If at anytime you wanted a proof for the moniker, IT Is Business, then do not look beyond the example of ICICI Bank, India’s largest private sector bank. With assets around $56 billion, ICICI Bank is the country’s largest private bank, with a vast consumer base served from more than 614 branches and 2,200 ATMs in 13 countries, it is growing very fast –growing at an astronomical pace in the last 10 years. The bank customers believe that technology is at the forefront of this dramatic growth, a view confirmed by K.V.Kamath, Managing Director & CEO of the bank. In an interview with the Mckinsey Quarterly, he shares the ideas and beliefs that helped shape the growth of the bank.
The technology journey in the bank started by noticing that garage start-ups in Silicon Valley were taking products from concept to market in 90 days because if they didn’t, somebody else would and asking the question, “Why can’t we?” That helped shape the rule: no project was to extend beyond 90 days. This was achievable, and it gave the bank a huge competitive edge.Emphasizing the need for executive support, he says he shared his vision that iIf the technology fails, it’s his fault; if it succeeds, then good for the organization. The best part is the decision to run technology in a radically different way from anyone else, so there’s no technology department or a glorious title like chief information officer. There is no CIO. Technology is embedded in every business, and the head of the business runs the technology. Ringing endorsement to the adage IT is Business,Business is IT. As George F.Colony wrote ,”If you are the head of IT, you are no better than a glorified librarian, dispensing information. In contrast, if you are the head of BT, you are shoulder-to-shoulder with fellow executives who are running the operation. You're focused on improving process and finding new sources of revenue. You apply technology for business results, not as a way to create information of questionable value”. Emphasizing on the practicality of things, he believes that for banks focusing on retail customers, clearly user technology is a mind-set issue, but it can get turned into a structural issue because the platforms and the people around them make you rigid. Importantly the bank broke out of this and embraced technology that allows us to migrate and avoid older technologies like mainframes which would have locked the bank in. An early belief that technology would be a great hit in India and making appropriate investments meant that investing heavily in ATM’s, at a time when there were fewer than 100 ATMs in the whole country and the bank planned to roll out 1,000 ATMs in the first year. All this has helped the bank grow tremendously – from having 10,000 banking customers in 2000 to close to 20 million today. Six years ago, maybe 95 percent of all transactions took place in the branch and 5 percent at the ATM. Now branch transactions are down to 15 percent, ATMs have gone up to 48 percent, the Internet is 21 percent, and the call center is 5 percent. Instruments that go directly to the back office for processing, without hitting a branch, account for about 10 percent. What’s the difference between ICCI Bank & other competitors– in one line : Every other bank was skeptical about technology, whereas ICICI Bank wholeheartedly embraced technology as the engine for growth and integrating technological operations as part of business. But the best part comes here – Kamath believes that his technology costs are 10 percent of those at other banks!! Attributing this to right hardware selection that facilitates migration as business grows, right vendor selection and getting new software wherever needed ( he says that the replacement software costs substantially less than maintaining old software) – well this is very interesting –many would like to understand these further but the point is taken – tech as a strategic competitive differentiator does not mean it will end up sucking all resources. The bank’s next focus besides international expansion is “banking for the unbanked.” Taking banking to the 600 million people in India with no banking facilities at all – they live in 600,000 villages spread over 600 districts. Again technology is at the heart of the solution here – “this will require new technology platforms at a fraction of the costs of current technology. A new delivery architecture is needed too—not based on branches, but using a partnership model. To work in 600 districts, we’ll need at least 200 microcredit institutions, each working on 3 districts” says Kamath. This is interesting at a time when most business around the world blame technology for coming in the way of its growth and coming in the way of avoiding business model changes, ICICI bank is spearheading new business models for different classes of users with technology as the core differentiator!! On a personal note, I find that while ICICI bank’s focus on technology is yielding results and is there for all to see, it has to focus on customer service lot more- its telesupport for servicing complex requirements is pathetic to say the least – it must do well to study how the global banks measure up on this front and innovatively use technology (though part of the problem may be cultural) to excel in that dimension as well.
I recently wrote about healthy growth in IT Spending. The Forrester/ITAA Tech Sector Index — which measures the health of the US technology industry — reached its highest level in five and a half years in Q4 2006, rising two points to 128.8, says Forrester Research, Inc. and the Information Technology Association of America (ITAA). Net income for the 22 major US tech vendors that Forrester monitors reached $13.2 billion, the highest quarterly level since Forrester began tracking. Point to note : International business is helping the boost - foreign sales — not domestic US demand — is driving vendor revenues and profits. After all the world is hungry for technology. The Index is based on 11 indices measuring IT demand, IT supply, and the financial strength of US-based vendors. All of the indices are weighted evenly in the overall Index score, which uses a 2002 quarterly average of 100 as the baseline. In Q4 2006, seven of the 11 indices were up. The two point increase in the Index compares with a 3.7-point gain in Q3. Highlights include: • As indicated above, vendor financial performance was the primary driver lifting the Index. The stock price component of the Index jumped 16.2 points, reflecting the broad rise in the stock market at the end of last year. The vendor profit component of the Index grew 10.9 points for the quarter. • US demand for tech products and services grew 2.5 points, based in part on continued optimism of spending forecasts by CIOs surveyed by Forrester. • IT industry employment edged up slightly, gaining 11,700 tech sector jobs. Employment now stands at the highest level since the close of 2002. • After falling 9.4 points in Q3, venture capital investment plunged an additional 20.8 points in Q4 — a quarter-on-quarter drop of $711 million.
Studies show that 36% of Internet users are now in Asia and 24% are in Europe. Only 23% of users are in North America and Asia would be adding more internet subscribers in the days to come. The impact of wireless, next generation communication hubs, politics surrounding Ipv6, Icann, explosion of content in asian languages- all these need to be factored in while discussing the future of internet. There is no doubt that the world is becoming a different place. Education,technology & capital are becoming the biggest equalizers in this unequal world. This is a happy news for all tech sector stakeholders!!
Wherever I go in any whichever country I hear the buzz - lets invest in education and internet/computing technologies - our future would be prosperous. It makes eminent sense to understand where things stand on soem of these dimensions. European countries and Singapore have surpassed the United States in their ability to exploit information and communication technology, according to a new survey. The United States, which topped the World Economic Forum's "networked readiness index" in 2006, slipped to seventh. The study, largely blamed increased political and corporate interference in the judicial system. The Report is produced by the World Economic Forum in cooperation with INSEAD, the leading international business school, and is sponsored this year by Cisco. The report is jointly edited by Soumitra Dutta of INSEAD, and Irene Mia of the World Economic Forum. As Klaus Shwab points out, policymakers and business leaders recognize the need to create an enabling environment to support the adoption of technologies and spread their benefits across all sectors of society.The importance of networked readiness, especially at the national level, has achieved prominence on the public policy agenda, with the realization that the tools provided by ICT can help countries fulfill their national potential and enable a better quality of life for their citizens.
The index, which measures the range of factors that affect a country's ability to harness information technologies for economic competitiveness and development, also cited the United States' low rate of mobile telephone usage, a lack of government leadership in information technology and the low quality of math and science education. The Report uses the Networked Readiness Index (NRI) to measure the degree of preparation of a nation or community to participate in and benefit from ICT developments. The NRI is composed of three component indexes which assess: - environment for ICT offered by a country or community - readiness of the community's key stakeholders (individuals, business and governments) - usage of ICT among these stakeholders.
Thierry Geiger, one of the Forum's economists responsible for the 361-page report, points out that the U.S. market environment remains the best in the world in terms of how easy it is to set up a business, get loans and have access to market capital. The two emerging giants have interesting rankings here. India is ranked at 44 & China is ranked at 59. Nordic countries - traditionally strong in all surveys conducted by the Geneva-based Forum - dominated the top of the rankings. Denmark edged Sweden for the top spot, while Finland was behind in fourth. Singapore, which topped the poll in 2005, was the top Asian nation in third. Rounding out the top 10 were Switzerland, fifth; Netherlands, sixth; Iceland, eighth; Britain, ninth; and Norway, 10th.The report covered 122 countries, with Chad, Burundi, Angola, Ethiopia and Bangladesh at the bottom. The network readiness index is available here.
I wrote a quick note for sandhill on Shai Agassi's exit from SAP. Clearly the most articulate of the SAP management team and perhaps the most feared by its opponents, Shai helped SAP achieve great strides( I do know about the existence of a dissenting minority on this). SAP is such a massive software – perhaps the most complex business application software ever developed and sold as a package to date and making it grow with changing technology shifts is no easy job and only the most courageous and visionary can ever take charge for driving such initiatives. Shai was a stellar person attempting such a thing to make it happen for SAP. In fact his leadership helped in many ways SAP to gain entry into the famous enterprise software club – MISO. The days ahead for SAP is quite interesting to watch. The full effects of Oracle’s acquisitions shall begin to be felt more and more in the days to come. For a company of the size & stature of SAP, obviously there is a lot of talent within to continue the operations and it can always tap external talent as the need may be(but perhaps this may not happen – when some think that this is needed the most). Well established corporations with mature product lines like SAP will face inflection points in their lifetime – for some SAP is nearing that, we have to see, how this giant makes it moves. That would have ramifications across the enterprise software sector – the reach infact extends not just the tech world but perhaps the entire business ecosystem, around the world. Read the full note here.
There are speculations that Amdocs may be acquired by SAP. While, I do not know whether this is true – I do think that the deal (if it happens) makes sense. Amdocs itself has rolled up few players in the past and in the process consolidating the space. The solutions cover arenas like billing, CRM and potentially into integrated customer management. Ask any Telco – one would know how important this is to them. The opportunities centered on Amdocs has forced players like IBM to work closely with it. Amdocs has decent presence in the sector with a well established customer base. For Amdocs, it is a good time to evaluate options as unless they have wider range of offerings, their ability to mine the account with cross-selling and up-selling options look limited. Telecom is a high spend area and SAP definitely needs a strong presence there and Amdocs could give it that leg up. Rival, oracle acquired portal infranet almost an year back to capitalise on such opportunities. We have to see how SAP sees this market opportunity. This is a big ticket acquisition -considering Amdocs valuation is around 7-8 billion USD. They may view the fitment,I guess, more from the engineering perspective(nothing wrong about it). SAP needs some sizzling momentum – in this case there lies an attractive proposition as well – a good entry into the high spending telecom space. I guess the price of US$7 bn+ could be a big dampener, unless Amdocs wants to sell part of its business - which again,I guess, they may not do considering that most of their business are in mature and mature-to-twilight zone. Amdocs is not too cash rich to make acquisitions that can make a difference and so it makes sense for them to encash on a good exit option, if it presents itself.
Kathy Sierra, the well known blogger, has been receiving very serious and scary death threats over the last several weeks. She has had death threats and abusive behavior directed at her – quite regularly and done in a concerted manner. Kathy writes that these are affecting her so much that she is cancelling speaking appointments and she is even afraid to leave home. The irony is that allegedly other bloggers are orchestrating these attacks. This is despicable, to say the least. Kathy – be strong, a whole lot of your blog friends are with you.
This is the second part of the discussion of the changing face of the application outsourcing market. So far the general sense based on party talks and discussions with executives are that – the integration of these facilities are not so seamless to the extent of providing best possible value to their customers –in terms of speed, quality and price. Independent analyses confirm that the the pricing models of indian headquartered firms are much more transparent, compared to most on-site players. Am sure the global majors would be focusing on improving on those aspects while the offshore leaders would be pushing the needle of effectiveness and enhance the levels of competition. I do believe that it may well be time to begin talking about more productivity benefits in the AO space(this encompasses a very wide ranging set of techniques, tools and technologies) and publicly come out with measures when service providers have been able to do more with less. The Indian headquartered offshore players have the challenge of maintaining and improving these impressive gains when they begin to compete and win the other 3/4th of the pie in the ADMS space. If past performance is an indicator, they will. The bigger challenge and opportunity for them would be in the much bigger IMS space – where the penetration potential is far higher.
For customers when it comes to decision on the right player for their needs, as I wrote recently, First and foremost it would depend on the nature of service that is planned to be /getting outsourced. Every type of service shall have its own set of measures of effectiveness when it comes to outsourcing. Besides every outsourcing deal is contextual in nature and has to be therefore measured in relation to its objectives. While cost, scale & speed, quality would matter for every deal at all times – the mix and sensitivity could vary depending on the deal. Besides traditional models of outsourcing may not be the most relevant for business competitiveness related deals – say a transformation initiative. In regular nearly commoditized nature of services like IT maintenance (even here there can be a range of differences in the nature of the deal), most business feel comfortable about taking near standard deals – or deals structured with minimal variations. In general , for special deals the recommended action would be to test the waters through piloting before reaching the stable zone of outsourcing and scaling up further. The level of executive support and involvement of both sides and relationship management would become a key driver in ensuring continual success of outsourcing initiatives. Also if it relates to outsourcing from a high cost location, offshoring has got to be factored in for better costs and scaling up - substantial benefits and changes would be seldom felt without that. The continual revision /change in metrics in outsourcing is a given for enduring success. The effects of multisourcing also need to be factored in the overall assessment.
I recently wrote about the changing contours of ADMS outsourcing. Forrester’s latest application outsourcing assessment(of North American market) makes interesting reading. There are a number of things that shows up in the report:
A. The report notes that the service offerings of traditional players and offshore headquartered players are converging and hence they need to be treated together in evaluations. The discipline has so matured that AO providers now exhibit contrasting — and in many ways complementary strengths.
B. While certifications & endorsements are becoming less of a differentiator(given that all leading players manage to get that), the report notes the difference as seen by customers between traditional global players and the offshore headquartered/centric firms – “Traditional global players are all about having smart people who can do whatever you need them to do. The offshore players will say that they are people-independent and that it is all about the process, and while not 100% true, it is still amazingly true”.
C. The offshore firms are getting more structured and predictable, providing flexibility when attrition and rotation happens.
D. The global players may tend to have more domain competency (though may not be used much) but the offshore players tend to lead in price competitiveness and process superiority.
E. Scalability concerns are beginning to get heard - the report notes that last few months the right resource availability is sent to be tougher to ensure – going by some customers feedback. An interesting report covering all the leading players – one thing that stood out was that the cumulative client ranking scores for offshore providers far exceed that of established global players. The major players have comparable strengths overall.
My own feeling as to where the offshore players score are – their expertise, lead and mastery in terms of managing distributed development while ensuring good process and quality standards. It is indeed a phenomenon to see their methods and skills in terms of expanding opportunities, while beginning small inside accounts. It would be interesting to see how the global majors (who have been by far the leaders in most aspects of services outsourcing) blend their offshore workforce.
I shall continue the discussion on this in the following note.
Steve Lohr writes about the limits of multitasking. He points out that several research reports, both recently published and not yet published, provide evidence of the limits of multitasking. The findings, according to neuroscientists, psychologists and management professors, suggest that many people would be wise to curb their multitasking behavior when working in an office, studying or driving a car. The professional advice : Disruptions and interruptions are a bad deal from the standpoint of our ability to process information. Its not that there is no solution to this situation : In the computer age, technology has been seen not only as a factor contributing to information overload but also as a tool for coping with it. Computers can help people juggle workloads. Technology can be used to supplement your brain and keep track of more things but beyond an optimum, more multitasking is associated with declining project completion rates and revenue generation. Work habits are changing a lot. A recent post by Sharad points to an IEEE survey, which finds that for engineers, email is the main way of communicating and typically people spend half your day in meetings, and search the Internet for the latest research instead of reading print journals. All these changes and the ready availability of means to do multi-modal things definitely create a destructive overlap. Another survey found that constant barrage of emails destroy the mind faster than marijuana!!. Emails are degenerating from productivity wonders to maddening time wasteners. No wonder, solutions to knowledge worker's trauma like David Allen's Getting Things Done, always find ready takers. Stressless workday and increasing productivity are things that all executives are constantly striving to accomplish on any day. A couple of days time off from this constant barrage of intrusion makes one fee as if we enter a new life - particularly the blackberry technology makes people almost look insane!! The human cognitive abilities are under constant attack by the advent of new digital gadgets that are popular and the damage to our system is really true - no escaping from this fact - the sooner we find a solution to this menace - it is good for the individual and the society.
The Oracle-SAP imbroglio is opening up discussions at different levels. While,I said issues like this may help smaller vendors to sneek in with new offering when the big vendors get embroiled in legal issues( am not for a moment supporting in any form any illegal/unethical activities), Vinnie comes out questioning the maintenance revenue stream of product vendors. Maintenance, direct from most software vendors, is over priced by a long shot. Customers should have alternatives. Calling for Fed’s intervention in the Oracle-SAP imbroglio, he wants Fed involvement in the case. He writes,
“During the PeopleSoft takeover battle, the DOJ tried to stop Oracle on antitrust grounds. It chose to define the software market very narrowly and Oracle easily proved it was not being anti-competitive. This time around the Feds should use maintenance as the filter. Oracle (and other software companies) have an overwhelmingly dominant position around that revenue stream around their software. He points out that the government action against IBM in 1969 led to the formation of today's software industry. And it has been a glorious one. No reason why similar action today against the software industry will not spawn new services and software options - and make the maintenance from the software publishers themselves much better value".
Vinnie – completely agreed. besides the US government, the EU and some other asian government/government bodies can also play a role here. The EU and the Korean government have in the past come down heavily on Microsoft on issues). There are enough reasons to believe that the software companies are sucking customer’s resources. The discretionary spending of CIO’s are less than 25% on an average and several arbitrarily forced expense items like maintenance tie the hands of the CIO and in turn limit the ability of business to spend more on technology and go after innovation centered on technologies abilities. This does not see any chances of reversal. I have never been able to get a convincing reply from product vendors on why the maintenance cost structure never changes much. With product maturity, increasing community of users and with options like offshoring, the net effect should reach the consumer. Its time to question the logic behind the maintenance revenue stream of product vendors – in every other industry with scale, the maintenance charges or for that matter the service charges shall come down-benefits of scale would reach the customer. Strangely, software industry has no such compulsions. Customers need to have credible alternatives for maintenance and the time to create such options are now – particularly when the enterprise software industry is undergoing massive changes.
While writing on the mid life crisis of enterprise software, I wrote that four years ago corporate IT departments devoted 65 percent of their budgets to maintenance of existing systems and 35 percent to acquiring new technology. Today maintenance spending has increased to 75 percent and new acquisitions are down to 25 percent. Out of this substantial money goes towards maintenance of annual support paid to software companies besides other overheads. Even in the SAP- Microsoft talks on potential merger sometime back, the quantum of assured maintenance revenue was a major attraction. As I noted here, during the acquisition proceedings of Peoplesoft, Oracle was predicting huge maintenance revenue stream – irritating some customers. As I wrote, the pressures of competition & pricing makes companies try out new models – these sometimes force companies to think for the customers as well – no more proof is needed to be convinced about massive changes that are bound to happen in the enterprise landscape. As I wrote here, While SAP complains about increasing expenses at offshore locations and oracle talks about huge setups in India, the market is not seeing any move in the direction towards bringing down the maintenance & support burdens on existing customers on account of these moves. Enlightened customers are today looking towards value and time based maintenance strategies as against flat percentage bills on a recurring basis. It is true as I see it from multiple experiences across geographies that software buyers and sellers are at the cusp of a major change that will be more business-model and deployment driven than technological. Two factors—better value extraction from buyers and much lower cost models from sellers—are colliding to facilitate this change.
Update :Dennis Howlett writes quite perceptively on the topic -“If you must use traditionally licensed software, remember this. You pay for it it twice over under the current prevailing software industry model. Bear that in mind when you next negotiate a license deal. It may be a relatively small figure in the beginning but it adds up over the lifetime of the application”. How true!!
Widgets are getting more and more popular. The gapingvoid widget lets you display Hugh's latest cartoon on your web site or blog. I liked this brief note on widgets.
Call them widgets, gadgets, modules or even blog bling. But no matter how you classify the tiny chunks of code showing up as embedded portable boxes across the web and on desktops, they're set to change the way content is delivered and consumed. Smarter widgets – essentially , contextually aware widgets, which, like AdSense ads, can post content or make suggestions based on user behavior online are the next ones that are getting deployed.
As I wrote recently in the widget economy, the world is really changing. Loosely coupled services – we have been hearing this from the early days of web services & SOA, are suddenly getting mainstream – so much so that all these demonstrate that scalable applications can be built using widgets . RSS & Widgets are about to change the frontiers of web technology landscape itself – this opens up tremendous technical and business possibilities. It is also to be noted that by enterprise technology players that the consumer applications are fast embracing cutting edge technologies and are becoming far more successful – in terms of innovation & reach. The enterprise players need to be relevant in the changing world – by being more innovative and caring for the customers in rolling out leading edge features. Fights like this, could only slow the progress of large players adopting new things, which may open up opportunities for smaller players to move faster. I am fully aware that for larger players to embrace newer concepts across their huge stacks is indeed a big task – starting from vision, design , engineering, rollouts, support, integration etc. Unfortunately, these are the features that customers would like their preferred tech vendors/partners to help them leverage – faster, better and cheaper. Its time that the large enterprise software players coming up with such things without raising noise levels(just publicity, conference talk and analyst endorsements) and let the results speak for itself.
While the china growth sentiment seems to be rampant came across this interesting Mckinsey survey. Try booking a ticket to Shanghai/Beijing/Shenzhen - you will get a feel of the humongous traffic centered on these megacities. While survey results can’t be the ultimate indicator on anything, it generally serves as a good indicator of things to come. Mckinsey recently made a survey of executives in Asia to understand their China sentiments. The sample set surveyed only included those companies that are already doing business in Asia. Some key findings therein are eyeopeners:
• Almost 40% report they do no business in China at all; and • Another one-third say their revenue would be unaffected if China's growth rate dropped to zero. • If you operate in china recognize the difference between "earning revenue" and operating: less than 1/7th of the respondents own a manufacturing plant, service facility, or retail store in China and less than 1/10th of them have a joint venture in place in china • Close to 90% expect to be doing business in China in some form within the next five years.
On competition from China-based companies - Companies based in China are seen as strong, but not overwhelming, competitors; a significant majority of respondents see the basis for that competition as the low cost base that Chinese companies enjoy. Besides the labor-cost advantage, these are not seen as formidable competitors. In production/manufacturing, 27% see china based competitors as strong in services only 11% say the same. While may see expect some correction is bound to happen in the chinese hypergrowth engine, the survey finds that a few things could go wrong there:
• Rising income inequality, 40% • Poor or arbitrary enforcement of commercial laws and regulations, 26% • Shortage of talent, 21% • Weak financial institutions, 20% • Official corruption, 19% • And a variety of environmental factors were also cited,
It’s an interesting thing to compare sentiments on china with India. Finally, the critical areas for investment in China were deemed to be: infrastructure and logistics (72%) and education and training (70%). (Infrastructure & Logistics is an area where the chinese are being seen as strong in general and this sector has seen huge investments in the last 10-15 years.)
Some of the survey results could be a little tough on china – partly, I guess based on the returns business are able to get out of china – the gestation period for getting decent returns are quite high- like in most asian countries, more so in china. Look at the paradox of growth – the more you do, a lot more is expected and in this constant race of improving competitiveness, even those left behind can catch up in realistic terms.
It’s quite sometime that we have seen big vendors openly fighting between themselves barring the occasional barbs. Oracle brings this lawsuit after discovering that
SAP is engaged in systematic, illegal access to – and taking from – Oracle’s computerized customer support systems. Through this scheme, SAP has stolen thousands of proprietary, copyrighted software products and other confidential materials that Oracle developed to service its own support customers. SAP gained repeated and unauthorized access, in many cases by use of pretextual customer log-in credentials, to Oracle’s proprietary, password-protected customer support website. From that website, SAP has copied and swept thousands of Oracle software products and other proprietary and confidential materials onto its own servers. As a result, SAP has compiled an illegal library of Oracle’s copyrighted software code and other materials. This storehouse of stolen Oracle intellectual property enables SAP to offer cut rate support services to customers who use Oracle software, and to attempt to lure them to SAP’s applications softwareplatform and away from Oracle’s. Through this Complaint, Oracle seeks to stop SAP’s illegal intrusions and theft, to prevent SAP from using the materials it has illegally acquired to compete with Oracle, and to recover damages and attorneys’ fees.
The complaint goes on to say,” SAP employees used the log-in IDs of multiple customers, combined with phony user log-in information, to gain access to Oracle’s system under false pretexts. Employing these techniques, SAP users effectively swept much of the contents of Oracle’s system onto SAP’s servers”.
The charges appear pretty serious indeed. We now have to await SAP response, it says it won't comment as of now, until it gets the chance to fully review the charges. The charges are mostly against TomorrowNow, the subsidiary of SAP. Hopefully this gets resolved quickly and does not blow to be a full scale war – one that big enterprise software vendors can ill afford now with slowing growth. If they persist, this could open up significant opportunities for smaller players.
I have been travelling a lot in the last ten days and there had been times when I just could not even manage to get internet connections. Most part of the time, I just could not get the time for connecting while where I could manage to squeeze some time, the connections were simply non-existent. Where on earth you wonder – well, I was for most part of the time in Perth, Western Australia!!. Now in my travel , a key executive of a major corporation sitting next to me asked me to answer the question - What are the primary qualities that you should look for in an outsourcing partner, and is there a mechanism to measure and rank them? The last thing that I wanted to do in a long flight was to talk business and anyway it was an interesting conversation. The gist of my response: First and foremost it would depend on the nature of service that is planned to be /getting outsourced. Every type of service shall have its own set of measures of effectiveness when it comes to outsourcing. Besides every outsourcing deal is contextual in nature and has to be therefore measured in relation to its objectives. While cost, scale & speed, quality would matter for every deal at all times – the mix and sensitivity could vary depending on the deal. Besides traditional models of outsourcing may not be the most relevant for business competitiveness related deals – say a transformation initiative. In regular nearly commoditized nature of services like IT maintenance (even here there can be a range of differences in the nature of the deal), most business feel comfortable about taking near standard deals – or deals structured with minimal variations. In general , for special deals the recommended action would be to test the waters through piloting before reaching the stable zone of outsourcing and scaling up further. The level of executive support and involvement of both sides and relationship management would become a key driver in ensuring continual success of outsourcing initiatives. Also if it relates to outsourcing from a high cost location, offshoring has got to be factored in for better costs and scaling up - substantial benefits and changes would be seldom felt without that. The continual revision /change in metrics in outsourcing is a given for enduring success. The effects of multisourcing also needs to be factored in the overall assessment.
The major aim of the OLPC(One laptop per child) project, expected to price at US$150/laptop is trying to save costs, and hence, it uses the simplest and cheapest components. The biggest difference in terms of system cost comes from : 1) storage, 2) software, and 3) battery. - Less storage: OLPC does not need HDD (hard disk drive) and ODD (optical disk drive). Instead, it uses a 512MB NAND flash drive as the main storage device. That saves US$60+ in material costs. - Free software: OLPC adopts Linux OS (operating system) instead of Windows, saving US$50 per system. - Smaller battery: OLPC uses NiMH battery instead of Li-ion, saving US$20+ per system. However, battery life is shorter and quality is not as good. With these changes, OLPC save around US$150 in system cost, when compared with Wintel architecture.
A recent ML report shows the cost structure as under: The report adds that OLPC also eliminates the cost of warranty, MVA (manpower value-added), OEM brand and distributors’ profit. All these measures save another US$100 per unit. Thus, OLPC can be sold at a street price of US$150, or 60%+ lower than Intel’s Classmate PC (US$400).
The downsides and imbalances may force the whole scheme to be unsustainable. OLPC features a broken supply-chain and the business model might not be globally sustainable. Linux, which is the standard for OLPC may have a limited ecosystem for people to actively look at it as an option . Broken supply chain means that the planned ramp-up in volumes from 7m to 60+plus million in 3-4 years may not happen at all.
The Economic Times reports that Nokia gets bigger than Unilever in India to become the largest multinational operating in the fast growing economy. This is significant – displacing Lever, the iconic name in India for several decades. Look at it: Nokia has about 75% plus share of the GSM handset market in India – this is amazing. Am sure the Koreans would launch a major offensive against Nokia in the Indian market in the days to come. Nokia is approaching 30% market share in China, well ahead of the 10% controlled by No. 2 Motorola Inc. China & India are critical to Nokia for its future success.
Lets look at what Nokia did differently in the Indian market : - “Indianized” 100% of Its R&D (Bangalore) and manufacturing (chennai) - Its products (e.g., flashlight-embedded cell phone, dust cover, and slip-free grip) as well topline products - Its local management
Outcomes include: - Mega deal with the largest operator – Bharti Airtel - Perceived as a national asset (voted No. 1 of top 20 Indian brands) - 75% plus share of Indian GSM handset market (4 million new subscribers every month buy Nokia handsets)
Nokia’s stupendous success in India is indeed a case study that other multinationals operating/entering India may like to study closely and draw lessons.
Growth and innovation are the top ticket items on the CxO minds confirms a survey finding of international CxO’s by Saugatuck Technology and BusinessWeek Research Services.
Key Finding : Revenue growth outpaced both cost control and asset allocation by a 5-to-1margin as the top business strategy for C-Team executives to improve their firm’s financial performance for 2007 – implying a more than subtle shift in priorities – and what looks like an emerging scenario of accelerated business spending rather than saving. In support of this shift, the top five business goals of C-Team executives are all revenue, customer and market share growth related – with managing budgets and ROI measurement metrics falling precipitously in the rankings. Does it mean back to the old days of hectic enterprise wide spending ? The answer is NO. IT spending priorities are continuing to focus on point projects rather than enterprise-wide initiatives, as well as investments that improve the integration and availability of data and/or applications, enabling enterprises to better leverage existing IT and to improve business and IT operations and efficiencies. What does this mean to the tech ecosystem? The shift away from cost control to corporate spending and investment focused on top-line revenue growth and innovation has, and will continue to have, significant impact on both IT buyers and vendors. While IT buyers will see their budgets increasing over time, spending will continue to be restrained and tactically strategic in nature (with an emphasis on innovation at the margin). It is clear that the C-suite is not completely aligned with respect to how to best achieve top-line growth. That presents huge opportunities to the tech players and CIO's, who can try out unique innovative inititatives. Big ticekte investments are likely to be in the arenas of Business Intelligence, Data Warehousing, and Portals and Collaboration, besides a growing commitment to SOA (and investment by IT organizations) as a means of creating greater organizational agility – and as a platform for product and service innovation – while at the same time leveraging prior IT investments. SaaS and Open Source are two disruptive innovations with significant momentum that will also impact how vendors relate to IT spending and investment.
Saugatuck while anticipating growth in IT capital budgets throughout the remainder of this decade which should help further fuel spending on key infrastructure and integration initiatives has this dope of advice to the players: user executives will need to find creative ways of enabling business growth while spending struggles to close the gap – and that IT vendors will need to deliver more business innovation as part of their software and service solutions. A recent Mckinsey survey pointed to the advent of two trends in information technology that will become increasingly important to CIOs in 2007: - A migration to service-oriented architectures and - The introduction of lean-manufacturing principles to data center operations. An Alinean study of IT spending finds that Across the 37 industries in the study group, innovation investments were up sharply in several segments. The dynamism, more than anything else proves that IT Does Matter!!. Next time as an user when you spend on IT initiatives ask yourself whether this is in alignment with global trends or as a vendor/service provider, are your efforts and investments going towards exploiting this growth trajectory.
Internet users outside the U.S. now account for 80 percent of the world’s online population, with rapidly developing countries experiencing double-digit growth rates year-over-year. India, China and Russia Experience Highest Audience Growth Rates Year-over-Year; Canada, Israel, and Korea Log the Most Time Online. comScore estimates that 747 million people aged 15 and up were online in the first month of this year. Among the top 15 countries (ranked by penetration), Internet audiences in developing countries India, the Russian Federation and China increased the most in 2006, growing 33, 21 and 20 percent, respectively. The study also found, that Internet users in countries with higher broadband penetration spend more time online. So countries wanting to improve their online usage know where to invest. ComScore also reported the top worldwide Web properties for January, ranked by unique visitors. Microsoft sites topped the list with 510.3 million worldwide visitors, followed by Google sites with 502.5 million and Yahoo! sites with 467.8 million. The trend is well established. Now all these throw a new world order of internet governance and opportunities. That’s already seem in many related arenas – starting from offshoring to global delivery mechanisms/
If ever you need to look for a case as to where business model could ensure win for an enterprise- do not look beyond Google. What an amazing enterprise, it is turning out to be! I was just about to compile and understand the financial muscle of Google when I stumbled on this excellent compilation by Eric Bangeman on Google’s financial muscle. Look at some of the impressive numbers therein:
- Revenue Growth from $400 million plus in 2002 to $10.6 billion in four years (should rate as an all time record for business!!) - Cash & Short term investments from $2.1 billion in 2004 to $11.2 billion now - 99% revenue comes from online advertising - Traffic acquisition costs are 31.5% of the revenue(this means other competitors can’t even dream of spending this – more so by the nearest competitor, in this case Yahoo,further fortifying Google’s lead)
Look at the excellent financial lead Google has over competitors:
- Cost of sales at Google is at 8% & Eric claims that the corresponding number for Microsoft is 22% & Yahoo is 20% and Apple is 22% - Cash on Hand for Google is at $11.2 billion , Apple has $12 billion, Yahoo has $1.6 billion while Microsoft has $34 billion in cash.
Look deeper – none of Google’s competitors have any wherewithal to compete on existing areas given the cost structures and the topline lead helps Google to keep running faster and creating more money – this is a double treat – it increases the distance of lead while further bringing down/maintaining the cost of operations(Google has been adding cash to its reserve at a faster rate in the last three years). And what does one do with this excess cash – keep investing in core business and focus on innovation and acquisition in new areas. Perfect – can any of the existing players dare to compete against Google in its core areas and expect to win over it? Forget it. Google is not just a technology platform, it has become a business platform –one that would ensure increasing rates of success.
Earlier TPI results confirmed that the offshore players are garnering more marketshare in the ADMS space. In the large deals space, offshore providers have cornered more than a quarter of new wins globally. Now comes the qualitative part. Recent Performance Monitor research reveals,that India-based firms outperform some or all of the multi-national firms in a number of areas of application development and maintenance (ADM) services and, as a group, the four Indian firms represented perform on a par with the seven multi-national firms in the study. This research looks more balanced as is based on input from 864 clients of eleven leading ADM providers, seven of which are multi-nationals and four of which are India-based.
My own feeling as to where the offshore players score are – their expertise, lead and mastery in terms of managing distributed development while ensuring good process and quality standards. It is indeed a phenomenon to see their methods and skills in terms of expanding opportunities, while beginning small inside accounts. It would be interesting to see how the global majors (who have been by far the leaders in most aspects of services outsourcing) blend their offshore workforce. So far the general sense based on party talks and discussions with executives are that – the integration of these facilities are not so seamless to the extent of providing best possible value to their customers –in terms of speed, quality and price. Independent analyses confirm that the the pricing models of indian headquartered firms are much more transparent, compared to most on-site players. Am sure the global majors would be focusing on improving on those aspects while the offshore leaders would be pushing the needle of effectiveness and enhance the levels of competition. I do beleive that it may well be time to begin talking about more productivity benefits within families of ADMS space(this encompasses a very wide ranging set of techniques, tools and technologies) and publicly come out with measures when service providers have been able to do more with less. The Indian headquartered offshore players have the challenge of maintaining and improving these impressive gains when they begin to compete and win the other 3/4th of the pie in the ADMS space. If past performance is an indicator, they will. The bigger challenge and opportunity for them would be in the much bigger IMS space – where the penetration potential is far higher.
LogicaCMG which made two major acquisitions in the last two years- Unilog and WM-data (each was more than a US$billion in value)is reporting positive contribution from the acquired companies. It sold its telecom product business last month and reported less than expected results. While it officially maintains that it is growing and making needed investments,some persistent rumours of a sale has mde them to officially deny any such move. European majors like Logica & Atos are going through a rough patch -in terms of not being able to grow faster than their international competitors and this reflects in their marketcap numbers. Its interesting to watch their futre growth strategies,in a world flush with private equity money and repllete with consolidation and rollups initiatives.
Jim Collins busts many prevalent myths that pervade the art & science of management: 1. Entrepreneurs & Leaders :It's simply a myth that entrepreneurs can't evolve into company builders. He says research shows quite the opposite: In great companies the entrepreneurs generally grow as the company grows. Here is a short list of those who evolved into company builders: Henry Ford, Sam Walton, Hewlett and Packard, J.W. Marriott, Sony's Akio Morita, Walt Disney, Intel's Robert Noyce and Gordon Moore, Southwest Airlines' Herb Kelleher, and of course Gates and Phil Knight. They made the shift from time telling to clock building - to seeing their primary creation as the company itself: what it stands for, its culture and how it operates.
2. Success & Pride :He finds willful humility in the best CEO’s who display tremendous ambition for their company combined with the stoic will to do whatever it takes, no matter how brutal (within the bounds of the company's core values), to make the company great. They ascribe much of their own success to luck, discipline and preparation rather than personal genius.
3. Executive Compensation & Business Performance : He highlights that no correlation exists between executive compensation and shareholder returns. Excessive executive pay tends to lead to one thing: even more excessive pay, not increased shareholder value.
4.Entrepreneurs Start With A Great Idea : Research shows that there is a negative correlation between pioneering a great idea and building a great company. Starting a company is like scaling an unclimbed face - you don't know what the mountain will throw at you, so you must pick the right partners, who share your values, on whom you can depend, and who can adapt.
The acquisition of Hyperion makes Oracle the category leader in the high growth enterprise performance management market," said Oracle CEO Larry Ellison. "Hyperion's EPM software coupled with Oracle's Business Intelligence (BI) tools and analytic applications form an end-to-end performance management system that includes planning, budgeting, consolidation, operational analytics and compliance reporting.
BI is clearly the fastest growth area in enterprise application space today. The consolidation in the BI space was expected for sometime. Dana Gardner has an excellent assessment of the implications – surprisingly this is seen as a positive move.
I wrote months back,"Next : Watch out for some consolidation in this space. Microsoft is hardly alone in eyeing this sector.Oracle recently described Siebel’s analytics as hidden jewel. Cognos, Business Objects may look attractive to enterprise majors.SAS may be the only major left untouched. Microsoft could also make some acquisitive moves besides SAP & Oracle. Oracle used its recent Oracle Open World conference to outline analytics as a key focus going forward. While there is a near consensus about the imminent consolidation in this space, the barriers could be self made – oracle looking at smaller acquisitions moving forward( they may be content with siebel analytics), SAP is conservative in playing the acquisition game and IBM as usual may not see acquisition a good fit – given its emphasis on services and consulting more than apps. As the BI industry is a mega segment and a fast growing one at that( repeated surveys show BI as a high priority spend area for enterprises), and a very important technology that could be used for competitive differentiation by business - the four majors may still make aggressive moves".
Its indeed amazing to see Oracle making its move faster than IBM, which was widely expected to make a move into this space with an acquisition. All I can say is that once can expect more attention on Cognos & Business objects. Also on BEA, SFDC and other on-demand players. Meanwhile guys like outlooksoft, an ex-hyperion shop team would see more traction. Definitley focussed niche players with good execution ability would find some space to operate in..
Sadagopan's Weblog on Emerging Technologies, Trends,Thoughts, Ideas & Cyberworld "All views expressed are my personal views are not related in any way to my employer"
