HCL’s 17% revenue COMES from ERS

Engineering and R&D Services (ERS) market is growing significantly. HCL Technologies is already stealing a sizable chunk of this market with its development centers in India. Moreover, HCL achieves 17% of its revenue through ERS division. It has a host of customers, global and Indian, whom they cannot name. To get more insights on the ERS business, Dataquest quizzed GH Rao, President of Engineering and R&D Services at HCL Technologies recently. Excerpts

What is HCL’s Engineering and Research & Development services division focused at?

If you take the total industry and enterprises, there are two ways of IT buying. First, companies spend on IT through their IT heads or who we know as CIOs (chief information officers). Perhaps CIO spending tops the industry, as they are focused on running businesses efficiently. Most of the traditional IT spends do happen through the decisions taken by CIOs.

But there is a sizable spend that takes place only through the CTOs (Chief Technical Officers). Typically it varies anywhere between 5% to 11% to 12% depending on the time of the day, and the industry they are in. Most of the organizations spend on Research and Development (R&D). Since the companies are trying to enhance their R&D spend in India and CTOs would be the decision makers, HCL is increasing its focus on this space in India. But the CTO space is at nascent stage in India, while the global enterprises spend a lot on R&D. So, the Engineering and R&D services group of HCL really focuses on the CTO space and CTO spend. Why this is an important area is because the companies are spending on product development and innovation for the growth of their business.

What is the size of R&D market, particularly the IT spend?

CIOs and CTOs obviously have to optimize their revenue and profitability with respect to their organizations but CTOs are mostly focused on the actual business and the products to be developed whereas CIOs have to take of the operations. If there are no products done, I think the companies will close. Global Spending on Engineering and R&D (ER&D) is much higher than on IT or Business Process Management (BPM) spend by corporations and governments. Out of these $1.4 tn, $574 bn comes from ERS corp. core verticals of—Aerospace, automotive, telecom, semiconductor, medical devices, consumer electronics, and computing—the total addressable market for tech. ESO industry. It doesn’t mean that all of it is for outsourcing. But a significant portion of this spend will be spent on IT and outsourcing.

In most cases CTOs rely on CIOs for their IT needs. What are the areas where CTOs will have a key decision-making role?

This is a situation only to an extent. There are certain applications such as PLM which typically are taken care of by the CIOs but when it comes to technology it is the other way round. Often CIOs look up to CTOs especially when it comes to adopting newer technologies and leveraging them. While the dicussions around cloud and big data began, CIOs had little knowledge. CTOs developed the cloud technologies and helped users to implement in their organizations.

What are the challenges a CTO faces?

So, I think the artlies in understanding what CTO challenges are. The CTO challenges lie in product life cycle. CTO challenge has been in the typical product lifecycle. A product goes through a number of stages—conceptualization stage, development and phase-out. His challenge lies in developing the product, expanding it and to take it to newer stages for the growth of the company. So, if you take each of these stages, the CTO needs are different. In addition, their needs differ from vertical to vertical.

What is the size of HCL’s ERS business?

HCL Technologies achieves 17% of its business through the Engineering, Research and Development services space. So it is a significant portion of our business. We reach out to about $12.5 bn market. About 50% of this is done by captive centers. So 50% is done by service providers like HCL. HCL is the largest in India in the ERS space.

Is it the product design that HCL does?

Yes. There are two aspects of product design done in India. One is for the Indian market. That happens mostly for automative and defense sector. It’s very low when compared to the global market. The product design done for the global market is really significant. Most of the work global R&D work is done out of India in total confidentiality.