Time to Start Thinking: Not only for the US, but for India as well!

Poor school education; resources fragmented across different government programmes; mismatches between the skills needed and the skills available; venture capitalists who tend to follow the herd because they lack independent conviction; complex regulation that retards agility and responsiveness… sounds like India? But, these are some of the barriers to innovation in the United States that Financial Times correspondent Edward Luce identifies in his insightful new book Time to Start Thinking: America and the Spectre of Decline (Hachette India, 2012).

Theme of the Book

The main theme of this book is that the United States has lost its way. Highly polarized partisan politics and checks and balances gone wild have resulted in a paralysis of decision-making. America’s huge middle class which was a product of a growing industrial economy of the 20th century is now getting hollowed out. The middle class emerged worse off at the end of the last business cycle compared to when it started, while the top ten per cent of the American population got visibly richer. With the exodus of manufacturing jobs to China, the only new jobs are relatively poorly paying ones in the services sector (I found this statistic particularly telling – a “median job” 50 years ago in General Motors paid about 60,000 current US dollars; today’s “typical” job at Walmart pays only $ 17,000).

Though many of the “creative” and “intellectual” jobs at the upper end of the value chain are still in the US, Luce sees these slipping away as innovation moves to where the markets and manufacturing are – to Asia, in general, and China, in particular. I found the example of Applied Materials quite instructive – this leading producer of advanced manufacturing equipment for the semiconductor and solar panel industries moved its CTO to China recently as China emerged as the global hub of semiconductor manufacturing, and the Chinese government invested in creating a research hub for emerging clean energy technologies.

Implications for India

Given its history of pragmatism, and its track record of finding the right leadership when confronted by crisis, a country as prosperous as the United States may be able to ride out its current predicament. But, as I read Luce’s book I kept thinking that India can’t afford the same luxury.

One clear implication of the US experience is that we simply can’t continue with the indifferent attitude towards manufacturing that has characterized much of Indian policy-making in the last 20 years. Not only is manufacturing essential to create the jobs that will allow us to take advantage of the much touted demographic dividend, a strong manufacturing base is essential to attract the R&D and innovation investments that will allow us to ride future waves of industrial development. As Edward Luce reminds us, in the early years of its founding the United States used a variety of “pragmatic tactics” to bring the benefits of technological development under the industrial revolution from Britain. Today, China displays policy pragmatism in using its financial clout to attract the world’s leading semiconductor companies to set up manufacturing facilities in China (according to Luce, China’s subsidies and support amount to US$ 1 Billion, 12.5% of the $8 Billion needed to set up a semiconductor fab). And, the R&D of companies like Applied Material follows…

In setting up the National Innovation Council (NIC) two years ago, we were spot on in recognizing the importance of innovation in achieving the future dreams of our country. But, the NIC’s self-imposed focus on social innovation alone is unnecessarily limiting. While I readily acknowledge that the government should not be involved in picking technology winners, surely we need to create platforms for R&D and innovation in technologies that are intimately linked to the future of India such as clean energy. We can’t afford to work on all emerging technology areas, but careful choice of a few sectors should put us in a good position to build technology hubs for the future.

A Window of Opportunity

The current mess in the United States so vividly portrayed by Luce in his book presents a unique opportunity for us. That country has lost some of its inherent self-confidence and “can-do” attitude. I have a feeling that it will bounce back, but that will take some time. Europe is facing recession and is focused internally on itself except for a few countries like Germany. This is the time for us to upgrade and enhance our innovation system.

One caution from Luce’s account of the United States is particularly relevant to us. This is the adverse effect of the dominant culture of Wall Street, and the tight coupling of the interests of Wall Street and economic/political decision makers. I recall my wonderment seven years ago when a presentation on the Indian economy made at a board meeting I attended contained only graphs pertaining to financial flows, almost as if goods and services didn’t matter. We could fall into the same trap; instead, we should keep our focus firmly on value added in the economy and the forces of productivity underlying such value addition.

Tailpiece

Reading Luce’s book is strongly recommended to anyone who has an interest in how the world will evolve in the next decade or two.

In Search of an Indian Apple

In my latest column in Outlook Business, I suggested that we are a little closer to having an innovation-driven global leader from India.

Disruptive & Radical Innovation: How are they different?

The idea of “disruptive” innovation was first advanced by Harvard Business School Professor Clayton Christensen in his book The Innovator’s Dilemma. It’s a powerful idea, but sometimes a confusing one. In many of my recent executive education classes, we have had long debates about what constitutes a disruptive innovation, and what doesn’t. And there have been persistent questions about how disruptive innovation is different from radical innovation.


I went back to read some of Clay Christensen’s articles in an effort to clarify these issues.

What is a Disruptive Innovation?

The first characteristic of a disruptive innovation is that it initially provides inferior performance (as measured by the prevailing industry metrics) to existing products available. As a result, it is usually not of much interest to existing users or customers.

The second characteristic of a disruptive innovation is that it is adopted by a market that is currently underserved or not served at all. In other words, it serves a market segment that did not exist before.

In his earlier work, Christensen often emphasized a third characteristic: a disruptive innovation has a steep improvement trajectory so that at a later stage it can meet the needs of the initial market as well. But, it appears that this criterion is not stressed so much now.

Since disruptive innovations are usually not of interest to a company’s existing customers, market leaders are rarely the source of disruptive innovations.

Examples of Disruptive Innovation

Disruptive innovations can be found across industries, and in the social sector. Here are some examples pulled together from Christensen’s work and elsewhere:

The Personal computer: When first introduced, the PC did not provide the computational power or speed of existing mainframe or minicomputers. The PC created completely new segments of computer users such as home users, small office home office (SOHO) users, and students. Later, the Wintel PC configuration became so powerful that it displaced workstations from the market.

Low-cost airlines: When they started, low-cost airlines like Southwest did not provide many of the features that business customers expected like fixed seating, first class, meals on-board, or interline connections to other flights. Southwest, in particular, created a new market of short-haul air travelers by offering a service that competed with travelling by road.

Table-top copiers: First introduced by Japanese companies Ricoh and Canon, table-top photocopiers were much slower and offered less flexibility than the large copiers being sold by Xerox. But, these sleek copiers met the limited needs of individual managers or departments in corporations to get a few quick copies made to meet immediate needs.

Microfinance: This social innovation does not have all the sophistication of a traditional banking product but meets the financial needs of people who were traditionally outside the purview of the banking system.

Online education: While online classes sacrifice some of the rich discussions possible in a face-to-face classroom setting, they offer an opportunity for people who can’t spare the time to attend classes to educate themselves. With cheaper bandwidth and improvements in technology, they have the potential to displace classroom teaching in several contexts.

How is Disruptive Innovation different from Radical Innovation?

As we have seen, the classification of an innovation as disruptive (as contrasted to “sustaining”) is based on performance and market-related parameters. Radical innovation is instead compared to incremental innovation, and is based on the magnitude of improvement in performance and a change in technology.

Radical innovation almost always seems to mean an order of magnitude improvement in performance or a significant shift from existing performance or solving a complex problem that existing products don’t solve. This means more sophisticated technology, based on pushing the boundaries of knowledge.

The first biopharmaceutical drugs were radical innovations because they used a completely different technology (biological methods of production rather than chemical synthesis) and addressed medical problems that could not be solved satisfactorily by existing drugs. New cancer therapies like the gamma knife are again radical innovations because they allow targeted radiotherapy, minimizing radiation damage to healthy cells.

Disruptive innovations don’t need to be based on radical technological innovations of this nature. Microfinance, for example, did not involve radically new technology. But some disruptive innovations can be radical as well – Massively Open Online Courses (MOOCs) do use some radical new technologies.

Radical innovations would rarely be classified as disruptive because, as we have seen, they are often aimed at driving the performance frontier rather than serving under-served or unserved markets.

Aravind Eye Care: Inspiration for Health Innovation

Education and health are usually identified as the top priority sectors for innovation in India. I recently had the privilege of visiting India’s foremost example of healthcare innovation, the Aravind Eye Care System (AECS) and interacting with some of the leaders of low-cost ophthalmic care in India. The occasion was Vision 2020: The Right to Sight, the 8th in a series of annual conferences organised by AECS to bring together the leading practitioners in this space and share best practices.


The Aravind Model: Scaled-up, & Now going beyond Cataract Surgery

While the original Aravind model – eliminate avoidable blindness by performing cataract surgeries; use scale and innovation to bring down cost; focus the surgeon’s time on the phase of the surgery needing the greatest skill inputs; use trained para-medics to do all other operations; outreach to bring in patients from a larger catchment area; cover the costs of free and subsidized surgeries through the efficiency with which surgeries are done for paying patients – is now legendary, what is really gratifying is how the Aravind model has been adopted and adapted by eyecare groups across the country. Much credit for this must go to the team at AECS itself that has taken the initiative to share its learning with others and organize forums such as the Vision 2020 conference to which other organizations are invited as equal partners.

Today, the Aravind model that was originally developed for cataract surgery has been the inspiration for hospitals taking on more challenging tasks such as retinopathy, and even farther afield to other domains such as maternity care (e.g. Lifespring Hospitals, Hyderabad). In the process, the principles of low-cost health care have got well defined, making them applicable to more domains in the field. Three core principles are massive scale, focus on paraskilling, and a relentless focus on optimizing scarce resources (Kennedy and Novogratz in London & Hart, 2011).

The Vision 2020 conference

While earlier conferences focused on technical issues, for the first time the 2012 conference introduced a track on “Leadership.” Other tracks were on Operation Theatre Management and Sterilization, Outreach Management, Optometry and Optical Dispensing, and Achieving Excellence in Operations Management.

The Leadership track brought together institutional leaders and funding organizations. One interesting insight that emerged from the discussion in one of the panels was that many organizations are struggling to identify the right governance mechanisms for their future growth and sustainability. In older organizations, the original trustees have either not created a strong second line, or are unwilling to “let go.” In many cases, trust memoranda give predominance to “lifetime trustees” and rigidities in these documents prevent smooth transitions from taking place. Fortunately, the AECS team plans to devote some attention to the creation of model trust structures and constitutions that should help organizations in the future.

As a part of the track design, the organizers invited leaders from other sectors. Prominent among these were Mr. Bangera, an alumnus of IIM Ahmedabad who turned around a small automobile component company and transformed it into Hi Tech Arai, the leading engineering company in Madurai. Mr. Bangera gave a fascinating talk about how his company is moving towards self-governance – parts of his factory are now run by workers without the involvement of supervisory staff.

Another fascinating talk was by Dr. Rajasabapathy of Ganga Hospital, Coimbatore which is specialized on accident surgery, trauma and spinal surgery. Today, Ganga Hospital has emerged as one of the leading speciality centres for micro- and reconstructive surgery in India.

My presentation was on “Leadership for High Impact Innovation.” In my talk, I stressed the importance of building an idea pipeline, focusing on small ideas to start with, building a culture where there is openness to new ideas, tolerating honest failure, and using innovation as a basis of striving for excellence.

More on Frugal Innovation: The NESTA Report

I had the pleasure of meeting Kirsten Bound, co-author of a new report by NESTA on India’s Innovation System, several years ago when she visited India on an earlier study. That attempt at understanding the complexities of innovation in India resulted in a thought-provoking report titled “India: The Uneven Innovator.” I always thought that was an apt description of innovation in India, for we certainly have islands of excellence - sectors, institutions and individuals - who have done outstanding innovation work amidst a sea of unrealized potential.


So, when I heard that Kirsten was working on a new report, this time for NESTA, with a focus on how the UK could collaborate better with the Indian innovation system, I waited for it with anticipation. I had the opportunity to share my perspective on a couple of occasions with Ian Thornton, the other author of this report, and I was encouraged by the fact that he seemed to be showing the right mix of skepticism and excitement about what’s currently happening on the Indian innovation scene.

Overall, I am not disappointed. Given the pessimism in the west driven by an economic crisis that is unlikely to end anytime soon, it’s not surprising that the report has latched on to the silver lining represented by the emerging economies in general, and India’s ability to innovate with limited resources in particular. Like many other recent books and reports on innovation the NESTA report lauds India as a role model for how frugal innovation can be done. In the process, the report points to some interesting trends, and raises some interesting questions.

The Frugal Innovator

In building its frugality story, the report goes back to familiar examples of “frugal innovation” – the Jaipur Foot, Aravind Eyecare, Narayana Hridayalaya, Selco , Swach and Nano, to name some of the innovations discussed in the report. These are certainly the “bright spots” of frugal innovation in India, but every time I read these examples, I wonder how we extract broader frugal innovation principles from these. That’s certainly a challenge, as my earlier reviews of the books by London & Hart, and Radjou, Prabhu and Ahuja show.

While the NESTA report lauds Indians for possessing the “unusual skillset and mindset for frugal innovation” and points to the thousands of grassroot innovations compiled and documented by the Honeybee Network and the National Innovation Foundation, the fact remains that we still haven’t found a way of scaling up and diffusing these "grassroots" innovations. In fact, they still remain “inventions” rather than “innovations.”To solve this problem, the NIF has tried to connect these innovators to the formal innovation system ranging from research labs to college students, but it’s proving much more difficult than they thought.

Interestingly, the innovators who have been most successful in scaling up their frugal innovations are not these grassroot innovators, but members of India’s educated professional class – people like Dr. Devi Shetty, Harish Hande, and the legendary Dr V of Aravind Eyecare. By Indian standards at least, none of these individuals faced extreme deprivation, so where did the frugal mindset come from?

Other Challenges of Frugal Innovation

Though the NESTA report suggests that frugal does not necessarily mean low -tech, and that some of the frugal innovations do involve using contemporary (if not cutting edge) technology [e.g. the Tata Swach that uses nanotechnology to improve its filtration effectiveness], combining high tech with frugality remains a serious challenge for innovators. Particularly in an environment where high tech skills, and infrastructure are in short supply.

A couple of other assertions – that “a growing aspirational middle class creates the perfect conditions for frugal innovation” and that “the Indian consumer base is… willing to experiment” don’t seem to be on firm ground when one thinks of the struggles of the Tata Nano. At any rate, finding the sweet spot that meets consumer expectations appears to be a substantive challenge.

The Policy Challenge

Since the formation of the National Innovation Council in 2010, the government has formally stated its intention to support the use of innovation to solve national problems like education, healthcare and food security. But how do you do this? The ability of government policy to support innovation (as opposed to scientific research) on a sustained and systematic basis has been mixed in most parts of the world. Even in a country like Israel which is often lauded for its proactive innovation support policies, questions are asked about the effectiveness and efficiency of government intervention. Relatively speaking, the support of directed, frugal innovation is unknown terrain, and India’s efforts in this regard will be watched closely.

I am inclined to agree with the NESTA report when it says that “whether the government’s far-reaching policies can create a more supportive environment for frugal innovation in the first place, and even if it can, whether frugal innovation ultimately offers a way to resolve the tension between excellence and equity in Indian science and innovation, or merely perpetuate it, remains to be seen.”

The Formal Innovation System

The NESTA report provides a good statistical update on how the formal innovation system has been doing. A couple of trends that I noted in From Jugaad to Systematic Innovation persist: China continues to forge ahead on research output measured through publications. While India and China were almost neck-to-neck till 2005, the number of US patents obtained by inventors in China has diverged substantially from that of India since then. The NESTA report indicates that India scores well on efficiency – the investment per research output is low compared to many other countries. But I often wonder to what extent that is just the result of lower wages in India rather than any other more sustainable frugality advantage? For, all the scientific equipment used is imported, and India enjoys no cost advantage in the non-manpower dimensions of the cost of R&D.

Conclusion

My take after reading the NESTA report is that India will continue as an “Uneven Innovator” for many more years to come. This will pose a challenge to others who want to work with us. The NESTA report was driven by the desire of the British government to forge closer innovation ties with India. But, at the end of the report, I am no wiser about how they might do so, particularly if they want to connect with the more fascinating frugal innovations that are happening outside the formal R&D institutions. No wonder that one of the recommendations of the NESTA report is that the UK government sponsor a frugal innovation award – that would give them an indirect means of associating themselves with successful frugal innovation happening in India!