New Business Models with old basic formula

Over the years businesses across the world look forward to two basic things while creating a competitive advantage in the market. They are namely Low cost and high differentiation in the market with their product/service. It’s not rocket science and the mantra is simple, products/services with low price tag and highest possible value gives the much needed competitive advantage in the market.

Economic slowdown and lower demand from western countries have only given a reasons for companies to cut back on their staff strength and salaries. However, the silver lining is that we still have few companies who are ready to go back to basics, tweak their business models and create value for both customer and economy. These are the companies which have the inherent ability to create demand even during a recessionary period.

The best example is the TATA group, first it was the NANO with the 1lakh car and then the housing scheme (named Shuba Griha) that stirred demand in their respective markets. In fact TATA housing website has received around 15lakh hits within four days of the announcement of its low cost housing scheme (homes priced in the range of 3.6lakhs to 7.3lakhs).

This response is phenomenal especially keeping in mind the current real state sentiment in India. The industry which is in doldrums and was cribbing about lower demand and rising interest rates has suddenly woken up to this huge market potential and has started thinking about how to position them for this huge market.

There is a huge responsibility of the government to remove roadblocks and to promote these companies which create demand by their competitive, low cost and high value business models. The resultant effect will fuel the economy activity, add to the companies bottom-line and create more jobs in the market.

The tremendous response both TATA housing and TATA NANO got bears testimony to the fact that there is still demand in spite of the slowdown. Companies only need to adapt themselves by sticking to the basics of age old Low cost and high value mantra.

Business through Remote infrastructure management

More than 70% of the IT budget is eaten up in managing the IT infrastructure. Its not only the cost but also the effort and skill required to maintain and manage the crucial IT infrastructure.

Remote Infrastructure management(RIM) comes out with the solution to this problem. Companies across the globe have realised the benefits of RIM and started outsourcing their IT. This has resulted in the phenominal increase in the RIM market.

The benefits of RIM are tremendous, most prominent being the cost effectiveness. In fact companies end up saving as much as close to 44% by managing the IT infrastructure remotely. In fact its not just only the cost that drives the RIM market but also the value a company gains by focussing on its core function.

RIM bails out companies from the painstaking work of managing their servers, networks, applications, databases, legacy systems, assets etc. System Intergraters like IBM, Accenture, Infosys etc have gained lot of business from this segment of business.

Another driver for RIM would be the current economic situation and lower IT budgets. Companies will slowly start looking at managing their IT remotely in order to save costs. Also the focus is going to shift towards making IT a more productive function. Going forward IT will be looked upon as revenue center rather than just being cost center.

IT has the potential in reaching out to more customers and increasing the channels through which companies can start generating revenues. IT department of a company should start focusing on increasing sales and in bringing in business for them.

All these are possible only when the IT department of any company is relieved from the daily hassels monitoring, reporting, managing and maintaining the availibility of its crucial IT assets and infrastruture.

In short this is the time for companies to not only start looking at RIM for cutting down their costs but also as a way to generate more value, thereby resulting in more business.

Can elections be the required stimulus for the economy??

Recession is slowly but steadily strengthening its grip onto our economy. Threats like fear of more job losses, further downside in stock markets, slowing demand, depreciating rupee still looms large on us. The government has reacted by introducing various stimulus packages and by giving sector specific sops but such is the effect of the slowdown that nothing seems to be working.

However there is a glimmer of hope! Well that’s what it looks like keeping in mind the timing of the Elections. The government efforts coupled with the timing of the elections might as well be the required fuel to re-ignite the economy.

Remember the election campaign always comes in with a huge inflow of funds by the various political parties involved in it. The resultant effect would be increase in spending and this in turn is going to trigger a lot of activity across different sectors.

Many industries like automobile, telecom, hotel, advertising etc. stand to benefit from it directly. Apart from the direct benefits the indirect benefits would be through increase in fuel consumption, food and beverages, electronics (through increase in demand for audio/visual equipments).

Few IT companies also stand to benefit from it especially with technology having the ability penetrate deeper and thereby increasing the effectiveness of communication.

A direct indication of the positive impact is the good numbers posted by the automobile companies for the month of January. A part of the increase in the sales figures of these auto makers can be attributed to the direct effect of the build up to the election. High end cars, SUV's and multi-purpose vehicles will find a lot of favour with politicians especially with election campaigns involving a lot of travelling especially to remote places. A similar effect is bound to happen in other sectors and this might just be a precursor to the positive effect election might have on our economy.

There is a chance that current election coupled with the stimulus packages introduced by the government might correct the situation and put our economy back in track.

How to counter the slowdown

With GDP growth estimated at around 7-7.5% for this fiscal and at 6% for 2009 the impact of global slowdown on our economy is pretty clear. The revival now depends on how to increase the demand to counter the slowdown. Increasing the demand depends on:
1) Creation of more job opportunities in the country.
2) Restoring the financial markets by getting back the investor confidence.

Let us understand the importance of the above two factors and their impact on the economy.....

Employment opportunities increase when it comes to core sectors like Infrastructure, manufacturing, agriculture etc. The core sectors being highly labour intensive the number of people employed in it will be high. Better the employment rate higher would be the purchasing power. People will start buying and saving more. The buying behaviour would lead to increase in demand and the savings can be re-invested for economic development.

In fact the domestic savings rate which was around 20% in 19991 - 1994 is now standing tall at around 36% for this year. It was the generation of employment (lead by the IT sector in the late 90's and early to mid 2000) which had lead to the increase in demand and the savings rate. However the sad thing is that India which now has the highest savings rate in the world has a very small percentage of this going into the capital markets.

The current situation has resulted in loss of investor confidence. The direct effect of this is the diversion of the domestic savings into more secured options like PPF, FD's and in public sector banks. It’s good that we have a high savings rate but this money needs to be channelized back into the system, primarily through capital markets. This funding in turn will be used to fuel the requirements in core sectors thereby creating more employment and resulting in increasing in demand.

A very big factor which will have a direct impact on the money coming into the capital markets is the focus on corporate governance. This would have to be tightly monitored by the government. More the companies with higher level of transparency in their financials, greater would be the investor confidence. This would in turn pull in a bigger chunk of the savings into capital markets thereby fuelling the entire cycle of growth.

Pathfinders for IT Industry

The current economic situation has hit the IT industry right on its face. IT spending in most of the sectors has got affected. Industries across all sectors have started tightening their annual IT budget.The dynamics of IT industry has completely changed. The focus now is more on optimization of processes, products and services. However in spite of the current situation there are some key areas which will lead the way for IT industry and they are:

• Security – Security is the topmost concern for any company. Physical security, data security and information security holds a very high priority especially with terrorism becoming digital. Terrorism is not only a threat to the life of citizens but also to the infrastructure, network, security and information in any company. Other security threats from hackers, phishing, internet security, virus etc would also loom large on all industries. IT security thus would be a core focus area in spite of the tight financial situation.
• Green IT – This is more about how to utilize computer resources efficiently. Green IT focuses on making environmentally friendly computing products and making them available for re-use. IT departments look to adopt environment friendly options, improved energy savings, power utilization and virtualization. There is a huge push from the government and regulatory authorities for need of Green IT in companies. Thus this area looks very promising for the future.
• Infrastructure Services Optimization – Infrastructure support services are the lifeline of any organization. However there is going to be shift in the spending pattern here. Companies would now look to optimize rather than expanding haphazardly. Models like Remote infrastructure services, Hosted solutions (SaaS) etc will take the lead when it comes to enterprise requirements within a company.
• Enterprise search and Collaboration – Search is the future, more importantly this coupled with collaboration feature is going to be too hot to handle. The growing size and reach of companies make it harder for managing the information within the company. Content/knowledge management tools like MS Share point, Lotus CMS etc will continue to be in demand.

After understanding the key areas let us have a look at the top sectors which will build lot of traction for the IT. They are Healthcare, Education and Public sector spending

Healthcare - Growing population comes with ever increasing healthcare requirements. The scale at which the Health care industry is growing makes it a very prospective sector for IT spending. Technology wise there is going to be huge need for access to real time information by doctors and staff. Also managing patient records and having a track of crucial life support system is going to be very critical. Healthcare domain is going to be a major area of play for IT companies.

Education – Historically during crisis time education sector have shown a drastic increase in the total number of enrolments. Increased focus from government on education, E-learning methods, virtual teaching, online enrolment process, real time access to information between teachers, students and parents etc are going to the change the dynamics of IT spending.

Public sector spending - Increased government spending on infrastructure and upgrading its existing legacy hardware and software applications gives rise to tremendous opportunity for growth for IT in public sector.

Thus it is imperative for IT companies to have a clear focus on the above sectors and the subsequent hot areas. In the heat of the current economic situation we may see a gradual shift in the offerings of IT companies to the above mentioned core areas and sectors. This will help companies overcome the current situation and maintain a decent growth rate.

Risk – Return – Reward: Does it still hold good ??

The ROI (return on investment) has always been measured against the risk involved in it. Business success has always been attributed to the risk appetite of the Management. High risk-High return strategy in spite of the current slowdown still looks good. However organizations across will have to rethink and look beyond the conventional risk-return approach. The Current situation is very demanding especially with lesser liquidity available for future investments. This requires the entry timing to be spot on, else there would be a major erosion in the value of the investment.

Approach followed by companies will broadly fall under the below three categories:
1) Wait and watch approach – They will shy away from any major investments and wait for the markets to stabilize. Risk Averse companies might be safe but will end up missing out on prospective and cheaper investment opportunities.
2) Cautious approach – These companies will be investing but with Limited risk appetite and with an expectation of a nominal return on it. The focus for these companies will be to hold on to its current market share and not on entering new markets.
3) Risk-return-reward approach – As always there will be High risk takers with spot on market timing for investment. They stand out of the league and emerge winners when market gets back to normal. However the percentage of this group compared to the overall number will be very less.

High risk takers will go for the kill by not only looking to consolidate their current position but by also capturing market share of competitors. Thus Risk-return-reward approach executed with proper understanding and timing of market will yield phenomenal ROI.

India's Soci-Economic roadblock to growth

We have been talking about India’s growth story and the strong fundamentals behind it. The key drivers for our growth being the huge talent pool, cheap labor, huge domestic demand and a decent government support.  All these factors put together made a great decade which attracted huge foreign Investments and created lot of employment opportunities. Our economy achieved a staggering growth during this period. In spite of the current crisis we are still holding good at a growth rate of 9.1% for last fiscal and 7.6% for Q2 FY09. We seem to have moved into a comfort zone by our growth story and the future of it on the basis of the above mentioned economic drivers. However, one thing we have never considered while singing our growth story is the socio-economic conditions prevailing in India and how it could play an important role in our future prospects. Religious violence, terrorism, naxalism, caste related violence, regional imbalance, poverty, unemployment etc are some of the common issue socio-economic issues we often fail to look upon while analyzing our journey ahead. Issues like poverty, unemployment and lack of human rights has given rise to religion, caste, region wise acrimony between people. We seem to have never moved on when it comes to our approach towards these issues. Incidents like the Khalistan movement, Ayodhya debate, Bombay Riots, 1993 Bombay bombings, 2002 Gujarat violence, Islamic terrorism, violence in Orissa, anti-Christian violence and the recent terror attack on Mumbai is a clear indication of our shallow mindset and hatred boiling within the country. Over years we have just kept playing the blame game on each other and the government on these issues. When will we wake up to the fact that the real growth is dependent on the growth of our people and not on the external factors? When will we realize that communal hatred doesn’t lead us anywhere? How can we spread education and learning to those deprived from it? What can be done to decrease the rich poor divide?

The recent attack on Mumbai should be a wake up call for all of us to get together and fight against the evil within us. The Precision with which the recent attack was carried out is possible only when information and help was rendered to terrorists by people within the country. Socio-economic problem is the main reason why people take the path of aggression and resort to terror activities. This will have a direct effect on our countries growth. In terms of business, travel and tourism, hotel industry, foreign investments, International trades are few of the many things that get affected due to this issue. Our economies growth is highly dependent on these internal factors. Thus unless we achieve harmony within the country it’s difficult to achieve a sustained growth.