The continued economic viability of software development in India, whether by independent software vendors (ISVs) or “captive” business units, depends less on pure labor arbitrage and more on delivering time-to-market advantage for clients. The pressure of meeting business expectations demands that software firms harness creative capability wherever they can find it. The increased focus on Business Technology innovation and customer experience over mere cost savings presents both a threat and an opportunity to software configuration and development business units (BUs) in India.This is the key finding from my just-published report

Forrester developed its software innovation assessment workbook to assess software innovation capability of firms. We provided this tool to members of NASSCOM (the industry association for the IT BPO sector in India), comprising both ISVs and captive development BUs in India, and surveyed them to assess the most important process, organizational, cultural, geographical, and staffing practices that promote software innovation. We also interviewed a dozen selected respondents in greater depth to better understand how innovation capability contributes to business success in India. We found evidence of widespread adoption of the practices correlated with software innovation capability, helping to drive a rapidly changing role for Indian business in the global software supply chain.

Innovators in India that were engaged in software development and configuration received high scores for many of the practices that drive effective innovation. They demonstrated strength in:

  • Listening to the voice of the customer
  • Making the development process more iterative and responsive
  • Developing organizationwide best practices
  • Shaping the culture
  • Employing technology effectively
  • Hiring and empowering the right people

We also found that BU leaders in India perceived threats and opportunities arising from:

  • Limits to labor arbitrage
  • Automation overriding cost advantage
  • The increasing complexity of client requirements
  • The platform investment imperative
  • Disruptive rather than incremental innovation

In the face of these threats and opportunities, software innovation winners in India are converging on tools, skills, and governance best practices. Our interviewees described some repeatable best practices and pitfalls to avoid, which are highlighted in the report. Also, we developed Forrester software innovation maturity curve that shows exponentially increasing levels of client value and potentially innovative disruption as innovators build capabilities and assets through four stages of maturity (transaction, process, experience, and disruption). Software firms in India can use this software innovation maturity model to refine their innovation strategy. 

What It Means: The most successful software firms excel at disruptive innovation

As interactions become more iterative, and customers demand more, disruptive innovation is becoming a make-or-break activity for software development units in India. However, software vendors, despite their large R&D budgets, have been slow to leverage disruptive technology innovation. Managing constant client-centric innovation is required, but increasing software innovation maturity will enable Indian firms to become a focal point connecting internal and external innovation, leading to a disruptive revolution that will boost the value of software to the end client and provide a competitive advantage to software firms.