CIO and Mckinsey

Evolving role of a CIO in a high growth economy

Speaker: Ranjit Tinaikar

Presentation

May 2010

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

|McKinsey & Company 2

Key messages

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

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

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 3 SOURCE: Nasscom

IT spend in India is at an inflection point driven by increased domestic corporate spending and increasing consumer sophistication

2.23.3 3.0 3.3

4.45.2

6.58.0

1.61.3

+26%

+14%

Software

Hardware

Services

FY 07

15.1

5.5

FY 06

0.5

3.1

FY 03

6.1

0.4

2.4

FY 02

5.5

0.4

2.1

FY 01

5.7

0.4

2.0

FY 00

4.1

0.4

1.5

12.3

4.5

FY 05

9.4

0.7

3.5

FY 04

8.1

▪ India is the fastest growing IT spender in Asia market

▪ By 2020 India has the potential to become Top 3 IT markets globally

USD billion

Domestic IT spend


Key contributors to this growth in technology services will be BFSI, government and telecom

CAGR, %

16

20

19

9% 11%

16% 10%

6%

100% =

Financial services

Government and education

Telecom

IT

Manufacturing

Retail

Healthcare

Transportation

2020

48-60

29%

22%

16%

4%3%

2008

9

30%

16%

21%

4%3%

2%

$b

21

12

16

20

14

18

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

Domestic IT services and software industry


10 11 12 13 14 15 16 17 18 19 20 21 22

RetailManufacturing

Government and Education

Telecom

IT

BFSI

4

2

14

12

10

0

CAGR 2008–2020%

IT Spend% of revenue

8

6

HealthcareTransportation

Retail, healthcare, transportation and government are likely to be the next wave of technology adopters

High growth sectors

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


IT can transform India by harnessing technology to enable inclusive growth

Areas

Healthcare50% of Indians do not have access to primary healthcare – technology can provide it at half the cost

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

Publicservices

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

Potential of ICT solutions

SOURCE: Expert interviews; McKinsey analysis


Key messages













-0.15

-0.10

-0.05

0

0.05

0.10

0.15

0.20

-0.15 -0.10 -0.05 0 0.05 0.10 0.15 0.20 0.25 0.30 0.35

Jump in productivity growth rate1

Jump in IT capital intensity growth rate2

Securities

Industrial machinery (computer manuf.)

Retail

WholesaleBanksHotels

Electronics (semiconductor)

Telecom

There is no correlation between IT productivity jump and jump in IT intensity at the macro-economic level

1 Jump in real value-added per persons engaged in production (PEP) growth rate between 1987–95 and 1995–20002 Jump in real IT capital stock per PEP growth rate between 1987–95 and 1995–2000

SOURCE: Bureau of Economic Analysis; McKinsey Global Institute

CAGR, %

“New economy”

“Paradox”

“Non-IT story”

“No story”


However, IT investments combined with strong management delivers value at micro-economic (corporate) levels

1 McKinsey Global Institute research; London School Of Economics and McKinsey research

Increase in total factor productivity, %

Manage-ment practice score

Manage-ment practice score

Top quartileTop quartile

BottomquartileBottomquartile

Bottom quartileBottom quartile Top quartileTop quartile

Intensity of IT deploymentIntensity of IT deployment

+8% +20%

0 +2%

Systematic correlation between IT investment and productivity (LSE Research)

The LSE research stated that IT intensity increased productivity, particularly where there was strong management


Further, India is driving innovation using technology in several areas

SOURCE: Press search

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

IT led innovations


Key messages













Several of these major changes are presenting significant threats and opportunities to Indian CIOS

CPO & COO

Drive business innovation

Drive business differentiation

Business

ownership

Outsourcing

and offshoring

Drive scale and efficiency

THREATS OPPORTUNITIES

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

Increased outsourcing reducing role of CIO to a “vendor manager”


In these times of change and opportunity, CIO’s role is rapidly evolving to grow beyond that of an IT expert

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?

How would you describe your organization’s IT priorities for the future?

1

2

3

4

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

5


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

▪ Orchestrate effective use of IT to deliver innovation, process improvements and scale benefits

▪ Own and maintain the enterprise perspective on all the places that IT can add value

▪ Advise enterprise on role of technology and major investments

Strategic technology adviser

▪ Identify and develop new technology driven business models

▪ Spot and develop opportunities for technology to create new businesses

▪ Shepherd innovations to line organisation when they are ready to deploy

Chief innovator

▪ Use IT to enhance core business processes for competitive advantage

▪ Own and control business process definitions

▪ Propose and execute business change projects

Operations Transfor-mation Head

▪ Realise scale economies in commodity IT and other functions

▪ Own all scale activities across business

▪ Control all outsourcing (including BPO)

▪ Drive synergies across functions

Business Partner in Scaling Up

Objective Typical activities


Short questionnaire to determine whether you are playing a transformational role or not

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 non-IT related agenda items

10. I am primarily evaluated and rewarded based on business results

Question


Short questionnaire to determine whether you are playing a transformational role or not

>8 points

Congratulations, you are already transformational!!

6–8 points

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

3–5 points

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

<2 points

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

A B

C D

Documents

CIO and Mckinsey