2013 Technology Business Research Inc. HCL and Rockwell Collins Business Partnership

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1 TBR Technology Business Research: HCL and Rockwell Collins Business Partnership Case Study: Creative Commitment Forms the Foundation of the Partnership Between HCL and Rockwell Collins Authors: Geoff Woollacott, Professional Services Practice Senior Analyst Erin Hichman, Professional Services Analyst Overview About HCL HCL is a $6.3 billion leading global technology and IT enterprise comprised of two companies located in India HCL Technologies and HCL Infosystems. Founded in 1976, HCL is one of India s original IT garage startups. A pioneer of modern computing, HCL is a global transformational enterprise. Its range of offerings includes product engineering, custom and package applications, BPO, IT infrastructure services, IT hardware, systems integration, and distribution of information and communications technology (ICT) products across a wide range of focused industry verticals. The HCL team consists of more than 85,000 diverse professionals who operate in 31 countries, including more than 500 points of presence in India. HCL has partnerships with several top global 1000 firms, including leading IT and technology firms. For more information, please visit Introduction The HCL-Rockwell Collins relationship is a model case study in technology services outsourcing best practices. Starting at the turn of the century as a narrowly defined delegation for software verification and testing services, the relationship now encompasses an extensive suite of software and hardware development services generated from HCL s Offshore Design Center (ODC) in India dedicated almost exclusively to supporting Rockwell Collins. Two things stand out in the study of the successful expansion of this relationship: 1. Caution: Rockwell Collins moved cautiously into outsourcing and slowly brought HCL into more aspects of its IT engineering operations over time. 2. Commitment: HCL s senior management invested a considerable amount of time into the relationship, displaying a high level of commitment to and flexibility in sharing risk with Rockwell Collins, and thereby setting the stage for making major expansions to the relationship. The balance of this paper chronicles the major milestones and key relationship activities that forged the solid working partnership between HCL and Rockwell Collins built on their combined commitment and cautious efforts. Innovation is expensive. From a financial and personnel perspective, the resources required to create, design and manufacture a new product often limit a company s ability to create a differentiated offering; however, innovation is vital to maintaining a competitive edge, and firms can stagnate in the backwater of tired products and dwindling revenues without it. An emerging trend of engineering services firms investing in the capabilities needed to perform engineering design and partnering with customers that require additional resources is changing the face of manufacturing. Customer Profile: Rockwell Collins Founded in 1933, Rockwell Collins is a $4.7 billion company based in the U.S. that provides information technology services and avionics (electronic systems for aircraft, artificial satellites and spacecraft) systems to government agencies and aircraft manufacturers at an international level. With approximately 20,000 employees worldwide, the company s avionics systems and products are in the 1

2 majority of aircraft at a global level, and its airborne and ground-based communication systems support almost 70% of U.S. and allied military communication. Partner Profile: HCL Engineer Outsourcing Services HCL started as a hardware product company in 1976, featuring a strong engineering team from the beginning. HCL saw an opportunity to take its expertise and provide engineering services outsourcing (ESO) to companies across the globe. HCL took its specialized knowledge and skillset and applied them to hardware, software, mechanical and compliance services under a separate horizontal business unit called Engineering and R&D Services. Today this business contributes more than 18% of HCL s revenues. According to HCL, this makes them the largest engineering services organization among India-based IOPs and also comes within the top five globally. HCL believes great products are the gateway to the best end-user experiences, which drive business impact for all the R&D companies. Under its Engineering Experiences strategy it claims to address three key business needs of the engineering business: acceleration, value and technology. The division has 20+ solutions, 1,250+ patents filed, 18,500 engineers across four continents, 300+ customers and 100 development centers. For aerospace and defense specifically, HCL was the first India-based company to obtain AS9100 certification, has executed 1,500+ engagements and has 3,000+ engineers that cover embedded software, hardware, mechanical, manufacturing engineering and engineer applications for structures, engines, systems, interiors and avionics. HCL broke through Rockwell s rigorous screening process to land the first engagement in 2000 The relationship between HCL and Rockwell Collins started at the turn of the century when most services firms chased the hot, albeit short-lived, opportunity known as the Y2K bubble that focused on reworking legacy software applications to accommodate coding years starting with 19XX and 20XX. HCL eschewed that short-lived opportunity, looking instead for longer-lasting prospects. In short, HCL focused on long-term growth potential over short-term limited, but immediate growth. Rockwell, at the time, chose to explore offshore outsourcing cautiously. Leery of the distance and delegation of process to outside firms, it opted to test outsourcing in a limited fashion. Operating in the aviation space compelled the company to act this way, given the mission-critical nature of the work and the need to be confident the software testing covered all contingencies. According to Rockwell Vice President of Commercial Systems Engineering Steve Nieuwsma, HCL beat out several India-based competitors for the first project, with HCL s passion to succeed and senior management involvement key factors that impressed Rockwell. HCL provided simple, creative pricing structures for Rockwell to digest in a reduced number of standardized rate structures. In this manner, Rockwell could quickly do back of the envelope cost projects without a lot of need for back and forth between the two firms. A top-level organizational commitment to pricing simplicity enabled a cautious client to quickly and accurately track and 2

3 control its expenditure lines, providing greater operational efficiency certainty for Rockwell. Rockwell closely monitored HCL to start, providing well-defined test scripts to deploy and requiring HCL to rotate employees to Rockwell s U.S.-based locations. Rockwell relaxed the location requirement while simultaneously providing HCL with more complex work as HCL s domain expertise improved. Nieuwsma estimates at the start of the relationship there was a 3:1 ratio of HCL to Rockwell employees, which doubled over the course of three to five years as the relationship interactions gained greater efficiencies. As HCL describes it, the early years of the relationship were an evolution from a staffing model to a managed model to a multimanaged model. Rockwell delegated out project management oversight to its outsourcing partner as the knowledge transfer took place between the two entities. The range of services HCL provided to Rockwell expanded beyond software verification and validation work to complete product lifecycle development that includes software, hardware and mechanical engineering services allowing the engagement types to morph from tactical to strategic to what it is today: a value partnership. Value Partner HCL-Rockwell Collins Partnership Evolution 2000 to Present HCL given Top Performing Supplier Award Turnkey Product Development Strategic Engagement Tactical Engagement Non-avionics software development SOURCE: HCL Avionics software validation and verification, gap analysis Hardware design, development, validation and verification 787 Program HCL-Rockwell Collins Offshore Design Center launched Rockwell s increased comfort level and HCL s shared-risk relationship approach strengthens the relationship The next major milestone in the relationship took place in 2004 when the engagement type moved from tactical to strategic. Rockwell chose to outsource aircraft cabin software development work from California to HCL in India. Rockwell made the decision to outsource the cabin portions given they were not directly tied to the more industry-specific elements of the cockpit operations. After experiencing success with HCL in outsourcing the aircraft cabin software, Rockwell made the decision to deepen its relationship with HCL. In 2007 HCL opened its Rockwell-HCL ODC in Bangalore and Chennai, India. 3

4 HCL built out the design center, which houses more than 400 HCL professionals dedicated to aerospace engineering, to focus on engineering, maintenance and delivery for Rockwell in India. The center enables increased efficiency through process-driven 24-hour engineering operations to Rockwell Collins. Rockwell committed to specific workload volumes to help defray the investment cost for HCL and to provide a sense of relationship security that Rockwell believes contributes to HCL s low employee attrition rates by guaranteeing HCL staff interesting work from an industry-leading client, increased employee empowerment and a sense of belonging. Soon after the center was established, HCL launched the Value Creation Committee (VCC) in the ODC, which supports innovation and Lean idea generation outside of formal engagements that benefit Rockwell Collins. The purpose of the VCC is to identify improvements above and beyond project scope; once an idea is approved HCL implements it on its own dime. From the launch of the VCC in 2008 through December 2012, HCL saved Rockwell Collins $7.2 million. In 2008 Rockwell Collins awarded HCL its Top Performing Supplier Award, which recognized HCL s ability to meet performance expectations and work collaboratively with Rockwell Collins. Rockwell s comfort and confidence in HCL earn HCL an introduction to Boeing Companies such as Boeing, which build products for global markets, want trusted suppliers in all major markets to point to their job creation contributions in local economies. Boeing sought out Rockwell recommendations for trusted suppliers. Rockwell referred HCL, which then managed to land a software developing engagement in late 2004 for the Boeing 787 Dreamliner development. As with Rockwell Collins, HCL s continuous managerial commitment and creativity won over a new account. In this situation, HCL agreed to a two-staged pricing process whereby HCL deferred and amortized the nonrecurring expenses to be recouped as 787s came off the assembly line. The relationship was a success with HCL receiving the Gold Boeing Performance Excellence Award for work completed between Oct. 1, 2007 and Sept. 30, Of Boeing s 86 suppliers recognized for excellence, HCL was the only one at the Gold level. Rockwell extended the HCL relationship in 2010 to include hardware development The HCL-Rockwell relationship took a big turn in 2010 when Rockwell contracted with HCL for Turnkey Product Development. Nieuwsma says it constitutes a womb to tomb development job, which runs through all aspects of product development and prototype manufacturing. This more recent and on-going engagement is a clear sign that Rockwell Collins views HCL as a value partner by passing off start-to-finish product development and manufacturing. 4

5 HCL s successful and expanding partnership with Rockwell Collins is due in part to the importance HCL puts on IP protection and data security. As a technology company that offers engineering services, HCL recognized it is very important to demonstrate a high level of comfort in how it protects Rockwell s IPs and data security. HCL s IP protection practices include: Engagement-level general terms and agreement between HCL and Rockwell, Project-level agreement (through individual Statement of Work), Nondisclosure Agreement at the Engagement and Employee level, Noncompete clause and restriction on information access by members of other projects. Following these measures HCL guaranteed intellectual property protection and information security for Rockwell Collins. Critical success factors revolve around commitment or leaning forward Over the years, HCL continually demonstrated creative commitment to Rockwell, from simplified pricing structures for discrete contract work to building out a design center to support Rockwell to taking on hardware design work while amortizing the nonrecurring costs to participate in the risk. All long-term relationships face hurdles along the way; but working through difficulties can actually result in a stronger partnership. Indeed, Rockwell s Nieuwsma expressed as much during his interview with TBR: There ve been some bumps, but when they take place, they [HCL] demonstrated ownership. Their management and support team leaned forward and got in our face to solve the problem. About TBR Technology Business Research, Inc. is a leading independent technology market research and consulting firm specializing in the business and financial analyses of hardware, software, networking equipment, wireless, portal and professional services vendors. Serving a global clientele, TBR provides timely and accurate market research and business intelligence in a format that is uniquely tailored to clients needs. TBR analysts are available to further address client-specific issues or information needs on an inquiry or proprietary consulting basis. TBR has been empowering corporate decision makers since For more information, visit This report is based on information made available to the public by the vendor and other public sources. No representation is made that this information is accurate or complete. Technology Business Research will not be held liable or responsible for any decisions that are made based on this information. The information contained in this report and all other TBR products is not and should not be construed to be investment advice. TBR does not make any recommendations or provide any advice regarding the value, purchase, sale or retention of securities. This report is copyright-protected and supplied for the sole use of the recipient. Contact Technology Business Research Inc. for permission to reproduce. 5