Innovation in Suppliers of Outsourced services: Case of Indian Software Industry

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Innovation in Suppliers of Outsourced services
Case of Indian Software Industry

• Rakesh R. Mishra
• Doctoral Student
• (0)-9339273557
• Indian Institute of Management Calcutta
• rakeshr_at_email.iimcal.ac.in

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Contents

• Background and Research Context
• Growth of Market for Indian Software Service
  firms
• Indian Software Service Industry Structure
• Research Questions?
• What is Innovation ? Service ?
• Types of Innovation
• Approaches to Study of Innovation in Services
• Theoretical Paradigms to study Innovation in
  Service
• Drivers of innovation in services
• Model of Industry dynamics (Mehra, 1994)
• Innovation is Indian Software Firms
• Model of Indian Software Service firms
• Dominant Drivers of Innovation in Indian Software
  firms
• Hypothesis about emerging trends of New service
  design

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Background and Research Context

• Phenomena of Disintegration (Outsourcing) -
  relationship between the market size for the
  product of a firm and the extent of vertical
  integration optimum for the firm (Stigler 1951,
  Langlois, 1988, Pavitt, 2003)
• Outsourcing in Software Services
• Separation of Software and Hardware (IBM, 1960)
• Standardization (Greenbaum 1976, Kraft 1979)
• Globalization
• Service producer makes a bundle of competence
  available to the customer at their disposal which
  is used by client organizations according to
  their inputs

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Indian Software service Industry Structure
Data Source DataQuest 2006-07 top 200 Survey
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Continued

• A long tail structure of the industry
• It has been found that major R D expenditure
  and technological innovations are not likely
  events where all the firms are offering similar
  products and main market dynamics is price
  competition (Desai 1982 Siddharthan 1988 Nath
  1993)
• large and small firms all are likely to be
  engaged in minor cost reducing innovations.
  Arrow(1971)

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Research Questions?

• What is the strategy of firms or group of firms
• What is the type of Innovations Indian software
  firms do technological / non-technological
• What is the driver of the Innovation? (Market/
  Strategy / RD/ Competition)
• What are the determinants of the innovation
• What is the model of innovation adopted in Indian
  Software firms
• Is the boundary of the firm stable

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What is Innovation ?

• Adoption of an idea pertaining to device, system,
  policy, program, process, product or service
  which is new to the organization at the time of
  adoption. Idea may be generated in the
  organization or may be purchased from outside.
  (Daft, 1982 Damanpour and Evan 1984 Damanpour
  1991)
• Innovation thus has become a means of effecting
  changes that are needed to meet the new strategic
  challenges. (Damanpour and Schnieder, 2006
  Schumpeter 1934).
• innovation is measured only after idea has been
  successfully implemented

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Representation of services

• Based on Gallouj(2002)
• C - Service Providers Competence term
• C - Clients Competences term
• T - Technical and process characteristics term
• Y - The Service Characteristics

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Types of Innovation Damanpour, 1987

• Technological Innovation
• Tool, technique, physical equipment or system by
  which the employees, the units or the
  organization extend their capabilities Schon
  (1967).
• Administrative Innovation
• Implementation of new policy pertaining to
  recruitment of personnel, the allocation of
  resources, the structuring of tasks, authority
  and rewards are examples of administrative
  innovation (Damanpour, 1987).
• Ancillary Innovation
• Innovation in boundary spanning units e.g.
  marketing and public relations

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Types of Innovation (Oslo Manual 3rd Ed, 2005)

• Product Innovation (Technological)
• Introduction of a good or service that is new or
  significantly improved with respect to its
  characteristics or intended uses. Product
  innovations can utilize new knowledge or
  technologies.
• Process Innovation (Technological)
• Implementation of a new or significantly
  improved production or delivery method
• Marketing innovation
• implementation of a new marketing method
  involving significant changes in product design
  or packaging, product placement, product
  promotion or pricing
• Organizational Innovation
• implementation of a new organizational method in
  the firms business practices, workplace
  organization or external relations

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Approach to Study Innovation in Services
Gallouj, 2002

• Technologist approach Assimilative Approach
• Impact analyses
• Sectoral technological trajectories (Pavitt,
  1984)
• Lakshmanan(1987) also pursues evolutionary
  approach but diff.
• The Service-Based Approach demarcation approach
  (Drejer, 2004)
• highlights the existence of particular form of
  innovation in services different from
  technologist approach
• It attempts to produce local theories of
  innovation more closely tailored to particular
  service industries.
• Integrative Approach
• an integrated analysis should be possible
• (Drejer, 2004Gallouj and Weinstein (1997)
  Preissl(2000)

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Theoretical Paradigms Sundbo, 1997

• Technology-economy paradigm (Dosi et al. 1988)
• Innovation as technological development
• Entrepreneur paradigm (Kent, Sexton Vesper,
  1982)
• Entrepreneurs act is the core innovation
  process
• Strategic Innovation paradigm (Teece, 1987
  Kanter, 1989 Nystrom, 1979, 1990 Porter, 1990
  Rumelt, Schendel and Teece, 1994 Sundbo, 1995).
• Firms strategy as the core innovation
  determinant. Innovations are largely market
  driven and formulated within the framework of a
  strategy.

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Drivers of Innovation

• External drivers
• Customer needs (Customer demand, reconstructed
  need)
• Changes in the Environment (Abstract need)
• Internal drivers
• Market Orientation
• Strategy Plan of the organization
• Organizations resources vis-à-vis its ability to
  adopt certain innovations
• Constrained resources or path-dependencies
  (Ghemawat, 1991)
• Competence to innovate
• Organization structure and decision architecture
  (Quinn, 1985)
• Intelligence gathering ability of the
  Organization (regarding technology, competitor
  strategy and customer requirements)

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Dynamics of Industry (Mehra, 1994)
Model of Industry
Dynamics (Mehra, 1994)
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Fig1 Model of Indian Software Service firms
Existing Clients Strategy
Organizational Competence
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Continued .

• Knowledge Base
• Knowledge of employee C,
• Knowledge embodied in capital goods, components
  and supplies T
• Experience Base
• Information Management Competence
• Organizational competence
• Competence achieved due to performance
• Competence in the use of theoretical Knowledge
• (Guilhon and Gianfaldoni, 1990 Guilhon, 1992).

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Elements of Indian Software Service firms and
Innovation

• Knowledge Base Change in the Knowledge base.
  Conquest of new source of raw materials
  (Schumpeter)
• (Radical innovation)
• Experience Base - Change in the Experience base.
  
• (Incremental innovation)
• (Guilhon and Gianfaldoni, 1990)

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Continued ..
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Dominant Drivers of Innovation

• External Drivers
• Changes in environment
• Changes in the Customer need

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Trend of Change in environment

• Deepening economic integration, increasing
  economic openness and growing economic
  interdependence between countries
• Cross-border movement of goods and services is
  easy
• Raw-materials (bundle of competence in case of
  services) of various countries accessible to the
  organizations

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Trend of Changes in the Customer need

• Organizations are increasingly focusing on their
  Core competence and attempting to create value
  by focusing on their core processes and
  outsourcing their non-core processes.
• Services related to non-core processes are being
  outsourced (procured from market).

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Emerging trend of new service design

• Finding new service opportunities while
  interacting with client or by customer canvassing
  
• New service development in providers firms will
  be focused on finding cost-effective new bundle
  of competence Globally for the service
  opportunities found above (Raw material focused)

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Continued .

• Dynamics of the industry predicted in the model
  shows that Innovation charter of these firms will
  focus on finding new business opportunities to
  leverage their complex resource mix and venture
  into other industries.
• Firms will try to find new bundle of competence
  that can meet customers need in a cost-effective
  manner

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Conclusion

• Identification of non-core processes and
  availability of cheaper bundle of competence
  which can be procured in a cost effective manner
  especially from geographically distant locations
  will determine the new services.
• Looking at the dynamics of the industry model we
  see that new service design and process
  innovation will be guided by the consideration of
  leveraging the complex resource mix of the firm.

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Case of Indian Software Industry

• Onsite coding expertise
• full range of service involved in the software
  development
• Call centers and Business process outsourcing.
  medical transcription, digitizing of drawing etc.
• Business Consulting

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