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Case Analysis: Pedal On The Metal
When you spend on IT, you need have a sense of direction, a proper roadmap for implementation and it is imperative to have a clear matrix that will define the success of IT investments
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Our intuition about the future is linear. but the reality of information technology is exponential, and that makes a profound difference. If I take 30 steps linearly, I get to 30. If I take 30 steps exponentially, I get to a billion,” said Raymond ‘Ray’ Kurzweil, an American author and a computer scientist.
Let’s talk cricket! How often have we seen some of the greatest batsman of Test cricket fail in T20 cricket? Or some of the most lethal bowlers with the red ball getting hit all around the park by someone who is yet to play international cricket? You see where we are going with this. Agreed that Test cricket is the best form of cricket to test a player’s calibre and class, no doubt about that. But, what if there is no Test cricket at all? A horrifying thought for us ardent followers of the game, for we have grown watching the battle in whites. But, we can sense a gradual shift, can’t we?
Now, think of technology as that dynamic, aggressive and ever evolving phenomenon that has changed the game completely for traditional businesses. It has become increasingly difficult for businesses to take a stance against this Bruce Banner (Hulk) turning green. We have already seen many perish trying to stay still against its giant leaps. What would you do to survive, ride the wave or face the storm?
This case study introduces us to Suvrat Bhardwaj, Partner at Westing Brothers, a consulting firm, which was advising Prescott on its strategy. Prescott, a traditional brick- and-mortar retailer, is slowly evolving as an e-commerce player. The protagonist is faced with a struggle that has been a hot topic of debate across the Boards of the organisations over the past decade, the struggle of whether IT should be seen as an expense or as an investment is standing up against his pro-technology ideology. The case brings to light the paradox of Indian IT spending, the largest provider of technology solutions but yet slow in its evolution.
The debate is still wide open but the fact stands firm: technology has now become more critical than ever to run a business. Technology is seeping into every single business process and is becoming a valuable part for virtually every organisation in the global economy. The disruption caused by technology innovations has been on an exponential curve over the past few years and it has touched life across all sections of society. While it is true that there are expenses associated with IT but those expenses more often than not have value in one form or the other which accrue within the entire business. A few years ago, it was a common sight to see people waving their hands for a taxi, hoping someone would stop and they will be able to bargain a good deal. Now, no matter where you are, what time it is, you have access to cabs, even auto rickshaws at the press of a button. There is a cost involved in setting up this wonderland for consumers but the value is right in front of us.
The case highlights a long-rooted mindset of doing things ‘cheaply and efficiently’ against leveraging technology for better productivity. It questions the willingness of traditional organisations to toggle their current state of business, to rethink the way they work. For some, it threatens them to their very core; after all, brick and mortar is in their DNA.
However, if we dwell deeper, we can see a gradual change in the way India is addressing the issue of IT readiness. Worldwide IT spending in 2016 is expected to reach $3.49 trillion, a 0.5 per cent decline from 2015 due to global uncertainties whereas India’s IT spending is forecast to reach $71.0 billion (approx. Rs 4.83 lakh crore), a 6.0 per cent increase over 2015, according to Gartner. The government in India will be spending around $7 billion (approx. Rs 47,600 crore) on IT products and services in 2016. Rise of the digital business and an environment driven by a connected world has been the key driver for this push.
Though our per capita IT consumption is on a lower side, there is a bright future for IT adoption in India. We have now over 80 mobile phone connections per 100 citizens. We have more than 34 per cent Internet penetration, which accounts for more than 13 per cent of worldwide Internet users. The Digital India initiative has bought in significant investment and is expected to increase the Internet user base by more than 50 million users per year till 2019.
If the trends are something to go by, we have a transformation story for India in the making. Of course, there are challenges in the form of risk of losing profit margins over a short span and workforce utilisation. But, as American writer Stewart Brand once said, “Once a new technology rolls over you, if you’re not part of the steamroller, you’re part of the road.”
The driving force behind IT spending growth is the emergence of the digital business. As analog revenue is flattening and declining for many industries, businesses across industries are now shifting to digital business. Global digital commerce is now already over $1 trillion annually.
Organisations need to find new ways of reaching the consumers and of driving business operations. India’s e-commerce market was worth about $3.8 billion in 2009 (then, approx. Rs 18,240 crore), it went up to $17 billion in 2014 (then approx. Rs 1.02 lakh crore) and touched $23 billion in 2015 (then, approx. Rs 1.45 lakh crore). Online shopping through mobile phones is proving to be a game changer and it is believed that m-commerce may contribute up to 70 per cent of total e-commerce revenues in the near future. This has also brought tier-2 cities in the bigger loop, they now have access to the top brands, which were not within their reach in brick-and-mortar form.
Now if we look around, we can easily see that the traditional brick-and-mortar organisations tend to shift slowly to digital model compared to born-digital organisations because they tend to build a digital model on old platforms whereas born-digital organisations are open to use more cloud than in-house infra. When brick-and-mortar organisations move to digital, they face challenges at various levels such as unifying the online and offline data collection, managing the complexity of omni-channel processes and the way these processes interact with multiple systems, building the capacity for real-time inventory monitoring, etc. Cloud technology and multi-channel shopping have dramatically evolved the retail landscape over the past few years and omni-channel commerce models are surely emerging winners.
Still, challenges remain in the form of lack of digital connect between suppliers and employees, security is still a major issue with reported server hacks becoming very common and competition has intensified to such levels that it has created an alarming risk of commoditisation of virtually everything. Another important challenge many organisations fail to address is the vision behind IT design and implementation; they see it is a checkbox exercise. When you spend on IT, you need have a sense of direction, a proper roadmap for implementation and it is imperative to have a clear matrix that will define the success of IT investments. We have seen companies spending a lot of money on enhancing the overall user experience but they fail to deliver the operational excellence for the new channels. Or even if they do, they sometimes fail in integrating those channels to the existing ones and if not that, they expose themselves to cybercrimes by not allocating proper budget to IT security (even a well-established Sony saw the dark side of this). Juniper Research predicted in 2015 that the rapid digitisation of consumers’ lives and enterprise records will increase the cost of data breaches to $2.1 trillion globally by 2019, which is almost four times the estimated cost of breaches in 2015. The case resonates this fact with Suvrat’s concern for security.
This lack of direction has played the biggest part in the unreadiness for IT and this is haunting not just India, but also organisations across the globe. But it should not result in aversion to adapt because no matter how big the barriers are, technology has become a must and there is no going back. It has become an endless game of survival and to quote poet and playwright T.S. Eliot, “Only those who will risk going too far can possibly find out how far it is possible to go.”
There will always be a debate, there will always be a Prescott and a Suvrat and there will always be an urge to fall to safety when the road ahead is unfamiliar but as Albert Einstein once said, “A ship is always safe at the shore — but that is NOT what it is built for.”
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.