Creating Value By and For Design

Date:   Tuesday , February 01, 2005

We live in a world where physical assets are often under-stood and valued better than the idea or knowledge that helps to create them. For example, when planning for the acquisition of a house, the land cost and construction occupy the mind so much that we tend to ignore the value of the “design” created by the architect.

The Indian IT industry has traditionally been built on the strength of software services. This is understood very well by all the players, and most importantly by the customers. The business model is based on well-defined aspects such as resources, dedicated teams or task completion. Four years ago when Ittiam’s founding team launched the company with the passion to build a world-class technology product company from India, we thought hard on the business model. It was clear that the services model would not yield the deserved value. We had to distill our thoughts on what exactly we wanted to sell to our customers and how we wanted it to be valued. Finally, it was quite clear – it had to be the “design”, which incorporates one or more intellectual property (IP).

When building a design-based business model, I believe there are two key elements. The first is how to make the design highly differentiated and second is how to receive fair value for it in the market. The first element is discussed here as “Value By Design” and the second as “Value For Design”.

Value By Design – Differentiation
Differentiation is a set of features that customers regard as both important and superior to what is offered by the rest of the world. What this means is that the design should not only have better performance than competition but it should also have that in those areas which are considered as critical by the customers / market. The last aspect is sometimes forgotten in our intensely technology-driven decision making, causing us to create superior design performance in areas that customers do not care about. Thus it is always necessary to begin the design effort with a very clear understanding of what the customers and markets want. During the design process, we make many decisions and trade-offs. The primary framework for making those decisions should be customer and market requirements.

Achieving superior performance is a big challenge by itself and depends largely on two strengths: the depth of competency of the technical team and the foresight with which the design benchmarks are set. The first deals with a very simple fact. For example, if we want to create the world’s best digital video processing design we need to have the leading digital video engineers in the team. This is a game of expertise, and there will be no substitute for it the competitive playing field. Thus a company’s strategy of differentiating by design and its ability for attracting the best talent in that target area are wholly linked to each other. The second aspect dictates that the success of even the most capable team depends on them pursuing the right goals. In an environment where design cycle times are lengthy and the speed of competition is both threatening and unpredictable, the design benchmarks have to be set very high and with the foresight to intercept the market at the right performance levels.

The opportunities for innovations occur naturally in the design process and they are a part and parcel of every world-class design created. It is crucial that the team recognizes, records and files these for patent awards after an internal selection process. Patents speak for the value of what is being created, additionally serving the obvious purposes of defending the competitive position and receiving commercial value for reuse by others.

Value For Design – Market Positioning
Having created a differentiated design –which has the superior performances in those precise areas that the customers want – the challenge for the company’s business model is to ensure that the design is valued fairly and appropriate returns are realized. This is an area where Ittiam has placed much emphasis in making our customers succeed, a process that strengthens the entire value chain. In a model like Ittiam where Digital Signal Processing (DSP) System Designs are provided to manufacturers (OEM and Semiconductor), the key aspect is the design’s success will be only as much as the success of the manufacturers. It is a question of how widely the design is populated in commercial products.

The design market positioning must focus on enabling the manufacturing customers with “market access” and “time to market” capabilities. First, customers who do not possess such advanced design competency can still participate in the attractive market opportunity by gaining access to the design. Second, even those customers who have the internal ability to create such designs would be much more likely to succeed with the design being offered now as they can enter the market 12 months or in some cases 18 months, ahead of what they could have done on their own.

With a clear view on this positioning, in Ittiam we have gone much further than delivering the design solely in embedded software and chip design form. Almost all our designs are ensured with real-world application demonstration systems that are jointly created. This allows the customers to experience a hands-on feel of how their end product using the design will perform. For a few select markets, the demonstration systems are taken a step further to produce “form factor reference designs”, which essentially resemble the same end product the customer will be making.

This reduces the time-to-market even more for the customer in addition to allowing them a tangible feel of how their end products will work with real-life conditions.
When selling a design where success depends on manufacturing, a risk-sharing business model with customers is well appreciated and can result in better returns over a long-term basis. One type of a risk-sharing approach gives the design access to the customer for a much lower cost but has the advantages in terms of success sharing through royalties. One can look at many other variations with this basis principle. The essence is that the approach of making customers succeed must examine the total picture of positioning for market and ensuring customer’s success in the market.

In summary, selling design based on IP is new for the Indian IT industry and is much less understood than the service business. In order to succeed in this area, we must focus on Value By Design (Differentiation) and Value For Design (Market Positioning), with the holistic approach of making the customers successful, strengthening the value chain and sharing the rewards of success in the market.