Wednesday, February 29, 2012

Innovation in the Indian IT Industry

I recently gave a talk on From Jugaad to Systematic Innovation at an innovation event hosted by Unisys. Mr. Balaji Narasimhan of The Hindu Businessline followed up my talk with a short interview as to what should be the priorities for innovation in the Indian IT industry. Here's a link to the interview that appeared in today's Businessline.

Wednesday, February 22, 2012

Will "India Inside" be as successful as "Intel Inside"?

At first glance, this book looks like yet another book of the “India and China are changing the world” genre since it talks about familiar phenomena such as outsourcing/offshoring, the movement of jobs to India, and the global delivery model that were made a part of everyday vocabulary by people like Thomas Friedman. Its title– India Inside - is enigmatic. But the subtitle – “The Emerging Innovation Challenge to the West” – is a clear indicator that this is a book focusing on innovation in India.

This book can be read at various levels ranging from a superficial phenomenological one to the more interesting and deep observations Nirmalya Kumar and Phanish Puranam make about the forces and trends underlying the phenomena, and the implications of these for multinational corporations and the developed world.

The main argument that Nirmalya and Phanish make is that innovation is gathering momentum in India, but because it’s largely in the B2B context or embedded in intermediate steps of the value chain, it’s not easily visible. Thus, rather than looking for innovation with a “Made in India” label, “India Inside” (like “Intel Inside”) is a better description of the innovation emanating from India.

Nirmalya and Phanish categorise this “invisible” innovation in four buckets: (1) the globally segmented innovation that happens when the R&D/technology centres of established multinationals in India work on specific slices of the value chain; (2) the “outsourcing innovation” that happens when Indian companies undertake R&D and product engineering services for external clients; (3) the process innovation undertaken by Indian BPO and KPO firms where they bring in fresh knowledge and advanced analytical techniques (they call it an “injection of intelligence”) to change the way business is done in many traditional industries; and (4) the management innovation in the form of approaches like the global service delivery model that are changing the way work is done across industries. There is also a chapter on one “visible” dimension of innovation from India – the frugal engineering reflected in products like the Tata Nano.

Nirmalya and Phanish end the book by identifying potential showstoppers to the Indian innovation story – the failure of the talent pool to expand adequately in terms of both quality and quantity; a failure to protect intellectual property; and an inadequacy of venture capital.

These observations are not, by themselves, new. The more insightful contribution of this book is in the underlying trends and their implications for the future of multinationals and the future economic geography of the world.

The Skill Ladder Argument
Nirmalya and Phanish argue that the location of the lower rungs of the skill ladder today in India and China means that some years down the line the higher rungs will also have to be located in India and China because only they will have the requisite expertise and experience. So, over time, higher rung jobs and roles will also tend to shift to China and India. But my own suspicion is that this will not be that straightforward. Let’s first look at a technical career path. Only a few software engineers become software architects because the skillset required for a technical architect is quite distinctive. Managerial career paths are not much different – the skills required by a project manager are different from that of a program manager, and the latter are different from that of a business manager. Major disruptions in technology and business models also have the potential to disturb a linear career progression model. But, there is no doubt there is going to be an interesting dynamic playing out.

Already, in Germany, where the number of local engineers available to the top automotive companies is declining, there is talk of moving much of the design activity to India and China, but with control still resting with Germans in Germany. In the US, thanks to more liberal immigration policies, the ethnic mix in the parent R&D labs of US MNCs is changing fast with Chinese, Indians, Koreans and East Europeans fast filling the ranks. These changes will influence decision-making in myriad unpredictable ways.

Reversal of Cultures?

I found another observation that Nirmalya and Phanish make quite fascinating, but under-explored. They point to the difference in dynamism and optimism in the east and west today to suggest that there has been a “reversal of cultures” with the traditional cultures of the east embracing the protestant values that spurred the growth of capitalism in the west. I think they got the phenomenon right but not the process.

Several books on China in recent years have attributed the departure from Confucian thought to the systematic destruction of respect for the family and other related Confucian values that happened during the Chinese Cultural Revolution. This set the stage for the unbridled spirit of capitalism and materialism that appears to have gripped China. Other reports suggest that this has been made accentuated by the one-child policy that has spawned a generation of self-centered individuals. In India, several observers including Pavan Varma have observed that Indian cultures never had a serious objection to the accumulation of wealth or materialism. Further, as Tarun Khanna and others have pointed out, India has a long history and tradition of entrepreneurial communities.

Is Frugal Innovation Fundamentally Different?
Nirmalya and Phanish have an interesting chapter on frugal innovation (typified by the Nano) where they have made an attempt to characterize this approach to innovation. They are not the first to do so - other authors have been trying to capture this phenomenon of resource-constrained innovation under rubrics such as Gandhian innovation (Prahalad and Mashelkar) and Jugaad innovation (Jaideep Prabhu). I am still not convinced that there is anything fundamentally different in this form of innovation. In a market with limited purchasing power and a keen sense of value, customer-driven innovation would need to be governed by the discipline of keeping within a target cost. The methods used by Tata Motors in the case of the Nano as described in The Small Wonder suggest a faithful adherence to the well established principles of “design to cost” and “design for manufacturing” rather than a fundamentally different approach to innovation.

On Potential Showstoppers
While acknowledging that there are several weaknesses of the Indian innovation system, Nirmalya and Phanish propose (albeit, without much justification) that three of them constitute the largest threat to the Indian innovation story. I can’t disagree with their point about the availability of talent – there is no doubt at all that if we fail to upgrade and scale up our education and vocational training systems quickly, we will fail to take advantage of India’s demographic dividend. Availability of adequate early stage funding and investors who understand the challenges of creating new businesses will be critical to create a new mass of technologically sophisticated firms – I underlined this point in From Jugaad to Systematic Innovation. But the story on intellectual property protection is not as clear.

Nirmalya and Phanish categorically state that “India’s IP regime has not offered robust protection for novel ideas” (p. 42). But is this true in the post-2005 patent regime? Raghav Raghunathan, Vikram Naryal and I have been investigating the question of how effective the intellectual property protection is in India post-2005 and all the WTO-induced amendments. We have interviewed several IP attorneys, corporate IP heads, and others familiar with intellectual property protection issues in India.

Interestingly, when you leave aside the pharmaceutical domain, though there is some unease about the quality of IP protection, there is surprisingly limited articulation of what exactly the problem is. Due to the limited case law generated since the new statutes came into place, the judicial interpretation of the boundaries of IP law is still not clear. However, it appears that India does not have the same degree of egregious counterfeiting and intellectual property theft that has been reported in China (see, for example, the celebrated case of American Superconductor ). Anecdotal evidence suggests that many foreign companies are considering shifting more sensitive parts of their R&D to India from China.

The pharmaceutical story is different. Nirmalya and Phanish cite the Novartis Gleevec case to suggest that IP protection in India is weak but don’t follow that up with a detailed justification. Since the 1960s, India has been concerned about the power of the pharmaceutical industry and maintaining basic health care at affordable cost levels. The Indian Patents Act of 1970 was successful in achieving the latter objective. Consistent with this position and yet adapting to the changing global situation, while restoring product patents in the pharmaceutical arena in the post-WTO arena, the government decided to put constraints on evergreening and the extension of patent protection through such methods. This was done by laying down more stringent conditions for what constitutes an inventive step in drug development. It’s perhaps unfair to characterize our intellectual property protection system as inadequate merely on the basis of this exercise of our sovereign right to prevent drug companies from extending their monopoly through patent extension tactics.

A Useful Addition...
But, overall, this book has many things going for it. At 154 pages, it’s short and to the point. It provides several examples and interviews with key players. It draws attention to recent research on the global distribution of work. By addressing itself to the leaders of multinational companies outside India and the leadership of other countries, it makes the India innovation story more accessible to a foreign audience. In short, this is a good addition to our understanding of how innovation is evolving in India.

One only hopes that “India Inside” will be as successful as Intel Inside….

Thursday, February 16, 2012

Cisco: Innovating in India for India and the World

Its more than 25 years since Texas Instruments set up its development centre in Bangalore, heralding a trend of top technology companies locating R&D and engineering centres in India. While there have been occasional stories of these Indian centres leading product development activities for new products, we are beginning to see a jump in sophistication of these efforts.

Cisco’s ASR 901 Cell Site Router that won the Nasscom Innovation Award 2012 for New Technology Advancement yesterday is a good example of this trend. Cisco set up its Engineering Centre in India in 1998. More than 640 patent applications have been filed since then, and more than 370 patents granted. But when the ASR 901 was launched in October 2011, it was the first product conceived, developed and launched entirely from India. Centered around the ASR 901 and related products is the Provider Access Business Unit, the first full-fledged BU being run from India with complete profit and loss responsibility for this product line.
The case for building telecom products out of India is clear. While capital expenditure on telecom is increasing at the rate of 15% per year in the developing world, the growth rate in the developed world is only half of this. India has been, in recent years, one of the fastest growing telecom markets in the world. India also has some of the largest telecom companies with Airtel, Vodafone and Reliance each having more than 100 million subscribers.

Products like the ASR 901 router seek to straddle seemingly irreconcilable requirements. The ASR 901, for example, simultaneously aims to be low cost and feature rich. On the one hand, the product is designed to meet the critical requirements of telecom companies in developing countries – low up-front capital costs as well as operating expenses; protection of existing investments in earlier technologies and standards like 2G; ability to maintain high reliability levels in harsh operating environments; and rapid scalability. On the other, the product is designed to provide the next generation of cell site router technology like 4G and features like multiprotocol label switching (MPLS) - a mechanism in high-performance telecommunications networks that directs data from one network node to the next based on short path labels rather than long network addresses, avoiding complex lookups in a routing table (see ), and thereby making the network more efficient.

According to Cisco, there are four distinctive features of the development of the ASR 901:

  1. The first is frugality of the innovation process. Using specially-designed or custom-built components can enhance performance but comes at a cost. Instead, in the case of its power module, the ASR 901 team modified an off-the-shelf power module that was both compact and low cost. The ASR 901 is economical in its use of power.
  2. The second is advances in the design of the timing architecture. The ASR 901 team developed an optimised precision time protocol (PTP) system based on the IEEE 1588v2 standard by going back to the standards, re-architecting the PTP software stack, and using a mixture of experimental and analytical techniques to optimise performance. PTP is a protocol that is used to synchronise clocks across a computer network (see ) and improve the accuracy and efficiency of the network.
  3. The third is the advanced Internet Protocol (IP) and MPLS feature set. The ASR 901 allows the use of both IP and TDM, thus straddling both old and new technologies.
  4. The fourth is the development of a complex and sophisticated product in an ecosystem that lacks the ideal features to support such development. Cisco drew on its global network, re-locating senior personnel from its US offices to the India engineering centre to fill capability gaps. The product enabled building local capabilities – e.g., qualification and compliance of the product with different geographies was done from here, thus building local familiarity with such processes. Cisco worked closely with some of its Indian partners to develop the product – this helped launch the product in October 2011 though development started only in June 2010.
The ASR 901 is being tried out by telcos all over the world. Given the advanced features and the higher propensity of companies in the developed world to try out new technologies, it’s not surprising that the first customers are from there. But it has features that make it attractive to telcos from emerging markets as well, and adoption should follow.

Innovation from India can be visible in the global end-product market, meet the latest technological standards, and yet be rugged, versatile and cost-effective for emerging country markets. Cisco’s ASR 901 shows that this is possible.




Thursday, February 9, 2012

Intuit: Innovating for India

Started in 1983 by Scott Cook, Intuit is a legendary software company with marquee products like Turbotax and Quickbooks. Almost 30 years after its founding, Intuit retains the vision to be a “Premier Innovative Growth Company.” But what I like about Intuit is that they are as concerned about how and why they grow as about growth itself.

Intuit has been around in India for some time. Its Money Manager product available online through is a user-friendly product to manage personal finances. But Intuit India is now grappling with some tougher problems as it reaches out to underserved and more challenging markets. Fasal and txtweb are two products that signify this approach.


As we all know, agriculture is very important to the Indian economy with 60-70% of India’s population living on farms and our growing need for food. But the typical farmer feels undervalued, stuck and consigned to his fate as he struggles against market forces. Farmers get only 40% of the retail price of the products they sell. And, there is lots of volatility in the market. Farmers often end up under-selling their produce due to lack of appropriate information about demand and prices. Farmers’ income can improve dramatically if they get a better price for their crop – that’s the problem that Fasal tries to solve.

Most Indian farmers sell their produce to intermediaries/agents who work in large mandis (Indian wholesale markets). These agents bring farmers and buyers together. Fasal gives farmers real-time prices of crops in different markets through sms. Each farmer gets an SMS customized for his particular crop, location and land holding. Early results show 90% of the farmers benefit, and 15-20% have a greater price realization as a result. Fasal currently covers 600,000 farmers in Gujarat and Andhra Pradesh. The target is to reach 1 million farmers by mid-2012. Farmers are currently registering at the rate of 20,000 new registrations/ week so the target is within reach. Fasal will also be extended to 2 more states this year.

While a possible final goal is the creation of a transaction platform, the current revenue/monetization model is based on advertising. For example, a fertilizer or pesticide company can reach specific customers (remember the sms messages are targeted to crop and location!). P&G, a leading tractor company and Godrej are some of the companies that have used Fasal for targeted advertising. At the technological core of Fasal are complex “matching algorithms” that link farmers to potential buyers/agents.

Txt Web

90% of Indian mobile users do not have internet access. Nor does half the world’s population. 90% of handsets in India are not smart phones. How do you empower these people to get information comparable to people who have internet access?

Txt Web enables this – it enables (limited) internet access and access to other information through the sms. For example, if you sms <@wikipedia malaria> to 92433 42000, you will get the first paragraph of the Wikipedia entry on malaria. You can dig deeper as well – all the hyperlinks in that paragraph are numbered in the text you receive, and if you text back the appropriate number you get information on that particular hyperlink.

SMS <@cricket> and you get the latest cricket score.

Txtweb now has many user-developed apps created primarily by students, and now increasingly by start-ups. Many engineering colleges use txtweb in their campus placement processes. Txtweb has 1.5 million users in 1 year. The cost to Intuit is the cost of the messages + the cost of maintaining the platform. Efforts are on to monetize this application.

How Intuit runs the Innovation Process

Intuit India uses the same innovation processes that have made Intuit a successful software company in Silicon Valley.

In spite of Intuit’s age and size (it’s now a $4 Billion company), it continues to espouse the values of a startup. All employees have 10% unstructured time and products like Fasal have come out of employee-generated ideas.

Intuit wants big impact from its innovations. Their goals include:

1. Everyone at Intuit to utilize their unstructured time to innovate with impact.

2. Intuit India to deliver 1-2 impactful innovations that enter the business unit pipeline.

Innovation at Intuit has to meet the following criteria:

It should solve a “big unmet need” (customer-driven innovation) that Intuit can solve well (technology-driven advantage) in a way that offers Intuit a durable competitive advantage (based on Data4Design principles; it shouldn’t be something that a few engineers in a garage can do!). Fasal clearly meets these criteria: for farmers, market information is a huge need; Intuit has developed patented algorithms that help the matching of farmers and agents/buyers; and Intuit India is strongly immersed in the lives of farmers.

The D4D Principles

• Deep customer empathy

• Go Broad to Go narrow

• Rapid Experiments with Customers

Intuit is well known for its “Follow me home” approach that uses deep qualitative insights based on immersion with users. Intuit reports that one starts seeing patterns in “Follow me home” after about 20-25 customers/users. They use “5 Whys” to drill down deep and overcome any changes in behavior due to observation by Intuit.

How does Intuit incentivize employees for innovation?

• Unstructured time

• Big rewards for outstanding innovations – one employee got a $1m reward recently for a particularly impactful innovation

• Intuit founder Scott Cook chooses 5 – 7 outstanding ideas from among employees every year. People who proposed these ideas get 3 – 6 months to work on their own or other projects.

Saturday, February 4, 2012

Organizational Innovation to enhance Research Output: the IITB Monash Research Academy

India faces the challenge of enhancing its research capabilities, and improving the quality of research from the twin perspectives of rigour and impact. This challenge is particularly acute in areas like energy, water, and information technology that are key to India’s development and future growth. Our policy makers have several proposals to make this happen – sector-specific research programmes; setting up new IITs, IISERs and universities; grants to create research infrastructure in existing institutions; and international cooperation agreements with leading industrialized countries and their institutions.

One exciting programme that has the potential to be a trailblazer in enhancing research capabilities and output is the IITB Monash Research Academy (IITBMRA), a joint venture between the Indian Institute of Technology Bombay (IITB) and Monash University (Australia).

Monash University is one of Australia’s leading universities, with strong expertise in engineering and technology. Like many other universities across the world, about five years ago Monash identified India as an important country to engage with. But while most other universities have preferred to target India’s large demand for undergraduate education, Monash has chosen a more challenging yet potentially rewarding track – concentrating on advanced students at the PhD level.

To do this, Monash has formed the IITB Monash Research Academy with one of India’s leading engineering and technology institutions, the Indian Institute of Technology Bombay (IITB). The IITBMRA has several distinctive features:

  • It is a genuine joint venture agreement with strong participation from both Monash and IITB. The governing board has equal representation from both institutions.

  • It has a stellar advisory council including eminent professionals like N R Naryana Murthy and Ramesh Mashelkar who are actively engaged in guiding the Academy.

  • The IIBMRA has a board of industry partners who are potential sponsors and users of the research being done in the programme. These include some of Australia’s top companies. Indian companies are gradually signing up as well.

  • The IITBMRA offers the opportunity to work on cutting edge problems under joint supervision of IITB and Monash faculty. The problems are in six themes of importance including clean energy, water, biotechnology and stem cell research, and advanced computational engineering.

  • Specific research problems in these areas have already been identified. Students typically apply to work on these specific research problems. Many of the problems have a strong cross-disciplinary flavor. Pre-identification of problems should make the programme quicker to complete and also enhance impact.

Students admitted to this programme get a chance to do part of their work at Monash with all expenses paid. They also get a higher scholarship than the typical IIT PhD scholarship.

The programme hopes to have 350 PhD scholars by 2015. Over time, it will also build stronger links with industry and establish long-term research programmes with industry. The benefits for India are clear – a large cohort of well-trained researchers; better designed doctoral research projects; and, creation of the ability to take on larger, long-term, impactful research programmes. This could be a useful model to help take the IITs, which have so far been better known for their undergraduate teaching programmes, into the orbit of the leading research institutions of the world.

While Monash University deserves credit for piloting such an innovative arrangement, IIT Bombay's leadership must be congratulated for taking an important step towards the building of long term research capabilities in the country.