To become the global leader, Indian IT industry needs a self-sustaining IT
Innovation Ecosystem that involves both the government and the industry itself
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.Â
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.Â
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. Â
Before
proceeding to the 'why' and 'how' of innovation, here are some key
trends of the Indian IT industry:Â
-
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.Â
-
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.Â
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.Â
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
The following are some ideas for
creating an innovation ecosystem in India:Â
-
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.   Â
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.
-
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.
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 |
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.Â
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.Â
-Rajdeep
Sahrawat, Vice President, NASSCOM. Views are personalÂ
mail@dqindia.com
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