2011 Technology Business Research Inc. HCL ESO Case Study. Designing a Better Engineering Outsourcing Process: A Candid Discussion with HCL Clients

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1 TBR Technology Business Research: HCL ESO Case Study Designing a Better Engineering Outsourcing Process: A Candid Discussion with HCL Clients Authors: Alison Crawford, Professional Services Practice Senior Analyst Erin Hichman, Professional Services Analyst Overview About HCL HCL is a $6.2 billion leading global technology and IT enterprise comprising two companies listed in India HCL Technologies and HCL Infosystems. Founded in 1976, HCL is one of India s original IT garage start-ups. A pioneer of modern computing, HCL is a global transformational enterprise today. Its range of offerings includes product engineering, custom & 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 over 85,000 professionals from diverse nationalities, who operate in 31 countries including over 500 points of presence in India. HCL has partnerships with several leading global 1000 firms, including leading IT and technology firms. For more information, please visit Introduction Innovation is expensive. From both 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. Innovation is vital to maintaining a competitive edge, though, and firms can stagnate in the backwater of tired products and dwindling revenues without it. However, an emerging trend of IT services firms investing in the capabilities needed to perform engineering design and partner with customers requiring additional resources is changing the face of manufacturing. Engineering outsourcing is still a fledgling offering, but has gained popularity in recent years as capabilities and benefits are better understood in communities like aerospace medical devices and automotive. Vendors are realizing that by partnering with IT services firms specializing in engineering design, they can augment capabilities with resources that have skills not readily available in-house or use expensive in-house resources on higher-value functions. HCL began its engineering outsourcing practice around the turn of the millennium. The company supports over 200 customers in engineering outsourcing, including Cisco, Xerox and Endo Pharmaceuticals, with 48 of the top 100 global R&D companies on its client roster, as well. HCL s engineering journey will continue with a newly introduced idea called Engineering Out Of The Box or EOOTB. This strategy has evolved to support clients with prepackaged solutions that can be tweaked to meet the specific needs of the customer. Given that this venture is a new option in what we have already defined as a young field, the capabilities are already being deployed. One solution, called ITS E-Call, connects 911 communication systems in cars to emergency stations, and transmits locational data to alert first-responder crews. This offering will comply with regulations in North America and Europe requiring emergency communication functionality to be built into all new cars. This out-of-the-box functionality will be tweaked to meet the design specifications of various manufacturers, improving the safety of the cars and the driver s experience. The investment in these prepackaged solutions is not unique to the automotive vertical, and also spans food and beverage, telecom, solar power and various forms of data analysis. 1

2 Overview In November 2011 TBR sat down with three HCL customers to find out why they work with HCL, what the expected and unexpected outcomes of this partnership are, and what best practices future clients should incorporate into their journey toward outsourcing engineering services. The three companies we spoke with a measurement instrumentation production company and two medical device companies spoke of reasons for outsourcing as different as the products they create. The firms have relationships with HCL ranging from six to eleven years, and have engaged with them on projects ranging from simple engineering to complex, specialized product design. Why Customers Want to Outsource Engineering There are countless reasons why a company would outsource, and given the economic climate, an obvious potential purpose would be to save money; however, based on TBR s interviews, while there was an expectation of some cost arbitrage, that was not generally the main driver behind the decision to work with HCL. Firms such as the measurement instrumentation company engage in an outsourcing relationship to expand their footprint globally, increasing their corporate status and reach by partnering with an offshore-based firm. This company decided in 2000 that to lead in its field it needed a global footprint, and was one of the first vendors to outsource to India with the rationale that the client s learning curve was faster and risk was lower in partnering with HCL rather than investing in an offshore captive. The first of the medical device companies, which manufactures defibrillators, explored the possibility of partnering with HCL to do engineering outsourcing after working with them as a subcontractor of an intermediary partner. This medical device company was starting a new project, and with that new venture came a new business model, a shortage of in-house resources, new definitions and requirements and the opportunity to think outside the box to run with an opportunity. The conclusion was made that to attack these challenges, the client would need additional resources and a new approach; so it engaged HCL to define specifications and give user needs and requirements, as well as let HCL do both high-level and lowlevel design on its product. The third firm, which creates disposable medical devices, engaged HCL about six years ago to fill a gap in knowledge required to design a product. This firm was working on a solution for anesthesia delivery and realized it did not have an employee inhouse with the ability to design a secondary component of the device with low production volume. Rather than invest in developing this ancillary capability, the decision was made to partner with HCL, which provided a technical resource capable of creating an ideal design to meet the company s needs. Since that relationship has been in place, additional work has been meted out to HCL when the client lacks the competency on hand or the desire to invest in that area. Expected and Unexpected Outcomes Outsourcing is often associated with a reduction in the cost of doing business; however, given the inherent complexity of engineering outsourcing, TBR believes this is an association that should be secondary if at all relevant to a decision to outsource engineering design. HCL admits that cost reduction is not its ultimate goal, but instead favors delivering value to its clients. It has invested in hiring staff that have flown airplanes to consult on projects in aerospace and have performed open-heart surgery to provide critical insight into developing a medical device solution that will meet or exceed the client expectation. While there are ups and downs to any relationship and growth can sometimes be painful, when expectations, processes and outcomes are clear the process is far more beneficial and successful. This is evident in the engagement reviews by the three customers with which TBR spoke. 2

3 The comments, both positive and negative, focused on on-site staff, communication and clarity documenting and governing the contracted work. Interestingly, during the discussions it became apparent that over the course of a relationship, once the initial growing pain issues were identified and dealt with, each of the customers was pleased with the work HCL was delivering. HCL commits to having on-site coordinators that facilitate the work between the on-site project and offshore resources. One customer was enthusiastic about her coordinator, saying, They have awesome on-site coordinators. One of our manufacturing facilities in Thailand was closed down during the floods, and their on-site HCL project manager (PM) was able to redirect the process to be moved to the Ukraine and Minnesota without missing a beat. The understanding of how to direct remote resources was critical in its ability to avert a potential problem in the supply chain, and was a tremendous asset to the manufacturer. When a PM was called back to India for several weeks, HCL had a replacement resource waiting who maintained a level of support throughout the original PM s absence. This commitment and customer-centric focus has increased the level of confidence and comfort within the organization tremendously, even with individuals skeptical about the initial decision to outsource. This ability to be part of the solution is facilitated by face-to-face communication, which all the interviewed customers underscored as a positive, and as a must-have for any successful engagement. The ability to speak to someone and then have them manage the process remotely has been beneficial; however, the level of comfort and success took time to achieve. When first embarking on the outsourcing journey, several vendors felt they made mistakes in working with HCL and setting expectations. The disposable medical device company elaborated on its history with HCL, saying in the beginning it was not sure what it wanted or needed. The first several months of the engagement bear witness to that lack of vision; the onboarding processes to bring HCL up to speed to function at 100% took longer than anticipated, and the company is still surprised by the length of time invested in that effort. However, once HCL was fully operational as a client partner in engineering outsourcing it was able to look at the manufacturing workflow of the project it was tasked with, and by leveraging their knowledge of IT processes it automated functions, shortened decision times and reduced the manufacturing cycle of the product from 90 to 30 days. The client acknowledged it was obvious in hindsight that 90 days was inefficient, but it took it partnering with HCL to identify who it could improve its process. All the clients mentioned that to manage outcomes they needed to do a better job communicating with HCL and managing the initial process closely. Ultimately, however, this is not indicative of working with HCL, but of meshing the cultures of two organizations in to a seamless working partnership. The hurdles to be surmounted to achieve success are simple fixes once recognized. This is a process-driven interaction, according to the profiled customers, and the importance of establishing a chain of command and decision making is critical. One customer mentioned that, since the HCL team works closely across all levels of their customer, ideas and suggestions in brainstorming conversation had occasionally become billable tasks without proper approval. While the initiative of the HCL engineer was admired, if cost control is a priority, missing an authorization protocol and clear chain of decision making could inflate the final cost of an engagement, and therefore needs to be addressed early in the process. Best Practices to Consider The outcomes of the client engagements TBR researched were all similar. Ultimately, they were viewed as successful after some initial process hiccups, which HCL was able to alleviate. To that end, TBR captured a list of best practices HCL clients have identified that will help future clients achieve their desired outcomes. Set Expectations: As discussed above, all the customers profiled highlighted the necessity of doing due diligence and understanding their needs before expecting HCL to produce results. The disposable device customer went so 3

4 far as to say, Be very clear about what you want, and when you are, the more you will get. Innovation will come, but bringing on an outside resource to be a driver of that innovation requires foresight and planning. If an organization is able to invest the time into scoping the outsourcing agreement in a detailed fashion, they will be prepared for anything that arises during an engagement. Jointly Define the Process: As a follow-up to setting expectations, once the requirements have been identified, it is time to include the provider into the process, allowing it to tell you what it knows and what your organization may not. An outsourcing provider s expertise and insight may change the scope, resources or length of the project, and changes in direction and additional costs may be avoided by including the provider early. Furthermore, it gives the customer another level of assurance and protection that they will get exactly what is contracted for. Keep Communicating: It is important to communicate to your outsourcing partner about roles, expected outcomes, how decisions are made and budgetary expenses approved. Weekly check-ins are recommended with the entire global team. Moreover, communicating with the internal teams working on the front lines with the outsourcing partner is increasingly critical. Reducing uncertainty around job function and responsibilities in this new engagement and job security because an outsourcing agreement is in place will ultimately make the engagement successful internally and externally. Be Patient: This is a new process, bringing together resources that have never worked together on a large scale. There are bound to be conflicts as the process begins. If expectations and communication are priorities to both organizations then the integration will be easier and ultimately more productive. Ask For Case Studies: Having a peer reference to understand capabilities and expected outcomes is beneficial and will help an organization plan their outsourcing engagement more efficiently and effectively. Reviewing the experiences of other firms will also help you determine if the cultural fit with an outsourcing vendor will dovetail with your own. Conclusion Planes will become larger, fly farther and consume less fuel. Medical devices will become smaller, last longer and cost less. Homes will become more integrated, use greener materials and save money on utilities. None of this will be possible, however, without improvements to engineering process. Companies reliant on manufacturing and engineering will need to look ahead, interpret needs and prepare for opportunities they may not have the ability to answer on their own. By partnering with a vendor committed to expanding capabilities, consistently improving its track record and pushing the envelope to bring about the next wave of change, the future will be limitless. 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 TBR 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. HCL is a $6.2 billion leading global technology and IT enterprise comprising two companies listed in India HCL Technologies and HCL Infosystems. Founded in 1976, HCL is one of India's original IT garage start-ups. A pioneer of modern computing, HCL is a global transformational enterprise today. Its range of offerings includes product engineering, custom & 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 over 85,000 4

5 professionals of diverse nationalities, who operate from 31 countries including over 500 points of presence in India. HCL has partnerships with several leading global 1000 firms, including leading IT and technology firms. For more information, please visit 5