Driving internal innovation initiatives effectively at your Organization


About the author: Vivek Gupta is a Senior Consultant at Zinnov who works with the Engineering Excellence team.


That continuous innovation is the mantra for survival & success for organizations globally is now an established fact. Avenues such as setting up accelerators/ incubators, startups connects, leveraging the existing developer ecosystem, academic connects etc. can provide an impetus to innovation-related aspirations of the organization. However, these avenues, alone should not be seen as silver bullets to innovation woes or as alternatives to internal innovation within the organization.

Most of the organizations try to have it covered through a defined blueprint for internal innovation initiatives & programs. However, it is the manner of implementation of these programs where the actual-rubber-meets-the-road! Implementing such initiatives effectively can be challenging, especially for organizations that may be large in terms of headcount, or for entities that were established with a certain mandate in place, Example – Being a support Org. for the global HQ.  

How do you bring about a cultural shift, a change in mindset at such organizations that evolved with a certain DNA that was not necessarily attuned to innovation? How do you overcome stereotypes, pessimism with regards to failed attempts earlier at implementing similar initiatives?  How can you drive cross-team/ cross-BU collaboration across vertically aligned functions and teams?

Driving (1)

If these are some of the thoughts that cloud your mind, then there’s some help to follow!

  1. How to Increase awareness & know-how about innovation initiatives/ programs? – Start small in case program is just being rolled-out, probably with a pilot program or with a specific team or BU that you have generally found to be supportive towards such initiatives. Leveraging internal social/ collaboration platforms to spread the word about programs, using gamification techniques (Ex: Points system for top innovators/ collaborators, Badge-of-honor etc. for person contributing most number of relevant ideas etc.) can serve as great mechanisms to increase awareness and uptake of such programs .
  2. How do I rope in the right evangelists for such initiatives? – Try to identify someone from within a specific team/ BU who is willing to champion your cause. A person who has the ability to positively influence the team, a prolific innovator/ inventor, a role model for the team, someone with intrapreneurial tendencies etc. are typically the right set of candidates for such roles.
  3. Some of these initiatives failed in the past, How do I overcome pessimism surrounding the same? – This can sometimes be a difficult question to answer. Be candid about what went wrong last time around, what is different this time and what will be improved upon or done better. Provide clarity about roadmap of such initiatives with clearly defined outcomes. Specify the actual support on offer for ideators/ innovators through these initiatives/ programs (Example: Mentorship support, collaboration support, time-funding, monetary funding etc.). Evangelize any recent success story, emerging role models that emerged through recent pilot programs etc.  
  4. How can I enable collaboration across large, vertically aligned functions & teams? – Create provisions for frequent connects between innovators & potential collaborators. Provision for both online (emails, social platforms, virtual connects etc.) & offline (one-on-one meetups through forums such as Hack days, Expos, poster presentations etc.) forums, diligently track status/ progress on your efforts. Encourage ideators to be specific about nature of collaboration that they seek for their ideas. Example: Specify whether they need dedicated time off, help with idea roadmap definition, SME support, hands-on support in terms of development & testing etc. Seek feedback from innovators & collaborators to improve collaboration-driven initiatives on regular basis.
  5. What about rewards & recognitions? Are monetary/ material rewards & recognitions the right tools to motivate potential innovators & drive participation in innovation programs? – Although a popular tool, material rewards & recognitions may not work with those who may have moved up the Maslow’s hierarchy! For some ideators, visibility for their ideas and opportunity to showcase them at the highest level within the organization maybe highly motivating. Aim to create opportunities for ideators to showcase their ideas to relevant stakeholders such as CxOs, Site leadership, Product Managers, sales & marketing teams. Peer recognitions (through memorabilia, badge-of-honor, SWAGs etc.), providing multiple opportunities/ platforms to showcase, seek feedback & refining ideas can also serve as the right motivation for innovators.
Posted in Human Resources, Innovation | Leave a comment

Captive vs Service Provider : A Zero Sum Game?


About the author: Sidhant Rastogi is a Partner at Zinnov and leads the Global Engineering Service Provider practice.


I have run a tad rugged answering the R&D center versus engineering service provider question. At times am piqued with either side taking one or few data points out of context or plain opinions to construct tall arguments in favor of the respective sides.

Quick primer on Facts/Numbers:

  1. Global Size 2015:
    • Offshore In-house: Globally, there are over 2500 offshore in-house R&D centers delivering ~ $31B of Engineering work.
    • Outsourcing: There are over 250 Engineering outsourcing partners across the world delivering ~ $36B of Engineering work.
  2. Global Growth 2014-15:
    • Offshore In-house: ~7.5%
    • Outsourcing: ~8.5%
  3. India Size 2015:
    • Offshore In-house: India houses over 900 companies with in-house centers accounting for ~ $12.2B
    • Outsourcing: India has over 75 outsourcing companies accounting for ~ $7.8B
  4. India Growth 2014-15:
    • Offshore In-house: ~9% (note the larger base)
    • Outsourcing: ~12.5%

Therefore, from above data points, at the very least, we can establish that:

  1. Globally and also in India, captives and outsourcing partners are doing very well for themselves.
  2. India is growing faster than the global growth rate across captives and partners

So how do we solve this ‘debate’ as the facts point to a happy co-existence of both parties.

NON Zero-Sum Game:

The problem is that most people think of this as a contest – “captives versus service providers”. I must agree that to an extent, this is exactly how the premise was originally framed 15 years back. That was when a tsunami of companies set up their in-house R&D centers in India (500+ i.e. 50% of the current companies set up shop between 2002-2007). The service providers tried hard to ‘stop’ or gain share of this offshoring wave. Battles (now part of folklore) played out in the R&D offshoring company’s board rooms. Some of the veteran center heads and senior leadership at service providers still carry the ‘battle scars’.

However, a lot has changed in the last 10 years (like Apple launching the iPhone 🙂 ). Following are the key developments on either side:

In-house R&D centers:

  1. Scale: Over 50 centers with 1000+ engineers; multiple above 10,000 engineers each!
  2. Maturity: From the initial days of ‘supporting’ basic engineering work such as test / validation and drafting / modeling to owning not just complete engineering but also product management of product lines out of the center. This has been achieved by investing in capability, labs and talent.
  3. Efficiency: Scale and Kaizen over time has allowed in house centers to keep their cost of operations per FTE flat (in fact reduce in USD or EUR terms) over the last few years.
  4. Market/Ecosystem Integration: In-house center engineers have aligned, and in many cases tied to the hip with the company’s sales teams to drive growth in India / emerging markets. Companies are also using their India centers as channel to reach out to the broader India innovation fabric – start-ups, universities, etc. Centers have invested on multiple start-up incubators, reach out programs.
  5. Power (for lack of better word): Many in-house R&D centers have elevated themselves to “seat on the table” at overall company level decision making. Many are now important stakeholders or owners in global procurement.

Outsourcing partners:

  1. Scale: Scale growth is undeniable. We now have 8 companies with only engineering revenues over $1B with the largest being over $2B.
  2. Capability: Partners also have made massive investments to build accelerators, solutions and plug-n-play IPs to help their customers. They have also made investments in large labs, test facilities, proto shops to enable full life cycle product development.
  3. Footprint: Outsourcing partners have moved away from India-only or Eastern EUR-only delivery models to a larger global footprint. They can now offer a choice of talent and ecosystem “plug-in” across continents and countries – Argentina, Mexico, Eastern Europe, China, India, Vietnam, etc.
  4. Near shoring: (not onsite staffing – landed or local). In the day and age of fast moving technology, companies want to iterate on certain engineering areas faster.  Outsourcing partners are setting up shop close to the company engineering hubs or in nearby lower operating cost locations to enable greater collaboration and customer ‘comfort’. This is also leading to full cycle offshoring as the customer becomes more adept at carving out engineering work packages or the product they started working on together moves up the S-curve.
  5. Skin-in-the-game: Outsourcing partners are committing to unique engagement models. They have taken on complete product suites of say end-of- life products on a revenue share or upfront payment model. This not only helps companies focus management/engineering bandwidth on newer areas but also infuses/frees-up capital for new initiatives. Some partners are also working in outcome-only models such as payment linked only to quantum of reduction in the BoM cost of a component/assembly.

Also, in the last few years the in-house centers and outsourcing partners have warmed up to each other. They say money speaks the loudest – there is an estimated $350-400 Million of engineering work coming directly from India in-house captives to outsourcing partners. The engagement levels are improving from pure staffing to work-package and in many cases outright joint product development and technology collaboration.

Finally, from the product company perspective, both in-house and partner outsourcing models are tools to leverage during the process of Engineering globalization and innovation journey of a company. Each of the two models has its un-deniable value and both models can / are also being deployed simultaneously in multiple cases. I firmly believe that both models are here for good. It is high time we stop seeing this as a zero-sum game between in-house R&D centers and outsourcing partners.

Note: This post is only in the context of Engineering/R&D.
Source: Zinnov Global Insights Platform, Zinnov Globalization Accelerator Platform.

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Revving up India’s Accelerator Engine


About the authors: Vignesh Balagopalakrishnan is a Management Consultant at Zinnov who works with the Engineering Excellence team. Iris Babu is a content writer. 


India undeniably has a vibrant startup ecosystem, with Zinnov and NASSCOM pegging the number of technology driven product/digital startups in the country at over 4,200 in 2015, trailing behind only the US and neck-to-neck with UK. Startup accelerators have been a critical part of the ecosystem providing valuable resources and mentorship to help startups mature. One of the earliest startup accelerators in India was Microsoft Ventures established around 2012, a model now replicated by the tech giant globally.

Today, India is home to over 40+ accelerators, with about 1/3rd of them being corporate accelerators. Some of these include Microsoft Ventures (Bangalore), Target (Bangalore), Reliance (Mumbai), PayPal StartTank(Chennai), Pitney Bowes (NCR) to name a few. In the past few months, there has seen a surge in the number of corporate startup accelerators being set up in India. In 2016 alone, several large corporations have announced/set up accelerators in India: Apple, Oracle, Airbus, Lowes, Tesco, SwissRe to name a few. Why are we suddenly seeing this new trend?

The average lifespan of a company on the S&P 500 has decreased from 90 years in 1935 to 18 years today. For several organizations, growing in size and becoming process-heavy has resulted in an innovation bottleneck that needs to be addressed. Innovation has become cornerstone for organizations of tomorrow, with the landscape evolving into a disrupt-or-be-disrupted mode. With large corporations acknowledging this trend and bolstering themselves for the future by investing in innovation, startup accelerators are emerging as the most preferred engagement model to work with startups across India. The appeal of the model primarily lies in the fact that it’s a win-win situation: startups get an opportunity to gain strong footing with no interference while large companies achieve their corporate objectives, a model being dubbed as “co-opetition” (collaboration + competition).

Corporate Accelerators – What’s the value for large corporations?

Different accelerators are aligned with different organizational priorities. Here are the most common drivers for setting up corporate accelerators:

  • Promotion of own technologies – Promote own technologies/platforms by offering them to startups at no or subsidized costs (Ex.: Microsoft accelerator was initially launched to promote adoption of Microsoft Azure)
  • Complementary products – Develop complementary products/services that can add value to the organization’s existing offerings (Ex.: Apple is looking to strengthen the iOS developer ecosystem through the proposed India accelerator)
  • Access to external (disruptive) innovation – Access to and incubation of next generation technologies and products aligned with organization’s future priorities
  • Joint Go-to-market solutions – Enable access to newer markets through joint GTM solutions or eventually M&A. (Ex.: Target has signed vendor agreements with startups like Konotor & MuHive that graduated from Accelerator Program)
  • Exposure to employees – Promoting intrapreneurship and a culture of innovation within organization (Ex.: Airbus BizLab Bangalore has three internal Airbus teams as part of the current cohort)
  • Branding and Talent Sourcing – Building a strong employer brand as an innovation-focused company and thereby attracting quality talent

Capture

Accelerators have become a valuable component of the startup ecosystem in the country today. While startups are gaining significant value from these accelerators, large corporations setting up accelerators need to be cognizant of their intended outcomes from the accelerator, design and operate them effectively to derive significant value from them. Target’s vendor agreements with its accelerator alums Konotor & Muhive, and Microsoft’s investments in its alums like Ranku are clear instances where companies have realized value from their accelerator programs. If done right, these programs can evolve into an inevitable tool for large corporations to stay ahead of the curve.

Posted in India Business, Startups | Leave a comment

Advantages of setting up Global Development Centers in India

Today globalization has made our world smaller! Though globalization has its roots in cost arbitrage, companies now understand that globalization can help them create competitive advantage much beyond cost.  Most large companies are going global to source diverse intellectual capabilities that can help them innovate faster for both large and emerging markets.

India is the emerging hub for value creation

Global Development Centers in India have not just increased in number and in diverse industries but have also seen a tremendous transformation in value contribution. A majority of global development centers are focusing on developing solutions with global relevance driving high-end design and development from here. Global development centers in India are not only taking up ownership of end-to-end product, but also owning more strategic initiatives like analytics, user experience, convergence etc.

India Advantage

India inherently presents some advantages which companies today have come to leverage better.

This includes the following:-

 1. Workforce availability

  • India today boasts of a large workforce suitable for IT/ITeS industry with more than 100 million English-speaking population; the second largest in the world after the US.

The trained and experienced IT workforce relevant for R&D is expected to grow at a steady rate of 14% in years ahead. Every year more than 200,000 engineering graduates join the IT industry.

  • India also presents diverse industry capability – verticals such as banking &finance, healthcare, retail, manufacturing, government and utilities with experienced workforce and qualified graduates. (finance consultants (CAs, accountants, tax specialist), post graduates , lawyers, doctors, and many others )

2. Optimal costs to drive scale

The cost advantage has definitely seen a dip in the last few years but increase in value contribution has been much higher. Despite recent operational cost increase and higher inflation rate India still holds a comparative advantage and will continue to do so in the future as compared to other technology majors . The reasons:

  • Continuous increase in the supply of the workforce available (as high as 14% yoy)
  • Dollar / INR rate variation also helps contain costs
  • Established IT/software destinations in the country such as Bangalore and Hyderabad which are still less expensive compared to similar destinations across the world and provide the required infrastructure
  • In addition, the emergence of Tier 2 offshoring hubs such as Kochi, and Indore which offer 20-30% cost arbitrage as compared to a city like Bangalore
  • The presence of government recognized IT/ITeS promotion bodies and various tax incentive schemes for the technology sector act as icing on the cake.

3. Availability of hot skills such as   Big Data and Analytics

For most companies, Big Data and Analytics have become key focus and they are working to unleash the power of information and intelligence. Finding an edge, or a new niche, through extrapolating insights from data is more important today that ever before. Analysis of these vast datasets by various businesses is already creating a transformative impact across multiple sectors and is beginning to demonstrate that sophisticated analytical capabilities can result in great competitive advantage. Ironically, even with such vast data available, its’ its value remain locked in.  .

The availability of experienced workforce especially people with expertise in statistics and machine learning together with managers and analysts who know how to obtain and use insights from data is a critical constraint in realizing the benefits of emerging technologies. Skills like Big Data and Analytics are comparatively new anywhere in the globe. India has seen a big opportunity in this area and fast becoming a hub for these skills.

By 2020, Bangalore is expected to emerge as the second largest destination for Big Data R&D, driven by its fast growing experienced workforce. MNCs such as Amazon, IBM, EMC and E-bay have big data teams operating from Bangalore. Local companies such as TCS, Wipro and Infosys are also building Big Data capabilities to cater to their international clientele.

4. Time zone advantage

India has an 8-12 hour time zone difference with respect to the US and other developed markets. This gives companies an option to execute the “Follow the Sun“ model from India. (especially in development and support function.) The time zone difference offers other key advantages as well:

  • Business Continuity: Emerges as a great location for providing business continuity – optimally located in terms of time zone – can support countries in the west and in the east
  • Time to market : Reduced turn-around time and speed to market (aided by agile development) to compete with changing market demands
  • Support: Infrastructure and 24×7 support for multiple regions from Americas to EMEA and SEA; immediate issue resolution and customer satisfaction
  • Professional services: Expertise available at optimal costs . Can be a hub for APAC customers

5. Thriving ecosystem

Vibrant ecosystem provides an opportunity for global centers in India to enhance existing capability. This includes:-

  • Presence of 4000+ technology startups, 400 VCs & 2500 Angel Investors, and 150+ incubators.
  • Presence of over 238 million internet users; and one of the fastest growing smart phone market in Asia
  • 400+ Universities available to provide research support
  • Engineering institutes making available of 250 K plus fresh graduates (from Tier 1 colleges) in the next 5 years who can be trained for R&D.
  • Conducive services ecosystem with the presence of 350+ Service Providers. India provides the widest array of services (IT, BPO, KPO, R&D, and Engineering services ) and has the presence of most mature service providers such as Wipro, TCS, and Infosys
  • Presence of 300+ national laboratories pushing the quality of research up by the day

6. Multi- function center advantage

Availability of experienced professionals be it in engineering, professional services or shared services, makes India a lucrative destination to build multi-function center. Multi-Function Centers offer certain unique benefits and enable the parent organization to derive higher value. Some of the key advantages have been stated below:-

  • Creates a microcosm for the global organization and provide the “One Organization“ view
  • Provides the global center with a clear vision and hence enables the site leadership to make strategic investments
  • Helps create and operationalize a sustained innovation agenda
  • Helps global center leverage economies of scale and hence deliver more for the money spent on services provisioning
  • End-to-End process ownership provides for an integrated career path and hence helps in improving retention rates at the MNC Captive Centers

Globalization is a strategic imperative however it is essential to keep some key points in mind to lay a strong center foundation:-

  1. Ensure existing product roadmap, current operations and service delivery are not destabilized
  2. Create capability across functions – R&D, Support and Services
  3. Focus on functions that can increase efficiency and create business advantage
  4. Focus on roles for which there is adequate supply of skills in India
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APAC Digital Transformation: Separating Signal from Noise

After staying on the hype cycle for a long time, “Digital Transformation” is increasingly becoming mainstream and more real. Big Data Analytics is a leading enabler to drive digital transformation and to capture the industry trends and challenges around how companies are using Big Data to drive business PayPal hosted Fintech Xchange at the SunTec Convention Center in Singapore on September 2nd, 2015. People from all walks of the “technology society” including platform companies, service providers, consulting organizations and even students (from NUS, NTU) participated at the event to learn more about applied Big Data for Transformation.

PayPal was very kind to have invited me on the speaker panel along with senior stakeholders from the industry. At the pre-event networking opportunity as well as during the panel, I spent some time with Anupam Pahuja (GM, APAC Technology), Abhi Bisarya (Head of Consumer Solutions, APAC, PayPal), Dr. Bernard Leong (Head of Digital Services at Singapore Post), Axel Winter (Global Head of Process & Data Architecture, Standard Chartered Bank) and John Berns (Head of Data Science at Lazada) discussing about Digital Transformation in their organizations.

After a warm welcome from Anupam, who gave a glimpse into the rapidly growing PayPal business, Abhi Bisarya made a very insightful presentation to kick-start the event. It was intriguing to note that 25% of all transactions processed by PayPal were already through mobile. This resulted into $46 Bn worth of transactions on mobile in 2014 alone. With 169 Mn+ customers, PayPal processes about $8000 per second and collects 100s of customer data attributes, which in turn are analyzed and used to personalize the consumer experience and minimize the risks involved in moving money. It was interesting to see customizable desktop & mobile dashboards being offered by PayPal basis deep analytics on customer data. That kind of set the tone for the rest to evening as everyone looked to understand the business impact of Big Data

As I am running the management consulting practice for global digital transformation at Zinnov, I had a couple of questions that I was looking to hear from these experts and share my views via the panel podium:

  • What are the drivers and foundation of digital transformation at these organizations?
  • What is the organizational readiness a company needs to have to transform digitally?
  • How are companies thinking about vendor sourcing in the digital age?
  • How real is the threat from digital startups disrupting traditional businesses?
  • How are companies bridging the talent gap for digital transformation?

Dr. Bernard Leong from Singapore Post was very articulate on the key drivers and building blocks of digital transformation strategy. Giving reference to Harvard Business Review (HBR) articles multiple times, he suggested that digital is an absolute must for 3 key reasons – to protect the existing turf, to be relevant for millennial customers and to reduce the overall costs of doing business. He cautioned that not all digital transformation activities will be successful and companies should look at a 4-pronged approach of “Think Big”, “Act Small”, “Fail Fast” and “Learn Quickly”. Axel Winter from Standard Chartered made a comment representing the focus on digital in the banking industry – “if you don’t have a mobile app, you might as well start selling your shares”

In terms of organization readiness, Axel emphasized that having the DNA for digital is extremely vital for innovation. Standard Chartered, as such is undergoing a lot of organizational changes at the top level but the digital mandate is very clearly laid out. They have built a very strong internal IT team, which is supporting the innovation culture in the organization. Standard Chartered is probably one of the few large banks that have built their own Core Banking Solution (CBS) to cater to the specific needs of the bank.

Dr. Bernard is the Head of Digital Services at Singapore Post and this position was created about 3 years back realizing the need for digital transformation. Dr. Bernard reports directly to the CEO, is also the BU owner for digital business at Singapore and enjoys top leadership support in executing a digital strategy at the company. His primary focus is to expand the company in the region and build a strong foundation for the digital future. With a solid background in Theoretical Physics (PhD) & Computational Biology and a deep bent for data analytics, Dr. Bernard is hands-on with solving the customer paint points. He often goes to the post office to gain customer insights, digs deeper into social media platforms to find ‘genuine’ patterns and defines ‘call to action’. The company has gone through major transformations since the time he joined and has already digitized over 50% of their 58 post offices. Singapore Post has also launched newer offerings (such as POPStations, SAM Kiosks etc.) and shed away a few biz lines that were no longer strategic in the long arch of things (like selling mobile phones). The intent clearly is to sharpen the focus on what is most relevant from a futuristic standpoint.

On digital transformation ideas and prioritizing use cases, Dr. Bernard’s emphasis was on keeping the organization agile & lean and enabled for rapid prototyping. As an example, he likes collaborating with the CIO, BU owners and prioritise what is absolutely core to the business and has long term impact. Axel was of the opinion that while a number of banks are setting up Digital lab, the metrics to capture ROI or real success of such set ups are still evolving.

Data quality issues came up in the conversation several times and the panelist jokingly said that companies today don’t have “Big data” but have “Bad data”. The panel agreed that removing application silos and IT modernization focus is a must have to succeed in digital transformation journey and a well-planned modernization could avoid hefty investments in generating & managing data.  Standard Chartered, for e.g. is using Data Lake technologies and also focuses on core departmental use case data and horizontal use case data to speed up the data query process.

I believe that many companies are currently focused heavily on generating data and then trying to mine all kinds of data to derive use cases. However, going forward, companies will lay more emphasis on what use cases they want to solve for and accordingly identify what data that they need to aggregate and generate. This flip model will in turn reduce data management related overheads significantly thereby simplifying the data mirage to a large extent.

At Zinnov, we work with a number of IT service providers and I was curious to understand how large companies are (re)thinking their outsourcing relationships in the digital world. John Berns at Lazada said that they are a digital native company and like to keep things in-house and open source based. Axel, on the other hand, cautioned that the existing business model of IT commoditization will no longer be sustainable in the digital world and even though large System Integrators are setting up digital teams, that is only 20% of the organization headcount. The remaining 80% headcount continues to work on commodity business and that might need to fundamentally change in the future. Singapore Post has been working with a number of niche vendors such as Hootsuite, Engagor etc. and looks for the right capabilities to address digital needs of the companies. They are extremely selective about vendors, like to experiment on a small project with such vendors and cost also plays an important role in the equation.

On the disruptions caused by FinTech companies and startups in general, Axel opined that it is an important cog in the digital value chain but many of these startups may not be built on the right platforms that can scale. Such companies could maximize the impact by partnering with large Banks and build the platform to sustain. Standard Chartered for example has an office cum innovation lab in San Francisco, which works with startups to develop latest software for the bank and is overseen by the CIO directly.

Talent sourcing for Big Data and Digital Transformation was an important topic of discussion. John at Lazada emphasized that having both technical and domain skills are vital for Big Data strategy to succeed in an organization. However, he also agreed that it is difficult to find such capabilities together in an individual and suggested to hire a “mathematician who can communicate” and a “domain expert who understands the industry” and let them work together for growth. He felt that Singapore is a great source of data scientists, but has a severe shortage of data engineers with experience in scalable Big Data systems. At Singapore Post, employees are given six sigma trainings and are enabled to find meaning in data and they also look at Digital native companies such as Amazon & Google for inspirations.

The discussion concluded with some bright students from NTU and NUS inquiring about the future of analytics and looking for suggestions around building domain knowledge or deep technical knowledge for successful careers in big data. While these were tough questions, dinner had some vegetarian options for me to survive 🙂

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Digital 2.0: The New Normal

It is an intriguing world that we live in where everyone is anticipating What’s the Future for businesses across verticals. Both digital native and even traditional companies are disrupting the way business is done and this has fast resulted in a new trend in Digital Transformation.

It all began with the hype that perhaps started with the likes of Google, Amazon and Facebook, and became a reality when existing business models of hotels, cab services, retailers etc. started getting visibly disrupted (think AirBnB, Uber, Flipkart). Other industries such as Pharmaceuticals, Manufacturing etc. which were relatively untouched by the Digital Tsunami, anticipated disruption in the future and started transforming, slowly but steadily. A few others thought of digital as the fashion statement and got along. Consulting firms – incumbents & boutique alike – saw an opportunity to “advise” on what Digital means to these companies and how can they undergo such transformations. This was followed by the scary complicated slides and a flurry of “Digital Transformation” frameworks floating around in the market!

All said & done, the default clearly is DIGITAL and a number of enterprises are figuring this out in their own ways. A few progressive ones are touted as “masters” and a few others are evolving from the “beginners” or “challengers” tag. As a company, we have had the opportunity to speak to a number of digitally transforming companies in the US, Singapore, Germany, India and many other markets. One thing that stands out is the fact that each company has defined Digital in their own way (read Digital 1.0). However, the “Digital Strategy” is continuing to evolve and to truly transform to the next Digital level – Digital 2.0 – it is vital to take notice of the following add-ons.

Digital 2.0 The New Normal

Digital Forces Go Beyond SMAC

Social, Mobile, Analytics & Cloud (a.k.a. SMAC) technology adoption has been on the rise in the last 10 years. So much so that a number of companies who adopted either of these technologies started calling themselves “Digital”. However, merely running an application system on cloud, or creating a mobile app, or creating a Facebook page or running analytics on relational data only covers a part of the digital transformation that these organisations are aspiring for. A number of newer technologies such as Robotics, Machine Learning, & Artificial Intelligence as well as converged technologies such as IOT, 3D Printing etc. are coming off age in unleashing newer & unimagined scenarios and help enterprises in driving a comprehensive digital strategy.

Digital Forces Go Beyond SMAC

Large tech companies and start-ups are designing their products keeping such new technologies at the centre. Pepper, for e.g. Is a humanoid social robot created by Aldebaran Robotics for SoftBank Mobile and is designed with the ability to read emotions and to make people happy. Microsoft is using Cortana, its Personal Digital Assistant on top of its analytics suite to make insights more interactive for its users. HP & Autodesk are partnering together to unleash the potential of additive manufacturing while Microsoft Windows 10 promises to offer native support for 3D printing.

Digital is People First

Quite a few experts believe that Digital Transformation is about People first & technology later and they may not be completely off track here. The success of Digital Transformation depends – not merely on the scale of technology investments – but on Digital Agility which in turn depends upon the degree with which the people are empowered to embrace the change for growth & innovation. A number of surveys have indicated that lack of agility is the biggest roadblock for digital transformation as traditional & hierarchical structures are not suited to manage agility in the ever changing business environment.

Digital is People First

We already see examples of firms incorporating Digital Agility into their culture. 3M, for E.g., has a “15% Culture” which mandates employees to spend 15% of their time on developing new products which are not aligned to their routine work. This is augmented by Genesis Grants to fund ~10 new innovative ideas on an annual basis. GE is another such example, which follows the “FastWorks Agile” approach where small teams act like lean start-ups and crowd-source innovative ideas.

CEO as the Propeller of Unified Digital Vision

Some of the most successful digital companies such as Burberry, Novartis, GE, Tesla and as recent as Alphabet started with a digital vision and focused on breaking the digital silos to drive the digital agenda together, as a company. And in all cases, the mandate came in from the CEOs themselves and rightly so as the CEOs are in the best position to have a foresight on how digital will disrupt their business. Hence, it is imperative that the CEO be in the driver’s seat for the Digital Vision which has to then percolate or seep down across the entire organization. Once the “license to change” comes from the top, it becomes easier for the existing CXOs (such as CIO, CMO, CFO etc.) as well as new CXOs (such as CDO) to work together on the digital agenda without causing internal friction and threatening each other’s job roles.

CEO as the Propeller of Unified Digital Vision

This would also fundamentally change how companies look for new CEOs in this period of biggest transformation of their lives. The digital age CEOs will be required to have transformative digital ambitions, ability to give clear directions to the organisation and empower employees to be successful in the digital journey. A number of companies continue to favour hiring CEOs from within but with a revived focus on digital. For e.g. when Art Peck was named as the CEO of Gap Inc. in October 2014, he was already serving as the president of the company’s Growth, Innovation & Digital (GID) division since 2012 and was driving the digital strategy for the $2Bn+ e-commerce business across 80 countries. Art and his team were responsible for developing industry leading omni-channel platform for consumers to bridge the digital & physical gap. Art also added responsibility for the Gap Inc. technology division, working closely with the company’s chief information officer to optimize innovative and business solutions.

Digital Excellence Thrives on Co-Innovation with Ecosystem

Once the Digital Vision is created, innovation in people, process, technology and business models becomes imperative and if this innovation is driven along with visionary customers and partners, it opens the doors to new opportunities which in turn pave the way for a successful business. Most successful digitally transformed companies leverage the ecosystem comprising of customers, partners, universities and start-ups together to ideate, prioritise and execute on the roadmap to achieving digital excellence.

Digital Excellence Thrives on Co-Innovation with Ecosystem

Shell Global and Volkwagen AG in co-innovation with SAP recently announced their pilot foundation of a range of connected services including an integrated system for connected fuelling. In another example, “Works with Nest” is a unique program being leveraged by Nest to build an ecosystem to create a self-sustaining marketplace and convert Nest into a Smart Home hub. Nest has already forged partnerships with the likes of LG appliances, Whirlpool, Philips Hue Lights, Pebble Smartwatch among others. Cisco partnered with IMD, a top ranked business school, to create a global centre for digital business transformation in Switzerland with a focus to create disruptive business models for the digital age.

Not All Data is Good Data

There are 1.5 million Facebook posts, and 300,000 tweets being generated every single minute! And companies tend to get overwhelmed with such a massive amount of digital content. Data is surely touted to be the new currency, but not all data necessarily is good data in the context of a particular business. Hence, it becomes imperative to separate out the Quality information which can provide useful insights, from just mere data. On top of it, collecting and managing data is an expensive activity (even in the cloud) and without having the right tools to organise data, companies fail to derive predictive as well as prescriptive insights to gain business benefits. This is the core of why many enterprise “Big Data” initiatives fail as companies fail to ensure quality data collection and focus on data centric use cases.

Not All Data is Good Data

Companies need to flip the model and focus on use cases to collect (or even generate) the most important data points they need – and this may come from the internal private data as well as from contextual public data (such as that of social media platforms, government portals or even listing services). Marrying these data sets together can deliver incredible amount of insights to organisations and can help derive significant business value. For e.g. Oscar Health, a New York based insurance start-up uses historic claims data to provide estimates for out the out-of-pocket expenses for customers and has also partnered with wearable device manufacturer “Misfit Wearables” to track customers’ fitness data and improve their insurance buying experience. The company was valued at $1.5 Bn within 2 years of its launch.

Paving the way for CAO – Chief Analytics Officer

When confusion loomed on whether the CIO would be the steward of digital strategy for enterprises, a new C-level role in CDO (Chief Data Officer) was created. The job of the CDO was to collect, store & manage data and was restricted at creating a sophisticated data infrastructure. However, the need of the hour now is to go beyond data and mine useful information from the plethora of data that is available. Consequently, a CDO has now paved the way for a new C-level role being hailed as the CAO – Chief Analytics Officer. While the CAO role is still not mainstream, but the momentum is building and looks like this is going to be the ultimate data strategy job at large enterprises.

Paving the way for CAO – Chief Analytics Officer

Companies such as Caesars Entertainment and KeyBank have opted for the CAO positions in their C-suite. Both these companies decided to bring analytics out of the individual departments and centralise it under a CAO function. These companies are increasingly focusing on data backed decision making and use analytics to force discipline in how they think of business growth while keeping customer experience a priority.

IT Vendors vis-à-vis Digital Partners: May the Best Man Win!

Digital Agenda would force almost 75% CIOs to re-think their IT outsourcing relationships in the next 3 years, as per a research report by Gartner. And service providers who are able to use new digital technologies, and bring in process efficiency & customer engagement approaches are the one who are likely to get favoured in the digital world. This re-imagination of relationship in the context of digital is putting in tremendous pressure on existing IT outsourcing vendors and also creating opportunities for Specialist Digital Vendors – incumbents with specific digital skills.

IT Vendors vis-à-vis Digital Partners May the Best Man Win!

A number of existing large service providers such as Accenture, Wipro etc. have created dedicated Digital practices to address the emerging needs of the customers. However, Specialist product engineering vendors such as Persistent are coming in with a product centric approach to address the digital needs of customers. It is likely that the vendor sourcing in the context of digital transformation will go through fundamental changes in its approach. While a number of companies went through a vendor consolidation journey in the last several years, Digital needs may force them to (once again) look for specialist vendors who can help these companies in the transformation. This will be a key space to watch out for in the next few quarters.

Data Science Skills Vital to Unlock Digital Success

Digital Transformation is clearly the biggest transformation of its time. However, the absence of skilled Digital Talent – for E.g. Data Scientists – is emerging as a major impediment to Digital Transformation. The problem gets further aggravated as the impact of missing skills is not just felt by IT departments, but also by the business itself. To address this gap in skills, companies are either up-skilling their existing employees, or indulging in a war of sorts with their peers to hire the best digital talent from outside. Recruitment teams & HR are under tremendous pressure owing this sudden spike in demand for such talent force, propelling the emergence of newer & unique up-skilling and hiring techniques (such as acqui-hire).

Data Science Skills Vital to Unlock Digital Success

For e.g., P&G and Google entered into an industry first employee-swapping program in a bid to re-skill their existing talent, esp. with the P&G employees garnering greater exposure to online models. Companies such as Walmart have been making strategic technology acquisitions in mobile and social to fill the gap. Goldman Sachs employs more programmers and engineers working on tech matters – even more than Facebook! Setting up technology accelerators and partnering with start-ups is an approach followed by EMC, Nike, PayPal etc.

Phygital it is…

Phygital is the newest phenomenon being created due to the blurring boundaries between physical and digital world, being driven largely by the customers’ demand for a seamless experience across both physical and digital media. To cater to this, companies are taking an omni-channel readiness to enhance the customer experience significantly.

Phygital = Physical + Digital

Companies like Burberry, McDonald’s are using technology to bridge the digital and physical world to bring interactive experiences to consumers. Axis Bank, a leading Indian bank is using physical bank presence (real bank) to acquire first time customers and then provide a digital experience over mobile to give them seamless experience in both the worlds. Lowe’s for e.g. experimented with in-store robots to not only identify and locate merchandise, but also speak to customers in their own language. TVS, which operates car dealerships for Mahindra, Renault and Ashok Leyland, is focusing on building car dealership minus the cars. Customers requiring test drive will need to register and the demo car will be sent to the prospective customer’s residence at an appointed time.

These Add-ons are the vital Cogs in the Digital Transformation Wheel, and the entire Digital Bandwagon may be exposed to the risk of capsizing even if a single one of these is left unnoticed.

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Enterprise Digital Labs (EDLs) driving Digital Transformation

Changing Business Landscape

We are in a digital era, where the convergence of emerging technologies is resulting in new possibilities for consumers, enterprises and technology vendors. Consumers having access to significant technology resources are playing a key role in determining what products they need, with businesses being forced to offer new age products and services, and evolve themselves as per customer needs.

Technology trends such as social media, mobility, analytics and cloud computing (SMAC) are changing the traditional relationship between customers and enterprises, resulting in increased collaboration between the two. An apt example can be companies such as Frito Lay and Ben & Jerry who engage their customers through both traditional and social media channels to vote for the next flavor of potato chips or ice cream that they would like them to introduce.

The Digital Era

Digital is not about implementing SMAC for your customers as they already are leveraging these tech trends. Digital is about enabling the customer re-imagine the way they do their business in the context of connected world and customer data now available by leveraging SMAC and other emerging technologies.

Today digitally native retailers have fundamentally changed the business and operations landscape, and consequently moved ahead of the pack. Digital native retailers such as Amazon, Flipkart and Myntra are targeting customers and engaging with them in newer & innovative ways via a range of channels. Instead of dispensing mass promotions, digitally native retailers target every individual by triangulating data procured from multiple sources such as social media, browsing footprint, point-of-sale devices, in-store interactions, and app usage. This helps in ensuring an ongoing relationship with every customer in a meaningful and personalized manner. In addition, context-based targeting helps digitally native retailers predict customer behavior thereby requirements and purchases more accurately.

As per our research estimates, over USD 30 trillion of market capitalization would be disrupted by digitalization. This disruption will impact 7 key industry verticals including Retail, Media & Entertainment, Travel & Hospitality, BFSI, Telecom, Healthcare, and Energy & Utilities.

The exponential disruption in today’s world by the digital natives has made it imperative for traditional enterprises to transform. Their only solution for staying relevant is Enterprise Digital Transformation (EDT).

The Growing Need for Enterprise Digital Labs (EDL)

Enterprises are aware of this disruption and are expected to spend USD 70 billion to stay relevant in today’s day and age.  To transform digitally, enterprises are transforming key workflows by leveraging emerging technologies.

Today, it has become essential for enterprises to undertake digital transformation in order to align themselves better with the evolving business needs.  Therefore, assessing and building organizational readiness is crucial for an organization.  In order to build organizational readiness, enterprises are increasingly setting-up digital labs in geographies such as Bay Area and Bangalore, which has a large presence of the required digital skill set.

A majority of the companies are setting up their digital labs at these locations to accelerate digital transformation initiatives.  Some of the examples include:-

Lowe’s: Lowe’s has recently announced its plan to set up a digital lab in Bangalore, which will focus on the next-generation customer experience. It will lay emphasis on technology and analytics to provide customers with a more personalised shopping solutions and omni-channel experience.

Walmart labs: Walmart invested USD 300 million to buy Kosmix, which turned into Walmart Labs.  Setup in Bay Area, it focuses on Omni-channel retailing .It has been on an acquisition spree of new age start-ups  with the focus of doing everything possible to increase Walmart’s digital footprint.

American Express: American Express is planning to set up a new tech lab in Palo Alto to focus on big data, cloud computing, and mobile engineering. The company has development teams all over the world, but with the payments industry undergoing digital transformation, American express is focusing on accelerating the same within the organization and   Palo Alto lab will provide help by providing access to the talent and innovation going on in the Valley.

Why Bay Area and Bangalore?

Presence of a large number of product companies, a developed and mature ecosystem, availability in abundance of fresh as well as installed talent pool, and a widespread start-up culture has resulted in several traditional enterprises setting up their digital labs in the Bay Area. Whereas increased globalization of tech enterprises, a booming start-up landscape, proliferation of new-age technologies, availability of digital skill sets is driving to companies to set up digital hubs in Bangalore.

Change in the organizational structure

Often it is asked ‘What is the need of setting up a digital lab?’ ‘Why can’t the CIOs in an organization lead digital initiatives?’

Over the last decade, CIOs and the IT function in general have often been tasked as IT cost managers and service quality assurers. The mandate of the IT function has always been to run and manage. However, in digital initiatives, the mandate required is to ideate and incubate. A digital lab will help an organization turn its digital transformation initiatives into a program that can be repeated within the organization.

An Enterprise Digital Lab (EDL) will be led by Chief Digital Officer (CDO) reporting directly into CEO.  The structural change in the organization will prove effective in breaking silos that are typically created in traditional enterprises and help the organization be more responsive to changes in the market.  Also, the mandate for digital initiatives will directly come from the CEO and CDO, and will be in line with the overall organizations goals.

Setting up an EDL

How enterprises can set up these labs. We have identified the following 4 key enablers to set up enterprise digital labs:-

People: People with the right skillset will play a key role in digital transformation initiative undertaken by an organization. The important aspect that needs to be taken into consideration is differentiating Digital Talent from Typical IT talent to effectively structure your hiring, L&D and retention strategies. Digital talent should possess strong computing skills in Natural Language Programming, Machine Learning, and Artificial Intelligence.

Given that digital requires a very specific talent pool, it becomes essential to focus on hiring from USA, UK, India and China which are the major EDT talent hubs. San Francisco and Bangalore have the largest concentration of digital talent.

Hiring strategies need to be focused in these geographies to prove effective.

Process:  Digital solutions are best implemented incrementally and iteratively. It is imperative to build agile capabilities and adopt new agile frameworks that could cater to your organization’s complexities. Agile methodologies such as Scrum and Extreme Programming (XP) are time proven and tested approaches for building software in dynamic environments. However as large companies have always raised concern it holds true that these approaches typically work best with relatively small, self-organizing teams.

Large organizations need to scale agile which means going from a few agile teams to multiple or even hundreds of agile development teams. Scaling Agile above the team level is supported by various agile approaches including Lean Startup, SAFe, DAD, LeSS, or Radical Management.

Scaled agile framework (SAFe ) remains the most popular of all the approaches. Scaling Agile to the enterprise level is a challenge that SAFe aims to address as it combines agile approaches with more enterprise-centric organizational practices.

Technology: Technology is a key enabler in enterprise digital transformation. While IT modernization is imperative, it is time-consuming and enterprises do not have the luxury of time today. To improve the speed of digital implementations, enterprises need to look at an abstraction layer which will access and expose data. The API layer for instance effectively exposes the data to developers and partners and enables successful legacy system integration.

Additionally, Enterprises also need to adopt new age tools and technologies to effectively laying the foundation of the Digital Enterprise. At the data layer, enterprises are using new database technologies that cater to their digital initiatives effectively. For instance, enterprises are moving away from traditional RDBMS and bringing in newer databases such as MongoDB which helps enterprises build applications faster. MongoDB also supports scalability and provides various options to handle data consistency.

At the application layer, enterprises are using new age frameworks such as Sencha for quick and effective UI development. Enterprises are also realizing that data without a context means nothing and are adopting tools such as Tableau for contextualizing and visualization of data effectively. This is just a fraction of the new age tools and technologies available in the market and is definitely worth your time

Ecosystem Connect: The last enabler is the ecosystem-connect in which enterprises need to partner with start-ups, platform partners, service providers and universities to accelerate digital transformation.

To conclude, Digital era will play a crucial role in defining the coming years, where digital technologies and platforms will have a significant impact on how businesses are being done. Therefore, it has become imperative for the organizations to undertake digital transformation and evolve as per the need of the time.

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Rise of the Unicorns

“It used to be that unicorns were these mythical creatures. Now there are herds of unicorns,” stated Jason Green, a venture capitalist, on the growing number of ‘unicorns’.

What are Unicorns?

They are called ‘unicorns’- companies with a valuation greater than USD 1 billion. The term gained popularity in the tech/startup community when TechCrunch published a post titled ‘Welcome to the Unicorn Club’ which identified 39 technology companies founded since 2003 with a private or public valuation of USD 1 billion.

A decade back, a billion-dollar tech startup was considered a myth, but now they seem to be present everywhere. As per an article in Fortune, ‘Google was never worth USD 1 billion as a private company’. Neither was Amazon nor any other alumnus of the original dotcom class. A lot has changed in just as decade! Today, the magazine states that there are more than 80 startups with a valuation of USD 1 billion or more. The list includes Uber (USD 41.2 billion), Airbnb (USD 13 billion), Palantir (USD 15 billion), Snapchat (USD10 billion), Square (USD 6 billion), and many more.

Unicorn Drivers

‘What is driving the growth of Unicorns?’ is the question asked frequently. The astounding pace of Unicorn growth can be attributed to the following factors:-

  1. Increased investor spending: Fueling this growth, on the supply end, is a massive investor spending. In today’s business scenario both venture capitalist and investment firms are doubling down on private startups. With low interest rates and smaller returns on the S&P 500, investors are considering startups as their only opportunity for great returns. As a result, we witnessed a 67% increase in VC spent from 2013, reaching up to USD 19.6 billion on tech startups in 2014.
  1. Technology Innovations: Technology is driving the boom. Social, Mobile, Analytics are the key trends in the 20th century. Today, smartphones, sensors, and cloud computing have enabled a range of Internet-connected services disrupting the most tech-averse industries—Uber is disrupting the traditional functional model of taxi industry, whereas Airbnb is disrupting the hotel industry. Investors consider a massive opportunity in this upheaval.
  1. Desire to stay private: Another key factor attributing to unicorn growth is an increasing desire to stay private. In early 90’s, companies such as Microsoft and IBM rushed to go public and witnessed rapid growth primarily in the public market. However, times have changed, due to tough regulations for newly-public companies, private startups only hold IPOs as a last resort.

Unicorn Landscape

Looking at geography and sector distribution of venture-backed unicorns today, and comparing it to VC-backed IPOs in 1999, we find a much more diverse pool of companies operating at both location and industry level. In 1999, of the 25 venture-backed IPOs, only 1 was founded outside the US. However, comparing it to 82 unicorns as of January 2015, more than a quarter have been founded beyond the U.S. boundary everywhere from India, Korea, to Israel.

Unicorns are largely found in technology clusters across the world. Bay area emerges as the hub of unicorns with more than 50 percent unicorns based out of here followed by Asia which accounts for approximately 25 percent unicorns.

Contribution of the immigrants to the start-up and technology ecosystem in the US is well known. A similar trend has also been witnessed among the unicorns. As per our estimates, approximately 40 percent of the unicorns based out of US were founded by first generation immigrants. Again, approximately 40 percent of these companies were founded by Indian founders followed by Israel, China and other countries.

An interesting example of such a company (founded by immigrants in US) could be Wework ,a provider of shared workspace, community, and services for entrepreneurs, freelancers, startups and small businesses.  Founder Adam Nueman brought up in kibbutz, a collective community in Israel, loved the sense of community. Thus was seeded the inspiration for the company he would one day co-found and run, WeWork, which Neumann described as a sort of Capitalist kibbutz. A USD 5 billion empire company that uses technology platform to lease out a workspace that is as much fun and filled with energy as open offices of Facebook and Google.

Sector Concentration                                                                                       

Where sector concentration is concerned, the unicorn population today is also much more diverse. In 1999, some of the world’s largest venture-backed firms were concentrated in the hottest sector of the time – software and a few in other areas such as mobile & telecom (Juniper Networks ) and, internet (Ask.com). For the current class of unicorns, though software is still the major sector, with companies such as Atlassian, and  MongoDB  weighing high in valuation. However, there are companies  such as Uber in transportation, Airbnb in hotels/lodging, Coupang in eCommerce, and Square in FinTech which are changing the way we shop, spend, travel, and simply live, all with just through introduction of technology.

What Airbnb, Uber, and Alibaba Have in Common?

These companies represent an upcoming trend in the types of business which is much preferred by the investors.

Harvard business school examined 40 years of financial data for the S&P 500 companies to understand how valuations trends evolved have evolved along with business models and emerging technologies .

It identified the following four business models:–

  • Asset Builders: These companies build, develop, and lease physical assets to make, market, distribute, and sell physical things. Examples include Ford, Wal-Mart, and FedEx.
  • Service Providers: These companies hire employees who provide services to customers or produce billable hours for which they charge. Examples include United Healthcare, Accenture, and JP Morgan.
  • Technology Creators: These companies develop and sell intellectual property such as software, analytics, pharmaceuticals, and biotechnology. Examples include Microsoft, Oracle, and Amgen.
  • Network Orchestrators. These companies create a network of peers in which the participants interact and share in the value creation. They may sell products or services, build relationships, share advice, give reviews, collaborate, co-create and more. Examples include Airbnb, Uber, Tripadvisor and Alibaba.

So again, What Airbnb, Uber, and Alibaba Have in Common: They are network orchestrators

Network Orchestrators create more value

Harvard analysed the companies in S&P 500 started post 1972 and observed that the companies that are network orchestrators are valued 2-4 times higher than firms in other categories. However, it was also noted that only 5% of the companies in S&P 500 are operating us network orchestrators. This includes companies such as Nike who have built a successful Nike+ ecosystem among their users.

Network Orchestrator is the dominant business model adopted by a majority of unicorns. Over 50% of the unicorns operating are network orchestrators. Network Orchestrators outperform companies with other business models on several key dimensions. The advantages offered range from higher valuations relative to their revenue, faster growth, to larger profit margins.

What are Unicorns doing different?

Leveraging Agile, Digital and Global trends

They are implementing new practices for customer targeting, workforce/partner collaboration, new products and services, and risk management by leveraging Agile, Digital and Global trends to differentiate. Companies are using all these dimensions to differentiate though to a varying degree. An apt example can be Airbnb which is leveraging social profiles for risk mitigation. Basically, the new verification system requires Airbnb travellers and hosts to submit a form of offline identification, either their passport or photo ID, along with access to their Facebook or LinkedIn profile in an attempt to match users online and offline identification. This allows airbnb to mitigate risk on both demand and supply side, and offer freedom to leaser and lessee to check each other’s Facebook profile and to decide if they want to do business with each other

Some of the unicorns are technology innovators

Some of the unicorns are based on fundamental technology innovations.

Theranos is one such example which has revolutionized the complete concept of blood testing.With the help of new testing methods developed by Elizabeth Holmes’s startup Theranos, a lone drop of blood can now yield a ton of information. The company can run a variety of tests on just a drop of blood that too far more quickly compared to the time taken in same with whole vials in the past. Moreover, it costs a lot less. Theranos claims that their tests will save over USD 20 billion to Medicare and Medicaid. The company’s valuation is similar to the largest laboratories in the US – Quest Diagnostics and Laboratory Corporation.

Theranos is only one such example, there are also companies like Magic Leap.  A mysterious Florida startup with a funding of USD 592 million from the like of Google and Qualcomm, has kept details about its head worn device under wraps.

All we know is that that the device realistically places digitally-created objects in the world around you, similar to augmented reality glasses. The product is still to be launched. However, it is amazing that a company without any product or proven technology has taken in over 540 million in funding!

Others differentiating through innovative customer engagement models

Aware of the factors such as credit card penetration is less than 1 percent, not everyone has access to banking, and many are still apprehensive about using net banking, Flipkart introduced cash on delivery model. Cash on Delivery model helped it in gaining trust of its consumers. Thus helping Flipkart build a good relationship with their customers. This has allowed Flipkart to rapidly grow into a company with over 10 billion in valuation with hardly any competition before Amazon decided to be present in the market and undertook large investments.

Unicorns –A threat to Large Organizations

The growing number of unicorns is a threat to large companies. Nest is giving tough competition to Honeywell, Weworks is competing with Regus, and Theranos competition to Laboratory America is just a glimpse of phenomenon which is expected to increase manifolds in the years to come.  Large enterprises and technology companies need to start looking for competition outside the sphere of their traditional competitors.

It has become imperative for large organizations to transform based on Agile, Digital and Global as their foundation pillars. The following best practices can be adopted by the organizations to address the growing threat from unicorns:-

  1. Explore and leverage talent across the globe
  2. Invest increasingly in future technologies (new business models and technology areas)
  3. Encode Digital in DNA
  4. Optimize costs in legacy products and redirect savings into newer products
  5. Go Local for Global Markets

The battle between unicorns and large companies is expected to intensify in the near future. Organizations that will leverage agile, digital and global trends to their advantage will eventually prevail.

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$614B R&D spend by G500 companies in FY2014, with growth spearheaded by NA & APAC

A detailed Zinnov study on the total R&D spend by Global 500 companies for the year 2014 revealed a total investment of $614B. R&D spend as a percentage of revenue increased to 4.31%. It would also be worthwhile to note that 65% of the overall R&D spend was contributed by the top 100 spenders, with majority of the growth coming from North American and APAC firms.

$614B R&D spend by G500 companies in FY2014, with growth spearheaded by NA and APAC

The study revealed interesting insights that aptly reveal the changing R&D landscape across the globe. Some of the trends are captured here.

1) China has shown highest growth in R&D spend from 2012 to 2014 at 20% CAGR

G500 R&D spend in China has increased rapidly since 2012 at 20% YoY and is expected to reach USD 80 Bn by 2020. This growth rate is much higher when compared to Europe (consistent over the last 3 years), North America (steady at 4-5% growth) and Japan (which is on a recovery after a strong decline the previous year). Consumer/Web 2.0 and E-commerce companies such as Baidu, Tencent, Ctrip.com etc. led the growth in R&D in China, while the contribution by Telecommunication (Huawei, ZTE) and Automotive segment (Great Wall Motors, Byd Co Ltd-H, Dongfeng Motor) is also on a rise. The study also brought to light that companies based out of Beijing, Shanghai and Shenzhen contribute to more than 95% of the total R&D spending in China.  The Global 500 R&D spend in China stood at USD 26Bn in 2014.

G500 R&D spend in China

2) Automotive Sector is a clear leader in R&D spending followed by Software/Internet and Semiconductor

Automotive sector contributes to ~18% of the global R&D spend. The top R&D spenders in the sector include Volkswagen, Toyota, General Motors, Ford and Bosch, who among them contribute to two-fifths of the automotive R&D spend. Software/Internet and Semiconductor also have significant R&D spends contributing to ~12% and ~8% respectively.

Total Global 500 R&D Spend by the major verticals

3) 152 companies spend over USD 1Bn on R&D

The number of Billion dollar club members in the Global 500 R&D spenders has increased to 152 (from 148 in 2013), though the share of R&D spending has not seen any significant change. An interesting trend however, is the increasing R&D focus in APAC. R&D spend in APAC has increased to 11% of global R&D spend in 2014 as compared to 7% in 2012.

Billion Dollar Club - Regional R&D Spend Trends

4) Consumer / Web 2.0 & E-Commerce R&D spending has shown highest growth at 35%

Consumer / Web 2.0 & E-Commerce vertical has seen the highest increase in R&D spend, with maximum growth in the US. Semiconductor R&D spending has also grown 7% from the previous year.

Consumer / Web 2.0 & E-Commerce R&D spending has shown highest growth at 35%

5) 42 companies have increased their R&D spend by over 30%

With companies getting more aggressive with their R&D efforts, it comes as no surprise that many companies are pushing the pedal and even doubling their R&D spends. Yes, we’re talking about Tesla. Tesla has doubled its R&D spend in the last year, Facebook’s spend was up by 88%, Thermo Fischer Scientific’s spend up by 75% and many more.

42 companies have increased their R&D spend by over 30%

Overall, the landscape seems ripe to accelerate R&D and we would be keen to see how trends shape up in the near future. Stay tuned for more updates.

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Adopting to Change – What Large Organizations Need?

In the last article, we talked about how technology trends are driving changes in the connected worlds.  Today, large enterprises are witnessing plethora of changes ranging from Cloud computing which has transformed how we work and play, to mobility which has also altered the way traditionally businesses were done. In this article, we will summarize the three key trends that that are deeply connecting products, connecting people using these products, and connecting the ecosystems they live in. Also, the article will throw light on how large enterprises need to prepare and adapt to these changes.

Trend 1

Software and Physical products are becoming increasingly connected, and autonomous!

With the recent announcement of Apple watch hitting the stores, wearable technology has become the latest trend as they offer the flexibility of remaining increasingly connected. Aesthetics along with features play a key role in the success of any wearable. Today with technology advancement, we have wearable technology like Ringly! Ringly, is a line of, well, rings that connects consumers to their cell phones through an app, alerting them of calls, messages, social media notifications from their phone using a customizable vibration pattern. The idea is that you carry on what you are doing and know at a glance if you need to pick up your phone or not!

Trend 2

Mobile phones, gadgets, and social media are offering the flexibility to connect which was impossible a few years ago! 

What can be a better example to explain this than Digital Touch feature on Apple watch, which is a unique way to communicate with your friends and family! It’s a simple and intimate way to tell someone how you feel! It just involves pressing your fingers on the screen, the built-in heart rate sensor records and sends your heartbeat. Thus, definitely we are witnessing a change in how technology has altered our communication!

Trend 3

Ecosystems across the world are becoming deeply connected both virtually and physically!

A majority of the top 500 R&D spenders have centres in both Silicon Valley and India. The teams operating from across the continents are collaborating on building products together. The collaborative activities are just not limited to Silicon Valley; Israel is also emerging as a preferred destination with large giants such as Microsoft running its accelerators from this location. On the other hand, Indian startup ecosystem is witnessing tremendous growth. Assessing the growth potential in the location, investments are flooding in with large investors being Alibaba, and Softbank. Indian startups are also breaking geographical barriers, with some having presence in Silicion valley such as InMobi. All this together indicates deep ecosystems connect, talent movement, and possibility of some great innovation by leveraging each other’s capabilities and expertise.

All these changes are happening at a rapid pace and the global innovations emerging out of these changes is witnessing rapid adoption. However, large companies are struggling to adapt to these new changes, trends and innovation.

It is hard enough for large technology companies to undergo change in one dimension, but leveraging the connected ecosystem requires an enterprise to undertake change across the following five dimensions:-

  1. Products: Products should be the first priority! It has become essential to evolve the product as per the changing customer requirements and behaviour. It has become essential to assess what features of a product are really being used by the consumer and how can they be enhanced. For example, it is true that customers prefer to buy car that has powerful engine and are faster, however this it also holds true that they seek great in-car experience. Therefore, it becomes essential to enhance/innovate your products as per customer needs.
  2. People: People are the organization’s most valuable asset. Each individual brings with him a creative spirit which proves to be the most valuable asset for an organization! On the other hand, it is also extremely essential to nurture and grow the talent. A majority of automotive companies value the capabilities of their engineers in power train design, thermodynamics, and many more. However, they need to augment the skills with software engineers, usability experience, anthropologists and data scientists. In addition, organizations will also effective mechanism to attract, retain, and engage this talent.
  3. Processes: Adopting lean and agile product development methodologies has become essential for organizations with the changing market scenario. This requires a huge culture change within the organization as well as requires them to revamp/upgrade their IT and tools infrastructure.
  4. Platforms: Evaluating the need of using new sets of platform has become essential. With the changed market scenario and evolving business needs, your traditional business platforms might have become obsolete. Therefore, it becomes essential to assess the need and select the right set of platforms.
  5. Partnerships: Lastly, companies need to relook at their entire supply chain. Your current partners might lack the capabilities you require for the business, or be in the phase of building capabilities all together. Due to the change in business models, companies might require completely new set of partners for engineering, support, services and product integration.

Even the organizations that have the right intent are finding it difficult to adapt to change and adopt across the above stated five dimensions. However, to not to change is definitely not the option that companies today can think of!

Few decades back, a majority of large companies had the same set of competitors, who faced the same set of challenges. However, the competitive landscape is evolving rapidly. Today companies are facing stiff competition from China and other locations for commoditized products. In addition, they are also competing with start-ups including unicorns that are innovating faster taking advantage of technology disruptions and business model changes.

China and India are posing stiff competition to large US companies! We witnessed smartphone war getting more intensified with Xiaomi joining the race. Similarly many Indian software companies such as Zoho, Freshdesk, and Inmobi are delivering more value for the same price compared to their counter parts in the US. Products are becoming increasingly commoditized due to the large manufacturing ecosystem in China and large software ecosystem in India. This is expected to intensify the competition further for large companies.

On the other hand, Unicorns are emerging as one of the greatest threats to large organizations. Today, there are more than 100 startups with a valuation of USD 1 billion or more. The list includes Uber (USD 41.2 billion), Airbnb (USD 13 billion), Palantir (USD 15 billion), Snapchat (USD10 billion), Square (USD 6 billion), and many more. A majority of these unicorns were able identify market discontinuities and build their businesses around it. Uber is disrupting the traditional functional model of taxi industry, whereas Airbnb is disrupting the way traditionally hotel industry functioned.

Who would have expected that Weworks, a company that offers shared office space will be valued higher than Regus or Theranos will offer stiff competition to Quest diagnostics. Therefore, it has become essential for large enterprises to look beyond the traditional competition. In addition, the unicorns have intensified talent war by not only offering competitive salaries but through innovative HR practices. Today, customers are demanding enhanced customer experience as their expectations have undergone a change with the high quality customer experience and rapidly improving products offered by unicorns. This requires large companies to adapt to change and scale up in order to match customer expectations!

It is not just limited to Unicorns! Large companies are also facing competition from a swarm of start-ups. These start-ups are focusing on micro-product categories within a large company’s portfolio. Therefore, it will be right to say that no single start-up might be a huge threat but together they might be more dangerous than unicorns!

To summarize, it has become essential for large companies to change in view of the growing competition! And change across the 5 dimensions i.e. Product, people, process, platform, and partnerships. Companies need to restructure the 5Ps of the organization by answering the following set questions under each P:-

1) Product

i) Which set of smart, connected product capabilities and features should the company pursue?

ii) Should the company enter new businesses by monetizing its product data through selling it to outside parties?

iii) How much functionality should be embedded in the product and how much in the cloud?

iv) What data must the company capture, secure, and analyse to maximize the value of its offering?

2) People

i) What are the skillsets should an organization build internally?

ii) What are the global hotspots for talent?

3) Process

i) Should the company change its product development team structure?

ii) How to make the process lean and rapid to reduce product development cycle time?

4) Platforms

i) Should the company pursue an open or closed system?

ii) Which are the right platform that will provide the scale, flexibility and stability?

5) Partnerships

i) Should the company develop the full set of smart, connected product capabilities and infrastructure internally or outsource?

ii) Should the company fully or partially dis-intermediate distribution channels or service networks?

iii) What investments are required to improve the capability of existing partners?

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