Why Service Businesses Are Not Product Businesses

MIT Sloan Management Review

Volumn 42, Issue 4, 2001, Pages 72-80

  Nambisan, Satish ^a  

^a NONE

Author keywords

[No Author keywords available]

Indexed keywords

EID: 0347867135     PISSN: 15329194     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (33)

1. "Software products" refers to packaged solutions that meet generic computing requirements and includes enterprise solutions (e.g., accounting systems or inventory-control systems), software-development tools, operating systems and utilities, and personal-computing tools. "Software services" refers to software-development and operations services provided to clients on a project basis and includes custom-software-development services and systems-implementation and systems-integration services.
2. R.B. Heeks, "India's Software Industry" (New Delhi: Sage Publications, 1996); S. Torrisi, "Industrial Organization and Innovation: An International Study of the Software Industry" (London: Edward Elgar, 1998); A. Lateef, "Linking Up With the Global Economy: A Case Study of the Software Industry," International Labor Organization report no. 96 (1997); D.J. Hoch, C.R. Roeding, G. Purkert and S.K. Lindner, "Secrets of Software Success" (Boston: Harvard Business School Press, 1999);
3. R.B. Heeks, "India's Software Industry" (New Delhi: Sage Publications, 1996); S. Torrisi, "Industrial Organization and Innovation: An International Study of the Software Industry" (London: Edward Elgar, 1998); A. Lateef, "Linking Up With the Global Economy: A Case Study of the Software Industry," International Labor Organization report no. 96 (1997); D.J. Hoch, C.R. Roeding, G. Purkert and S.K. Lindner, "Secrets of Software Success" (Boston: Harvard Business School Press, 1999);
4. R.B. Heeks, "India's Software Industry" (New Delhi: Sage Publications, 1996); S. Torrisi, "Industrial Organization and Innovation: An International Study of the Software Industry" (London: Edward Elgar, 1998); A. Lateef, "Linking Up With the Global Economy: A Case Study of the Software Industry," International Labor Organization report no. 96 (1997); D.J. Hoch, C.R. Roeding, G. Purkert and S.K. Lindner, "Secrets of Software Success" (Boston: Harvard Business School Press, 1999);
5. R.B. Heeks, "India's Software Industry" (New Delhi: Sage Publications, 1996); S. Torrisi, "Industrial Organization and Innovation: An International Study of the Software Industry" (London: Edward Elgar, 1998); A. Lateef, "Linking Up With the Global Economy: A Case Study of the Software Industry," International Labor Organization report no. 96 (1997); D.J. Hoch, C.R. Roeding, G. Purkert and S.K. Lindner, "Secrets of Software Success" (Boston: Harvard Business School Press, 1999);
6. "Irish Software Industry Survey" (Dublin: National Software Directorate, 1998) ; and NASSCOM-McKinsey report on the Indian software industry (December 1999), http://www.nasscom.org.
7. "Irish Software Industry Survey" (Dublin: National Software Directorate, 1998) ; and NASSCOM-McKinsey report on the Indian software industry (December 1999), http://www.nasscom.org.
8. H.V. Sukhathankar, "Time To Ponder: The Indian Software Industry," Dataquest India, July 30, 1997, 21-24; and A. Arora, V.S. Arunachalam, J. Asundi and R. Fernandes, "The Indian Software Services Industry," working paper 99/19, Carnegie Mellon University, Heinz School of Public Policy and Management, Pittsburgh, Pennsylvania, December 1999; and K. Ryan, "Irish Software Industry - Lessons Learned" (proceedings of the PICMET Conference, Portland, Oregon, July 1997).
9. H.V. Sukhathankar, "Time To Ponder: The Indian Software Industry," Dataquest India, July 30, 1997, 21-24; and A. Arora, V.S. Arunachalam, J. Asundi and R. Fernandes, "The Indian Software Services Industry," working paper 99/19, Carnegie Mellon University, Heinz School of Public Policy and Management, Pittsburgh, Pennsylvania, December 1999; and K. Ryan, "Irish Software Industry - Lessons Learned" (proceedings of the PICMET Conference, Portland, Oregon, July 1997).
10. H.V. Sukhathankar, "Time To Ponder: The Indian Software Industry," Dataquest India, July 30, 1997, 21-24; and A. Arora, V.S. Arunachalam, J. Asundi and R. Fernandes, "The Indian Software Services Industry," working paper 99/19, Carnegie Mellon University, Heinz School of Public Policy and Management, Pittsburgh, Pennsylvania, December 1999; and K. Ryan, "Irish Software Industry - Lessons Learned" (proceedings of the PICMET Conference, Portland, Oregon, July 1997).
11. The author's 1999 questionnaire-based survey involved 134 software service companies (73 in India, 42 in the United States and 19 in Singapore) that had initiated a product agenda in the prior three years. The survey data showed that 52% dropped further investment in the product after the first year.
12. For a discussion of the changing market forces in the global software industry, see C. Anderson, "The Software Industry: The Birth of a New Species," The Economist, May 25, 1996, 35-53; see also "Forecasting a Robust Future: An Economic Study of the U.S. Software Industry" (New York: Business Software Alliance, June 1999); and R.B. Heeks, "Software Strategies in Developing Countries," Communications of the ACM 42 (June 1999): 15-20.
13. For a discussion of the changing market forces in the global software industry, see C. Anderson, "The Software Industry: The Birth of a New Species," The Economist, May 25, 1996, 35-53; see also "Forecasting a Robust Future: An Economic Study of the U.S. Software Industry" (New York: Business Software Alliance, June 1999); and R.B. Heeks, "Software Strategies in Developing Countries," Communications of the ACM 42 (June 1999): 15-20.
14. For a discussion of the changing market forces in the global software industry, see C. Anderson, "The Software Industry: The Birth of a New Species," The Economist, May 25, 1996, 35-53; see also "Forecasting a Robust Future: An Economic Study of the U.S. Software Industry" (New York: Business Software Alliance, June 1999); and R.B. Heeks, "Software Strategies in Developing Countries," Communications of the ACM 42 (June 1999): 15-20.
15. The interview-based field study involved large and small software-service companies in India (10), the United States (7) and Singapore (4). All were pursuing product agendas to varied extents. Interviews were conducted with senior and midlevel managers. A total of 49 unstructured interviews were conducted over a six-month period; each interview lasted about an hour and covered such issues as interviewees' business strategies in the two software sectors and the changes in their organizational structure, development practices and processes, and knowledge-management practices. White papers and other published documents supplemented the interview data. The 10 Indian companies were, on average, 8 years old, had average annual revenues of $21 million (7% from products alone) and 139 employees; the seven U.S. companies had an average age of 11 years, average annual revenues of $32 million (11% from products alone) and 148 employees; the four Singapore companies had an average age of 6 years, average revenues of $3 million (10% from products alone) and 53 employees.
16. In February 2000, Dell Computer initiated Dell E-Works, which offers enterprise computer systems and storage products in the form of services to clients. Similarly, Sony's new business unit, Broadband Services Co., has a mandate to exploit all Sony's hardware, systems solutions and other technology assets to create new service businesses.
17. Economists term the conditions affecting the probability that an innovator can reap the benefits of its own innovation the appropriability regime. Torrisi, "Industrial Organization," 121, discusses how it relates to the global software industry.
18. Heeks, "India's Software Industry," 1-45.
19. Hoch, "Secrets of Software Success," 38-47.
20. Indeed, the decline of several large European software-product vendors in the 1980s has been attributed to their lack of exposure to sophisticated users, and hence, their inability to build up capabilities to compete in the global software market.
21. M. Ianisiti and A. MacCormack, "Developing Products on Internet Time," Harvard Business Review 75 (September-October 1997): 108-117; S. Bhattacharya, V. Krishnan and V. Mahajan, "Managing New Product Definition in Highly Dynamic Environments," Management Science 44 (November 1998): 50-64; and M. Cusumano and D.B. Yoffie, "Competing on Internet Time" (New York: Free Press, 1998).
22. M. Ianisiti and A. MacCormack, "Developing Products on Internet Time," Harvard Business Review 75 (September-October 1997): 108- 117; S. Bhattacharya, V. Krishnan and V. Mahajan, "Managing New Product Definition in Highly Dynamic Environments," Management Science 44 (November 1998): 50-64; and M. Cusumano and D.B. Yoffie, "Competing on Internet Time" (New York: Free Press, 1998).
23. M. Ianisiti and A. MacCormack, "Developing Products on Internet Time," Harvard Business Review 75 (September-October 1997): 108- 117; S. Bhattacharya, V. Krishnan and V. Mahajan, "Managing New Product Definition in Highly Dynamic Environments," Management Science 44 (November 1998): 50-64; and M. Cusumano and D.B. Yoffie, "Competing on Internet Time" (New York: Free Press, 1998).
24. Torrisi, "Industrial Organization," 91-128.
25. L.L. Constantine, "Constantine on Peopleware" (New York: Prentice Hall, 1995); and S.E. Donaldson and S.G. Siegel, "Cultivating Successful Software Development: A Practitioner's View" (New York: Prentice Hall, 1997).
26. L.L. Constantine, "Constantine on Peopleware" (New York: Prentice Hall, 1995); and S.E. Donaldson and S.G. Siegel, "Cultivating Successful Software Development: A Practitioner's View" (New York: Prentice Hall, 1997).
27. For a discussion on using those attributes to assess potential variability in a product domain, see R. Ramaswamy and U. Nerukar, "Creating Malleable Architectures for Application Software Product Families" (proceedings of the Workshop on Object Technology for Product-Line Architectures, European Conference on Object Oriented Programming, Lisbon, Portugal, June 1999);
28. also see J. Meekel, T.B. Horton and C. Mellon, "Architecting for Domain Variability" in "Proceedings of the Second International Workshop on Development and Evolution of Software Architectures for Product Families" (Berlin: Springer Verlag, 1998).
29. Although a few software-product companies such as SAP, Intuit, PeopleSoft and Oracle have taken the initial steps to offer application-hosting services directly to their clients, most other product companies have a wait-and-see attitude, acknowledging the difficulty of transitioning from the product to the service sector ("Software Shakeout," Business Week, March 5, 2001, 72-80).
30. In "Where Value Lives in a Networked World," Harvard Business Review 79 (January-February 2001): 79-86, M. Sawhney and D. Parikh use the concept of the migration of network intelligence to show how the boundaries between the product and the service sectors in various industries are reshaping the competitive landscape.
31. In "Where Value Lives in a Networked World," Harvard Business Review 79 (January-February 2001): 79-86, M. Sawhney and D. Parikh use the concept of the migration of network intelligence to show how the boundaries between the product and the service sectors in various industries are reshaping the competitive landscape.
32. D. Delano, ed., "Global Semiconductor Industry Report," Electronic Business (1998); and K. Reeder, "Radical Changes in the Communications Industry: A Report" (Paris: Organization for Economic Cooperation and Development, 1998).
33. D. Delano, ed., "Global Semiconductor Industry Report," Electronic Business (1998); and K. Reeder, "Radical Changes in the Communications Industry: A Report" (Paris: Organization for Economic Cooperation and Development, 1998).