Richard Longdon
Chief Executive, AVEVA plc
"To remain at the forefront of innovation AVEVA is investing nearly 20% of sales in R&D and then has an operating profit of just over 10% of sales."
AVEVA has been leading the development of innovative software solutions for the
design of complex, large-scale process and marine facilities since its foundation
in the late 1960s. Originally commissioned out of Cambridge University by the government
in 1967 to bring the best of emerging computer technology to British industry, it
had little choice other than to develop everything it needed as the software industry
was so embryonic at the time. Today the business is still seen as an innovator whilst
being one of the most financially successful in the sector. To remain at the forefront
of innovation, AVEVA is investing nearly 20% of sales in R&D and then has an
operating profit of just over 10% of sales.
Keeping our products at the forefront of a developing market has been a challenge
as the product set has grown and the complexities of trying to maintain a degree
of commonality in core components has multiplied. Tools such as Rational have been
introduced and decisions to ‘make or buy’ technology have seen the number of internal
components reduced. In order to keep innovating, the core teams are developing strategic
features whilst non-core coding, testing and localisation are outsourced. At the
same time, a lot more functionality is developed as applications are split between
specialist engineering teams and outsourced partners. The latest large-scale outsource
contract, for example, has been started in India with a dedicated team hired for
a specific project, with the option to take the team on after three years – potentially
a ‘try before you buy’ scenario.
Selective outsourcing is only part of the answer
However, outsourcing is only part of the answer as we have learnt at AVEVA during
the years that software product development has spread from the original foundation
team in Cambridge to encompass several different locations in Europe and beyond.
Some of the spread has been planned in order to maximise access to precious skills
– other centres have been created through acquisition as part of a planned broadening
of the product portfolio. In order to maximise productivity with a diverse set of
applications and development centres, new tools and methods have been introduced,
including selective outsourcing. Much is written on the benefits of outsourcing
to high value centres and such is the competition amongst outsource providers that
at least ten unsolicited offers ‘to lower costs’ come in every week. Part of AVEVA’s
strategy includes integrating centres in India and Romania into the development
programme to deliver on time and protect IPR. For security, no core code or techniques
are developed outside the European centres, where protection of IPR is supported
by a legal structure.
Increasing production is not always just a case of committing more cash to R&D,
but also maximising the return on budgetary spend, both in real terms and by way
of putting more back in through tax credits and grants, although often the cost
of obtaining the grant outweighs the benefit. Only the most tenacious stand a chance
of enhancing their R&D efforts through the support of EU funding. The AVEVA
experience has meant working more closely with demanding but rewarding Asian customers,
pushing the boundaries based on commercial cost/ benefit reward schemes.
Finding new skills in an old market
In the engineering software business, finding engineers to produce specifications
is the most difficult task facing employers in Western Europe. The region once led
the world in industries such as shipbuilding that are now dominated by Asian manufacturers
who are, ironically, using tools developed in the West. In order to innovate and
maintain ownership of the applications market, we will need to keep adding experienced
talent to our workforce. An effective way to do this is to establish development
centres in locations where the skills are, such as Asia or Eastern Europe.
This introduces new management challenges with respect to export controls and protection
of IPR. AVEVA’s experience of partnerships to develop the skill base or tap into
local resources has revealed complications and dangers in terms of ownership of
IPR. However, with twenty-seven regional sales and support offices, AVEVA is well
placed to upgrade its regional offices to carry out in-house R&D.
Managing the balance between cost-effective production, security and multicultural
development teams will be a key to AVEVA’s future success – communication is the
essential ingredient in effective teams. We are starting to make more use of the
latest communication technologies, such as video conferencing and web meetings,
but these are only a substitute for continual face-to-face interaction. After all,
no one has produced a virtual replacement for the coffee machine around which developers
have planned much of the innovation that the UK has become famous for.
