Thursday, May 31, 2012

Nano Re-visited

My article in Outlook Business attributing the difference in market performance of the Tata Ace and the Tata Nano to differences in the development processes they followed evoked several insightful responses.

Most of the comments suggested that the Nano "failed" because of wrong positioning. Several readers thought that the Nano failed to appreciate the social psychology of the Indian buyer.

HS, for example, wrote that “whatever level of social pyramid a person belongs to, he has a self-respect (or may be an alter-ego) associated with him. Positioning ‘Nano’ as a low cost car (“lakhtakia”) rubbed the intended consumer wrong way. The debacle was further worsened by “fire accidents” which further hurt the psyche and physical safety of the intended consumer ( i.e. low middle class common man).”

Many readers referred to words such as “aspiration” and “middle class psyche,” implying that these were not adequately addressed by the Nano.

Others, like SR, attributed the Nano’s "failure" to negative publicity: “First the movement of the Nano project (whether or not it was not justified) created a lot of negativity. Other negative factors were the delay in launch, its 1 lakh price promise and not being able to meet it (the feeling in the general public was Nano would be available at 1 Lakh on-road and irrespective of models) and finally the fires in the cars. I think the fires were the nail in the coffin as there was always a feeling of an inferior good for Nano, and that was re-enhanced by these sporadic events. Thus the car had an inferior goods perception accentuated by the fires and a failure on expectation management on the cost side.” NP agreed with this perception of the Nano being seen as an inferior product: “Nano was seen as removing features to fit the 1L bill. It never came across as a vehicle that the two-wheeler riders will be proud of.”

It’s difficult to disagree with many of these points, and Tata Motors has now begun to address them. But these points support (rather than contradict) the core argument that I made in my article – if the Nano team had spent more time talking to prospective customers (as Tata Motors did in the case of the Ace) during the Nano’s development, they would have understood when, why and how a customer chooses to buy a car like the Nano, and been able to incorporate these inputs in the design, positioning and launch strategy of the Nano.

Saturday, May 26, 2012

What Makes 3M the most sustainably innovative tech company in the world

While companies like Google and Facebook may have stolen the innovation thunder in recent years, you are unlikely to find a more sustainably innovative company than 3M. Can you think of another technology company that is 100+ years old, has an uninterrupted dividend record since 1916, and reports operating margins and return on invested capital in excess of 20%? I am deliberately calling 3M a technology company – its stellar financial performance is driven by products based on its 46 technology platforms, and one of its key metrics is a New Product Vitality Index (proportion of revenues based on products launched within the last 5 years) which is currently at a healthy 33%. 3M reported R&D expenditure of $1.57 B on sales of $ 29.6 B in fiscal 2011.

3M’s products span a variety of technologies and applications. Its major areas are industrial and transportation (32%), healthcare (17%), consumer and office (14%), display and graphics (14%), safety, security and protection services (12%), and electronics and communications (11%).

3M’s growth in recent years has been buttressed by an increased focus on international markets. Two thirds of its revenues come from outside the United States. APAC is today the most important region for 3M from both a sales and profitability perspective. And, emerging markets are expected to be the growth driver for the foreseeable future. As 3M’s emphasis on emerging markets has increased, it has expanded its famed innovation activities beyond the United States; today a little over half of 3M’s 7,900 researchers are located outside the US.

India is one of the countries to benefit from the internationalization of 3M R&D – the 3M technical support center in Bangalore was upgraded to a full-fledged innovation center late last year. Srivardhini Jha and I had the opportunity to visit this center a couple of months ago – naturally, our discussions with our hosts centered around how 3M has built and sustained such a strong innovation engine.

Following our visit, I did some more spadework on this question, and read A Century of Innovation: The 3M Story, a corporate history of innovation at 3M put together by the company in 2002 (my thanks to Vinay Dabholkar for introducing me to this book!).

The 3M Innovation Culture

Though the famous 15% “rule” – employees working 15% of their time on projects of their own choice” – is perhaps the most often cited element of 3M’s innovation culture, a more important factor in 3M is the philosophy behind this. In the formative years of 3M, the top management had a strong faith in the creative potential of individuals and their ability to come up with good ideas if provided the right support. William McKnight, who became CEO in the 1920s, believed that micromanagement and intolerance of failure would stifle initiative: “Management that is destructively critical when mistakes are made can kill initiative. It is essential that we have many people with initiative if we are to continue to grow” (p. 9). 3M’s 1925 manual, written by McKnight, proposed that “every idea evolved should have a chance to prove its worth” (p. 16). Administrative support was expected to support intrapreneurial initiatives rather than control them. To support such ideas, 3M committed to making substantial investments in research and development (5% of sales), and to provide patient capital.

For most of its existence, 3M has promoted from within. And a common characteristic of many top leaders at 3M has been their ability to mentor and support good ideas, and the employees who propose them. For example, one employee wrote about Dick Drew, 3M’s CEO in the 1960s, that he never turned away anyone even when they came with the strangest ideas.

3M believes that the following are the key ingredients of its innovation culture: “(1) attracting and retaining imaginative and productive people; (2) creating a challenging environment; (3) designing an organization that doesn’t get in people’s way; (4) offering rewards that nourish both self-esteem and personal bank accounts” (p. 32).

From Ideas to Impact

How does 3M ensure that ideas and products have impact? After all, there is always the danger that if you sprinkle resources on a wide variety of ideas you will achieve sub-optimal results. One prong to this is almost as old as 3M itself – close involvement with users to understand their needs, and to be sure that 3M products are suited to solving their problems. McKnight went as far as the shopfloor of customers’ factories to understand from workers whether 3M’s abrasive products were doing the job for them. In the mid-1990s, 3M’s “Pacing Plus Program” ensured that additional corporate resources were committed to products and programs that the top management believed would have high commercial impact. And, a third prong has been a platform approach – 3M focuses resources on building powerful technology platforms that can be used to solve problems across industries.

How does 3M facilitate the use of such platforms cutting across sectoral lines? Platforms are considered to belong to the company even though individual products belong to the business divisions. A company-wide Technical Forum created in 1951 brought together researchers from across the country and helped them share knowledge with each other. From the early days, employees were encouraged to look for applications in new areas. And, sales staff for key accounts represent the whole company rather than individual business divisions, again providing an opportunity to integrate across products and technologies.

Not Product Innovation Alone

In recent years, 3M has supplemented its product innovations by efforts to control costs and improve efficiencies. While some of these have come about through changes to the core manufacturing process itself, others have come as a result of streamlining supply chains, continuous efforts to reduce factory costs, and adoption of lean management processes. Few companies are able to combine both incremental efficiency improvements and significant product innovation, and 3M’S achievements in this regard are a tribute to the flexibility and adaptability of its management processes.

3M in India

3M has been around in India for more than 20 years, but it is yet to discover enough sweet spots in the Indian market. Traffic safety, automobile applications, and signage (e.g. all the new signboards in Delhi) have been some of the visible areas for 3M in India. 3M India has had to adopt new business models such as turnkey implementation of toll plazas in order to meet the needs of large Indian users. Unlike most other multinationals, 3M plans to use its innovation center in India to help innovate for the Indian market. If 3M India CEO Ajay Nanavati and his team can infuse the same spirit and culture that pervades 3M’s innovation efforts in the US, we should see 3M India grow by leaps and bounds in the years ahead.

Wednesday, May 23, 2012

Why the Tatas succeeded with the Ace but not with the Nano

The success of the Tata Ace caught Tata Motors by surprise, but the Tata Nano belied their expectations. In my recent column in Outlook Business, I explored why, and drew some lessons for the management of innovation.

Sunday, May 20, 2012

Innovation in India: Do we set our sights high enough?

During a discussion after a recent talk to a group of managers from one of India’s leading pharmaceutical companies, one of the participants suddenly asked me a thought-provoking question: do we in India set our sights high enough when it comes to innovation?

This question was prompted by some prior discussion on what is innovation, and what is not. This is not an unusual debate given the haze surrounding the notion of innovation. In recent years, a lightning rod for this discussion has been the Tata Nano – does it constitute an innovation or not?

Ironically, there is not much debate on this point in the western world: they think it does, because they see the Nano as establishing a price point that was thought to be inconceivable. They are driven largely by the outcome or impact, and are not overly concerned by how novel the Nano is as a concept.

Though the Nano project started with some revolutionary ideas such as a plastic body and decentralized assembly, in its final execution the Nano did not incorporate these. Girish Wagh, who led the Nano project for Tata Motors, is on record that “If somebody comes and asks me what fantastic innovation solved the problem, I would have to say there was none. It was small, small things that engineers did.” A fanatical commitment to cost reduction led the Tata Motors team to optimize on multiple fronts, resulting in a significantly lower cost, and hence attractive price for the customer.

So, while the Nano has perhaps not established new automobile technologies, it’s certainly an innovative product in the way it has been engineered.

But, let’s return to the question we started with: do we set our sights high enough when it comes to innovation?

A couple of years ago, India Today magazine asked me whether I could identify the top 10 technology or product innovations by Indian companies during the decade of 2000-2010. I accepted the invitation with alacrity thinking this would be an easy task . But when I applied the twin criteria of novelty and impact, I struggled to find 10 outstanding innovations.

Was this due to a lack of aspiration, or was it because we were not able to execute successfully?

The answer varies across sectors. The Indian pharma industry has seen some ambitious efforts to develop new drugs - Parvinder Singh at Ranbaxy, Anji Reddy at DRL, Glen Saldanha at Glenmark, and Kiran Mazumdar at Biocon have invested serious resources in their efforts to create new chemical entities, even if these efforts have not been commercially successful so far. The automobile industry has taken significant strides as well, but in a step-by-step fashion: companies like Tata Motors and Mahindra first developed new vehicles (Indica and Scorpio respectively) with considerable involvement of foreign suppliers and consultants, but have graduated to doing more internally in some of their recent product development projects. These two industries deserve high marks for trying.

But, in some other industries, there is clear evidence of what my friend Chandra Vikash once called an “aspiration deficit.” The IT industry is a case in point. It prides itself on its talent, and the leading companies are sitting on piles of cash, but there has been a lack of imagination and a reluctance to commit resources to high-impact innovation projects.

Many Indian companies tend to fear the risks involved in technology-oriented innovation. They see R&D as a bottomless pit that eats up lots of resources but often does not deliver commensurate results.

As a function, R&D has a credibility problem. The source of this is partly historical – public research institutions, where most R&D in India was performed in the past , developed a reputation for incomplete technologies or exaggerated claims. But the problem is institutional as well – very few of our academic institutions are oriented towards application-driven research, so when their graduates join industry, they struggle to cope with the demands of industrial R&D. Finally, there is an organizational dimension to this: there are many ways of managing the risks of R&D including building a robust innovation pipeline (instead of depending on the prospects of one or two innovations), using alliances, in-licensing and out-licensing (where appropriate), and understanding technology trends and evolving needs of customers well, but these practices are not widespread in industry.

There is thus clearly an important capability dimension to innovation. But capabilities don’t get built by accident. And this is where aspiration re-enters the equation. In the 1980s, India’s desire to improve the quality of telecommunication infrastructure by building contemporary switching equipment domestically led to the establishment of C-DOT. Many C-DOT trained engineers later became evangelists for robust software processes in the Indian IT industry. The Light Combat Aircraft programme launched in the mid-1980s has not yet met the Air Force’s needs, but it has built domestic capabilities in avionics, composite materials and airframe technologies.

Aspiration-led capability building is not restricted to the public sector. The Nano may not have been a commercial success so far, but I am sure the Nano engineering team will play a leadership role in automotive innovation in India in the years ahead.

Setting aspirations high is important for the future of Indian innovation. Not only for the outcomes that we all desire, but also to build more robust innovation capabilities. And, most importantly, for a potential demonstration effect. Indian industrialists are conscious of their image and don’t like being outsmarted by their peers. Once we have a few instances of successful, big ticket innovation projects, the momentum will pick up across industries. And, hopefully, if India Today comes back to me in 2020, the problem will be how to choose (rather than where to find) instances of successful innovation in India.

Friday, May 18, 2012

Creativity, Teamwork, and the Design of Workspaces: Insights from Susan Cain’s “Quiet”

One question that keeps cropping up in innovation discussions is the role of the individual vs. that of the team. On the one hand, individual creative geniuses seem to be critical to the ideation that is the spark for significant innovations. On the other, given the complexity of most impactful innovations, it’s hard to imagine a single individual pulling it off. But, even if a few individuals have a disproportionate influence on innovation outcomes, the environment in which they work will influence their creative output.

Susan Cain adds an interesting dimension to this debate in her book Quiet: The Power of Introverts in a World that can’t Stop Talking (Crown Publishers, 2012). She points out that many of the most creative people are introverts by nature, and that introverts’ ability to work independently can fuel the creativity required for effective innovation. She goes on to criticize the tendency to elevate teamwork to an inviolable mantra and to force people to work in teams, citing examples of people like Charles Darwin and Madam Curie, introverts who broke new ground in their respective fields.
Susan Cain is particularly critical of the wide scale adoption of open plan offices for their possible negative impact on creativity and innovation. If you read Malcom Gladwell’s Outliers, you will recall that outstanding performers have often put in as much as 10,000 hours of “deliberate practice” to reach the pinnacle of their respective fields. Cain points out that this deliberate practice is often effective only when done in solitude, and the open plan office can often make the environment too disruptive for the intense concentration required for impactful innovation. In fact, Cain cites research by DeMarco and Lister that shows that “top performers overwhelmingly worked for companies that gave their workers the most privacy, personal space, control over their environments, and freedom from interruption” (p. 84).
Cain questions some of the notions we take for granted in innovation management. For instance, she doubts the utility of conventional brainstorming sessions, pointing to research that people generate better ideas on their own rather than in a group setting. Brainstorming may help by the social connections it creates through bringing people together, not by generating better ideas! In spite of the precautions taken during brainstorming to separate ideation from evaluation, Cain suggests that “evaluation apprehension” prevents people from voicing their ideas. [Interestingly, she argues that online brainstorming can be free of this problem.] Concluding this section of her book, Cain calls for systematic efforts to encourage individual and independent thinking in education, and for organizations to provide greater flexibility in work layouts so that creative people can have the quiet they need, when they need it.

Saturday, May 12, 2012

Enhancing Innovation Effectiveness

CII has been at the forefront of the quality movement in India. One of CII's important initiatives in this direction was the creation of the CII Institute of Quality at Bangalore. CII IQ organizes an annual Business Excellence Conference at their picturesque campus just off the NICE Ring Road at Magadi Road.

In a talk on Enhancing Innovation Effectiveness at CII IQ's 11th Annual Business Excellence conference last week, I emphasized four themes:
  • Building a Robust Challenge Book around selected innovation theme(s)
  • Exploiting the Power of Platforms
  • Innovating Across the Value Chain
  • Adopting a Nuanced Approach to BoP Innovation

Sunday, May 6, 2012

The Power of Positive Deviance

Solving social problems is tough since they are often intractable and addressing them involves serious behavioural change. Are there techniques that help address such problems?

Jerry Sternin and Monique Sternin identified a powerful way during their work for Save the Children, a well known global charity. Starting with trying to reduce child malnutrition in a very challenging timeframe in Vietnam, they found that solutions to such apparently intractable problems already exist, in fact they have been discovered by members of the community itself. These innovators have succeeded even though they face the same obstacles. These innovators can provide the blueprint to solve the problem. But the process of unearthing these innovators is critical to these same innovations being adopted by others.

The trick is to make the process participatory and community-based. In its ideal form, this process involves the community deciding that the problem is serious enough to merit action, choosing to address it, bringing community members together to spend time and effort to discover the pioneering innovators, and disseminating the discoveries through practice. This last point is important - as the authors say, “It’s easier to act your way into a new way of thinking, than to think your way into a new way of acting.” The facilitator’s role is clear: (s)he is not a problem-solver or an expert, but a catalyst who galvanizes the community to address the problem.

The Power of Positive Deviance is a well written book, with detailed and credible examples based on the work of the Sternins. I found the book both inspiring and throught-provoking. It also left me with an important question. Though the Sternins argue that this technique works best when the change is “adaptive” (embedded in social complexity and involving major behavioural change), rather than “technical,” I wonder whether this technique works equally well in all adaptive change situations. Even from the examples given in the book, it seems better suited to moderately adaptive changes (such as the malnutrition problem in Vietnam) than those requiring fundamental behavioural changes (such as female circumcision in Egypt, another case in the book). Nevertheless, the book clearly establishes the power of the positive deviance approach.

Tuesday, May 1, 2012

Some More Reflections on Buidling an Innovation System

Countries across the world grapple with the issue of how to enhance economic growth. Innovation, particularly when done by industrial firms, is believed to be an important driver of sustained economic growth, and countries therefore yearn to be homes to dynamic innovation ecosystems. Such thinking is, of course, not restricted to the country level, but is increasingly evident at regional or state levels. Some recent articles add spice to this debate.

In a recent article in Strategy + Business, Professor Ernest Wilson, Dean of the Annenberg School of Communication at the University of Southern California calls for an alignment of the quad – government, business, academia and NGOs – to provide a nurturing environment for such innovation to happen. Professor Wilson believes that this alignment can be accelerated through action on three fronts – the creation of cross-sector networks, continuous reform of the way organizations are managed, and in getting the right mix of people who can foster innovation.

Ironically, while Professor Wilson uses Bangalore as an example of a contemporary cluster, the second element is often missed out in India. Government is pouring more and more money into supporting different innovation initiatives, but it often lacks the flexibility or organizational dynamism that is required to genuinely support innovation. And as Professor Gautam Desiraju points out in his recent article in Nature, decisions on scientific research in India are often driven by the decision-maker’s position in the overall hierarchy rather than expertise or knowledge which of course runs counter to the spirit of innovation or knowledge creation.

While the US university system is often the envy of the rest of the world, within the US there is considerable debate about the role of the university and how closely it should be linked to industry and corporate interests. I remember reading a book by the former president of Harvard University, Derek Bok, some years ago where he put together lots of evidence to show that American universities were increasingly being driven by commercial interests. In a similar vein, a recent article by Ken Auletta in the New Yorker magazine asks a provocative question: Is Stanford too close to Silicon Valley? At least in the US, I wouldn’t worry about that too much – the US has such an array of powerful universities that having a few of them driven by entrepreneurship or even money probably won’t hurt. And, it’s not as if Stanford is a slouch when it comes to research… Wouldn’t we love to have a few universities like Stanford in India? But do read Auletta’s article to understand some of the dangers in becoming the university that is known as the home of so many hot start-ups.