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Product Innovation: The Future of the Sri Lankan IT Industry

by CAKE LABS Articles 6 March 2017

What defines our contemporary technology landscape? How does the way you think about technology in 2017 differ from how you thought about it five, or even ten years ago?

The vanguard of today’s industry builds technology for everyone; from PayPal to Uber to Spotify, today’s technologies exist in most of our pockets and we use them every day. Many of them are built by industry outsiders too; Airbnb isn’t a technology devised by the IT department at Hilton any more than PayPal was devised by Chase or Visa. Instead, these solutions are the prodigy of programmers and technologists applying their expertise and engineering acumen agnostically to real world problems.

When these actors apply leading edge technology to create solutions for everyone, disruption takes place. Suddenly we are propelled into a world in which anyone’s car can be a taxi or anyone’s home can be a hotel, shopping becomes an online experience, and TV an on demand one, leaving decades old companies struggling, while creating billions of dollars in value.

What is the one thing all these companies have in common? They all specialize in product innovation.

 

Product Innovation

‘Product Innovation’ is developing tech products that provide services or solve business problems, and are owned by the tech companies themselves. Traditionally, economies like ours have been focused on IT consulting – building high quality tech solutions to the specifications specified by the clients who commission their creation. Once the product is complete, it belongs to the entity that commissioned it, and the tech company is only reimbursed for the time and human resources devoted to its creation.

This poses two problems. The first; that the capacity of a tech company’s value creation is directly proportional to the size of its labor force. In order to grow its business, it needs to increase its labor force, and the value created relative to the number of employees in the company only varies slightly.

This forces companies to compete on a cost model; business is awarded to those IT consulting service providers that can create the solution for the lowest price. On a national level this also limits the IT potential of a country to the size of its skilled labor force, not the quality of the engineering within it.

The second problem is that it hamstrings the vision of any technologies developed. Since the technology that is developed is commissioned by another company, that company only asks for technology that can augment its existing business model. However, as we have learned, the true potential of contemporary technology is in its ability to completely reimagine the way a problem is solved and replace existing business models.

Product Innovation, on the other hand, is not limited by a need to preserve legacy companies or business models. It is in this environment that companies like Uber and Lyft are free and able to re-imagine transport, or companies like Spotify and Netflix are free to re-imagine radio and tv.

These products are also owned by the companies that developed them and are highly scalable. They are cloud based solutions that provide a framework which can work for a 100 users or a 100 million users. This means that the valuation of the tech company is directly proportional to the number of users using the product, not to the amount of employees in it; so you can create enormous value relative to the number of employees in the organization.

Let’s consider some examples:

 

OrganizationValuation (USD)Employee NumberValue / employee (in USD)
Uber66,000,000,0006,7009,850,746
Spotify8,000,000,0001,6005,000,000
Twitter10,000,000,0003,8602,590,674
Airbnb30,000,000,0002,50012,000,000
PayPal52,000,000,00018,0002,888,889
Netflix37,000,000,0003,50010,571,429

(note: data may be outdated and is intended to approximate and illustrate an insight, not to be definitive)

 

The Case for Sri Lanka

Sri Lanka has traditionally had a very strong BPO and services industry in textiles, tourism and certainly in IT & Financial services. The legacy of these companies is strong; they set the foundation of the Local IT industry, and are still its largest employers.

However, both the country and the world have changed dramatically. Globally we have seen the re-emergence of the Silicon Valley as a crucible of disruptive technology, and locally we have seen exponential economic growth over the last two decades.

The Sri Lankan GDP, currently estimated at ($82.32 Bil) is more than four times what it was twenty years ago ($15.09 Bil), and more than double what it was ten years ago ($32.35 Bil).

This has been accompanied by a comparatively low population growth of under 10%.

sri-lanka-gdp

The consequences of these changes are that Sri Lanka is becoming a less favorable destination for BPO and consulting services. The increase in GDP per capita means higher salaries, combined with the slow rise in the already modest population leaves us with an increasingly diminishing ability to compete on a cost based labor arbitrage model.

These trends aren’t negative however; they are simply a call to action. Industries that have traditionally relied on business process outsourcing are understanding this and moving further up the value chain. The tourism industry in Sri Lanka which traditionally relied heavily on a cost model is now expanding to include Eco-Tourism and other forms of sustainable non-cost centric services. We have seen companies such as Trekurious take advantage of this and provide more experience focused tour experiences. In the garment industry we have seen companies such as MAS and Brandix expand into innovation and design becoming less reliant on textile manufacturing alone.

But no one stands to benefit as much from this evolution as the IT industry. The rise of cloud based technologies, facilitated by higher internet speeds and lower server hosting prices, grants the IT industry the ability to easily scale their products and release them globally.

We have already seen similar successes from comparable economies globally. Israel, whose population is under nine million, and whose relationship with its neighbors is – shall we say – less than favorable, experienced a tech boom through product innovation. Dublin, dubbed the Silicon Docks (the latest in the trend of ‘Silicon’ prefixed tech boom locales) is playing host to Google, Facebook, LinkedIn, PayPal, Amazon, Twitter, Zynga and many more product innovation companies despite Ireland’s population of under 5 million.

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Google famously acquired the Israeli tech startup ‘Waze’ for $1.3 billion

 

In Sri Lanka we have seen a few trail blazers already take the plunge into the realm of Product Innovation, ourselves at CAKE LABS included – but they have been few and far between. The product innovation space in technology still remains largely untapped, but with many companies in the industry having the capacity to expand into it, and a growing base of IT professionals, it is ripe with potential.

 

Product Innovation and the Customer Experience

Initially an Incubator cum IT consultancy, we made the leap to product innovation in 2011 with what was then only a cloud based POS. Sysco (NYSE:SYY), the world’s largest food service company, showed initial interest with its seed funding and then proceeded to acquire a majority stake in our business in 2013. By then our product CAKE had already evolved into a holistic end-to-end technology platform for the restaurant industry.


Pasted image at 2017_02_16 04_07 PM

Today, with our deepening relationship with Sysco, we are looking at the entire customer experience in the foodservice industry “from farm to fork.” From the farmers who grow the food, to the way it is stored, to the way it is delivered to restaurant operators, and then all further interactions the restaurant has with its customers; we are creating tech products that will revolutionize the customer experience.

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