The “How” (Not the “What”) Will Be the Key Success Driver for Indian Businesses Between Now and 2010

The Economist Intelligent Unit Survey of Indian executives identifies adaptive business models, flexibility and rapid response to changes as key to success

IndiaSurvival in the fiercely competitive global economy will depend on adapting business models – or the “way” Indian organizations operate rather than “what” service they provide or product they sell according to a survey commissioned by SAP and conducted by the Economist Intelligence Unit.

Nearly three-fifths of Indian executives—and over two-thirds of those in the financial sector—believe that changing the way they do business over the next five years will be more important than developing new products and services. Fifty-seven per cent of the 264 senior Indian executives surveyed feel that flexibility and rapid responses to market changes will set the winners apart in 2010 and a company therefore needs to adapt business models that can bend with the times.

Conducted by the Economist Intelligence Unit and sponsored by SAP, the study – Business 2010 in India: Embracing the challenge of change – was part of a major Economist Intelligence Unit research program involving more than 4,000 business and public sector executives across 23 of the world’s leading economies.

The Indian component of the study involved in-depth interviews with 264 senior executives conducted between November 2004 and January 2005. Interviews took place across the country and spanned the following sectors– the manufacturing, financial services, retail, automotive, pharmaceutical & biotechnology, ICT services and public sector.

“The Economist Intelligence Unit survey confirms that change is the biggest challenge confronting Indian businesses between now and 2010 and, as the leading business software provider, we are excited to contribute to that dynamism,” said Alan Sedghi, President and CEO, SAP South Asia. “The survey reinforces that sustainable competitive advantage in India is directly linked to a company’s ability to quickly adapt business models to changing customer demand. SAP is helping Indian companies achieve the flexibility they need to enable business model innovation – which, as the survey indicates, is displacing product innovation as the primary driver of competitiveness.”

Key findings from India included:

Setting Priorities:

– Consolidation and the growing power of larger players: 59 per cent of respondents believe that consolidation of existing players will be the bigger source of competition by 2010. New rivals will enter from overseas, even as existing players consolidate and flex their muscle.

– To meet these threats – be it from consolidation of existing players or new entrants – a majority of Indian executives (54 per cent) plan to focus on building established product lines to generate revenue growth. At the same time, a significant number (46 per cent of respondents) say that their preference will be for diversification (i.e. searching out new sources of revenue growth, a strategy often followed in rapidly developing markets such as India).

– Indian business leaders are most optimistic about growth prospects in the domestic market (52 per cent), as well as growth in China (34 per cent).

Business Models:

– Fifty seven per cent feel that the ability of Indian firms’ ability to adapt business models will become a major competitive advantage for the country.

– Indian survey respondents count on being able to react promptly to change while mindful that their economy is becoming more vibrant and globally competitive.

– Majority of Indian business leaders fell that a business will be judged by the long-term value it creates. Adapting business models, accelerating the innovation cycle and improving customer retention are the main ways that Indian organizations will go about creating such value.

Measuring Success:

– Executives in India overwhelmingly believe (88 per cent) that, five years from now, their performance will be judged against a combination of financial, human capital and customer satisfaction parameters.

– This view—among the most strongly expressed in Asia-Pacific—varies little between retailers (94 per cent), manufacturers (88 per cent) and financial services providers (85 per cent).

– Another measure of a company is its commitment to corporate governance. A clear majority (90 per cent) of surveyed executives from the private sector expect board-level compensation to be more closely tied to performance by 2010, bringing India closer to international best practices.

– 88 per cent of Indian executives believe that shareholders will demand a “balanced scorecard” comprising financial, human capital and customer satisfaction metrics.

The New Strategic Role of IT

– 94 per cent of Indian executives view technology as critical to a company’s ability to change how it operates over the next five years.

– Two-thirds of the Indian executives see IT as a source of competitive advantage than its traditional role as a driver of cost efficiency.

– The specific areas in which IT is expected to make the most critical contributions to private-sector organizations are in customer service and relationship management, and in the development of their products and services.

– Executives in the private sector broadly agree (67 per cent) on how IT can facilitate customer bonds over the next five years. It will improve customer access to the corporate network; increase the understanding of, and ability to predict, customer behavior; and improve the flow of performance data on customer-facing processes to senior managers.

Customer Relationship and Innovation

– The study yielded an unexpected finding for cost-conscious India. Only 21 per cent of retailers believe that price will be a critical factor for customers in 2010, and an even smaller percentage of finance and manufacturing companies hold this view.

– The findings suggest a maturing of consumer preferences, in which the quality of products and services (and, in the case of manufacturing, levels of personalization) are becoming more important. The criteria for making a purchase are moving from price alone to the overall value proposition.

– Levels of personalization in products or services are seen as becoming the most critical factor by 44 per cent of financial firms and 24 per cent of retailers, but also— amazingly—by nearly 50 per cent of manufacturers.

– This trend could indicate a “catch-up” effect, wherein Indian manufacturers are developing capacities to enhance customization to levels equivalent to their counterparts elsewhere in the world.

About the Business 2010 survey and report series

A total of 4,018 executives participated in the Business 2010 survey. Drawn from 23 countries across Europe, Asia-Pacific and the Americas, respondents included business leaders from the private and public sectors, including 50% at the level of CEO, CFO, CIO, other C-level executives or their equivalents. A range of industries was represented in the survey, with executives from financial services, retailing, manufacturing and the public sector contributing the largest share of responses. In addition to the survey, the Economist Intelligence Unit conducted over two dozen in-depth interviews with senior executives and other international thought-leaders from these and other sectors. Their insights and those of the survey respondents are the basis of the analysis presented in the 29 reports of the Business 2010 series. These include a global report, two regional papers covering Europe and Asia-Pacific, 23 country summaries and three sectoral studies covering financial services, manufacturing and the public sector.

About the Economist Intelligence Unit

The Economist Intelligence Unit is the business information arm of The Economist Group, publisher of The Economist. Through our global network of over 500 analysts, we continuously assess and forecast political, economic and business conditions in 195 countries. As the world’s leading provider of country intelligence, we help executives make better business decisions by providing timely, reliable and impartial analysis on worldwide market trends and business strategies.