Complementary and continuous innovation: case of the Indian software industry.

Author:Mukherji, Sourav


Indian software services exports have been growing at a spectacular rate for over more than a decade now. Global resource shortage and labour arbitrage have often been cited as reasons for this growth. In this paper, we go beyond these arguments in explaining this phenomenal growth that is remarkable due to its consistency and resilience in the face of technological and business volatility. In the process, we identify a series of complementary and continuous managerial innovations witnessed in the industry that resulted in creation of superior customer value. The industry exhibited dynamic capability in continuously morphing its business proposition, first by facilitating optimal usage of client resources and subsequently enabling diversification of risks arising out of technology churn and business volatility. Therein, we believe, ties the true explanation for the industry's ability to convert a limited opportunity window into a sustainable business of global proportions.


    Indian software services exports have grown at a spectacular rate of 42% over the past fifteen years. While the volume of growth, from a mere US$ 52 million in 1987-88 to US $ 10 billion in 2002-03 is spectacular by itself, what is noteworthy is its consistency in the face of rapid technological changes and business volatility. Moreover, this remarkable growth has come from a nation that had significant disadvantages associated with emerging economies, such as inexperience in building a global industry, weak domestic market and 'country of origin' risks associated with less developed countries like India (Cordell, 1992).

    However, explanation of this remarkable growth in the face of adversity has seldom gone beyond country specific advantages like 'wage arbitrage' and 'knowledge of English'. We believe this to be too simplistic. The growth was a consequence of continuous and complementary managerial innovations exhibited by leading players of the industry. In an environment of rapid technological change, value creation is contingent upon organization's dynamic capability of honing internal technological, organizational and managerial processes to create new forms of competitive advantage (Teece et al, 1997). In this paper we explain how the Indian software industry, thorough continuous and complementary managerial innovations, was able to adopt, integrate and reconfigure organizational competencies to match the demands of a changing environment.


    Over the last decade, the increasing use of information and communication technology in contemporary society has led to an explosion in the demand for production of software. However, the supply of skilled software professionals, critical for production of software, was limited, leading to scarcity of human resources, especially in developed nations. India, with its large pool of English speaking engineering graduates became an ideal destination for sourcing skilled software professionals. Wage arbitrage that existed between India and the developed nations made such sourcing even more attractive.

    During late eighties, several Indian organizations capitalized on this opportunity and started acting as suppliers of software professionals to their clients in the developed nations. The dominant model for meeting this demand was that of resource augmentation, where the software was developed on client premises or 'on-shore'. However, Indian organizations made conscious efforts to move their onsite engagements to off-shore locations, and to reduce their exposure to one-time opportunities like Y2K. Today about 60% of the industry revenue comes from projects carried out from the premises of the Indian software service organization. This migration from an on-shore model to that of off-shore outsourcing was made possible, to a large extent, by leveraging process quality certifications that has become a dominant characteristic of the Indian industry.

    2.1 Quality Processes: Leveraging for Remote Location

    Process standardization efforts in software development started with the aim of improving productivity. The capability maturity model (CMM) developed by Software Engineering Institute (SEI) of Carnegie Mellon University pushed it forward. SEI CMM is a framework that lays down an evolutionary improvement path of software development--from an adhoc immature process to a mature disciplined process. Review of...

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