According to estimates in the NASSCOM-BCG Innovation Report 2007, by 2012 the Indian IT-ITES industry can tap about $50 billion in additional revenue—just through innovation. Here are some key suggestions derived from the report.

‘Price advantage’ is no longer the key to success as far as the IT and IT-enabled services (ITES) industry in India is concerned. One of the reasons for the price advantage was the availability of low-cost talent that Indian firms traditionally harnessed. Today, however, the global players are adept at directly tapping and working with this affordable Indian talent pool. Besides this, the rupee has appreciated against the dollar, reducing profit margins for those earning from exports.

Moreover, China is emerging as a major competitor to India. Consequently, merely finding better ways of doing what a firm has always been doing does not provide a competitive edge today—faster and cheaper options, sometimes even imitations, are likely to materialise soon. Such incremental improvements, though necessary, do not guarantee a company a stronghold.

Given such a situation, how then can our IT-ITES players earn that additional $50 billion? The secret lies in focusing on innovation, and doing it right!

The Innovation Report 2007 released recently by the Boston Consulting Group (BCG) and the National Association for Software and Service Companies (NASSCOM) provides a roadmap for the industry to achieve this target. While the report also recommends initiatives by NASSCOM and the government, it underlines the fact that since the ‘firm’ is the unit that adds up to form the ‘industry’, innovation has to essentially happen at the level of individual firms. NASSCOM and the government can, of course, provide a dynamic environment for that to happen.

Here are some key suggestions for Indian IT/ITES companies, based on the report.

1. In the age of convergence, all efforts converge at the customer

Boundaries are fading. No longer is any firm ‘purely’ into hardware, software or services. Successful firms are taking a holistic approach, where every activity focuses on understanding and satisfying customers’ needs, and improving the overall user experience. Innovation is no longer about technology; rather, it is a thread that runs through the whole lifecycle of product/solution development—launch, pricing, support, service and value-addition. To find a place for themselves in such an environment, it is not enough if firms invent or develop good technologies; they must concentrate on customer-centric business models and market-facing capabilities.

2. Get patriotic!

No, this is not an idealistic, off-context statement! This could well be the secret to expanding your business, which is no longer about serving foreign markets alone. The NASSCOM-BCG report reveals that there is a huge untapped market in India for IT and telecom. By developing low-cost and innovative solutions for healthcare, education, financial services, retail and
e-governance, a company can carve a niche for itself in not just the Indian market, but globally as well. By collaborating with experts in such key consumer industries, the IT/ITES industry can come up with excellent solutions that will score well both in India and in advanced export markets. The report is quite heartening; it highlights that the industry does not aspire to innovate simply for commercial gains alone, but also for the well-being of Indian society.

3. Think ‘breakthrough’

Innovation is a very broad term. A simple improvement to an existing process is an innovation; so is a disruptive business model that shakes the industry to its very roots - but their relative impacts are very different. The report notes that most companies focus on sustaining and enhancing innovations that will merely help them sustain or slightly grow their market. However, for medium or long-term benefits, a company should not just be content with improving internal processes but should aspire for breakthrough innovations, especially in the market-facing aspects of their business, like products or services, delivery and business models. Breakthrough innovations will create ‘blue oceans’ or untapped market space that they can rule! Companies should aim to create technologies that will become the standards of tomorrow.

4. Cash in on intellect

China and Israel are bullish competitors in the outsourcing industry now. There is also tremendous opposition from employees in outsourcing nations about their jobs being ‘stolen’. Considering all such factors, the chances that a company can make it big by just offering low wages as an advantage are bleak. Firms should try and break into knowledge-intensive fields like engineering, R&D and consultancy. They should create intellectual property pools in emerging technology domains, and cash in on that. And Intellectual Property (IP) is not just about patents, but also about establishing strong domain capabilities that you will be known for!

5. Collaborate across the whole ecosystem

One reason for India lagging behind in innovation is the reluctance of companies to ‘share’ ideas and collaborate with others. In truth, innovation can never be effective in isolation. An organisation needs to collaborate with talent outside its own firm (or even industry), identify and sync with universities, incubate research projects, identify and work with investors, trade in IP, and so on, to succeed. It should collaborate with key consumers to find out their needs, and tap their domain expertise to develop better solutions for them.

However, it is also true that the innovation ecosystem in India is not mature enough to enable such collaboration: there are no common platforms or networks for innovators to interact; there are many geographical, cultural and technical barriers in the way of players across the country working together. One notable solution that the report suggests is the formation of thematic clusters of local industries and educational institutions, which can collaborate with a focus on specific domains. For example, institutions in Pune can come together to propel thought-leadership in the wireless field; industries in Chennai can do so in the automotive field, and so on.

Some initiatives that NASSCOM will be taking up to create an Indi Innovation Framework (comprising certification programmes, funds, awards, thematic innovation platforms, etc) might also remedy the situation. The report also urges the government to take some bold steps to make patenting more efficient, offer incentives, or at least make it easier to start and run businesses, and to synergise innovation-related activities across the nation (like, for example, Israel’s Office of the Chief Scientist).

6. Make Dr Doolittle’s Pushmepullyou the mascot for innovation

Coming up with breakthrough innovations, storming into high-value services like consultancy and R&D, capitalising on IP, etc are easier said than done. Achieving these requires a concerted effort—a ‘push’ from the top management, and a ‘pull’ by teams across the organisation. It requires defining high goals, estimating the current situation in the light of these goals, and charting a ‘pathway to innovation’.
For that, the top management has to be convinced about the benefits of innovation. No doubt, investment in innovation is a trade-off between short-term profits and long-term benefits, but the management should never miss the forest for the trees! Another misunderstanding that discourages innovation activities is that innovation is not appreciated by shareholders. However, a look at globally-successful firms shows that innovation efforts improve a firm’s image, and such firms outperform others in terms of shareholder returns.

Understanding this, a firm’s top management should create processes that foster innovation and enable employees to collaborate with other stakeholders, and emphasise the innovation culture across the organisation. This creates the push. And with sufficient motivation, a cohesive innovation-oriented pull by teams from all sides of the organisation sets in automatically.
Then what? Accelerated growth, bigger markets, success…! Do you doubt it? We don’t!

In the context of the ‘rise of the rupee’

The appreciation of the rupee against the dollar is seen as a ‘crisis’ affecting export-oriented firms. We asked Ameet Nivsarkar, vice president, NASSCOM, about whether the drop of the dollar’s value is really such a crisis for the IT-ITES industry, and more importantly, whether innovation can help surmount this problem. His reply dispels many a misconception.

“The rupee appreciation in itself has never been a crisis, but how fast the rupee has appreciated in such a short time is what is impacting the industry. 8-9 per cent appreciation in the past few months, on the back of escalating wages and imposition of duties such as MAT by the government, is seriously impacting the profitability of the industry.

“A substantial increase in contract prices is not an option either, since the industry is extremely competitive and there are companies in other competitive destinations that will pounce on the opportunity.

“While innovation is a long-term solution, as it will allow the Indian industry to charge a premium, it still will not completely protect us during periods of such major rupee appreciation because contract prices cannot be altered that easily.”