Last two posts on offshoring (here and here) have generated numerous conversations (this is what’s great about blogging). For instance, there was a discussion that took place yesterday (there were three of us; two are current India heads of US MNCs) about the tension between offshoring and incubation. I have some strong views on this. I thought I might as well put these on the table.
The tension between product offshoring and incubation
There is general agreement that product offshoring, if done well, has big payoffs. Yes, it’s not easy to do and yes, many people don’t get it right the first time. But it’s been going on since Texas Instruments (TI) came to India in 1985 and there is enough data to show that it materially improves product competitiveness.
Likewise, the business case for new product incubation in India is also getting accepted. More people now realize that a traditional sales-out strategy will not unlock emerging markets. Nokia, TI, GE and others are showing the way by embracing in-market product incubation with gusto. These are early days but already it’s clear that, though not easy, it can be done.
So inevitably the India leader of an MNC operating in India ends with both offshoring and incubation on his/her plate. Now this wouldn’t be a bad thing but for the fact that there is tension between the two. It’s not that offshoring and incubation conflict with each other; they instead compete. Good performance with one of them doesn’t automatically result in good performance with the other. If anything, the odds are that doing one of them will weaken the other.
Product offshoring requires the India team to become good at managing head-office engineering relationships. Product incubation, on the other hand, obliges the India engineering team to connect with head-office business sponsors directly. Ironically, you do the first one well and the second one becomes harder (because the offshoring guys see it as “bypassing” of the traditional chain of command).
Product incubation requires doing “version 1.0” in India. This takes a special effort in finding fruitful market linkages and scarce product architects. If you ask an incubation team to help out with offshoring they will screw up their noses; they don’t want to work on somebody else’s version 2.x.
So the tension between offshoring and incubation is real. It’s not trivial. Progress on one front usually comes at the expense of progress on another. I liken this to the tension that exists between growth and profitability. Going for more growth can damage profitability, and working toward higher profitability can slow growth.
How does one manage the competing priorities?
Dealing with the inherent tension is not easy. First, let’s examine if it is even possible to do both offshoring and incubation. Many firms are successful doing both. One example is TI. It remains pretty good with product offshoring and has recently been successful with product incubation as well (Ankur and LoCosto). A different type of example will be ATI and Broadcom. They arrived at a hybrid footprint from the incubation side. They acquired India based product companies (CuTe and Armedia respectively), and only then branched off into offshoring.
Coming back to the question of competing priorities, does the answer then lie in emphasizing one of the other (a la “profitability is more important than growth at this time”)? No, because choosing “either” is really choosing “neither”. In the absence of an incubation effort, offshoring gets leached of innovation. It becomes a job-shop model. Initially this doesn’t seem to matter but eventually the head-office product teams begin to wonder if the pain of offshoring is worth the business gain. Today this risk is well understood.
With offshoring, incubation is often a one-trick pony. Offshoring makes talent development possible that feeds the incubation efforts. The huge talent scarcity, especially at the product architecture roles, leaves no option but to develop your own people. Lateral hiring is helpful but not a complete solution.
So the answer to the product offshoring – incubation tension doesn’t lie in favoring one over the other; it lies in being able to achieve both. The answer lies in strengthening the common bond that unites offshoring and incubation. If this common bond is nurtured then both the objectives can be met at the same time.
Common Bond: Innovation Mindset and Talent Development
Nurturing an innovation mindset is one part of this common bond. This involves making the organization a better innovation cradle (i.e. more insights are born there) and a less toxic habitat (i.e. more of these insights reach maturity). Innovation gets expressed differently in offshoring and incubation. In the case of offshoring it is mostly about feature level innovation in the context of the roadmap. For incubation, it takes the form of product-level innovation in the context of the market.
The second part of the common bond is capability building or talent development. This is critical to both offshoring and incubation given the talent crunch. The best to solve this problem is to groom talent internally using career paths that go across offshoring and incubation. This approach also makes retention and lateral hiring easier.
Bottom-line: Don’t vacillate, embrace…
It’s become a long post. But the central idea is simple. If you manage an MNC operation in India, don’t vacillate between product offshoring and incubation. The business needs both; so do both. Just don’t try to eliminate the tension; instead acknowledge it and manage it.
[Update: Also see a later post about 5 Sacred Cows if Product Offshoring.]
Hi Sharad,
I agree with you that product offshoring without incubation will not survive in the long run. However, let us pose the other question - why can one not have just the incubation efforts. Though overall talent is in short supply, I do think that talent for incubation efforts that are **strategic** to a company is available now - both locally and globally. This was not the case few years ago, but I think that the situation is different now. It is just that few incubation efforts that can attract the right talent have existed. Hence, it is not neccessary to use offshoring part to build the talent pipeline for the incubation efforts. Israel did not go through the offshoring route and I dont see a reason for India to go through it (I recognize that it is a reality though).
Pawan