‘Look West’ has been the mantra for most IT companies over the past. They are not to blame since these have been the big markets with North America and Europe accounting for 69% and 22% of total IT and ITES export revenues respectively from India in 2003-04. But with thinning profit margins, increasing competition and saturating western markets it is in the lands unexplored that the IT companies can find business in the future.
This might be the time to diversify not only to safeguard from the vagaries of development cycles of western countries but also to look at developing countries of Asia and Latin America as holding potential for the future. Often sidelined and neglected, today these markets themselves are ripe and waiting to be harvested by the IT companies. IT companies can capture the opportunities these markets have to offer in terms of their
1. Burgeoning small and medium enterprises,
2. Increased government spending on areas like e-governance, IT infrastructure, etc. with an aim of providing improved citizen services, reducing costs and
3. Growing individual interest towards IT.
Servicing SMEs might be a whole different ball game. Instead of doing it the services way with custom built applications, which proves not only expensive but time consuming too, standard product solutions might be more lucrative. The industry might move to smaller product markets divided specifically into verticals like pharmaceutical, auto, retail, traffic stocking etc. Development of such innovative products can be made possible through investments in R&D and by nurturing intrapreneurial spirit among employees.
If the above possibilities have to be turned into reality, a number of questions need to be addressed like what would be the strategy? How to mitigate the risks? How to decrease operating costs in view of cost-constraints of SMEs? How to overcome cultural and language barriers? And most important, can the business be sustained?
Table of Contents
Table of Contents 3
Small and Medium scale Businesses: Treasure Troves of the Future 5
Executive Summary 6
The Challenge for SMEs 10
Benefits for SME 11
Selling IT Solutions to SME’s 13
The Road Ahead: Challenges and Opportunities 15
Bridging the Technology Divide:Why should the developing economies invest more in IT? 19
Executive Summary 20
Lessons of History 22
Danger of the Digital Divide 24
E-Government and Demand-Side Initiatives 24
Communications Access and Infrastructure: The Supply Side 26
Reasons To Invest In IT 27
Evidence From Other Countries 35
Evidence from developed countries 35
Evidence from developing countries 36
Reasons why Developing DO NOT Invest in IT: Solutions Provided By IT 36
Global Opportunities and Risks 37
Areas of Government Intervention 38
Intrapreneurship – The Need of the Hour 42
Introduction – The Entrepreneur 44
The Rising Intrapreneur 45
How should the IT companies go about it? 47
Human Capital Management 50
Strategic Outlook 51
Caution to the Wind 52
Small and Medium scale Businesses:
Treasure Troves of the Future
MBA (IB) 2004-06
As the information technology gets increasingly affordable and it gives organizations a definitive edge, it has become more and more clear that SMEs will be the going for ‘IT way’
Even as recently as a decade ago, say circa 1994-95, this question would not have arisen in India. IT was for mammoth organizations that need it to oversee their geographically diverse businesses. Today, it is almost safe to say that IT is becoming mandatory even for SMEs. There are two good reasons why. One as IT solutions become more comprehensive in their ability to help businesses there is now a lot to gain by doing it with IT, and two IT is becoming more and more affordable.
As IT becomes more and more important for SME’s, SME’s have become more and more important for IT companies. This means newer opportunities and challenges for the IT sector as a whole. Higher degrees of customization needed in case of IT solutions for SME’s would mean higher cost; how does one then an IT company manage its costs for price sensitive SME clients, is just one of the challenges.
This paper tries to address some of the issues involved in use of IT by SME’s and also looks at the benefits SME’s can gain by using IT efficiently.
Academics and practitioners world over continue debating on how information technology (IT) impacts corporate performance. But oddly enough IT is dismissed as a competitive differentiator purely because of its ubiquity or as hype. Yet, can a typical company or any nation truly benefit from a focus on information technology to differentiate self from competitors and achieve growth?
Keystone research an American research agency conducted a study that revealed IT to be the growth engine because it enables firms to scale by allowing them to be able to manage the increasing complexity of their business processes and models.
SMALL and medium enterprises (SMEs) are a force that cannot be ignored. And infotech companies across the board – including IBM, Hewlett-Packard, Dell, Sun Microsystems, Microsoft, Oracle, Unisys, Computer Associates, Novell, Symantec, et al – are beefing up their technologies and marketing to woo SMEs worldwide, but more so in the Asia-Pacific.
– IT Asia One Report
Globalization is driving businesses of every size to collaborate with partners and suppliers across the globe bent on constantly increasing the efficiency. Customers today demand more personalized, timely service, and an increasingly stringent regulatory environment forces rigorous compliance, accountability, business transparency and record-keeping. And the risk of disruptive technological innovations, the “in thing” today, is out dated tomorrow. Even as recently as a decade ago, say circa 1994-95, this question would not have arisen in India. IT was for mammoth organizations that need it to oversee their geographically diverse businesses. Today, it is almost safe to say that IT is becoming mandatory even for SMEs. There are two good reasons why. One as IT solutions become more comprehensive in their ability to help businesses there is now a lot to gain by doing it with IT, and two IT is becoming more and more affordable.
Christensen, the man who coined the term, recommends that existing firms watch for these disruptive technologies, invest in small firms that might produce them, and continue to push technological demands in their core market so that performance stays above what disruptive technologies can achieve.
Small and medium sized organizations struggle more than they benefit with these challenges than their larger counterparts. A key difference in their success is their ability to harness the power of information technology (IT). Large companies are able to use IT effectively to empower and connect their employees, manage global networks of partners and suppliers, and integrate and optimize their core business functions. Powerful productivity software helps their workers stay organized, well-informed and adept to converting ideas into business realities.
Smaller organizations fail to leverage the potential of software for strategic business gains, often due to the same problems and complexities faced by larger organizations, but have also have constrained resources, such as human capital and cash flow. They have to make trade offs between investing in different business priorities, and IT investment usually suffers.
But Indian IT scenario is reveals a quite different picture. Usage patterns reveal that in India SMBs are forging strong links in business value chains as their business processes and information flow becomes digitized. Today, with more than a 50% penetration, more and more SMBs are viewing IT as a strategic tool for their business. According to IDC – in the year 2004, SMBs in the Asia Pacific region invested more than US$98 billion in information technologies with China and India together accounting for approximately 30 percent of this investment. In India in fact, IT spending was close to $3.5 billion in 2004, with computing hardware (computers, printers, peripherals and servers) accounting for over half of expenditures. The fact is, that in India, SME businesses have already crossed the first wave of IT & technology adoption.
Growth Prospects in the Next 12 months Source: UPS Asia Business Monitor
With increasing competition from MNC’s strengthening their presence in the domestic market, and the imposition of the WTO regime – it is imperative that SMBs graduate to the next phase of IT enablement which requires investments in high end applications, enterprise solutions, Integration of Processes and Cross networking (Intra-networking) across offices.
The Challenge for SMEs
Facing greater competition than ever across diverse industries, small and midsize enterprises (SME) have a critical need to optimize business processes, cut operational costs, and improve customer acquisition and retention. Success depends on having the ability to keep pace with rapidly changing customer and industry demands, the agility to quickly seize new opportunities and the flexibility to achieve sustainable business growth.
In choosing their software solutions, these businesses must balance their long-term needs for innovative solutions to drive the next level of growth with their existing resources and short- and mid-term needs for quick return on investment, low cost of ownership and minimum disruption to current operations. Many SMEs must also ensure their integration into their corporate and partner/supplier ecosystems, often requiring complete replacements of legacy systems.
With the complexity and global reach of today’s business environment, SMEs are also under greater pressure to monitor their processes and financials even more closely. This challenge is intensified by stricter accounting and corporate governance requirements that are placing increasing pressure on businesses of all sizes for greater transparency, timeliness and accuracy in reporting and managerial control. Small and midsize enterprises are recognizing integrated ERP solutions as essential to keeping up with business counterparts and competitors as the solutions become more affordable, easier to implement and adept at addressing industry-specific business processes.
It’s no secret that the SMB segment is the economy’s growth engine for the future. It’s the collective strength of 1.8 million strong community which will drive India’s success as a world economic leader. However, are we prepared? Is the Indian SMB segment really geared to take on the might of more advanced, and more invested nations? While we leap some of the more apparent hurdles such as poor infrastructure, there are a few distinct advantages that we have – and must leverage. It’s our strength as an IT powerhouse. It’s about time that domestic industries – and the SME segment in particular – woke up to the revolution that the Indian outsourcing industry is creating the world over – and create local successes of the kind we are able to foster across the globe.
SME Growth Rates in Emerging Nations Source: UPS Asia Business Monitor
Benefits for SME
There are several opinions that exist about the benefits of IT for bigger enterprises- some that dismiss IT as a competitive differentiator purely because of its ubiquity, while others dismiss it as hype. The crucial question still remains — can a typical company truly benefit from a focus on information technology to differentiate itself from competitors and achieve important business objectives? We believe that that IT does matter, it is critical to growth because it enables firms to scale — an ability to manage the increasing complexity of their business processes, organization, and business models.
While the concerns of small or mid sized business might seem distinctly different from what matters to multinational companies, both types of organizations face many of the same pressures and demands. Globalization is driving businesses of every size to collaborate with partners and suppliers across the globe, while constantly increasing the efficiency of those interactions. Customers today demand more personalized, timely service, and an increasingly stringent regulatory environment forces rigorous compliance, accountability, business transparency and record-keeping. Added to that, a constantly changing technology environment presents its own set of hurdles. Small and medium sized organizations struggle more with these challenges than their larger counterparts. A key difference in their success is their ability to harness the power of information technology (IT).
Large companies are able to use IT effectively to empower and connect their employees, manage global networks of partners and suppliers, and integrate and optimize their core business functions. Powerful productivity software helps their workers stay organized, well-informed and adept to converting ideas into business realities. On the other hand, smaller organizations are not able to leverage the potential of software for strategic business gains. Often they face the same problems and complexity, but have also have constrained resources, such as human capital and cash flow. They have to make trade offs between investing in different business priorities, and IT investment usually suffers.
Usage patterns reveal that in India SMBs are forging strong links in business value chains as their business processes and information flow becomes digitized. Today, with more than a 50% penetration, more and more SMBs are viewing IT as a strategic tool for their business. According to IDC – in the year 2004, SMBs in the Asia Pacific region invested more than US$98 billion in information technologies with China and India together accounting for approximately 30 percent of this investment. In India in fact, IT spending was close to $3.5 billion in 2004, with computing hardware (computers, printers, peripherals and servers) accounting for over half of expenditures. The fact is, that in India, SME businesses have already crossed the first wave of IT & technology adoption.
However, with increasing competition from MNC’s strengthening their presence in the domestic market, and the imposition of the WTO regime – it is imperative that SMBs graduate to the next phase of IT enablement which requires investments in high end applications, enterprise solutions, Integration of Processes and Cross networking (Intra-networking) across offices. Today, the scenario is very different – with no standards in the levels of maturity and IT readiness among SMEs. A significant percentage is still at the basic level of usage, while some of them are into the early use of ERP, CRM, E-Biz and other enterprise applications.
Small and medium organizations can benefit immensely from the approach applied by several large organizations, which map their information technology systems, onto the business strategy or design of the company. This integration allows companies to achieve business process scalability, which translates into improved process knowledge and process standardization enabling companies to easily manage the complexity involved with high growth – streamlined operations that can grow without significant additions to headcount, provide flexibility to take advantage of new opportunities and respond quickly to emerging changes.
Selling IT Solutions to SME’s
India’s SMBs have a long way to go-as per data from a recent AMI survey, estimates are that only 29 percent have PCs, 20 percent have Internet access, and 13 percent have local area networks. By contrast, in the US, 93 percent of small businesses own PCs, 81 percent have Internet access, and 39 percent have local area networks. Further, only 16 percent of all Indian PC-owning small businesses have some form of high-speed Internet access. This is in sharp contrast with Asian counterparts China and Korea, which enjoy 46 and 92 percent broadband penetration respectively.
With such dismal IT penetration rates, one would assume that selling SMBs IT solutions will be a relatively easier job. However, due to greater scarcity of capital in SMBs trend has been that the focus on ROI while going for an investment in IT is higher in case of SMBs. What is also being noticed-as per a Frost ; Sullivan survey of more than 100 SMBs across APAC-is that SMBs are moving away from broadly generalised solutions to primary-vendor solutions targeted at specific verticals. The challenge however is that much of this growth and spending-and therefore the associated economic and social benefits-is restricted to the larger metropolitan areas such as Kolkata, Chennai, Bangalore, Delhi, Hyderabad and Mumbai. These cities account for 80 percent of the small business IT spending in India.
The concentration of spending illustrates one of the challenges in India. While SMBs in smaller cities are still struggling with infrastructure issues-good roads, reliable power, and telephone and broadband services-their counterparts in the metros are shifting into a higher gear, changing their focus from buying basic PCs to investing in scaleable IT solutions. More importantly, the difference between the technology haves and have-nots is in their growth plans. As per AMI research, 67 percent of Indian small businesses that have PCs plan to hire new employees. Likewise, some 78 percent of small Indian businesses with PCs expect an increase in revenues in the coming year.
To encourage uniform growth across the Indian SMB segment, vendors need to drill deeper. While the key motivator and restraining factor across SMBs considering IT investments is undoubtedly price, vendors should not ignore the primary business drivers of these organizations. Unique business needs more often than not dictate networking investments in SMBs, and the need of the hour is a vendor who can make a case for increased profitability and productivity in the given situation.
Selling to SMEs involves many nuances, some of which are discussed below
1. SMEs Want Proven, Tailored Solutions. In general, SMEs adopt new technology-based solutions only after a technology has been demonstrated as being viable, stable and has been thoroughly vetted in production environments. SMEs seek solutions that solve business problems related to their industry. They want solutions that are easily implemented and require little or no support because of their lack of IT resources and skills.
2. SMEs want packaged total solutions, not individual products. SMEs will pay for an integrated total solution that is easy to deploy. They lack the resources and skills to integrate products together into a total solution. They will quickly lose interest in buying a particular product if forced to do the integration themselves.
3. Picking the Right Channel to Sell to SMEs is crucial. Many SMEs, like all enterprises, prefer to make their IT expenditures with their long-established, well trusted advisors. Unlike large enterprises, SMEs are more attuned to the cost of establishing and maintaining vendor relationships because of their relatively limited resources. As a result, SMEs have developed preferences for buying from channels that are based on complexity of the solution, the solution’s maturity and fit with SME requirements. They are unlikely to entertain buying from new channels without a clear business rationale for doing so.
4. Big is Not Always Better. Surveys indicate that brand ranks as one of the least important vendor selection criteria for SMEs. Indeed, brands associated with large enterprise solutions connote higher implementation, maintenance, support and acquisition costs which are four factors that consistently rank among the top impediments to investment for SMEs.
5. SMEs Buy Business Value not Technology Value. SMEs, by their very nature, are more acutely aware of their business challenges than they are of technology challenges and opportunities. Marketing technology value using jargon and product feature checklists does not resonate with SMEs. Focusing marketing and sales efforts on selling business value will prove to be more effective in case of SMEs
The Road Ahead: Challenges and Opportunities
The SME sector will be a key ingredient for sustaining future growth of the Indian software and services industry. However, SMEs will have to align their offerings according to the demands of the industry to emerge successful in the long run.
Focus Areas of Growth and Investment Source: UPS Asia Business Monitor
Huge growth opportunities exist for Indian SMEs. To tap the potential that exists in the domestic and export markets, SMEs in India would have to prepare themselves for the following challenges:
* Tap the domestic market, as it will act as a test bed for innovation and new service lines and help in rapid accumulation of higher value-added skills through development of low cost, tailored solutions for domestic companies and the government.
* Identify a defensible niche in nascent verticals such as healthcare, education, transportation, utilities, e-governance, technology areas like GIS, embedded software or web services and product area.
* Ensure a robust business continuity infrastructure and a global delivery network and build a strong management team to build credibility and differentiation through them
* Determine initial geography focus and identify critical initial steps. SMEs are often located within clusters, which makes them easier to target. Such a focus can go a long way in acquiring SMEs as clients.
* Make clear, strategic choices to secure alliances with Systems Integrators and build distinctive customer acquisition and retention skills
* The SMEs offer Indian IT sector many opportunities some of which are discussed below.
o ISV: There are many small independent software vendors and developers. As the SMEs absorb IT, they will need business applications which cater to their unique industry or business requirements. This is where the ISV (Independent Software Vendors) come in. Their domain knowledge can help them create software products which now can find distribution via the value chain to SMEs across wider markets.
o SMEs IT Education: Top management of SMEs needs to be made aware of the need for IT, end-users need to be shown how IT can make them more productive in all that they do; both at the individual-level and as part of groups, and support staff needs to be trained to provide assistance to the SMEs for the solutions they use. There is an opportunity for SME IT Academies to be set up in every neighborhood. These points-of-presence can also double as demo centers, showcasing the various IT solutions for SMEs.
o Low Cost Hardware: SMEs need low-cost hardware if they are to provide a computer for every employee and realize the vision of 1:1 Computing in their offices. This means thin clients or low-cost, low-configuration desktops. It also means servers in each enterprise, each of which should be pre-loaded with the software, so that the server is an instant-on. Indian Hardware manufacturers can have some part of this pie.
SMEs are numerically very large in number, and account for a huge portion of the IT spend; yet, they are hard to reach, and even harder to please. SMEs represent the next frontier for entrepreneurial IT companies to target and capture. But to carve open the SME market will require efforts from a number of players across a wide spectrum of segments.
* Indian Management
* NASSCOM Fact Sheets
* UPS Asia SME Report
* NASSCOM SME Section
* Should IT Matter to the Indian SME by Rajiv Mittal, SMS&P Director, Microsoft
Bridging the Technology Divide:
Why should the developing economies invest more in IT?
T Santosh Kumar Reddy
MBA (IB) 2004-06
Information technology (IT) is rapidly transforming our economy and society. IT has the ability to generate great wealth and prosperity, but it can also exacerbate economic disparity and magnify existing inequities. Many low-income communities are isolated from recent technological advances and do not have access to personal computers, the Internet, and the interactions and opportunities these technologies provide. This experience currently defines the so called “digital divide”- that space between those who do and those who do not have access to information technology.
Still, any incipient digital divide may still be bridged, notwithstanding the obvious disparity in the development of physical infrastructure of developed and developing countries. Each one has a role to play, whether as an individual, business organization, government, or international institution.
This paper intends to delve on the reasons of why a government should consider investing in IT. The paper gives evidence from both developing and developed countries on the positive impact IT has had on them. A glowing example of the tremendous impact of IT has been the deployment of e-choupals in India and how they are enabling farmers to make better purchase and sale decisions. It also identifies certain reasons why nations might not want to invest in IT as their resources are limited and the possible applications many. However, appropriate and effective implementation of IT can solve the problems which are troubling developing countries such as poverty, illiteracy etc.
The paper concludes by emphasizing that in order to compete with industrialized countries and to be at par with them in future, developing countries can’t afford to ignore the impact of IT on the society and how important it is to invest in IT for economic growth of the country.
“A recent New York Times article described how a fisherman working off the coasts of Kerala used a cell phone on the seas to obtain and compare information about spot market prices for fish at Cochin and Quilon (85 miles apart). This fisherman netted an additional $1000 in annual income merely deciding to deliver his catch to the more remunerative market each time his boat came in.”
This is a striking example of how simple information flows can enhance market efficiency.
While the benefits of new information technologies have accrued largely to developed countries, there is a broad consensus concerning these technologies’ significant potential for the social and economic progress of developing countries. IT can be usefully applied to most of the major problems of development. In the economic sphere, IT can significantly enhance the productivity and hence the competitiveness of the enterprise sector of developing countries.
Responding to the challenges of an increasingly IT-intensive global economy will take awareness, time and the commitment of both financial resources and political will to implement changes in key areas of the economy.
“A vital IT sector brings the world of commerce and ideas to one’s home or workplace, helping a nation’s economy grow and bringing people everywhere in contact with the global marketplace of ideas.”
-USAID Administrator Andrew S. Natsios
Information technology is the “great equalizer” for a variety of reasons, but notably for the opportunity it brings to developing countries to improve its economies primarily using human resource, rather than financial capital. As the opportunities presented are great, so is the investment required.
Much has been said about technology benefiting mostly the higher income groups in society, resulting in a “digital divide” between the high and low income groups. A glance at the larger picture shows that the far greater problem is the growth of a digital divide not just within nations but also among nations. It is truly ironic that the same technology that revolutionized communication and connectivity also threatens to create a chasm that separates nations rather than linking them.
The emergence of the new economy has presented developing countries with new opportunities for success but at the same time increased the risk of their marginalization. In the optimistic scenario, new information and communication technologies allow developing countries to bridge the technological gap that exists between them and the developed world, enabling them to catch-up with the current economic leaders. The alternative, dismal scenario, is that new technologies will enable faster growth in the developed world, and the developing countries will languish.
Though both scenarios lead to the same policy imperative, the idea is that developing countries need to invest more in ICT, if not to catch up, to prevent being left behind in the digital race. Inequality in access to the new economy exceeds income inequality. It is hard to deny that participation in the new economy is extremely unequal at the moment. Access to the Internet is a measure commonly used to quantify the digital gap. For instance, it is estimated that in 2000, a fifth of the world’s people living in the richest countries have 93 per cent of Internet users (and 86 per cent of the global GDP), while the bottom fifth have only 0.2 per cent of Internet users.
Lessons of History
In the long sweep of history, the industrial revolution presents a fascinating study of rapid economic transformation. In eighteenth-century Britain a series of technological innovations made it possible to mechanize production, that is, to use machines run by inanimate power to speed up repetitive tasks. Simultaneously, the creation of the factory system-a crucial innovation in the organization of production-made it possible to translate the benefits of mechanization into higher and cheaper output.
Steam-powered ships could circumnavigate the earth with great speed and reliability, but the economic gap between Western Europe and Asia widened. It is tempting to conclude that technology has the power of rapid economic transformation. However, while technological innovation may be necessary for an industrial revolution, historically it has hardly been sufficient. China’s technological achievements in the fourteenth century were comparable to those that culminated in the industrial revolution in Britain four centuries later. Yet, despite its technological readiness, there was no industrial revolution in China at that time. Why did technological development come to a halt, and perhaps even regress, from the fifteenth century onwards?
Technology alone cannot explain industrial revolutions in Western Europe. The causes of European ‘exceptionalism’ remain a subject of academic debate. One traditional view has been that while technology played an important and visible role, industrial transformation required other essential ingredients. In order to invest in new technologies, it was necessary to have access to capital and modes of finance that insulated individuals from excessive risk; to have the right balance of skills to use the new technologies; and the entrepreneurial spirit to engineer and embrace change. We could label these other crucial ingredients as ‘social capital’. Thus, the argument goes, while technology could be copied or acquired at some cost, social capital was much harder to replicate.
Historical examples have some lessons for the new economy. One, the experience of the industrial revolution tells us that while new technology plays an important role in economic transformation, other ingredients may be necessary. We must guard against a new ‘technological fundamentalism’-the idea that new technology is the crucial need of the developing world-without a careful assessment of other potential constraints faced by developing countries. Two, the salutary lesson from the early growth of the railways is the benefits of new technologies are often distributed asymmetrically, with some nations gaining more than others.
Danger of the Digital Divide
Despite the Internet’s democratizing potential, it has been recognized from the outset of the digital revolution that there is a very real danger that the world will be divided into the “information rich” and the “information poor.” The United Nations Development Programme (“UNDP”) focused on the risk of marginalization in its 1999 Human Development Report, noting that the “Internet poses severe problems of access and exclusion.” With communications technologies playing increasingly vital roles in economic development, education, health care and governance, the exclusion of those who are poor, illiterate, rural or non-English speaking has broad ramifications.
The UNDP concern echoed earlier warnings. In April 1997, the UN’s Administrative Committee on Coordination stated:
“We are profoundly concerned at the deepening maldistribution of access, resources and opportunities in the information and communication field. The information and technology gap and related inequities between industrialized and developing nations are widening: a new type of poverty — information poverty — looms.”
E-Government and Demand-Side Initiatives
In many developing countries, the government remains a major agency of social change. Government agencies in developing countries could boost demand for information goods and services by becoming a consumer of new technologies, and thus provide critical mass for their widespread adoption. This will serve various functions. One, by increasing demand for technology-intensive products, it will increase the incentives for the private sector to invest in the provision of these services. Two, new technologies have the potential to improve the efficiency of the public sector. Three, public use of information technology may speed up the diffusion of these technologies through a demonstration effect.
The government interacts with people through various channels. One idea might be to use modern ICT as an additional channel of communication with the public, by creating what is often called e-government. This will boost demand for elements of the new economy, and the use of modern technology may also improve governance. Modern ICT can simplify many routine tasks. Electronic mail can speed up internal communication. The use of databases can improve storage and retrieval of information, and reduce paperwork in public administration.
Electronic voting mechanisms can reduce the costs and errors in election processes and increase public confidence in democratic structures. The Internet can be used to communicate government policy and regulation, and increase transparency of governance. Government sponsorship of such activity will also generate local language content for local needs. This may catalyze the demand for further information services.
But the progress of e-government faces many hurdles in developing countries.
* First, investing in new technology requires resources that many developing countries do not have.
* Apart from financial resources, it requires training and skilled personnel: public sector salaries are often below the levels necessary to attract these skills.
* Expensive equipment is frequently misallocated: new computers often adorn ministerial desks as status symbols, rather than serve as productivity-enhancing tools at lower levels of government operation.
* Knowledge and control over information flows is usually a source of power in hierarchical bureaucracies. As Heeks (2002) points out, while many attempts to foster electronic government have been abject failures, there is a growing set of positive role models that can be emulated. Andhrapradesh.com, the official website of one of the poorer Indian states is an example of how e-government can begin to alter patterns of interaction between governments and citizens. NGOs may have a useful role to play here.
Communications Access and Infrastructure: The Supply Side
Many people point out that there is more fundamental requirement for participation in the information economy, namely access and connectivity. Communication networks currently connect areas of high-income concentration. Developing countries are poorly connected to global networks, and rural parts of developing countries are often not connected at all. Creating electronic channels for e-government would be futile if the vast majority cannot access these channels. This is the issue of supply of communications infrastructure. In most countries, telecommunications networks were long run as public-sector monopolies. This may have been justifiable given the natural monopoly characteristics of these services and the belief that these services should be run in the larger public interest.
In general, governments need to reassess their objectives carefully. Where telecommunications continues to be a state monopoly, the sector tends to be a major source of revenue for the government. Fiscal difficulties make it tempting to set communications prices in order to maximize revenue than access. Even when governments have shown readiness to privatize telecommunications, the aim has often been to maximize privatization revenue or license-fee income rather than to maximize access to communications. This may be a luxury that most countries can ill-afford.
From a long-term social point of view, it would be far better to create structures that maximize access without the need for major subsidies. A competitive market structure may well be compatible with this objective. Privatization is a possible first step, and if domestic competition is restrained, a pro-competitive regulatory environment may be important.
There is considerable scope of innovative solutions in the private sector. Even in the poorest countries, people are often prepared to pay for access to communications. Whether there are clear and immediate benefits to users, they are prepared to invest in equipment. For instance, ownership of televisions is relatively widespread in India. While penetration of telephone lines is low, the shared use of existing lines through phone booths extends access. As one would expect, the emergence of cyber-cafes has provided shared access to the Internet in large metropolitan areas. Often small communities can pool resources or use innovative schemes to gain shared access to expensive services.
Bangladesh-one of the poorest countries in the world-provides a striking example. GrameenPhone is a private scheme that provides mobile telephony in rural areas through shared access. Mobile phone handsets are made available on credit-financed franchises to individuals (typically women). They raise revenue by re-selling telephony services to the local community. The shared use economizes on a precious resource and enables the provision of primary communications to rural communities.
The government can encourage these trends in various ways. In some developing countries, the state needs to provide the basic infrastructure to make these private-sector initiatives viable. Some public investment in infrastructure and primary communications may be desirable. Local innovation in the creation of low-cost hardware, such as the fledgling Simputer project in India, may help overcome high hardware costs.
Reasons to Invest In IT
Studies from the developed world have yielded evidence of a strong positive correlation between IT and economic performance, as well as IT-induced changes in workforce composition in favor of highly skilled or educated workers and organizational changes that allow firms to implement IT more effectively.
Will developing countries be able to reap the same benefits as developed countries? This section by means of various examples from developing countries explains how IT can be beneficial to the economy as a whole and how it can also eradicate most of the basic problems (poverty, education, health) which are blocking the path of developing countries to achieve the status of a developed country.
To promote economic development
This is also illustrated in the figure below where in information technology is at the bottom of pyramid
Alleviation of poverty
The greater access to IT starting with basic communications infrastructure, could significantly improve the living standards of the world’s rural poor by the following means:
Enhancing functioning of relevant markets:
In the developed world, markets perform well because the prices of goods are known or can be found with minimal effort. However, in developing nations, especially in rural areas, such signals flow sluggishly, if at all. The main reason is that many people lack access to even very basic IT infrastructure. However, access to IT can help both farmers and surplus laborers.
; Farmers: Functioning markets would provide price information to farmers. Price information will enable the farmer to make better decisions (which will enhance farmer’s productivity)
o Relative prices allow the farmer to make decisions on the mixture of crops to produce.
o Prices enable him to produce in a more efficient manner. He is able to purchase inputs (e.g., fertilizer, irrigation equipment) when and where they are cheapest.
o Price information allows him to know where to sell his output and the appropriate price to accept.
o To prevent their exploitation by middlemen
> Landless laborers: Lack of information to landless laborers can severely constrain income opportunities. Often, hours are wasted searching for brief employment opportunities, or worse, workers in one village may stand idle while employers in nearby villages or slightly further removed urban areas are unable to find enough workers. Better coordination would mean that there would be many fewer idle workers and wasted opportunities.
Easy access of loans for farmers
Enhancing farmer’s productivity by providing timely information
The ability to monitor weather expectations could enable farmers to plant and harvest at appropriate times
Better information flows could promote technological adoption and innovation.
Examples on how IT can alleviate poverty
In villages with telephones resulted in greater information flows which reduced the variation in prices; as markets become more integrated, moving toward price equalization. For three of the commodities, the mean price is lower in villages with telephones. In villages lacking telephones, the standard deviation is much higher for all the goods. So, too, is the spread between the highest and lowest prices. Villages with telephone experience declines in the purchase price of various commodities and lower future price variability. This is beneficial for consumers and farmers both. Farmers can decide at what price to sell. Consumers can decide at what price to buy.
b) The Grameen Phone Village Pay Phone project in Bangladesh
It provides intriguing evidence on how IT provides benefits. This project leases cellular mobile telephones to low-income women, who essentially provide a village pay phone. Most telephone calls involved economic purposes such as discussing market prices of commodities, employment opportunities, land transactions, remittances, and other business items. The average prices of agricultural commodities were higher in target villages (with phones) than in control villages (without phones). Vegetable growers said that access to telephones helped them to make more appropriate production decisions, and users of agricultural inputs benefited from a smoother and more reliable supply.
A “telephone lady” earns an average of $300 per year, slightly higher than the per capita income in Bangladesh.
c) IT initiative in the Indian Railways
To appreciate this, consider another railway example. Much before the current Internet revolution, the Indian Railways, a public-sector enterprise, replaced its 100-year old paper-based reservation system by a more efficient, centralized, computer network. Under the old system, allocation of scarce capacity among intermediate points on the route of a train journey required numerous telegraphic exchange of information.
The new electronic system made it possible for travelers to make reservations for travel originating from remote locations, with considerable benefit for passengers. But it also led to great strides in domestic development of software, among other things, to handle India’s numerous languages and scripts. The crucial fact is that a government department became a major user of information technology, and thus boosted demand for new technology. The supply of the technology was left to private enterprise, with some in-house development. Once the technology ball had started rolling, it acquired its own dynamic and created many useful offshoots.
Many public health problems can be prevented or treated through information dissemination (e.g., through remote diagnostics), often at lower cost than treating the problem afterwards. IT can be used to capture and disseminate medical information and to bring medical knowledge to under-served populations. It can also be used to manage the delivery and quality of health service
For developing countries, the growth of e-business opens the possibility of increased exports. For example, India has already established an outstanding reputation as a supplier of software services via the Internet.
A study conducted by Lal (2002), who examined comprehensive data from 51 Indian firms on numerous aspects of performance and other firm characteristics, including data on ICT investment, wages, exports, imports, profits, and the extent to which firms adopt e-business methods. Lal concluded that firms that adopted more advanced e-business tools generated higher levels of exports.
This finding on a key dimension of performance for companies for a cluster in India might be valuable for smaller developing countries where domestic markets are often quite small. Thus, it appears that the adoption of sophisticated e-business technologies may improve economic performance
Reducing Distribution costs
In many developing countries, the transaction costs associated with international trade represent an insurmountable barrier. Increased competition in global markets means that producers everywhere will be obliged to work on ever tighter profit margins: reductions of a percentage point or two in distribution transaction costs will have a significant impact on competitiveness. Cost savings can be achieved through, among other things, the effective use of e-business and related IT applications.
Improvements in business risk management
Many developing countries continue to rely heavily on primary commodities for their export earnings. They often suffer severe losses of export revenue through changes in international market circumstances, which can be rather unpredictable. However, IT-based techniques have dramatically improved commodity producers’ ability to protect themselves against price and currency fluctuations.
IT can enable the cheap and widespread delivery of education. The internet opens up a way of exponentially expanding the physical limits of the school, giving students and teachers access to each other, experts and resource around the world. Information technologies help create more equitable and accessible education systems. Students can use technologies to access courses not available at their school; rural students can complete their studies without leaving their communities, and adults can take advantage of a more flexible study schedule. Governments should therefore set as a task to make the internet as widely available to their people as possible as distance learning and e-learning can be the solutions to education challenges of developing countries.
Effects of IT on Wages
The IT revolution has also heightened a phenomenon known as ”skill-biased technological change” (henceforth, SBTC) or the instance when technological change results in a stronger demand for highly skilled and highly educated labor. This leads to an increase in the relative wages of these workers and shifts in workforce composition in favor of highly skilled and highly educated workers.
Effect of IT on Work Environment
In recent decades, many manufacturing firms have adopted new IT-based technologies, such as computer-aided design (CAD), computer-aided manufacturing (CAM), computer numerical control (CNC), and just in time production (JIT) systems. Implementation of these technologies can have a dramatic impact on the work environment since they may simultaneously result in:
o downsizing (labor-saving innovations),
o retraining of the remaining workforce (”skill upgrading”),
o changes in job responsibilities resulting from integration across the functional areas of business (marketing, manufacturing, R;D, accounting/finance, logistics, purchasing, and product design).
o greater employee empowerment.
These complementary technological and organizational changes enhance the market value of firms.
Effect of IT on social development
Technological and social developments are complementary.
o improved labor market outcomes for women through higher wages (reducing the gender gap in wages) and
o greater flexibility in the workplace and the work environment. That is, the diffusion of IT has made it easier for employees and, especially, women to work from home.
o IT and the Internet have led to creation of new industries, especially in business and retail services. This has resulted in an increase in demand for workers who perform tasks that can be accomplished at home and a concomitant rise in women-owned small enterprises.
Evidence from Other Countries
Evidence from developed countries
Sources of economic growth for USA
The key figures on sources of economic growth in the USA are presented in Table . Based on a comprehensive analysis of IT capital, Jorgenson et al reported that computer hardware, software, and communication equipment accounted for a much larger fraction of economic growth in the last six years than in earlier periods. This may signify that there are substantial adjustment costs in implementing IT and that policymakers should not expect dramatic improvements in productivity growth in the short run. The economic payoff comes only after a substantial increase in IT investment or activity
The OECD recently undertook a comprehensive analysis of IT impact on productivity, which was mainly based on data from developed countries. This analysis used indicators such as the share of IT in nonresidential investment, respective contributions of IT and other capital services into the output growth, as well as the impact of IT using and producing sectors as opposed to that of non-IT sectors, to the growth of economy and productivity of labor.
The result was fairly conclusive evidence suggesting that IT was a key driver of economic growth in the USA, Canada, Nordic countries, and Netherlands, and also had a substantial positive impact on economic performance in other OECD countries.
Evidence from developing countries
India ITC e-choupal
An example of the successful application of IT is the e-Choupal experiment kicked off by diversified tobacco giant ITC. ITC has designed and set up internet kiosks called e-Choupals to support its agricultural product supply chain. The focus is on creating internet access for global market information to guide production and supply decisions. It provides price information and thus, price certainty to the farmers. In addition, the farmers get access to operational information, developed by ITC experts, pertaining to cropping, seeds, fertilizers etc. The initial benefits of the ITC efforts include a substantial reduction in transaction costs, from 8 per cent to just 2 per cent which is shared between farmer and ITC.
Reasons why Developing DO NOT Invest in IT: Solutions Provided By IT
In the context of developing countries, an important caveat must be mentioned: the opportunity cost argument, that is, other forms of public support/investment, such as increasing access of women to primary education or reducing poverty and incidence of disease, might generate higher social returns. This also underscores the realistic notion that developing and transition countries face a different set of challenges than do developed countries.
Although it is impossible to directly refute the opportunity cost argument in this context, it is likely that IT and primary education are complements anyway and IT helps to reduce poverty as already explained through examples. Furthermore, the evidence suggests that developing countries can increase the probability of catching up to more advanced countries through well-targeted investment in IT and Internet-related technologies.
Global Opportunities and Risks
How can developing countries take advantage of the globalization spawned by the new economy? One possibility, for some developing countries, is to specialize in the production of knowledge goods. India has benefited from its large reasonably skilled and English-speaking workforce. Arora and Athreye (2001) point out that India’s emerging software industry has boosted exports, and at the same time provided a good exemplar of entrepreneurship and corporate governance to other sectors of the economy. Many privately run ‘teaching institutes have sprung up to provide the specific IT-skills needed for this sector’. However, as Chandrasekhar (2001) points out, the largely unregulated nature of private IT-related education poses potential problems. The lack of clear standards of technical achievement has undermined the perceived quality of IT training in India.
The Internet has also made it possible for developing countries to compete in the global market for ICT-enabled services. These range from back-office processing, medical transcription, and other services performed for firms in the developed world. Low-cost telecommunications have resulted in call centres to process routine customer queries for large corporations. Once again, the presence of a large English-speaking workforce has proven to be a crucial advantage.
It is inevitable that, over time, the Internet will become a major channel of transacting international trade. Large global corporations are increasingly switching to Internet-only supply chains and electronic exchanges will soon come to dominate commodity markets. To retain access to these trade channels, business enterprises in developing countries will have to adopt this new medium. Large firms in developing countries such as China have already made considerable progress in using the Internet for developing their exports.
In the developed world the Internet has been associated with spectacular growth of electronic commerce. Even as the end of the dot.com boom has led to a more realistic assessment of the potential of e-commerce, the question remains, how, and to what extent, can developing countries benefit from e-commerce? Most developing countries do not currently have the financial structure (e.g. the widespread use of credit cards) and delivery networks to support growth of domestic electronic commerce. It is futile to replicate patterns of e-commerce: this will only take up precious resources without much success. Besides, the winner-take-all characteristic of the new economy suggests that copying the successful countries will not always work. You may close the digital gap, but as long as there is a gap, rich countries may capture most of the benefits.
There is also a case for closer cooperation amongst the developing countries. First, the new economy will affect developing countries very differently from its impact on the developed world, and there is much that they can learn from each other. Second, small countries lack the resources to build their own information economy and to take advantage of economies of scale. Coordination can improve the return on their collective investment. In the past coordination required geographic proximity, so collaboration naturally led to regional groupings of countries.
The information economy alters the notion of distance: instead of geographic distance, what matters is how close societies are in terms of their level of development (say, GDP per capita), educational achievements, etc. Modern grouping will be based on shared needs as delineated by these criteria. The grouping of Small Islands Developing States is an example of such an alliance.
Areas of Government Intervention
The on-going changes in the global economy have cascading effects on social and economic changes in India, which will be focused cutting across various research Units in the Institute. Imperatives from the World Trade Organization (WTO) on Small and Medium Enterprises (SMEs), Public Sector undertakings, agriculture – prices and subsidies, marketing, domestic policies, credit, insurance, horticulture, floriculture and water policy, environment and trade in services, external accounts are included in these concerns. The manufacturing sector attracts special attention w.r.t. employment, wages, markets and migration with their attendant implications for social security.
Distributional changes in incomes owing to globalization led economic growth and its implications for consumption and poverty as well as disparities therein shall be in focus. Implications of the current process of globalization on labor use, industrial relations and workers’ organizations with special reference to contract labor, social security of industrial labor, and effectiveness of rural local institutions are also proposed.
Improve government efficiency. Two avenues to increase efficiency, not mutually exclusive, are process reengineering and functional divestiture. Process reengineering presents ideal opportunities for information systems with exceptionally high payoffs. Functional divestiture seeks private provision of public services, and it often leads directly to large cost savings and also promotes the private sector.
Set fair rules of the game. The role of government as policy maker and regulator is complex in an information economy. Policy reform will often determine the feasibility of information infrastructure projects. The legal system must provide and enforce intellectual property concepts for novel information products used in often unpredictable ways.
Catalyze infrastructure projects. Information infrastructure projects with major societal benefits will sometimes never get started without government intervention because:
* The necessary investments are large.
* Profits depend on complex arrangements influenced by laws and regulations.
* Profits depend on scope and scale economies.
* Feasibility depends on redistribution of power and responsibility.
* Market signals may be weak or untimely.
* Benefits might consist of public good that are not captured as profits.
Governments must act as a catalyst in many infrastructure projects to overcome these barriers and meet the information needs of their societies, although not necessarily through a large public expenditure. Market failures are less frequent in telecommunications (if a market exists or after the government succeeds in its role as a catalyst to introduce a market) than in the provision of an infrastructure of strategic information systems.
Push the education agenda. In the end, education more than anything else determines a country’s prospects for human development and competitiveness. Fortunately, the information revolution offers in education some of its more extraordinary opportunities. Governments can use information technology to improve sector planning, administration, and evaluation.
Jump start the private sector. Governments often can and do assist the private sector to overcome initial barriers, with firms then empowered as engines of growth and competitiveness. Governments can:
* contract for private provision of public services
* privatize government units to stimulate the private sector
* provide access to public information
* assist enterprise formation in information-based goods and services.
It is possible to conclude that there is a positive correlation between IT investment and economic performance at each level of aggregation (e.g., plant, firm, industry, and country). Furthermore, complementary investment in IT-related labor and organizational factors that provide a supportive work environment for maximizing the returns on IT investment also contribute to improvements in productivity growth. It also appears that the social returns to IT might exceed the private returns, which provides further fuel to the argument that governments should explore all possibilities to support investment in IT.
The evidence suggests that the dissemination of this general purpose technology will have a sustained, long-lasting impact on productivity and economic growth, provided that policymakers implement policies that facilitate a faster rate of diffusion and a better allocation of resources.
The bottom line is that there exists a critical opportunity for developing countries striving to improve their global competitiveness and enhance economic growth through IT-related investment.
Internet: Harnessing Information for Development – A Proposal for a World Bank Group Strategy
Bridging the Organizational Divide:- Toward a Comprehensive Approach to the Digital Divide – A PolicyLink Report
Developing Countries in the New Economy, The Role of Demand Side initiatives by Sandeep Kapur
The Impact of Investment in IT on Economic Performance: Implications for Developing Countries: By Rouben Indjikian and Donald S. Siegel- World Development Vol. 33, No. 5, pp. 681-700, 2005
Partnership for Development: Information and Knowledge for Development- United Nations Conference on Trade and Development, April 2004
The impact of technology to education in the developing countries- Mercy N. Fodje
India as a Knowledge Economy: Aspirations versus Reality- By Dr. Prabhudev Konana and Dr. Sridhar Balasubramanian
Information and Communication Technologies, Markets, and Economic Development- By Karen Eggleston, John F. Kennedy and Richard Zeckhauser
Impact on Information Technology on Education- Parveen Huda – Alochana magazine- January 2002
The Need of the Hour
T Santosh Kumar Reddy
MBA (IB) 2004-06
“Some look at things and ask ‘Why?’. Others look at things and ask ‘Why not?’
– George Bernard Shaw
Looking beyond the existing norms, questioning the way things are done, and challenging what is accepted as a waste of time by many, and after all this, managing to earn their money is what keeps the entrepreneurial activity alive even after 5000 years of mankind’s existence. And a new type of entrepreneurship is now evolving and taking fore in the rapidly changing world of business- intrapreneurship. Though the concept existed for long, the debate started among the IT companies only in 1995 during the run up to the dot.com boom. And now with IT growing by leaps and bounds all over the world, across industrialized and developing nations, it is time for the Indian IT companies to look at how they can nurture the spirit of change and challenge among their employees. This paper explains intrapreneurship and how companies can go about encouraging it among their employees while also imploring caution on their part.
Introduction – The Entrepreneur
Very simply put, Intrapreneurship is Entrepreneurship practiced by people within established organizations. That really begs the next question… What is an Entrepreneur?
“The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to him self. Therefore all progress depends on the unreasonable man.”
– George Bernard Shaw
Defined in many ways, by many people, it broadly classifies the skills of people to think and act differently; showing the abilities to take initiative and create business out of ideas that otherwise might have seemed lost to others.
Entrepreneurs have many of the same character traits as leaders. They are often contrasted with managers and administrators who are said to be more methodical and less impetuous. All entrepreneurs enjoy certain similarities in their traits and over the years, vast amounts of research and literature have attempted to identify what sets these men apart.
* According to David McClelland (1961), the entrepreneur is primarily motivated by an overwhelming need for achievement. He has a strong “urge to build”.
* Collins and Moore (1970) studied 150 entrepreneurs and concluded that they are tough, pragmatic people driven by needs of independence and achievement. They seldom are willing to submit to authority.
* Bird (1992) sees entrepreneurs as Mercurial, that is, prone to insights, brainstorms, deceptions, ingeniousness and resourcefulness. They are cunning, opportunistic, creative, and unsentimental.
* Busenitz and Barney (1997) claim entrepreneurs are prone to overconfidence and over generalizations.
* According to Cole (1959), there are four types of entrepreneur: the innovator, the calculating inventor, the over-optimistic promoter, and the organization builder. These types are not related to the personality but to the type of opportunity the entrepreneur faces.
* Burton W. Folsom, Jr. distinguishes between what he calls a “political entrepreneur” who seeks profit for his business by using political influence to obtain favors and arrangements with government from a “market entrepreneur” who seeks to profit without utilizing political influence.
Winston Churchill summed this up when he said “Success is the ability to go from failure to failure with no loss of enthusiasm”. Entrepreneurs create their own futures. Convention defines the opposite of “reactive” as being “proactive”. Perhaps a better opposite for “reactive” is “creative”.
The Rising Intrapreneur
For decades, the idea of encouraging employees to think and act on their own was something that many forward thinking companies incorporated in their organization structure. But it was only in 1985 that Pinchot coined the term intrapreneurship to describe entrepreneurial activities inside large organizations. Mr. Pinchot invented the word, not the concept.
Yet, intrapreneurship is not the same as entrepreneurship. For starters, an intrapreneur works within the confines of the company he is working for. And it is quite often than not that the intrapreneur is required to keep the company informed of his motives, ideas and strategies, though in practice, it might just happen that the intrapreneur acts first and asks for forgiveness later.
While an entrepreneur is one who seeks riches in niches, intrapreneur thrives by challenging the existing norms and operational procedures of companies. And this eventually leads to friction with in the organization. Yet the advantage of a ready source of “free” resources within the organization which can be applied to the opportunity being exploited can be the compensating factor in most cases. Intrapreneurs seek out the organizational slack or fat, and co-opt it into Intrapreneurial ventures.
Though the word was coined in 1985, it has existed in some guise or the other since business was done. Yet, in the field of IT, its only since 1995 that large companies have taken notice of the increased entrepreneurial activity and endeavored to create an environment that encourages the creativity of their employees. This was not in anyway limited to large companies though. Smaller firms can instill a commitment to intrapreneurship within its work force as well. In fact, small businesses, which originate as entrepreneurial ventures, are often ideally suited to foster an intrapreneurial environment, since their owners have first-hand knowledge of the opportunities and perils that accompany new business initiatives.
Intrapreneurship practices have developed in response to the modern world’s rapidly changing marketplace. In an interview with Inc.com Mr. Gary Hamel, author of Leading the Revolution (HBS Press) says “The idea of intrapreneurship goes back at least a decade and probably longer than that. I think that most of the many companies that set up internal venture divisions during the 1980s and 1990s were failures. What typically happened was someone was passionate about an idea, and that idea would get dumped into one of those venture divisions, which became orphanages for unloved ideas.
Most never produced new businesses that had any material impact on the success of the parent company. Why? Companies were given very simplistic advice: “If you have a potential new business, isolate it from the rest of the organization, so it won’t be infected. Give it enough space to grow.” Although that advice was partly right, it meant that those new businesses couldn’t tap into the resources of the existing ones, like the brands and competencies of the parent organization.”
“As competition intensifies, the need for creative thinking increases. It is no longer enough to do the same thing better… no longer enough to be efficient and solve problems. Far more is needed. Now business has to keep up with changes… And that requires creativity. That means creativity both at a strategic level and also on the front line, to accompany the shift that competitive business demands… from administration to true entrepreneurship.”
– Edward de Bono
It about time to rise and notice that the world is changing, and we do not need an additional website popping up to mention the same. World over margins are thinning and organizations are finding it harder and harder to survive by merely competing. Their money now lies beyond the existing competition and that’s where the intrapreneurs can rescue them.
How should the IT companies go about it?
The single most important factor in establishing an “intrapreneur-friendly” organization is making sure that your employees are placed in an innovative working environment. Rigid and conservative organizational structures often have a stifling effect on intrapreneurial efforts. Conservative firms are capable of operating at a high level of efficiency and profitability, but they generally do not provide an environment that is conducive to intrapreneurial activity and organizations that do not encourage creativity and leadership often alienate talented employees.
In their Journal of Business Strategy, the authors Erik Rule and Donald Irwin state that companies that establish a culture of innovation through: 1) formation of intrapreneurial teams and task forces; 2) recruitment of new staff with new ideas; 3) application of strategic plans that focus on achieving innovation; and 4) establishment of internal research and development programs are likely to see tangible results.
Companies need to create that passion among its employees that the work they are doing, it is not for the company, but for themselves. But at the same time, it is important for the companies to give the employees the reason to be creative. Freedom of thought, and reduced hierarchical activity goes a long way in promoting and encouraging ideas from the employees. It is after all they who do the ground job, and it is ideas coming from them that need to be valued the most. An environment needs to be created where these ideas can be promoted and prompted for action.
A sense of ownership rises in the employees only whey they are made to feel so, when they are listened to. And here in comes the role of the owners and the management. Support from the higher up should not simply consist of passive approval of innovative ways of thinking. Ideally, it should also take the form of active support, such as can be seen in mentoring relationships. A small business owner’s own entrepreneurial experiences can be valuable to his firm’s intrapreneurial employees if he makes himself available to them.
Resources are the next thing that impede or allow for the maturing of ideas. Strong management support can often manifest itself into a free hand on resources when the idea is strong and they are convinced. Ofcourse, this happens only very rarely, but ideally, it can benefit both the company as well as the intrapreneurial employee. Yet, practically, the employee gets only the slack of the company’s resources to his idea’s credit.
And if all the above said are provided for, there is yet the question of their reward. An entrepreneur works for himself, and reaps the benefits for himself too, though it is understandable he faces all the risk too. But in the case of an intrapreneur who uses the company’s resources and faces minimum risk, evaluating the reward can often be a dicy situation. All in all, intrapreneurs tend to be creative, dedicated, and talented in a variety of areas. They are thus of significant value even to companies that do not feature particularly innovative environments.
Their importance is heightened, then, to firms that do rely on intrapreneurial initiatives for growth. Since they are such important resources, they should be rewarded accordingly (both in financial and emotional terms). For while intrapreneurs may not want to go into business for themselves, they still have a hunger to make use of their talents and a wish to be compensated for their contributions.
And especially so for the IT companies, intrapreneurs should be allowed to go ahead with their projects rather than being reallocated once their work is done. This is because the intrapreneur is not just involved with the project for the company’s sake, but his creativity and emotions are also entwined into the project. Reassigning also happens to be one of the many reasons why attrition among IT companies rise up to such high levels.
Human Capital Management
In order to removes barriers and achieves better outcome for employees professionals, for the business IT companies should follow the innovative approach of Human Capital Management which coordinates and brings together the data, processes, user experience, and business measures organized around outcomes with respect to recruiting, training, rewards, performance effectiveness, benefits, career development, and workforce relations.
At the core of integrated HCM is the requirement that all human capital information resides in a single data repository, in which each data element exists only once, regardless of how many processes it serves across various areas within HR. As the HR needs better data and analysis to support its role as a business partner, demonstrate its contribution to company success, and track key indicators of human capital as a competitive advantage. HR customers–employees, managers, line executives–think about desired results, not HR process.
So, activities are organized around their desired actions and outcomes. Integrated HCM organizes processes to answer questions: “What do I need to do? What business results am I seeking?” For example, a manager wants to know what actions to take to fill an opening, make a pay adjustment, or discuss a performance issue with an employee. The processes become woven into a user’s work and life activities rather than exist as isolated HR tasks. The three main advantages of implementing an integrated HCM system are:
1. Productivity. All HCM processes are organized around what HR and its customers need to accomplish for the business.
2. Efficiency. Information, tools, and action are in one place for the user. Rework and redundancy are avoided, and costs are driven out of the system.
3. Results. Metrics and data tie HCM to critical business issues so leaders can focus on the right opportunities.
The global IT companies need to have a broad framework of strategies, for dealing with such cultural diversity prevalent in their organization.
* First of all they need to delve in to their company’s heritage and uncover values, which can be meaningful both for the employees and the organization as a whole. That is it acts as a binding tool for diverse nationalities.
* Another trend is the increasing linkage between workplace and marketplace. Diversity and the concept of workforce inclusion are becoming key factors in helping define how a company does business in today’s marketplace. These factors will help it to compete for talent and enhance its ability to create new revenue streams, retain employees, win clients, and maintain our marketplace leadership.
* There needs to be long-standing commitment to workforce diversity-equal opportunity, affirmative action, cultural awareness, and work/life balance. This in turn evolves into a legacy of leading social change and setting trends before they became politically correct or, more importantly, mandated by law.
Growth Patterns in the Workforce Source: UPS Asia Business Monitor
Caution to the Wind
However advantageous this concept seems, it has its share of disadvantages and a company has to be wary of these things. The primary factors retarding Intrapreneurship are:
The costs of failure too high and the rewards of success are too low. Intrapreneurs need to be given the space in which to fail, since failure is an unavoidable aspect of the Intrapreneurial process. This is not to say that organizations should simply condone failure, but rather that organizations need to begin to measure and attribute failure to either Intrapreneur fault, or circumstances beyond the Intrapreneurs control – and punish and reward accordingly. Similarly, the rewards for success are usually inadequate – few organizations provide rewards for Intrapreneurs that even closely approximate the rewards available to the Entrepreneurial counterparts. Most incentive systems need to be upgraded accordingly.
Inertia caused by established systems that no-one is willing to change. Most organizations are governed by implicit and explicit systems, and in many cases people are reluctant to change them. Intrapreneurs are met with “this is the way we’ve always done it around here”, “if it ain’t broke, don’t fix it”, and “changing it now would just take too much effort…” Many organizations use their existing systems to prove they already have the “right answer” (see above), effectively dousing creativity.
Hierarchy. Organizational hierarchies are what create the need to ask for permission – the deeper the hierarchy, that harder it is to get permission for anything new. Hierarchies also tend to create narrow career paths and myopic thinking, further stifling creativity and innovation. People lower down in the hierarchy have a tendency to become dis-empowered through having to ask permission, eventually developing the “victim mentality” that causes reactivity.
Over-freedom. Free hand to resources, fresh ideas, diligence and passion toward certain plan can cause the intrapreneur to veer away from the company’s operations and vision and spin off his own company, which might be a competitor to the parent company. This has troubled many a large companies in the past. But with the IPO issues, ESOPs and many other innovative techniques, even companies are finding ways of keeping intrapreneurs within the company and operating for the company.
Intrapreneurship is here to stay. It has already made it presence felt in the initiatives taken by companies across the globe over the past many decades. And it is the source of better margins. Business ideas are comparable to R&D work to develop new products. While both require capital to be poured in, once they mature, they become the source for revenue to the company.
Companies have to do a lot to inculcate the spirit of intrapreneurship among its employees. Laced with risks all along, they have to change the fundamental way of how their organization is structured and functions. Yet, it has its rewards. The involvement from top management and owners is to be real and not ethereal. And it is not always monetary incentives that drive these intrapreneurs, it is the passion and commitment they show towards their work, and the emotional bond they have towards their project. Companies will do good and reap in benefits when they recognize the above said points.