Saturday, October 12, 2013

Focus on Cost Innovation as it is Socially-embedded: Dr. V. Sumantran

An important highlight of the recent Nasscom Engineering Summit at Pune was a talk by Dr V Sumantran, head of the automotive business at the Hinduja group, and formerly head of the car business at Tata Motors. Dr Sumantran is an auto industry veteran with a long innings at GM in the US and Europe before he re-located to India about a decade ago.

The overall theme of the summit was how the Engineering Services industry in India needs to move from cost arbitrage (which has eroded substantially over time) to innovation. As the keynote speaker, Dr Sumantran did a masterly job of making the case for how India needs to innovate.

Dr Sumantran started by setting the context. He explained how India is slowly developing into a major auto hub. He gave one interesting statistic to underline this phenomenon – today Chennai produces more cars than Detroit! However, India’s labour cost advantages are eroding fast, and India does not rank high on manufacturing competitiveness surveys. There is therefore an urgent need to find sources of competitive advantage that transcend labour cost arbitrage.

Source of Competitiveness needs to be Socially Embedded

Dr Sumantran made a powerful case for the importance of our competitiveness being embedded in our social context. He explained how Japan’s embrace of a quality culture did not happen by chance but had a sociological and geographical basis. As a country with a limited land mass, Japan has an inherent focus on space efficiency. This gets translated into an emphasis on compactness (remember the Walkman came from Japan, as does the concept of a “sleeping hotel” – see the picture below). A Japanese automobile plant typically occupies one-third the space of an Indian automotive plant. Japanese practices came from the need to conserve space – e.g. Just-in-time is very useful when you have limited physical space to store inventory.  And, lean on space meant lean on working capital.

Translating this into the Indian context, Dr Sumantran argued that India is constrained by affordability. (Examples: Shared auto, shampoo sachet, etc.). Given this reality, he asked: “Can India make cost innovation a strategic platform?” There are a number of India-like markets across the world where this approach would yield dividends, and this could work in developed countries hit by recession as well. The world is changing and an interest in lower cost solutions is emerging even in the most unlikely places – e.g. the best selling motorcycle in the US is a Honda 250 cc bike, not the powerful gas guzzlers of the past. Even recreational bikes are getting focused on fuel efficiency!

But, Dr Sumantran was quick to emphasise that cost innovation is not jugaad or quick fix solutions. Rather it is based on good engineering with a cost-oriented mindset. He quoted Ingvar Kamprad, founder of Ikea: “The challenge is not in building a desk that costs a $1,000 but in designing  one that is functional and elegant for $50.”

Principles of Cost Innovation

Dr Sumantran went on to describe the core principles of cost innovation:

Cost innovation needs discipline and following rules. It is usually not achieved by adding complexity. He described how a Swedish engineer at SAAB came up with a simple and elegant solution to the problem of neck injuries caused by car impact from the back.

Cost innovation needs courage to move away from established solutions. Dr Sumantran gave the example of Cessna Citation Mustang which at $2.5m is one-third the price of the private jets sold earlier. The Mustang was a clean sheet design involving new concepts like a glass cockpit.

Cost innovation is aided by minimalism. European car makers like Opel, Audi and Volkswagen have all recently unveiled urban commuter cars with very different concepts that promise to change the auto industry in fundamental ways. Even F1 car designers like Gordon Murray have taken on the challenge of designing low-cost cars – Murray echoes Kamprad in saying that he finds this even more challenging than shaving off 100 gms in weight from a Formula 1 racing car. (Murray has designed a new carbon fibre based Europe city car, the T.25, that has received rave reviews).

Dr Sumantran emphasized that cost gets defined by the requirements, and hence it is important to define (and re-define) requirements carefully. He gave the example of the Indian low-cost CRDI systems that are specified quite differently from their more expensive European counterparts.

Another important principle of cost innovation is intelligent re-use. He gave the example of the Boeing 737 Max, a competitive product from the Boeing stable, that is desendant from the very successful Boeing 737-200. Since the production of the B737 Max does not involve major new tooling and fixtures, costs remain under control. The Logan, Renault’s most profitable car today, was designed out of “throwaway bits” from different Renault models. The first model of the Honda City launched in Asian markets was a derivative of an earlier Honda Civic.

In summary, Dr Sumantran mentioned that new rules, new thinking, re-use, minimizing complexity, challenging goals, downsizing and setting the right requirements are the key principles of cost innovation that India needs to practise in order to achieve cost innovation. He concluded by quoting Kettering, the legendary leader of General Motors’ R&D and engineering: “Engineering is a combination of brains and materials. The more the brains, the less the materials.”

Questions / Implications

Dr Sumantran’s talk had one core message – innovation in India has to be focused on affordability but needs to be driven by good engineering. But the question that kept buzzing in my mind after hearing him was: We may have the affordability mindset, but do we have the engineering competence required to make cost innovation work? Affordability may be socially embedded, but is high quality engineering?

All indications are in the negative. For the last two decades, engineering education in India has been driven by quantity and not quality. Engineering education served as the feeder to a fast growing software industry that hired people for their ability to write computer programs, and not their ability to practice engineering.

As a veteran engineering educator, Professor K Chandrasekaran recently wrote to me, “As a teacher of mechanical engineering, especially engineering design, for over 4 decades, I am appalled at the way the most important component of engineering education, viz., students' projects ( a curricular requirement), has not been capitalized on. With no serious attention to this, we are not only denying India of creative designers, but also generating millions of engineering graduates without fundamental design knowledge and problem solving ability.” This doesn’t bode well for building innovation skills based on engineering competence.

Dr Sumantran’s talk raised another question in my mind: When should one do clean sheet design, and when should one re-use? He gave examples of successes from both approaches, but it isn’t clear to me how one predicts which one will work in what context. In the automotive industry itself, we have contrasting experiences: Ford’s first product introduction in India, the Ford Escort, failed; but Ashok Leyland’s Dost which uses ideas from older Nissan trucks seems to be doing okay. Maybe one simple principle is to avoid re-use in external appearance as far as possible, but to enhance re-use in whatever is not visible to the customer as long as it does not impact performance in an adverse manner.

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