Eyeing fresh business from outsourcing clients, IT firms are creating start-ups focused on disruptive technology. India’s biggest information technology (IT) firms are hiring failed entrepreneurs and successful venture capital executives in Silicon Valley as they seek to win fresh business from top outsourcing clients such as Target Corp. and Citigroup Inc. by creating internal start-up organizations focused on building disruptive technology solutions.
After years of writing software code and maintaining commoditized information technology systems for Apple Inc. and JPMorgan Chase and Co., Indian firms such as Tata Consultancy Services Ltd (TCS), Wipro Ltd, HCL Technologies Ltd and US-based Cognizant Technology Solutions Corp. are beginning to realize that these customers are now looking to spend more on newer technologies. Some of them are looking beyond traditional outsourcing firms to solve their current and even future business problems.
India’s largest software firm TCS, which opened a centre in Santa Clara, California, last year, has already seen over 100 of its existing and potential customers from across the markets of US, Europe and Japan visit the facility in the past one year, a sign that showcasing innovation in the Silicon Valley is increasingly becoming a crucial piece in the battle for fresh outsourcing business.
For entrepreneurs such as Satya Ramaswamy, who joined TCS in 2010 and is now a vice president and global head for mobility solutions with the company, creating a Silicon Valley-like organization gives a chance to do what he struggled to achieve in his earlier startups. He worked at computer networking start-up Veveo Inc. from December 2004 to March 2008 and founded mobile solutions firm Brightfon Inc. in July 2008 before joining TCS.
“When I ran my start-up, getting a CEO meeting was very, very tough. Here at TCS, Chandra (TCS chief executive officer N. Chandrasekaran) can make a call and change fortunes of a start-up firm. For entrepreneurs who are passionate about their ideas, it’s a great opportunity to work here,” said Ramaswamy.
“The traditional venture capital backed model of innovation is under pressure in the valley and many good entrepreneurs are not getting funding—we can more than fund,” Ramaswamy added.
Over the past year, TCS has been able to hire some 15 entrepreneurs in the Silicon Valley who have helped build 20 software products in the area of mobile solutions. One of these software products helps some of TCS’s top clients manage their employees’ devices across different platforms such as those of Apple, Microsoft Corp. and Google. Another entrepreneur who joined TCS developed a wireless solution that a South Korean phone firm wants to buy, said Ramaswamy.
“You don’t have to be a start-up to come up with the next big disruptive idea; it can come from a company like TCS too,” Ramaswamy said in a phone interview.
The opportunity is potentially too big in these new areas to ignore. Technology researcher Gartner Inc. supports the view that enterprise customers will make cloud computing and mobility their top priority over the next three years.
Mobile phones are expected to overtake personal computers (PCs) in 2013 as the most common Web access device and that will change the way top outsourcing customers consume and manage software applications. And the market for cloud computing services is expected to cross $109 billion in 2012 and touch $206.6 billion by 2016, according to Gartner
TCS is not alone in establishing its footprint in the hotbed for technology start-ups.
At Wipro, Sajjad Hussain, a company veteran based in the San Francisco Bay Area, is busy creating a start-up organization that can compete with the best and most disruptive ventures in the valley. Hussain, who works as chief architect and general manager, R&D, services at Wipro, said after years of helping top customers create their next generation products, the company realized that such expertise can be put to some other use.
“It’s like driving in Formula One. You pick the best equipment and build your own unique car. We have to engineer unique solutions to solve business problems,” Hussain said.
A large gaming customer, for instance, sees its user base shoot up to 2 million in a day, and Hussain and his team have to manage that workload to ensure systems don’t crash.
“There was a time when we only hired sales, human resources and other support staff here. Now, we are hiring people in the valley from Microsoft and Google who question the status quo of a large services organization like ours,” said Hussain.
Cognizant, which disrupted the pecking order in the Indian IT sector by overtaking Wipro in revenue last year, is also looking at the valley for defining its future. The Teaneck, New Jersey-headquartered software outsourcing firm has appointed what it calls venture partners to run its Emerging Business Accelerator unit that incubates big ideas. “There are three things we look at when it comes to ideas pursued by this group. One is that it has to contribute to the growth of the company; we look at incubating new stuff that can have a good revenue base and can be shifted to the larger organization for scaling beyond a point,” said Mahesh Venkateswaran, senior vice- president, emerging business accelerator (EBA), Cognizant.
“Second is about differentiation and what we create within EBA is relevant to our customer base so that they start purchasing more and more of new things we create. And the third is about creating platforms and solutions that can bring non-linear revenue,” Mahesh added.
Unlike the traditional software outsourcing business, where predictable revenue streams determine whether a new opportunity should be pursued, these corporate incubators even encourage experiments to fail, but fast enough to avoid prolonged and fruitless investments.
“One thing we made loud and clear is that failure was an option; not all we try would succeed and there could be many that may fail. We don’t want to penalize individuals for taking risks,” said Venkateswaran.
“The EBA is like a venture capital company; ventures that we incubate are like start-ups in the Valley but the only difference and the advantage we have is that we still have a $7 billion organization to back us. So customer access for testing our ideas is taken care of unlike many Silicon Valley start-ups that spend huge time figuring out how to get in front of the customers,” Mahesh added.
Experts such as Chandra Gnanasambandam, a partner at consulting firm McKinsey and Co., who relocated from Silicon Valley to Bangalore recently, said outsourcing customers are playing a big role in bringing about this change in mindset among Indian tech firms.
“A banking customer that has huge data is asking why I can’t do what Google is doing with data. The first question they are asking is what these guys in the Silicon Valley are doing that I can also do to change the game,” said Gnanasambandam. It is this emerging trend of co-innovating with customers that’s driving Indian technology firms like HCL to hire more and more talent in the Valley.
“Since our strategy has been to collaborate more and more with clients and aid them in their efforts towards innovation and research and development, hiring talent with an entrepreneurial and innovative streak helps,” said Shami Khorana, president, HCL America, which is working with companies such as Xerox to design some of their core printers.
Khorana said the company has hired almost 2,000 people in the US in the last couple of quarters with almost 40-50% of all hires on the West Coast.
“Presence of top notch universities like Stanford and decades of cutting edge technology innovation driven by technology giants like Apple as well new kids on the block like Facebook has built a mass momentum for the valley which is attracting many more companies to tap into its very distinct culture of innovation,” Khorana said.
However, he adds that the change of image of Indian IT companies as firms that are closely partnering with clients on their core functions, instead of just being drivers of cost arbitrage, has also helped in attracting such talent to companies like HCL.
“We are still competing with topnotch companies such as Google etc for such kind of talent, but the evolving culture of innovation, high value work, a stressed US economy and the change in the image of Indian IT companies has surely improved the situation from around six-seven years ago, when it used to be very difficult to hire in the US,” he said.
Some experts feel Indian tech firms should instead be freeing up the talent they already have to work on the next big thing.
“What they need to do is to set their own workers loose so they can stop doing the mindless grunt work and do real innovation. These companies need to start teaching their workers about advanced technologies such as robotics and 3D printing. They need to challenge their people to come up with ideas for new products and innovative start-ups through competitions. Then they need to fund these startups,” said Vivek Wadhwa, an Indian-American technology entrepreneur and director of research at Duke University’s Pratt School of Engineering.
Despite that, the stakes are too high for Indian tech firms to risk missing out on innovation.
“Indian companies are trying too hard to cling to their old business model—of providing IT services. They need to branch out into new areas. Otherwise they are doomed. The market is soon going to peak and then shrink,” said Wadhwa.
