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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
McKinsey & Company
| 1
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
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%
20
30%
29%
Financial services
16
2008
SOURCE: McKinsey team analysis; global insight data; NASSCOM data; Gartner
2020
McKinsey & Company
| 3
Retail, healthcare, transportation and government are likely to be the next wave of technology adopters
IT Spend % of revenue 14
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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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
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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
McKinsey & Company
| 6
There is no correlation between IT productivity jump and jump in IT intensity at the macro-economic level
CAGR, %
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
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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, %
+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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ILLUSTRATIVE
Public 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
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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
McKinsey & Company
| 10
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
Business increasingly driving and owning IT agenda reducing CIO to order taker
THREATS
OPPORTUNITIES
McKinsey & Company
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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 effective is your IT organization in different areas sourcing, managing, governing performance, innovating?
4
5
How would you describe your organizations IT priorities for the future?
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perspective on all the places that IT can add value Advise enterprise on role of technology and major investments
McKinsey & Company
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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
C
35 points <2 points
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