Azim Premji was entering his senior year at Stanford University studying engineering in the 1960s when he got a call saying his father had passed away and he needed to return home to save the family peanut oil business. He did, and ultimately transformed it into Wipro Technologies (WIT ), one of the top technology services companies in India -- and the world. Premji talked to IN Editor Bruce Nussbaum about business model innovation and the rise of R&D outsourcing to India.
Q: The outsourcing model is changing fast in India. What's happening?
A:First, in the 1990s we had a new business model in the software industry. U.S. and European companies began to do much of their work here. Then we had another innovation in the BPO [business process operations] industry. [They] now account for almost 20% of India's exports. The next wave is R&D as more companies set up corporate R&D centers in India. Morgan Stanley (MS ) has set up a large center in Mumbai where they are doing significant mathematical modeling in terms of equity interpretation, risk assessment, risk management. Wipro's R&D business is over $550 million and represents nearly one-third of total revenues.
Q: Wipro has a growing innovation business. How do you organize it?
A:We have an innovation council consisting of the champions from different technology domains, practices, and vertical business units, which essentially sets strategy and direction and approves funding. We also have centers of excellence in each of our verticals, such as retailing and manufacturing. We have between 900 and 1,000 employees working in innovation. In terms of total value, the combined innovation revenue last year was about 5%, and our target is 10% over a three-year period.
Q: What are the biggest mistakes corporations make in their R&D?
A:Making R&D free of accountability. Eventually, R&D has to be linked to business profit. R&D has got to get routed into deliverables. Not being diverse is another mistake. The composition of human resources in R&D, especially male-female ratios, is important. The breakthrough innovation of low-cost flexi-packs for consumer goods [such as shampoo] was really pioneered in India by a team of women. Having a certain portfolio of projects is also very important. We have taken on six projects this year, which we call quantum innovation, of significant size and risk, which will probably start showing results in 12 to 24 months.
Q: Salaries for Indian talent are rising sharply. How is that affecting India?
A:An Indian engineer from a good university costs between $8,000 and $9,000 a year compared with $45,000 in the U.S. or Europe. Indian salaries are rising about 12% a year and American salaries are going up at 3% a year, so it would take more than 30 years for the two to converge.
The key issue is supply, not cost. We are increasing the basket of talent available to us by digging down into the second- and third- and fourth-level universities to retrain engineers and make them into successful software engineers. We are lending faculty and offering e-learning courses to students.