In good times bond yield spreads narrow. Junk bonds don’t command a big premium over Treasury bonds. But when things turn bad, the spreads widen. In the last three weeks alone junk bond spreads have widened by 30 basis points due to concerns about the sub-prime bond market.
What has all this to do with the India R&D footprint?
Nothing directly. I mention it only because it’s a good analogy for what I am about to say.
Since the late-90s there has been a trend to move some product development over to India. Things have been on a roll. During these times some people have ignored the two basic questions that underpin long-term success: (a) Which sub-products or components to move? (b) How to move them?
In place of careful consideration, the focus has been on momentum. The result is that the India R&D footprint of every MNC has uneven quality. What’s more there are significant variations across MNC captives.
These variations didn’t matter when the times were good and growth was easy to come by. But there is a talent crunch in India now that’s driving a flight to “quality” among the key employees. So the “spreads” are widening. The good parts of the footprint will do just fine. On the other hand, the weaker parts are likely to collapse. It’s time to evaluate the portfolio.
The evaluation is not that difficult. It takes the form of a 2X2 matrix on which is populated each product team. One axis is about business motivation for offshoring. Is it about budgets or about business objectives? (See an earlier article: From Managing Budgets to Driving Business) The other axis is about implementation. This is based on the success framework that I posted a couple of days ago. (You can think of these axes in Gartner Magic Quadrant terms: vision and ability to execute. There is an informal MQ type matrix for R&D captives that is floating about. I can’t share it here for obvious reasons; it’ll offend too many people.)
Obviously cleaning up of the portfolio must follow the portfolio evaluation. While I won’t go into the details of this cleanup here, I must point out that the cost of failure in product offshoring is usually high. Product revenues, customer satisfaction or competitive positioning can be easily impacted.
In a sense this brings us to some fundamental questions. Is there an inflection taking place? Are times changing? I do think this is case. A year back product offshoring failures from India looked like remote possibilities. Now the situation is different as I have observed here and here. I hope I am wrong but why take a chance!
[Update: Also see a later post ‘Managing the Tension between Product Offshoring and Incubation’.]
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