IT Strategy and Business DynamicsPaper Structure

2 sections - 50 marks each - Each section 5 questions Section 1 - IT strategy 3 out of 5 questions Section 2 - Business Dynamics 2 out of 5 questions Surprise Element - Case Study

Table of Contents

Section 1................................................................................................................................................3

Short Notes - 5 marks each................................................................................................................3

1. Outsourcing...........................................................................................................................3

2. IT focus on strategy...............................................................................................................5

3. Opportunity analysis..............................................................................................................7

4. Role of a CIO..........................................................................................................................8

5. Return On Investments (ROI)...............................................................................................11

Describe in details - 10 marks each.................................................................................................13

1. The Value Chain Analysis.....................................................................................................13

2. Role of IT in mfg or banking (high level question - very subjective).....................................19

Describe in details - 20 marks each.................................................................................................25

3. What is IT Strategy - Elaborate on the process of Developing an IT Strategy......................25

4. Discuss importance of Value Chain analysis in IT planning..................................................30

Section 2..............................................................................................................................................31

Describe in details - 20 marks each.................................................................................................31

1. What is the importance of Business Plan in Venture Capital(VC)........................................31

2. Difference between IT Service and product - Explain the crossover between IT products and Services.................................................................................................................................33

3. Explain the future of Global Sourcing..................................................................................34

4. Explain the change in IT Scenario, giving example of an Indian IT company........................39

Section 1

Short Notes - 5 marks each

1. Outsourcing

What is outsourcing? Outsourcing is contracting with another company or person to do a particular function. Almost every organization outsources in some way. Typically, the function being outsourced is considered non-core to the business. An insurance company, for example, might outsource its janitorial and landscaping operations to firms that specialize in those types of work since they are not related to insurance or strategic to the business. The outside firms that are providing the outsourcing services are third-party providers, or as they are more commonly called, service providers.

Although outsourcing has been around as long as work specialization has existed, in recent history, companies began employing the outsourcing model to carry out narrow functions, such as payroll, billing and data entry. Those processes could be done more efficiently, and therefore more cost-effectively, by other companies with specialized tools and facilities and specially trained personnel.

Currently, outsourcing takes many forms. Organizations still hire service providers to handle distinct business processes, such as benefits management. But some organizations outsource whole operations. The most common forms are information technology outsourcing (ITO) and business process outsourcing (BPO).

Business process outsourcing encompasses call center outsourcing, human resources outsourcing (HRO), finance and accounting outsourcing, and claims processing outsourcing. These outsourcing deals involve multi-year contracts that can run into hundreds of millions of dollars. Frequently, the people performing the work internally for the client firm are transferred and become employees for the service provider. Dominant outsourcing service providers in the information technology outsourcing and business process outsourcing fields include IBM, EDS, CSC, HP, ACS, Accenture and Capgemini.

Some nimble companies that are short on time and money, such as start-up software publishers, apply multisourcing -- using both internal and service provider staff -- in order to speed up the time to launch. They hire a multitude of outsourcing service providers to handle almost all aspects of a new project, from product design, to software coding, to testing, to localization, and even to marketing and sales.

The process of outsourcing generally encompasses four stages: 1) strategic thinking, to develop the organization's philosophy about the role of outsourcing in its activities; 2) evaluation and selection, to decide on the appropriate outsourcing projects and potential locations for the work to be done and service providers to do it; 3) contract development, to work out the legal, pricing and service level agreement (SLA) terms; and 4) outsourcing

management or governance, to refine the ongoing working relationship between the client and outsourcing service providers.

In all cases, outsourcing success depends on three factors: executive-level support in the client organization for the outsourcing mission; ample communication to affected employees; and the client's ability to manage its service providers. The outsourcing professionals in charge of the work on both the client and provider sides need a combination of skills in such areas as negotiation, communication, project management, the ability to understand the terms and conditions of the contracts and service level agreements (SLAs), and, above all, the willingness to be flexible as business needs change.

The challenges of outsourcing become especially acute when the work is being done in a different country (offshored), since that involves language, cultural and time zone differences.

2. IT focus on strategy

IT Strategy Definition

• understanding the aims and objectives of the business • establishing the information requirements • outlining the systems needed to provide the information • determining the role of information technology in supporting the information systems • agreeing policy, priorities and development and implementation plans • managing, reviewing and evolving the strategy, and planning to manage potential

impacts such as the effect on culture and organisation • An information technology strategy brings this information together into a plan to make

the most appropriate use of both information and technology available in an organisation

Components of IT Strategy

• Current business strategy and business plan. • Current business processes. • Current business requirements for IT. • Future/planned business processes. • Future/planned business requirements. • Current IT systems, processes and infrastructure • Current IT resources

IT focus on Strategy

Following are the points from Mam’s PPT. We can elaborate these points in details while writing the paper. Also refer to IT Strategy question below IT Strategy

Does IT Matter?

IT Investment & Management Need To Change Dramatically. Is a byte of data a commodity?

“IT” Management Today What can we do?

o Have appropriate involvement from business unit managers o Focus more on the “I” than the “T” in “IT”o Strategic alignmento Be accountable for execution of IT services

Six IT Decisions - Part I - Focus on Strategy

1. How much should we spend on IT?

What are our priorities?What is the strategic role that IT should play in our organization?

2. Which business processes should receive our IT dollars?

What investments are appropriate given our vision of the role IT should play in our organization?

3. Which IT capabilities need to be companywide?

How centralized/decentralized should our data, processes, and IT standardization be in our organization?

Six IT Decisions - Part II - Focus on Execution

4. How good do our IT services really need to be?What level of system reliability, system responsiveness, and data accessibility are necessary given our business and IT strategies?

5. What security and privacy risks will we accept?What is the appropriate balance between security and privacy versus user convenience?

6. Whom do we blame if an IT initiative fails?How much organizational change will we allow/support to get the benefits from IT we had hoped?

How will we measure success?

3. Opportunity analysis

Opportunity analysis is the strategy of assessing the potential for a change or enhancement to enhance the generation of revenue. The type of opportunity will vary, from small chances within a current production model that leads to expense reduction or increases overall efficiency, to the launch of new product lines that will increase profitability for the business as a whole. Whether the goal is to increase profits by reducing expenses or broadening the range of products offered, undergoing an opportunity analysis helps to provide an understanding of what effects, positive and negative, are likely to take place if a particular approach is implemented.

With any type of opportunity analysis, three key questions must be answered in order for the analysis to be effective. First, what are the benefits of implementing this opportunity? Next, what adverse effects are likely to occur when the implementation takes place? Finally, how will the implementation affect the overall function of the operation, and is the result worth making the change?

The first issue to address in conducting an opportunity analysis is to identify the benefits that the change will bring about. For example, if a bread company decides to broaden the product line by offering hot dog buns along with its loaves, the benefits may be meeting a need of current consumers who will now purchase buns along with loaves, leading to increased profits for the business. The analysis will look closely at what expense is involved in adjusting the production process so the buns can be produced, how the packaging should be designed, and what the unit price for a package of buns must be in order to be competitive in the marketplace. If it is determined that the associated costs can be offset by the sale of the buns and earn a profit for the venture, there is a good chance that this opportunity is worth pursuing.

Once it is determined that there is value in pursuing the idea, the opportunity analysis will then focus on the potential negative effects of implementing this new strategy. For example, how will the production of buns impact the production of loaves? If the bread production is adversely affected to the point that the company produces fewer loaves and cannot meet its production commitments to current vendors, then the profit from the bun production may be completely offset, leaving the company with no additional revenue to show for its efforts.

Any worthwhile opportunity analysis must look at the long-range effects associated with the change that is being considered. Often, this means looking at not only issues of production and cost, but also intangible factors. Should the addition of buns to the production process mean that consumers cannot buy the loaves they want, then they are likely to take their business elsewhere, an action that effectively undermines not only the profits from the loaves but also reduces the consumer market for the buns. Thus, the change would have a negative effect on revenue generation over the long-term and not be worth the effort.

4. Role of a CIO

• ITS - managing the implementation of the strategy; maintaining and monitoring its effectiveness; proposing changes to it (on the basis of wide consultation

• Innovator / Change Enabler• Managing IT to provide services• Making decisions about IT investments • Earn Credibility• Manage Expectations• Define Boundaries

In today's age where more is less and where 100 % is insufficient we need to constantly review and recast roles responsibilities and performance measurement – infact all aspects of running a business. However holding it all together is the CIO and today the role of the CIO in the organisation has to be a bit more than what was being done earlier.

Let us cast aside the traditional role which was mainly to provide the IT services and look beyond that. Let us also mainly focus on the role and responsibilities vis a vis the development, maintenance and monitoring of the ITS.

To put down the role – we can try and look at it from 2 perspectives – expectation & capabilities. When I say capabilities pls remember that we are talking about what a person in this designation can be capable of and noeccesarily an individuals capabilities.At this point one must look at the role from a point of view of expectation – what does the organisation expect me to do? What does my CEO want me to do? What do the people in IT want me to do?

My role as the CIO is to enable the business to leverage information and technology to provide better products and service to its customers. Inevitably, that means bringing change to the organization. In my experience, even the simplest technology, when well delivered, leads to dramatic change. Ex of time sheets .

When you need to define the role and responsibilities you will also need to look at capabilities and qualifications that are required – should he / she be capable of in the areas of pure tech skills? Should he / she be capable of being a leader?should he / she have a business back ground? Should he / she have a pure IT back ground? Should it be a mix of the two? Is the requirement different for the industry he / she is in? for example a hardcore IT co like Wipro or Sun or TI be very different from a HLL or from HDFC bank? Where the large part of the organisation is IT savvy in terms of awareness of all the components of IT would the approach be different? For example, at Gap Inc., we brought email and intranet access to all stores. We wanted to provide greater support for store personnel by enhancing communication, knowledge sharing, and customer service capabilities. We had to overcome a concern that the technology might distract store personnel from customers.The implementation was a success, the technology very well received. But we also noticed that we began to change the way in which the organization operates: Stores feel more connected, more supported, and more empowered to provide great customer service.

Many chief information officers do an excellent job of overseeing IT operations, but very few lead their companies' efforts to get real business benefits from IT investments. A new style of leader is needed—one who can find ways for IT to change the company, not just run it.

The CIO’s job is going to get tougher – there are expectations from business, from an HR perspective from a customer / product perspective he is expected to have multi dimensions in his capabilities to look at strategies, solutions from all sides.

The role of the CIO has to be that of a trusted adviser and facilitator, so much that business should have complete trust in him; there has to be a very direct and visible correlation between what IT does and how business gains from it; the third is more relevant, particularly when costs are becoming an issue, in terms of driving the processes, driving the productivity and how technology is going to be used for that; and finally the biggest challenge would be just staying in touch with what’s happening around us, and picking up the relevant pieces and trying to see how we can put them together and use them to the best advantage for our respective businesses. Leadership, financial management, customer focus, business understanding, risk management and above al a good understanding of technology per se.Behaviour can be changed through experience and not through lessons.

As a CIO, you have to be concerned with the information, the technology, and the change.

The CIO of a large European bank instilled discipline and focus in the IT organization, reduced IT costs, streamlined and upgraded the infrastructure, and showed the business units that IT mattered. From an enterprise perspective, however, the CIO's performance was not so impressive. First, the IT budget focused on maintaining bank operations, not on innovating to add business value. Second, technology operations and investments were not aligned with the bank's business strategies.

The bank's CFO proposed an alliance. The two executives would involve business-unit leaders in defining the bank's IT agenda. They would begin, the CFO suggested, by helping the business leaders see the impact of their decisions on IT costs. At the CFO's behest, IT reports on operating costs and reliability were replaced with reports focusing on IT-driven business and financial metrics, such as business-process errors. The CFO also sold the bank on a new decision-making process for technology investments—one requiring greater business-unit involvement. Over time, persuaded by facts, influence, and deal making, the business-unit leaders became more deeply engaged in initiatives to reduce IT costs stemming from business complexity.1 Today these executives are making smarter decisions about IT investments and are more accountable for the outcomes.

Who was the real IT leader at the bank—the CIO or the CFO? The answer is obvious: the CFO drove efforts to take IT to the next level. While some CIOs may be content to manage their IT organizations efficiently, those who aspire to a greater role will need to make a choice in the next few years: step up to the new responsibilities required of an IT leader or watch as another executive does

This transition requires a new focus plus new skills. CIOs need to direct their attention away from managing IT supply and toward managing IT demand, and they must fine-tune their executive-leadership skills.

Ironically, as business leaders have gained a greater understanding of technology's strategic

impact—indeed, during the dot-com years, some even led Internet channel initiatives—they are more likely to engage in battles over ownership of and accountability for IT. Tempers can flare especially vividly during decisions about business-applications investments. At a US-based financial-services company, business-unit leaders went to war with the CIO, one of its top executives, when he attempted to take greater responsibility for IT applications and technology investments at the business-unit level and to make business leaders shoulder more accountability for getting returns from IT.

When the IT engine is running smoothly and the CIO turns his or her attention from supply to demand, the required management capabilities change—from operational skills to strategic ones, from short-term horizons to longer-term ones, from IT communications to business communications. CIOs need to know not only what the differences are but also how to time the shift; move too soon or too late and credibility with business leaders will suffer.

• CIO or CTO or Head IT… place in Organisation?• IT organisation and Enterprise Organisation• Rent a CIO- Concept • Will the CIO be extinct 10 years from now?

What is the place? And designation? Is this position perceived by the organisation to be important? What are the duties given to this designation?You need to look at whether both the structures are pulling each other apart or are in sync. For ex. If the enterprise is decentralised but IT as a function is centralised it would lead to conflict.

5. Return On Investments (ROI)

Definition of 'Return On Investment - ROI'

A performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments. To calculate ROI, the benefit (return) of an investment is divided by the cost of the investment; the result is expressed as a percentage or a ratio. 

The return on investment formula:

In the above formula "gains from investment", refers to the proceeds obtained from selling the investment of interest.  Return on investment is a very popular metric because of its versatility and simplicity. That is, if an investment does not have a positive ROI, or if there are other opportunities with a higher ROI, then the investment should be not be undertaken.

Investopedia explains 'Return On Investment - ROI'

Keep in mind that the calculation for return on investment and, therefore the definition, can be modified to suit the situation -it all depends on what you include as returns and costs. The definition of the term in the broadest sense just attempts to measure the profitability of an investment and, as such, there is no one "right" calculation.

For example, a marketer may compare two different products by dividing the gross profit that each product has generated by its respective marketing expenses. A financial analyst, however, may compare the same two products using an entirely different ROI calculation, perhaps by dividing the net income of an investment by the total value of all resources that have been employed to make and sell the product.

This flexibility has a downside, as ROI calculations can be easily manipulated to suit the user's purposes, and the result can be expressed in many different ways. When using this metric, make sure you understand what inputs are being used.

The ABCs of ROI

• Calculating ROI – is it a Pointless effort?• Is finance essential to IT strategy success?• Traditional methods of ROI – will it work for IT?• How much time to measure?

Making the case for IT

• Operational unit vs. productive business unit• Increase in Productivity = Increase in IT investment?• Defining “IT’s contribution to business” • Where will the $ go?

Using Traditional ROI – What can go wrong?

• Favour projects with Clear financial implications• Inward looking• Incapable of handling multiple dimensions• Cross functional benefits might be missed• Time – limiting factor

Describe in details - 10 marks each

1. The Value Chain AnalysisTo better understand the activities through which a firm develops a competitive advantage and creates shareholder value, it is useful to separate the business system into a series of value-generating activities referred to as the value chain. In his 1985 book Competitive Advantage, Michael Porter introduced a generic value chain model that comprises a sequence of activities found to be common to a wide range of firms. Porter identified primary and support activities as shown in the following diagram:

Porter's Generic Value Chain

InboundLogistics > Operations > Outbound

Logistics >Marketing

&Sales

> Service >

MARGIN

Firm Infrastructure

HR Management

Technology Development

Procurement

 

The goal of these activities is to offer the customer a level of value that exceeds the cost of the activities, thereby resulting in a profit margin.The primary value chain activities are:

Inbound Logistics: the receiving and warehousing of raw materials, and their distribution to manufacturing as they are required.

Operations: the processes of transforming inputs into finished products and services.

Outbound Logistics: the warehousing and distribution of finished goods.

Marketing & Sales: the identification of customer needs and the generation of sales.

Service: the support of customers after the products and services are sold to them.These primary activities are supported by:

The infrastructure of the firm: organizational structure, control systems, company culture, etc.

Human resource management: employee recruiting, hiring, training, development, and compensation.

Technology development: technologies to support value-creating activities.

Procurement: purchasing inputs such as materials, supplies, and equipment.The firm's margin or profit then depends on its effectiveness in performing these activities efficiently, so that the amount that the customer is willing to pay for the products exceeds the cost of the activities in the value chain. It is in these activities that a firm has the opportunity to generate superior value. A competitive advantage may be achieved by reconfiguring the value chain to provide lower cost or better differentiation.The value chain model is a useful analysis tool for defining a firm's core competencies and the activities in which it can pursue a competitive advantage as follows:

Cost advantage: by better understanding costs and squeezing them out of the value-adding activities.

Differentiation: by focusing on those activities associated with core competencies and capabilities in order to perform them better than do competitors.

Cost Advantage and the Value ChainA firm may create a cost advantage either by reducing the cost of individual value chain activities or by reconfiguring the value chain.Once the value chain is defined, a cost analysis can be performed by assigning costs to the value chain activities. The costs obtained from the accounting report may need to be modified in order to allocate them properly to the value creating activities.Porter identified 10 cost drivers related to value chain activities:

Economies of scale

Learning

Capacity utilization

Linkages among activities

Interrelationships among business units

Degree of vertical integration

Timing of market entry

Firm's policy of cost or differentiation

Geographic location

Institutional factors (regulation, union activity, taxes, etc.)A firm develops a cost advantage by controlling these drivers better than do the competitors.A cost advantage also can be pursued by reconfiguring the value chain. Reconfiguration means structural changes such a new production process, new distribution channels, or a

different sales approach. For example, FedEx structurally redefined express freight service by acquiring its own planes and implementing a hub and spoke system.

Differentiation and the Value ChainA differentiation advantage can arise from any part of the value chain. For example, procurement of inputs that are unique and not widely available to competitors can create differentiation, as can distribution channels that offer high service levels.Differentiation stems from uniqueness. A differentiation advantage may be achieved either by changing individual value chain activities to increase uniqueness in the final product or by reconfiguring the value chain.Porter identified several drivers of uniqueness:

Policies and decisions

Linkages among activities

Timing

Location

Interrelationships

Learning

Integration

Scale (e.g. better service as a result of large scale)

Institutional factorsMany of these also serve as cost drivers. Differentiation often results in greater costs, resulting in tradeoffs between cost and differentiation.There are several ways in which a firm can reconfigure its value chain in order to create uniqueness. It can forward integrate in order to perform functions that once were performed by its customers. It can backward integrate in order to have more control over its inputs. It may implement new process technologies or utilize new distribution channels. Ultimately, the firm may need to be creative in order to develop a novel value chain configuration that increases product differentiation.

Technology and the Value ChainBecause technology is employed to some degree in every value creating activity, changes in technology can impact competitive advantage by incrementally changing the activities themselves or by making possible new configurations of the value chain.Various technologies are used in both primary value activities and support activities:

Inbound Logistics Technologies

o Transportation

o Material handling

o Material storage

o Communications

o Testing

o Information systems

Operations Technologies

o Process

o Materials

o Machine tools

o Material handling

o Packaging

o Maintenance

o Testing

o Building design & operation

o Information systems

Outbound Logistics Technologies

o Transportation

o Material handling

o Packaging

o Communications

o Information systems

Marketing & Sales Technologies

o Media

o Audio/video

o Communications

o Information systems

Service Technologies

o Testing

o Communications

o Information systems

Note that many of these technologies are used across the value chain. For example, information systems are seen in every activity. Similar technologies are used in support activities. In addition, technologies related to training, computer-aided design, and software development frequently are employed in support activities.To the extent that these technologies affect cost drivers or uniqueness, they can lead to a competitive advantage.

Linkages Between Value Chain ActivitiesValue chain activities are not isolated from one another. Rather, one value chain activity often affects the cost or performance of other ones. Linkages may exist between primary activities and also between primary and support activities.Consider the case in which the design of a product is changed in order to reduce manufacturing costs. Suppose that inadvertantly the new product design results in increased service costs; the cost reduction could be less than anticipated and even worse, there could be a net cost increase.Sometimes however, the firm may be able to reduce cost in one activity and consequently enjoy a cost reduction in another, such as when a design change simultaneously reduces manufacturing costs and improves reliability so that the service costs also are reduced. Through such improvements the firm has the potential to develop a competitive advantage.

Analyzing Business Unit InterrelationshipsInterrelationships among business units form the basis for a horizontal strategy. Such business unit interrelationships can be identified by a value chain analysis.Tangible interrelationships offer direct opportunities to create a synergy among business units. For example, if multiple business units require a particular raw material, the procurement of that material can be shared among the business units. This sharing of the procurement activity can result in cost reduction. Such interrelationships may exist simultaneously in multiple value chain activities.Unfortunately, attempts to achieve synergy from the interrelationships among different business units often fall short of expectations due to unanticipated drawbacks. The cost of coordination, the cost of reduced flexibility, and organizational practicalities should be analyzed when devising a strategy to reap the benefits of the synergies.

Outsourcing Value Chain Activities

A firm may specialize in one or more value chain activities and outsource the rest. The extent to which a firm performs upstream and downstream activities is described by its degree of vertical integration.A thorough value chain analysis can illuminate the business system to facilitate outsourcing decisions. To decide which activities to outsource, managers must understand the firm's strengths and weaknesses in each activity, both in terms of cost and ability to differentiate. Managers may consider the following when selecting activities to outsource:

Whether the activity can be performed cheaper or better by suppliers.

Whether the activity is one of the firm's core competencies from which stems a cost advantage or product differentiation.

The risk of performing the activity in-house. If the activity relies on fast-changing technology or the product is sold in a rapidly-changing market, it may be advantageous to outsource the activity in order to maintain flexibility and avoid the risk of investing in specialized assets.

Whether the outsourcing of an activity can result in business process improvements such as reduced lead time, higher flexibility, reduced inventory, etc.

The Value Chain SystemA firm's value chain is part of a larger system that includes the value chains of upstream suppliers and downstream channels and customers. Porter calls this series of value chains the value system, shown conceptually below:

The Value System

    ...     > SupplierValue Chain > Firm

Value Chain > ChannelValue Chain > Buyer

Value Chain

Linkages exist not only in a firm's value chain, but also between value chains. While a firm exhibiting a high degree of vertical integration is poised to better coordinate upstream and downstream activities, a firm having a lesser degree of vertical integration nonetheless can forge agreements with suppliers and channel partners to achieve better coordination. For example, an auto manufacturer may have its suppliers set up facilities in close proximity in order to minimize transport costs and reduce parts inventories. Clearly, a firm's success in developing and sustaining a competitive advantage depends not only on its own value chain, but on its ability to manage the value system of which it is a part.

2. Role of IT in mfg or banking (high level question - very subjective)

Role of IT in Manufacturing:

Today’s manufacturing enterprise, whether it produces consumer goods or weapons systems, must often juggle a range of conflicting demands. Smaller lot sizes, increased product flexibility, higher product quality, decreased delivery time, and smaller profit margins are typical of the ambitious goals in many such organizations.

Through it all, the enterprise must consistently aim for the five R’s—produce the right product, with the right quality, in the right quantity, at the right price, and at the right time—and it must do more than satisfy its customers: It must delight them. These demands mean that the manufacturing enterprise must constantly evaluate its business strategy and fine-tune its processes as needed. It must be able to

leverage its core design and manufacturing competencies and pursue new business opportunities while outsourcing noncore activities;

implement new production strategies rapidly (mass customization, lean manufacturing, and so on); and

predict how change will affect operational constraints, such as resource availability on the shop floor.

Correct and timely information is key to meeting these goals, and information technology—database management systems, enterprise resource planning systems, and simulation and computer-aided design tools—has become indispensable to most manufacturing enterprises.

Computer based control systems can be combined with manufacturing technology, such as robots, machine tools, automated guided vehicles, to improve manufacturing operations. In this role, the computer can assist integrating these technologies into a lean and efficient factory capable of competing in world markets. Organizations such as Allen-Bradley, black and Decker, and Boeing have used information technology and factory automation to improve manufacturing operations. This combination of information technology and factory automation is often called computer- integrated manufacturing.

Computer- integrated manufacturing (CIM) blends development in manufacturing with information technology to achieve competitive advantage. When properly organized, CIM offers the opportunity to automate design, manufacturing and production planning and control. Each component is described brifly here:

Engineering design through Computer aided design (CAD) allows an organization to make high quality specialized designs rapidly. The design can be tailored to meet

individual customer needs.

Flexibility manufacturing systems (FMSs) can quickly produce a variety of high quality product efficiently. An (FMSs) also allow an organization to produce high specialized designs.

Computer based production planning and control systems allow an organization to cope with the complexity of managing facilities that produce a wide variety of specialized products without losing efficiency.

When properly combined, these components can yield synergetic results. An organization can have more flexible and integrated operations, be better equipped to mange complex operations, and exercise better controls then can a company that operates without CIM. To merge these components into one coordinated whole, staff from the information systems functions needs to integrate engineering, manufacturing, and business databases into a cross functional decision support system. Once accomplished, the flexibility to respond to customer demands with low cost, high quality specialized products becomes a powerful competitive advantage.

Role of IT in Banking

Banking environment has become highly competitive today. To be able to survive and grow in the changing market environment banks are going for the latest technologies, which is being perceived as an ‘enabling resource’ that can help in developing learner and more flexible structure that can respond quickly to the dynamics of a fast changing market scenario. It is also viewed as an instrument of cost reduction and effective communication with people and institutions associated with the banking business.

The Software Packages for Banking Applications in India had their beginnings in the middle of 80s, when the Banks started computerising the branches in a limited manner. The early 90s saw the plummeting hardware prices and advent of cheap and inexpensive but high powered PC’s and Services and banks went in for what was called Total Branch Automation (TBA) packages. The middle and late 90s witnessed the tornado of financial reforms, deregulation globalisation etc. coupled with rapid revolution in communication technologies and evolution of novel concept of convergence of communication technologies, like internet, mobile/cell phones etc. Technology has continuously played on important role in the working of banking institutions and the services provided by them. Safekeeping of public money, transfer of money, issuing drafts, exploring investment opportunities and lending drafts, exploring investment being provided.

Information Technology enables sophisticated product development, better market infrastructure, implementation of reliable techniques for control of risks and helps the financial intermediaries to reach geographically distant and diversified markets. Internet has significantly influenced delivery channels of the banks. Internet has emerged as an important medium for delivery of banking products and services.

The customers can view the accounts; get account statements, transfer funds and purchase drafts by just punching on few keys. The smart card’s i.e., cards with micro processor chip have added new dimension to the scenario. An introduction of ‘Cyber Cash’ the exchange of cash takes place entirely through ‘Cyber-books’. Collection of Electricity bills and telephone bills has become easy. The upgradeability and flexibility of internet technology after unprecedented opportunities for the banks to reach out to its customers. No doubt banking services have undergone drastic changes and so also the expectation of customers from the banks has increased greater.

IT is increasingly moving from a back office function to a prime assistant in increasing the value of a bank over time. IT does so by maximizing banks of pro-active measures such as strengthening and standardising banks infrastructure in respect of security, communication and networking, achieving inter branch connectivity, moving towards Real Time gross settlement (RTGS) environment the forecasting of liquidity by building real time databases, use of Magnetic Ink Character Recognition and Imaging technology for cheque clearing to name a few. Indian banks are going for the retail banking in a big way

The key driver to charge has largely been the increasing sophistication in technology and the growing popularity of the Internet. The shift from traditional banking to e-banking is changing customer’s expectations.

E-Banking:

E-banking made its debut in UK and USA 1920s. It becomes prominently popular during 1960, through electronic funds transfer and credit cards. The concept of web-based baking came into existence in Eutope and USA in the beginning of 1980.

In India e-banking is of recent origin. The traditional model for growth has been through branch banking. Only in the early 1990s has there been a start in the non-branch banking services. The new pribate sector banks and the foreign banks are handicapped by the lack of a strong branch network in comparison with the public sector banks. In the absence of such networks, the market place has been the emergence of a lot of innovative services by these players through direct distribution strategies of non-branch delivery. All these banks are using home banking as a key “pull’ factor to remove customers away from the well entered public sector banks.

Many banks have modernized their services with the facilities of computer and electronic equipments. The electronics revolution has made it possible to provide ease and flexibility in banking operations to the benefit of the customer. The e-banking has made the customer say good-bye to huge account registers and large paper bank accounts. The e-banks, which may call as easy bank offers the following services to its customers:

Credit Cards/Debit Cards

ATM

E-Cheques

EFT (Electronic Funds Transfer)

DeMAT Accounts

Mobile Banking

Telephone Banking

Internet Banking

EDI (Electronic Data Interchange)

Benefits of E-banking:

To the Customer:

Anywhere Banking no matter wherever the customer is in the world. Balance enquiry, request for services, issuing instructions etc., from anywhere in the world is possible.

Anytime Banking – Managing funds in real time and most importantly, 24 hours a day, 7days a week.

Convenience acts as a tremendous psychological benefit all the time.

Brings down “Cost of Banking” to the customer over a period a period of time.

Cash withdrawal from any branch / ATM

On-line purchase of goods and services including online payment for the same.

To the Bank:

Innovative, scheme, addresses competition and present the bank as technology driven in the banking sector market

Reduces customer visits to the branch and thereby human intervention

Inter-branch reconciliation is immediate thereby reducing chances of fraud and misappropriation

On-line banking is an effective medium of promotion of various schemes of the bank, a marketing tool indeed.

Integrated customer data paves way for individualised and customised services.

Impact of IT on the Service Quality:

The most visible impact of technology is reflected in the way the banks respond strategically for making its effective use for efficient service delivery. This impact on service quality can be summed up as below:

With automation, service no longer remains a marketing edge with the large banks only. Small and relatively new banks with limited network of branches become better placed to compete with the established banks, by integrating IT in their operations.

The technology has commoditising some of the financial services. Therefore the banks cannot take a lifetime relationship with the customers as granted and they have to work continuously to foster this relationship and retain customer loyalty.

The technology on one hand serves as a powerful tool for customer servicing, on the other hand, it itself results in depersonalising of the banking services. This has an adverse effect on relationship banking. A decade of computerization can probably never substitute a simple or a warm handshake.

In order to reduce service delivery cost, banks need to automate routine customer inquiries through self-service channels. To do this they need to invest in call centers, kiosks, ATM’s and Internet Banking today require IT infrastructure integrated with their business strategy to be customer centric.

Impact of IT on Banking System:

The banking system is slowly shifting from the Traditional Banking towards relationship banking. Traditionally the relationship between the bank and its customers has been on a one-to-one level via the branch network. This was put into operation with clearing and decision making responsibilities concentrated at the individual branch level. The head office had responsibility for the overall clearing network, the size of the branch network and the training of staff in the branch network. The bank monitored the organisation’s performance and set the decision making parameters, but the information available to both branch staff and their customers was limited to one geographical location.

Traditional Banking Sector

The modern bank cannot rely on its branch network alone. Customers are now demanding new, more convenient, delivery systems, and services such as Internet banking have a dual role to the customer. They provide traditional banking services, but additionally offer much greater access to information on their account status and on the bank’s many other services. To do this banks have to create account information layers, which can be accessed both by the bank staff as well as by th customers themselves.

The use of interactive electronic links via the Internet could go a ling way in providing the customers with greater level of information about both their own financial situation and about the services offered by the bank.

The New Relationship Oriented Bank

Impact of IT on Privacy and Confidentiality of Data:

Data being stored in the computers, is now being displayed when required on through internet banking mobile banking, ATM’s etc. all this has given rise to the issues of privacy and confidentially of data are:

The data processing capabilities of the computer, particularly the rapid throughput, integration, and retrieval capabilities, give rise to doubts in the minds of individuals as to whether the privacy of the individuals is being eroded.

So long as the individual data items are available only to those directly concerned, everything seems to be in proper place, but the incidence of data being cross referenced to create detailed individual dossiers gives rise to privacy problems.

Customers feel threatened about the inadequacy of privacy being maintained by the banks with regard to their transactions and link at computerised systems with suspicion.

Aside from any constitutional aspect, many nations deem privacy to be a subject of human right and consider it to be the responsibility of those who concerned with computer data processing for ensuring that the computer use does not revolve to the stage where different data about people can be collected, integrated and retrieved quickly. Another important responsibility is to ensure the data is used only for the purpose intended.

Describe in details - 20 marks each

3. What is IT Strategy - Elaborate on the process of Developing an IT Strategy

Information Technology Strategy: A CIO Success Kit, Gartner Executive Programs (March, 2009)

IT strategy is about how IT will help the organisation win in its chosen markets. IT strategy has two roles of guiding the business strategy and IT delivering on the business strategy. `What does a great IT strategy look like?’ is hard to define. Gartner, one of the world’s leading IT research and advisory company’s believe it should include information on demand, control and supply as shown in the figure above and described in the table below adapted from `IT Strategy: A CIO Success Kit, Gartner Executive Programs’ (March, 2009).

DEMAND CONTROL SUPPLY

Business ContextCovers business models, business strategy, growth markets served, customer segments and relevant technology trends.

IT PrinciplesDrive behaviours and provide a framework to guide the IT leadership team’s strategic decisions.

IT ServicesCovers the scope, depth and breadth, of IT services and processes provided by the IT team.

Business SuccessClarifies the organisations strategic ambitions of “How we will win” and it is about the overall direction to drive business success.

IT GovernanceThe definition of decision rights and the accountability framework to encourage desirable behaviour in the use of IT – how IT decisions get made strategically.

Enterprise Architecture (EA)The construct used to describe the relationship between the organisations business, applications, technology and information services.

Business CapabilitiesUsed to bridge the gap between out-ward facing corporate strategy and inward-facing internal plans and  activities

IT Financial ManagementDescribes how finances flow in and out of the IT function supported by planning, cost control and allocation financial processes

PeopleAssessment of the people capability and training needs today and in the future as well as critical HR processes.

IT ContributionDescribes IT’s `value proposition’ to the business and should form the core of the IT teams strategy.

IT MetricsUsed to measure success of the IT organisation clearly linked to business success metrics.

SourcingCovers the organisations approach to IT sourcing across the different IT services.

Technological InnovationDescribes IT contribution (if any) to the organisation’s innovation process and environment required to support this.

Project & Portfolio Management (PPM)

Covers the approach taken to determine the optimal mix and sequencing of proposed IT projects to best achieve the organization’s business goals.

Strategy IntegrationDescribes linkages between the strategy components such as the inter-dependencies between project portfolio management, EA and the application portfolio life cycle.

Developing an IT Strategy and Plan

  The Need:    

 

 

IT Strategy is needed when changes in an organization’s business environment or structure require realignment or redeployment of IT resources.  It may also be indicated when Senior Executives are found to be uncertain as to the value their organization receives from its IT investment.  Other questions about IT heard from Senior Executives that are indicative of the need for an IT Strategy include:

   

  Ø “Are the right areas of the business receiving the right support from IT?”

  Ø “How effective is my IT organization relative to others in my industry?”

  Ø “Where can we get large improvements with small diversions in resources?”

  Ø “What should our direction be?  What competencies should we build?”

  Ø “Does industry partnerships or outsourcing make sense for us?”  Ø “How can I improve the relationship between the business users of

the systems and our IT department?”        The prevalence of such questions suggest the need to embark on a

project to create an IT Strategy that is linked to the strategies and plans of the business and business units.

     The Objective:   

 

The objective of an IT strategic plan is to put in place a roadmap that ensures IT’s direction is linked to the organization's business plans and strategy.  The plan must be compelling and at the same time practical, working with the capabilities of IT to deliver and the organization’s capacity to absorb change.

  

 

       Approach:     As depicted in the figure, The Winchester Group follows a six phased

approach to meeting the objectives of IT Strategic Planning.  The approach is based upon practices, techniques and methods that have evolved over the last thirty years, follows a structured methodology that is tuned to your specific needs, and incorporates a combined top-down (visioning, architecture) and bottoms-up (opportunity identification and prioritization) approach.  The result is a plan which specifies not only the development and infrastructure projects required to achieve the desired end-state, but also balances resource availability, risks, funding constraints and precedent requirements.  The approach also recognizes the importance of viewing IT Strategic Planning as an on-going process

by designing and implementing the processes needed to maintain, revise and keep the plan current.

     Benefits:   

  The benefits of developing an IT Strategic Plan and planning process include:

       Ø the creation of a consensus roadmap for exploiting technology

that links business and IT direction                Ø the establishment of a sound decision making approach that

helps your organization realize the expected business benefits from technology     

           Ø the mitigation of the risks surrounding IT investment decisions

that could otherwise mean costly re-deployment of technologies, loss of competitive advantage, and failure to realize the full value of the firm's investment in technology

How do you know that your strategy is successfulSeveral factors will make or break a business process integration effort.CSF1: Don't get hung up about technology; it is the least important factor. Business issues will trip you up a hundred times more than technology issues. Repeat the mantra "Java is easy; selling is not"CSF2: If you don't get the business folks involved at all levels, you will fail. Make sure your business people understand what you do, why you do it, how they can best collaborate with your team. Get them involved early and often.CSF3: Align IT strategy to business strategy. This won't happen overnight, it will happen in

stages. Send out scouts; attend joint meetings; discuss strategic objectives. IT folks know a lot about business, but they do not ultimately make the business decisions. Short-term tactical success leads to long-term strategic success.CSF4: Appoint popular and successful project managers and technical leads; developing systems is a "people" game. Success resides in the artful combination of people skill coupled with technical skills. One without the other is like an ice cream cone without the ice cream.CSF5: Don't even think of starting without well-defined architecture plans. All this new technology can do wonders as long as you don't underestimate the need to plan, educate and use a process. The old saying has never been truer: "If you fail to plan, you plan to fail." A good architect will be worth his weight in gold (or maybe even platinum).

4. Discuss importance of Value Chain analysis in IT planningRefer to Answer Value Chain Analysis: The Value Chain Analysis

Section 2

Describe in details - 20 marks each

1. What is the importance of Business Plan in Venture Capital(VC)When turning to investors for investment in your company, you should give the potential investor the peace of mind to feel comfortable about your company before they invest in your venture.A Business Plan is the foundation, or rather a springboard, towards the establishment and growth of a new business, particularly in the later stages of growth. A business plan is an essential tool for companies raising capital - and your business plan needs to be “investor ready”.The business plan document should be professionally prepared to meet the needs of the Venture Capitalists. In your business plan, you should be able to see your own project through the investor's eye. Your plan must be able to answer all the concerns of a potential contributor.

The investors, both VCs and equity firms, are risking their hard earned capital by investing in your venture in the hope of long term returns that are worth many times their original investment.An investor ready business plan demonstrates to the potential investor that you are an expert in your industry and that you have a clear mission. An entrepreneur addresses these needs by preparing a comprehensive and detailed view of his/hers business objectives and goals.Some important sections that address different concerns of the investors are below:

Management:Investors are mainly concerned with good management - not just ideas. It is very important that you express your knowledge, passion and dedication to your business as best as you can. The competence of your team along with their experience levels and commitment levels are also factors that investors research before making their investment decisions.

Customers:It is important to communicate to the investors that you understand the needs and requirements of your customers and to make your marketing strategy crystal clear within your business plan.

Product/Service Description:

A complete description of the product and/or the services offered by you should be outlined in detail. It is essential to include a description of the overall market for your product and/or service along with details of your customer base. The investors need to know the reach and the kind of customers your product/service is catering to.

Marketing Plan:A marketing plan will outline your sustainable competitive advantage to your investors. In this section you should include a definitive description of your customers, market size, characteristics, growth prospects, trends and sales potential per product/service category. This is where the pricing strategies are outlined and how they can directly influence the growth potential of each product/service. It is also crucial to include the future growth, market share and trend influences.

The business plan serves as the tool through which the entrepreneur has the ability to convince potential investors regarding the business opportunity he suggests and the market he is aiming at.

The business plan should clearly specify the management team, the company strategy, the required capital for the realization of the investment as well as the market it will operate in and its competition. The business plan should reflect the ideas and the goals of the management as clearly as possible, so that potential investors can have a clear view on the investment opportunity that is described, but also the ability of management to make the most out of it.

Following we present the minimum material that a business plan should include in order to back the business proposal up and to answer to all the relevant questions that the investors might have:

Executive Summary           o A brief presentation of the business idea

Good/ service          o Description of the product or the service highlighting the competitive advantage

Board of directors          o Resumes and information regarding the people behind the proposal.

o Analysis of the market and of competition Sales and Marketing

          o Pricing and promotion strategy          o Sales and Distribution

Organization          o Function allocation in regards to divisions

Realisation schedule          o Timetables

 SWOT Analysis          o Threats and financial effects          o Elasticity analysis

Financials          o Required capital and use of capital          o Projected revenues and costs          o Projected Financial statements

2. Difference between IT Service and product - Explain the crossover between IT products and Services

Refer attached ppt for the answer

3. Explain the future of Global SourcingA procurement strategy in which a business seeks to find the most cost efficient location for manufacturing a product, even if the location is in a foreign country. For example, if a toy manufacturer finds that manufacturing and delivery costs are lower in a foreign country due to lower wages of foreign employees, the company might close the domestic factory and use a foreign manufacturer. See also outsourcing, international procurement organization (IPO).

Why international procurement can sustainably increase the competitive ability of medium-sized businesses.

Internationalization is still a one-way street in most medium-sized companies: While production sites are being relocated abroad and the sales and marketing department is also operating on an international level, purchasers often only move in national or even regional circles. “Around 80 percent of small and medium-sized businesses purchase their goods and services from their own post code area,” writes Gerd Kerkhoff in his new book “Global Sourcing: Opportunities for the Future”. Established supplier relationships are too seldom or even never put to the test, let alone compared on an international level.

A dangerous inactivity in view of the potential savings of global sourcing, which the consultant estimates to be at around 40 percent. “You can assume that companies who do not extend their procurement activities to international markets will no longer be in a position to compete in the next three to five years,” says the manager and founder of the procurement optimising specialist consultation company, Kerkhoff Consulting in Düsseldorf. Global sourcing offers a multitude of opportunities:

Cost reduction:

Using other cost structures, international suppliers can frequently offer their goods for less than home suppliers. But just considering the cost price is not enough. The total costs of ownership are interesting. An amount, which also takes into account all additionally arising costs, such as the logistics or the costs for customs formalities.

Competition among the suppliers:The larger selection of suppliers improves the company’s own ability to negotiate with existing and potential suppliers.

Optimization of quality:Classic global sourcing regions such as China , Eastern Europe and India have caught up in terms of quality and can now hold their own with European standards. This can also cause a clear inducement for German suppliers to adjust themselves, whether in terms of price or quality.

Increased spreading of risks:Internationally procuring companies are no longer dependent on the developments of national markets and can react more flexibly to regional factors, such as strikes or delivery bottlenecks.

Development of new outlets:Through the intensive activity with the economical and sociocultural features of a potential procurement country, leads for new sales countries can often be gained. A series of risks accompany these opportunities. For example, longer delivery times, communication difficulties, political and economical imponderabilities, increased demand on logistics, currency risks as well as different legislation. The wrong assessment of these risks can cause wrecks for many medium-sized companies in their international efforts or prevent them from coming to grips with such activities at all. Global sourcing means more than just putting the purchaser on a flight for China . It is a strategic approach and, in many companies, requires rethinking as well as implementation of strategic procurement management with close links to the company management. This is the route that Interroll Engineering GmbH in Wermelskirchen took. The company, specialising in materials handling equipment restructured its purchasing department during a project for procurement optimisation and split it into an operative and a strategic unit. “The strategic procurement manager is freed from all operative tasks of order handling and can concentrate solely on his core competences,” says Interroll manager, Armin Lindholm. These tasks are predominantly research on new procurement markets and suppliers, supplier assessment and regular examination of existing supplier relationships. The basis for this work is a significant database. And anyone who cannot master the necessary research process for global sourcing on their own account, particularly at the start of international procurement activities, should fall back on the knowledge of service providers. For example, Kerkhoff Consulting, who have on-site consultants in many countries, providing them with information about the special features of the different markets, accompanied the project at Interroll Engineering GmbH. This meant the Group’s already international portfolio of suppliers could be expanded to include capable suppliers. Much to the surprise of Armin Lindholm, “We would never have thought that there were so many interested suppliers for our requirements throughout the world.”

THE FUTURE OF GLOBAL SOURCING

Kris is one of the founders of this global IT business solutions provider headquartered in Bangalore, India. Initially his responsibilities included the management of design, development, implementation, and support of information systems for clients in the consumer products industry in the U.S. Today he defines the companies road map for technology and innovation. Kris is recognised as a global thought leader. He was selected in Thinkers 50, an elite list of global business thinkers compiled by Des Dearlove and Stuart Crainer, in association with the IE Business School, Madrid, and the London Business School's Management Innovation Lab. Amongst other appointments Kris is the Chairman of the Confederation of Indian Industries (CII) Southern Regional Council and on the Board of Governors at Indian Institute of Management (IIM), Bangalore.

THE GLOBAL DELIVERY MODEL COMPLETELY DISRUPTED THE TRADITIONAL SERVICES DELIVERY MODEL.

By offering 30-40% cost savings, it presented an alternate way of services delivery with a

value proposition that was too appealing for companies to ignore. Without such compelling cost savings the adoption of global sourcing would have been slow because when a company operates at global sourcing cost levels, it creates a significant advantage over its competitors. These competitors are eventually compelled to switch to a similar model. An example of this is the Pharmaceutical industry which was initially slow to adopt the global delivery model. However, once a few large companies implemented it, the rest rapidly followed. Early adopters of the global sourcing model were technology and financial services companies followed by manufacturing, telecom and retail. Now many industries are espousing it.

As it evolves, the global sourcing model is triggering a convergence of providers. This will eventually lead to the difference between global and Indian tier 1 providers ceasing to exist. This is happening in the following ways:

1.Indian providers are now offering a full portfolio of services similar to global providers including consulting, outsourcing and technology

2.Indian providers have built, and continue to build, global capabilities at various locations. They are also aggressively building front end capabilities in their markets

3.Global providers either have, or will have, the majority of their employees in India. This will also be true for many European system integrators either through organic growth or through acquisitions.

These are the reasons why the convergence of delivery models is happening. Customers are no longer bothered where services are delivered from, they just expect a global sourcing level price.

As provider convergence happens, a few leaders (2-3 global and 3-4 Indian providers) and a long list of followers will emerge. The leaders growth path and superior execution of the delivery model will differentiate them from the followers. Differentiation amongst the pool of leaders will be due to their focus on a particular industry and vertical and based on their ability to execute, manage risk, create IP and develop innovative solutions. Another key differentiator will be their ability to anticipate the future and to facilitate the change this will bring. For example moving from capex oriented solutions to opex solutions and providing cloud and platform based services.

A HIGHLY SUSTAINABLE INDUSTRY

Contrary to the belief that the global sourcing industry is ripe for consolidation, the industry continues to offer opportunities for a variety of different providers. With its low cost base, the global sourcing model enables providers to remain in business for longer.

Also, while the leaders of outsourcing have adopted global sourcing, few other providers have embraced it. These providers will soon be forced to adopt which will further expand the global sourcing industry. The industry is also still in its growth phase and the acceptance of the global delivery model is expanding. The size of the outsourcing industry in India, including captives, is currently only $60 billion. Compare this with a total global spend on outsourcing of $250-300 billion and $700-800 billion on IT services. As long as the market continues to grow there will be different tiers of providers and consolidation will only happen when growth stagnates. In the interim there will be some consolidation but midsize or small

providers will not cease to exist.

There is another type of consolidation trend happening in the market. This is being compelled by the shift in the value of IT from semi-conductors, operating systems and chips to applications and services. The chip and routing companies for example are beginning to offer solutions that will allow them to be closer to their customers or consumers. To achieve this they are acquiring upstream companies and solutions. Oracle, IBM and Dell for example, are moving in this direction. This consolidation is much larger than within the outsourcing industry.

CUSTOMERS WILL PREFER MANAGED SERVICES MODEL

Many companies approach global sourcing purely from a labour arbitrage perspective. This approach focuses solely on finding cheaper resources. It does not offer productivity gains, operational efficiencies or the benefits which accrue from investing in technology. Companies tend to focus on finding low cost destinations by evaluating a variety of countries. This is stage zero of global sourcing and they will have to progress beyond this. The drivers, when selecting providers, should be to take advantage of their experience with other customers, to acquire industry best practices, and to understand emerging trends in business and technology. Customers who choose providers on more than just cost will reap these benefits. This is one of the reasons why many companies who started their global sourcing initiative with a captive have now embraced working with providers. Working with providers offers much more than labour arbitrage.

With a cost focused approach, customers continuously demand lower prices and improved productivity. With this approach cost and productivity become mutually exclusive. Customers should understand and create a healthy ecosystem in which they achieve benefits, and providers make margins. Providers can only invest in employee training and education, build tools and create innovative solutions if they are profitable.

Increasingly mature outsourcers are looking at strategic relationships and prefer managed services model based deals. The key reason for this is that whilst with global sourcing an initial cost reduction of 30-40% is certain, customers are now assessing potential cost savings after two, three or four years. These extra cost reductions will only come if providers are, for example, able to reduce maintenance cost, reduce applications duplication and eliminate redundant applications. This can only happen if providers gain additional knowledge of systems in a managed services framework.

Customers are also realising that in a managed services scenario the benefits must be shared with their providers. Providers need to be incentivised to reduce headcount year on year and a long term partnership needs to be a win-win situation for both parties. If a customer is focused on lower costs and switches to a different provider after a few years, the knowledge gained from its existing provider is lost. They have to start from ground zero. In IT and BPO knowledge can ensure productivity gains of 5 to 10 times. By constantly replacing providers customers stand to lose these productivity gains. To avoid this loss customers are preferring managed services contracts where the key is to construct a fair contract with their providers.

CUSTOMERS WILL SEPARATE HARDWARE AND OPERATIONS IN THEIR DEALS

Another trend taking shape is the separation of assets from operations in infrastructure deals.

Firstly, there is a mismatch of goals when assets are combined with operations outsourcing. As the price of hardware is dropping significantly, in a combined deal the provider will eventually make lower revenues. Also as technology changes providers will need to refresh their hardware so they are faced with the choice between keeping the hardware longer or refreshing it.

This means that in a combined deal providers can only make decent revenues if they sign 7-10 year deals. Because such deals are a combination of a financial transaction (hardware assets) and an outsourcing contract (operations) the financial contract only makes sense for the provider from the third or fourth year.

If, on the other hand, assets are separated from operations, companies can find a specialist partner for each area. They will get a better and more flexible deal and the overall costs will come down. Also the operations deals can be for 2-3 years which, as change is accelerating, is an added benefit. This model will continue to grow and be adopted across the industry.

ADOPTION OF THE GLOBAL SOURCING MODEL WILL ACCELERATE FURTHER

In Europe and Asia-Pacific, many more companies are adopting global sourcing because it is difficult for them to ignore the cost advantage and to delay transforming their business. They are faced with challenges at two levels – the first requires them to solve today’s problem of running their operations efficiently, at the optimum cost and with the highest service levels. The second is the need to reach a different future state through transformation.

By not adopting global sourcing companies will run their operations more expensively and will not be able to implement solutions that are best for their future – they will lose their competitive advantage. The accelerated adoption of the model by global providers is further validation of growing demand. One factor influencing this is that customers are demanding a global price.

Another is the positive spiral happening in countries like India where the number of professionals and investment in education is growing and spurring an overall growth in the ecosystem. Conversely, a negative spiral is happening in some of the developed economies.

THE NEXT DISRUPTION IS IN THE MAKING

As with global sourcing, any new disruption should bring about cost savings of 30-40%. A new model of disruption is developing. Through global sourcing companies are able to continuously bring in efficiencies and optimisation. This is enabling companies to simplify and standardise their systems. CIOs are increasingly ensuring that their systems, such as SAP, have minimum customisation and are hosted on a standard platform. CIOs need to recognise the increasing complexity at the customer interface of their business and investments should be focused on simplifying this complexity. By simplifying and standardising their systems companies will be able to move to shared and multi-tenant platforms which can provide a further 30-40% in cost savings. The move to a cloud and multi-tenant environment is the future. That will be next disruption.

4. Explain the change in IT Scenario, giving example of an Indian IT company

Refer to our IRCTC PPT