If industry estimates are any indication, the Indian IT services companies plan to spend a whopping Rs 1,200 crore towards R&D during the present fiscal. This, according to an industry analyst, is a 30 per cent increase from last fiscal.
The IT services firms are pursuing innovation so aggressively that the spend on R&D initiatives by most top tier companies have more than doubled during the last two years. Wipro's R&D expenditure which stood around Rs 20 crore during fiscal-ended March 31, 2006, rose to Rs 26.8 crore in 2007 and Rs 40.5 crore in 2008.
Similarly, Infosys has increased its R&D spend significantly during the last two years. The company's R&D spend in 2006 was $23 million which grew to $37 million in 2007. During fiscal-ended March 31, 2008, the company spent $50 million on R&D with a focus on developing and refining methodologies, tools and techniques, improving estimation processes and adopting new technologies.
India's largest software exporter TCS spent about Rs 52 crore on R&D in 2007-08 as compared to close to Rs 41 crore during previous fiscal. According to the company, the R&D efforts have resulted in the sale of software licences and usage of these licences internally, yielding savings of about $12 million in FY2007-08, compared to $8 million in fiscal 2006-07.
Satyam is spending about 5 per cent of its Rs 8,500 crore sales on a broader research and innovation initiatives which include marketing and process innovation, managing of Centres of Excellence created for different industry verticals and continual innovation. Pune-based Zensar Technologies spends about 8 per cent of revenues on research and innovations. The company has created a position of chief innovation officer and a technology innovation group, which is yielding results.
"The industry is in what we called the third part of growth. The first part was about wage arbitrage; the second was about quality and now it is innovation. IT services companies are doing a lot of research to develop new processes, products and business models," said Ganesh Natarajan, global CEO, Zensar Technologies, also chairman of Nasscom.
Adds Sanjiv Puri, Managing Director, ITC Infotech, "For IT companies, sustainable competitive advantage will have to be built on creating superior business solutions, innovations and IP. Offshoring is no more about cost arbitrage. It is about value arbitrage by accessing a global talent pool. Many an organisation is focussing on creating business value through IT."
The focus on R&D and innovations by Indian IT services companies is being driven by various reasons. Wipro uses innovation for creating new solutions and intellectual property which potentially expands its service offerings.
Infosys uses R&D for developing and refining its methodologies, tools and techniques, improving estimation processes and adopting new technologies. Zensar's innovation group in discovering intellectual properties within the existing projects so that these can be reused in other projects.
According to Natarajan, a lot of company's growth in the SAP services last year was due to use of reusable templates it created for pharmaceutical, media and retail.
"There is a clear evolution in the R&D pattern of Indian IT companies. IT services firms are now expanding the scope of innovation to capture more differentiated business in newer areas apart from expanding to existing customers. The key message is firms are moving away from a labour intensive, low cost model to optimising their resources for a non-linear model driven by technological excellence," said S Sabyasachi, senior director, neoIT, a services globalisation advisory firm.
The history of R&D among Indian firms dates back 10-15 years, when IT firms focussed on productivity improvement programmes like Lean, Six Sigma methodologies, quality processes. This helped them to a standard process to reusable framework. Following this, they went one step ahead by creating industry-specific and technology-specific centres of excellence.
During the last 3-4 years, the industry had been witnessing hectic activities in the areas of infrastructure standardisation, virtualisation and consolidation. "Going forward, R&D is going to be a key differentiator for most of these companies," adds Sabyasachi.
