The Relationship between Team Climate and Performance in Software Development Teams

TABLE OF CONTENTS

Chapter 1 : INTRODUCTION
1.1 Indian Software Industry: An Overview
1.2 Teams: An Introduction
1.3 Need for the Study
1.4 Objectives of the Study
1.5 Research Framework
1.6 Organization of the Study

Chapter 2 : INDIAN SOFTWARE INDUSTRY
2.1 Industry till
2.2 Industry (1990-2000)
2.3 Industry (2001-Present)
2.4 Opportunities for Indian Software industry
2.5 Challenges for Indian Software industry
2.6 Needed Manpower for the Indian Software Industry

Chapter 3 : LITERATURE REVIEW
3.1 Concept of Team Climate
3.2 Understanding Team Performance
3.3 Models of Team Performance
3.3.1 Group Performance Model
3.3.2 Software Project Team Performance Model
3.3.3 Information Systems Development Team Performance Model
3.3.4 Team-rated Performance Model
3.3.5 Multilevel Individual and Team Performance Process Model
3.4 Understanding Team Productivity
3.5 Models of Team Productivity
3.5.1. Productivity Model including Reuse
3.5.2 Maximum Team Size Model
3.5.3 Simple Model of Productivity
3.5.4 Measurement Model of Software Maintenance Projects
3.6 Understanding Team Innovation
3.7 Recent studies of Software Development Teams using TCI in India
3.8 Research Gaps

Chapter 4 : RESEARCH METHODOLOGY
4.1 The Research Problem
4.2 Research Objectives
4.3 Hypothesized Research Model
4.3.1 Hypothesized Structural Model
4.4 Research Hypotheses
4.4.1 Dimensions of Team Climate, Team Productivity, Team Performance and Team Innovation with Demographic variables (Age, Gender, Educational Qualifications and Experience)
4.4.2 Dimensions of Team Climate, Team Productivity, Team Performance and Team Innovation with Organizational variables (team role and team size)
4.4.3 Relationships among the Constructs/Dimensions of Team Climate, Team Productivity, Team Performance and Team Innovation
4.5 Research Design
4.6 Sampling Design
4.7 Questionnaire Design, Development & Administration
4.7.1. Questionnaire Design and Development
4.7.2 Questionnaire Administration
4.7.3 Pilot Survey
4.7.4 Questionnaire Reliability and Validity
4.8 Data Collection
4.9 Respondents Demographic Details

Chapter 5 : ANALYSIS AND DISCUSSION OF RESULTS
5.1 Examination of Collected Data
5.2 Data Analysis Procedure
5.3 Confirmatory Factor Analysis
5.4 Hypothesis Testing
5.4.1 Dimensions of Team Climate, Team Productivity, Team Performance and Team Innovation with Demographic variables (Age, Gender, Educational Qualifications and Experience)
5.4.2 Dimensions of Team Climate, Team Productivity, Team Performance and Team Innovation with Organizational variables (team role and team size)
5.5 Testing Relationships and Impact
5.5.1 Relationships among the Constructs/Dimensions of Team Climate, Team Productivity, Team Performance and Team Innovation
5.6 Path Analysis
5.6.1 Path Analysis of Team Climate, Team Productivity, Team Performance, and Team Innovation
5.6.2 Interpretation of Structural Equation Modeling (SEM)

Chapter 6 : RESEARCH FINDINGS, CONCLUSION AND
DIRECTIONS FOR FURTHER RESEARCH
6.1 Research Findings
6.2 Contributions of this Research Work
6.3 Recommendations to Indian Software Industry
6.4 Limitations of the Study
6.5 Directions for Further Research
6.6 Conclusion

Bibliography

Appendix – 1: Detailed Questionnaire

Appendix – 2: Sample LISREL/SIMPLIS Scripts

LIST OF PUBLICATIONS BASED ON PRESENT STUDY

DECLARATION

I do hereby declare that the thesis entitled “The Relationship between Team Climate and Performance in Software Development Teams” submitted to the Department of Business Administration, Faculty of Management Studies and Research, Aligarh Muslim University, Aligarh, India, for the award of the degree of Ph.D (Business Administration) is the original research work carried out by me under the guidance of Dr. Ayesha Farooq, Asst. Professor, Department of Business Administration, Faculty of Management studies and research, Aligarh Muslim University, Aligarh and Dr. Sanghamitra Patnaik, Associate Professor, Advanced Centre for American Studies, Osmania University Centre for International Programmes, Osmania University, Hyderabad. The thesis has not previously formed the basis for award of any Degree/Diploma/Associateship/Fellowship or other similar title to any candidate of any university/institution.

Goparaju Purna Sudhakar

Place:

Date :

CERTIFICATE

This is to certify that the thesis entitled “The Relationship between Team Climate and Performance in Software Development Teams” is a record of original research work carried out by Goparaju Purna Sudhakar for the award of the degree of Ph.D. (Business Administration), conducted during the period of his study in the Department of Business Administration, Faculty of Management Studies and Research, Aligarh Muslim University, Aligarh, India, under my supervision and guidance and the thesis has not previously formed the basis for award of any Degree/Diploma/Associateship/Fellowship or other similar title to any candidate of any university/institution.

Dr. Ayesha Farooq,

Assitant Professor,

Department of Business Administration,

Faculty of Management studies and research,

Aligarh Muslim University, Aligarh

Internal Advisor

Place: Aligarh

Date :

CERTIFICATE

This is to certify that the thesis entitled “The Relationship between Team Climate and Performance in Software Development Teams” is a record of original research work carried out by Goparaju Purna Sudhakar for the award of the degree of Ph.D. (Business Administration), conducted during the period of his study in the Department of Business Administration, Faculty of Management Studies and Research, Aligarh Muslim University, Aligarh, India, under my supervision and guidance and the thesis has not previously formed the basis for award of any Degree/Diploma/Associate ship/Fellowship or other similar title to any candidate of any university/institution.

Dr Sanghamitra Patnaik,

Associate Professor,

Advanced Centre for American Studies,

Osmania University Centre for International Programmes,

Osmania University,

Hyderabad

External Advisor

Place:

Date:

DEDICATION

To my father G.K.V.A.Sarma and my mother G.B.Devi,

To my wife Manjula and my daughters Manasa and Shruti

for their unconditional support, love and affection.

Goparaju Purna Sudhakar

ACKNOWLEDGEMENTS

Doing PhD in Business Administration without help of others can not be imaginable. During my PhD research work I got opportunity to interact with faculty, professors and support staff of both Aligarh Muslim University (AMU) and All India Management Association (AIMA). I have made this opportunity an enriching experience for myself in the knowledge journey. First I would like to say thanks to my Doctoral Supervisor (Internal Advisor) Dr. Ayesha Farooq, Assistant Professor, Department of Business Administration, Faculty of Management Studies and Research, Aligarh Muslim Universtiy, for her constant support and updates to me during these past two years. Her single statement “PhD work should have a research model” put me in the right direction in the initial stages of my research work. Later on her feedback, review, direction and guidance helped me in attaining the objective.

Thanks are also due to Dr. Sanghamitra Patnaik, Associate Professor, Advanced Centre for American Studies, Osmania University Centre for International Programmes, Osmania University, Hyderabad, who is my external advisor. Dr Sanghamitra used to give constructive comments and guidance on my work. Without these advisors support and help my work might have not been completed.

I would also like to thank the Prof Javaid Akhter, Dean, FMSR, AMU, PhD Research committee, faculty and support staff at Faculty of Management Studies and Research, Aligarh Muslim University, Aligarh for their support and providing me right opportunity to do my PhD from AMU. My special thanks go to Prof Asif Akhtar, Assistant Professor, FMSR, AMU for training me on SPSS software package and also for giving me valuable inputs.

I thank the places where I worked such as ICFAI Research Center, Hyderabad, ICFAI School of IT, Hyderabad where I have learned the basics of secondary research. This also helped me in my research process. Also I would like to thank the IT organizations where I worked such as IBM, Siemens, Wipro, Citicorp, Nokia for giving me the knowledge about product development, management and process knowledge. In the busy Indian software industry, the major challenge I faced is the data collection. No company is ready to give me the data. I ended up in making numerous phone calls and personal visits to the software companies in Hyderabad for data collection without any success. That time following people helped me in getting organizations for me for data collection.

My thanks go to my long term friend Mr. Sridhar Achanta, former Mahindra Satyam employee, Dr. G.V.B.Subrahmanyam, Enterprise Architect, Mahindra Satyam, Hyderabad and Prof Uma Mahesh, faculty of ICFAI University, Hyderabad. Without these people support I might have not got the companies I needed for data collection.

I would like to thank Mr. Mohammed Ifthegar, CEO, AAS Technologies, Hyderabad for giving me opportunity to collect data from his firm. He is the first person who filled my questionnaire. I thank Mr. Sai Sangineni, CEO, Tech Vedika, Hyderabad for filling my questionnaire and also making his team to fill the questionnaire. I would like to thank Ms Sandhya, HR Executive, Sreeven Infocom, Hyderabad for getting filled my questionnaire by some of the team members of their Adhar Project which they are executing for Andhra Pradesh State Government. My heart felt thanks go to Mr. K.Srinivas Rao, CMC, Hyderabad without hesitation he helped me in filling my questionnaire by his teams. My thanks also go to Mr. K.Sunny, HR Manager of Naresh Technologies, Hyderabad for providing me responses from 90 members of their organization. It is the major source of my data for my research work (almost 7 teams). I would also like to thank Mr A. Bhuyan, Center Head, S. Varalakshmi, Team Lead, Sanjeev Kumar of NIIT, Hyderabad for helping me in my data collection. Without all these people help and support my data collection might not be complete.

My special thanks to Emerald Group Publications, UK for giving me 3 months free access to their articles/website, which helped me in my literature review. Also they have encouraged me by publishing one of my paper in their international journal Team Performance Management, co-authored with Dr. Ayesha Farooq based on this PhD work.

Last but not the least I thank my family consisting of my father G.K.V.A.Sarma, retired teacher, mother G.B.Devi, my wife Manjula and my daughters Manasa and Shruti who have given me considerable time to do this research work. By the time I write my thesis my daughter Shruti is just six months old and making me busy all the time.

Goparaju Purna Sudhakar

PREFACE

Team orientation in industry has gained importance and visibility in 20th century in Fortune 500 organizations. Organizations were getting the complex work done by teams. Researchers like Katzenbach and Smith, Cohen and Bailey, Gondal and Khan, Anderson and West, etc have done significant work on teams. Current day organizations are looking at the benefits they can get from teams. Team specific awards, rewards and recognition became a practice in many multinational organizations across the world. Hence, there is lot of significance and need for the study/research on teams.

“The relationship between team climate and performance in Software development teams” is a research work to find out the relationship between team climate, team productivity, team performance and team innovation in software development teams. Software industry is choosen because entire software product development can not be done alone by any individual. It should be done only by the teams because of the nature of complexity of work involved.

This thesis consists of six chapters, list of figures, list of tables, list of abbreviations and two Appendixes.

Chapter 1 is an introductory chapter explaining the Indian software industry, teams, few definitions of teams, the objective of this research study, purpose of this study, need for this research work, research framework and organization of this research study. It also explains from which journals major articles/papers were collected and during what duration literature review was done, etc.

Next, Chapter 2 is an exhaustive description of Indian software industry. The origins of Indian software industry, the early players, industry situation till 1990, the growth in 1990 till 2000, the journey from 2000 to present, the top industry players, opportunities for the industry, challenges before the industry, and manpower requirements and growth in the Indian software industry are explained in an exhaustive way. Lot of statistical data is provided to show the real growth of the Indian software industry. Its entire journey since inception till date is explained. It is basically about the industry for which this research study is useful.

Chapter 3 is focused on literature review. The past empirical studies, concepts, earlier work done on topics such as team climate, team performance, team productivity and team innovation are explained. The meaning of team climate, the constructs of team climate as explained by Anderson and West (1998), earlier work done on software development team’s productivity (example works of Capers Jones, John Reel, Barry Boehm), how to measure team performance, earlier works on software development team’s innovation are explained in this chapter. The models of team performance, models of team productivity, research gaps found in the literature useful for my study, the empirical studies done in India on software development teams using Team Climate Inventory (TCI) are explained in this chapter.

Next Chapter, Chapter 4 deals with the research methodology. The research objectives, research design, defining hypotheses, hypothesized research model, hypothesized structural model, sub-hypotheses, sample design, questionnaire design, development and administration, pilot study, final questionnaire development, how to go about data collection, respondents demographic details are explained in this chapter. The research model comprising the independent variable team climate and dependent variables team productivity, team performance and team innovation is explained pictorially along with hypotheses in this chapter.

Chapter 5 provides the analysis of collected data and results/findings discussion. Examination of collected data, correction of data, different statistical techniques used for the analysis such as mean, median, mode, correlation, regression, ANOVA, t-stat etc., hypothesis testing, multivariate analysis and testing relationships between team climate, team productivity, team performance and team innovation. This chapter consists of summary tables for null hypotheses supported or not supported. This chapter also consists of the Karl Pearson correlation coefficient values for the constructs of team climate and their relationship with team productivity, team performance and team innovation. It also has the regression coefficients values, t-stat and p-values to show the impact of team climate on team productivity, team performance and team innovation. The path analysis with structured equation modeling using LISREL 8.5 is explained in this chapter.

Answers to the key research questions, summary of research findings, contributions of this current research work, scope for further research, limitations of this research study and future research directions are explained in Chapter 6 titled “Research Findings, Conclusion and Directions for Further Research”.

After chapter 6, a Bibliography is provided. Appendix – 1 consists of the detailed questionnaire used for this research study. Appendix-2 consists of the sample LISREL/SIMPLIS scripts written. Thorough out the thesis important topics have been high lighted and stressed. I hope this study will be useful for the industry.

Goparaju Purna Sudhakar

LIST OF FIGURES

Figure 1.1: Research Framework

Figure 2.1: Indian Software Industry Exports ($m)

Figure 2.2: Indian Software Exports to Different Geographies

Figure 3.1: Four Factor Model of Team Climate for Innovation

Figure 3.2: Group Performance Model

Figure 3.3: Software Project Team Performance Model

Figure 3.4: Information Systems Development Team Performance Model

Figure 3.5: Team-rated Performance Model

Figure 3.6: Multilevel Individual and Team Performance Model

Figure 3.7: Productivity Model including Reuse

Figure 3.8: Maximum Team Size Model

Figure 3.9: Simple Model of Productivity

Figure 3.10: Measurement model for Software Maintenance Projects

Figure 4.1: Research Conceptual Model

Figure 4.2: Detailed Research Conceptual Model

Figure 4.3: Research Design

Figure 4.4: Sampling Design Process

Figure 4.5: Questionnaire Administration Process

Figure 4.6: Experience Levels of Respondents

Figure 5.1: The Steps in Data Analysis

Figure 5.2: Multivariate Analysis techniques

Figure 5.3: Path Diagram of Relationship between Team Climate and Team Productivity, Team Performance and Team Innovation

LIST OF TABLES

Table 2.1: Indian Software Exports Growth

Table 2.2: Top 20 Indian Software Companies

Table 2.3: Indian software Industry Profile and its Competitors in Mid 1990s

Table 2.4: India’s Growth Path during 1990-

Table 2.5: Indian Software Industry Growth

Table 2.6: Patent Information of Indian Software Firms

Table 2.7: Annual Average Growth Rate of Indian Software Exports

Table 2.8: Quality Certifications of Indian Software Companies

Table 2.9: Product Revenues of Indian Software Companies

Table 2.10: Production of Engineering graduates by Engineering Colleges in India

Table 2.11: R & D and Innovation Levels

Table 3.1: Software Development Teams’ Empirical Studies

Table 3.2: Software Team Productivity Definitions by Different Researchers

Table 3.3: Team Innovation Research Studies

Table 4.1: Number of Items in the Questionnaire

Table 4.2: Cronbach Alpha Values for the Instrument

Table 4.3: Teams Organization in this Research Study

Table 4.4: Age Distribution

Table 4.5: Gender Distribution

Table 4.6: Educational Qualification Distribution

Table 4.7: Team Role Distribution

Table 4.8: Number of Members per Team

Table 5.1: Team Climate, Productivity, Performance, and Innovation of Each Team

Table 5.2: Team Climate Components & Team Productivity, Performance, and Innovation of Each Team

Table 5.3: Summary Statistics for the Independent Variable Team Climate and it’s items

Table 5.4: Initial Factor Loadings for the four constructs of Team Climate

Table 5.5: Final Rotated Factor Loadings of Team Climate

Table 5.6: Inter Correlations of Team Climate Factors

Table 5.7: Confirmatory Factor Analysis of Team Climate

Table 5.8: Summary Statistics for Team Productivity Variables

Table 5.9: Inter Correlation Values between the Items of Team Productivity

Table 5.10: Confirmatory Factor Analysis of Team Productivity

Table 5.11: Summary Statistics for items of Team Performance

Table 5.12: Team Performance Final Factor Loadings

Table 5.13: Correlations between Variables and Principal Component Team Performance

Table 5.14: Inter Correlation Values between Items of Team Performance

Table 5.15: Confirmatory Factor Analysis of Team Performance

Table 5.16: Summary Statistics of Team Innovation Items

Table 5.17: Team Innovation Final Factor Loadings

Table 5.18: Correlations between Variables and Principal Component Team Innovation

Table 5.19: Inter Correlation Values between Items of Team Innovation

Table 5.20: Confirmatory Factor Analysis of Team Innovation

Table 5.21: Summary of Confirmatory Factor Analysis

Table 5.22: Team climate vis-à-vis age – ANOVA results

Table 5.23: Vision vis-à-vis age – ANOVA results

Table 5.24: Task orientation vis-à-vis age– ANOVA results

Table 5.25: Support for innovation vis-à-vis age – ANOVA results

Table 5.26: Participative safety vis-à-vis age – ANOVA results

Table 5.27: Team productivity vis-à-vis age – ANOVA results

Table 5.28: Team performance vis-à-vis age – ANOVA results

Table 5.29: Team innovation vis-à-vis age – ANOVA results

Table 5.30: Team Climate vis-à-vis gender: t-test results

Table 5.31: Vision vis-à-vis gender: t-test results

Table 5.32: Task Orientation vis-à-vis gender: t-test results

Table 5.33: Support for Innovation vis-à-vis gender: t-test results

Table 5.34: Participative Safety vis-à-vis gender: t-test results

Table 5.35: Team Productivity vis-à-vis gender: t-test results

Table 5.36: Team Performance vis-à-vis gender: t-test results

Table 5.37: Team Innovation vis-à-vis gender: t-test results

Table 5.38: Team Climate vis-à-vis Educational Qualifications – ANOVA results

Table 5.39: Vision vis-à-vis Educational Qualifications – ANOVA results

Table 5.40: Task Orientation vis-à-vis Educational Qualifications – ANOVA results

Table 5.41: Support for Innovation vis-à-vis Educational Qualifications – ANOVA results

Table 5.42: Participative Safety vis-à-vis Educational Qualifications – ANOVA results

Table 5.43: Team Productivity vis-à-vis Educational Qualifications – ANOVA results

Table 5.44: Team Performance vis-à-vis Educational Qualifications – ANOVA results

Table 5.45: Team Innovation vis-à-vis Educational Qualifications – ANOVA results

Table 5.46: Team Climate vis-à-vis Experience – ANOVA results

Table 5.47: Vision vis-à-vis Experience – ANOVA results

Table 5.48: Task Orientation vis-à-vis Experience – ANOVA results

Table 5.49: Support for Innovation vis-à-vis Experience – ANOVA results

Table 5.50: Participative Safety vis-à-vis Experience – ANOVA results

Table 5.51: Team Productivity vis-à-vis Experience – ANOVA results

Table 5.52: Team Performance vis-à-vis Experience – ANOVA results

Table 5.53: Team Innovation vis-à-vis Experience – ANOVA results

Table 5.54: Team Climate with Team Role: t-test results

Table 5.55: Vision with Team Role: t-test results

Table 5.56: Task Orientation with Team Role: t-test results

Table 5.57: Support for Innovation with Team Role: t-test results

Table 5.58: Participative Safety with Team Role: t-test results

Table 5.59: Team Productivity with Team Role: t-test results

Table 5.60: Team Performance with Team Role: t-test results

Table 5.61: Team Innovation with Team Role: t-test results

Table 5.62: Team Climate vis-à-vis team size - ANOVA results

Table 5.63: Vision vis-à-vis team size - ANOVA results

Table 5.64: Task Orientation vis-à-vis team size - ANOVA results

Table 5.65: Support for Innovation vis-à-vis team size - ANOVA results

Table 5.66: Participative Safety vis-à-vis team size - ANOVA results

Table 5.67: Team Productivity vis-à-vis team size - ANOVA results

Table 5.68: Team Performance vis-à-vis team size - ANOVA results

Table 5.69: Team Innovation vis-à-vis team size - ANOVA results

Table 5.70: Summary of Null Hypotheses Supported/Not Supported

Table 5.71: Multivariate Analysis (Group Level)

Table 5.72: Multivariate Analysis (Organization Level)

Table 5.73: Regression Table for Team Climate Impact on Team Productivity

Table 5.74: Supported or Not Supported the Null Hypothesis Team Climate impact on Team Productivity (H25)

Table 5.75: Overall Team Climate Impact on Team Productivity

Table 5.76: Regression Table for Team Climate Impact on Team Performance

Table 5.77: Supported or Not Supported the Null Hypothesis Team Climate impact on Team Performance (H26)

Table 5.78: Overall Team Climate Impact on Team Performance

Table 5.79: Regression Table for Team Climate Impact on Team Innovation

Table 5.80: Supported or Not Supported the Null Hypothesis Team Climate impact on Team Innovation (H27)

Table 5.81: Overall Team Climate Impact on Team Innovation

Table 5.82: Regression Table for Team productivity impact on Team Performance

Table 5.83: Regression Table for Team Innovation impact on Team Productivity

Table 5.84: Regression Table for Team Innovation impact on Team Performance

Table 5.85: Goodness of Fit in relation to Team Climate, Team Productivity, Performance and Innovation

Table 5.86: Summary of Null Hypotheses Supported/Not Supported using SEM

Table 6.1: Summary of Team Climate Relationships

Table 6.2: Team Climate Impact on Team Productivity, Team Performance and Team Innovation

Table 6.3: Summary of Overall Impact

LIST OF ABBREVATIONS

Abbildung in dieser Leseprobe nicht enthalten

Chapter 1 : INTRODUCTION

India is the fourth largest economy in the world according to purchasing power parity (NASSCOM, 2010). In current days, Indian IT industry has become the growth engine for Indian economy (NASSCOM, 2009). Indian software exports industry is one among the successful industries in the world (Dossani, 2005). Teams have got lot of importance in modern organizations. More than 70% of the Fortune 500 companies are using teams in their organizations. Many software MNCs are meeting their organizational objectives using software development teams. Teams are used to develop complex software products and applications.

According to Mathieu, Heffner, Goodwin, Salas and Cannon-Bowers (2000), increased technological advancements have lead to the more complex tasks, which can not be done by individuals so that the need for teams in organizations is growing to execute the organizational activities. Teams are better suitable to execute complex tasks (Mathieu, Heffner, Goodwin, Salas and Cannon-Bowers, 2000; Scott and Pollock, 2006). According to Cusumano, it is the management, which determines success and not the technology itself in software development projects (Blackburn, Lapré and Van Wassenhove, 2002). Hence, there is lot of importance for team management in software development projects.

1.1 Indian Software Industry: An Overview

N.R.Naraya Murthy (2000) of Infosys has termed Indian software industry as “faster, better and cheaper”. Indian Software companies are accepting the new methodologies, technologies and processes in reducing the response time, to improve the productivity and quality and to reduce the time to market.

According to Illiyan (2008), Indian software industry contribution to GDP has grown from 0.38% in 1991-92 to 5.5% in 2007-08. India exports software to more than 100 countries in the world and it has got the maximum number of SEI-CMM level 5 companies in the world (Illiyan, 2008). According to Arora, Arunachalam, Asundi and Fernandes (2000), Indian software industry is service oriented rather than product oriented, highly export oriented and managed by professional managers and entrepreneurs. The reason for much attention on Indian software industry is not because of its size, it is because of its growth rate (Chakraborty and Dutta, 2003). Major Indian software firms which are in software exports include TCS, Wipro, Infosys, and HCL. The MNCs having subsidiaries in India include Microsoft, IBM, ORACLE, HP, Accenture, SAP and DELL, etc.

Tschang (2001) said “Indian software industry can be considered as one of the 20th century’s most surprising economic developments”. It is because India has come from nowhere and became supplier of manpower to software products and services to US and rest of the world in 20th century. An example of this success story is Infosys, which was started by Narayana Murthy and colleagues, who scrapped together few hundred dollars to start the company, which was listed on NASDAQ with market capitalization of US $15 billion (Tschang, 2001).

According to Bajpai and Shastri (1998), Indian software industry has moved up the value chain by providing sersvices such as data entry, body shopping or manpower supply, offshore development, customized solutions, premium services, niche technologies and software products. Indian software firms range from large foreign multinationals to local multinationals to small startup companies. Indian software industry has started in Mumbai and migrated to Bangalore and then spread to other metro cities such as Delhi, Madras, Pune and Hyderabad. The early entrents into this industry are Tata Consultancy Services (TCS) (1968), Hindustan Computers Limited (HCL) (1976), and Computer Maintenance Corporation (CMC) (1978) (Tschang, 2001). Indian Railway Reservation system is an example large complex system developed by CMC. In 20 years, TCS has moved up the value chain and was able to move from body shopping to providing project management services to overseas customers.

1.2 Teams: An Introduction

Gondal and Khan (2008) have defined Team as a small group of people having common purpose, complementary skills and interdependent roles.

Another definition of Team is given by Katzenbach and Smith (2005a:163) as follows

“A team is a small number of people with complementary skills who are committed to a common purpose, performance goals, and approach for which they hold themselves mutually accountable”.

Cohen and Bailey (1997:241) have defined a Team as follows:

“A team is a collection of individuals who are interdependent in their tasks, who share responsibility for outcomes, who see themselves and who seen by others as an intact social entity embedded in one or more large social systems (for example, business unit or corporation), and who manage their relationships across organizational boundaries”.

According to McDowell and Zhang (2009), teams are vital parts of organizations. Two thirds of the Fortune 500 organizations are using some form or the other of the teams in their organizations. There are more than 4,000 teams in Motorola working in their global offices (Sivasubramaniam, Murry, Avolio and Jung, 2002). Basically teams in modern organizations are of four types. They are work teams, parallel teams, project teams and management teams (Cohen and Bailey, 1997). Organizational structure has impact on team’s functioning. Usually work teams are found in manufacturing and service industries. Parallel teams exist in literally parallel to the formal organization structure. Examples of parallel teams include quality circles, task forces, quality improvement teams, etc (Cohen and Bailey, 1997). Project teams are time bound. Once time expires, the team dissolves. Usually project teams are found in software and high technology industries. In current organizations management teams can be found at the top management or senior management level. Top management team’s performance is nothing but the firm’s performance (Cohen and Bailey, 1997).

According to Katzenbach and Smith (2005a) the characteristics of teams include specific team purpose, shared leadership roles, individual and mutual accountability, collective work products, encourages open-ended discussions, performance measurement by collective work products and discusses, decides and do real work together.

According to Cohen and Bailey (1997), team performance effectiveness measures include productivity, efficiency, response time, quality, customer satisfaction and innovation. Previous research on team performance effectiveness was done in three dimensions such as performance effectiveness in terms of quality and quantity of outputs, member attitudes and behavioral outcomes. Team member’s participation has positive impact on team performance (Wagner, 1994). According to Sivasubramaniam, Murry, Avolio and Jung (2002), a team can influence it’s team members as a leader can influence his followers. Highly effective teams have clear vision and focus (Katzenbach and Smith, 1993). Effectiveness is very much required for teams to achieve high levels of motivation and performance (Sivasubramaniam, Murry, Avolio and Jung, 2002). Building high performing software development teams, which uses state of the art technologies is going to meet the ever increasing demands of the stakeholders (Pattit and Wilemon, 2005). According to Pattit and Wilemon (2005), software project managers should assess their team performance to take corrective actions. Teams play important role in organizational learning (Edmondson, Dillon and Roloff, 2007).

There are many factors that affect the productivity and performance of software development teams. Team climate is one such factor which affects the performance of software development teams. According to Anderson and West (1996), team climate has constructs or dimensions such as vision, task orientation, support for innovation and participative safety.

1.3 Need for the Study

According to Loch, Stein and Terwiesch (1996), the profitability and sales of a business organization are dependent on the output and productivity of new product development function. In software organizations product development is done by software development teams. There is a close link between product development function and organizational success (Loch, Stein and Terwiesch, 1996). The higher the productivity levels of the software development teams means the lower the costs for the organization (Scacchi, 1995; Bouchaib and Charboneau, 2005). It is making the software development productivity an important topic in software industry (Bouchaib and Charboneau, 2005).

There is need for the study of this research topic of team climate, team productivity, team innovation and team performance because current day organizations are looking for better performance of the teams day by day. Hence, there is need for the study of this topic.

1.4 Objectives of the Study

The objective of the study is to identify and investigate the relationships among the factors/dimensions/constructs of team climate and team performance of software development teams.

The detailed research objectives are as follows.

1. To develop a hypothesized structural model consisting of team climate, team productivity, team performance and team innovation specific to software development teams.
2. To investigate the differences on the dimensions of team climate, team productivity, team performance and team innovation along four demographic variables such as age, gender, educational qualifications and experience in software development teams.
3. To investigate the differences on the dimensions of team climate, team productivity, team performance and team innovation along two organizational variables such as team role and team size in software development teams.
4. To investigate the relationship and impact of team climate on team productivity of software development teams.
5. To investigate the relationship and impact of team climate on team performance of software development teams.
6. To investigate the relationship and impact of team climate on team innovation of software development teams.
7. To investigate the relationship and impact of team productivity on team performance of software development teams.
8. To investigate the relationship and impact of team innovation on team productivity of software development teams.
9. To investigate the relationship and impact of team innovation on team performance of software development teams.
10. To develop a structural relationship among dimensions/constructs of team performance of software development teams
11. The objective is to make recommendations useful for Indian software industry related to team climate, team productivity, team performance and team innovation based on this research and give directions for future research.

This research also provides various factors/variables constitute team climate and can impact the team productivity, team performance and team innovation. A software organization can improve their productivity and performance based on the observation of the variables which have much impact on them. The software organization can work on those factors of team climate impacting the productivity, performance and innovation.

1.5 Research Framework

The framework of this research work is as shown in the Figure 1.1.

Figure 1.1: Research Framework

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1.6 Organization of the Study

The current research has been organized as follows.

Chapter 1 consists of introduction to Indian software industry. It introduces the teams and definition of teams. Need for the research study is explained in this chapter. The objectives of this research and the research framework are also explained in this chapter.

The Indian software industry’s origin and its growth till 1990, 1990 to 2000 and 2000 to till date are explained with needed figures, tables and graphs in Chapter 2. The opportunities for this industry, challenges for this industry and the future manpower requirements of Indian software industry are also explained in this chapter.

Chapter 3 consists of the detailed literature review. It is based on the research papers collected from secondary sources on the Internet such as Google, Google scholar, www.doaj.org (Directory of Open Access Journals), www.emeraldinsight.com, and www.openj-gate.com. Previous empirical studies on software team productivity, team performance and team innovation and team climate are cited. The models of team climate, team performance and team productivity are given along with the detailed identified research gaps. Articles from international and scholarly journals are cited . The exhaustive literature review was carried out between June 2009 and December 2010.

The detailed research methodology is explained in Chapter 4. Research objectives, high level and low level hypotheses are mentioned. Research design, sample size determination, questionnaire design, development and administration are also explained in this chapter.

Chapter 5 gives the data analysis and discussion of results. The data analysis is done using Microsoft Excel, SPSS statistical tool and LISREL 8.5 for Structured Equation Modeling (Path Diagrams). The confirmatory factor analysis, results discussion and the relationship between different variables of the research model are explained in this chapter.

The current research is concluded and the directions for future research and limitations of the current study are explained in the Chapter 6.

Many Indian software organizations are competing with each other and want to make their teams more productive and get best customer satisfaction ratings for their organizations. Because of this many organizations are looking at the ways to reduce costs, increase profits and get the best out of the people they are having. In that direction they are looking at different ways to increase their software development teams’ productivity and performance.

This chapter introduced the concept of team, definitions of team, an overview of software industry specifically Indian software industry, the specific need for this research study, research objectives, research framework under which the study has been carried out, and organization of the research study. The next chapter is an exhaustive explanation about Indian software industry and its growth path and growth history. It explains the growth path of Indian software industry from inception to till date, its opportunities and challenges ahead.

Chapter 2: INDIAN SOFTWARE INDUSTRY

The global IT spending has reached US $ 1.5 trillion in 2009 (NASSCOM, 2010). In 2010, Indian IT industry is estimated to reach US $ 73.1 billion. Out of this software and services account for US $ 63.7 billion. Domestic entrepreneurship was the key to the origin, survival, growth and innovation in Indian software industry (Dossani, 2005). Indian Software industry and its success has been discussed widely in number of studies (such as Krishnan and Prabhu (1999); Arora, Arunachalam, Asundi and Fernandes (2000); Murthy (2000); Tschang (2001); Chakraborty and Dutta ( 2003); Athreye (2005); Dossani, 2005; Arora (2006); Illiyan (2008); NASSCOM (2009); NASSCOM (2010); Athreye (2010)).

According to Athreye (2005), Indian software industry has seen phenomenal success to compare with other industries in India and India is enjoying competitive advantage in outsourcing and off-shoring of software projects. Due to the dynamic capabilities of Indian software industry, productivity has increased, which in turn resulted in increase in software exports (Athreye, 2005). Arora (2006) expressed that Indian software success is very helpful to Indian economy. The growth of Indian software exports can be seen from the following Table 2.1.

Table 2.1: Indian Software Exports Growth

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(Source: Illiyan, 2008; GoI, 2010)

The types of software firms established in India were started by entrepreneur, multinational enterprises, US-Indian, Public Sector Enterprises, Business conglomerates and joint ventures (Athreye, 2005). According to Arora, Arunachalam, Asundi and Fernandes (2000), the software exports can be of three types.

They are

1. Executing onsite projects at client location by sending engineers from India.
2. Executing Partial work at onsite and rest at offshore in India and
3. Providing Offshore Development Centers (ODC) in India to the overseas customers.

According to Illiyan (2008), the factors that helped in the growth of Indian software industry include the timely delivery, quality of services, entry into new markets, Y2K business, international relations, the investor friendly steps taken by the Indian Government such as tax concessions, setup of STPIs, liberalized foreign investment policies, and large pool of English speaking engineers, low cost labor, difference of time zone between US and India, and the active role of NASSCOM . Top 20 Indian software companies, their revenues with growth percentage, year established are as shown in the Table 2.2.

Table 2.2: Top 20 Indian Software Companies

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(Source: Dataquest, 2009; Arora, 2006; Researcher Complied)

2.1 Industry till 1990

Indian Software industry began in 1974. It began by supplying programmers and developers to global IT firms by Bombay based Tata Consultancy Services. Arora (2006) expresses that Indian software industry was started by renting out programmers to American clients by TCS. During 70s and 80s, domestic markets were absent and the government was hostile towards the private industry. Because of the hostile environment, despite having access to excellent programmers and developers, the industry was not able to gain expertise in areas such as project management and domain knowledge and was not able to grow in value addition (Dossani, 2005).

After a decade, because of the reforms in importing hardware and software, operating systems, main frames, programming language compilers were available in India, which in turn helped in Indian software industry moving from supplying programmers to supplying software programs to the global IT firms (Dossani, 2005). In 1980, Personal Computer (PC) was invented and since then the availability of workstations, to program and to connect to Mainframes and the vast usage of Unix and C has revolutionized the Indian software industry.

From 1970 to 1980, Indian software industry was supplying programmers to the global IT firms and in 1980-90 decade, they were developing custom software applications. Reduced import tariffs are the main reason for this development. In 1970s, Transnational Corporations have used Indian programmers for software maintenance work and later used them for research and development. In 1980s, domestic software start ups have started in India with the help of government research contracts catering to defence industry and later developing security software products to the global customers (Dossani, 2005). In 1970s and 1980s there were abundant number of engineers in India which could not be utilized for domestic industry purposes were emigrated to US. These people became entrepreneurs and they were driving the on-site part of Indian software exports by staying in US (Arora, 2006). TCS was the first firm to agree to export software after Government’s approval for hardware import in 1974.

During 1970s and 1980s the state was regulatory and protectionist and it’s strategy is to create the nation owned champion organizations. With the reforms like FEMA (Foreign Exchange Regulatory Act) of 1973 to achieve self reliance, companies such as IBM closed their India operations (Athreye, 2005). This has given opportunity to domestic firms in learning and porting applications from IBM platforms to other Unix based open systems. Software exports were exempted from income tax in 1985. Because of the low cost infrastructure, availability of power supply, communications infrastructure (Athreye, 2005), availability of scientific and engineering community and low real estate prices, Bangalore became the destination for software firms in India. Already there were nine Defence laboratories in Bangalore.

Mainly software companies were of two types during this time. They are hardware companies such as Wipro and HCL and software companies such as BFL, Satyam, Infosys, PCS, and Silverline (Arora, Arunachalam, Asundi, Fernandes, 2000). According to Tschang (2001), three types of software companies emerged in India. They are local offshore development centers (ODC), MNC own development centers and small startup companies.

In 1980, the top 8 software exporters from India include TCS, Tata Infotech, Computronics, Shaw Wallace, Hinditron, Indocos Systems, ORG and Systime. There were 21 companies in India with annual export revenues of $4 million (Dossani, 2005). Total number of software firms in India has increased from 35 in 1984 to 700 in 1990. In 1980s, the advantage Indian software industry was having is the cost advantage of cheap engineering talent (Athreye, 2005). Because of availability of cheap skilled programmers companies such as Texas Instruments (TI) and Citicorp Overseas Software Limited (COSL), investment of Citibank, have set up offices in India to develop software applications. Domestic software companies such as Infosys, Wipro, Sonata and Mastek have developed products however they were not having the needed domain knowledge or the marketing networks and were not able to penetrate into foreign markets (Athreye, 2005). The successful “onsite” model started by TCS was reproduced by many firms which entered the industry in early 1980s (Arora, 2006).

2.2 Industry (1990-2000)

According to Chakraborty and Dutta (2003), the number of software firms has grown substantially in India after 1990-91. During 1990-2000 decade, Indian software industry moved up the value chain and providing managed services, product R & D and product development. The friendly policies of Indian government helped in this direction are the reforms in venture capital (VC), IP, Telecom, stock market rules, and allowed foreign ownership (Dossani, 2005). In 1990, the top 8 software exporters include TCS, Tata Infotech, Citibank, Datamatics, Texas Instruments, DELL, PCS, and Mahindra-British Telecom.

In 1998, Indian IT industry is contributing 1.2% to the national GDP (GoI, Undate). During this decade Indian IT and BPO industries have gained lot of reputation for their information security and for maintaining standards in service quality. In 1990s, the development of database management systems and reduced cost of PC has reduced the application development times as well (Dossani, 2005). In mid 1990s the profile of Indian software industry and its competitors in software services, data entry and software packages composition wise is as shown in the Table 2.3.

Table 2.3: Indian software Industry Profile and its Competitors in Mid 1990s.

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(Source: Chakraborty and Dutta, 2003)

In 1991, Indian government has established STPI (Software Technology Parks of India) to promote and boost software exports from India. Indian government is trying to attract more foreign investments in this industry by bringing transparency in procedures and policies and to provide investor friendly environment for the foreign investors. Special schemes to increase the software exports, provided by Indian government include STP scheme, Export Oriented Unit (EOU) Scheme, and Special Economic Zones (SEZ) schemes. The Telecom reforms in 1999 and growth of Internet helped the Indian domestic software firms to cater to the needs of global IT companies (Dossani, 2005). Indian software industry has seen an annual compound growth rate of 40.5% between 1994 and 1999 (Tschang, 2001).

According to Dossani (2005), due to lack of venture capital and lack of domain skills, the product development by Indian software companies has taken back seat. This is evident from the contribution of product development in total software exports was only 9% in 1999. The growing competition between different Indian software houses in 1990s made them to invest in process management and organizational capabilities (Athreye, 2005).

In this decade, the onsite-offshore model practiced by Tata Consultancy Services and Infosys became popular in the Indian software industry. Infosys has also developed the Global Delivery Model (GDM) and TCS has developed Global Network Delivery Model (GNDM) to cater to the needs of global customers and have shown that this model is profitable for the performing organization. By 1998, more than half of SEI-CMM level 4 or 5 certified software organizations in the world were in India. Wipro has concentrated on Telecom domain and R & D, TCS and Infosys have concentrated on Financial and insurance domains and Satyam has concentrated on automation systems for transport manufacturing (Athreye, 2005). In 1997, the median number of employees in a NASSCOM member firm was 70 and the maximum number of employees in a firm was 9000 (Arora, 2006). During 1996-97 the NASSCOM membership was 430 and in 1997-98 it went up to 620 (Arora, Arunachalam, Asundi and Fernandes, 2000). In 1997-98, 58% of the software exports were to US, 21% to Europe and 4% for Japan. In 1997, there were around 160,000 people working in Indian software industry which is 20,000 more from previous year (Arora, Arunachalam, Asundi and Fernandes, 2000). In 1999-2000, Indian software industry size was US$5.7 billion, where as ten years ago, it was just US$150 million (Chakraborty and Dutta, 2003).

Table 2.4: India’s Growth Path during 1990-2000

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(Source: Chakraborty and Dutta, 2003)

In this decade, mainly software exports include software services such as software application maintenance for IBM mainframe systems, development of small applications, enhancements of existing applications, re-engineering, and migration to client server systems (Arora, Arunachalam, Asundi and Fernandes, 2000). According to Chakraborty and Dutta (2003), 2/5th of the Fortune 500 companies have outsourced their work to India by 2000.

2.3 Industry (2001-Present)

In 2009, Indian Software industry was hit by the global recession. However, with the help of stimulus packages released by different governments in the world helped in showing the recovery of the industry by the end of the year (NASSCOM, 2010). Because of this recession, global customers of the Indian software industry cut the IT spending, cut the billing rates, negotiated the billing prices, reduced the headcounts, and delayed payments to the performing organizations. However in 2010, there are deal flows, stable pricing, growth in volume and faster decision making from the customers in the industry (NASSCOM, 2010). The major developments after 2000 in Indian Software industry are the growing size of outsourcing deals and growing offshore component revenues (Athreye, 2005). According Arora (2006), over a period of time more important and more complicated work was moved to India from overseas customers.

Indian IT industry’s contribution to GDP is estimated to be 6.1% in 2010. Its contribution in exports has increased from 4% in 1998 to 26% in 2010. Indian domestic IT industry is expected to grow at 12% in 2010 (NASSCOM, 2010). Where as the domestic market in US generates 3/4ths of its IT revenues(Chakraborty and Dutta,2003). According to NASSCOM (2010), Indian software industry has been transforming by increasing R&D spending, increasing interest in IP (Intellectual Property) creation, developing new tools and technologies, increased domain expertise, and innovations in business models. Indian software services exports have increased from US $330 million in 1993 to US $17.3 billion in 2006 with manpower around 878,000 (Athreye, 2010). According to Athreye (2010), Indian firms such as TCS and Infosys have gained reputation for quality and getting more work from customers.

During 2004 to 2008, global sourcing has increased threefold (NASSCOM, 2009). There is 29 times increase in number of patents from Indian IT industry from 2005 to 2008. The average R&D spending of Indian IT industry is around 1% of revenues (NASSCOM, 2010). NASSCOM’s vision is Indian IT industry will reach US $225 billion by 2020. The growth of Indian software industry is evident from the Table 2.5.

Table 2.5: Indian Software Industry Growth

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(Source: Dossani, 2005; The Economic Times dated 04-Feb-2010).

In 2004, the top 8 software export companies include TCS, Infosys, Wipro, Satyam, HCL, PCS, i-flex and Mahindra-British Telecom (Dossani, 2005). In this 2000-2010 decade, Indian software houses have move up the value chain from application development, maintenance to providing system integration, consulting, testing services and infrastructure services (NASSCOM, 2009). Many of the Indian software companies are providing remote infrastructure maintenance services in current days. The growth of Indian software industry can be seen in the Figure 2.1.

Figure 2.1: Indian Software Industry Exports ($m)

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(Source: Dossani, 2005; The Economic Times dated 04-Feb-2010)

In this decade, Government of India has taken initiatives such as establishing national e-Governance plan, setting up state wide area networks (SWAN), State Data Centers (SDC), Common Service Centers (CSC), and setting up of National Knowledge Network. To increase the profitability, Indian software firms were trying to increase the productivity by making use of different tools, efficient practices and by making use of unqualified staff and train them with organization specific technologies and tools (Athreye, 2005).

Arora (2006) observes that Indian software production and exports have grown rapidly since 1990. The number patents filed by and granted to Indian software firms during 2004-06 is as shown in the following Table 2.6.

Table 2.6: Patent Information of Indian Software Firms

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(Source: Arora, 2006)

The companies that have invested in research and development to achieve product innovation in India are Motorola, Cisco Systems, Hewlett-Packard, General Motors and Google. The Indian software exports in FY 2008 constitute 60% to US, 31% to Europe (including UK) and 9% to the rest of the world. They are as shown in the Figure 2.2.

Figure 2.2: Indian Software Exports to Different Geographies

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(Source: NASSCOM, 2009a)

Overall the annual average growth rate of Indian software exports for the past 3 decades can be seen from the following Table 2.7:

Table 2.7: Annual Average Growth Rate of Indian Software Exports

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(Source: Illiyan, 2008)

2.4 Opportunities for Indian Software industry

Indian software industry can enter into new markets, verticals, segments and geographies with the help of the stakeholders such as industry, NASSCOM and the government (NASSCOM, 2010). With the help of these stakeholders, India can be represented as a trusted global and innovation hub for professional services by encouraging intellectual property and entrepreneurship. Indian software companies are encouraging the culture of innovation, which supports solutions based on reengineering and transformation (NASSCOM, 2009).

The current opportunities for the industry include growing outsourcing in areas such as customer support, financial services, manufacturing, IT and IT Enabled Services (ITES). According to Murthy(2000), the people in US has rated India as No.1 in software outsourcing and 25% of the Fortune 1000 companies have outsourced their work to India. The competitive advantage India is having is the availability of English speaking professionals (Chakraborty and Dutta,2003) and it is the second largest talent pool after US (Murthy, 2000). Even though Israel and Ireland were close to Indian software industry performance, India’s growth rate is too high and it is going to sustain it because of the available engineering talent (Tschang, 2001). According to Illiyan (2008), China is having around 1000 software companies in and around Bejing; however, none of those companies is rated at CMM level 4 or 5. Now Chinese software companies are trying for quality certifications. The status of quality certifications of the Indian software companies can be observed from the following Table 2.8.

Table 2.8: Quality Certifications of Indian Software Companies

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(Source: Illiyan, 2008)

The quality, methodologies and technologies are the strengths the Indian software companies are traditionally having. According to Tschang (2001), Indian software industry success is because of hard work and the demand for personnel in the US information technology industry. According to him it is difficult for any other country to replicate the success of Indian software industry because there are hard factors such as education and infrastructure and soft factors such as culture and social networks.

According to Arora, Arunachalam, Asundi and Fernandes(2000), because of the weaknesses in the Indian financial system, many entrepreneurs were benefited in starting new companies with very little investment. According to US managers, Indian vendors are willing to learn, flexible, receptive to new ideas in providing software solutions to the customers (Arora, Arunachalam, Asundi and Fernandes, 2000). According to Krishnan and Prabhu (1999), India has got ample scope for product development and product development would allow creativity of Indian programmers to reach to the high levels which is already known internationally. According to them software services are highly profitable and low risky business for India.

According to Chakraborty and Dutta ( 2003), the industry friendly policies of Indian government in improving the infrastructure and the generation of abundant skilled manpower have became competitive advantages for India and they built the confidence in overseas customers. The advantage for Indian software industry is majority of software developers in India are US trained and they understand the market better than any other competing country (Chakraborty and Dutta, 2003). According to Chakraborty and Dutta ( 2003), in order to sustain the growing competition in the world, Indian software companies have to develop new products which are at the high end of the value chain.

According to Tschang (2001), to sustain the growth rate, Indian software industry has to innovate and create more intellectual property by creating more startup companies.

2.5 Challenges for Indian Software industry

According to NASSCOM (2010), the challenges Indian software industry faces are the increasing costs because of wage inflation and increased attrition and the fresh graduates produced in India are largely trainable but not employable readily. The challenges Indian software companies faces are poor project management skills (Arora, Arunachalam, Asundi and Fernandes, 2000; Tschang, 2001) and lack of domain knowledge (Arora, Arunachalam, Asundi and Fernandes, 2000).

According to Arora (2006), raising wages and increasing employee attrition are main challenges Indian software industry is facing. Indian software firms continue to be mostly services oriented and little scope for production development. Indian software firms may face stiff competition from companies in China, Eastern Europe or Philippines. Many observers of Indian software industry said that the Indian cost advantage will go away unless it starts spending on research and development (Arora, 2006). Indian software companies have seen limited success as far as product development is concerned and also technological innovation should come from startups and new entrants into the industry. The product revenues of the top Indian software companies are listed in the following Table 2.9.

Table 2.9: Product Revenues of Indian Software Companies

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(Source: Shashwat, 2009)

The companies in Eastern Europe, Latin America and South Africa are competing with Indian software firms in providing low cost outsourcing services to the global customers. Countries like Israel and Singapore are high in quality and also high in cost and countries like Philippines, China and Hungary are low in quality and low in cost. Another challenge Indian software industry is facing is metro cities are getting saturated and the industry needs to find suitable tier-II cities to cater to the growing needs of the industry. Bringing the best and qualified people into the industry to achieve sustainability and value addition is the greatest challenge Indian software companies are having (Murthy, 2000). According to Murthy (2000), adaptability, flexibility, agility and retaining customer are other challenges Indian software companies are facing. According to Tschang (2001), in the initial days of the industry, India has to overcome the issues such as infrastructure, roads and poor telecommunications. Later on STPIs provided reliable power supply and data communication facilities to the export oriented software houses.

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