Growth Models for Top Indian Software Firms

Abstract

Indian software service providers are in an enviable position due to unprecedented market growth, overseas shortage of manpower, and access to high quality, low cost manpower within the country. We describe two alternate models for future growth of top Indian firms: manpower based growth (MBG) and knowledge based growth (KBG). In the first model, revenue growth is fuelled largely by growth in manpower. In the second model, the firm penetrates value added market segments, and growth is foelled by increasing the revenue per person. We evaluate these options in detail, after examining the current markets, the recent changes and trends, entry barriers to value added segments, client and market perceptions of Indian service providers, and changes needed within the firm.We argue that knowledge based growth needs significant improvement on three different dimensions: technical, consulting and project management capabilities. We propose a mentor model where these capabilities are largely built in house rather than by lateral recruitment or acquisition. This type of growth also requires several changes in the organization, including building a culture of knowledge, a reward and recognition system for it, and the willingness to differentiate people based on their abilities. A key change would be the ability of its people to take more decisions, whether it is about technology, consulting or project management.Unfortunately, decision making has not yet been delegated to the rank and file in these firms. The KBG model generates much higher revenues, limits recruitment to reasonable levels, and positions the company to resist onslaught from low cost competitors. Manpower based growth on the other hand does not require so much effort, change, or capability building but is difficult to sustain since the number of people needed would perhaps be excessive. We argue that the recent spectacular success could be an obstacle to future growth. That is because past success has been based on low cost delivery of relatively low end work. The natural tendency to continue on this path ignores several more lucrative market opportunities. We also describe how a firm following this model fells into the so called low value trap. Such a firm could also face price based competition from new and upcoming Indian firms, and perhaps those from China, Philippines or other countries.We also examine whether it is feasible for an Indian firm to follow the KBG model and become a truly world class company. On balance, the MBG model is easier to implement, but does not take the best advantage of market opportunities. The KBG model is difficult to implement, but builds a truly world class company. It seems to be a trade off between what can easily be done and what seems desirable for achieving full potential.