Growth challenges of software SMITs: A strategic analysis

Abstract

Taking a strategic management perspective, looking both ‘outside-in’ and ‘inside out’, K Kumar and R T Krishnan analyse the growth challenges for SMITs and chart the way ahead.

They begin by marking the factors that pushed the growth of the Indian software industry in the 90s and note that despite the abatement of the software ‘wave’ since the beginning of the new millennium, there are compelling reasons for SMITs to adopt growth as a strategic priority. Growth is impelled by the potential market, the critical mass required to acquire large customers, build a brand, widen the range of services, improve response times, develop local presence, proactively build technology, skills and domain expertise, manage risks and contingencies or secure alliances and partnerships, and the question of survival itself.

Kumar and Krishnan look at the market not through the customary lens of the types of products and services offered but through its constituent buyer segments, their specific needs and their decision-making imperatives and processes. To compete at the higher strategic end of the spectrum of activities, the critical success factors are top of the line capabilities in emerging technologies and domains. To compete at the lower operating end, the success factors are scale, size and the ability to manage large projects reliably. It is the absence of both sets of critical success factors that is compounding the problems of growth of SMITs.

The organisational challenge for growth is more in terms of the ability of small firms to build the required resources and competencies than the ability of the original founders to relinquish control. SMITs seem unable to transform generic resources (large pool of technically qualified, English speaking workforce) into higher order resources (core competencies, which can translate into strategic assets and unique competitive advantage and can affect building domain expertise, specialised technical skills or end to end solution skills), which large firms have done better. Startups need to consider two-pronged strategic investments, those which build on fundamental capabilities and those which offset coincidentally developing weaknesses.

Any feasible approach for SMIT software companies has to broadly address three categories of issues — developing differentiated capabilities along chosen dimensions; converting these capabilities into competitive advantages; and developing a mindset, particularly among the leadership, that would help in achieving the above. Leaders must understand that by differentiating their offerings they can create opportunities for new collaborative business models, and that growth is a function of the extent of risk they are willing to take.