Evolving role of a CIO in a high growth economy

Speaker: Ranjit Tinaikar

Presentation May 2010

CONFIDENTIAL AND PROPRIETARY Any use of this material without specific permission of McKinsey & Company is strictly prohibited

Key messages
India is at an inflection point in the adoption of it enabled solutions

IT spending, tele-density and corporate sophistication to drive technology adoption Health care, retail, transportation and government are likely to drive next wave of technology adoption ICT solutions can transform India by enabling inclusive growth and help overcome the challenges of rising population
However, globally it has been proven that IT alone is not a silver bullet

There is no correlation between IT productivity jump and jump in IT intensity IT is an enabler but alone is not sufficient - managerial innovation, competition and to some extent demand cycles Successful IT applications shared three characteristics Hence, the role of CIO in India has to be transformational To be transformational CIOs need to play four different roles in their organisation Very few will be able to play all four roles as it requires different skill set CIOs can choose which role to play based on their personal strengths and their company context
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IT spend in India is at an inflection point driven by increased domestic corporate spending and increasing consumer sophistication
Domestic IT spend USD billion 15.1 +26% 12.3
4.5

5.5

India is the fastest growing IT spender in Asia market By 2020 India has the potential to become Top 3 IT markets globally

9.4

+14%
5.7 4.1 Services Hardware Software
1.5
2.0

8.1
3.5

5.5
2.1

6.1
2.4

3.1

8.0 6.5 4.4

0.5

5.2 1.3 1.6

2.2
0.4

3.3
0.4

3.0
0.4

3.3
0.4

0.7

FY 00 FY 01 FY 02 FY 03 FY 04 FY 05 FY 06 FY 07
SOURCE: Nasscom McKinsey & Company

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Key contributors to this growth in technology services will be BFSI, government and telecom
Domestic IT services and software industry $b 100% = 2% 4% 9 3% 48-60 3% 4% 6% Transportation Healthcare Retail Manufacturing IT Telecom CAGR, % 16 20 19 21 12

16% 9%
21%

10% 11%
16%

18
14

16%

22%

Government and education

20

30%

29%

Financial services

16

2008
SOURCE: McKinsey team analysis; global insight data; NASSCOM data; Gartner

2020
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Retail, healthcare, transportation and government are likely to be the next wave of technology adopters
IT Spend % of revenue 14

High growth sectors

12 10
8 6 4 2 0 Manufacturing BFSI IT Healthcare Retail Government and Education
10 11 12 13 14 15 16 17 18 19 20 21 22

Telecom

Transportation

CAGR 20082020 %
SOURCE: McKinsey team analysis; global insight data; NASSCOM data; Gartner McKinsey & Company

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IT can transform India by harnessing technology to enable inclusive growth

Areas Potential of ICT solutions 50% of Indians do not have access to primary healthcare technology can provide it at half the cost

Healthcare

Financial services

80% of Indian households are unbanked technology can enable access for 200 million families

Education

India faces a 3-fold shortage in teachers technology can address this through remote solutions

Public services

India suffers from a leakage of 40-50% in public food distribution technology can ensure transparency

SOURCE: Expert interviews; McKinsey analysis

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Key messages
India is at an inflection point in the adoption of it enabled solutions

IT spending, tele-density and corporate sophistication to drive technology adoption Health care, retail, transportation and government are likely to drive next wave of technology adoption ICT solutions can transform India by enabling inclusive growth and help overcome the challenges of rising population
However, globally it has been proven that IT alone is not a silver bullet

There is no correlation between IT productivity jump and jump in IT intensity IT is an enabler but alone is not sufficient - managerial innovation, competition and to some extent demand cycles Successful IT applications shared three characteristics Hence, the role of CIO in India has to be transformational To be transformational CIOs need to play four different roles in their organisation Very few will be able to play all four roles as it requires different skill set CIOs can choose which role to play based on their personal strengths and their company context
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There is no correlation between IT productivity jump and jump in IT intensity at the macro-economic level
CAGR, %

Jump in productivity growth rate1

0.20 0.15 0.10 0.05 0

Non-IT story

New economy

Securities
Electronics Industrial machinery (semiconductor) (computer manuf.) Retail

Banks
-0.05

Wholesale Hotels

Telecom
-0.10

No story
-0.15 -0.15 -0.10 -0.05 0 0.05 0.10 0.15 0.20

Paradox
0.25 0.30 0.35

Jump in IT capital intensity growth rate2

1 Jump in real value-added per persons engaged in production (PEP) growth rate between 198795 and 19952000 2 Jump in real IT capital stock per PEP growth rate between 198795 and 19952000 SOURCE: Bureau of Economic Analysis; McKinsey Global Institute McKinsey & Company

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However, IT investments combined with strong management delivers value at micro-economic (corporate) levels
Systematic correlation between IT investment and productivity (LSE Research) Increase in total factor productivity, %

Top quartile Management practice score Bottom quartile

+8%

+20%

+2%

Bottom quartile

Top quartile

Intensity of IT deployment The LSE research stated that IT intensity increased productivity, particularly where there was strong management
1 McKinsey Global Institute research; London School Of Economics and McKinsey research McKinsey & Company

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Further, India is driving innovation using technology in several areas

IT led innovations

ILLUSTRATIVE

Public services

UID for improved Government to Citizen services

Healthcare

State of the art call centre to provide emergency assistance Using technology to provide remote medical care

Financial inclusion

Use of smart cards for microfinance customers Pilot project with payment processors to deploy wireless POS

Power

Smart grids for optimizing distribution losses Use of IT to bring down bill generation from 1 month to 3 days

SOURCE: Press search

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Key messages
India is at an inflection point in the adoption of it enabled solutions

IT spending, tele-density and corporate sophistication to drive technology adoption Health care, retail, transportation and government are likely to drive next wave of technology adoption ICT solutions can transform India by enabling inclusive growth and help overcome the challenges of rising population
However, globally it has been proven that IT alone is not a silver bullet

There is no correlation between IT productivity jump and jump in IT intensity IT is an enabler but alone is not sufficient - managerial innovation, competition and to some extent demand cycles Successful IT applications shared three characteristics Hence, the role of CIO in India has to be transformational To be transformational CIOs need to play four different roles in their organisation Very few will be able to play all four roles as it requires different skill set CIOs can choose which role to play based on their personal strengths and their company context
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Several of these major changes are presenting significant threats and opportunities to Indian CIOS
Drive business innovation
Commodity functions (e.g. infrastructure) combined with other shared services (e.g. procurement

Drive business differentiation

Business increasingly driving and owning IT agenda reducing CIO to order taker

Drive scale and efficiency

Increased outsourcing reducing role of CIO to a vendor manager

THREATS

OPPORTUNITIES
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In these times of change and opportunity, CIOs role is rapidly evolving to grow beyond that of an IT expert

1 2 3

How does your IT strategy add value to the business?

How effective is your IT organization in different areas sourcing, managing, governing performance, innovating?

What skills are hardest to find for your IT organization?

4
5

How would you describe your organizations IT priorities for the future?

How much of your IT budget is invested in IT-enabled business innovation projects?

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To become transformational, CIOs need to play 4 different roles in their organization

Objective Business Partner in Scaling Up commodity IT and other functions Typical activities business Control all outsourcing (including BPO) Drive synergies across functions

Realise scale economies in Own all scale activities across

Operations Transformation Head

Use IT to enhance core

business processes for competitive advantage

Own and control business process

definitions Propose and execute business change projects

Identify and develop new

Chief innovator

Spot and develop opportunities for

technology to create new businesses Shepherd innovations to line organisation when they are ready to deploy

technology driven business models

Strategic technology adviser

Orchestrate effective use of Own and maintain the enterprise

IT to deliver innovation, process improvements and scale benefits

perspective on all the places that IT can add value Advise enterprise on role of technology and major investments
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Short questionnaire to determine whether you are playing a transformational role or not
Question 1. My organization has no plans to outsource a significant portion of IT or business processes 2. I have responsibility for non-IT business functions (e.g., procurement, payroll, etc.) 3. The business proactively involves me at an early stage in key discussions about business strategy and strategic projects (e.g., due diligence on acquisitions) 4. I spend more time with business leaders than with my internal IT team 5. I am often asked to lead significant business projects (e.g., sales force re-organization, post merger integration) 6. I have ownership over the design of core business processes 7. My colleagues would describe me as a major driver of successful business innovation 8. I have complete decision-making authority over what IT is outsourced vs. stays in house 9. I am a member of the executive board and contribute to both IT and nonIT related agenda items 10. I am primarily evaluated and rewarded based on business results
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Short questionnaire to determine whether you are playing a transformational role or not

A
>8 points 68 points

Congratulations, you are already transformational!!

Good, but you can do more to be transformational!!

C
35 points <2 points

You are under threat, unless you change to become transformational.

No hope, unless you come out of your traditional CIO mindset!

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