CIOIN

Michael Porter, celebrated author and Bishop William Lawrence Professor at Harvard Business School, first proposed his theory of competitive advantage in 1985. Three years short of three decades later, his theory still holds true: Competitive advantage occurs when an organization acquires or develops an attribute that allows it to outperform its competitors.

Management’s secret was out. Instinctively, executives have always known the importance of competitive advantage. But Porter’s thesis started an open race to create it. CEOs drove executives to create new ways of performing at higher levels than their rivals. Competitive advantage became the new mantra and part of a leader’s KRA. Soon enough enterprise IT leaders were towed in by the strong current. Businesses increasingly expected CIOs to leverage technology—the new frontier—to bring them the magic of competitive advantage.

That’s when CIOs began to be pulled in two opposite directions. On the one hand were vendors offering mature enterprise-class apps—creating plug-and-play products that few companies could resist. Yet, these packages became so popular that they turned into commodities—making them competitive differentiator killers.

Over time, CIOs have tended to take a middle path: Off-the-shelf software platforms, with unique apps bolted on.

But a growing band of IT decision-makers are deciding to go against the grain and are resisting the lure of packaged software. Their reasoning is simple: Building your own IT systems ensures greater competitive advantage and guarantees successful formulae remain a secret.

“Building your own software is like driving your own car as opposed to using a COTS package which is like being a passenger. If you have homegrown software you’re in charge of your destiny,” says Satyajit Sarkar, GM-IT, DTDC Courier and Cargo.

In this story, we bring you the tales of these maverick CIOs; IT leaders who take D.I.Y. to new levels and have brought their businesses competitive advantage. Whether they’ve given their businesses an early-mover advantage or they’ve built market differentiators, these CIOs are leading the D.I.Y. charge like few others.

Early Mover Secrets
In his 1985 book, Competitive Advantage: Creating and Sustaining Superior Performance, Porter showcases an unusual tool—called Porter’s Four Corners Model—that helps predict what a competitor is most likely to do next.

Although the model is meant to understand competition, it can also be used to grasp why businesses decide to do the things they do.

Using the first two corners of Porter’s four corner matrix, analysts can foretell what a company is likely to do by applying two parameters: What drives a company (what are its goals), and what assumptions a company’s management makes about itself (it’s own weaknesses and strengths.)

This model makes it easier to understand why greenfield operations in a niche industry would choose a D.I.Y. strategy. Here are the facts: Start-ups tend to have impressive goals and dreams of making it big fast. This makes them aggressive and likely to take more risks in their strategies.

Niche companies, in the meanwhile, are acutely aware of the need to trailblaze their own path.

In 1990, DTDC Courier & Cargo, fit both categories perfectly.

An air express and cargo company based in Bangalore, DTDC started life basing itself on a fantastic new premise: It would use a franchisee model. Until that point, it says the strategy had never been applied by any express distribution company, anywhere in the world.

“Like a lot of entrepreneurs I faced challenges of capital, skilled manpower and building a network,” says Subhasish Chakraborty, chairman and MD, DTDC. “The franchisee model gave us a first-mover advantage in terms of reach, which is a key requirement, and a cornerstone of DTDC’s growth and success.”
The start-up got full points for thinking outside the box and changing the industry’s rules. Implementing that radical strategy, however, was another ball game.

DTDC’s leaders knew that to gain that early-mover competitive advantage—and scale its business—it would need enterprise software. But no one, not even the industry’s big boys like DHL, TNT or FedEx, had established rules and processes to deal with channel partners—forget the software vendors specializing in logistics.

“They had not created a set pattern that we could follow. Since global best practices had not evolved, vendors were not ready with mature solutions catering to the needs of this domain,” says Sarkar, who wasn’t with the company then.

This became obvious when DTDC began scouting for a solution for their new business. Few of their needs, they realized, were addressed by packaged solutions. “When we began to evaluate the core application software for our operations, we figured that there was no commercial, off-the-shelf (COTS) solution available,” says Sarkar.

But in a hurry to grow, DTDC wasn’t yet ready to build its own software.

Its reluctance to go down the D.I.Y. path is understandable. For CIOs and organizations world over, it’s a foregone conclusion that building is only an option when you have no other choice.

“CIOs must build their own software only in special cases when they have a business imperative that is not met with a COTS package. Even in that case, CIOs must try and procure a readymade package and add features to it,” says Niranjan Bhalivade, CIO, CEAT.

That’s a thought that occurred to DTDC, but they turned away from it. “If we tried to force-fit COTS in our scenario, it would have to be customized heavily. Rather than pushing the limits of commercial software, it made sound business sense to go the D.I.Y. route,” says Sarkar.

But DTDC did try the next best thing: It got a third-party developer to build a tailor-made solution. The project quickly derailed, says Sarkar, when the vendor abandoned the endeavor midway due to a lack of reference points.

So DTDC decided to take things into its own hands. “We resolved to go against the conventional grain and decided, instead, to utilize our existing development infrastructure and build our own software,” says Sarkar.

It helps that Sarkar has D.I.Y. in his DNA. Even as a child, he remembers breaking his toys and reassembling them. “It held a strange fascination for me. I liked building things my own way,” says Sarkar.

DTDC’s team of four—which later grew to 18— developed its core operations application called Central Tracking and Billing System using Oracle at the backend and Visual Basic as the programming platform. They also created the operation software for their channel partners on this platform, he says. Sarkar’s team also built DTDC’s intranet, website, channel partner portal and an intelligent reporting system, much like a BI system. Over time, DTDC, he says, has migrated from Oracle to MySQL at its backend and its applications are being ported from VB to Java.

“We would have spent wads of money on hardware, software, customization, training, helpdesk, modifications, licensing, contract management and legalities. I’ve eliminated these expenses in one stroke,” says Sarkar.

Today, Sarkar says, over 2,000 core users directly or indirectly use the app—and over 6,000 channel partners. DTDC’s D.I.Y. system handles nearly 4,00,000 shipments everyday—allowing it to grow into a Rs 600-crore company.

Thinking Outside the Vendor Box
Some kilometers away, and at much the same time, Indus Fila, was caught in a similar quandary.

Today, the Rs 500 crore, Bangalore-based fashion and textile manufacturing company—which supplies to Phillips-Van Heusen, H&M, Walmart—has diversified  plenty. But about a decade ago, its primary business was making labels. As sales volumes soared, Indus Fila’s executives recognized the need for automation and in 1998 the company began searching for a solution that would fit its needs.

The problem, they soon encountered, was similar to DTDC’s: The industry lacked templatized, commercial software. The solutions they came across, says Manish Shah, DGM-IT, Indus Fila, were bloated with unwanted features and didn’t match with business needs.

“There was an alarming disconnect between our business needs and the features offered by the packaged solutions,” says Shah, adding that they received offers from software vendors to create a custom solution. But like DTDC’s attempt that too went the way of Kodak; it crashed and burned.

“Vendors promise tailor-made solutions but implementation is where the rubber hits the road. That’s when you realize how deeply—or not—they understand your business. If they don’t, your project will run into sand,” says Shah.

Indus Fila, says Shah, was more adamant with sticking to a COTS package than DTDC. But by the second time it burnt its fingers with COTS packages, it was ready to change tack.

“Ultimately, we realized that since we know our business processes and domain from top to bottom, we were better qualified to design software that we needed. Writing code on top of a COTS product to customize it is not always best-suited to your overall endeavor of gaining competitive advantage,” says Shah.

Hard Choices
At Indus Fila, concerns around a D.I.Y. strategy ran deeper than app choices. Shah says they had to factor in domain expertise, capital, organizational commitment, and user acceptance. Plus they needed to study the IT skills available in-house, how to manage cost, and ensure adequate support post-deployment. But it was these same factors, he says, that tipped the balance in favor of a build-your-own proposition.

“We hedged our bets on this maverick approach. We had the technical know-how and the domain expertise to create our own solutions. We took user feedback and started working with them to design a blueprint,” recalls Shah.

In order to build the solution ground up, the organization went deep into planning mode. The idea, says Shah, was to obviate the risk posed by cost overruns, attrition and user expectation management.

Shah says that his core development team consisted of one lead and four developers. The support team of three also—at first—doubled up as QA.
“We used Visual Basic and SQL Server 2000 initially. Later developments were made in C#, .Net and SQL Server 2005. We also used crystal reports and some miscellaneous third-party tools. The modules of our ERP ranged from 10,000 to about 50,000 lines of code. All together, the project is well over 3,00,000 lines of code,” says Shah.

Many of the hard choices the company risked have paid off. And if its leaders thought they needed to trade time-to-market for a perfect solution, they were wrong. Shah rolled out the first module—for marketing—in just three months.

The D.I.Y. platform is paying dividends at Indus Fila. According to Shah creating their own software has given them competitive advantages a COTs package couldn’t. “We have better response time to sales orders, respond more quickly to changing market conditions, have better agility, flexibility, and enhanced user experience because users are now a part of app development so they embrace change better. And our system is closer to the business realities that the organization is facing.” 

Market Differentiation Unlimited
If allowing a company to be an early mover in its space is an important benefit of having a D.I.Y. strategy, there’s another benefit that really gets attention from both CIOs and their managements. That is market differentiation.

CIOs who have been down the D.I.Y. route say it aids them build innovative functionalities and specialized applications that help organizations emerge as frontrunners. While competition can easily emulate a market leader’s ability to automate business processes—because everyone’s working off the same commoditized software—they can’t do that as easily with niche tailor-made applications. The real benefit of this? Putting together the thought-leadership and an expert team and taking the time to create a special application builds an entry barrier which competition finds hard to overcome.

Girish Rao, head-IT at Marico buys into that philosophy. Although Rao works on off-the-shelf platforms, he believes that incremental, specialized apps should be created in-house if you want to ensure that your best ideas remain just that—yours.

Creating market differentiations, as a policy, is not the purview only of the CIO’s office at Marico. Rao say it percolates through every function of the organization. Rao, who has spent 19 years at Marico, says he has seen the company expand its product portfolio with diverse product variants that have muscled their way into the market.

Applying that philosophy to IT, Rao realized that despite adopting feature-rich COTS packages to address Marico’s needs, there were some gaps. Bridging these gaps could create market differentiation and competitive advantage for the organization.

One of the best examples at Marico of D.I.Y. that brings market differentiation is the Copra Portal project. The project, says Rao, strengthens the organization’s link with its suppliers. But more importantly, the portal redefined the way copra—a key ingredient in Marico’s cash cow, coconut oil—was purchased and went a long way in ensuring a secure supply of the commodity. It also cut the time it took to purchase copra and made the process simpler and more streamlined.

The Copra Portal, says Rao, was developed by a team of two business users, an IT project manager, three developers and two testers and it took six man-months to develop. 

Because such functionality was not possible using COTS, the Copra Portal is a shining example of how CIOs who don’t play by the rules set by vendors can take an organization ahead of its rivals.

Not on this project, but along his D.I.Y. road, Rao has learnt—from hard experience—to protect and nurture such ideas in-house, away from the prying eyes of less innovative rivals.

“I would help a vendor design a product specifically to my needs in order to build competitive differentiation. In the process I tapped into my domain expertise. The vendor would then develop a solution after a lengthy development cycle of six months or so and then sell it to other customers to justify ROI for the effort he put in. That dilutes my competitive edge, defeating the purpose of the whole exercise,” he says.

Another project that Rao ran on D.I.Y. was Marico’s Media Management Portal. The objective was to create more financial and accounting control with regard to payments to media agencies and ensure higher levels of collaboration between multiple internal and external stakeholders.

The portal was developed by a team of two business users, a business project manager, an IT project manager, two developers, two testers and two members from a media agency, says Rao. It took them about 12 man-months to develop the portal with 1,40,000 lines of code. The project was developed on ASP.Net and the data was integrated with SAP using ABAP.

Today, because Rao refused to be limited by the thought leadership of a vendor, Marico has what few other companies have: A way to effectively control its ad spends. And the project increased efficiency. In the absence of the system, media bills took about 15 days to process. Now, that’s done in less than five days, says Rao.

“Consequently, the credit rating of the company in this area has improved,” says Rao.

Myth Busting
One of the ways commercial software is sold over D.I.Y. is the latter’s ability to help organizations take products to market faster. If, for example, a start-up needed accounting software, few CIOs would dream of slowing the business down by creating it module, by module.

The sad fact is that D.I.Y.’s got the bad rep of slowing down a business.

Sarkar couldn’t disagree more. And he draws examples from DTDC.

“Our business is highly prone to changes. In each quarter we might need to foray into a new market segment. As new demands arise, we may launch a product to cater to new customer segments. Ours is an emerging business so changes to the systems are inevitable,” says Sarkar.

To keep up, DTDC’s systems need to be modified regularly, says Sarkar. If he had to work with a packaged solution, he says that changes would have to be explained to a vendor—which takes time. And often, vendors are too slow or too unwilling to adapt their packages.

“They fret over alterations they have to make. Working with them is a long-drawn and prohibitive exercise. So your responseiveness to market forces slows down,” says Sarkar.

In comparison, DTDC’s homegrown solution is quicker on its feet. “The code and database structure is developed in-house so we can modify, alter, enhance and fine-tune without much ado. It’s cost effective and business friendly,” he states.

And if the business decides to launch a new product then IT can roll out changes within 48 hours, he says. With a vendor that would call for a protracted development cycle.

Here’s another example of how D.I.Y. makes a company more responsive. DTDC gives its corporate customers personalized dashboards so they can monitor their billing, payment and delivery histories. Not only did they create this in-house, “contracting roll-out time,” says Sarkar, but going D.I.Y. also allows them to service their customers faster.

“If a corporate customer wants any customization to their homepage, we can personalize it within a day. Other MNC players also provide this facility but they seek third-party assistance, which is expensive and time-consuming. They would take at least a week to do it,” says Sarkar.

 The homegrown software also facilitates integration with newly-acquired customers within a day. Moreover, it fosters better integration with global partners. Whenever DTDC signs a JV with an international operator, a high amount of integration is required between systems. D.I.Y. shrinks that.
It helps, Sarkar says, that DTDC’s IT department has an intimate understanding of the business.

That’s a benefit that many D.I.Y. believers say is the strategy’s primary selling point. That’s because building your own software forces IT to be tightly linked with business. IT needs to work side-by-side with the business—a process that engenders great amounts of business-IT alignment, and lowers change management needs.

“We have fostered Better partnership with business and increased credibility with IT,” says Shah.

Best of all, it can raise IT’s standing in the eyes of users and management because D.I.Y. doesn’t limit the needs of either, a challenge CIOs with templatized software are bound by.

“This is the beauty of building you own software. There is no dead end. You are not bound by any limits. If you procure packaged software then your scope for development can get limited. Today, our business team can come up with new ideas and we keep scaling up the application. Ours is an ever evolving application,” says Sarkar.   

Sneha Jha is senior correspondent.  Send feedback to sneha_jha@idgindia.com