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Time for Action

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DQI Bureau
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To become the global leader, Indian IT industry needs a self-sustaining IT

Innovation Ecosystem that involves both the government and the industry itself

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Similar to the word strategy,

innovation is also a much used and abused term. While management gurus extol

innovation centricity, most organizations claim to be either innovating or

wanting to innovate.  However, the reality is that very few organizations

'walk-the-talk'. Majority of the innovation plans tend to either remain as

good intentions or incremental improvements in core operations tend to be

branded as innovation. 



Very few firms institutionalize

innovation as part of their DNA. Innovation generally becomes part of management

lexicon only when a firm's growth curve is flattening and it is struggling to

identify new growth engines. 



Unfortunately

the Indian IT industry is no different. In these prosperous times, it has

recently preferred to play safe and tended to forget its rich history of

entrepreneurship and risk-taking. There are very few examples of true

innovation, which have been pioneered by the large Indian IT firms in the recent

past. A glaring example of this is the Indian BPO industry, which was actually

pioneered by new entrepreneur entrants and not by the established Indian IT

firms.  



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Before

proceeding to the 'why' and 'how' of innovation, here are some key

trends of the Indian IT industry: 



  • The top 20 IT firms including the India subsidiaries

    of MNC' account for nearly 70 % of the industry's revenues. The balance

    30 % is accounted by the remaining 2,000 plus Indian IT companies. A vast

    majority of the emerging companies are in the sub-$10 m revenue tier with

    very moderate growth rates.  Therefore while the bigger firms are

    getting bigger with growth rates in excess of 20 %, the smaller companies

    are not growing at the same pace. This is a sign of a maturing industry and

    indicates that there is a lack of depth and upward velocity in the Indian IT

    industry. Where are the next $500 m + Indian IT firms going to come from?

  • As part of innovation, most leading IT firms in India

    have recently been announcing new growth engines including consulting,

    remote infrastructure services, transaction BPO. Most of these are commodity

    service lines launched out of necessity and there is nothing innovative in

    them. These service lines will require large investments and the Indian

    firms will encounter strongly entrenched competition which will probably not

    allow high growth curves beyond the initial repaid growth from a small base.

  • Technology enabled services constitute a predominant

    portion of the Indian IT industry's offerings.  A significant

    proportion of the work is done on mainstream technologies, which does not

    command a price premium and also offers low entry barriers to competition.

    Little attempts are being made by the IT industry to invest in emerging

    technologies including nanotechnology, biotechnology, IP or new verticals

    including healthcare, life sciences etc.

  • Unlike other knowledge intensive industries, the

    business model of the industry is very similar to contract manufacturing

    where revenue growth is almost linearly linked to increased hiring and

    building bigger campuses.  Little attempt is being made to identify 10x

    factors of growth through sustained R&D. On the contrary R&D

    investments are dwindling and this is evident from the lack of patents filed

    by the IT industry. Hardly any significant collaboration exists between the

    IT industry and the academic or research institutes either in India or

    overseas for technology R&D.

This is in

contrast to the Indian pharmaceutical industry where there is a strong focus on

investing in R&D to identify future growth engines. 

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  • Collaboration is rare in the Indian IT industry. Most

    firms prefer to adopt a go-it-alone approach whether it is for commercial

    engagements, investing in emerging technologies or any industry level

    initiative. This behavior pattern partly stems from the demand fulfillment

    history of the industry wherein there was enough for everybody. Unlike

    overseas where industry rivals will collaborate when required and larger

    firms actively develop collaborative networks of specialized firms, there

    are hardly any instances of peer-to-peer collaboration within the Indian IT

    industry. No wonder that there is hardly any global technology initiatives

    in which Indian IT is leading the way.

  • The Indian domestic market continues to receive

    step-motherly treatment from most of the larger firms in the industry. This

    has potentially serious implications for the industry's global leadership

    aspirations, as hardly any nation's firms have achieved global leadership

    in an industry without a strong domestic market in that industry e.g.

    Japanese and Korean domestic consumer electronics industry.

The above trends reveal that while

the performance of the Indian IT industry continues to be good in the

short-term, to achieve a long-term sustainable growth, it has to embrace

innovation vigorously.

But innovation is not a process,

which can be prescribed and mandated. It is a culture, which needs to be created

and nurtured before it can become self-sustaining. 



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At the heart of every successful

innovation ecosystem is the entrepreneur. Innovation will thrive if and only if

an ecosystem is created which encourages entrepreneurship, rewards risk taking

and does not treat failure as a deadly sin. Entrepreneurs fired by the zeal to

do something different created the Indian IT industry. 



But there is no magic wand, which

can be waved to create an Indian innovation ecosystem a la Israel, Taiwan or the

Silicon Valley. A self-sustaining innovation ecosystem will require all the

stakeholders to come into play simultaneously as the chain is ultimately only as

strong as the weakest link. The key stakeholders in an innovation ecosystem are

(not in order of priority):

  • IT industry

  • Vertical industries especially which use IT as an

    enabler for competitive advantage

  • Academia

  • Research and development organizations

  • Venture capital and funding institutions

  • Government

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The following are some ideas for

creating an innovation ecosystem in India: 



  • Vertical industry involvement: 'What to innovate'

    and 'Access to market' are the two most significant challenges for an

    innovator. The vertical industries are in the best position to know the

    current and future technology needs of their industries and can provide the

    inputs on 'what to innovate' to the entrepreneurs. For example, the

    automobile industry knows that a car of the future will incorporate a

    significant amount of software and firmware. A majority of these

    technologies need to be experimented with before they can be commercially

    deployed. Similar to the automobile component-manufacturing network actively

    nurtured by the automobile manufacturers, a network of software

    entrepreneurs can be incubated by the automobile industry for developing

    automotive software.    

Ultimately the

vertical industries will be the buyers of the entrepreneur's outputs. Thus

their involvement in the innovation lifecycle will ensure that there is a

continuous feedback to the entrepreneurs during development and there are no

surprises when the products hit the market.

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  • Access to funds: Timely access to funds is probably

    the single most important input for an entrepreneur. Unfortunately the

    venture capitalists located in India are not keen on seed capital and

    ideation stage funding. A majority of the Government VC funding involves

    complex procedures and requires the entrepreneur to provide fixed assets as

    collateral.

To provide funds

at the ideation stage, a National IT Innovation fund should be created with

participation from the IT industry and Government. To avoid a subsidy culture

and promote rigorous evaluation of proposals, the fund management can be vested

with professional VCs. Unlike the commercial VC funds, this fund can have some

focus areas including ideation stage funding, products focused on Indian market,

key technologies etc. Creating an INR 100 crore National IT Innovation fund

should not be a problem at all as it represents approaximately1 % of the profits

and less than 0.3 % of the revenues of the Top 10 Indian IT firms.

  • Management mentoring: Most entrepreneurs are

    technologists at heart and have little or no skills in managing a business.

    The Indian VC community also often falls short in providing management

    mentoring to the entrepreneurs. The IT industry should 'adopt' promising

    start-ups, which cannot only be provided funds but also be mentored by

    senior professionals from the industry. If each of the top 10 IT industry

    firms adopts 10 start-ups, it will result in 100 start-up firms receiving

    quality management mentoring from professionals in their own industry. This

    model can also benefit the IT firms as their professionals will interact

    with entrepreneurs and take the entrepreneurial culture back to their parent

    firms.

  • Skill development: While management mentoring is a

    'quick-fix', a more sustainable way is required to provide business

    management skills to the entrepreneur community. IT industry and Indian

    management institutes can create business management courses aimed at

    entrepreneurs. The industry and government can subsidize the cost for the

    start-up entrepreneurs. To increase participation, the courses can be

    structured in a way that while they are initially class room intensive but

    subsequently enable e-learning.

  • Commercializing R&D: Government research

    institutions and academic institutions have created a significant amount of

    IP assets through basic and applied research. Given the focus of these

    institutes it will be far-fetched to assume that they will be able to

    commercialize their assets effectively. A more productive model will be if

    entrepreneurs are allowed access to the IP assets of these institutes

    through a commercial licensing model to develop solutions. This model will

    provide a ROI to the government, encourage business and research

    collaboration and encourage the entrepreneurs to work on emerging

    technologies instead of commodity technologies.

  • Incubation centers: A serious impediment to

    entrepreneurship is the high-cost of infrastructure and the non-availability

    of facilities for specialized testing, product certification etc. The

    government should establish or incentivize industry to establish incubation

    centers with state-of-the-art computing and communication infrastructure

    where entrepreneurs can operate in a 'plug-and-play' mode. These

    incubation centers can be vertically focused and established in close

    proximity to the vertical industry concentrations to encourage interaction

    between the entrepreneurs and industry and encourage a collaboration network

    among entrepreneurs. For example an incubation center for automotive

    technologies can be established in Pune, where there is a large

    concentration of automobile and automobile component manufacturers.

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Some of the

leading government research and development and academic institutions have

world-class infrastructure, which is often underutilized. Entrepreneurs can be

provided access to these facilities at no-cost or nominal cost basis. A big

benefit of this would be the development of an interaction between R&D and

entrepreneurship.

Innovation will thrive if and only

if an ecosystem is created which encourages entrepreneurship, rewards risk

taking and does not treat failure as a deadly sin

The UK Government

has adopted this approach by establishing Science and Technology parks close to

major universities like Oxford and Cambridge to encourage collaboration between

academia and entrepreneurs.

  • Regulatory environment: As with most initiatives, the

    government has a critical role to play in developing the innovation

    eco-system. The government is both a large investor in research and

    development and a large buyer of IT products and services. The role has to

    go beyond providing financial subsides. Some ideas for creating a innovation

    conducive regulatory environment are:

    • Aligning the patent and copyright laws with the

      international benchmarks and making the process of patenting less

      cumbersome.

    • Increasing the conviction rate and penalties for

      piracy, patent and copyright infringements through fast-track dedicated

      courts.

    • Providing financial incentives including tax-free

      income for domestic earnings for a defined period, interest free loans

      etc.

    • Improve government procurement procedures and make

      it simpler for entrepreneurs to apply for government contracts

    • Reimburse patenting and product certification

      expenses

    • Incentivize deployment of 'made-in-India'

      products especially in the government sector

  • Evangelizing entrepreneurship: The importance of role

    models cannot be overemphasized to attract entrepreneurs to the IT industry.

    Although, the IT industry has itself grown through efforts of entrepreneurs

    in the 80's, it has somewhere along the way neglected to highlight the

    importance of entrepreneurship in its success. The industry should

    evangelize entrepreneurship through awards, industry events etc. As first

    time success is rare in the entrepreneurial world, the key message, which

    needs to be articulated is that it is acceptable to fail as long as you try

    again.  The Phoenix Awards in Singapore are aimed at the entrepreneurs

    who may have failed but successfully launched new ventures subsequently. 

It is clear that while everyone in

India desires and talks about innovation, it is not something, which will happen

by-itself. Dedicated and sustained efforts need to be invested by all

stakeholders to create an IT innovation ecosystem where entrepreneurship is

encouraged and nurtured. Due to its rich management and financial resources, the

Indian IT industry has to take a leadership role as it probably has the greatest

stake in driving innovation for achieving long-term health of the industry. 



-Rajdeep

Sahrawat
, Vice President, NASSCOM. Views are personal 



mail@dqindia.com

 

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