Cio

In today's economic scenario, how can CIOs get the best value out of shrinking IT budgets?


Although it may sound harsh, I would say that the CIO should stop spending. He should evaluate his existing assets, and then decide what he can deliver using those assets. For example, assume that you have 20 servers, 25 databases, 30 applications and a staff of 25 programmers. Can you deliver the value that business requires with this staff without hardware investments?

Yes. This can be achieved with reengineering, re-staffing and staff rotation.

A CIO should also resist the tendency of unnecessary upgrades or migrations. Don't get carried away by what vendors suggest. For example, suppose I have a budget of Rs 5 crore. That budget should be used for extracting new value out of existing software. Instead, for most CIOs who have an ERP implemented, the effort is to go to the next version just for a couple of new features. In my opinion, you can implement add-ons which extract those values from the old system. If you have good programmers, this can be achieved. If business requirements absolutely demand a new version, definitely go in for it. Otherwise, the old system can be tweaked to get incremental functionality.

Be a bit more conservative on infrastructure investments, and try to use outsourcing as much as possible. If everything is in-house, you are not able to make 100% use of this investment. For example, most hardware runs on 25-30% of capacity, whereas 70-75% capacity goes waste. With outsourcing in place, you pay as per your usage. So you save on capital investments and running costs.

Can you give us some examples of the aspects that can be looked at for outsourcing?


Start from data center. You can look at managed services. Sometimes, if it's not a large operation, you can sign up for Software as a Service.

Common concern here is of security going out of your control. Always understand that it's a matter of governance. If proper governance is not in place for your IT setup, this can happen even in a new organization. So outsourcing is not necessarily the culprit.

Should you renegotiate existing contracts?


There's no harm in trying. In my opinion, you have to create competition between your existing vendor and a competing new vendor. If you negotiate directly, he won't listen. So bring in a new vendor who quotes lower. This will make things easier.

How do you handle re-staffing and re-skilling?


Companies which believe in managing a large number of IT projects through their in-house staff definitely need to look at re-skilling. For example, I use a technique where I assign three technologies to a group, which has three to four people. One becomes the leader by virtue of his experience and role. The other two are the followers. After six months, I remove the first person and assign him to look after another area. The second person now assumes charge of the group. It's not like if someone is a Basis expert in SAP, he will retire as a Basis expert. I move them after three years.

Second is that I always create new challenges for my staff by putting them in charge of a new technology every year. So they gain new skill sets. Always ensure that they have an enjoyable experience. You have to see that they should find a career in the technology.

With IT budgets coming down, staff training has also come down. How do you cope with that?


Learning new skill sets does not happen with two weeks of classroom training. It should be on-the-job training.

For example, we had undertaken migration from Microsoft SharePoint Portal 2003 to Microsoft SharePoint Server 2007. The challenge was to migrate Hummingbird IDMS to SharePoint Server 2007. Now the staff member was not conversant with SharePoint Server 2007, but she mastered it and completed the migration in three months.

Now, I had the budgets for outsourcing, but the objective was to create a challenging opportunity for a team member. Today we are able to roll out the technology in other parts of our business. We'll also be saving at least Rs 50 lakh.

What about using cloud computing's touted benefits?


Yes, cloud computing will work, but not the way that vendors portray. Software as a Service will definitely work. Corporates can use cloud computing for their own group companies. For example, we have two associated refineries. Why should they invest in infrastructure that we already have?

So our sister concerns use part of my ERP -- the catalog management system. We've asked them not to buy any software and hardware. Our manpower manages their system, and we charge them a very nominal fee. Such efforts substantially reduce hardware and software costs.

How can a CIO deal with reduced IT budgets? M D Agrawal, the deputy general manager of IS (refinery) at Bharat Petroleum Corporation Ltd., shares tips.

You are credited with bringing IDBI Intech back to life. How'd you get involved in this effort?

IDBI Intech was started in 2000, during the IT boom. IDBI was a development institution with many subsidiaries, and IDBI Intech was one of them. Then the downturn started, and IT was not doing so well. So we had some talent crunch at that time.

Around 2004, IDBI got the license to become a bank. Hence, IDBI decided to exit from IDBI Intech.

In 2004, IDBI decided to acquire IDBI Bank, the private-sector bank where I was working. IDBI Bank was a very technology-savvy bank with good people doing creative work. On the other hand, IDBI didn't require a strong technology platform by virtue of its business. When you become a commercial bank, you cannot survive without IT. So we were wondering how to motivate and take care of the team, since things were completely different at IDBI.

Since we already had IDBI Intech, we decided to revive it. It was in the process of getting closed, so we wrote to the government authorities and got the permission. It was decided that I should move to IDBI Intech. Now I act as the IT advisor for IDBI Bank, as well as head, IDBI Intech.

And how did IDBI Intech move from being IDBI Bank's IT team to a service provider for other organizations?

In 2006, we shifted the complete IT team from IDBI Bank to IDBI Intech. It was decided that we'll not have an IT outfit within the bank to avoid conflict of interest.Initially, Intech was treated as just an extension of IDBI Bank. Then we realized that there's a lot of unexploited potential, so we started providing services to group companies. We started with IDBI Capital, IDBI Fortis and IDBI Gilts.

Since we were doing a good job with the group companies, our board suggested that we start providing services to external companies. So we started giving services to BFSI [banking, financial services and insurance] clients. Today we have more than 19 external clients and almost 500 employees, as well as international clients in Kenya and Oman.

How was the change for you personally?

Shifting to a company as the MD and CEO was a major challenge, since I was expected to do much more. It's very easy to be on the other side of the table, where you only have to execute the project. As a CIO, you should be good at project management and understand the business, but you don't have to seek business. Besides, you get very comfortable when you only have to interact with vendors and so on.

Suddenly, it's all about business strategies, how to run the company, make it profitable, manage the attrition of an entire company rather than just a department and so on. It was an experience where I had to change from a technology person to a manager. So this major shift was initially extremely difficult.

Also, it's easier to start a new company than to revive an existing one. There were many compliance requirements, and several other aspects which were new to me. So it was a fulfilling experience to move the company from, as they say, red to black. We have been a profit-making company for the past three years.

What would you put as the biggest challenges that you faced?

It's tough to build the confidence of people. First is that of your own employees, since you are trying to revive something which did not succeed earlier. It's also difficult to change from a department's mind-set to that of to a service provider.

Gaining confidence of other stakeholders was the second challenge. That's why I say that it's easier to start a new company than to revive one. The moment you are a separate company, expectations increase and service levels to parent organizations need to be very high. So the stakeholder's interest was a crucial aspect that we had to deal with.

2005-06 was a good year for IT, with people getting fat salaries and many offers. So it was difficult to source talent, especially since we were undergoing this transition.

The last challenge was to convince external entities that we can provide services in a bank-neutral manner. It was essential to demonstrate that we have the expertise, so please don't treat us like IDBI Bank's IT outfit.

Getting the first client was a challenge. Our first major client was the Centurion Bank of Punjab. It was a grand success. We haven't looked back since.

Sanjay Sharma, the managing director and CEO of IDBI Intech Ltd., has been credited with the venture's turnaround into a profit-making organization. The erstwhile CIO of IDBI Bank shares his career's evolution path.

Was there debate within PeopleSoft that it might be a bit shortsighted not to give steady-as-you-go maintenance?

Other than from me? You had development lining up on the side of, 'Absolutely hold to these support polices.' The consulting group wants to sell upgrade services. The development organization only wants to support a limited number of product lines, and there are practical reasons for that. They can't technically support 10 lines forever. In general, they were just incensed it accreted life to releases that they wanted to see retired.
Isn't this a problem for all software?

Everyone has to carry forward their baggage, and a backwards compatibility. Very rarely do you come out with a brand new release that has no connection, in technology, to what you had before, because then you open up the whole competitive realm. 'Well, hell, if your new product isn't really an upgrade, it's a migration, then I might as well look at everybody's else's if I am going to move to a migration.'
How have companies managed this problem before your software maintenance businesses existed?

They thought they could basically use the stick to beat customers forward by threatening them. You've seen that with Oracle. Siebel is the same way -- basically, if you don't upgrade, we're going to pull your support, you'll rue the day, you'll get nothing from us, and we'll still charge you the full amount.
What are the reasons your customers opt for third-party software maintenance?

They do it for different reasons. The small customers were making the move, because it was right after the dot-com meltdown. Prior to that, people were very optimistic, thinking they would be growing 10 times their size. They went in and bought PeopleSoft; it was the Rolls-Royce of HR systems and finance. So now they're stuck with the Rolls-Royce. They love it; they don't want to get rid of it. But they can't afford to keep it. So, a lot of those people, by switching to third-party maintenance, actually were able to keep the software they loved at price points they could afford.
Why did you leave TomorrowNow after the acquisition by SAP?

I left three months after the SAP acquisition; as an entrepreneur I needed to be on to my next thing. I actually was going to go build a software company, but after looking at it, I couldn't stay away from the maintenance stream. When you've got a 90% profit margin, it's just too hard to resist. And TomorrowNow didn't even take 1% of the market. As soon as Oracle announced its acquisition of Siebel, I decided to launch Rimini Street and offer the first third-party alternative into Siebel space.
Oracle must love you, especially given its suit against SAP -- targeted at TomorrowNow.

Oh yeah. I announced Rimini Street at OracleWorld 2005 and I think the words were, 'He's back.' As soon as my noncompetes expired with PeopleSoft and J.D. Edwards products, we introduced those at Rimini Street, too. So now you have two companies -- the captured, SAP-TomorrowNow and our independent Rimini Street -- and we are the only two really credible companies in the industry.
The Oracle lawsuit against TomorrowNow is notable for its strong language -- "corporate theft on a grand scale." Some analysts said that one of the aims of the lawsuit was to scare companies off using third-party maintenance.

Just to give you that color from the lawsuit -- it hasn't deterred the business. The lawsuit actually opened up business -- because some people didn't even know there was a choice. A lot of people read the lawsuit and said, 'My God, Merck and Honeywell, and all these large companies using third-party support.' And instead of saying, 'Wow, look what happened here!' The issue really is, 'Holy gee, am I the only guy paying full price?'
What about maintenance of SAP software at Rimini?

I have a noncompete that expires in January. Let's just say, we're looking with interest at the SAP market. With 30,000 customers, who wouldn't be? They recognize what is good for the goose is good for the gander. You can't complain and say you want Oracle to open up and allow third parties more access and think that is not going to boomerang back on you. They know this is about open access.
AMR analyst Jim Shepherd makes the argument that because everything is changing -- the software platform, the underlying components, your company's business -- that the software needs to be continuously updated.

That's not what we're hearing from clients. They have incredibly stable platforms that they feel like they can run their business on for 10 years. And, in fact, if you look at the recent enhancements from the PeopleSoft product line, it is akin to heated and cooling cup holders -- they're really cool, but it doesn't help me pay my employee any faster.
Who do you go to when you make your pitch? The CEO, the CIO -- who is most receptive to your message?

It's gotta be the CIO and the CFO. The reason is, this is a lot like outsourcing. You're not going to go pitch the IT team how great it is to send your jobs to Infosys. When we come in, how much excitement is there to tell a team, 'Hey, we've got some great news for you -- you guys are going to drive the same car for the next five to seven years instead of that new one you were hoping to play with.' A lot of IT folks do want the excitement of getting new tools and new technology to play with -- and that is part of the fun of it.

Our decision is very much a cost-driven decision, so it is very often the CFO or the CIO who says, 'I'm the guy who has to go before the board and justify we need to spend $2 million on an upgrade when we did it just three years ago, and I can't put down on paper how that money is going to be returned to us in benefits.'

What about people who have just upgraded to the newest version of software -- are they off-limits?

We used to work primarily with more retired or retiring-level versions of the software. Today, 30% to 40% of our business is on the latest versions of the software, so it is people who literally go and do the next upgrade and say, 'You know what, we are done for the next decade. And all that money we bank over the next decade? We will then do a capital expense because a whole new version of software is coming.' In 2015, '17, as late as 2018, you'll see a mature Fusion product against a mature NetWeaver product from SAP, hell Microsoft will probably be offering a full enterprise-level product at the rate they are investing. Rather than play the upgrade game every two or three years that doesn't necessarily yield results but ties up the entire IT team, costs a fortune, instead we're going to make a generational change.
How long should a company hold on to a software product?

We have more customers than ever looking for five- and 10-year guarantees for support. No one makes this change for a six-month change; it is not worth it.

Let us know what you think about the story; email: Linda Tucci, Senior News Writer

It doesn't take much to get Seth Ravin badmouthing big software companies. Ravin co-founded TomorrowNow, which he sold to SAP, and eventually went on to found Rimini Street Inc., an independent provider of enterprise software support services for Siebel Systems Inc., PeopleSoft Inc. and J.D. Edwards & Co. licensees. The companies share the same aim: make software last longer. Ravin's idea of software maintenance evolved from his work at PeopleSoft in the late 1990s. He was in charge of getting 4,000-plus customers through Y2K. The board authorized Ravin to quietly sell customers a Y2K package of support -- on top of their regular maintenance support -- so they could stay on their older releases.

Indeed, as word of the special program spread, enthusiasm reached fever pitch. By 1999, Ravin had customers left and right willing to pay him more than regular maintenance fees, so they wouldn't have to upgrade. Not long after, he left PeopleSoft to join former colleague Andrew Nelson, who had a little consulting business, TomorrowNow.

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