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Software: Growing the non-linear way

Oct 1, 2008

The dark cloud of the US slowdown and the financial crisis is looming large over the software industry in India. The biggest challenge for software business is not just attaining growth but to sustain the same. IT companies have grown rapidly over the past few years, but maintaining the pace going forward will be a big issue. The Indian IT companies are characterised as following a ‘linear growth’ model i.e., to generate higher revenues, they need to consistently hire people. Though the upper levels have not yet been tested, one is sure that beyond a particular number adding more people will cause overheads to spiral upwards.

As such, to survive and grow strongly and profitably in the future, IT firms need to disassociate its revenues as direct function of headcount. Companies that will drive more business without adding much to their manpower base will likely emerge as winners over the long term.

Examples of non-linear growth in Indian IT

Here are a few initiatives launched by Indian IT companies to grow in a non-linear fashion. Infosys, for instance, has launched two recent initiatives (i.e. Platform BPO and Software-As-A-Service) aimed at transitioning to a more scalable (i.e., non-linear) growth model. The company’s banking solution (Finacle) is another source of non-linear initiative it is focusing aggressively on.

The second and more prominent example of a non-linear business is Oracle Financial Service (erstwhile i-flex), which has the best selling banking product called ‘Flexcube’. The company derives its products business revenue from licenses/usage and thus revenue is not linked to the people who worked for the product. Hence the linkage between people and revenue is removed.

Another example of a non-linear model is the one adopted by IBM India. The company has entered into profit sharing arrangements with Indian mobile operators – Bharti and Idea. A part of IBM’s revenue from these companies is based on the profit that they make every year.

The Indian technology sector has grown leaps and bounds over the past few years and the factor that has contributed to this growth has been export of software services. But now the global scenario is changing. In these times, a non-linear business model will most likely metamorphose Indian software firms into becoming mature software players.

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