Driving Power of IT for More Value Addition to Decision Management

Paritosh C. Basu
www.naseba.com

March 19, 2010

Agenda
Decision Management - Present Imperatives Mapping of solution applications to decision points Value additions through IT enabled applications Hypotheses for CIOs and CTOs

Decision making and control are two fundamental components of industrial management Fleischman and Tyson

When the future looks hazy it is time to step back to basics

Introduction

CFOs in India believe that industry / sector pressures will increase challenges and opportunities over the next three years
Industry / Sector Changes Over the Next Three Years
Imperatives of a Growing Economy
Need for faster decision making Product/Service Demand Growth Pressure to reduce cost base Demand for external transparency (e.g., Board, shareholders, taxpayers, regulators) Ability to atract and retain talent Access to short term liquidity/long-term capital
39% 53%

ISA

Top Challenges

Global
74%

83%

79%

61%

77%

78%

75%

69%

56%

40%

0%

20%

40%

60%

80%

100%

0%

20%

40%

60%

80%

100%

As a result of these factors, a majority of India Finance organizations believe that they have to make major changes to respond.
ISA N = 129 to 133; Global N = 1,844 to 1,905 Source: IBM Institute for Business Value, The Global CFO Study 2010

CFO Study India Point of View

Business insight

Objective financial data validates that decision making supported by business insight contributes to outperformance in enterprises in India
Business Insight Contributes to Financial Outperformance
Revenue Growth 5 Year CAGR (2004-2008)
India 68% more 29.4%
17.5% 17.5% 11.4% 12.5% 9.4%

Return on Invested Capital 5 Year Average (2004-2008)

Global 33% more
19% 15.2% 12.9% 11.8% 11.9% 9%

Growth Markets 54% more

India 25% more

Growth Markets 9% more

Global 32% more

Finance organizations with strong business insight All other enterprises

India: Revenue Growth: N = 29; ROIC: N = 38 GB Growth Markets: Revenue Growth: N = 37; ROIC: N = 41 Global: Revenue Growth: N = 580; ROIC: N = 606 Source: IBM Institute for Business Value, The Global CFO Study 2010

CFO Study India Point of View

Revisit Fundamentals of Value Addition

Value creation = Utility / Cost, or Result / Cost > 1 Max. Value = Max. Utility / Min. Cost Add value by minimising value destruction Focus on strategic drivers of values Remove subsub-optimality in operations Process cross functional data and use information Work innovatively and use simple solutions Develop superior capabilities effective for both
External, and Internal Environment

Trend is visible - Sustained value generation skill and not ownership is the ultimate criteria for occupying the Drivers seat

Imperatives Emerged and Emerging

4Rs - Right Task at Right Time with Right Process and for Right Value Dramatic improvements in systems and procedures for Quality - Competitive differentiation of products and services Cost - Leadership and lifecycle management Volume - Competitive advantage Relation - Delight of internal and external customers Speed - Respond to changes in market, and environment - Turnover of resources Flexibility - Peaks and troughs and multidirectional expansion Sustainability - Develop enduring substance to sustain all above Decentralisation and empowerment at the lowest functional level Continuous monitoring and responsibility accounting Performance linked compensation and incentive

A plan cannot be said to exist unless there are committed resources and directions to go ahead. - Do we all need to change attitude?

Status of IT Applications to Decision Management

Global Country

Experimentation
Corporate

Reliance on the past

How to select from alternatives

Choice made with right Perspective

Creative

Research and Analysis

Intuitive

Source: Management - A Global Perspective, Wheirich & Koontz

Questions
1. Is our IT system ready and capable of serving these approaches? 2. Has IT graduated to the system for business Information and not data? 3. Are our data, processed information and documents ringring-fenced?

Status of IT Applications to Decision Management (contd..)

Organisational Level Nature of Problem Unstructured Nature of Decision Non Non-programmed

Structured

Programmed
Source: Management - A Global Perspective, Wheirich & Koontz

Questions
Do we distinguish and furnish information for
Structured and unstructured problems? Programmed and nonnon-programmed decision?

Are we running the Ferrari at first gear?

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IT Enabled Applications for Value Addition

Emancipation from eight TRAPS of Decision Making
Anchoring - Disproportionate weight to the first information Statuesque - Biases towards present situation Sunk Cost - Leads to perpetuation of past mistakes Confirming evidence - Leads to seek information supporting an existing predilection and to discount opposing information Framing Trap - Errors in statement while framing a problem on which a decision is to be taken Overconfidence Trap - Leads to over estimation about accuracy in forecasting decision variables Prudence - Leads to over cautiousness while evaluating impacts of uncertainty Recallability Trap - Leads to give undue weight to recent dramatic events The best way to avoid all the traps is awareness - forewarned is forearmed
- Hammond J. S. , Keeney R. L. and Raiffa H. ( Harvard Business School)

Questions
1. 2. Are our IT team members and systems proactive to prevent trappings? Do we facilitate decision process leading to way out from traps?
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IT Enabled applications for value addition status (contd..)

Solution design and applications
Rediscover the size of the wheel if not reinvent through innovation Challenge legacies, business conventions and convictions Abolish distance instead of killing it Generate working hypotheses, more known as estimated guess Model for multiple decision options with comparative implications Stand the test of legal entity level delineation and ringring-fence in a conglomerate system environment Quickly transform to meet challenges of major ocean boiling events like
Accounting and reporting under IFRS Direct Tax Code Goods and Service Tax

Be more simple and flexible Reduce transition pains to the minimum

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Hypotheses for CIOs and CTOs to Test

Information Technology Turning a blind eye to IT JURISPRUDENCE shall weaken performance and self reliance The world of IT is busy in commoditisation of a few software. software. IT professionals are more engaged in transaction processing than redefining organizational standards Corporate Solutions to meet challenges of Corporate Governance remains an uncharted area. area. Enterprise Risk Management is yet to be a way of life and an embedded feature of every solution design. design. Business Continuity Management is more of a nice to have than in a state of total readiness to respond to a real wolf call. call.

It is time to ponder on the following comment Best brains in the world are busy solving problems of the rich, who actually have no problems when compared to those of the poor. - Sam Pitroda

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