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Durable Differentiators for IT R&D
Vijay Anand
Friday, September 1, 2006
The popular press is currently touting a pending slowdown among Indian providers as they become victims of their own success, but the truth is that Indian firms will continue to grow and not just because they are a lower-cost option. These players will continue their growth path because they have caused a fundamental and structural change in the service provider/client relationship. Offshore providers have taught clients to expect transparency, efficiency and accountability in service delivery,” writes Stephanie Moore, an analyst at Forrester Research Inc.

This is a clear example of how Indian firms need to move up the value chain and create fundamental differentiators rather than focus exclusively on lower costs. The cost arbitrage gives us a window to build other durable differentiators for long-term success.

In this article I ponder the scenario for R&D in India. Today, there are significant investments in high tech R&D pouring into India. Note the recent pronouncements by leaders at Cisco, SAP, Microsoft and others talking about substantial R&D investments in their captive centers and vendors. Lower costs and a large labor pool have been two reasons cited for the significant expansion of product R&D in India. It is imperative that the R&D industry takes a similar approach to what the IT Services industry has done and build durable differentiators. Success in product R&D is based on three key elements:
1 Innovation

2 Time to market
3 Anticipating market trends

Most of the IT R&D work in India is done typically by extension teams that augment teams in HQ in completing the implementation of specific product releases to fulfill product roadmap commitments. R&D organizations typically use their teams in India to “stretch” their R&D dollars. The teams in India are therefore fairly junior (they cost less and talent is readily available) and work under the direction of their HQ leadership.

Given that the ramp up on a product charter is significantly longer than “IT projects done to spec” at the services vendors and the fact that the extension teams are usually relatively junior, this model works well for the first few years. In this model, the teams focus more on evolutionary innovations that are very specific and fit within existing product requirements. The role of disruptive innovation, meeting market trends and meeting time to market needs are handled by product management teams and R&D teams in HQ.

As the teams mature, they build significantly more capability and obviously cost more as a result. The extension-based model must now evolve into a high value added model where all the three key elements are owned and addressed by the team in India. There are several challenges in making this transition:
1. The ecosystem here in India for a product team is not as rich as it is in HQ—customer engagments, analyst-interactions, competitor observations and market trend predictors are usually less accessible. How do the engineers in India get this experience remotely?

2. The extension team is missing critical skills including product management and marketing, how does the team aggregate requirements and anticipate trends?

3. Unlike a specific service delivery point, a product evolves over a long lifecycle often lasting a decade or more. A key attribute of a successful product is the generalization of the solution that meets requirements of not just a single customer but also an entire market. In addition, the architecture of the product should help it evolve to meet future requirements without requiring fundamental rewrites each time. The extension team often does not have architects with product lifecycle experience over many years to be able to generalize the solution sufficiently.

The imperative for R&D centers in India is to go up the value chain by overcoming these challenges. Here are some thoughts in this process:

Systems orientation
Often times, a company is not about a single product. Customers require complete solutions and vendors need to build up their revenue streams. A good understanding of customer requirements often leads to identifying gaps in the solution portfolio that the vendor needs to fill. R&D centers with a diverse set of extension teams that work together can often use their internal synergies to identify and fill such gaps and build their capability as a solution center. The key is to get the ‘solutions, not point products’ mentality into the DNA of the center and facilitate interconnects between teams to make this happen.

The growing local market
India is no longer an insignificant market. The local demand for software is growing and the enterprise spend is accelerating to meet growth needs. A good understanding of the local market could help establish an early beachhead for the company and get the R&D center to be skilled at understanding and factoring in internal requirements. One relevant datapoint: It is interesting to note that enterprise needs in India for scalability are often higher than the demands in other regions. Many of the largest datasets are now in Indian banks and telcos, not surprising given the rate at which they are adding customers. A good understanding of scalability requirements could help get the R&D center in India to re-engineer products to meet these requirements.

A SMB focus for emerging markets:
Most F500 vendors have a direct sales model that reaches out to other F500 companies and use an indirect model to sell to the SMB market. As a result, most vendors lose touch with the requirements from the SMB segment. As India deregulates the SMB growth, given the size and scale of our country could outpace the growth in the enterprise segment. Understanding SMB requirements often needs re-engineering of the products and solutions to meet their needs. These solutions could then be applicable not just to the Indian market but to many other emerging markets. This can be a case of the R&D center driving new sources of revenue while maintaining product and roadmap integrity.

Skill building:
This is a key focus for most R&D centers-how does one continuously build skills in product architecture and product lifecycle to be able to innovate new products successfully? Extension teams over time master this skill, as they move through product releases and cycles. A conscious effort to capture this knowledge and disseminate it is the key to skill building for a growing R&D center.

Thinking outside the box:
Growing up as extension teams forms a conventional mindset where the focus is more on backend execution rather than frontline thinking. Fostering a culture of frontline (bold, out-of-the-box) thinking is key to developing new ideas. A stream of new ideas that are filtered and incubated is key to the center’s evolution up the value chain. I don’t mean a simple approach of focusing on patent disclosures. It is more than that. A systematic approach of encouraging bold thinking; promoting promising ideas and recognizing efforts that yield fruit will establish a culture of thinking outside the box.

Vijay Anand is the Vice President, India Engineering Centre (IEC), Sun Microsystems Inc.
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