By guest author Tony Scott
Tony: Companies have to figure out what their own core competencies are. If you look at the history of artisans, they made everything themselves. Then came industrialization with vertical integration, with ultimate example being Ford’s River Rouge plant. When it was finished, it was the largest integrated industrial plant in the world. They brought in the raw materials, but everything else – from ore processing to electrical generation to steel making – was totally integrated. Raw materials in the front door, finished automobiles out the back door. For many years, companies around the world thought that they needed to mimic that, but obviously things have changed. What do you think are the big drivers that allowed that change to happen?
Shami: Look at the Boeing 787, the Dreamliner. The way they envisioned building it, all the work was being done by their tier one and tier two suppliers, and so on. All they were doing was putting the plane together.
Tony: Yes, they are doing final assembly, marketing, and sales.
Shami: Maybe that is one extreme. But the thing is, because the product is so complex, it is impossible to have everything in-house; you can’t do it. You can’t make both world-class car tires and transmissions; it is just too complex.
Tony: The value of specialization.
Shami: That is happening and will continue to happen. It is also easier to find specialists now. We signed a deal with Computer Associates (CA), and the deal was as follows: They had a set product that they developed, so we said, Why don’t we form an alliance or partnership wherein we will develop the product, we will take all the cost, and we will even take some of the employees and you will do the sales and marketing. And we will do revenue sharing. To me, that is the ultimate agreement you can come to, and it can be more complex than this one was. We have the expertise in product development, you know how to sell the product, so why don’t we each do the things we can do best? So how has it worked? A year and a half down the road, it is going as well as we had hoped.
Tony: That is the core of the entire concept that I am looking at in this series – companies that are going to be successful in the outsourcing business by adding value that is based on competence and specialization. If you are talking about call centers, that is basic; but if you are looking at how to move up the scale, at what are the value creation opportunities for companies in the outsourcing space, or at how do companies apply their expertise to either create products or provide and productize a service offering, that is another matter altogether.
Shami: If you look at it from the outsourcers’ or the providers’ point of view, where it will go? If you look at it from a cloud computing standpoint, then you have to change the complete model of what service you are going to provide. We have already seen some reaction to that from HP, which says, I want to be hardware, software, and services.
Tony: Let’s talk about the iPad and other mobile devices, and also the vision for connected devices and cloud computing. How does that change the kinds of capabilities that you need in your organization to be able to provide services to your customers?
Shami: HCL has been very successful in infrastructure management. Cloud computing has come along, and that business is going to grow tremendously because now you have all of these data centers. There is increasing demand for integration, more demand for consulting in terms of security and data management, and so on, which suddenly can be part of the business. I think the fact that we have been very strong in infrastructure, applications, and so on, will help us in this respect. But I do see that the desire for customer intimacy they I talked about is only going to increase.