Growing with technology

Medium enterprises are entering the big league using technology to get there, says Srikanth R P

India Inc has probably never had it so good. Robust GDP growth and sensible economic policies have ensured that medium enterprises are looking at the future with renewed optimism. The average growth rate forecast by mid-sized organisations is a healthy 9.6 percent. This is way above the 6.9 percent predicted by the Confederation of Indian Industry for fiscal 2004-05. The average annual profit of a mid-sized company is estimated at Rs 14.21 crore. Mid-sized businesses are bullish about both domestic and export growth. 76 percent of respondents see robust domestic demand, while 71 percent see growth coming from exports. The overall outlook is buoyant.

With mid-sized businesses looking to move up the ladder, the role of IT in these companies is becoming important. This can be seen from their IT priorities. While 62 percent believe that their top IT priority is to ensure data security and integrity, 33 percent have said that redesigning their IT architecture tops the list.

What’s interesting is the fact that a small portion of the respondent base is looking at experimenting with new technologies. 26 percent say that their top IT priorities are implementing technologies such as RFID, grid computing and Web services. Further, Service Oriented Architecture, a new concept promoted by enterprise vendors, is cited as one of the top ten applications by 35 percent. Estimated IT spend is expected to rise from Rs 71 lakh for fiscal 2004-05 to Rs 83 lakh for fiscal 2005-06, a growth of 14.45 percent. The average IT spend is much higher than the average IT spend of a small business (Rs 14.2 lakh). The maximum IT spend of a mid-sized enterprise is expected to be on hardware (20 percent) followed by bandwidth (18 percent). Other notable investments are going to be made in enterprise packaged software (12 percent), security (11 percent) and storage (10 percent).

As most mid-sized Indian organisations are looking to step onto the global scene, they must comply with international regulations. In India, the likes of RBI and SEBI have made recommendations and/or regulations for banks and stock exchanges. For example, RBI has issued guidelines to private and public sector banks to prevent money laundering. Mid-sized organisations are allocating a percentage of their IT spend towards meeting these regulations. The survey reveals that these organisations are spending 2 percent of their IT budgets on audit or regulatory compliance. Most of them realise the importance of planning for disasters by investing in practices which promise business continuity. Spending on disaster recovery is another new area with mid-sized organisations spending 5 percent of their outlay on it.

The lion’s share of IT spending is on infrastructure (47 percent) followed by transaction management (30 percent) while decision support brings up the rear (23 percent). Transaction management refers to applications such as ERP, demand forecasting, SCM and CRM. Mid-sized organisations which have invested in foundation applications such as ERP are looking at implementing decision support applications including knowledge management and business intelligence.

BFSI

The Indian BFSI segment is an aggressive adopter of technology. While automation was initially driven by foreign banks and later by private banks, the current phase is seeing even small banks realising the importance of technology. Mid-sized banks are busy adding delivery channels to woo Indian depositors. Having completed the process of branch automation, most banks are looking to move towards core banking. Currently, compared to the overall average annual IT investment of Rs 83 lakh, companies in the BFSI segment are expected to invest Rs 50 lakh. This could be because most BFSIs already have a good IT infrastructure in place. While an overwhelming 44 percent is still investing in infrastructure (servers and desktops), 30 percent have invested in transaction management applications. Investment in decision support applications such as knowledge management and business intelligence applications is still low at 22 percent.

BFSI

Projected distribution of IT investment

The need for investing in core banking applications is also being felt by Indian banks. For example, United Western Bank has invested in core banking, the TC/4 from CMC. The bank has over 200 branches spread over 47 districts in eight states with five zonal offices. Says M D Dhodapkar, Deputy GM of the bank, “We have gone in for a core banking application as it allows us to centralise our operations.” Dhodapkar says that the application has helped the bank conduct inter-branch reconciliation faster than before.

Most state co-operative banks are realising the importance of getting networked and implementing core banking. For instance, the Delhi State Co-operative Bank is looking at implementing such a solution. Currently, the data from its 40 branches is consolidated manually. Says Pankaj Kumar, its EDP Manager, “We are looking at various core banking solutions and will consider implementing one within a year.” Currently, the bank has a home-grown branch automation software that is used at all its branches.

Most mid-sized organisations in the BFSI sector realise the need for a strong IT infrastructure. 72 percent have invested in network operating systems. Because banks and financial institutions need to store a huge number of records, 67 percent have invested in relational database management systems. The need for good communications is also being felt, which explains why 44 percent have invested in Web, proxy or mail servers.

Windows is the favoured server platform with 84 percent preferring Windows 2000. Says Dhodapkar, “We have gone in for Windows 2003 as we feel that it is a dependable platform.” Linux is the second most popular option, with 20 percent projected to invest in it. The Bank of Maharashtra has gone in for a mix of server platforms by choosing Windows, Unix and Linux to run different applications. It uses Unix servers to run its branch automation application, Windows server at the headquarters, and Linux to run the applications that generate the MIS reports which are submitted to the RBI.

Investments in security are expected to increase from 14 to 16 percent. Similarly, investments in bandwidth are expected to increase from 15 to 17 percent. What’s noteworthy is that 48 percent say that they plan to increase their bandwidth. These investments could be in line with the networking outlay that most banks plan to make to enable the infrastructure for core banking. 55 percent of respondents say that they plan to increase their bandwidth requirements by a factor of 100 to 150 percent.

Although the storage needs of companies in this segment are huge, investments have been made primarily in disk-based storage. Only 17 percent have invested in NAS, with another 6 percent investing in SAN. However, investments in storage are expected to go up from 6 to 9 percent of overall IT spend. One of the principal factors behind this surge in storage spending is that banking and financial institutions are investing in disaster recovery practices. SEBI guidelines mandate that all Indian financial institutions should have DR measures in place to protect investor assets and ensure business continuity in the event of a disaster at one or more locations. As a result of this diktat, investments in disaster recovery are expected to go up from 2 to 7 percent. Similarly, the need for backing up data is high, with 78 percent having backup devices.

Considering that every delivery channel of a bank is dependent on its network, the importance of network uptime is critical to the bank’s survival. Not surprisingly then, an overwhelming 63 percent of respondents have invested in network and infrastructure management tools.

Banks are not the only ones into enterprise applications. With the boom in the equity markets, even stockbroking firms are looking at investing in CRM. For example, Anand Rathi Securities is implementing a CRM solution called GoldMine from FrontRange Solutions. Rathi deals in a range of financial products such as equities, mutual funds and insurance. Says Ditus Gunaseelan, MIS Manager at the company, “We are implementing a CRM solution as it will help us cross-sell products to our existing customers based on their risk profiles.”

Currently, 25 percent in the BFSI sector have invested in CRM. Another 25 percent have invested in data warehousing, data mining and business intelligence. Mid-sized businesses in BFSI take security seriously. This can be seen from the fact that 83 percent of organisations review their security policies every six months. Viruses, Internet security, user education, and theft or damage to data are seen as critical issues.

As mid-sized banks look to compete with established public sector banks and technology-savvy private sector banks, they have no option but to start networking their branches. In the current business scenario, where private and public sector banks are vying to offer services through every conceivable delivery channel that there is, mid-sized banks must necessarily invest in core banking solutions, without which service delivery across multiple channels is extremely difficult.

Chemical & Pharma

This sector consists of companies manufacturing petrochemicals, inorganic chemicals, dyes and bulk drugs. The trigger in this vertical is that in a WTO world India has to recognise product patents instead of the old system of process patents that allowed Indian companies to reverse-engineer drugs. Since most Indian pharmaceutical companies can manufacture drugs at a fraction of what it costs to do so globally, multinationals can tap the manufacturing capabilities of the Indian pharma industry. However, this calls for investment in a robust IT infrastructure, which means investing in enterprise-wide applications and connectivity.

Chemical & Pharma

Projected distribution of IT investment

Unlike in the small business segment where IT investments happen only when the need arises, medium businesses in this sector spend on technology to sharpen their competitive edge. This can be seen from the fact that compared to the overall average annual IT investment of Rs 83 lakh, companies in this sector have an average spend of Rs 70 lakh. The bulk of their IT budgets (40 percent) go to infrastructure, followed by transaction management (39 percent) and decision support (22 percent). The investment in transaction management applications is higher than the industry average of 30 percent. ERP can be said to be the backbone of the pharmaceutical company as its penetration is highest here—a whopping 88 percent of respondents have deployed ERP systems.

Says Nandkishore Panchal, Manager, IT, Elder Pharmaceuticals, “An ERP system is a must-have application for the pharmaceutical industry as it helps us track production and inventory levels.” Since many pharma companies export to the US, they need to comply with America’s FDA regulations. An electronic document submission to the FDA is only possible through an ERP system with built-in checks to ensure compliance.

Explains Nilay Sharma, Director, Base Information Systems, “The criticality of the industry means that drugs have to be zero-defect. In this scenario, an ERP system becomes crucial to ensure that none of your standard operating procedures go wrong.”

While ERP systems take care of pain points in manufacturing, it is a different story when it comes to marketing. Most pharmas are looking to gain deeper insights into regional trends to drive sales. To this end, they are investing in Business Intelligence (BI); 31 percent of these companies have so far invested in BI tools.

Sharma says that investments in BI are driven by the fact that most companies are looking at improving their ability to forecast demand. While medical sales representatives are their primary source of information, BI tools can help gauge regional or seasonal demand. For instance, the BI system should be able to factor in exceptions such as epidemics.

Among server platforms, this sector shows a deviation insofar as it leans towards Linux. While Windows Server dominates this sector, 43 percent of respondents are projected to have a Linux server as part of their IT infrastructure.

71 percent expect their investments in bandwidth to rise. Investments in storage reveal that this sector is unique in more ways than one. 24 percent plan to invest in content addressed storage (CAS), 71 percent of the organisations who have or are planning to invest in SANs will invest in IP SANs.

As this sector is witnessing intense competition, analysts expect it to experiment with new technologies. This can be seen from the examples of companies such as Somaya Organics, which is looking at using e-sourcing applications to reduce procurement costs. The quality assurance team at Dishman Pharmaceuticals uses digital signatures to approve documents. Similarly, Brown & Burk is using RFIDs to track stock movement. 42 percent of respondents say that their top IT priorities are implementing new technologies such as RFID, grid computing and Web services; this is higher than the industry average of 26 percent.

Auto & auto components

The auto components vertical has reached roughly the same stage in its evolution where the software industry was a few years back. Low-cost engineering and manufacturing skills have attracted the attention of global MNCs which are sourcing their auto ancillaries from India. The need for enterprise applications is critical to the operations of these companies as they need to maintain systems in line with those of their global clients. The average annual IT spend per company is Rs 87 lakh against the industry average of Rs 83 lakh. The bulk of investments in the present fiscal will go towards enterprise-wide applications that are projected to go up from the current 15 percent to 36 percent.

Auto & auto components

Projected distribution of IT investment

Take the example of L G Balakrishnan & Bros, which supplies spare parts to manufacturers of two- and three-wheelers. Once the company dispatches spare parts to its branches, there is no real-time information regarding the status of its goods. Currently, Balakrishnan relies on the manual updation of records, so it is exploring the feasibility of implementing an ERP system.

Says K Vishwanathan, the company’s IT Manager, “There is no immediate updation of data at the branch level now, so an ERP system will help us access real-time data.” Those companies which have already implemented an ERP system consider the application to be their backbone. Take the example of Rane Brake Linings, which has three offices and 19 manufacturing locations across India. Prior to implementing an ERP system, its plants used to run various home-grown applications. But since these applications did not talk to each other, data updation was a manual affair. After implementing SAP, the company has streamlined its production and inventory management process. Similarly, entities such as Kalyani Brakes and Cummins Diesel Sales and Services have implemented ERP systems to centralise information received from partners and suppliers. Currently, 57 percent of the respondent base has an ERP system in place.

Investments in ERP will drive storage needs. This can be seen from the fact that 25 percent of the respondent base plan to invest in SAN compared to almost nil in 2004-05.

Another interesting finding is the willingness to try out new technologies such as RFID. 33 percent in this sector plan to implement RFID. This is much higher than the industry average of 13 percent. Companies such as Balakrishnan are evaluating implementation of RFID. Muses Vishwanathan, “In our industry component designs are extremely confidential. If we can tag such designs with RFID tags, it will help us prevent unauthorised access to designs.” However, RFID adoption will take time as most companies are happy with barcoding. Having invested in basic ERP systems, the stage has come for the auto components industry to take the help of technologies such as RFID to streamline its supply chain operations.

Manufacturing

Apart from streamlining inventory levels, investments in enterprise-wide applications permit manufacturers to reduce the cost of sourcing raw material. The average annual IT spend per company is Rs 91 lakh compared to the industry average of Rs 83 lakh. Currently, the bigger chunk of the IT spend is allocated to bandwidth/connectivity (22 percent) followed by hardware.

Manufacturing

Projected distribution of IT investment

58 percent of manufacturers surveyed have an ERP system in place, while another 32 percent have deployed BI tools. Both are crucial for companies in this sector. Consider the case of Indian Seamless Metal Tubes, a manufacturer of pipe rings and axles. The company uses a home-grown ERP system to book customer orders while simultaneously planning capacity and synchronising inventory.

Similarly, Supreme Industries, a maker of finished plastic products such as chairs and crates, uses an ERP system from Base that also has a BI component to streamline its production and forecast raw material consumption. For every plastic product that the company manufactures, it needs a mould to shape the product. Now, say due to the way a mould is designed, a chair consumes 10 grams more raw material than what is required. In a manual process, this discrepancy isn’t apparent. The ERP system, however, lets the company identify if a particular product is consuming more raw materials than expected. Since raw material costs are a big part of the cost of putting together a finished product, even a small discrepancy can affect the company’s bottomline.

Currently, most manufacturers have an ERP system. This fiscal, only 4 percent of their IT spend is allocated for enterprise-wide applications compared to 12 percent in 2004-05. The installed base of ERP systems is driving storage requirements, with 62 percent of respondents confirming this trend. Investments in storage are expected to go from 10 percent to 16. Further, 38 percent plan to invest in NAS while 33 percent will go in for SAN.

While this sector has a good installed base of ERP, most of these organisations have not invested in BI, with only 32 percent having done so.

FMCG

FMCG

Projected distribution of IT investment

Every FMCG company needs visibility across its supply chain to monitor and plan its inventory. The need for an ERP system is crucial as no company can afford to have stock outs (a situation where stock of a particular product is not available). 68 percent of respondents consider ERP as their top application. Further, 73 percent had an ERP system in place compared to the industry average of 60 percent.

Consider MTR Foods. The company manufactures 200 products. Without adequate information about the sales of each product, it isn’t going to be able to analyse the profitability of each. This has an effect on the sourcing of raw materials as the company needs to forecast demand according to sales. Currently, by using a SAP solution, the company can not only check inventory levels but can also keep an eye on profit margins across product categories and regions.

With investments made in the foundation—a basic ERP system—analysts expect FMCG companies to start using BI tools to gauge regional patterns of demand. Also on the anvil is the introduction of PDAs into the field as sales staff get equipped for faster reconciliation.

Services

Timely delivery and tracking of goods is essential for the success of companies that provide logistic or courier services. The role of IT in gaining a competitive edge can be seen from the fact that compared to the Rs 83 lakh average that is being spent across verticals, companies in this sector will fork out Rs 101 lakh.

Services

Projected distribution of IT investment

As most service organisations need extensive connectivity with branch offices and franchise outlets, they are investing heavily in bandwidth. Says James Alexander, IT In-charge at XPS Cargo Services, “Our customers want real-time information on cargo movement. To this end, players in our domain need good connectivity to ensure the continuous updation of information.” Consequently, expenditure on bandwidth accounts for the largest chunk of IT spending (25 percent).

Although 54 percent of respondents have an ERP system in place, most have deployed a home-grown application. Take the case of DTDC Courier & Cargo. The company considered commercially available ERP packages, but none of these matched its requirements. Says Manojit Bhattacharya, Senior Manager, IT, DTDC, “Most solutions available in the market do not cater to our requirements, so we gave our specifications to a local vendor who developed an ERP product for us.”

As this sector needs tracking systems to monitor the movement of goods, 20 percent of the respondents in this space plan to implement RFID. DTDC itself is planning to implement RFID for tracking dispatches.

IT / BPO

This sector represents the new economy of India. While infrastructure problems remain, good connectivity has boosted the prospects of software and BPO outfits geared towards the export market. Investment in good infrastructure is crucial to the survival of these companies. Compared to the average annual IT spend of a mid-sized company of Rs 83 lakh, the comparative figure for an IT/BPO company is pegged at Rs 112 lakh.

IT / BPO

Projected distribution of IT investment

As expected, a majority of the IT spend is allocated towards bandwidth/connectivity (22 percent) followed by hardware (21 percent). 32 percent of respondents say that they plan to increase their bandwidth by a factor of 50-100 percent, while 11 percent plan to increase the same by a factor of 110-150 percent.

No company in this space can afford downtime as this can severely affect project delivery. Says L Vardarajan, Senior Developer, April Business, “We have a 512 Kbps line as most of our customer interaction happens through the Internet.”

Accordingly, mid-sized companies in this space are investing in network management tools, and 62 percent have already deployed them. Knowledge management is another crucial technology that is used to the optimum. Details about new technologies, bugs or new methods are all documented in the system to improve employee productivity. For example, most companies have a FAQ list about a client’s systems or a new technology so that any new employee can easily get acquainted with the same. 48 percent of companies in this sector have invested in knowledge management systems, much higher than the average of 18 percent across industries. For connectivity, leased lines are the preferred option for Internet access.

Among server platforms, while Windows Server is preferred, 32 percent plan to invest in Linux servers as well. The choice of servers is mostly influenced by the type of work these firms do for their clients. For example, UshaComm uses a Sun Solaris server for developing telecom billing software.

Because a majority of the companies deal with global clients, data security is of paramount importance. 86 percent of the respondents say that their top IT priority is to ensure data security and integrity. 56 percent review their security policy every three months, while another 6 percent do so every six months. In line with client specifications, IT organisations are also investing in disaster recovery. 64 percent invest in disaster recovery practices.

While 48 percent have invested in knowledge management tools, there is scope for further improvement as the use of such tools can help mid-sized IT companies drive up productivity and compete with the biggies.

Government

Government organisations are trying to change their image with a little help from IT. This is true of PSUs and other state-owned organisations. Compared to the annual average IT budget of Rs 83 lakh, the IT budget of a government organisation or PSU is estimated at Rs 119 lakh. Organisations in this sector spend on enterprise packaged software (29 percent) followed by hardware (25 percent).

Government

Projected distribution of IT investment

Security is of paramount importance. 40 percent plan to invest in intrusion detection systems. Further, 40 percent of the organisations review their security policy once in three months, while another 25 percent review it once every six months.

While only 22 percent of respondents say that their top IT priority is to implement new technologies such as RFID, grid computing and Web services, organisations such as the Karnataka State Beverages Corporation (KSBC) are showing the way for others. KSBC plans to use RFID tags for tracking liquor bottles. Says R Ramaseshan, its Managing Director, “If we use RFID tags, it will be easier for us to get total details of every liquor bottle. The other advantage is that it will allow us to control stock movement.”

While most government organisations are considered laggards in the adoption of new technologies, the example of KSBC shows that they can be as aggressive as private players if they have the will to implement new technologies.

— With inputs from Shivani Shinde

srikanth@expresscomputeronline.com