Loss of efficiency needs to be overcome

-- Excerpts from Prithwis Mukerjee's keynote address at SAP TechEd '05.

What lies ahead? What are the challenges? The world is moving at a frenzied pace and companies are faced with challenges arising from tough competition-especially from numerous start-up companies. For example, Google, which started out as a small company, is now ready to take on any big software company.

The concept of pervasive globalization means that no product or service is safe anymore. Shifting regulations also add to the challenges—there are new sets of rules, and rules keep changing. And then there is the unpredictable geo-politics--rising oil prices, physical terror, new alliances free trade zones, etc. These are unstoppable forces and we have no control over them.

This apart, we have demanding stakeholders; customers keep asking for more and more. Employees too now have an upper hand. The world is in a state of flux and we cannot afford to be quiet. So, what is the roadmap? The need is to focus on key differentiators; responsiveness--not just to customers, but to the whole ecosystem in which the company operates. And, basic efficiency in the whole system. Loss of efficiency at various functional intersections needs to be overcome.

By 2010, the world's most successful firms will be 'specialized enterprises' focusing on few critical components. Within the four stages enterprises fall into—traditional enterprise, network enterprise, componentized enterprise and the specialized enterprise--we need to see how to move across one another; from external specialization to internal specialization. Coming to external specialization, you need to identify certain tasks, which can be clubbed and shifted to an external third party; for instance, non-core processes such as logistics, house keeping and few core processes. But, the great Indian story says even critical parts or core processes can be outsourced.

There are different phases for the whole process. Initially, the real cause of this move is the definition of open standards. Like how people can talk to each other in the same language; so computers need to talk to each other. That's from a truly broad sense, but we need more. We still have proprietary standards, which need to be overcome with more open interfaces.

With internal specialization, tasks are made and built, but not handed out as in a shared services organization which is utility oriented. Again many core operations are located within shared services centers. Whenever we specialize, there are challenges like transaction cost. Upto to a certain point, firms have to decide what can be and what cannot be moved.

Diminishing marginal benefits and increasing costs make further process returns difficult to achieve. As technology advances, transaction costs come down and it makes more sense for companies to move into specialized services.