By acquiring and engaging with startups, Indian IT firms are hoping to gain the innovation edge. Saritha Rai says this evolution of the industry's business model is long overdue.
In India's IT sector an outdated business model and a swollen workforce have recently added up to a scenario that is not exactly conducive to innovation. To get around the challenge and infuse a dose of innovation, top firms are looking to engage, partner, or even acquire small startups, in an effort to leverage their creative, original ideas.
The collaborations are turning out to be a powerful trend, giving established firms an opportunity to drive innovation without any major distractions to their core business. Venture funding startups and investing in incubators and accelerators is giving them access to startups' niche solutions, emerging technologies, and newer business models.
Infosys, long considered conservative when it comes to spending its substantial cash chest, has created a $500 million fund to invest in firms working in newer domains such as automation and artificial intelligence. Its recent $200 million acquisition of automation startup Panaya is only the beginning its CEO Vishal Sikka has been quoted as saying.
Infosys' Bangalore rival Wipro has set up a $100 million corporate venture fund in Silicon Valley. India's largest IT services provider TCS has screened over 1,000 startups in India, Israel, and Silicon Valley in its hunt for the next big idea, and will eventually choose a few startups' solutions to take to their biggest customers.
Large firms are seeking out such engagements for several reasons. Innovative startups can give them a competitive advantage or derive cost efficiencies. They can compress time to market, fill gaps in solutions, gain access to differentiated technology intellectual property, accelerate market entry into new geographies, build solutions for new vertical segments, or deliver new combination solutions that combine hardware to software and services.
Smaller startups are an attractive proposition, as they are nimble and able to take greater risks. "They can push the envelope on new technologies faster and have fewer legacy or environmental constraints," said Ravi Gururaj, chairman of the Product Council of Nasscom, India's IT services industry trade body.
Tech Mahindra, India's fifth-largest IT services firm, is taking a multi-dimensional approach to engaging with startups. Through a variety of events, the firm is inviting startups from various verticals to present their innovations and business case. Tech Mahindra then provides support at different levels to select startups, such as investing in technology development, defining the go-to-market strategy, or helping sell their product through the firm's sales channels.
Engaging with startups helps Tech Mahindra enhance its solution offerings by adding disruptive features to it, said Sirisha Voruganti, Global Head for Innovation at Tech Mahindra. "It helps us to work on multiple technologies and offer them through an aggregated platform — without diluting the focus on our main business objectives," said Voruganti. It is a mutually-beneficial relationship, as IT firms get access to niche technologies while startups get funding or access to a global clientele.
Other firms such as New Delhi-based HCL Technologies are experimenting internally. To spur creative ideas amongst its workers, HCL has introduced an "American Idol"-like platform for employees to showcase their ideas, get voted by the entire HCL workforce, and give the best ideas an opportunity to get funded. The company, India's fourth-largest IT services firm, has collected 1,300 ideas, four amongst them were winners in customer onboarding and cloud technologies.
It may be too early to expect substantive outcomes out of the teaming up of IT services firms and startups, said Gururaj of Nasscom Product Conclave. But more firms have become outgoing and active at startup and product industry events, he said. To scout the right collaborations, firms like TCS have launched Pitch Days, inviting a series of startup founders to pitch to a cross-section of business unit heads. Some have staged hackathons and some have even sent senior executives into the ecosystem for sustained mentoring sessions.
India's IT sector is adopting the Open Innovation model, crowdsourcing ideas and solutions to transform its outdated business model. The evolution is long overdue.