I believe that India shoring of R&D is going through a “trough of disillusionment”. There are unmet expectations on both the US and the India sides. Many feel that the model isn’t working. Some companies are slowing down, others are scaling back and many more are re-evaluating their plans. But this phase is good for the future. It will recalibrate expectations and will lead to a more thoughtful and sustainable growth in India shoring going forward.
How did we get here? Every now and then Pari Natarajan (of Zinnov, a respected boutique R&D offshoring consulting firm) and I sit down to chat about the industry. Today we chatted about how the genesis of the current disillusionment is in the aftermath of the dot com bust.
1. Bubble era of India shoring of R&D
The dot com bust created the bubble era of India shoring of R&D. 2002-4 was period of inflated expectations. It saw a sudden influx of new companies embracing the India R&D offshoring model. They set out to accomplish in 2-3 years what the early birds like Texas Instruments or VERITAS Software had achieved over 10 or more years. What’s more they added headcount like crazy. When you have a 10-year old stable R&D organization in India, you can go from 600 to 1600 engineers in 2 years. But you can’t add 1000 engineers, or for that matter even 150, when a strong foundation isn’t in place. After all, the product engineering industry is still young and immature in India and is not at all like Silicon Valley when it comes to quick growth. In India you need to patiently groom your own talent, build your own culture and essentially lay a good foundation in place before you can ramp-up the organization.
2. Lack of commitment to change
Let me contrast the bubble era with what happened in the first wave of R&D offshoring, This was the period from mid-90s till 2000 when the R&D budgets in almost every company were growing rapidly. In fact every location was growing engineering headcount; it’s just that India was growing much faster. The whole fear of offshoring hadn’t set in. Making the needed organizational changes in the US to support distributed development was a lot simpler in this climate. In any case, self-selection ensured that only forward-thinking executives were embracing India. They had some vision and were willing to take some risk to implement it.
Post dot com bust, R&D offshoring became popular as a way of cost-cutting. It became a Board mandate and was pushed hard inside the organization. The message came down loud and clear: you had to get it done and you had to get it done quickly. Not much thought was given to the models that needed to be embraced. Or to the organizational change in home office that was needed to make distant distributed development work. Debate was quashed. The mood had changed. Offshoring had come to be seen as a zero-sum game.
3. Caught in the middle
Now, in 2006, most companies of the bubble era are caught up in the no-man’s land of ‘matrix management hell’. There are shifting lines of reporting, unclear responsibilities and lack of accountability across the various locations. Nobody is happy with the current arrangement.
The reality is that Global Product Development (GPD) works only if you use one of the proven models. There are four of them that are significant. I describe (unfortunately, subscription required) them in this September/October issue of IEEE Software. Let me focus on just two of them right now. These are:
“Job-shop model. In this version of Global Product Development the product architecture and design stays at the home-office while coding, testing and/or sustenance is sent over to lower-wage countries like India.
Component responsibility model. This involves taking an architectural component or a sub-product and moving it lock, stock and barrel to another development center. In this case the whole product is a result of many primary development centers, spread across the world, collaborating with each other in their unique areas of specialization.”
Now if you stay with pure job-shop model or with pure component responsibility model then you will not be in matrix management hell. But the trouble is that the home office likes the job shop model (don’t have to give up control) while the India team lobbies hard for the component responsibility model (makes the organization more relevant to business). A hybrid approach is often what companies end up with. This is the marshland, the no-man’s land, of R&D globalization where most bubble-era companies have ended up.
What now?
A cleanup of this mess is required. Some of it will happen through decay; some companies will just lose interest in India shoring of R&D and pull back. Others are so far down the path that they have to fix the mess. They will need to bring in a cleaning crew and go through some additional pain to get things working. Interesting times ahead!
Sharad,
Thanks for a very good article. I have circulated to some people who feel that these problems are unique to their own organisation.
I think we (India center managers and stakeholders) significantly contribute to the problem ourselves with an unhealthy focus on employee number - the number of staff employed and growth in that number - as a metric of success. As Jurassic age as it sounds, the focus is always on the growth of the number and the additional square feet of the space we want.
This drives the Indian center’s behaviour more toward an outsourcing vendor’s behaviour. You are motivated to take on any and all work. You are motivated to grab the project first and then think about whether it makes sense to execute the project in India. You are pitting against other offshore centers and competing against them.
What is worse, your best people’s bandwidth is wasted in managing the growth in number.
It is time we realise that the number metric makes sense only for services companies like TCS, Infosys, Wipro etc. where no. of staff is proportional to the revenue they generate. An MNC’s India center should instead exclusively define itself by metrics that are more meaningful to the organisation as a whole.
Hi Sharad,
Good article. I think India is becoming a credible player towards component responsibility model. There is incredible talent and more are more companies are realizing this and shying away from using offshoring for sustenance work.
But I feel the challenge for Indian companies will be retaining talent - senior architects who are half way thru a project leaving for another lucrative offer - could kill the whole project. I strongly believe the leadership of the Indian companies should get together and enforce what I call “free agency” rule. You become a free agent (I am borrowing the american football analogy) say only after you are in a company for minimum 3 years. If all companies agree to this then its a win-win for everyone. Ofcourse, there are exception - family situations etc where you can break this, but the reasons have to be genuine.
Intersting viewpoints on “Bursting of the India R&D Offshoring Bubble” However, one will have to take the viewpoint with a grain of salt since it is similar to the “India vs. China” debate on offshoring R&D.
I guess business leaders already realize that it is not “India vs. China” but “India, China and anywhere it makes good business sense”
Unlike garment, shoe manufacturing, and other labor intensive tasks R&D cannot be easily broken up into tasks that require intelligence and tasks that require human bots. The idea of offshore appears lucrative because the labor in India is dirt cheap. However, not able to separate R&D project into intelligent design pieces and cheap manufacturing pieces is what is leading to frustrations. Even if one is able to split them, the success will be difficult. Despite cheap labor, India hasn’t been successful even in manufacturing, China is generations ahead of India. India is a very complex country with a complex culture. Enforcing discipline and controlling quality is a next to impossible task in India while they are relatively much easier in China. In summary you get much lower ROI.
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