Successful Technology Product Company in India – A Mirage. Root Causes from insightful Anecdotes.

Have you seen an Indian technology brand in the last decade? Do you see an Indian ICT product brand emerging anytime soon? The factual answer is No, Not Yet. Whatever successful instances exist, it is restricted to a dotcom or e-commerce portal. However there is a ray of hope as you do see glimpses of a complete product or module developed out of the India Development Center of some Multinationals, who have found the keys to it.  

There have been several erudite commentators who have written on this subject and provided deep insight on the root causes of lack of innovation in India.  However I would like to pen my thoughts and bring out a different perspective to this, gained through experiencing several (successful and failed) innovation initiatives in my career in big, small, Indian and Multinational ICT companies as well as entrepreneurial stints. With no intention to do death-by-analysis and prescribe change recipes, I just want to bubble-up specific deep-rooted issues through series of anecdotes and leave readers with food for thought.

Having been part of the emergence of the Indian ICT industry since late eighties and having participated in several transformation initiatives in the last two decades, have been lucky to come across several insightful situations. Will share some of these anecdotes to bubble up the root-cause issues.

Focus on Education Grades instead of application of learning:

During my tenure at the India Development Center of Motorola in late 90’s, after a stint at solution architecting and sales, I took on a role of technology Business Development. The role was to provide foresight on technical disruptions on the horizon and seed micro business plans to be ready for the disruptions when they do happen.   VoIP technology was one such disruption and had begun to evolve from the Lab to mainstream solutions.  Several technology standards were being developed to propel this evolution – namely H.323, SIP, MGCP etc.  As part of a team working on the plan my job was to explore applications of the same inside and outside the company. We managed to get several potential opportunities to the table, but often we ended up playing catch up with the rapidly evolving industry needs and failed to meet deadlines demanded.  In one of the program reviews, one of the senior leader commented -  “Its with the choice of talent we hire. They are often rank holders with immaculate academic track records and would not like to risk their career records with failures.” Typically technology standards implementation is straightforward, but applying it for applications has certain ambiguity in it. Attribute of handling ambiguity is essential. Appropriate talent mix is significant especially for projects with ambiguity.

Entrepreneurship & Innovation – Do they go together?

The answer is resounding NO.  You don't have to innovate to be an entrepreneur.   India has been the land of traders, be it before the East India days, during or after.  Starting a new trading outfit is entrepreneurial no doubt, but innovation is limited to business model innovations if any.  There are several large trading houses, which over a period of time have evolved into product companies – Tata’s with Titan, Indica, Nano are benchmarks, but we cant think of many names in the ICT industry.  Trading according to me is a play on cost arbitrage.  Be it in iron ore, raw silk, agriculture produce, or ICT talent.  The ICT industry has been caught up and held hostage to its own success that of decent profit (ROE/ROC) margin, low risk business model.  Taking cue from the success of IT services pioneer Infosys, several entrepreneurs set up shop to do more of the same. They hesitated to invest their capital into product innovation even if they wanted to, because it is deemed too risky by their investors who love predictable & low risk revenue streams.  Let me give two examples here –

One of most admirable role models in the 90’s for all made-in-India-product minded freaks was Rajiv Mody. He set up a technology start up which was later renamed as Sasken, with the motive to build solutions for the mobile and consumer industry to create global licensing revenue streams.  I happened to bump into him during my many visits to Taiwan Computex, which is like the CES of the East.  I was lucky to get some face-to-face time with my “role model” and heard his views as we discussed various challenges of product creation, licensing, non-linear revenue model, lumpy revenue streams etc.  I vividly remember the comment he made thereafter - “How will we explain these challenges of product development to the investors”.  I was so enamored that I did work for him for a while.  Nowadays, I understand that post the listing of the company on the bourses, the incessant peer pressure unleashed by stakeholder community, there was no other option left but to shift towards low risk services only model.

Another recent example in 2010-11 was that of MindTree’s acquisition and then hiving off the Kyocera mobile phone development unit.   Kyocera unit in Bangalore had a concentration of highly talented and passionate designers and was the closest example of the ODM model (Original Design for Manufacture). The ODM model was invented in Taiwan (or at least was polished to an art form in Taiwan and created a platform for success of Taiwanese industry).  Several seasoned designers after a successful stints at a MNC leave and set up a small design house by forming a team of like-minded designers with complimentary skills. The proximity to manufacturing units and vibrant semiconductor industry provided all the ingredients to succeed. The design houses create designs of Consumer products and license them to big companies to brand, manufacture and sell for a fixed and variable per unit fee.  MindTree (like Sasken) decided to pursue the ODM path, but soon realized that one needs deep pockets and years of patience to be able to create a blockbuster success. The quarterly profit margins started to drop, investors started to point fingers at the management.  The management had to reverse its decision and dropped the risky model.  It instead chose to redeploy the high-caliber and passionate talent towards services industry.  Several analysts talked highly of the managements “turnaround” capabilities.  My way of looking at it was that one more innovation initiative was nipped and the country may have lost an opportunity, but the entrepreneur gained and its share price zoomed.

Focus on the business of Value Addition

There is nothing wrong in the IT Services model.  It is a proven model and has helped uplift a sizeable population in India and actually may be well suited to India given our demographics. IT Services is all about acquiring raw talent, polishing it and deploying it for delivering outcomes. In the services industry time and material business model, the Client lays out the outcomes and carries the risk.  I remember an incident during my days at Tata Elxsi, were I was running an initiative to create a hybrid revenue model of component licensing and customization services.  The annual post AGM dinner was customary and it gave us as managers (accompanied by family) to mix with board members and learn from their wisdom.  F C Kohli (the father of Indian IT services industry) was the chairman of the board and was lucky to get an occasion to interact with him. We had this grudge that to hire high-caliber talent we have to pay at higher end of the industry benchmark and asked him his opinion on it. His response was enlightening  - We are in the business of value addition. The investors look at how efficient we hire raw talent, polish it and the revenue earned by deploying it. The difference between cost of acquisition and deployment is the economic value addition of our business. We are not in the business of showcasing top talent or showcasing top line revenue.  I was lucky to have more occasions to interact and also learn from him on the ethos of product innovation.    The question to ponder was what would make a product innovation business model more compelling then a risk free services model.  One of the ways to create compelling value and lower risk is to create a product solution for the Indian market, which offers easy access to customers and large enough to justify any business plan.

A little but of nudge from the establishment

CDOT was a great example of talent when brought together with leadership and purpose can create wonders. The CDOT team had extremely talented engineers but more so bonded by a sense of purpose, instilled by Sam Pitroda's leadership  – to create a rural electronics exchange, which can sustain the vagaries of power & heat. Alas after great initial success it could not sustain. Compare this with China, which has institutions funded by government to create new standards and solutions for the country. The government even leads in tough negotiations with foreign suppliers to pursue (rather mandate) them to adhere to the local standards thereby giving a push for local innovations.  I must relate another example here to show how government bodies can support sustained local innovation.  During a visit to Taipei, we were pleasantly surprised to get a invite from the local trade body( probably they have an arrangement with  the hotel to send invites to business visitors).  Being curious we accepted and became their guest for half a day. One of the representatives was assigned to escort and guide us. She took us to the trade representative office and helped us discover the array of electronics manufacturers, components and solutions made by local vendors.  The whole experience left us with awe – on how a well planned effort can support local industry and build a brand for the country.

Lack of an Ecosystem

It’s not about the lack of funding and early stage investors. As a matter of fact there are hundreds of early stage investors in the country. It's a different matter that most of them may not bring in the deep knowledge in the area you need, but that's a different topic to discuss.  The ecosystem I am referring here must consist of hardware manufacturing, semiconductor design, supply chain infrastructure and easy access to markets. 

Probably an example will relate better.  In the early 2000’s post the dotcom bubble; the only industry that survived without too much of a dent was the consumer electronics industry.  Media consumption was evolving and all types of audio video players were being created at one end of the spectrum.  I was working on a business plan for creating ODM designs of A/V players including hardware design, encoder/decoder software. One of the challenges we came across was lack of vibrant high-tech manufacturing ecosystem  - prototyping a multilayer (>10layer) miniature PCB design was a challenge.  The same thing in Taiwan is akin to a household industry. Timely components’ sourcing was a challenge due to inefficient supply chain. A Go-to-Market strategy for any ODM is to create near final version prototypes and display it in global platforms like CES, Computex and likes. Our inability to create timely prototypes cost us many opportunities (adds to Business Plan time and cost factor). I am sure you will agree that we have not seen much change in the manufacturing industry and the challenges still exist.

Working in Silos

Solution development is all about getting multiple technology pieces to integrate together. Alas this is easier said then done.  Most services organizations in India are structured or siloed based on technology. It's a belief that same technology folks bond together but the fact is that its just easier for us managers to manage.  An anecdote would exemplify the challenges siloed structure places on solution development.

This is around 2002, we had bid and won an Global RFP to completely design a HD video end point from scratch from a US based product startup (name withheld for privacy). This was a first time a complete product design was outsourced and not just individual components. It was high point for us to win this. Apart from the CTO and small design team to guide all the rest was supposed to be done by the wining bidder.  The components involved were mind boggling – Chipset choice, Hardware, FPGA, Embedded OS, TCP stack and encoders/decoders. I was playing point during the bidding stage, to get the individual technology teams to work together as a single virtual team.  But one behavior I noticed – As we iterated and came closer to be declared as a winner, the virtual team bonded more and more. Winning makes team bind together. But alas the opposite also is true and poses the stiffest challenge to success. The task at hand was humongous, and at every design iteration step there were a set of learning’s. Deadlines began to slip as all estimation logic went awry due to so many assumed variables.  In the end after much effort overflow, the team did manage to bring out a decent prototype.  The learning was that virtual teams work, but a better approach would be, that for the duration of the critical multi technology project the team members work under a single leadership command with shared goals and sense of purpose.

Disjointed Globalization:  Product Management & Delivery organization

One of the main ingredients for the success of the product/innovation is the role of the Product Manager. The Product Manager is the owner of the product and defines the product/solution, the key success factors, the target user audience, the solution differentiators and Go-to-Market strategy. The way the Indian services model has evolved, it has focused far more in terms of process and maturity of the Delivery role, leaving the other functional roles of product development less developed.  We don't hear Product Managers as much as Delivery Managers. Conventionally the Product Management function has never been outsourced but retained by the Client organizations or HQ’s of MNC’s.  Another fallout is that the India Delivery organization is not in synch with the ethos of the product manager and hence is not able to bring in passion and flexibility to adapt to changing market conditions, although with collaboration best practices this divide is been bridged.   To me the lack of a mature product management function is one of the key impediments for innovation success.   One way to solve this is to encourage talent movement across functions – Product Development, Testing, Solutions Architect, Business Development and Sales and Marketing. Cross-functional experience is a must for successful grooming of product management, which in turn is a crucial factor for innovation to succeed.