.S. Treasury in the last five years, thereby aiding economic recovery. The Indian

technology companies have invested more than USD 5 billion through 128 acquisitions saving and sustaining thousands of jobs in the U.S. Growth in acquisitions by the Indian companies in the U.S. increased to 54 percent in FY2010 from 41 percent in FY2009. The industry has also made commitments to the innovation economy of the U.S., by setting up innovation centers to drive nextgeneration technology development. In addition, the Indian IT industry has made valuable contributions to American society by partnering with local communities. It is estimated that industry has invested thousands of hours in community service that have touched half-a-million American lives. Most of these efforts have been to strengthen the local healthcare, employability of the locals by building capacities, garnering support for the local causes and working towards the betterment of the less privileged segment. —InformationWeek News Network

Indian Internet economy to contribute

`to 10.8 trillion the overall economy by

2016

If Internet were a sector, it would be the 8th largest in India Source: Boston Consulting Group

informationweek arpil 2012

Ittiam revenue crosses USD 20 million IT product firm, Ittiam Systems, posted USD 20 million revenue for fiscal year ending March 2012. Significantly, royalty income contributed to more than 35 percent of this revenue, highlighting the excellence achieved by the company with the Intellectual Property (IP) Licensing business model. Founded in 2001, Ittiam has been a leading supplier of media processing and communication technologies for a wide range of applications including smartphones, tablets, video communication, media broadcast systems and Wi-Fi communication. The Indian IT industry is dominated by the large software services companies with global scale. In this scenario, the progress of new generation companies with intellectual property and product focus is observed keenly. Ittiam’s “revenue per employee productivity” has crossed well over USD 100 K, which is twice the typical productivity in the Indian IT industry. For the fiscal year 2011-12, the number of customers’ products embedding Ittiam IP reached an impressive annual run rate of 25 million units. Ittiam also tops the number of patents granted for an Indian IT company with 30 patents granted till date and a further 30 patent filings going through the patent review process. Srini Rajam, Chairman and CEO, Ittiam Systems, said, “The imaginative IPs created by our engineers have been very well received in the markets through the innovative end products launched by our customers. We are now in a great position to grow further and create a global showcase for an IP company originating from India.” —InformationWeek News Network

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News I T- I T E S

Indian IT firms to show growth amid volatility As the macro-economic uncertainties in the developed countries continue and volatility becomes the new normal, the Indian IT industry is at an advantage for being young and small. Disruptive technologies coupled with strong focus on building expertise and changing business models will be among the key drivers of growth. Indian companies have huge opportunities to grow in this volatility as we are flexible and small. “Most large Indian companies are in the range of USD 6-8 billion as compared to large companies in the U.S. like Walmart, which is more than USD 100 billion,” Pramod Bhasin, Vice President, Genpact said at the AIMA 2nd Knowledge Summit in Bangalore. “Volatility requires greater flexibility,” he said. According to a Deloitte-AIMA report, the market in 2012 will see a touch of caution although the overall mood will remain optimistic.

While growth in the major markets of Europe and the U.S. remains uncertain, significant domestic demand coupled with demand from new groups of small and medium customers in international markets will continue to drive growth. This growth is estimated to average a CAGR of 13-15 percent over the next decade, taking the market to an overall size of USD 272 billion by 2020. For re-shaping the industry in the direction of growth, Bhasin said that the education system has to be changed quickly and radically to create more employable students. “There should also be an increased focus on building expertise and R&D. We need to get beyond labour arbitrage and go B2C (business to consumer) and B2b (business to small business).” R Chandrasekaran, Group Chief Executive, Cognizant, points out three growth strategies for the industry in a volatile environment. First,

the companies must change their engagement model to an outcomebased pricing model where clients pay for the outcome and not for the efforts. Second, cost arbitrage cannot be a sustainable value proposition and we have to build domain expertise and competitive skills. There has to be more synergy across service lines such as IT and BPO. Third, companies must coinnovate with their customers, wherein they treat customers’ problems as their own. “Today customers don’t want an order taker. They want to be led from the front,” he said. In terms of technology, the Indian IT industry is currently at the helm of its technology revolution with the confluence of cloud, social media, Big Data and analytics. “Earlier, technology was helping businesses transform. Today, technology is leading business transformation,” said Chandrasekaran. —Ayushman Baruah

72%

employees claimed to be more productive when they worked on devices of their choice

77%

employees in India are bringing and working on their personal device at the workplace

Source: VMware

informationweek arpil 2012

78%

53% 17%

High number of employees in India bring their personal smartphones (78%) to the workplace, followed by laptops (53%) and tablets (17%)

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News Analysis

Dell redefines itself as end-to-end IT solutions company With “record” cash flows and financial performance, new products and technologies from acquisitions, increased market share, and more customers, Dell is on its way to becoming a major IT force By Brian Pereira Dell has redefined its enterprise strategy again. It has integrated into its solutions stack, all the technology and products gained from 18 acquisitions in the last three years. Dell moved from personal computers and consumer electronics to a diversified technology company, offering everything from servers to systems integration and services. In the last five years, it has more than doubled the size of its enterprise solutions and services businesses to USD 18.6 billion, which contributes towards half the company’s profits. With an eye on the data center market and the cloud, Dell is offering the very latest in technology — it launched 12th generation PowerEdge servers this March (powered by the latest Intel E5 Xeon processors) and new EqualLogic storage arrays; with the acquisition of Force10 networks two years ago, the company can now offer native support for 10 Gigabit Ethernet (10 GbE) across its server, storage and networking portfolio. And it is also building its software and security portfolios. To unveil its new enterprise strategy, the USD 62.1 billion company launched a series of worldwide events, the first one held on February 27, 2012 in San Francisco, USA. Addressing a group of analysts and journalists, Michael Dell, Chairman and CEO, said, “The line between the IT organization and business is disappearing. IT is becoming essential to how customers conduct their business. Customers want choices on where the technology is — on premise or on public, private, or hybrid cloud. And they want a secure environment. So it’s a hybrid world and Dell is transforming

to stay ahead of it. We’ve transformed our business in the last two years — it’s not a PC company but an end-to-end IT solutions company that understands the needs of its customers.” Reflecting on the progress in the past year, a beaming Mr. Dell proudly claimed his company had the best solutions and products in the company’s history. He provided updates of the company’s “record breaking” financial performance (details at the end of this story). He also said the company is investing USD 1 billion in growing capabilities. This investment goes towards 10 new solutions centers worldwide, new R&D centers, and other capabilities such as services, support and sales. He did not indicate a regionwise breakup of those investments.

END-TO-END

To deliver end-to-end integrated solutions to its customers, Dell either forms strategic partnerships with key industry players or makes acquisitions. For instance, there was a time when it did not have its own storage portfolio, so it formed a strong partnership with EMC. It even considered buying EMC in 2002 (which was then valued at USD 16 billion). Today, it offers its own storage solutions after acquiring companies such as EqualLogic, Exanet and Compellent. Joyce Mullen VP/GM of Global Alliances and Software at Dell, said alliances were key for Dell to become an end-to-end solutions company. “We realized that we had to change our approach to managing our most strategic partnerships. We looked within and outside the IT industry to find out how to build enduring relationships

Dell is not a PC company but an end-to-end IT solutions company that understands the needs of its customers — Michael Dell where you create differentiated value for customers, in order to earn differentiated margin. We are thoughtful about which partners we choose, and it is important to manage these partnerships over a lifecycle because they change. At some point you have to adjust those relationships (EMC being an example).” Mullen informed that Dell has 14 global alliance partners. Dell enjoys synergistic partnerships with leading technology players such as VMware, Microsoft, Intel, Oracle, Intel, Citrix, APC, Salesforce.com, Symantec, Cloudera and many others. Its partnerships are tiered; partnerships that are worth “millions of dollars” are placed at the top tier. Tier-1

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News Analysis partnerships (such as its partnership with Microsoft) touch multiple divisions within Dell, and help it build product and service differentiators. ISVs, which Dell calls Technology Partners, are on the second tier. These partners are specific to a certain industry or technology vertical (such as health care or storage). The traditional vendor relationships are at the bottom tier. On the acquisitions front, Dell aims to be a major networking player (through its Force10 and KACE acquisitions). Hardware has always been Dell’s forte. According to Gartner, Dell was the only vendor to increase server share in Q4 2011. And PCs continue to account for a chunk of Dell’s revenue. Dell also intends to get back into the tablet market at the end of this year. But software (surprise, surprise!) will also play a significant role in Dell’s new enterprise strategy; it just created a new software group and appointed former CA CEO John Swainson to head this division. In July 2010, it acquired Scalent Systems for software that enables dynamic deployment and repurposing of infrastructure, without the need for physical server, cable or storage changes. Praveen Asthana, VP, Enterprise Solutions & Strategy, Dell said, “We are doing software that is close to the box. It is software that helps customers with the infrastructure. Security software is another area we might pursue in future.” It’s obvious that Dell wants to be

a key player in security, storage, data center and cloud. Technology and products from its 12 acquisitions in the last two years fill the missing pieces in the enterprise solutions jigsaw. The most recent acquisitions were backup software company AppAssure and SonicWALL, a leader in advanced network security and data protection. With all these acquisitions Dell now has a finger in the cloud, security, networking, storage, data management, and infrastructure management pies. That places Dell closer to giants such as HP, IBM, Oracle and Cisco. To reach that level, Dell must get some things right, one of these being its channel strategy. It also needs stronger growth of its services businesses and global consulting to compete with the likes of IBM, HP, Deloitte and Accenture. Dell’s customer base has a crowd of small and medium businesses (there’s more focus on the ‘M’ now). But Dell has got to gain market share for ‘LE’ (that’s large enterprise) from stalwarts like IBM and HP. What works for Dell is its open solutions stack — the very latest technology and commodity hardware that embrace industry standards. Its main competitors have been selling closed stacks and proprietary hardware for years, locking in customers to a single vendor. But rivals such as HP are also offering customers the option of commodity hardware and software (Wintel), and architecture or frameworks based on industry standards.

Dell’s Enterprise Strategy l

One-stop shop for products, services, integration

Tiered approach to strategic partnerships

Acquire companies that offer cutting-edge technology

Create appealing products for medium-sized enterprises

Closely integrated solutions stack (VIS architecture)

Embrace industry standards, open frameworks, architecture

Offer choice to customers

Investment in data centers for cloud services

Data center technology that reduces costs, power consumption, footprint

Simplify management of devices

Increased vertical focus (services)

informationweek april 2012

The focus is now on selling optimized and integrated solutions to customers. Praveen Asthana of Dell told InformationWeek his company now wants to sell “optimum solutions” instead of just products to customers. “In the past, customers would approach us for storage, servers and networking. And they would tie it all together, spending much time optimizing infrastructure. Now they are asking us to do the integration. We have experience doing this. They instead come to us asking for VMs, telling us which applications they want to run on these VMs,” said Asthana. Asthana said Dell was offering customers a choice — the channel partners and SIs could do the integration and optimization. “We will also give the reference architecture to the customer, if they want to do this themselves,” he said.

DATA CENTER PUSH

Dell also has plans to increase its share in the data center market. For this, it strategically acquired companies like Force10 and Scalent. “The Force10 acquisition enables Dell to deliver a data center solution with 10 GbE to every server and aggregate that using 40 gig networking technology,” said Mr. Dell. Arpit Joshipura, CMO, Force10 Networks (now a networking division of Dell) explained how Force10’s product lines were integrated into the fabric of Dell’s solutions. He explained how Dell would benefit from Force10’s crown jewel, dubbed VNA (Virtual Network Architecture). “ VNA is to networking what virtualization is to servers. Just as VMware virtualized servers, VNA will do the same for networking. The network is no longer about boxes or about speeds and feeds. It is about a pool of resources that are virtualized, available on demand, scalable to the requirements of workloads, and fully automated,” said Joshipura. So with VNA, Dell gains an open framework for efficient IT infrastructure and workload intelligence. VNA allows one to scale data center fabrics. It places emphasis on workload-aware

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networks. The other important aspects of this architecture are power savings, (Joshipura claims one-fourth the power, at one-fifth the price) and smaller footprint (one-sixth). Also, the traffic goes “east-west” across the data center — not out of the data center and back, unnecessarily leading to “oversubscribing” and choking bandwidth. With VNA, we think Dell is stepping into Cisco’s territory. The data center of the future will have low-cost servers and well integrated systems that combine server, network, storage, and software. All this will be simple to manage, and cost less to operate. It will also allow for quick changes to keep up with dynamic business requirements. And Dell is moving towards this data center model by integrating its solutions stack. Tying it all together is Dell Virtual Integrated System architecture (VIS). Dell says VIS will improve data center efficiency by responding to business requests in minutes; resources will be provisioned or released on demand. Apart from improving agility, Dell VIS is also aimed at lowering data center costs related to management, maintenance and licensing. There are now two product lines: Dell Advanced Infrastructure Manager and Dell VIS

“We want to focus on selling optimized and integrated solutions instead of just selling products to customers”

Praveen Asthana

VP, Enterprise Solutions & Strategy, Dell

Last year, Dell rolled out vStart, pre-assembled data center racks that include servers, storage, cabling and management software, out of the box. Rob Meinhardt, GM, Dell KACE (who is also co-founder of KACE) said, “We have attacked the mid-sized market through innovative approaches to ease-of-use, and by making technology accessible. If you can make your product attractive to mid-sized companies (easeof-use, cost competiveness, accessible IT) then such products will also appeal to other markets. And this is a key pillar of Dell’s strategy.”

CLOUD STRATEGY

Dell is also betting big on cloud computing. It will invest USD 1 billion in multiple data centers around the world to provide customers access to

KACE system management appliance

Creator. VIS technology comes from its acquisition of Scalent in 2010. Small- and medium-sized customers want access to technology that’s used in high-end enterprises, without the complexities and cost of managing it. These customers typically have issues with shortage of skills and costs. To address this, Dell acquired KACE in 2010. KACE has system management appliances that help mid-sized businesses and public companies manage its clients/end-points in a more simplistic and faster manner -- yet offering capabilities such as ease of configuration, device discovery, patch management, software delivery, and service management.

public and private cloud technologies. As part of the cloud strategy, it acquired Boomi (a SaaS integration leader) and announced vStart (a ready-to-run virtual infrastructure). Dell also has a partnership with VMware and offers an IaaS cloud. This is based on VMware’s vCloud family of products. “Dell is building a set of more specific cloud-based services, such as backup and archival in the cloud,” said Joseph Kremer, President-APJ during a January interview with InformationWeek India. “In some cases, specific industry based solutions (such as medical archival and learning management) are being delivered via our cloud. Also, for customers to take advantage of the

cloud, it is important to focus on the applications.”

FROM PRODUCTS TO SOLUTIONS

Dell began its operations in 1984, as a product company selling user customizable desktops and laptops through a direct sales model. In fact, some will remember its former tagline ‘Direct from Dell.’ It started selling through the channel in 2007. In 1996, Dell began selling computers through its website, and in 2002, it expanded its product line to include televisions, digital audio players, printers, and more recently tablets and mobile phones. Dell’s first acquisition occurred in 1999 with the purchase of ConvergeNet Technologies. Along the years, it moved on to sell enterprise technology solutions. In 2009, Dell acquired Perot Systems and added IT services to its portfolio, catering to verticals such as health care, government/PSU, manufacturing, banking, insurance and others. The services business generates USD 7.7 billion or 13 percent of revenue. The Austin, Texas-based Dell completed the year (2011) with revenues of USD 62.1 billion. It had gross margins of 14.2 billion, up 370 basis points to the highest levels at 22.8 percent. Dell had record operating income of 5.1 billion (up 24 percent). It had record net income of USD 4 billion (up 27 percent). There was record earnings per share of USD 2.13 (up 34 percent) and there were cash flows of USD 5.5 billion (up 39 percent). —The writer was hosted by Dell in San Francisco Brian Pereira brian.pereira@ubm.com u

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News Analysis

In the last 18 months, Microsoft has notched up over 2,000 paid customers; partners have created over 10,000 applications on Azure in India By Srikanth RP

Nearly two years after Microsoft announced the Windows Azure Platform in India, the software behemoth is reaping the gains of the seeds sown in a country that is attractive on multiple counts. India has a powerful ecosystem of more than 1,300 independent software vendors (ISVs), 1.4 million developers and more than 11,000 system integrators (SIs and custom software development organizations) — and Microsoft has played its cards well to gain foothold

informationweek april 2012

in a market which is set to explode. For example, a study by NASSCOM and Deloitte estimates the Indian cloud computing market to reach USD 16 billion by 2020. Similarly, a report by consulting firm Zinnov Management Consulting estimates that the cloud computing market will touch USD 4.5 billion by 2015. The software behemoth has made huge inroads by notching up an impressive set of numbers. Azure has over 2,000 paid customers with developers and ISVs creating over 10,000 applications in the last 18

months in India. Microsoft claims that the Azure platform has also attracted more than 30,000 developers (including students) in India. From the numbers, it is clear that Microsoft is definitely stepping up on the accelerator with Azure in India. “In the history of Microsoft, no other country has attracted more than 30,000 developers or built such a large number of applications in a short period of time. Azure in India has grown much faster than a lot of mature markets,” exclaims Srikanth Karnakota, Director, Server and Cloud

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Business, Microsoft India.

Adoption across spectrum

Besides big ISVs and SIs such as Wipro, Infosys, TCS and HCL Technologies, which are building applications and solutions on Azure across verticals, academic institutions are also showing interest. Academic institutions such as the IITs are building large India-relevant projects leveraging Microsoft’s Azure platform. In the private sector, NIIT will train over 100,000 students on Windows Azure over the next three years. Indian Institute of Science, Bangalore, is building a large-scale application on Windows Azure to study the basic resource allocation constraints and strategies required for addressing enterprise needs on the cloud. As India has a large number of software services companies, Microsoft is gaining on two counts.

“In the history of Microsoft, no other country has attracted more than 30,000 developers or built such a large number of applications in this short period”

Srikanth Karnakota

Director, Server & Cloud Business, Microsoft India

IT services companies are deploying the cloud internally to cut costs and also more importantly are using Azure to learn and deploy applications for their customers. A case in point is Bangalore-based Aditi Technologies, which is moving its entire infrastructure and applications to Azure. Aditi Technologies is extremely confident that 70 percent of its new business would be cloud driven. This has a catalyst effect, as

Interesting applications by Indian companies on Azure Company Application QID Technologies

To tackle the high cost of deploying RFID, QID Technologies offers hardware, software and the implementation of RFID on a pay-per-use transaction model. To ensure scalability, QID has enabled its data storage layer associated with its RFID ACT system (Automated Cargo tracking) on the Microsoft Azure Platform

Nustreet Technologies Nustreet specializes in building highly targeted micro vertical applications for specific sectors such as small and medium hospitals, stand-alone diagnostic labs, Yarn Spinning Mills, forging companies, engineering workshops and metal fabrication companies. All NuStreet applications are offered in partnership with Microsoft, on the Windows Azure cloud Sportingmindz

Hosted on Azure, the firm provides a video library with clips and analysis that helps players and coaches understand strengths and weaknesses in their performance. The biggest benefit of the cloud is the fact that as sports is a seasonal activity, demand varies quite a bit. The consumption pricing model and ability to scale up and down with seasons is an excellent fit for Sportingmindz and its customers

Gradatim

The company has created MF Insure, an end-to-end loan and deposit administration system focusing on the microfinance chain. The business entities, business logic libraries, and data access libraries run in web roles in Windows Azure

the first wave of adoption is driven by the implementers, and then by the adopters.

Accelerating startups

Azure is also gaining popularity among startups — a segment which is being aggressively targeted by Microsoft. Most startups are targeting a fast growing but largely untapped SMB market. A recent study by Zinnov estimates that India is home to around 50 million SMBs currently, of which only 10 million are technology-ready. The study estimates that IT spending by SMBs is expected to grow at a CAGR of 15 percent contributing USD 15 billion by 2015 — a huge market that simply cannot be ignored. Microsoft has also been clever enough to use this opportunity to educate startup companies on targeting this opportunity. The strategy has clearly worked — today more than 300 startups in India are using Azure — a significant number when you consider the fact that most mainstream products or platforms achieve this feat after a considerable amount of time. What is also working in Microsoft’s favor is the fact that a large number of startups are using Azure to create and host applications for catering to needs that are not served by the traditional IT service companies. With the Indian market consisting of close to 50 million SMBs — which many market analysts believe is underserved, Microsoft has the opportunity to use India as a base for propelling Azure in the global and domestic market. u Srikanth RP srikanth.rp@ubm.com

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News Analysis

Technology update: SAP’s cloud plan for 2012-13 SAP is currently focusing on rolling out line-of-business applications to the cloud and is all set to respond to the requirement of large enterprises for onpremise + cloud, with a new solution next year. Here’s the plan By Brian Pereira While almost every vendor has a cloud strategy, there’s a buzz on blogs and forums these days questioning what SAP is offering on the cloud. Well, SAP has Business ByDesign, a SaaS-based fully integrated ondemand ERP application. But that’s for mid-sized businesses. What about a cloud offering for large enterprises? Yes, large enterprises have made huge investments in on-premise ERP, but the world is going hybrid. SAP will respond to the requirement for on-premise + cloud with a solution next year. But first, it wants to help customers manage their transformation to virtualized environments. The current focus is also on rolling out line-of-business applications (such as HR) to the cloud. We also bring you the latest on SAP NetWeaver. “Large ERP applications that are on-premise are not going to be moving to the public cloud anytime soon,” said Sanjay Chikarmane, Senior Vice President & General Manager of Technology Solutions. “We see that, for every production system that these large customers have onpremise, they have 10-20 times the number of development and testing systems (on-premise). Development and testing comes and goes in cycles, so the systems are not needed all the time. They can move the dev and test systems to the cloud. This offers lowcost and elasticity (grow and shrink resources as needed),” he said. SAP will support this migration through a solution called Landscape Virtualization Manager (LVM). LVM

informationweek april 2012

helps customers move from physical systems (on-premise) to virtualized systems (on-premise) — and this is a step closer to the cloud. “The next step is to take the same workloads and move these to the public cloud, and we see this happening next year. We have a project for this with an internal code name ‘Project Titanium’— which will provide the on-premise + cloud capability. This product is expected next year,” said Chikarmane. While ERP applications used in large enterprises will stay on-premise, specific applications such as HR or sales force automation, will move to the cloud. And that’s why SAP acquired SuccessFactors in December 2011. SuccessFactors has a cloudbased HR application and more than 3,500 customers. “We see other line-of-business applications, such as sales force automation, eventually moving to the cloud. But ERP will be for corporate applications, and will stay on premise,” said Chikarmane. SAP now has its own lineof-business apps such as Sales OnDemand, and it could eventually merge its SuccessFactors and OnDemand units under a common brand for line-of-business apps. SAP NetWeaver and whatever comes out of Project Titanium next year would provide the technical foundation for all these applications. This would complete SAP’s on-premise + cloud strategy. We saw this happening with Microsoft BPOS (Business Productivity Online Standard suite). But SAP has got to move quickly, because it is already beginning to feel

the heat from smaller (but fast rising) competitors like Workday, Netsuite and Salesforce.com — which also offer cloud-based business applications for ERP, CRM, HR, sales force automation etc. Speaking of NetWeaver, SAP has unified its NetWeaver Process Integration and NetWeaver BPM tools into a single integrated package called NetWeaver Process Orchestration.

Moving to PaaS

Chikarmane told us there was a “big interest” from customers to build custom applications in the cloud. Earlier customers would use NetWeaver and other competing products. But now there’s interest in PaaS, and SAP is responding with a Java-based solution (J2SE standard). The product is in beta but will ship in the second half of this year. This will take SAP into the PaaS club that has members like Google and Microsoft. “Our customers need to extend to their back-end ERP applications and they need a good way of connecting. So we will do this better than anyone else,” he said. Once this solution becomes available, a customer will be able to point an instance in the cloud to the back-end, identify the back-end elements they need, and bring those into the cloud. And then they just build the application in the cloud (with SAP doing the integration). And SAP’s HANA in-memory computing solution will support this platform. “We can then build new classes of applications that combine analytics of transactions,” said Chikarmane.

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UNION BUDGET

Cover Story

2012

A low-key budget for the IT industry The budget offered too little too late for the industry with lots of unmet expectations and unanswered questions By Ayushman Baruah

s the clock struck sharp 11am on Friday, March 16, 2012, Finance Minister Pranab Mukherjee presented the much awaited Union Budget 2012-13. The budget wasn’t idealistic but rather pragmatic. For the USD 100-billion IT industry, however, the budget was clearly disappointing with no big bang reforms and no brave ideas. It also failed to cheer the market — Sensex came down 210 points and Nifty tumbled 62 points on the close of Friday. In fact, this could have been an opportunity lost for the Finance Minister as it was his last chance to set the economy right before the next elections in May 2014. Next year, in 2013, the budget will be influenced by the elections and there will be no full budget in 2014, but only a vote on account. The National Association of Software and Services Companies (NASSCOM) has termed the Union Budget Proposals 2012-13 as a “lost opportunity” for the economy. The last budget saw the introduction of Minimum Alternate Tax (MAT) on SEZs (both developers and units), thus

What gets thumbs-down l

No direct focus on the IT industry

MAT from SEZs not exempted

Increase of service tax and excise duty from 10 percent to 12 percent

Issues of tax simplification not addressed

No clarity on the implementation of DTC and GST

reducing the attractiveness of the latter. Even though several industry professionals, in their pre-budget wishlist, had suggested that MAT on SEZs should be removed; the actual budget has not addressed the demand. In terms of transfer pricing litigation, the Finance Minister has announced the introduction of Advance Pricing Agreement (APA), which is a positive move. But according to NASSCOM, APA is a long drawn out process and it is not clear how the current issues will be resolved. Moreover, transfer pricing regulations have now been introduced for domestic transactions, further

What gets thumbs-up l l

Thrust on areas like infrastructure development, skill development and encouragement of R&D

Setting up ` 5,000-crore venture fund for the MSME sector

Advance Pricing Agreement (APA) introduced in Finance Bill, 2012

GST Network (GSTN) to be operational by August 2012

Provision for ` 79,579 crore of capital expenditure for defence services (which will in turn boost investment in IT)

Allocation of approximately ` 14,000 crore for the UID-Aadhaar project

Full exemption of SAD (Special Additional Duty) of customs

informationweek april 2012

increasing the complexity. The government has announced a USD 1 billion venture capital fund for micro, small and medium enterprises (MSMEs) across the country. According to NASSCOM, this is welcome, but it is too little. NASSCOM had also recommended the need for reduction of TDS for SMEs and introduction of non-profit linked incentives — both of which have not found any mention. Karthik Ananth, Director of Zinnov told InformationWeek that with a lot of focus on agriculture and defence, this is more of a populist budget. “But with the defence budget going up, there is a possibility that IT spending would be going up too. With GST expected to be operational from August 2012, the domestic software industry will get a booster. In fact, this budget has the right triggers to drive adoption of software in SMBs but there are many unanswered questions with regards to the specifics of the IT industry,” said Ananth. One of the definite positives for the IT sector has been the acceptance of the recommendations of the task force headed by Nandan Nilekani on IT strategy for direct transfer of subsidy. Based on these recommendations, a mobile-based Fertilizer Management System (mFMS) has been designed to provide end-to-end information on the movement of fertilizers and subsidies,

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from the manufacturer to the retail level. This will be rolled out nationwide during 2012. Direct transfer of subsidy to the retailer, and eventually to the farmer will be implemented in subsequent phases. This step will benefit 12 crore farmer families, while reducing expenditures on subsidies by curtailing misuse of fertilizers. “We welcome the announcements on IT being leveraged to create an effective implementation platform for government delivery of programs and direct transfer of subsidies leveraging Aadhaar. The industry would continue to partner with the government for the implementation of these programs,” NASSCOM said. MAIT, the apex body representing India’s IT hardware industry, has welcomed the budget for the enhanced focus on skills for national and industry development. The industry body has expressed satisfaction on the move to enhance the enrollment of Aadhaar cards by ` 40 crore as it will lead to financial inclusion through schemes like MNREGA, old age and other pensions and scholarships. “Together with the planned fiber optic connectivity of gram panchayats, this will lead to more usage of consumer premise equipment and other handhelds. It is a welcome move to use technology to cut down leakages in disbursements of subsidies in the form of mFMS. We welcome the excise duty reduction to 6 percent for LED lamps and full exemption from Special Additional Duty (SAD) of customs on parts, components and sub-parts for the manufacture of memory cards for mobile phones, and full exemption of basic customs duty on LCD and LED TV panels,” MAIT stated. MAIT President Alok Bharadwaj said that while the intent of the government in making manufacturing

“From an IT sector perspective, there is nothing specific in the Union Budget 2012-13 that is either a strong negative or positive”

Partha Iyengar

VP & Distinguished Analyst, Gartner the main economic driver is music to the ears, policies and procedures have to be tweaked to make India the manufacturing hub. “There are many procedural corrections that the government needs to undertake and the Indian IT hardware industry is looking forward to those.” Technology research firm Gartner has rated the budget 3/10 stating that overall it’s a fairly ‘‘political budget.” “Given the current economic climate, it seems to be focused on not upsetting anyone (read political ‘allies’) too much, by not trying to please anyone too much. The only slight silver lining is the verbal emphasis and some increase in outlays to the infrastructure sector, but given the massive requirements here, even this is likely to be seen as too little too late. From an IT sector perspective, there is nothing specific that is either a strong negative or positive. Some of the key areas of concern for the industry like skills development have not received any major focus,” Partha Iyengar, Vice President and Distinguished Analyst of Gartner said. Given that this year’s budget has been announced amid slow domestic growth and volatile macro-economic environment, the FM tried to achieve credibility on fiscal deficit numbers rather than make big promises. Consequently, the fiscal deficit estimate for FY13 has been brought down to 5.1 percent of GDP

“There are many procedural corrections that the government needs to undertake to make manufacturing the main economic driver”

Alok Bharadwaj President, MAIT

from 5.9 percent in FY12. India’s GDP is estimated to grow 6.9 percent in FY12, which is a significant slowdown compared to the preceding two years. However, for FY13, the GDP is estimated to grow approximately 7.6 percent, which is realistic according to most analysts InformationWeek spoke with. As he moved to Part B of the budget that deals with tax proposals, Mukherjee quoted Hamlet, the prince of Denmark, in Shakespeare’s immortal words, “I must be cruel only to be kind.” This has been interpreted in various forms. In a way, he was kind enough to marginally tweak the tax slabs in favour of individual tax payers, but cruel enough to take the entire benefit away with the increase in service tax and standard excise duty rates from 10 percent to 12 percent. However, most people from the IT industry felt the budget was too mild to be termed outright kind or cruel. In conclusion, the budget was tepid for the IT industry — it raised more questions than providing answers at the end of the day. The strong demand from the industry for the removal of MAT from SEZs remained untouched. The increase in service tax and excise duty will further increase cost of doing business in the country. Moreover, there have been no clear timelines on implementing some of the big ticket reforms like GST and direct tax code (DTC), which indicated lack of political consensus. However, amid all gloomy clouds, there has been some silver lining such as the implementation of APA, which will ease transfer pricing litigation and provide certainty and unanimity of approach. The increased focus on R&D, investment in Aadhaar and a general intent for long-term growth does bring in an element of hope, if not ecstasy. u Ayushman Baruah

ayushman.baruah@ubm.com

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UNION BUDGET

CFO Voice

2012

‘Budget provides some hope to sail through the difficult year’ Before Finance Minister presented the budget on March 16, 2012, V Balakrishnan, CFO and Member of Board, Infosys had shared his top 5 expectations with InformationWeek. Did the actual budget live up to his expectations?

he Indian economic growth rate has come down to 6.1 percent in the recent quarter, well below the rate of 8-9 percent a year back. While we all understand the macro challenges, there are several things the government can do to kick start the growth in the economy. Fiscal consolidation - The fiscal deficit for year 2011-2012 high. With WHAT HE was slower growth expected in the economy and higher social security spending, the deficit for the next year may also be high. To address this, a clear medium-term plan is required. Subsidies - The government’s subsidy bill is bloating up every year. While we all agree that the poorest of poor needs to be supported, it is also important that all the subsidies are well directed and all pilferages are contained. There should be clear strategy from the

government to bring in efficiency in the subsidy spending. Indirect taxes - If the indirect taxes are to be increased, it can negatively impact domestic consumption while stoking inflation in the economy. Given this, the government should resist the temptation of increasing the indirect taxes in the budget. Reforms - There should be a clear direction from the government on implementation of all major reforms like GST, DTC, The Companies Bill, etc., within a defined time frame. IT industry – The IT industry has recently become the punching bag for the Income Tax department. The department had raised demands disallowing onsite revenues even though the Income Tax Act treats it as exports; disallowing SEZ benefits by not recognizing what had been agreed to by the Commerce Ministry; and treating Time & Material work as body shopping and denying tax benefits for the same. Even the service tax refunds for the

industry were held up or rejected. What the industry wants is certainty on the application of tax laws. I also believe that the country badly needs a focused approach on the use of IT by the government. There is a need for a dedicated IT minister who should be like a CTO for the country — this will accelerate IT adoption.

Looking at the current global uncertain economic environment, the budget looks like a very pragmatic and realistic one. The approach to the budget is very clear — focus on more inclusive growth, invest more in infrastructure, WHAT create HE GOT mechanism to give financial support to ailing sectors of the economy and expand the tax base. Overall, no big bang reforms or changes but maintaining the status quo, provides some hope to sail through the difficult year. The move towards a “Medium-term

Expenditure Framework” statement, which will set forth a three-year rolling target for expenditure indicators is a very good sign. The focus on targeting subsidies to the needy through direct transfer of subsidy is also a positive move. Controlling the subsidy bill under 2 percent of GDP for 2012-13 and at 1.75 percent in the future years will give comfort to watchdogs who were worried about the subsidy bill of the government going out of control. The move towards increasing the service tax and excise duty is understandable looking at the need to increase the tax revenues for the government. It is, however,

disappointing to see that no clear timelines have been specified on implementing reforms like GST, DTC and FDI on multi-brand retail. It clearly shows that political consensus is lacking on these big ticket reforms. The focus on bringing transparency in public procurement will result in increased spending on IT by the government. The industry had not expected any big change in the tax regime. However, the industry requested some clarity on the application of tax laws. Hopefully, the government will provide the necessary clarity through administrative circulars.

informationweek april 2012

V Balakrishnan Chief Financial Officer and Member of Board, Infosys

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UNION BUDGET

2012

CIO Voice

‘The Union Budget 2012 was a non-event’ The budget is devoid of hard decisions for addressing the fiscal, inflation and growth problems — in short a non-event: VS Parthasarathy, Group CIO, EVP – Group M&A, Finance and Accounts and Member of the Group Executive Board, Mahindra & Mahindra

he Union Budget 2012 was an exercise by a government being driven by coalition dharma and electoral target; it is devoid of hard decisions for addressing the fiscal, inflation and growth problems — in short a non-event.

Optimism Galore

The budget estimates of ` 1,795 billion for subsidies looks very optimistic when compared to the revised estimate (RE) of FY12 of ` 2,085 billion. This is especially on the two major heads, viz. petroleum and food. The petroleum subsidies are budgeted at ` 436 billion (FY12 RE of ` 684 billion), which implies that the government expects either the oil prices to head south sharply or the administered prices would be pushed northwards — both today look like black swan events. The food bill of the government is budgeted at ` 750 billion for FY13 against a RE of FY12 at ` 728 billion. The provision amounts looks miniscule when looked in the light of the fact that the Food Security Act has not been implemented.

Aggressive Taxmen

The stimulus provided at the onslaught of the financial crisis now seems to have been fully rolled back. The standard rate of excise duty has reverted to the pre-crisis level of 12 percent from 10 percent. The across the board increase of service tax by 2 percent, which will likely increase revenues by ` 18,000 crore would pinch the pockets of consumers. The indirect tax hikes would further stoke the inflation. On the policy front too, the ambit of MAT has been expanded and shall now include IT units operating

in SEZs. Further in an attempt of rationalization of international taxation provisions, the scope of taxability in India has been widened, thereby nullifying the Vodafone judgement.

Silver Lining

The saving grace for the budget was its infrastructure focus. The target for awarding highway projects has been raised to 8800 km in FY13 from 7300 km in FY12. Furthermore, various infrastructure financing schemes have been announced. These include doubling of mobilization under tax-free infrastructure bonds to ` 600 billion and permission to access ECB (external commercial borrowing) for rupee expenditure of power projects, low-cost housing, toll road projects and CAPEX in the aviation sector.

Personally For Me

The increase of ` 20,000 in tax exemption limit for individuals will leave some money in the hands of the consumers already plagued by high inflation. The additional tax shield for income up to ` 20,000 for investing in designated infrastructure funds has been removed, neutralizing a part of this gain.

Some unfulfilled wishes

In an era of falling hopes, it was expected that the government would use this stage to provide clarity on the roll out of DTC and GST. So in short, we look to the heavens for rains to rein in the inflation, we look to the heavens for global peace and prosperity so that growth comes back and we look to the heavens for dollars to boost FDI. —As told to Srikanth RP

VS Parthasarathy Group CIO, EVP – Group M&A, Finance and Accounts and Member of the Group Executive Board, Mahindra & Mahindra

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IT/ITes

2012

‘Re-introduce tax holiday for small companies’ In his 5-point wishlist from the Budget, Pradeep Udhas, Partner - Advisory Services, Head - IT/BPO, KPMG expected the government to re-introduce tax holiday for another 10 years as it will encourage new companies and entrepreneurs to start operations

efore I express my expectations for the Budget 2012, I would like to have a common understanding of where the industry is today, and where it can go. And there should be a common vision for this with the government. In the beginning, IT/ITES was viewed as a sunrise industry. So it was offered tax holidays, and this set the foundation for the industry. It is time for the industry to have an open dialog with the government, and arrive at a common understanding on where we are, and what is the potential for this industry in the next 5-10 years. But this does not happen only at the center — we should also involve the states as What industry some of these policies extend to the state level. expected The states should also define some niche areas for themselves. For instance, people in Gujarat are very active in the stock markets. So they could do BPO services in the capital markets. Also, most CAs of the country come from Gujarat, so accounting services could be outsourced to that state. Thus, there needs to be a well coordinated strategy at the state and also the national level. There are five things on my wishlist for the Union Budget 2012: #1 The 15 percent MAT on SEZs should be removed. By introducing MAT the incentive for SEZs is really dissolved. CIOs tell me about their inability to move people between units or the difficulty in creating new units. SEZs are typically located in the exurbs and the infrastructure there is not fully developed (in terms of township

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planning). So companies do not see any incremental benefit of relocating to these SEZs, and would rather pay tax by remaining in their present locations. By abolishing MAT the government could re-energize the concept of SEZs. #2 Re-introduce tax holiday for small companies. The government could classify “small companies” as those with revenue up to ` 250 crore or ` 500 crore. The tax holiday should be independent of SEZs, as the smaller or new companies may not have the capacity to have an additional center. The government should re-introduce tax holiday for another 10 years as it will encourage new companies and entrepreneurs to start operations. #3 Widen the scope of R&D credits for corporates. Right now there is 150 percent tax credit for R&D expense. But it is a stringent process and the scope for qualifying for tax credit is limited. Large companies can invest in R&D and must be able to enjoy tax credit. With innovation and R&D, the industry could reach USD 350 billion. So, the government needs to take initiatives to encourage innovation and research (both fundamental and applied). #4 Encourage public-private partnership for R&D. Much of this R&D can happen with academic institutions, as is seen in the West. Indian universities don’t have the capital to do this. Industry, academia and government could work together on the lines of the PPP (public-private partnership) model. The government can offer some grants and tax advantages. Perhaps we could have the equivalent of infrastructure bonds for R&D. How about an Innovation Bond? The government can offer a tax holiday for these bonds for

Pradeep Udhas Partner - Advisory Services, Head - IT/BPO, KPMG

a certain period. The corporates could invest in these bonds and the money collected could fund research projects. #5 More clarity for Transfer Pricing. If you are doing R&D work in India, sometimes Tax Authorities insist that the income from this work is “Indian income” and hence taxable under Indian laws. But there is a lot of collaboration at the global level in R&D projects. So if the government offers more clarity on transfer pricing it will bring investor confidence back. What happened in the Vodafone case caused a lot of damage in the international investor confidence. — As told to Brian Pereira

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UNION BUDGET

2012

IT/ITeS

‘Gap between what was expected and what has been delivered’ Amid FM’s fiscal limitations and revenue targets, the IT industry had a number of expectations from the budget. However, there is a considerable gap between what the industry expected and what has been delivered: Rajdeep Endow, Managing Director, Sapient India

his budget is packed with excellent intentions — it aims to trim down societal disparity through increased thrust on infrastructure, education and health. However, from IT industry’s perspective, there is a considerable gap between what was expected and what has been delivered. Amid FM’s fiscal limitations and revenue targets, we expected that corporate tax rate will be reduced; SEZ units will be exempted from MAT provisions; and excise as well as service tax rates will not be tinkered with. Likewise, we anticipated that advance ruling scheme will be extended for resident

Rajdeep Endow Managing Director, Sapient India

companies; period of re-opening assessment will be reduced to twothree years; timeline will be provided for Assessing Officer (AO) to pass appeal effect order; provisions will be introduced to desist AO from instigation of penalty proceedings in every assessment order; and clarification will be provided w.r.t. transaction that attracts both service tax and VAT on the same consideration — none of which came about. Thankfully, MAT rate is stable, if not reduced. Effective rate of service tax and excise duty has been increased from 10.3 percent to 12.36 percent and effective peak rate of custom duty has been enhanced from 26.85 percent to 28.85 percent — this is ill-timed and against the sentiments of the industry. The much apprehensive, but widely anticipated, General Anti Avoidance Rules (GAAR) to clamp down on aggressive tax avoidance has been announced. The threshold to be prescribed should be judicious. GAAR provisions should be instigated with caution — misapplication/misuse of the same should be monitored. On the Transfer Pricing (TP) frontage, some vital changes have been made. Revenue can now file an appeal before the Tribunal against an order passed in pursuance of direction of the Dispute Resolution Panel (DRP). Given that DRP had in the recent past, started pronouncing balanced judgments, this change may not have been warranted. TP provisions expanded to include ‘specified domestic transaction’ will translate into greater compliance/documentation by companies and audit by the TP officer instead of AO. Tolerance band

for determining Arm’s Length Price (ALP) has been fixed at (+/-) 3 percent. Consequently, from now on, assessee will not be entitled to the erstwhile benefit of (+/-) 5 percent safe harbor on ALP as standard deduction — impact of the same on litigation remains to be seen. Wider powers have been given to the TP officers to examine any international transaction whether or not referred by the AO — optimistically; this should not augment the misery of IT companies. There is a proposal to introduce a much hoped for Advance Pricing Agreement (APA) mechanism for transfer pricing. CBDT has been given the powers to prescribe a scheme specifying the manner, form and procedure. Once articulated, the scheme should be presented to the industry for commentaries, before implementation. By retrospectively amending the explanation of the term ‘royalty’ in favour of revenue, FM seems to be making the tax regime more arduous for India’s IT industry. IT industry is worthy of constancy and lucidity. On service tax, given the wide magnitude of changes proposed, it would be imperative to evaluate in detail the potential impact of each of these proposals. To what extent new simplified scheme of refund actually translates into speedy refunds at ground level remains to be seen. The much awaited introduction of GST and DTC are still under way — no definitive date of introduction has been pronounced.

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IT/ITeS

2012

‘Remove all ambiguities in the definition of software’ Praveen Bhadada of Zinnov expected the government to make certain key policy decisions in the budget to ensure that the IT industry continues to be on the growth track

hough India is projected to be a resilient economy worldwide, the Indian GDP is slated to grow at a relatively slow pace in FY13. The industry is expecting a slow FY13 to an extent that many companies are not event projecting the growth numbers for the coming year. To combat this state of flux, the government needs to make certain key policy decisions in this year’s budget to ensure that IT industry continues to be on the growth track, and has a positive outlook. Some of the key areas that need immediate attention are: MNC product development companies: India hosts about 700 companies employing about 200,000 people conducting R&D work. This makes the country What industry one of the most popular R&D destinations across expected the world, but there are certain challenges that the industry is grappling with: l The government has increased the MAT limit to 18.5 percent. This is a key burden on many of the small and mid-sized, as well as some of the large ‘zero tax’ companies. l Regarding the transfer pricing, it is unclear as to how one determines whether the cost savings from a particular location exists or not and to what extent this could be realized in India. l The value of IP creation and innovation is not defined appropriately for the purpose of income tax. We expect the government to take the following steps: l R&D credits for the purpose of income tax and service tax

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exemptions should be provided. R&D ecosystem should be created in universities to ensure sustainable growth of this industry. l Special incentives should be given to MNCs to run their end-to-end product development work from India. l Re-instating STPI schemes would encourage hundreds of other companies who are just waiting to globalize their R&D operations. Software product industry: The domestic software product market crossed USD 3.5 billion in 2011. The contribution of Indian product companies in the global market has crossed USD 2.0 billion, in the same time. The current challenges of the industry, however, are restraining the growth: l Piracy in basic software is as high as 80 percent in India. l Double taxation on software (VAT and service tax) is an added burden. Also, there is a lack of clarity on the definition of software as a product or service. l Lack of focus on the domestic market by suppliers, despite the fact that India is the third largest economy globally in PPP terms. l Lack of awareness in the customer segment (SMB, enterprises and consumers). We expect the government to remove all ambiguities in the definition of software and relax the tax burden, in addition to following: l Ideally, the software industry should be given as much focus as that of a priority sector. l We recommend creation of an IP academy with collaboration from all parts of the ecosystem including the

government at both central and state levels. l Relaxation on corporate tax and surcharges will boost the sale of software products in the country. l Mass scale awareness and skill development initiatives need to be undertaken by the government, along with the industry. l Tax credits should be provided to MNCs and Indian companies participating in building the awareness in the country. Startup ecosystem: There are over 2,500 digital and non-digital startups present in India. When we look at the total employed base of IT-BPO talent at 2.7 million and engineering enrolments of over 2.0 million, the number of startups appear to be minuscule. For sustained and robust growth of this important component of the ecosystem, we expect the government to: l Increase the focus on creating an innovation-oriented startup ecosystem in India. l Recognizing startups at a national level, creating adequate number of incubators in India, and encouraging industry collaboration for creating pan-India awareness. Semiconductor and IT manufacturing industry: The industry is currently import dependant due to lack of availability of a sound IT manufacturing and design ecosystem in India. We expect the government to: l Promote the manufacturing ecosystem in the country. l Focus on bridging skill gaps if any. l Provide incentives to companies using components sourced locally. l Provide R&D and tax credits to companies operating in this space.

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UNION BUDGET

2012

IT/ITeS

‘Initiative to earmark 20 percent of purchases will benefit MSEs’ P Venkatesh, Director & Co-founder, Maveric Systems analyzes how key issues from the IT sector perspective were addressed in the Union Budget 2012-13

he IT industry had numerous expectations from the Union Budget 2012-13. Let’s look at the top 5 expectations of the industry and how were they addressed in the actual budget: 1. Removal of MAT in SEZ zones: One of the points that was rated as ‘high importance’ across the industry was — remove the applicability of MAT in SEZ zones. Several large, as well as medium IT enterprises have invested in infrastructure in an SEZ believing that the government would be consistent in their fiscal policies. Also, there are several critical reasons why it is not possible to exit these spaces in a short span. Thus, it came as a disappointment when, despite being a key issue, SEZ issue was not addressed in the actual budget. 2. Assistance in funding: IT is a significant contributor to our exports,

P Venkatesh Director & Co-founder, Maveric Systems

accounting for more than a quarter. The merchandise exporting units qualify for concessional finance for pre- and post-shipment credit when compared to the normal commercial lending. Also, most of the small and medium IT enterprises do not have much to offer as collateral. Thus, the industry expected the benefits of concessional interest and lower collateral to their financing to be extended to the IT units. The industry also expected term lending on relaxed collateral terms to be extended for their capital requirement. The move to enable Small and Medium Enterprises (SMEs) to have greater access to finance by launching two SME exchanges in Mumbai is definitely a step in the right direction. 3. Assistance during the difficult time: There is a lot of uncertainty due to the financial crisis in the Euro zone. This is accentuated by low or negative growth in most markets. The IT industry is moving into a low growth phase, perhaps for the first time in its life cycle in India. The industry therefore expected the government to take following initiatives: a. IT product development should be given special concessions under tax; a rebate at 150 percent of the expenditure, both capital and revenue, should be extended. b. The rate of depreciation for computer equipment and software should be 60 percent of their cost. c. Benefits of Sec 72A of the income tax relating to carry forward and set off of business loss in the case of amalgamation or merger should be extended to IT as well. d. In order to help the SMEs in the IT industry, a fixed exchange support mechanism for dealings in key currencies should be extended. e. In order to encourage IT product

development and the consequent intellectual property rights (IPR) creation, Employee stock option scheme (ESOP) of such companies should be exempted from tax. However, this expectation has been addressed only partially in the budget. In order to promote investment in research and development, the government has proposed to extend the weighted deduction of 200 percent for R&D expenditure in an in-house facility beyond March 31, 2012 for a further period of five years. 4. Share in the growing domestic IT market: IT is and has been an export led segment. Only in the last three years, the domestic IT spend has reached a scale warranting the service providers to focus on this segment. This prejudices the small and medium enterprises that have been focusing on the domestic market for a long time. To counter this issue, the industry expected a large part of the expenditure to be met by the government and their owned enterprises. The government’s initiative of promoting market access of Micro and Small Enterprises is a welcome move. The government has approved a policy, which requires ministries and CPSEs to make a minimum of 20 percent of their annual purchases from MSEs. Of this, 4 percent will be earmarked for procurement from MSEs owned by SC/ ST entrepreneurs. 5. Corrective measures: There is a confusion regarding packaged software — whether it is a good or a service. The surcharge and education cess were introduced as interim measures. The industry expected clarification on the definition of software, which sadly was not addressed in the budget.

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2012

‘Industry expects reduction in corporate tax rates’ Considering the stiff competition that Indian IT-BPO sector is facing from emerging low-cost destinations, Prerna Mohan of Frost & Sullivan expected the budget to provide relief to the industry by extending tax benefits

Rationale – To increase an investment in the SEZs, the MAT Y 2011-12 has been a phenomenal year for the on SEZs must be removed. An 18.5 percent MAT, which is Indian IT-BPO sector with aggregate revenue stipulated to increase to 20 percent if the Direct Tax Code is estimated to cross USD 101 billion. Exports were implemented this year, is a deterrent for the investors. valued at USD 69 billion, recording a growth of Expectation 3 – Reduction in corporate tax rates 16.3 percent in exports from FY 2010-11. An 11-14 percent Rationale – The corporate tax stands at 30 percent and with increase in the export revenues and 13-16.0 percent growth in the added education cess and surcharge, it amounts to 32.5 revenues are expected in FY 2012-13. percent. The industry expects a reduction in the tax rate to a The robust growth of the sector in 2011 was recorded desired 25 percent or at least removal of the surcharge and in an environment that housed a weak U.S. economy and a the education cess. debt-ridden Euro zone. A rather weak global economy has Expectation 4 – Relief from the indirect taxes had companies cutting down on costs, leading to a more Rationale - Last year, new services were brought under conservative growth outlook by some of the major market the service tax net and the persistent problem of double participants such as Wipro and Infosys. The global IT spending taxation in the form of VAT and service tax led to increased is expected to grow at 3.7 percent in 2012 — the slowest in costs for the companies. Some relief from the indirect taxes the last three years. Since the revenue from exports, which would help the industry in its growth trajectory. accounted for roughly 68 percent of the total industry in Expectation 5 – Improvement in the infrastructure FY 2011, form a major chunk of the total revenue, the sector’s Rationale – India lags behind in providing proper dependence on the external economies cannot be overinfrastructure. Government support to the IT-BPO sector emphasized. The sector is especially dependent on the U.S. in providing infrastructure facilities such as provision of and U.K., which account for nearly 90 percent of adequate power, bandwidth connections and technological the exports. With other low-cost destinations What industry emerging such as Philippines, China, Indonesia, upgrading will make the industry more competitive. Egypt etc., a horde of incentives on the expected government’s behalf are required to retain India Conclusion as the preferred investment destination. I expect In conclusion, a difficult year is in store for the world the government to address the following high economy, affecting most industries. In such a scenario, priority concerns in the Union Budget 2012-13: growth at a slower pace is forecasted for the Indian ITExpectation 1 - Revival of the benefits BPO sector this fiscal year. Facing stiff under the STPI Act and Section 10A/B, the competition from other emerging nations, extension of tax subsidies and granting of tax the budget should provide some relief holidays to the industry by extending tax benefits Rationale - The benefits under the STPI under the STPI Act and reworking on Act include exemption from service tax, the implementation of taxes like MAT, excise duty and customs duty; rebate for reduction in the corporate tax rates and the payment of Central Sales Tax and 100 a re-structuring of the indirect taxes. percent exemption from the income tax of Provision of proper infrastructure would export profits. Tax subsidies and holidays further help the industry. will further provide momentum to the With the expected changes in place, industry, especially the Small and Medium the IT-BPO sector will see a smooth growth Businesses (SMBs). Looking at a slower pace path for FY2012-13. The greatest benefit of growth for this year, these incentives to be received from these reforms would will reduce the financial burden of the be higher investments in the sector, which Prerna Mohan companies. is essential to keep up with the forecasted Team Leader, Economic Research and Expectation 2 – Abolition of MAT from the growth rates in the exports and overall Analytics, Frost & Sullivan, South Asia & Middle East SEZs revenues in FY 2012-13.

informationweek april 2012

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UNION BUDGET

2012

IT/ITeS

‘The year ahead is going to be challenging for the IT industry’ Besides a little bit of relief in assurances on GST reform and alignment of service and excise tax rates, there isn’t much in the Union Budget 2012-13 from the IT sector perspective: SK Jha, MD and CEO, AGC Networks

e all know and agree that GDP growth coming down to 6.9 percent and fiscal deficit going up to 5.9 percent is alarming — and reiterate the fact that the government needs to act hard and fast. While before assembly polls, we were all looking forward for major steps from the government to focus on growth and supporting industries, post-polls (after Congress’ dismal performance) we all knew what could be expected from Union Budget 2011-12. Just like any other private company executive, I was hoping that budget will be industry friendly and was looking forward to get some major benefits for my industry and

SK Jha Managing Director and CEO, AGC Networks

industries I depend upon for business. But somewhere I knew that focus area for the government would be to control prices and inflation and improvising on GDP growth — in order to build a good image before the dawn of next polls. That is what the budget actually appears to be; it focuses on setting pace for next polls rather than pushing for major reforms. In a post-budget media interaction, the Prime Minister also mentioned that in a coalition government there are compulsions to be balanced (The railway budget fiasco would have confirm to it) — and we all can see how balancing is done in this year’s budget. With expectations aligned, we were prepared for and have received a so called “Safe Budget,” where government has refrained from a drastic step in openly supporting or ignoring any society or industry sector. The government itself has called it a balanced budget, with focus on reviving the growth. However, it aims to achieve it by fiscal deficit reduction through taxation and not looking at better expenditure management. Can taxation be the route for achieving growth when the government increases their planned expenses by 22.1 percent — especially when we have history of government overspending than the allocated spends? I personally do not agree. Second cushion the government has kept is the amount borrowed to run operations, which comes at a high interest rate. This too has been increased by 24 percent to ` 513,590 crore. Here too we have a history of over-borrowing. With these two cushions, the government has ensured

fund availability for improvising their performance in next polls. But despite all these measures — which were adopted earlier as well — we have seen growth rate coming down and inflation getting out of control. The government took similar steps last year too but they didn’t really do the magic in 2011-12. What if it is repeated? The burden which industries and common man may have to carry will be huge. Now looking at the budget from a professional perspective, I do not see any industry — be it manufacturing, automobile, FMCG, pharmaceutical, hospitality or even IT/ ITeS industry, which has said that their expectations have been met. They all witnessed a tough year in 2011-12. Besides little bit of relief in assurances on GST reform and alignment of service and excise tax rates, there isn’t much to talk about. From an IT industry perspective, I didn’t see much in the budget directly for the industry. We did want some supportive steps to help bring in investments but now I foresee a challenging year ahead of us. Finally, I am not too sure if the budget has been able to meet expectations on any front or has been able to give complete confidence in the strategy the government has adopted. We don’t have much to celebrate or worry about; everything has been kept for ‘wait and watch.’ Will we be able to tame inflation and control prices (the core around which budget has been weaved) and also regain the growth momentum? Only time will tell.

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2012

‘The government should provide tax exemptions to indigenous product companies’ Kamesh Ramamoorthy, COO, Ramco Systems expected Union Budget 2012-13 to include necessary infrastructure and tax exemptions for indigenous product companies investing in R&D in India — as these companies eventually create assets for the country

s a country and as individuals, we’ve witnessed all sorts of economic fluctuations in the last few years. The condition in India has been marginally better. In fact, if forecasts are to be believed, the economy is definitely looking up and sales are more upbeat. Product companies like us however are still keeping our fingers crossed. On one hand, we think as corporate companies do — objectively and practically; but on the other hand, we think merely as Indian citizens. At its heart, Ramco Systems is an Indian company. Yes, we’ve made successful forays in the international market, but essentially we are for Indians and by Indians. Being a product What industry company with strong focus on R&D, our expected expenses always tend to be high and profit margins moderate. While we are confident that these extensive R&D efforts we’re undertaking will eventually pay off, we look forward to support from the government. Indigenous product companies that are heavily investing into R&D in India are eventually creating assets for the country. Our products have all the capabilities to serve the global market because we adhere by every international norm and standard. Such companies should be listed as preferred vendors for the government and public sector projects, provided that they match the required technical and product expertise criteria. Certified indigenous product companies can also be given a fillip through investment allowances

informationweek april 2012

that will encourage them to continue investing in R&D. Some leeway can be given in the way of sops. Moreover, to promote product development and R&D in India, the government would do well to pitch in by providing necessary infrastructure and tax exemptions. This would be especially beneficial for small companies that have requisite talent but not necessarily the financial backing. SMEs are the torchbearers of our economy and it is my sincere desire that the government will encourage them by providing them with loans at low-interest rates. Also, it would be a great idea to bring back special subsidies given to SMEs for investments in IT. This will help SMEs adopt IT faster and thus remain competitive in the global market. Another welcome change that I hope to see is the introduction of a single tax code for software and commodities. By ensuring a common and simplified tax structure that is easy to interpret and apply, companies can enjoy substantial savings. I also think that introducing changes in the education sector will go a long way in helping the IT industry. For instance, the government could consider automating the back office activities of universities and colleges by utilizing a portion of the education cess levied. Not only would this ensure efficiency in the education sector’s administrative process, it can also give a boost to the IT industry. The government can also consider setting up finishing schools in collaboration with the industry. This will ensure that every student who

Kamesh Ramamoorthy COO, Ramco Systems

graduates is industry-ready. In the long-run, the industry stands to gain much by hiring graduates who are well-versed with the basics, as most often than not, companies spend a lot of time, money and effort in training fresh graduates. Overall, the IT industry has found the government to be quite supportive. And yet, I think the special privileges to a home-grown player has been lacking. By boosting and encouraging home-based players, the government would actually be promoting a sustainable economy.

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UNION Budget

2012

IT/ITeS

‘Budget could have delivered more operational clarity for IT sector’ Union Budget 2012-13 contains substantial amendments to existing provisions, which may lead to confusion. Instead of investing efforts in interpreting various provisions, the Finance Minister could have provided detailed explanations so that the industry can focus on business: Deepak Gupta, Head-Finance, iCreate Software

hile it’s a sure step in the right direction, the budget could have delivered much more strategic value and operational clarity for a key focus sector such as IT that is currently being impacted by the global slowdown and domestic challenges. At a fundamental level, the budget recognizes the importance of cross-border trade in the global context and several meaningful amendments have been proposed. For example, bringing domestic transactions within the ambit of transfer price regulation and empowering the revenue department to appeal against dispute resolution panel’s orders. Another welcome step is the proposal to implement the Advance Pricing Agreement, a move that would raise the confidence level amongst foreign investors. While APA will define tax certainty to a greater extent and will help in reducing transfer pricing litigations, one would be required to understand the specifics. The increase in service tax was expected and this is a step towards the much awaited Direct Tax Code. The FM has indicated that service tax refund related rules would be simplified, which should reduce the burden on cash flows of small/mid-sized IT firms. While the intent to refund service tax to software exporters is mention worthy, there is a perceivable delay in the implementation. Small and mid-sized IT firms were seeking clarity with regards to treating software as goods or services, which would have helped to apply relevant taxes. But the question — “Is VAT applicable or Service Tax?” — remains unanswered. The industry was also hoping to have clarity on taxation of profit earned from onsite activity (work performed at overseas customer locations). The introduction of the GST bill is a welcome move as this would do away with various taxes being charged currently but Deepak Gupta Head-Finance, some apprehension exists on whether GST iCreate Software and DTC will be rolled out as committed.

The industry was also expecting exemption of MAT from SEZs; however the budget does not have a provision for this. Instead the coverage has been extended to some more entities other than corporates. Small and mid-sized IT firms would definitely require exemption to SEZ, which would in turn help scale up investments by domestic and foreign investors. We have already experienced the decrease in investments last year as there have been no real benefits to the investors. Another observation is the budget discourages share transactions at very high prices, which was a practice to infuse unaccounted funds into the system. This is a bold move, but unless the specifics are clarified, it would have an impact on small and midsized companies considering private equity or venture funds to scale their businesses. Also, the methodology of computing fair market value needs to be defined clearly. At the moment, it is subject to the satisfaction of the assessing authority. PE and venture funds invest, based on estimated discounted cash flow and the prescribed methodology, do not support that. Without clarity on these points, it may be challenging for firms to source funding from private equity or venture fund companies. This budget contains substantial amendments/corrections to existing provisions, which may lead to confusion. Instead of investing efforts in interpreting various provisions, the Finance Minister could have provided detailed explanations so that the industry can focus on business. The government expenditure on IT will help some of the companies as it would put in place a system, whereby actual beneficiaries get their dues. The budget also laid emphasis on a ‘need of the hour’ infrastructure. The IT industry hopes that there is a roadmap in place to achieve this target.

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IT/ITeS

2012

‘Need for synergy between the government and the industry’ Pradyumna Sahu of PwC India expected the budget to have an education policy to address the current industry-academia disconnect and create a more employable workforce

he financial year 2012 will be a milestone for the Indian IT/ITeS industry. The revenues of this sector are expected to surpass the USD 100 billion landmark. The industry has been growing at a CAGR of over 22 percent in the last decade and contributed around 7.5 percent to the country’s GDP in FY11. According to NASSCOM estimates, the Indian IT/ITeS industry exports are expected to grow by 11 to 14 percent in FY13, a much slower growth rate when compared to 16.3 percent in FY12. The estimated growth rates for FY13 are on the lower side primarily due to the global economic turbulence in the form of sovereign debt crisis concerns in What industry Europe, protectionism in the West (including expected visa restrictions) and fears of a double dip recession in the U.S. With lingering concerns about the global economy, the Indian IT/ITeS industry is expecting a favourable budget. Here’s my wishlist for the Union Budget 2012: Re-introduction of STPI benefits for small and medium IT/ITeS companies: Small and medium-size companies are struggling with a moderate pace of growth. In addition to wage inflation and currency fluctuation, if they have to combat the steep upswing in tax rates from current 17-19 percent to 22-24 percent from FY12, it will affect their growth adversely. Simplification of tax structure The industry expects simplification of the tax structure to encourage more investments. Furthermore, the refund of service tax on inputs to exporters

informationweek april 2012

should also be made simple. Roll-back of MAT: In the last budget, the MAT was increased from 18 to 18.5 percent. The hike increases the effective tax rate from 19.93 to 20 percent (despite the reduction in surcharge from 7.5 to 5 percent) and thereby, a marginally higher cash outgo. A rollback of the MAT rate to 15 percent will bring relief to the industry. Additionally, the last budget saw the introduction of MAT on SEZs (both developers and units), thus reducing the attractiveness of the latter. Hence, the removal of MAT on SEZs is expected. Clarity on software tax structure: There has been a discord on how software should be taxed — whether it should be treated as services or goods and whether service tax or value added tax (VAT)/central sales tax (CST) is applicable. Cross-border social security agreements: Extending this to more countries (in addition to Germany, Belgium, Switzerland, France, Luxembourg, etc.) will avoid the need of double payment of social security by the employer and the employee (in the host country as well as the country of origin) on cross-border deputation. This will encourage the movement of IT professionals between India and these countries and will also reduce the cost of IT companies. Fund for training fresh engineers and graduates: This will help increase employability and will in turn reduce time-to-market, thereby generating quicker revenues not only for IT companies, but also for the government in the form of taxes. More importantly, it will help India actually leverage its demographic dividend to stay ahead of

Pradyumna Sahu Associate Director (Technology), PwC India

emerging low-cost economies. Education policy: The policy should address the current industry-academia disconnect and aim to create a more employable workforce. There needs to be a synergy between the government and the industry. By increasing the industry-academia engagement, educational institutes will be able to make the curriculum more relevant to the industry needs. Infrastructure investment: Inadequate infrastructure facilities in terms of transportation, connectivity, power and communication facilities have increased the cost of doing business in India. This is forcing IT firms in India to explore other low-cost destinations. In order to sustain the long-term growth of the IT/ITeS industry, it is imperative for the government to take measures to increase infrastructure investments.

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UNION BUDGET

2012

IT/ITeS

Budget: Halfway house for the IT sector Apart from promised acceleration of the GST, budget allocations for the UID scheme and removal of restrictions on venture capital investments, there have not been any major policy changes impacting the IT/ITeS industries: Soumen Mukerji, Associate Director, PwC India

he IT/ITeS industry has been the poster boy of India’s economic success story in the last decade. As depicted in Economic Survey report, this industry now contributes to 7.5 percent of India’s GDP and is growing at a CAGR of 14 percent — far outstripping the other sectors. No doubt, the industry expects policy support in the form of tax breaks and favourable investment climate. And for the Union Budget 2012-13, the industry very specifically was looking for: a) Re-introduction of the SEZ tax exemptions, perhaps in the form of a partial support scheme and converging with the Commerce Ministry’s proposal for a complete overhaul of the SEZ Policy and operating framework. b) More clarity and consistency in the application of tax rules, so that unnecessary litigations are avoided and non-value added time is minimized.

Soumen Mukerji Associate Director, PwC India

c) More adoption of e-governance under National e-Governance Policy (NeGP) and Electronic Delivery of Services (EDS). d) Rationalization of the refund provisions, especially of service taxes, along with ensuring liquidity and speed. The Union Budget has been a “halfway house” in terms of meeting these expectations. With the promised acceleration of the GST and the budget allocations for the UID scheme, e-governance will see a further boost. This is likely to have a ripple effect of creating more jobs in the IT sector through incremental projects. Removal of restrictions on venture capital investments will lead the way for more tech startups. But, beyond that, there have not been any major policy changes impacting the IT/ITeS industries. More importantly for IT firms, there has been no movement to bring back SEZ tax benefits. It was at least hoped that the SEZ operators will get back the MAT exemption, but that has not been considered. Similarly, there have been no directions regarding clarity on procedural matters, such as the random departmental denials of exemptions on export of services. The increase in the rate of service tax by 2 percent will escalate the costs of domestic service deliveries in this sector — something that is likely to have a cascading impact on the value chain, and may not be fully offset by the VAT scheme. Moreover, there has been no pronouncement on the double taxation (VAT and service tax) for the software maintenance contracts that has led to unnecessary P&L pressures for the industry. The one key provision of the budget that may have a seminal effect on the sector is the retrospective amendment to Section 9 of the IT Act — opening

up the field for demand of additional taxation from past acquisition deals. This industry has seen some of the largest M&A deals in India in the recent past. The sobering effect of the Supreme Court’s decision on the Vodafone case had caused cheer in the industry. This retrospective revision is a retrograde step and is likely to lead to major anxiety and uncertainty in the sector. The full effect of the change will be evident based on the position taken by the department on some of these cases. No discussion of the impact of the budget will be complete without a reference to the macroeconomic picture. The significance of the fiscal deficit and the slowing down of the GDP growth is likely to lead to a stress upon the economy. The IT/ITeS industry is significantly impacted by the wage inflation in India and is losing its competitive advantage of labour arbitrage. The economic stimulus in the last few years through tax benefits had allowed this industry to mature and become the leading contributor to the growth story of the economy. With the macro outlook being uncertain, there was a need (more than ever before) to provide a shield of cover in the current budget. However, this has been an opportunity overlooked. In sum, the budget has been somewhat silent on the IT/ITeS sector. The message seems to be clear — the government believes that this industry has matured enough to sustain its destiny without additional sops. This may be a disappointment for some sections, but seems to be the new normal of the expectation barometer.

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Domestic IT

2012

‘We expect more policy level support to enable domestic players’ Ashok Tripathy, Vice President & Business Head, Wipro Systems & Technology and IAS in his pre-budget wishlist, expected more support for domestic manufacturers and suggested that Special Additional Duty of 4 percent should be taken off as it favors import of traded goods at cheaper prices

e can see worldwide — in China, South America, Central Europe, — their government supports domestic players and local manufacturing. And this is what we believe the Indian Government should also strive for — if we wish to remove the tag of world’s back office as we are branded today. In the past, we have seen that the government is sensitive to the issues of domestic development and security. We would like to see more policy level support, which will enable domestic players. We hope to see good demand led by the government spending in IT hardware. The penetration of PCs in India is at What industry around 4 to 5 percent, which is among the expected lowest in the world. China is much ahead of us as its government supports domestic manufacturers there. There is huge room for growth and the demand could increase if the right measures are enabled by the government. We believe that the government should look at the following seriously to support IT manufacturing: l The Special Additional Duty (SAD) of 4 percent should be taken off as it favors import of traded goods at cheaper prices and thereby construed as anti-localmanufacturing. l We recommend that MRP-based assessment for IT Products should be withdrawn and assessment should be done upon the actual invoice value.

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l Enhancement

of abatement on IT products from 20 percent to 40 percent to cover manufacturing cost, taxes and levies. l The government in certain areas has provided structural benefits for industrialization and attracting investments from the industry. We expect the policy of excise duty exemption prevailing in less developed areas to continue for a full term of 10 years. We also feel that as a progressive step, duties on import/manufacture of computer goods for supplying to central/ state governments/undertakings, defense and railways should be abolished. We expect that the government takes measures in the following areas: l It is recommended that provisions be made under the CENVAT Credit Rules to allow periodic refund of unutilized credit on account of inverted duty structure. l Grant exemption from service tax on the downloading of operating systems on PCs by units located in areas that have been allowed exemption from terminal excise duty. l To clarify whether packaged software should be considered as goods or service. And if the same is considered as service, directions should be issued to State VAT authorities to exclude levy of VAT on software transactions. l Implementation of GST expeditiously with preferred status for IT products as they are big enablers in providing efficiency and improvement in productivity.

Ashok Tripathy Vice President & Business Head, Wipro Systems & Technology and IAS

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UNION BUDGET

2012

Domestic IT

What opportunities will ICT vendors get from the budget? Manish Bahl, Country Manager – India, Forrester Research elaborates on the indirect opportunities that vendors get to explore from the Union Budget 2012-13

hile the budget does not contain direct incentives to promote the domestic ICT industry, there will be adequate indirect opportunities for vendors to explore. Let’s take a look at some of the opportunities provided by Union Budget 2012-13 to IT vendors: l A common problem that India faces today is the significant imbalance between expenditures and revenues. The budget categorically highlights the need to deliver more with existing resources. Thus, we will witness increased demand for packaged and industry-specific applications, e-governance, analytics, and mobile apps to help generate sustainable revenues to fund investments. l The latest budget addresses core

Manish Bahl Country Manager – India, Forrester Research

power-related issues by announcing a substantial number of initiatives (a customs duty exemption of 5 percent on thermal coal, natural gas and liquefied natural gas and tax-free infrastructure bonds, to name a few). Power sector-friendly announcements will generate strong demand for smart grid technologies, including RFID, sensors, pattern recognition, BI and customer data management. l Rural healthcare is a key investment sector that will attract holistic ICT spending. The sector has received a 25 percent year-on-year increase in fund allocation from the government in the 2012-2013 budget, with a 15 percent increase in allocation reserved for the National Rural Health Mission program. With the emergence of many new large and small hospitals and healthcare units in rural areas, IT hardware (like storage, services, security, and networking equipment) and software (like digitization, clinical information systems, and hospital information systems) will gain maximum from rural healthcare spending. l With the objective of aiding MSMEs in the country, the Indian Government announced that it will allocate a USD 997 million venture fund for the segment. The fund will help MSMEs modernize their non-IT infrastructure. These MSMEs, for their IT needs, will start leveraging the cloud. Increasing commoditization will further demystify the cloud and increase its adoption among MSMEs, many of whom have an insignificant IT department — or possibly none at all. l The allocation for the education sector has been increased by 21.7 percent year-on-year in the latest budget, which will also drive

technology spending. Also, the proposals for setting up 6,000 schools through public-private partnerships (PPPs) and implementing a service tax exemption for school education infrastructure will generate substantial opportunities around PCs (desktops, laptops, and tablets), classroom technologies like interactive engagement, and back office technologies like CRM, ERP, BI and Smart Campus. Low-cost tablets (like Aakash) will be in much greater demand when backed by the government initiatives. l Infrastructure consolidation and integration will be the key. System and data center integration will deliver potential business for government-focused systems integrators. Generally, government departments and bodies have developed their own enterprise architectures with individual or point-to-point integration solutions. The integration of the network and service delivery infrastructure, as well as the integration of Aadhaar platform with all the government bodies will gain attention. The government has learnt from its past experience that just by pumping money into the system doesn’t guarantee success if the implementation is weak. Technology will act as an enabler for the Indian Government to achieve its growth target and will provide a sound base to provide better citizen services. Nevertheless, a lot will depend on how the government executes its strategy. The need of the hour is to adopt the CIO role at the federal and state levels and act more like an enterprise.

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Hardware

2012

‘Union Budget fell short of the expectations of the industry’ Sabyasachi Patra, Executive Director, MAIT feels the budget did not meet the expectations of the industry, which was looking for immediate relief on many issues. Let’s see what Patra had on his wishlist and how much of it has actually been fulfilled

he Union Budget is a much awaited event as it not only directly impacts the policies, but also sends a strong signal about the government’s focus. India, with its huge consumer base is a net importer of ICT products, and by 2020 the net imports are expected to be larger than even the oil imports. So encouraging manufacturing in this What industry sector is of strategic importance for a country expected like India. And when we know that manufacturing is going to reduce our unemployment levels and increase women’s empowerment, it becomes imperative to make it a priority area. However, the ICT manufacturing sector in India has to contend with

n the previous year, the IT industry was hit by the huge depreciation of the rupee, supply constraints due to the “floods of the century” in Thailand and lower investments in IT. So hike in excise duty from 10 percent to 12 percent and a similar hike in service tax have not come at an opportune moment. However, the increase is not just 2.06 percent due to the difference in excise/CVD duties and service tax. Rather the MRP abated methodology of duty determination results in the effective increase to the tune of 3 percent. Since the duty payment is not on transaction value (at time of import), the MRP base value is high on account of cost elements like vendors overheads, margins, channel margins, freight costs and the whole gamut of

informationweek april 2012

various disabilities and it becomes difficult to compete with the manufacturers abroad. India signed the ITA-I agreement and the customs duty on 217 tariff lines were progressively brought to zero over a seven year timeframe from 1998 to 2005. These led to anomalies like inverted duty structures where the components were charged at a higher duty than the finished goods. So manufacturers in India had to pay a higher cost for the components. This led to many industries closing down their manufacturing and turning into traders. In case of IT products, Countervailing Duty (CVD) equivalent to excise duty (10.3 percent) is levied along with 4 percent Special Additional Duty (SAD). So the total input duty on the raw materials is around 14.73 percent as against the duty payable on local levies. A major part of domestic electronics and IT requirement is imported and the value addition is very low. There are number of cases of inverted duty structures, where the cost of importing components is costlier than the finished products due to the parts and components attracting higher duties. Since the Finance Minister has specifically mentioned during the post-budget interactions that the Union Budget is not the only instrument for policy making, we expect these anomalies to be corrected in the near future. However, all is not gloom and doom, as the excise duty has been reduced to 6 percent for LED lamps and there has been full exemption of SAD (Special Additional Duty). The LCD and LED TV panels have been given full

Sabyasachi Patra Executive Director, MAIT

exemption from basic customs duty. The budget has also exempted parts, components and sub-parts required in the manufacturing of memory cards for mobile phones from basic customs duty and additional duty of customs. The budget 2012-13 has focused on few strategic directions to reduce the fiscal deficit by controlling the ballooning subsidies bill, skills development, external commercial borrowings etc. The ballooning subsidy bill is threatening to derail the economy. So, it is a very sound move by the FM to harness the power of technology to ensure direct transfer of subsidies to retailers, thereby reducing leakages. In this regard, mFMS (mobile based Fertilizer Management System) is a great step. Similarly, direct transfer of subsidy

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the finished goods of 10.3 percent. Thus, we expect that 4 percent SAD should be abolished in the budget and all cases of inverted duty structures should be removed so as to provide a level playing field for manufacturing facilities in India. India has signed many free trade agreements and these have also contributed in creating inverted duty structures. For example as a result of the signing of FTA with Thailand, finished goods are imported at zero duty, whereas LCD and LED panels attract a basic customs duty of 5 percent, disadvantaging the domestic manufacturing. A major part of the cost of manufacturing is the cost of logistics. It is a well-known fact that we have a few OEMs in the ICT sector in India like Dell, Lenovo, Nokia, HCL, Samsung etc. However, only a small part of the manufacturing ecosystem is in India. Unless the suppliers set up their manufacturing in India, the components as well as most of the finished goods will continue to be imported. Due to the prevailing high corporate tax rates in India, a number of component manufacturers are not keen in setting manufacturing in India. Rather than across the board

reduction of the corporate tax rates, the best possible way of attracting these investments to India from our neighboring countries is to exempt units engaged in ICT manufacturing in the SEZs (Special Economic Zones) from paying MAT (Minimum Alternate Tax) along with giving intra-SEZ transactions the benefits of physical exports which includes exemption from income tax. In this sector where products are imported at zero duty under the ITA-I scheme or through the Free Trade Agreements, there is absolutely no difference between exporting and supplying to the Domestic Tariff Area. So all products under ITA-1 manufactured in the Domestic Tariff Area should be given the same benefits, which accrue to physical exports such as income tax benefits, incentives under the Focus Products Scheme etc. MAIT is also expecting the Union Budget to spur demand creation in the sector. Looking at the societal benefits of increased penetration of ICT, we expect creation of special schemes for financing the purchase of PCs and laptops at concessional rate of interests. Similarly, broadband penetration will help in the delivery of services like eHealth, eEducation and will help in bridging the divide between urban

and rural areas. Hence schemes for subsidized broadband access will be of big help. Industry expects a stable tax regime as well as uniformity of taxation across states. There is huge uncertainty about the implementation of GST. Large investments in manufacturing facilities are done keeping in mind a long-term horizon. Speedy implementation of GST will help the industry to make investment decisions. Due to the multiplier effect of spends in IT and its societal benefits along with being big enablers in providing efficiency and productivity improvements, IT products should be provided the preferred status in GST regime. India, with its huge potential consumer base with their unique needs, would need products specifically developed for Indian consumers. So it is imperative that we give a boost to product development in India by giving 300 percent R&D credit for purpose of income tax to registered R&D houses. Also, such companies should not be required to pay MAT. Tax exemption and R&D Grants for the next 10 years should be provided to encourage the fabless semiconductor companies, which will in turn lead to the creation of the ecosystem.

for kerosene into bank accounts of beneficiaries is also a good move. If successfully rolled out, it can help in reducing our fiscal deficit and is likely to increase the buying power. The announcement regarding additional enrollment of Aadhaar numbers by ` 40 crore has not only come as a shot in the arm for the UID programme, but will also lead to financial inclusion through schemes like MNREGA, old age and other pensions and scholarships. The IT and electronics manufacturers are grappling with problem of lack of skilled manpower. So the allocation of ` 1,000 crore for National Skill Devleopment Fund is a great move as it will help in bridging the gap. One of the many problems faced by industries investing in manufacturing

facilities in India is the lack of lowcost housing for the workforce. Hence, allowing External Commercial Borrowings (ECBs) for low-cost housing is a good move, which will result in making the houses affordable for employees and will reduce the cost of doing business as well. The FM has also announced setting up of dormitories for women workers working in handloom and power looms. Given that a lot of women are unable to work in the factories due to the lack of low-cost housing and dormitories, the move to provide dormitories, albeit restricted to handloom and power loom workers at present, has the potential to be extended to women workers in electronics and IT sector someday. It is also a prudent move to allow ECBs for modernizing toll systems

throughout the country as this will increase ICT adoption. The setting up of GST Network and its operability by August 2012 is a good move as it will lead to increased usage of IT and we hope this will act as a harbinger of a speedy GST implementation. Investments in manufacturing facilities are done on the basis long-term planning. The implementation of GST will help the industry in making such long term planning. The Union Budget can be broadly divided into two parts as far as its impact and direction is concerned. The budget fell short of the expectations of the industry which was looking for immediate relief on many issues; however the Finance Minister has got the long direction right.

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Perspective

2012

Education gets its due! The budget addresses many issues of the education industry and will give it the right momentum: Ninad Karpe, MD & CEO, Aptech

he budget speech on March 16, 2012 by Finance Minister, Pranab Mukherjee definitely came as great news (almost unbelievable) for the education and skilling industry. I have been following budget speeches since many years now and I don’t recall any speech where so many references to education and skills development have been made. Here are the initiatives mentioned in the Union Budget 2012-13: Massive increase in allocations to fulfil obligations of the government under the Right to Education Act: l ` 25,555 crore under SSA (Sarva Shiksha Abhiyan) for primary education, an increase of 21.7 percent. l ` 3,124 crore under RMSA (Rashtriya Madhyamik Shiksha Abhiyan) for secondary education, an increase of 29 percent.

Nearly 6,000 new schools (including 2,500 under PPP model) to be set up in the Twelfth Five Year plan.

Proposal to set up a credit guarantee fund for better flow of education loans to deserving students. Education loans are given in India based on collaterals and guarantee, which seriously limits access to education loans for deserving students. If the new proposal is implemented, it could become a game-changer. It will lead to massive number of deserving students — with limited means — getting access to quality education. Loans in developed countries like the U.S. and the U.K. are not based on collaterals, and hopefully, Indian students will also get the same benefit of loans.

informationweek april 2012

Ninad Karpe Managing Director & CEO, Aptech

` 1,000 crore is being allocated to NSDC to assist it in its aim of improving skills development. A similar credit guarantee fund is being proposed for students who wish to acquire market oriented skills.

Service tax is being levied on all services, other than those mentioned in the negative list. The negative list includes pre-school and school education, recognized higher education and approved vocational education.

Around ` 460 crore has been provided to 10 institutes and universities to help them drive research and learning.

skills development will be allowed to the manufacturing sector. The Finance Minister has tried to cover a wide gamut of needs of the education industry — from primary education to universities. Setting up large number of schools and allowing private sector to participate in a PPP model will ensure that enrollment in schools will increase. Also, if the credit guarantee fund for education loans becomes effective, it will provide access to education to a large number of underprivileged students. Overall, this budget addresses many issues of the education industry and will give it the right momentum. A lot more could be done; but in fairness, a lot has been addressed in this budget.

Weighted deduction of 150 percent of expenditure incurred on

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UNION BUDGET

CFO Voice

2012

CFO’s budget wishlist Before the Finance Minister unfolded the Union Budget 2012, CFOs of two companies had shared their set of demands with Ayushman Baruah of InformationWeek. Rostow Ravanan, Chief Financial Officer, MindTree shared what the budget should address from a mid-sized company’s perspective and Ramesh Kamath, Chief Financial Officer, Aditya Birla Minacs talked about the challenges the IT-BPO sector is facing and what policy initiatives the budget should include, given the economic slowdown. Edited excerpts: What are your requirements from the Union Budget from a mid-tier IT services provider’s perspective? We would like the budget to address the following high priority issues for the Indian IT industry. First, some tax officers have taken a stand that revenues earned onsite, i.e. from work performed outside India, are not part of “software development”

income and therefore taxable in India. However, this step undermines the fundamental operating premise of the industry. The budget should explicitly clarify that onsite income is part of normal software development process, and is therefore eligible for tax exemption, in the same way as the revenue earned from work performed in India. Similarly, some overzealous tax officers have taken untenable stands while performing transfer pricing assessments, which have led to a lot of litigation. The transfer pricing regulations need to be codified in a transparent and fair manner. Removing the discretion of the transfer pricing officers as much as possible can be practical, to avoid this unproductive litigation. Finally, ESOPs — should be taxed on sale and not on exercise. How do you see the investment in IT from clients pan out in FY2013 and what impact can the Union Budget have on this? Customers in India have a double burden of VAT and service tax on software services they avail. This needs to be streamlined and only one levy should be applicable. Lowering of the tax burden will lead to better adoption of technology.

Rostow Ravanan Chief Financial Officer, MindTree

informationweek april 2012

What’s your take on Minimum Alternate Tax (MAT) rate? Should Special Economic Zone (SEZ) developer and units be exempted from MAT? MAT on SEZs — both developers and units — needs to be removed.

Developers and units within a SEZ committed a substantial amount of financial investment based on the government’s promise of tax holidays. The government wanted cash flow so they imposed MAT on SEZ units and developers, thereby effectively negating the tax holiday. This levy is quite egregious and should be removed immediately. Tax department should refund all MAT received in 2011-12. Should there be some clarity of taxation of a product vis-à-vis a service? Which tax category do technologies like Software as-a-service (SaaS), cloud and mobility come into? Currently, this matter is quite settled. Sale of packaged software attracts VAT. Sale of software services attracts VAT and service tax. Therefore, if a company avails of SaaS-based offerings, both VAT and service tax is applicable. This double levy adds to the cost burden, therefore one levy should be removed. What are your views on transfer pricing regulation? Do you expect any amendments here? As mentioned above, the current transfer pricing regulations give a lot of discretion to the transfer pricing officer and therefore the officer makes many adjustments to the declared tax return, which is unfriendly to the tax payer. The regulations need to be codified better and in a fair manner to remove the discretionary power of the transfer pricing officer as much as possible.

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Ramesh Kamath Chief Financial Officer, Aditya Birla Minacs

What are some of the economic challenges the BPO sector is currently facing and how do you expect the budget to address them? The Indian BPO sector has come through the global economic crisis much better than most industries — primarily because it offered, and continues to offer, a compelling economic environment to its clients. However, the industry continues to face challenges on the following fronts. From the buy-side perspective: (i) Political pressures and local sensitivities are forcing outsourcing buyers to retain jobs in their home location (and not just the country, even if it does not make economic sense. (ii) Slower growth of the client organizations has reduced the budgets, and hence reduced the growth of the industry compared to the pre-recession era. (iii) There is pressure from clients to push the overall cost of servicing downwards. From the delivery perspective: (iv) Unavailability of skilled and committed base of BPO employees. This has led to exit of voice BPO from India (except tech support) to the Philippines and Latin American countries etc., over the period of last 2-3 years. On the other hand, salary expectations are going up unreasonably. While, non-voice BPO,

KPO and tech support CCLM is still strong in India, competition from other countries is increasing. (v) Inflationary pressures are driving up costs of infrastructure and related items on one hand, and on the other hand clients are looking at pushing the overall cost of servicing on a downward trend. (i) Lack of financial incentives to small and medium-size enterprises (ii) There’s also reluctance from banks/ institutions to lend to SMEs. We have also heard that dollar-based export credit is getting more difficult, while borrowing in INR costs much more. What’s your take on the tax rates and what are your expectations from the budget? Our expectations from the budget are quite low as the government seeks to raise fresh funds to reduce the deficit. With the economy slowing down, we expect these to directly hurt those industries, which are growing and the BPO industry is one such group. However, we hope the government will look at: a. Retaining and increasing the benefits under the STPI scheme. b. Allowing companies to not pay service tax, VAT and all related taxes on purchase of goods and services for exports. Today, this is expected to operate by way of refund from the government — which is either delayed significantly or, as is the case in Bangalore, never given and prone to deductions. c. Providing some incentives under direct taxes for SMEs. d. Bringing inflation under control to bring down the potential increase in input costs. e. Providing credit to companies more easily and on more reasonable terms. f. Allocating funds to education ministry to work on improving the quality of the graduates that India churns out. g. Offering state level incentives for generating employment opportunities in Tier-II and Tier-III cities in India. (subsidized electricity/

infrastructure/employment promotion incentives etc.) What are your views on transfer pricing regulation? Do you expect any amendments here? Transfer pricing regulations are fair on paper. But the problem lies in the implementation. Most transfer returns are rejected and come back with huge demands. Assessment orders follow their own logic and are not in line with global practices or even written policies forcing assesses to appeal. Appeals with the department are usually in favor of the treasury — again forcing companies to go to courts, where the company has to first pay part of the demand before being heard. What’s your take on Minimum Alternate Tax (MAT) rate? Should Special Economic Zone (SEZ) developer and units be exempted from MAT? Today, MAT is almost equal to the effective rate that companies would have paid after adjusting certain incentives. It is better to eliminate most incentives and retain some, so that companies would pay tax without the need to introduce MAT separately. SEZs were supposed to be islands, with a fair degree of autonomy within the economic fiber of the country to provide strong incentives for growing exports. Today, with MAT, the bureaucratic processes and concerns around land acquisition with the consequential close involvement by the state government has killed the attraction of SEZs. How do you see investment in the BPO sector in FY13? As per NASSCOM, BPO investment in FY13 will grow. But it will be tough, as competition from other countries is increasing. Also, the U.S. and Europe, (which are the main client markets) have still to recover from the economic slowdown. Domestic BPOs will grow, but profitability is significantly coming down with lower rates and higher costs. This will make most large BPOs reluctant to bid for such deals.

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2012

Budget Reactions

How IT industry is reacting to budget 2012-13 Professionals in the IT industry feel that the government’s focus in Union Budget 2012-13 has clearly been on infrastructure and agriculture and there have been no big reforms or changes in the budget from an IT sector perspective. Here’s what the IT industry has to say about the Union Budget Overall it is a fairly ‘political budget’, with very little in the way of bold (or even timid) reforms to drive economic growth. Given the current economic climate it seems to be focused on not upsetting anyone (read political ‘allies’) too much, by not trying to please anyone too much. The only silver lining is some increase in outlays to the infrastructure sector, but given the massive requirements, even this is likely to be seen as too little, too late. From an IT sector perspective, there is nothing specific that is either a strong negative or positive Partha Iyengar, Vice President, Distinguished Analyst, Regional Research Director, India, Gartner

Scaling up of the Aadhaar project as well as enabling it to support PDS will greatly benefit the common man. Leveraging technology to transfer subsidies directly to beneficiaries is definitely a positive step. On the industry front, setting up ` 5,000 crore venture fund for MSME sector is a welcome move, given that SMEs employ a sizeable population. We are also hoping that the GST roll-out is on track for August this year Naresh Wadhwa President and Country Manager, Cisco India & SAARC

informationweek april 2012

There is nothing to cheer for small and medium-sized companies. Neither there is any consideration on tax exemption on software exports nor there is any change in the corporate income tax Sunil Chandna, CEO, Stellar Data Recovery

There is nothing exciting or new in the budget for IT enabled industry. Increase of 2 percent in service tax and excise duty is bound to affect MSME industry adversely. This will put further pressure on already sluggish auto and manufacturing segment and in turn will affect their MSME suppliers adversely. Introduction of GST from August 12 is a welcome indication provided the government does not slip on this new date like the earlier promises Vikas Khanvelkar, Managing Director, DesignTech Systems

Last year, due to unfavourable global factors, India’s economy was largely affected. This year, the Finance Minister has proposed a fair bill which is populist in nature. It bodes well for new investors and also creates a wonderful picture in the health, education and NREGA sectors. For the IT industry however, this is a moderately encouraging bill and has made few strides in the development of the sector Jagdish Mahapatra, Managing Director India and SAARC, McAfee

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Although it was a status quo budget aimed at fiscal consolidation, there were quite a few bright spots for the industry. The Finance Minister re-emphasized the need for GST to replace the existing indirect tax framework. Explicit fund allocation to UID-Aadhaar project is another positive indication and would have far reaching benefits to the social mass of India. The budget has also brought in changes to existing excise and service tax structure. The introduction of new tax slabs at direct tax framework lays a foundation for early enablement of DTC (Direct Tax Code) in India V R Ferose, Managing Director, SAP Labs India

While the FM called for speedy reforms, the budget did not indicate much in that direction. The key highlight, however, was GST which is now expected to be operational by August 2012. We hope that this timeline is met as it would certainly help address the multiple taxation issue faced by the MSMEs. We had also expected some effective mentions to simplify taxation to allow better compliance by MSMEs. This still remains to be looked at by the government

The government has decided to introduce provision regarding the implementation of Advance Pricing Agreement in the Finance Bill. This will provide tax assurance and help the government analyze a transaction before it takes place rather than waiting for couple of years till the assessment of tax return is started. A good APA structure would help Indian and multinational companies surmount sticky tax related issues. What was disappointing for our industry was the moot point on the removal of MAT Matthew Vallance, MD & CEO – Firstsource Solutions

Dinesh Agarwal, Founder & CEO, IndiaMART.com

The FM has demonstrated the “inprinciple” acceptance for moving towards Unified GST by standardizing tax rates across the spectrum of services. The rationalization of tax slabs for non-corporate income taxes is also a step towards the implementation of Direct Taxes Code. However the increase in excise duty and service tax rate would mean higher costs for the industry. The pill could have been sweetened by a reduction in corporate tax rates Ashutosh Prabhudesai Controller & Director Finance, FUJITSU Consulting India

With increase in excise duty, the required stimulus for growth has been curtailed and would be inflationary. This puts pressure on the already slow manufacturing sector. Initiatives to bring down subsidies from current 2.5 percent of GDP to 2 percent in 2012-13 and 1.75 percent in 2013-14 is welcoming. GST & DTC reforms are not being pursued as aggressively as expected by the industry. Overall not a very clear and growthoriented budget Sandeep Nair, President and MD, Emerson Network Power

Corporate tax not being tinkered with is the only source of joy for private industry in general. Skills development being the other area where the minister has put a lot of stress, with a commendable credit guarantee scheme rolling out in addition to an enhanced allocation (` 750 crore) for the National Skill Development Council. However, with an increase in excise duty and service tax, the burden felt by the taxpaying citizen will go up further Anil Valluri, President – NetApp India Marketing & Services april 2012 i n f o r m at i o n w e e k 47

CEO Interview

‘Mahindra-Satyam has service differentiators’ When is the merger going to be completed? What is the merged entity going to be called? The name (of the company) will be formally announced on the day of the merger. Presently, we are two separate public limited companies. There are a few steps to the merger process. There is the AGM (annual general body meeting), the Competition Commission of India, the stock exchange regulators, and two high courts (for approvals). It should take 6–9 months (Nov–Dec 12) but it would

definitely happen this calendar year. You have said that the combined entity will be a company that is going into the big boys club. While big boys like TCS and HCL have sales that are double or more, why do you equate yourself with the big boys? How will you differentiate yourself from say an HCL or Wipro? What gives you the confidence that you will succeed? In the next calendar year we would be an almost USD 3 billion company with

75,000 employees. That is a fairly large company in the market. And in terms of facing the big boys, the ocean is big. Indian IT, at USD 100 billion, is only 10 percent of the global market. So, there is 90 percent of the ocean that is yet to be explored. The company below us in pecking order is three times smaller. There is a huge appetite for differentiated and focused service offerings. I am confident that I have advantages. There is the diversity

Mahindra Satyam and Tech Mahindra will complete their merger at the end of 2012, and become India’s sixth largest provider of IT services, with a market capitalization of USD 3 billion. While the big boys have sales that are four times or double, everyone’s asking what will be its service differentiators. CP Gurnani, CEO, Mahindra Satyam shares his go-to-market strategy, and why he is so confident of success 48

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of the Mahindra Group, lineage and legacy of having a telecom-centric company, or Satyam’s incredible solutions and reach for enterprise customers. How will we differentiate? We are clear that our strengths are networks and communications, and enterprise business solutions. We internally use the word NMACS — Networks, Mobility, Analytics, Cloud, Security. We believe our service offerings are very differentiated around this, we also have the scale for that. We will put wrappers for the various verticals that we go to market with; we have the domain knowledge; and demonstrate our skills in process knowledge of the industries that we serve. What will be the go-to-market strategy of the unified entity? There are three sides to this. Firstly, we need to strengthen the sales engine; we need to put the growth engines into place. Secondly, we are looking at doing some joint ventures, in Central and South America, and different parts of the world (where we are not present), such as Eastern Europe. Then we will create marketing campaigns around some of our alliance partners, and thirdly, we will look at some nonorganic growth particularly in areas that are strategically important to us (verticals). You are very strong in telecom, with most of the customers from this vertical. But what about the other verticals? We are looking at BFSI and healthcare too. We are also looking at accelerating some of our business through acquisitions, in Engineering and Aerospace. For Defense, we would not be doing an acquisition, but we would be pursuing opportunities in internal security, homeland security, and cyber security. These are clearly our differentiators and we have a very robust practice in that area. Tell us about the restructuring activities. What will be the new divisions? Are you going to reduce headcount?

There are no plans to reduce headcount. In fact we are looking at growth. We will have three independent business units. One will be Enterprise (the erstwhile Satyam), Telecom (Tech Mahindra), and Business Operations and platforms for non-linear growth and to take over operations. To serve them, HR, Finance, Legal, Marketing and Quality would be the shared services. BT has been a major equity holder with 23 or 24 percent. They’ve expressed their desire to sell out their equity, and are waiting for the merger. What will be the outcome? I’ve said this a number of times. BT is a very strategic partner for us and we owe much of our success to BT. They also happen to be our largest customer. Whether they sell their equity stake or not, that relationship will continue. What they do with their investments is really their call. When the Mahindra Group announced its intention to acquire Satyam in 2009, you took on a tainted company, and there was naturally a lot of negative sentiment. But you personally handled the integration very well. How did you do this? What is the sentiment among customers and employees today? The fact that we continue to retain and win new customers is the biggest testimonial to customer confidence in the capabilities and in the people of Satyam. In the past three years, the company has seen scandals, shocks, relief, anger, frustration, and the exodus of 10,000 colleagues (employees). (Ed: Many employees later returned to Mahindra Satyam, as customer confidence was restored and business was sustained). But the mood is now upbeat and confident. It is a huge achievement for our people, and I want to salute the spirit of our people (customers and employees).

Indian IT, at USD 100 billion, is only 10 percent of the global market. There is a huge appetite for differentiated and focused service offerings

u Brian Pereira brian.pereira@ubm.com

april 2012 i n f o r m at i o n w e e k 49

CEO Interview

‘Being technology-savvy will be a success factor for the insurance sector’ It’s rare to see a CEO so passionate about technology. How do you view IT and how is IT supporting business in your organization? The passion for technology comes from my technical background, having worked for seven and a half years in IT. I began my career with Wipro and was also the founding member of the Compaq team in India. When I was in IT, I used to support financial businesses, the stock exchanges, as well as non-financial services. Even while heading business at Tata-AIG, I was involved with, and supervised critical technology projects like CRM. This always helped in better coordination between business and IT functions. So, I espoused the importance of IT in business long before this particular instance.

We are a late entrant and a new company. We do not have an insurance legacy. So we had to have something different (technology). It’s my personal belief that being technology-savvy and doing things through technological means will be a success factor for the insurance sector in India — be it better customer connect or lower operating costs. To give you an example, there exists a practice of issuing cover notes for motor insurance prior to the issuance of the policy document. Cover note is a temporary document preceding the insurance policy. From the time the insured pays the car insurance premium, to the time he gets the insurance policy from the insurer, insurance companies issue a cover note to the client. We have done away with it because we have implemented instant policy issuance

across the country. With the help of our robust and flexible technology — Java-based service oriented architecture, a seamless end-to-end web-based technology — we have become the first insurance company to implement “Instant Policy Issuance - No Cover Note” strategy. We issue instant policy, anytime, anywhere, in a matter of minutes to the endcustomer, thereby making cover-note issuance a redundancy. Microinsurance is also one of our key focus business areas. Our microinsurance products have been tailor-made specifically for the low-income sections of the society residing across rural and semi-urban areas — addressing their needs and suiting their income patterns. The premium for these microinsurance products is as low as ` 50 per annum. We are the first insurance

L&T Insurance won the Global Model Insurer Award for Enterprise Systems, for their best practices of outstanding system integration and for realizing organization wide results in short time frame with end-to-end solutions. Last year, it received the ‘IT Leadership Award’, at the Asia Insurance Technology Awards 2011, for vision and leadership in delivery of technology to the business. In an exclusive interview with InformationWeek, Joydeep Roy, CEO and Wholetime Director, L&T General Insurance Company elaborates how technological excellence and innovation have impacted his business and its customers 50

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company to have invested in a complete cloud (Pay-per use/OPEX Model) based web platform, which enables us to issue microinsurance policies on the spot through the channels across remote locations of the country. It is not just the efficiency of productivity but also the sheer cost of operations, which comes down because of technology. With technology, there are no reconciliations to be done and entries are correct the first time. Wordings are correct and they are uniform.

We are also the first insurer to implement ACORD (Association for Cooperative Operations Research and Development) standards in India, and probably in Asia. So we are future ready for the next 10-15 years. This initiative was recognized and appreciated by the IRDA, and they invited us to share our experience at the Indian Insurance Forum. We also run completely on SOA (Service-Oriented Architecture), so our systems can exchange information with systems with a bank, distributor, vendor, etc.

away for business users. Customer de-duplication, household concept for effective lead and campaign management are also done through the web. L&T Insurance is the first insurer in India to initiate comprehensive Data Warehouse Project, which is based on Industry Standard Data Model (Insurance Information Warehouse IIW). This overall architecture will indeed lead to single view of customer and single version of truth. The highly parameterized systems provide ability to empower the business users,

We are a late entrant and a new company. We do not have an insurance legacy. So we had to have something different (technology) Today, our policies can be issued at any location across India. Since everything is from the system, there is consistency, accuracy and uniformity. So I don’t have to worry about policy issuance difficulties in some remote location. How has technology been a differentiator for your business, giving you an edge over competitors? We invested heavily in an endto-end IT solution for the insurance sector, which is a unique example of enterprise systems across global insurers. We have a great degree of automation for processes like policy issuance, data management, underwriting, document management, storage, claims, reinsurance, financial accounting etc. It’s built into one whole system that is customized as per our needs. And it’s all web-based and mobile-enabled, so you don’t need specialized hardware or software to access it. It’s based on an open architecture technology stack with core foundation of Java for e.g. J2EE, ESB & MTP, which leads to effective IT TCO (Total Cost of Ownership).

The result of all this is that we have been able to issue policies in 1,200 locations seamlessly, without any problem. We have settled 5,000+ claims and our TAT (turnaround times) are well within standards. You place a lot of importance on technological excellence. What impact has this had on your business and customers? Technology is just another way of doing things. Here you spend a lot of money and effort to make comprehensive back-ends — to make the front-ends very simple for the customer or partner or user. We also think that more and more people will eventually start buying policies directly through the web, in the next 3-5 years. And we have an edge, as we are ready for providing a seamless experience on the web. We already do close to 1 lakh policies, 5,000+ claims, all financial accounting, policy issuance and policy administration processes — like endorsement, cancellation, revival, collection, re-insurance, co-insurance — through the web. Our systems are completely compliant as per IRDA regulatory norms. Reporting needs are one-click

this will help us achieve one of our objectives of ‘Power to Business.’ What is your mantra for innovation? Innovation is a mindset, a risk that one takes. It does not always depend on hard data and what is available (facts). For instance, we are optimistic that people will buy policies off the web, and so we have innovated; it is a change that we are banking on (there is a risk involved). All innovations need not be in product or technology. We also did an innovation in health insurance servicing. It is generally believed that claims settlement in health insurance is not easy. There is uncertainty on when the claim is settled. So, we came up with some innovations. For instance, we have a service guarantee clause for one of our health products. If you give us all the information for cashless, we will settle the claim within six hours. And if we do not, we pay you a penalty in money. That’s an innovation in service.

u Brian Pereira

brian.pereira@ubm.com

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Interview

‘70 percent of our new business would be cloud driven’ Bangalore-based Aditi Technologies recently acquired Seattle-based cloud computing startup Cumulux. Since then, Aditi has been more aggressive towards the cloud than ever before. Pradeep Rathinam, CEO, Aditi Technologies shares his company’s cloud strategy in depth, and gives an Indian context to the cloud, in an exclusive interview 52

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You recently acquired Seattlebased cloud computing startup Cumulux. What’s the strategy behind the move? We believe that the adoption of cloud will be a key competitive advantage for our customers and will be the dominant technology paradigm going forward. The old way of IT services of managing legacy deployments will be replaced by this paradigm shift. We see tremendous opportunity for Aditi in the cloud. Our proposition to the market has always been around innovation on emerging technologies and Cumulux gives us the head start with the most exciting new technology in decades — cloud computing. With them, we are positioned to be the leader for all Microsoft-based cloud transformation. We see almost all our future revenues being influenced directly or indirectly by cloud platforms. The acquisition gives us two very clear advantages in the market. First, we are positioned as the leader in cloud driven transformation today. So, it’s a big advantage in a competitive market and has the ability to transform our growth trajectory, margins, brand and positioning. Second, it gives us the capability of driving innovations on social, mobile and digital markets — the markets we currently target, and are already heavy users of cloud technology, and hence will give us bigger share of wallet through thought leadership. So, it gives us a growth engine and a strong differentiation. How much (percentage) did cloud contribute to your total revenues before the acquisition and how has that figure changed now? Over 70 percent of all enterprise apps and ISV products will move to the cloud in the next 5-10 years. We are confident that 70 percent of our new

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business would be cloud driven while at the same time 50 percent of our existing customers are expected to migrate in the next two years. Building out a cloud delivery framework, driven by frameworks and best practices abstracted from over 100 cloud engagements will help us lead the services play in the ecosystem. How do you see the cloud computing market shape up in India? India will be a cloud-first IT market. Essentially, because traditional IT infrastructure isn’t all that prevalent in India. The infrastructure that will emerge to support the growing Internet ecosystem in India will

scalable model that is independent of traditional infrastructure. You have deployed cloud internally too. Can you give a sense of which functions/ departments are cloud-enabled and which ones aren’t? We believe in taking our own medicine. We want to be the first Indian company to have all our IT on the cloud. Recently, Microsoft released a showcase of our internal cloud migration and we are seeing over 40 percent savings in OPEX and incredible number of customer conversations

The acquisition gives us the capability of driving innovations on social, mobile and digital markets — the markets we currently target, and are already heavy users of cloud technology begin with cloud computing. For example, we are seeing a boom in startup driven e-commerce in India. Companies like Snapdeal, Flipkart etc., are achieving scale at a pace that would have been unthinkable three years ago. And cloud is enabling such companies to handle traffic spike, manage millions of transactions at a fraction of time and cost. Can you name some of the cloud-based customers in India? From which industry verticals do you see maximum traction? We have a “cloud-first policy” for every customer and in India too, we are having multiple conversations with companies that deal with high amount of data and traffic in sectors like financial services, web commerce, media and software products. Almost every ISV client of ours is actively looking to move mobile, gaming and Web 2.0 properties to the cloud. Even traditional, process driven industries like BPO, retail etc. are leveraging cloud to test the waters to build a

originating because of this. Clients like the fact that we are putting our money on the cloud and betting our own survival on it. It gives them confidence in us and a set of operational best practices that are hard to replicate. We are moving our entire infrastructure to the cloud and migrating all our internal apps to Azure. Currently, we have our mailboxes, intranet, marketing, office applications and sales functions cloud enabled. Our website and ERP systems will be moving to the cloud next quarter. Which model of cloud — private, public or hybrid, according to you will see more adoption in India? The trend we are seeing in India is fairly close to what we experienced in the U.S. Corporate IT will move to cloud infrastructure under ROI pressures. Line of business IT will aggressively adapt SaaS platforms like Dynamics and SFDC to accelerate time to market. And a PaaS

platform will integrate the hybrid model to drive cloud integrations across the board. Owing to price sensitivity, India is a strong market for SaaS-based products. But Indian CIOs have also been fairly reactive about modernizing legacy platforms. As companies continue to grow and scale, more and more companies will have to figure out how to integrate on-premise apps with SaaS products and tools. This is where we see a great opportunity for platform as a service, like Windows Azure. PaaS will benefit both end-users and SaaS vendors by providing a complete platform for integrating on-premise, as well as cloud applications. We are working with ISVs and SaaS vendors to create a pre-packaged combination of both the integration solution and the SaaS vendor’s offerings. And we are helping CIOs in India decide on the roadmap, economics and architecture for this migration. u Ayushman Baruah

ayushman.baruah@ubm.com

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Interview

‘Citizens are now seeing the value of e-governance’ What has been the state of readiness for e-governance projects? What is the next stage? There was a time when the state and central governments were building infrastructure. The last state development center is just getting covered. The last state wide-area network is being completed in Rajasthan. Until a year or so, the public had

What are the e-governance projects that ITC is pursuing? We have been an empanelled vendor for UID. We have also been bidding for projects such as Public Distribution System and state area-wide network. And we are doing projects for the Government of West Bengal. This is for the digitization of provident fund for the unorganized sector or worker. We have developed a complete web-based

With the infrastructure for e-governance projects almost in place, citizens are now seeing the benefits of projects like UID, Passport Seva and PDS. Ashwani Maheshwari, CEO of the India Division SBU, ITC Infotech tells InformationWeek about the scope of the opportunity and the projects his company is bidding for, and executing in some states no visibility of e-governance projects. But now people are able to see the value that is being added through e-governance. For instance, look at projects like Passport Seva Kendras, Public Distribution System, Crime and Criminal Tracking Network & Systems (CCTNS). These are all running on a backbone for e-governance projects. Hence, now there is a public sentiment that is being built around these projects. Since it is moving from pure-play infrastructure to a value-added space, this has attracted the interest of a larger set of players. There are people who want to develop solutions or do systems integration, in a PPP (public-private partnership) mode. That includes us. Can you specify in definite terms what is the opportunity for the domestic IT industry? A typical mission mode project would take at least two and a half years. Over the next 4-5 years, I see a ` 45,000 to ` 50,000 crore opportunity. And if you include Aerospace and Defense, then the opportunity increases further.

informationweek march 2012

solution. And we are doing a product lifecycle management project in the Defense sector. What happened to your bid for the UID project? And NPR? We got empanelled as a vendor for UID. But we did a study of the SLAs and the delivery parameters (type of biometric scan, accuracy of the scan, etc). The UID work cannot be contracted by the vendor. Putting all this in perspective we arrived at a particular costing. When the tenders came out and the initial contracts were awarded — they were awarded at a price that we felt was not possible for us to deliver, along with maintaining the quality. ITC as an organization will not compromise on the quality. We have put in our bid for empanelment for NPR. Your take on mobile technology for financial inclusion? Some public sector banks are doing brilliant work in this area, and we have been in touch with these banks. They are trying to merge the NREGA and the

financial inclusion systems together, and talking about NREGA payments through mobile banking. There are lots of partnerships involved in these kind of projects and we provide the IT solution or the backbone. What’s the potential of the mobility platform? Is it being untapped? Around the world people talk about fiber optic cable for the last mile. The last mile connectivity in India will be enabled through mobile networks. The potential is huge. But the trick is to have a solution for the bottom of the pyramid. We have to co-create solutions (with the market). The consumer knows exactly what he wants. So you can’t create a product first and then a market. We have a mobility center of excellence and are looking into unique solutions. But we are also looking at bringing banking to the consumer through other mediums, like cable TV or satellite TV connections. u Brian Pereira brian.pereira@ubm.com

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CIO Dialog

‘IT should be transparently involved in all business discussions’ With consolidation in the pharma industry, mergers & acquisitions were common at a global level in the last few years. And the Indian operations of the merged entities had to keep up. This was a major challenge for IT managers who had to ensure business continuity when integrating businesses (processes and systems). Milind Khamkar, Sr. Director - Information Solutions (India & South Asia), Sanofi talks about the M&As that he has been through and shares his best practices

n its journey from a classical pharmaceutical company to a global diversified healthcare leader, the Group has seen a spate of mergers and acquisitions. In my tenure with the Group, I have been a part of the coming together of Sanofi Synthelabo with Aventis Pharma Limited, Sanofi Pasteur’s acquisition of Shantha Biotechnics, Sanofi Group’s acquisition of Genzyme and more recently, Aventis Pharma Limited’s acquisition of Universal Medicare’s branded formulations business. I have worked on the integration of systems during these periods of transition — integrating these businesses, getting them under a common portfolio, and ensuring business continuity. When doing M&As, there is a need for due diligence and IT must be involved in this process from the beginning. If IT’s involvement isn’t strong from the beginning, you will receive incorrect data that leads to erroneous planning and execution. IT should be transparently involved in all business discussions, for a successful integration. Secondly, IT leaders should do a thorough anticipation of the risks (assessment). If one assumes something, it should be recorded and communicated to all parties involved in the integration. There is no substitute for planning — and this is a continuous process that should be revisited at every stage. You must have a Plan B in place. And don’t try to integrate everything together. It will be a disaster. Phase out your integration process, prioritize the phasing, and then start the integration process.Also, phasing should be done in close consultation with the business leaders. You must understand the business priorities.

Critical success factors for projects Milind Khamkar, Sanofi

informationweek april 2012

At Sanofi, we spend considerable time at the beginning of every project to ensure that is in line with our IT mission of a ‘Simple-Pragmatic-Secure: User Centric Business Automation.’ The critical success factor

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Career Track 1991 Began career as a junior COBOL programmer at Business Software 1992 System Analyst at TRIOLOGY 1992 Programmer at LOK Group (construction) 1994 Assistant Systems Manager at Roussel India (pharmaceutical) 1996 MIS Manager at Abbott Laboratories 2002 Sanofi Group (current company)

Career Achievements l

Automated the entire CFA Network for Abbott Laboratories

Introduced BPCS-ERP at Abbott

Introduced ETMS (Electronic Territory Management System) at Sanofi (one of three pharma companies to do so)

Introduced Navision ERP (the first implementation in pharma industry)

Managed the integration in India, when Sanofi acquired Aventis

Implemented common ERP, messaging etc., in the Sanofi-Aventis merged entity

is involvement and inclusiveness while taking initiatives. Most projects are of two kinds: either they are pure technology projects (completely owned by IT) or these are business-integrated projects. For pure technology projects (such as virtualization) you need to have proper project management, planning and execution. Partners should be apprised on the progress of the project, and their feedback must be sought on a regular basis. For business-integrated projects (such as automating processes) you drive the car from the back seat! You have to give them the ownership of the project. And speak in business terms; avoid technology jargon. I see major challenges when it is a cross-functional project, with no single ownership. Typically, the perceived benefits are not uniform, though the efforts are uniform. So to ensure the right team spirit you need to have good communication and ice breakers.

On change management

I faced a major challenge in terms of change management. This was most prominent when implementing our ambitious data warehousing project. We initially faced resistance among

users, and found that awareness of data warehousing as a concept was low. We observed that people like to spend a lot of time analyzing the data making less time available for analysis. They were also accustomed to using Excel to create their own reports for analytics. Our approach to change management was having regular interactions and transparent communications with key stakeholders. This helped us bring in greater understanding of this integrated solution, which helped our users reverse the 80:20 ratio (80 percent human effort to collate the data and 20 percent human intelligence and decisions). And naturally, this was much appreciated! The key to change management, is to be able to change and adapt in line with business needs and user expectations. One should remember that ‘one size cannot fit all.’

The key to change management, is to be able to change and adapt in line with business needs and user expectations. One should remember that ‘one size cannot fit all’

Interaction with business leaders At Sanofi, IT works closely with the management at multiple levels to ensure that we best support the business.

—As told to Brian Pereira

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Case Study

Agri-biotech firm utilizes 3G enabled tablets to benefit farmers Marketing and sales teams of Krishidhan Seeds are using 3G enabled tablets to facilitate timely delivery of critical agriculture-linked information to about 3 lakh farmers spread across 18 states in India By Amrita Premrajan

rishidhan Seeds, one of the top seed companies in India, is an agricultural biotech company involved in the research, production, processing, packing, and marketing of high-quality seeds of cotton, cereals, pulses, oil seeds and vegetables. Farming communities associated with Krishidhan Seeds across India have been availing not only seeds but also the intelligence of this company for growing better crops and deriving better yields. The company was facing a challenge in delivering the right information to needy farmers, as any issue faced by farming communities was tackled over a phone call. “Due to the communication gap, the problem was not solved effectively, as it was difficult to gauge the quality of the crop over a phone call. Also, the process was time consuming,” says M R Suresh, Executive Director, Krishidhan Group of Companies. The company was looking at a solution that ensured delivery of the right information to needy farmers as soon as possible so that they could take preventive measures and follow the required steps to avert any danger to their crops.

Equipping marketing teams with 3G enabled tablets

Krishidhan Seeds turned to technology to resolve this problem and equipped its marketing and sales force with 3G enabled Android mobile device tablets. This enables 300 plus technically trained and qualified agriculture specialists to be on the ground and provide real-time and instant solutions to the farmers and agriculture communities across districts, talukas and villages in 18 states

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“These tablets enable our marketing and sales team to engage with farmers across 18 states and connect them with our R&D experts”

Sushil Karwa

MD, Krishidhan Seeds

in India. “We have deployed two-three 3G enabled tablets, to make their work easier and faster. Amongst them one is Reliance,” informs Suresh. Employees equipped with these 3G enabled tablets are able to disseminate real-time information on pest and diseases, weather data, commodity market prices etc., to the farmers. This helps farmers associated with Krishidhan Seeds to quickly make right decisions in managing the crop, which in turn increases yields. Also, the field force uses these 3G devices to capture photographs, video footage and voice data from the field and then immediately relays it to Krishidhan experts located in their R&D sectors at Jalna and Pune, seeking their support in providing solution on the spot to needy farmers. The sales team is now able to provide instant information with regards to availability, supply status and despatch details. It is also able to give instant information on urgent stock requirements to the retailers. According to Sushil Karwa, MD, Krishidhan Seeds this is first time in India that any agrobased company has gone to such a length in streamlining this usually

unorganized sector.

Impact

Talking about how this solution benefits not only the farmers but also the company’s employees, Karwa says, “These tablets enable our marketing and sales team to engage with farmers across all our key markets in 18 states and connect them simultaneously with our R&D experts who sit miles away from them. This device helps our employees attain work-life balance. It also creates flow of information on a daily basis, as one can connect to farmers regularly rather than being chained to his desktop.” According to Suresh, it can be assumed that 1,000 farmers will be covered per 3G enabled device, which means around 3 lakh farmers would be benefitted with this approach. He shares that they are looking forward to the onset of kharif season during which they would be extensively putting this technology to use, so as to channel maximum benefits to the farming community. u Amrita Premrajan

amrita.premrajan@ubm.com

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Case Study

Food company utilizes ERP on public cloud; saves CAPEX funds Wipro’s cloud solution has helped Jindal Agro save a large part of CAPEX funds and focus on future business growth. The company has signed a three years agreement with around 15 user licenses By Vinita Gupta

indal Agro prepares, processes and delivers authentic Indian cuisines across the world. Being a food products company, Jindal Agro’s key focus, along with inventory management, was on delivering the right quality product at the right time. About 95 percent of the company’s business comprises of export, thus perishability was a major challenge the company was facing. In order to streamline, maintain and demonstrate the process, the company implemented a local ERP solution. However, the solution could not handle the data growth. The company then considered SAP’s ERP but did not implement it due to cost constraints. Being a growing company, Jindal Agro was looking for a cost-effective ERP solution as it wanted to optimally utilize the CAPEX funds for future business expansion. In December 2010, the company

Business impact l

Enables savings of large part of CAPEX funds, which can be used for business expansion Streamlines internal business process Enables to better understand and cater to customers from different segments Better inventory control, which in turn helps monitoring operational costs Efficiently and effectively monitor stocks for perishability

adopted SAP SBH (subscription-based hosting) solution from Wipro. SAP has tied up with Wipro to offer ERP as a Service (SAP SBH), so that SMBs such as

the departments, enabling various functions to interact seamlessly, which in turn helps in better monitoring and control. For instance, inventory can be

“I am a big fan of cloud computing; it helps SMB companies like us to utilize the technology with no upfront investment on the infrastructure”

Satvik Agarwal CEO, Jindal Agro

Jindal Agro can avail SAP services on a monthly rental basis. Since the service is a public cloud offering, security is builtin for each customer. Jindal Agro has been provided a secure channel that consists of firewall, VPN and separate LAN connection from where the company’s users can log in. Wipro Infotech is managing the entire infrastructure of Jindal Agro that includes network, security, operating system, database and applications. According to Vinay Dwarakanath, Head - Cloud Computing Services at Wipro, the service provided to Jindal Agro is a SaaS offering and not IaaS (Infrastructure as a Service), as Wipro’s IaaS offering only provides infrastructure and not SaaS — and in this case ERP is provided as a service.

Benefits

Wipro’s cloud solution has helped Jindal Agro save a large part of CAPEX funds and focus on future business growth. The system connects all

managed more effectively based on the information related to purchase order. The system also allows to keep a track of ready stock and availability of raw material. “I am a big fan of cloud computing. Cloud computing technology helps SMB companies like us, to utilize technology with no upfront investment on the infrastructure and it even helps to save on the technology implementation time and expertise,” says Satvik Agarwal, CEO, Jindal Agro. The solution has speeded up the flow of information from one function to another and has reduced errors, as now everything is system-driven. In future, Jindal Agro is planning to make its processes simpler and more systemdriven by reducing human intervention. The company is also planning to integrate its ERP system with its consumers ERP system based in the U.S., Canada, U.K., Japan and Singapore. u Vinita Gupta vinita.gupta@ubm.com

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Feature

Why

employees

don’t like social apps

Enterprise social apps too often get a lukewarm reception, but there are steps IT can take to improve adoption and use Michael Healey

hen it comes to social networking, most companies find themselves in a jam. While they’re extending their brand presences on the ever-popular public social network sites — Facebook, Twitter, and LinkedIn — they’re having a devil of a time getting employees to embrace their internal social networks. We asked business technology pros to assess their internal social networks, and the results skew downward: Only 13 percent say they’re excellent, 25 percent good, with 37 percent average and 25 percent fair or poor. For a high-profile initiative that everyone from the CEO down is watching, a 62 percent chance

informationweek april 2012

of producing average or worse returns counts as a high-risk proposition. This comment from one survey respondent, a senior IT director with a large technology company, captures the mood: “We have tried for over four years to push social networking in the enterprise. People just view it as one more place to have to look to get information.” Lackluster adoption is the biggest obstacle, cited by 35 percent of the 394 respondents to our Social Networking in the Enterprise Survey at companies using one or more internal social networking systems. That’s exactly the same percentage as a year ago, even as Facebook grew its user base 50 percent

to 750 million people. Facebook’s expected public offering this year will only add to the pressure for companies to do more in-house with social networking. So, is it time to write off corporate social networks as just another technology fad? No way. Social networking can pay off, but only if IT organizations take a stronger role in their companies’ internal and external social networking efforts. Internally, this means leveraging the habits users are developing on public sites and bringing those habits inside the company. In some cases, companies just need to tweak their in-house social software. CIOs and other business leaders must also give users a reason to stay active on internal social networks, by keeping content fresh and relevant, by making it easy to access, and by providing links to people they might otherwise connect with. Most companies’ marketing and support teams already are active on public social networks such as Facebook, Twitter, and LinkedIn. Now IT organizations need to step up their role, providing guidance on everything from security and monitoring to the best way to share content outside the firewall. Our survey finds that in 54 percent of companies, marketing has taken ownership of social network monitoring tools, up 13 percentage points from just a year ago. That may seem like a good fit, but not if marketing isn’t correctly setting up monitoring and coordinating activities with other groups like customer support. It’s not hugely important who’s in charge of those tools, but if IT is to have any role in how a company uses Facebook and other external social sites, it needs to fix its internal social networking projects first. And that may require a change of mindset. “People are trying to rationalize, police, and control the tool,” says Chris Laping, CIO of Red Robin, a restaurant chain. “The power of information technology is sharing information. What we naturally do with systems is lock them down, which prevents us from sharing information.”

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Crunch The Numbers

Eighty-seven percent of the companies in our survey have some form of internal social network (a blog, wiki, or portal, for instance), and the majority have had these systems in place less than three years. But usage is lagging. Only one social networking feature — online profiles — is in heavy or moderate use at more than half of the companies (53 percent) in our survey. Wikis, discussion forums, and blogs trail far behind — more than 20 percent of survey respondents say these features are in place but rarely used. When it comes to social platforms, Microsoft SharePoint continues to lead the pack — 63 percent of respondents use its social functions, though that’s down from the 71 percent who did last year. SharePoint’s dominance may be slipping as companies adopt cloud applications such as Google Sites (19 percent) and Salesforce.com Chatter (11 percent) or build their own (18 percent). One bright spot in this year’s survey is a notable drop in the percentage of respondents who say IT must explain social networking’s role to the company — down to 15 percent from 21 percent a year ago. That finding is important, because IT will need the support of company executives as well as the rankand-file to make social networking a vital part of employees’ lives. When it comes to interacting on public social networks such as Facebook and Twitter, most companies still fall down when it comes to monitoring, security, and even responsiveness to customer complaints. For instance, the percentage of companies in our survey that monitor social networks for discussions actually dipped 2 points this year, to 36 percent, while the percentage of companies with an official or unofficial presence on social sites rose considerably. So put your company’s message out there, but don’t bother to track how it’s being received? Internally, most companies use the basic tools of social networking: online directories, forums, and wikis. But those tools are just the beginning of a vibrant social platform. This year we see a slight rise in the percentage of companies using more advanced social networking

tools, such as social bookmarking and tagging. Still, only 23 percent of respondents use them heavily or moderately.

Set Social Free

Red Robin, a chain of more than 450 burger joints, shows how companies often ease into social networking with small-scale experiments. CIO Laping, who’s also the company’s senior VP of business transformation decided to try Yammer, a cloud-based social software platform. “We didn’t want to send out a memo and tell people we had a new tool,” Laping says. “Instead, we wanted to see how viral it was and how little user training we could do to drive adoption.” The first month, 20 to 25 employees stumbled upon it and invited others. People started asking about it, and Laping’s team filled them in and gave them the green light. Usage is now up to about 400 users. “There isn’t an overwhelming amount of usage of the system. People are still dipping their toes into the water,” he says. Long term, he would like to

reduce the company’s dependence on e-mail. He’s also watching to see how the use of Yammer will affect Red Robin’s SharePoint usage. Today, Red Robin completes about 95 percent of IT projects using SharePoint project workspaces, but a few early Yammer adopters are trying to organize their projects on the social platform. It would be cheaper to use Yammer, Laping figures, and he says it’s “more in tune with how people collaborate.” Red Robin has a long way to go. but Laping is convinced that if IT puts the tools out there and offers some basic guidance, Yammer will take hold.

What Do Users Want?

All of the comments and numbers in our survey boil down to a few takeaways: Employees want simplicity, usability, and integration. Enterprise social platforms need to have essentially the same functionality and layout as Facebook and LinkedIn.They must let users search, recommend or like content, follow discussions or people, embed content such as photographs and videos, categorize

How woud you rate the success of your internal social networking systems? 2012

2010

Great; usage is great among all targeted users and we’ve experienced improvements in communication and collaboration

13% 10% Good; there are small pockets of usage, but it’s effective for those using it

25% 28% Average; there are small pockets of usage, but people tend to rely on emails as the primary communication method

37% 33% Fair; very low usage, but they’re kept up to date and used as part of some operations

15% 17% Poor; rarely updated or used by anyone

10% 12% Source: InformationWeek Social Networking in the Enterprise Survey of 394 business technology professionals in October 2011 and 624 in August 2010 at companies using one or more internal social networking systemes

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Feature information with tags, and share documents. Ensuring that your social platform is easy for employees to use starts with single sign-on, which two-thirds of companies in our survey offer — that means a third of companies still require separate logins. Social software won’t be easy to use without tight e-mail integration. Facebook and LinkedIn let individuals link those sites to a person’s e-mail, and that creates the expectation. Yet 42 percent of the companies in our survey don’t offer e-mail integration of their internal social networks. Such integration can simply be e-mail alerts to new posts, but it also can include the ability to link directly from an e-mail message to the social site without an extra login, and the ability to respond to a comment.

Social Networking Gone Wrong

For an example of how not to do enterprise social networking, consider a USD 1 billion manufacturer’s launch of an internal site in 2009 for sales and marketing collaboration. More than two years later, of the 500 employees who had access, fewer than 2 percent visited

the site each month in 2011. Then new management came into the company and decided to revitalize the platform. The software didn’t offer an Outlook plug-in, but IT was able to configure it so updates and replies could be made via e-mail. The IT team added “follow” and “recommend” capabilities for posts and comments, which bolstered collaboration. The company doesn’t have an instant messaging platform, but it added a simple cloud-based chat app to the site. Sales assistants who usually took phone calls from salespeople in the field looking for presentations or documents started doing those exchanges on live chat, turning them into promoters of the social system. Thus, site usage rose steadily after the relaunch, with 60 percent of employees logging in daily after 60 days. But then site visits dropped by 25 percent over the next few weeks — average daily page views declined 22 percent and on-site time fell 36 percent. The culprit was stale content. The required regular updates from marketing and regional leaders slipped as people were pulled into different projects. Chat, document sharing, and several other site areas remained strong,

What’s your greater internal social networking challenge? 2012

2010

User adoption

35% 35% Time required to manage applications

17% 16% Increasing employee usage

16% 15% Explaining the role of social networking as it applies to business

15% 21% Cost control

10% 6% Source: InformationWeek Social Networking in the Enterprise Survey of 394 business technology professionals in October 2011 and 624 in August 2010 at companies using one or more internal social networking systemes

informationweek april 2012

but because marketing and regional updates were standard parts of users’ customized home pages, their absence quickly made the site look stale. Key to getting the site back on track was having the company’s top execs hold the marketing and regional leaders accountable — much more effective than having IT leaders nag them. Traffic rebounded as teams refocused, but a challenge emerged that still lingers today: Certain top execs persist in sending mass e-mails rather than use the social networking portal.

Get The Data On Social Efforts

The above example points to the need for hard data on how social networking sites are being used. In our survey, 61 percent of companies still don’t have analytics capabilities for their social sites. Of those that do, only 8 percent have enough analytics detail to understand participation and behavioral changes. Fortunately, there are dozens of analytics tools that you can drop into social applications, including SharePoint, to track usage. You can even use Google Analytics on a secure site for free. Analytics and reporting tools let IT teams know which features are and aren’t being used so that they can make certain ones easier to use or add ones that are more relevant. Use to your advantage the fact that Facebook, Twitter, and LinkedIn have done the hardest work for IT — they’ve trained people to think in a social context. But now IT has to do its part. It needs to assert itself when it comes to use of public social networks, pushing to get monitoring, security, and posting guidelines in place. On in-house social networks, creating metrics will be essential to monitoring what people are doing, so IT can react and better content and features can be added if activity falters. Working with business unit partners, this can revitalize a moribund internal social networking platform and get the benefits you always expected. However, IT needs to get involved to make it happen. Source: InformationWeek USA

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Opinion

Unresponsive IT? CEO must share blame

Doug Henschen

Social CRM and multi-channel marketing are the latest trends fueling questions about IT priorities, but have top executives bought into these priorities?

http://www.on the web 14 leading social CRM applications Read article at: http://bit.ly/GQDZ0b

arketing execs complain that their IT departments are ignoring important new marketing priorities and standing in the way of innovation. Two areas in particular where IT is seen to be less than responsive are multichannel marketing and social CRM. Multi-channel marketing involves coordinating efforts across retail outlets, e-commerce sites, contact centers, e-mail, and mobile. Chief Marketing Officers need help getting their arms around all the data and analyses generated across all those customer contact points. Unfortunately, CIOs and IT departments aren’t exactly rising to the occasion, according to a recent survey of 1,700 CMOs conducted by IBM. Social CRM is about connecting new marketing initiatives on networks such as Facebook and Twitter with established CRM systems. IT organizations are saying it will take at least six months to integrate their companies’ social and other online marketing initiatives with the everyday corporate databases, says IT consultant Tim Pacileo, Principle with TheBoardRoomAdvisors.com. “Never have I seen the marketing people more frustrated with IT,” Pacileo wrote in response to my recent InformationWeek feature “How To Get From Social To CRM.” Multi-channel marketing and social CRM may be at the top of the CMO’s agenda, but not all CEOs are pushing these trends. And CIOs and their IT organizations tend to be only as progressive and innovative as their CEOs expect them to be. CEOs must pay the same level of attention to digital marketing. At clothing retailer Guess, e-commerce is now a huge part of the company’s revenue mix, and multi-channel marketing is part of the core strategy. Guess recently launched a mobile app that, with customers’ permission, links in

with their Facebook profiles and likes. The point is that corporate strategies are all over the road map, and CIOs take their cue from the top. “When I met [CEO] Carl Camden during the interview process three years ago, he told me, ‘IT has been an obstacle for us, and it needs to be an enabler,’” said Joe Drouin, CIO of Kelly Services, at Salesforce.com’s Dreamforce conference last fall. “Our CEO has completely bought into the social enterprise, and he’s out there every day using the Chatter platform, bringing his message to the 9,000 people we have spread all over the world.” (Chatter is Salesforce. com’s social collaboration tool.) In an ideal world envisioned by marketing expert Tim Pearson, CIOs and CMOs would share the title of chief revenue officer, both held accountable for reaching revenue targets. But these executives often compete and focus too narrowly on their own priorities. IT is usually preoccupied with building out infrastructure while marketing is dazzled by the potential revenue growth of the latest new thing. Marketing needs IT’s help with technology platform selection, data integration, and systems integration, and it often underestimates the cost and difficulty of implementation. CIOs often nod in agreement during joint meetings, but they don’t take the time to detail marketing requirements. What’s needed is executive oversight, Pearson says. The CEO and COO may be aware of big picture IT and marketing initiatives, but they should also sign off on details such as budgets and key deadlines. In short, even if CIOs and CMOs see eye to eye on the so-called digital marketing revolution, companies can’t be revolutionary unless the CEO is also on board.

u Doug Henschen is Executive Editor, InformationWeek USA

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Secret CIO

Beware the blog in your company’s future

Herbert W. Lovelace

The last thing you want is uncontrolled and ever-expanding records of individual activities

http://www.on the web Is your corporate blog flame-resistant? Read article at: http://bit.ly/GSpXtQ

informationweek april 2012

ccording to leading articles, blogs are the wave of the future for enhancing the dissemination of company knowledge and fulfilling the potential of the Internet. Sort of like what e-business, ERP and CRM systems, and dot-coms were going to be before they got bloodied along the way. The idea of personal Internet logs is appealing — these diaries let people post the latest on what they’re doing, with hyperlinks to what they view as important. Perhaps, as some writers are saying, blogs are a new source of business intelligence, capturing the knowledge of key personnel for the benefit of all members of a company. However, if technology history is any guide, take the hype with a grain of salt. I sense that blogs will wind up in the same category as Internet chat rooms. The reason is threefold: quality of data, time expended versus value received, and the reality of litigation. The Internet is indeed a wondrous tool. At your fingertips is a plethora of data from which to choose. The problem isn’t finding information on the web; it’s filtering out the worthless babble and figuring out how much to believe of what we’re reading. Even if we restrict access to just those blogs posted by internal authors, we still run into the difficulty that not all opinions are anywhere nearly equal. Remember the hit show of a few years ago, “Who Wants To Be A Millionaire”? The part I found most fascinating was where a contestant asked the audience for help in picking the right answer. In general, unless the question was about pop culture, the audience was as likely wrong as right. Certainly, these aren’t the odds you want running a company. Knowledge management, and that’s what meaningful corporate blogs will require, is dauntingly complex and harder than simply picking the best development and maintenance vehicle. This particular

chimera has been around for a long time, and neither blogger nor any other weblog publishing tool can resolve it. A larger problem in a business environment is the amount of time people will spend on the blogs they feel compelled to monitor, and worse, create. How long will it be before people are e-mailing us hyperlinks to their blogs? If you think your staff spends inordinate amounts of time designing PowerPoint presentations now, just imagine what these wouldbe artists and authors will do to productivity when their creative powers are unleashed on the world of computerized diaries. Finally, and perhaps most compelling, is the litigation issue. With the exception of research labs, where you write down everything to fight for patent protection and government certification, the last thing you want are uncontrolled and ever-expanding records of individual activities and opinions. As Microsoft has learned from keeping old e-mail too long, in this age of writs of discovery, what you’ve said way back when may really hurt you. Before you embark on a company blog initiative, best have a chat with your chief counsel. On the other hand, I do see real opportunities in the world of the blogosphere, even if the acceptance of blogs doesn’t quite pan out the way their proponents envision. We surely can expect to see the emergence of new business ventures for anti-blog filtering and tracking software. Maybe we can even provide employment for lawyers who can teach seminars on what you can, and can’t, put on your personal company blog. If you come up with other ideas, be sure to blog them for sharing with the rest of us. u Herbert W. Lovelace shares his

experiences (changing most names, including his own, to protect the guilty) as CIO of a multibillion-dollar international company

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Analyst Angle

3 trends that will shape the MDM market

John Radcliffe

MDM, is a key enabler of trends such as social networking, mobile communications and cloud computing. IT leaders involved in MDM programmes need to keep up with the convergence of these trends

http://www.on the web The art of fluent Master Data Management Read article at: bit.ly/wbS9C4

informationweek april 2012

aster data management (MDM) has become a crucial discipline — Gartner forecasts that revenue from sales of MDM software will reach USD 1.9 billion in 2012, a 21 percent increase from 2011. Three key trends will shape this market’s growth and evolution, and each trend has its complexities. The first trend is the increasing desire for software that meets the common need to manage multiple master data domains. We predict that by 2014, two-thirds of Fortune 1000 organisations will have deployed two or more MDM solutions to support their enterprise MDM strategy. This will either be because they will find that no single multi-domain MDM product can meet all their needs, or because of historically entrenched disconnections between teams working on different data domains. On the supply side, a growing number of MDM software vendors advertise their products as supporting multi-domain MDM. Although this may be true at some level of theoretical capability, it does not necessarily mean that these vendors can meet an organization’s full multi-domain needs with a single product. Some vendors only achieve breadth and depth of coverage through multiple MDM products. In short, there is a strong possibility that customers could end up with either a single product that cannot meet all their requirements or multiple products that are poorly integrated. When evaluating MDM software to meet multi-domain MDM needs, it is advisable to evaluate each relevant data domain and to demand proof that the vendor can fulfil the requirements. The second trend concerns the hot topic of cloud computing. Many organizations are tempted by its benefits but the importance of master data, and the need to secure it and its integration and interaction with other systems, makes many reluctant to place

their enterprise master data in a public cloud. Gartner’s advice to organizations is to consider using public cloud solutions to meet the individual MDM needs of specific business stakeholders. However, organizations implementing an enterprise-wide operational MDM capability that requires tight, real-time and potentially transactional integration with business applications, or complex workflow and application interaction patterns, should implement MDM solutions on their premises or in a private cloud behind a firewall. The third trend relates to the meeting of MDM and Big Data — which comes in many forms: structured or unstructured, generated internally or externally. Gartner’s view is that MDM and identity resolution technologies will be the key to linking the new sources of external data with enterprises’ existing data sources, but organizations will be unable to “govern” the new external data sources. The need to link existing customer master data with social networks raises new challenges that require new approaches. One is how to deal with the sheer volume and complexity of the data. It is necessary to create structure out of unstructured data, and to tag comments and associate them with similar sentiments in order to gauge aggregate trends. Another is how to use identity resolution tools to identify key social networkers and then link their identities and social networking behavior back to the enterprise’s systems. The MDM system maintaining the master customer profile data then becomes a key integration point. IT and business leaders involved in MDM programmes need to keep up with the convergence of these trends, so that they can overcome the challenges — and seize the opportunities — that await them. u John Radcliffe is Research Vice President at Gartner

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Technology & Risks

6 basic steps for protecting sensitive personal information

Avinash Kadam

Measures that organizations handling sensitive personal data or information should put in place, at a minimum

http://www.on the web 7 tools to tighten healthcare data security Read article at: http://bit.ly/H4N13d

he IT (Amendment) Act 2008 and the Section 43A defines sensitive personal data or information (SPI) as: password; financial information; physical, physiological and mental health conditions; sexual orientation; medical records and history; and biometric information. According to the Act, if a “body corporate” does not protect the sensitive personal data or information by adopting “reasonable security practices” it “shall be liable to pay damages not exceeding ` 5 crore.” The IT Amendment Act defines data as a “representation of information, knowledge, facts, concepts or instructions which are being prepared or have been prepared in a formalized manner, and is intended to be processed, is being processed or has been processed in a computer system or computer network, and may be in any form (including computer printouts, magnetic or optical storage media, punched cards, punched tapes) or stored internally in the memory of the computer.” Since the definition of data is very comprehensive, every organization is required to protect all the paper documents, which may be input forms that are ‘intended’ to be processed or computer printouts. This includes pay slips, annual medical reports, as well as paper applications and electronic forms that mention financial or medical information. The next area of concern for organizations is the protection of the data in digital form. This defines the data stored on magnetic or optical media, hard disks, notebooks, PDAs, mobile phone flash drives, pen drives, back-up tapes and so on. We all have heard cases where laptops carrying sensitive personal information have been lost or stolen. In such cases, the quantity of data being carried could be very large, and also the price tag for such a loss or theft. Apart from this, we routinely

use e-commerce and net banking for our day-to-day activities. Once again, a number of cases have been reported of security breaches involving unauthorized access to websites. The IT Act suggests ISO 27001 as one standard of security practice. Implementing complete ISO 27001 and having a working ISMS (Information Security Management System) will probably provide the required assurance and minimize chances of security breaches. As an action plan, each organization should do at least the following immediately: Identify all the input documents which collect SPI. Question the necessity of collecting each item of information. For example, do you really need to collect and store pay slips, bank statements and IT returns? Or could you just verify these and return to the applicant? Identify all the output reports. Do you need to be explicit while giving the replies about financial or medical status? Or could these be generalized statements? Identify all the locations where the SPI is stored. Can these be minimized? Identify access control rules for allowing access to the SPI. The access should be strictly on ‘needto-know’ basis and there should be a justified business need. Identify protection mechanisms applied to the SPI. Can you enforce use of strong encryption especially when the SPI is likely to be carried around? Do you need to keep the credit card/ debit card information on your records? Should you not delete it after the transaction is completed? The suggested measures are the minimum that organizations handling SPI should put in place.

3 4 5

u Avinash Kadam is at MIEL e-Security Pvt. Ltd. He can be contacted via e-mail awkadam@mielesecurity.com

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Global CIO

IT risks irrelevance in digital marketing revolution

Chris Murphy

Chief Marketing Officers are overwhelmed with data and the rise of social media, IBM research shows, yet they aren’t looking to CIOs for help

LOGS Chris Murphy blogs at InformationWeek. Check out his blogs at: http://www.informationweek. com/authors/1115

informationweek april 2012

he true test of friendship is whom you turn to in time of need. Chief Marketing Officers are in dire need because they’re swamped with data and struggling to make sense of it all. But they’re not turning to Chief Information Officers for help. This disconnect between CMOs and CIOs risks impeding the hard work companies are doing to improve their digital marketing. And for IT departments, it risks pushing them to irrelevancy in digital marketing, one of the most important and fastestgrowing forces in business today. It’s why one of InformationWeek’s “15 New Rules For IT To Live By” is to make the CMO the CIO’s new best friend. Here’s some data to back up that need, from an IBM survey of 1,700 CMOs. l 71 percent of CMOs feel unprepared to deal with the data explosion over the next five years. l 68 percent feel unprepared to deal with social media. l 65 percent feel unprepared to deal with the growing number of channel and tech device choices. l Overall, technology is the No. 2 external force affecting their companies, CMOs say, trailing only “market factors.” That’s well ahead of macroeconomic factors (fourth) and globalization (sixth). CIOs shouldn’t sit around waiting for the CMO to ask for help. Just 49 percent of the CMOs IBM surveyed rank cross-CXO collaboration as key to their success over the next three to five years. And when CMOs want technical help, they’re more inclined to turn to outside agencies than the internal IT department. That’s a natural habit for marketing pros, says Alisa Maclin, VP of Marketing for IBM‘s Smarter Commerce initiative, since they’ve long turned to agencies for creative expertise. While 23 percent of the CMOs IBM

surveyed rely extensively on external partnerships for IT initiatives today, 61 percent think they’ll rely extensively on them over the next three to five years. Some companies are creating joint marketing-IT councils or steering committees for their digital marketing efforts. IBM cites Nissan as an example. Starbucks is navigating these waters by creating a Digital Ventures business unit that works closely with digital marketing and IT teams. Gartner recently predicted that by 2017, the marketing organizations at high-tech companies will spend more on IT than the IT organizations at those companies. Maclin wouldn’t touch that prediction, but IBM has made its bet on the marketing technology segment clear with acquisitions such as Unica and Coremetrics. Marketing tech budgets are growing two to three times faster than other IT budgets, Maclin says, and marketing is making IT a larger percentage of its total budget. If IT wants to be of use to marketing, it needs to zero in on what people can do with their mountains of data. That work might include analysis of social network sentiments, the rate of abandoned shopping carts on a website, or activity on a company’s mobile app. So is there a Facebook rumor we need to counter, a promotion we can offer on the website to close more sales, or an e-commerce option on the mobile app we’re missing? “Don’t tell me I have a lot of data,” Maclin says. “I know that. How do I not only analyze it, but how do I take immediate action?” IT organizations are in a better position to understand their companies’ customer — than any outside agency. And that’s how it can (and must) stay relevant amid the rise of digital marketing. u Chris Murphy is Editor of

InformationWeek. Write to Chris at cjmurphy@techweb.com

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Practical Analysis

Cloud computing is still in its adolescence

Art Wittmann

Compare the adoption rate for cloud services to that for virtualization, and it’s evident we still have a way to go

LOGS Art Wittmann blogs at InformationWeek. Check out his blogs at: http://www.informationweek. com/authors/6044

he cloud is one of those amorphous technologies that gets trotted out as the answer to all of our woes, usually by people who don’t think all that deeply about IT and its challenges. We hate to puncture anyone’s bubble with a dose of reality, but at a macro-level, adoption of all public cloud services except software as a service is going pretty darned slow. For the past five years as part of our annual cloud survey, InformationWeek Reports has asked a simple question: What are your company’s plans for cloud computing? The response we watch most closely is: We’re receiving services today from a cloud provider. In 2008, 16 percent of survey respondents chose that option. In 2009, it was 21 percent, then 22 percent in 2010. It jumped to 31 percent last year, and to 33 percent this year. Depending on your expectations, doubling in five years the percentage of IT organizations that use cloud services, and reaching one-third of organizations, might be pretty good. But compare the adoption rate for cloud services to another game-changing technology, virtualization. No one questions virtualization’s core value proposition; the only question is about the breadth of applicability. In contrast, two-thirds of IT organizations either have decided the cloud isn’t for them or have yet to pull the trigger. The core value of the cloud is, in fact, in question. It’s not that IT planners are ignoring these services. The percentage of survey respondents who say they aren’t interested has steadily decreased over the past five years. The percentage with no plans was about 50 percent in 2008 and dropped to 44 percent, 40 percent, 32 percent, and now 27 percent in subsequent years. That leaves about 40 percent in the planning and evaluation phase right now. So while IT planners are interested

in infrastructure as a service and platform as a service, they’re having a tough time putting a value on such cloud services and coming up with an implementation plan that works for them operationally and financially. Here’s the crux: IT pros see value in cloud computing — just like the not-so-deep-thinking pundits do. The problem is quantifying the value in a way that allows for apples-to-apples comparisons among providers and IT pros view adoption as a significant change in the way they do business. One reason we didn’t see a bigger uptick in use is an increase in those who view cloud services as more risky than services from conventional providers. Last year, 44 percent (the largest percentage) said the risk was about the same; now 44 percent (the largest fraction this year too) say risk is higher with cloud providers. Both years, only 6 percent said risk is lower with cloud providers. Slowing adoption is the requirement to create new IT processes to exploit the cloud (a risk in itself), along with the perception that these services themselves are risky. Literally hundreds of vendors are trying to create products that ease adoption — thus, in theory, lessening the requirement for new IT processes. But for IT planners, that just means more moving parts with more opportunity for failure. The fact that hundreds of vendors are trying to solve these problems is in itself problematic. Before IT shops jump in universally, the cloud market will have to go through some growing pains, including vendor consolidation, development of better management and monitoring products, and a more sober assessment of the cost and value proposition. u Art Wittmann is Director of

InformationWeek Analytics, a portfolio of decision-support tools and analyst reports. You can write to him at awittmann@techweb.com.

april 2012 i n f o r m at i o n w e e k 69

Down to Business

The new IT rulebook: Not for the faint of heart

Rob Preston

Smaller, lighter, and more agile are more than just industry buzzwords. IT organizations that fail to lead those charges will get relegated to cost centers

LOGS Rob Preston blogs at InformationWeek. Check out his blogs at: http://www.informationweek. com/authors/showAuthor. jhtml?authorID=1026

informationweek april 2012

n an industry where innovation threatens to tear down legacy systems and practices (and vendors) just as it generates new opportunities, IT organizations are nonetheless resistant to change. It’s natural to fear the unknown, question the unproven, be skeptical of the latest and greatest. Even pros who pride themselves on keeping up with the hottest technologies are prone to poohpoohing the latest trends. Most CIOs understand that the old IT rulebook needs revisions; but many IT teams continue to hang on to existing practices: developing expensive native apps when the Web variety will do, securing perimeters and devices rather than the most sensitive data, etc. “Smaller,”“lighter,” and “more agile” IT are more than just buzzwords. They come straight from the new rulebook. While we’re at it, let’s add “less expensive.” IT organizations that fail to fall in line with these imperatives — no, which fail to lead them — will get relegated to being cost centers that will be cut further. Part of that “changing IT model,” says the CIO of an international manufacturing company, involves moving bigger chunks of the IT architecture to the cloud — the kind of utility computing writ large by Nicholas Carr in “The Big Switch.”“And part of this is actually greater specialization and customization enabled by more powerful tools,” the CIO continues. “SaaS and cloud enable this, but also the evolution of development stacks and platforms which have made software development much more productive. When you look at what small companies are doing in terms of development speed, you no longer need armies of people to write software. I can see a swing back to more in-house development. Less outsourcing. Less monolithic ERPs. More cloud and SaaS.”

Another prominent CIO we spoke with notes that the vendor landscape is changing as well. Apple, Google, Samsung, and Facebook are coming to the enterprise. Is your IT organization getting to know those new technologies and platforms, and consumer-focused vendors and their products, or is it still mired in fear, skepticism, and resistance? One company apparently fearful of technology-abetted change is Target, which is asking its suppliers to help it thwart “showrooming” —shoppers who come into its stores to check out a product in person, only to buy it from a rival online retailer at a lower price. Such efforts amount to propping up an aging business model. Target would serve itself and its customers better by focusing more on harmonizing its own in-store and online shopping experiences — deep Facebook page integration, smartphone apps that let shoppers swipe a barcode in-store for discounts, and the like. Resistance to change is also a time-worn tech vendor tradition. I’ll never forget Western Union’s new strategy exec telling me in 1987 that the struggling company would return to profitability by riding the telex cash cow, a preposterous notion even back then. More recently, RIM named a new CEO, insider Thorsten Heins, to turn the company around amid steep declines in RIM’s market share. Among Heins’ first public statements: “I don’t think there is a drastic change needed.” (RIM shareholders were less than thrilled.) The new IT rulebook isn’t for the faint of heart. Getting to “smaller,” “lighter,” and “more agile” may not require a complete IT architectural overhaul, but it will require some hard decisions about legacy platforms and processes. u Rob Preston is VP and Editor in Chief of InformationWeek. You can write to Rob at rpreston@techweb.com.