How India's Tech Sector Builds Repeatable Success

What can managers learn from the massive and growing Indian information technology sector? According to Ashish Arora of Duke University's Fuqua School of Business, who studies the economics of innovation and technical change, India's biggest tech innovation is scale. An Indian manager may lead 100,000 engineers, and that puts even the most advanced organizational strategies to the test. (Check out the first part of our discussion on India's technology industries.)

BNET: What specific management techniques like training, oversight, etc. have helped the Indian software sector experience such explosive growth?

Arora: Indian firms realized early on that they needed much more standardized processes for developing software than American firms. A lot of Indian firms pursued certification in the Capability Maturity Model [CMM]. This is a way of managing software development that was developed at the Software Engineering Institute at Carnegie Mellon University. CMM was developed for defense contractors building giant software systems, say, for the Air Force. They had to find a way to manage the process so they didn't have spectacular failures. Large software projects have very high failure rates; you spend lots of money and you don't get anything out of it. CMM helps them manage large projects better and ensures repeatability and so on.

Just to make this point a little bit sharper, if we were in 2001, when the software market was starting to boom in India, you might decide to go out and hire a bunch of engineers. But you would find a bunch of guys fresh out of college; they have no idea what it took to build a large management application, say an order-processing system for a large retailer. And within two years, the frothy market will probably lead half of your new engineers to leave.

This model gives great guidance on how to use software development tools to regularize the process. Instead of just going off and saying, "I'm going to write code," you gain a lot more structure. It's as if you were writing an article and your editor gave you the bullets to help you structure each section, giving you a bit of leeway to develop the individual points. The tools and emphasis on documentation and version control makes Indian firms less dependent on any particular individual.

If you talk to someone at Microsoft, they will tell you the best programmer is worth 10 normal programmers. They are heavily reliant on finding skilled and talented individuals. The aim of the Indian system is to be able to say "one programmer is as good as another." Software development in America was and mostly still is a craft. I think what the Indian firms have pioneered is an approach to software development that is more like a factory, just as many craft industries migrated to factories over the last 200 years.

BNET: Are there any aspects of India's technological development that would be surprising to readers who aren't as familiar with their economy?

Arora: People have an exaggerated sense of India's technical accomplishments. I'm relying on what I see in the popular press...things like pundits calling Bangalore the "New Silicon Valley." There is some truth to that, but I think the larger story is a story about firm capabilities, developing their ability to manage what otherwise would be a more chaotic process. This is a scale-intensive process, and they be might be managing 80,000 or 100,000 engineers. The real challenge here is managing and training.

The story is completely different in another emerging software power: Israel. It's a place with very sophisticated engineers, and they're coming up with brand-new technologies, very cutting-edge stuff in areas like encryption and network security. The business model looks exactly like what we see in Silicon Valley. It's conducive to getting incredibly smart people together to develop the kinds of technology the world has never seen before. Eventually, India might end up converging on that kind of model -- going to the high end. Because there is a lot of back and forth with Indian engineers traveling to America, we may see them getting more comfortable with a more American model.

Next week, we will discuss Professor Arora's other specialty: the importance of intellectual property in innovation-based industries around the world.