Moving up the software value chain

Moving up the Software Value Chain

Will Indian software companies succeed in moving up the value chain ? The question has become particularly important as their bread and butter application development activities are becoming increasingly commoditised.


Business strategy is all about creating value for customers and more importantly capturing that value. The value chain is the set of activities that together add value. Moving up the value chain means doing those activities where there is scope to capture greater value. Typically, these are the activities where there is scope to collect a premium from customers by differentiating the product or service offered.

What exactly is involved in moving up the software value chain? To answer this question we need to understand that the value of any technology does not lie in its intellectual wizardry behind it but in the uses to which it can be put. The value of software is judged not by its technical elegance but by the contribution it makes to cutting costs, adding value and improving the overall quality of management in the company, especially decision making.

Google has become the most popular search engine in the world because of its user friendliness and ability to understand the mind of the person looking for a specific piece of information. Undoubtedly, Google has great technology backing it. But the main reason for its popularity is that its technology helps customers accomplish their tasks efficiently. It is those software services companies which can take a customer’s business problem, structure it and then explore how information technology can be used to solve it, that will command a premium in the market place.

Customers feel confident about discussing their core business problems with IBM, whereas they give Indian software companies clearly defined outsourcing tasks. This is the hard reality, even if Indian IT companies pretend otherwise and claim that they have developed deep domain expertise in some verticals. Even the major outsourcing contract which ABN Amro announced recently, featured essentially applications development.

The very fact, that Indian IT companies keep talking about process maturity, quality and SEI CMM V clearly reflects their mindset. These concepts are relevant in case of clearly defined tasks, which can be measured and controlled. Consulting tasks which demand a high degree of creativity and critical thinking cannot be managed within this framework. These are the activities where there is real scope to differentiate and add value, not in the structured coding tasks. Which is why many of the leading American software companies are not particularly worried about getting to SEI CMM V level.

If Indian companies truly want to move up the value chain, they must first work with Indian customers, especially the Small and Medium Enterprises and work like true consultants by developing solutions from the business problem definition stage. Once they succeed in running a few pilots, like these, they can scale up and target larger Indian companies. Only then will the global clients trust our software companies with these high end jobs. Some of our larger software companies like TCS and Infosys have been doing this but they must expand the scale of their domestic operations. And the smaller ones who have been content to milk their foreign clients must display a more visionary approach.

Many Indian software companies are trying to move up the value chain by hiring functional experts and by giving techies management inputs. But these measures have not succeeded in a big way. The best way to marry functional and technical expertise is to give people practical exposure to real life problems. Techies should understand what happens when a real time application in a bank collapses. Similarly they must spend time at retail outlets to understand the unique business problems faced by the industry. Only then the kind of expertise needed to move the value chain will be developed.

Instead of waiting for that big consulting contract from global clients, Indian software companies must immediately start working with small companies in the country even if the rates are not remunerative. Otherwise, all this talk of moving up the value chain might remain unconvincing.