VENDOR PROFILE R&D/Product Engineering Services — How Is

VENDOR PROFILE

R&D/Product Engineering Services — How Is HCL Technologies Thinking Out of the Box and Providing Value to Technology Product Customers?

Mukesh Dialani

IDC OPINION

To provide services to their customers, R&D/product engineering services vendors have, in the past five to seven years, continued to build additional competencies by hiring relevant engineering talent, acquiring industry-specific product development and engineering capabilities, building labs, creating intellectual property (IP), and so forth. And, since this area of IT services is in a relatively nascent evolutionary phase compared with its traditional IT services counterparts, vendors that implement strategic initiatives and lead with innovative partnerships to build their own ecosystems will gain market share. In studying HCL's technology product development and engineering services, IDC is of the opinion that HCL has until now thought through its strategy in building differentiating capabilities and that the following initiatives are crucial for HCL sustaining its momentum in growing this business:

 Increase scope and depth of offering. HCL should ensure that they continue to build additional solutions across key industries in order to get additional business.

 Focus on customer satisfaction. Keep customer satisfaction levels high to ensure additional opportunities to move up the value chain — resulting in higher billing rates.

 Intellectual property. Ensure that it builds reusable intellectual property to increase utilization rates.

 Expand reach. Increase marketing efforts in Europe and the Americas to improve brand recognition and image.

IN THIS VENDOR PROFILE

This IDC Vendor Profile updates HCL Technologies — Vendor Profile Series for R&D/Product Engineering Services (IDC #214698, October 2008) that was published as part of a series of R&D/product engineering vendor services profiles. This G l o b a H e d q u r t s : 5 S p n F m i g h , M A 0 1 7 U P . 8 2 9 3 4 w c document describes and evaluates HCL's Engineering Out of the Box (EOOTB) approach that focuses on three key tenets — user experience, the ecosystem that enables the R&D and creation of new products, and complete life-cycle product development — as the primary building blocks that enable HCL Technologies to offer outsourced product development solutions to its customers.

Filing Information: May 2012, IDC #234586, Volume: 1 Global Sourcing Strategies: Vendor Profile SITUATION OVERVIEW

Company Overview

About HCL Technologies

The HCL group comprises HCL Infosystems and HCL Technologies, and the total revenue for both group companies currently adds up to approximately $6.2 billion. In terms of business:

 HCL Infosystems is primarily a systems integration company and a leading manufacturer of computer hardware in the Asia/Pacific region.

 HCL Technologies is a global services provider of IT services, including infrastructure services, engineering and R&D services, and BPO services (see Table 1). For the quarter ending December 2011, the Engineering and R&D Services (ERS) group at HCL Technologies achieved annual run rate revenues of approximately $1 billion.

TABLE 1

HCL Technologies ERS a t a Glance

Category Details

HCL Technologies revenue $3.9 billion

HCL Technologies engineering services revenue $772 million

Investment in R&D intellectual property $21 million

HCL Technologies employees 83,076

HCL Technologies ERS employees 17,500

Patents filed on behalf of customers 200+

Total HCL Technologies customers 500+

Total HCL Technologies ERS customers 200+

Delivery locations Chennai, Bangalore, Pune, Hyderabad, Rochester, Cary (North Carolina), Redmond (Washington), Welwyn Garden (United Kingdom)

Investment in product development and $15 million intellectual property

Customer labs 35+

Top 5% customers' share of total HCL 16% Technologies ERS revenue

Source: IDC, 2011

2 #234586 ©2012 IDC The HCL group began its operations in 1976 as an IT product company. In the late 1990s, HCL saw an opportunity to provide outsourced engineering services to global companies — a business that would leverage its engineering knowledge and infrastructure and the credentials of its own product business (see Tables 2 and 3 for investment in laboratories and certification, respectively). Product engineering and R&D has since been a focus of the company and has resulted in engineering partnerships with technology/product companies that include Boeing, Cisco, and Microsoft. Table 2 does not include investments made prior to 2008. These can be referenced in HCL Technologies — Vendor Profile Series for R&D/Product Engineering Services (IDC #214698, October 2008).

By 2009, HCL ERS was a key provider of outsourced technology product and engineering services offering hardware, software, and mechanical and regulatory/compliance services to its clients (see Table 4).

TABLE 2

HCL Technologies R&D/Product Engineering Services Laboratory Investments, 2008– 2012

Lab Description Activity Year

Antenna Lab Concept design to manufacturing of base Development and testing (functional and 2008 station antenna endurance testing)

Implanter Lab Processing multiple silicon wafers at a time Software development (sustenance and 2008 and fabricating circuits on silicon wafers enhancement) of implant control system and product support

In-Flight This In-Flight Entertainment Lab has two 49- Development, testing, and maintenance of 2008 Entertainment Lab seater racks catering to two major aircraft in-flight entertainment systems configurations and a business jet rack. All the necessary hardware/equipment is provided by the customers, and the lab is set up by HCL's systems engineers.

Handler Lab Handler, also called "equipment front-end Software development, software testing, 2010 module (EFEM)," is part of all the and system engineering services to semiconductor equipments in the chip customers fabrication unit. The primary objective in building this lab is to service customers completely from offshore.

Teardown and Value engineering to impact the bottom line Cost analysis, cost modeling, 2011 Benchmarking Lab benchmarking

Mobility Lab Complete mobility solutions including Device interoperability testing, cross- 2011 (Singapore and application development and device testing platform development, application Chennai) development, middleware development certification, device testing, application testing

Printing End-to-end design of next-generation Development and testing 2012 Technology Lab printing technologies

Source: IDC, April 2012

HCL Technologies R&D/Product Engineering Services Certification Investments

Certification Skills Vertical

ISO/TS 16949 Design/development, production, installation, and servicing of automotive- Industrial related products manufacturing

IEC 61508 Functional safety of electrical/electronic/programmable electronic safety-related Industrial systems manufacturing

ISO13485:2003 Maintenance and implementation of quality systems focusing on medical Medical devices devices

ISO/TS 16949 Continual improvement, emphasizing defect prevention and the reduction of Automotive variation and waste in the supply chain

SPICE — ISO/IEC Project management, configuration management, quality assurance Automotive 15504

AS 9100 Ensure quality and safety in the aerospace industry Avionics

DO 178/254 Scheduling, cost estimation, and tool selection Avionics

TL 9000 Design, development, production, delivery, and service for the communications Telecom industry

ISO 20001-1:2005 Requirements, planning and implementing service management, service delivery process, relationship processes, resolution processes, control processes, release processes, and planning and implementing new or changed services

BS 15000-1:2002 Scope, terms and definitions, requirements for a management system, planning and implementing service management, planning and implementing new or changed services, service delivery process, relationship processes, resolution processes, control processes, release processes

ISO/IEC 27001:2005 Formulate security requirements and objectives, cost-effective management of security risks, definition of information security processes, provide information about information security to customers

BS7799-2:2002 Define scope for information security management systems (ISMS), identify and assess risks and how to handle the risks, risk management, intrusion detection and response, review of risks and consequences, regular testing of security mechanism, implementing and testing improvements

ISO 9001-2000 Provide products that meet customer and applicable regulatory requirements, enhance customer satisfaction through the effective application of the system, including processes for continual improvement of the system and the assurance of conformity to customer and applicable regulatory requirements

CMMI — SVC Services certification for CMMI

CMMI — Level 5 Planning, risk management, configuration management, monitoring and review mechanisms, issue escalation and resolution, change management

Source: IDC, April 2012

HCL Technologies Current Active Customer Contracts

Size of Global Contract (Annual Length of Customer Revenue) ($M) Contract Brief Description of Work

Telecommunication 50+ 3–5 years End-of-life product support — GRRP, product equipment company development, verification and validation (IV&V)

Office automation major 50+ 5–7 years Joint IP development, end-of-life support, end-to-end product engineering

Software and online 50+ 5–7 years Online, mobility, search, product engineering, product company support, quality and compliance

Consumer electronics 20+ 5–7 years IV&V, embedded product development, certification major

Aerospace company 20+ 3–5 years Product engineering

Aerospace company 20+ 3–5 years Multiple subassemblies, product engineering

Semiconductor company 20+ 3–5 years Embedded software development, product support

Software company 10+ 3–5 years eCommerce, platform engineering

Telecommunication 10+ 3–5 years Concept to manufacture, product engineering equipment company

Software and online 10+ 3–5 years Product management, AD management, support company

Medical devices company 10+ 3–5 years Systems engineering, EOL support, concept to manufacture

Source: IDC, April 2012

Evolution of Engineering Out of the Box

The emergence of cloud, mobility, and the need for product companies to shift their market focus to find other avenues for growth on account of the recession in their traditional markets prompted the ERS group at HCL Technologies to shift its focus and try and understand key changes that were beginning to impact the technology products business. According to the group, market leadership for its customers going forward would shift from creating intellectual property and product features to creating an ecosystem and leveraging product platforms (see Figure 1).

The EOOTB Concept

Source: IDC, 2012

HCL Technologies' ERS team focused on three major broad industry categories — software, high-tech (semiconductor, consumer electronics, etc.), and manufacturing (auto, aerospace, defense, etc.) — and arrived at the following conclusions:

 Pure-play products were no longer sources of competitive advantage for customers.

 Products with a solutions/services play and an impactful ecosystem would have a higher chance of creating unique differentiators.

 Focus on end-customer impact for both B2B (platform assurance) and B2C (user experience) vendors would be critical.

To address this emerging dynamic that would drive success in the technology product business, HCL Technologies' ERS group began work on a strategy to provide core product development services and, additionally, extend these services to assist

Three T enets of EOOTB

The three tenets of EOOTB are:

 Core products — full system development and product development life- cycle services based on industry domain expertise. This principle includes leveraging HCL's multidisciplinary engineering design and development expertise. HCL is focused on enabling its customers to develop cutting-edge next-generation technology products along innovation, completeness, criticality, complexity, and cost of ownership.

For example, for a Fortune 500 software company, HCL currently owns the complete product management, design, development, test, and support for the company's security software, which receives 40 million signature downloads within 30 minutes of a virus attack.

Similarly, for a large aerospace customer, HCL is developing 20 major mission- critical and complex avionics systems (such as key subassemblies of commercial aircraft). Other examples of key projects include the development of Class III medical devices and core engineering for the auto industry (powertrain, battery management, instrumentation cluster, and active and passive safety).

 Ecosystem innovation — extend the competence of core products by creating platforms for ecosystem innovation. HCL has invested in creating over 20 productized solutions that provide immediate time-to-market advantage to customers. These solutions cater to mobility, cloud, collaboration, online, convergence, smart devices, green, and so forth and are leveraged by customers across multiple industry segments.

One of the biggest impacts in product ecosystem innovation is around cloud. With the availability of multiple platforms and smart devices, technology product customers are looking for a partner that will help them understand how they can leverage cloud to their benefit and what benefits they can expect as well as SaaS enablement of their existing applications.HCL has developed three productized solutions to cater to these needs:

 AEGIS. The HCL multiplatform home automation gateway that can control household multimedia, energy monitoring, HVAC, security, and more, all through Android, iOS, and Symbian devices, while using multiple wireless standards

 AGORA. A platform that enables quick SaaS enablement of existing applications and delivery of software products as a service over cloud (This results in an increased market footprint — expanded customer base and enhanced customer loyalty via broader ecosystem services.)

 ARGOS. A framework to assist in end-to-end IPv6 migration of enterprise infrastructure, applications, services, and business-critical applications; a

 User experience — increase adoption of products through the ecosystem by providing an improved user experience to customers. The user experience is determined by the form factor and real-time and role-based experience while using the product. EOOTB brings the user experience beyond the consumer realm and makes it equally important in other domains, including automotive, finance, and healthcare.

For example, as mentioned previously, the AEGIS — a multiplatform gateway that controls multimedia, energy monitoring, HVAC, security, and more throughout the home — ensures ease of operations and manageability, resulting in increased adoption and positive user experience.

The change in customer behavior prompted by the interaction and integration of different entities in the technology product ecosystem is influencing product companies to alter their strategy based on ecosystem innovation in conjunction with user experience. HCL's EOOTB methodology aims at providing the framework and platform to assist customers with this strategy.

Company Strategy

EOOTB Strategy — Making it Work

The ERS group at HCL Technologies adopted the following strategy to make its EOOTB strategy work:

 Leverage existing ERS infrastructure to create solutions. HCL ERS' strategy was to leverage EOOTB into a thought leadership platform, and hence a special team of 500 technical experts were moved from customer programs into a new group called the ERS practice team. The focus of this team was to enable complex product management; create productized solutions, frameworks, and IPs; and work on innovative business models.

As a result, the team has released 16 solutions (see Table 5) in the past two years (with an equal number currently under development), many of which have been already implemented in test customer environments.

For example, for a Europe-headquartered Global 500 customer dealing in energy management systems, HCL ERS worked on a $12 million implementation to consult with the customer on next-generation architecture, leveraging HCL's proprietary service delivery platform (AGORA).

 Get the customer on board. EOOTB business stacks (see Figures 2 and 3) were developed for all verticals, and new positioning documents were created across verticals with a specific focus on platform and user-experience elements. Customers were updated on HCL's EOOTB philosophy, and the solution was launched based on customer feedback. EOOTB was also adopted as the preferred central theme within HCL Tech for all ERS proposals over $10 million, and the sales team ensured that the practice team was brought to the discussion

8 #234586 ©2012 IDC table earlier in the process to understand the strategy of the customer. The practice leaders became a part of the solution delivery process for the customers to ensure that HCL-developed ecosystem components were made visible and part of the proposal.

 Investment in cloud and mobility. HCL ERS invested in two emerging requirement areas of its customers, cloud and mobility. A new mobility lab that could accommodate over 1,000 engineers was set up in Singapore as a part of this initiative. This lab supports customer engagements related to mobility and a focus on creating HCL's own mobile technology–related IP. In parallel, HCL Technologies' ERS practice team also developed five cloud-based solutions including a payment and coupon redemption system based on near-field communications technology.

 Create messaging. EOOTB became the central platform for HCL ERS to reach out to the market and establish its thought leadership. The HCL ERS team established digital presence focused on EOOTB initiatives and gave the practice team an outlet to discuss, debate, and validate their ideas. Internal ERS blogs were launched in June 2010, and the top 3 topics on the blogs (as of April 2011) were cloud, mobility, and convergence. For external communication, HCL Technologies ERS on Twitter and HCL Technologies ERS on Facebook were launched to multiply the message intensity.

TABLE 5

HCL Technologies — Engineering Out o f the Box Customer Solutions

Solution Industry Overview EOOTB Area Impact

Advanced Mobile Mobile It is a research initiative to explore newer ideas and Core product, ecosystem, Technologies emerging technologies in the realm of mobile user experience Research communications. These ideas and technologies are leveraged for proposing innovative solutions to HCL's customers.

AEGIS Consumer Machine-to-machine (M2M) platform for enabling Ecosystem electronics connected environment for easy monitoring and control of end devices

AGORA ISV Next-generation services platform to enable, deliver, Core product, ecosystem aggregate, and distribute cloud and M2M services for technology and service provider companies

ARGOS Telecom Framework to assist in end-to-end IPv6 migration of Core product enterprise infrastructure, applications, services, and business-critical applications

HCL Technologies — Engineering Out o f the Box Customer Solutions

Solution Industry Overview EOOTB Area Impact

Business Aligned Multiple Open standards–based methodology to provide Ecosystem, user Service industries 360-degree monitoring and management of business experience Engineering services, applications, and infrastructure health from a business standpoint

CIRRUS 2.0 ISV Solution for test enablement, dynamic performance Ecosystem profiling and monitoring of applications hosted on Azure

Device Mobility Mobile/telecom This is a framework that improves productivity and Ecosystem, user Interface enables revenue growth for OEMs. It enhances user experience Framework experience by enabling smart interactions with devices through mobility. This helps control, monitor, manage, and use these devices using mobile technologies.

Device Test Multiple Extendable framework for device testing across Core product Automation industries different domains to dramatically reduce the product Framework development cycle time while increasing the test coverage through intelligent automation

MaqPlex Multiple This is a cloud-based M2M middleware platform Ecosystem industries based on open standards to provide management, analytics, and alerts for a broad range of devices. It is designed to cater to equipment manufacturers (OEMs/ODMs), service providers (TSP/ISP), managed service providers, and cloud/online service providers.

Website ISV Framework for the development and comprehensive Ecosystem, user Analyzer testing of Web sites compatible with IE10 in Metro experience style UI mode

Natural User ISV Components and frameworks for enabling enterprise User experience Interface applications to adopt the new breed of NUI technologies like speech recognition, gesture recognition, and augmented reality with the objective of increasing reach, coverage, and usability to improve business impact

Testing as a ISV A combination of HCL's matured, flexible testing Core product Service (TaaS) services and innovative practices has spawned this on-demand model. Testing services within TaaS include functional testing, usability testing, performance testing, geotesting, localization testing, security testing, and compatibility testing in a shared utility-based model

Video Enabling Consumer A solution addressed to serve the growing demand of Core product, ecosystem, Services electronics security and surveillance user experience

Source: IDC, April 2012

EOOTB Business Stack — Aerospace

Source: IDC, 2012

EOOTB Business Stack — Medical Devices

Source: IDC, 2012

EOOTB Customer Examples

Table 6 summarizes customer examples that describe how HCL Technologies' ERS group is using EOOTB solutions to provide value to HCL's customers.

EOOTB Customer Examples

Case Study

Market acceleration: Product launch and acceleration — device manufacturer

Business challenge(s) Longer development cycle times on account of increasing tech complexity, pricing pressure, constant need to raise usability index

HCL's value proposition Industrialized design to launch delivery for greater impact on time to market, UXD and ID expert services to measure and increase adoption, reengineering led by VAVE framework for increased savings

Business impact Product GTM acceleration increased by over 20%, engineering costs reduced by 30% by increasing software reusability by 90%, customer satisfaction increased by over 15%

Optimizing operations: Product quality and compliance — software product

Business challenge(s) Pressure to improve product quality, high cost of improving and maintaining product quality, test capacity variance due to non-standardized requirements

HCL's value proposition Code coverage and model-based combinatorial testing, software testing framework — test stream for efficiency and automation, on-demand catalog-based test services

Business impact Reduced defects by over 20%, improved developer/tester ratio by over 15%, reduced time-to-provision test teams by 20%

Emerging technologies: Smart product and mobility

Business challenge(s) Complex and disparate mobile environment with multiplatform, multivendor approach; commercialization of smartphones; enterprise mobile strategy and adoption

HCL's value proposition Industrialized device and application engineering using frameworks such as AMP, rapid launch using mobile commercialization framework, portal-based app certification workflow

Business impact Release cycle improved to 2–3 weeks, TTM acceleration on mobile device engineering program increased to 30%, app test and certification time reduced by over 30%

Source: IDC, April 2012

In September 2009, the HCL Engineering Services business had an annual revenue run rate of $469 million. By December 2011, this run rate accelerated to $772 million annually. In these 24 months, EOOTB as a strategy proved to be successful for HCL Technologies ERS. In 2011, HCL Technologies ERS used the EOOTB methodology to successfully bag a large engineering partnership deal with a United States–based print services provider.

Today, HCL Technologies' ERS business offers its services to many leading R&D and technology product customers for products that were completely/almost completely designed by HCL.

HCL ERS has focused on ensuring that its customers' success depends not only on creating successful products but also on the ecosystem and platforms it builds around them to create the right user experience. This thought and its execution has echoed well with customers, resulting in a 26% CAGR of business growth and an 83% increase in pipeline.

FUTURE OUTLOOK

Third-party engineering services partnerships today can no longer be simple order fulfilment; they need to proactively solve business and technology problems while increasing end-user mindshare and wallet spending. As HCL Technologies' ERS team continues to consolidate HCL's position in the R&D/product engineering services market, it needs to keep a close watch on the company's traditional and new competitors. HCL's EOOTB methodology packages key strategic components that influence customer adoption positively, and the strategy is good for the near term.

ESSENTIAL GUIDANCE

Advice for HCL Technologies

 Keep a close watch on competition. As the cloud continues to cannibalize traditional IT services revenue, IDC expects HCL Technologies' IT services provider competition, which does not traditionally offer these services, to jump into the fray. The competition has access to the same talent, and many have the ability to fund additional investment in these services. HCL Technologies should monitor its competitors' initiatives and align its market messaging and strategy as required. Additionally, HCL Tech should keep a watch on nontraditional competitors such as AT&T, which launched its own Digital Life home automation and security services very recently.

 Leverage experience. HCL Technologies has significant experience delivering these services relative to its competition. HCL Technologies should create market messaging that not only describes the value proposition associated with HCL's infrastructure, certification, and so forth but clearly articulates the

 Identify and build additional niche capabilities. To stay ahead of competition, HCL Technologies' ERS group should identify and build additional niche capabilities across multiple domains.

LEARN MORE

Related Research

 Worldwide Services 2012 Top 10 Predictions (IDC #233279, February 2012)

 Worldwide and U.S. Research and Development/Product Engineering Services 2011–2015 Forecast (IDC #232197, December 2011)

 Infosys Validation Solutions — Harnessing IP, Targeting Customer QA Priorities (IDC #226506, January 2011)

 Mobile Product Development and Test Service Strategies: Where Are Outsourcers Investing? (IDC #226453, January 2011)

 Sonata Software: Accelerating Its Growth Potential (IDC #226414, January 2011)

 Symphony Services — Innovation at Work (IDC #225636, November 2010)

 QuEST Global: Vendor Profile Series for Research and Development/Product Engineering Services (IDC #224296, August 2010)

 Moving Up the Value Chain: Tata Consultancy Services (TCS) to Help Saab Design and Develop "Gripen" Fighter Aircraft (IDC #lcUS21774609, April 2009)

 2009 Research & Development/Product Engineering Services Needs with Market Overview (IDC #217359, March 2009)

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