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There are innumerable tech firms in India, but how many win? Undoubtedly, it's the ones that innovate, and not content with being followers, move ahead to lead the field. It is eight such companies that NASSCOM (National Association of Software and Service COMpanies) honoured this year with the 'NASSCOM Innovation in IT' Awards 2008.
IT innovations were judged by NASSCOM in three categories: market-facing innovations, process innovations, and input innovations. Market-facing innovations, according to NASSCOM, are innovations in areas that impact a firm's markets--new products or services, new customer segments, business models, etc. Innovations in this area usually have a direct effect on the firm's revenue. Process innovations concern how different processes are managed within a firm to increase the firm's competitiveness, while input innovations are related to the inputs that are brought into a firm, such as talent, capital and technology.
From humble beginnings, the Indian IT industry has grown ten times over the last decade into a $60 billion behemoth, which today contributes over 5 per cent to the Indian GDP (gross domestic product) and constitutes nearly 25 per cent of Indian exports. It employs 2 million people directly; and by creating four jobs in allied sectors for every direct job in the IT industry, the Indian IT industry is responsible for creating nearly 10 million jobs. With India forming a core component in any global IT sourcing strategy, 'Why India' has been replaced by 'Why not India'.
However, the traditionally successful business model of the Indian IT industry is increasingly coming under strain, and the traditional competitive advantages are weakening. Commoditisation of IT services, the advent of new disruptive technologies, and the blurring of the distinction between hardware, software and services, indicate the need for the Indian IT industry to move towards a more consumer-centric business model.
How prevalent is the awareness about this need for innovation? In other words, can you tell us whether a majority of Indian tech firms are aware of the need to innovate constantly, and whether they do it?
Contrary to common perception that the Indian IT industry does not innovate enough, the Indian IT industry is no stranger to innovation. While cost and infrastructure arbitrage are often attributed as the key factors behind its stupendous success, it is often forgotten that the offshore outsourcing model pioneered by the Indian IT industry has been one of the most disruptive innovations in the global IT services industry. Through a concatenation of tools, processes and infrastructure, which enabled it to deliver large volumes of high-quality work from India, the Indian IT industry changed the rules of the game in the global IT services industry.
Unfortunately, the innovation aspirations of Indian IT firms today tend to focus on the easily-attainable, resulting in an innovation intensity which focuses on achieving operational efficiencies. The current innovation portfolio of a majority of Indian IT firms is heavily skewed away from break-through innovation efforts, and is focused predominantly on sustaining incremental innovations on inputs and internal business processes. While sustaining innovations is important, only a significant shift towards more break-through and revenue-enhancing innovations will lead to increased competitiveness and provide the necessary revenue impetus in the medium- to long-term.
However, the situation is changing and most firms recognise that innovation equals survival and growth. While it is still early days, I am convinced that the coming years will see an increasing number of breakthrough innovations originate from India.