How do companies sustain innovation programs?

Companies often complain that they are unable to sustain innovation programs. In my latest column in Outlook Business, I show how companies like Titan Industries and Cognizant Technology Solutions overcome this problem.

NCL: Great Past Performance, but what's the future of National Laboratories?

India’s National Chemical Laboratory (NCL) is an iconic institution. NCL was set up in 1950 as a part of the first wave of new national laboratories under the aegis of the Council of Scientific & Industrial Research (CSIR). Along with Mumbai University’s Institute of Chemical Technology and the CSIR’s own Indian Institute of Chemical Technology in Hyderabad, it is one of the unique research institutions that straddles the spectrum of basic research to applied research to application to industrial problems through product and process development. Reflecting this, since its inception, scientists at NCL have published more than 10,000 research papers including about 20 in discovery-based journals like Nature and Science and it has been at the forefront of patenting with 100s of US and Indian patents (CSIR is the largest foreign patent holder in India; NCL is one of the prominent contributors to the CSIR tally).

I first visited NCL sometime in 1994-95 when I was working on my doctoral thesis. At that time, under the leadership of Dr. Mashelkar, NCL was undergoing a major shift to cope with the new economic paradigm of economic deregulation. By the time I visited NCL again, it was almost ten years later, and NCL had established itself successfully as a contract research organization working on specific problems for leading multinationals and select Indian companies (more about this later in this post). My most recent visit was in 2010 when I delivered the 8th NCL Innovations Seminar Series lecture on “From Jugaad to Systematic Innovation: The Challenge for India.” Not surprisingly, some of the most insightful discussions I had on the theme of my book were during my talk at NCL.

A recent book Excellence in an Overlapping Culture: The Big History of India’s National Chemical Laboratory (New Delhi: CSIR & Routledge, 2011) by Professor L.K. Doraiswamy (LKD), NCL’s fifth director, gave me the opportunity to reflect on NCL’s significant achievements. But it also provoked fresh thinking on the future role of national laboratories in India.

NCL: The Early Years

Though the seeds for the CSIR were sown during British rule, the CSIR got a fillip thanks to the vision of Jawaharlal Nehru. Having studied in Cambridge during the early part of the 20th century, he had seen at close quarters the excitement surrounding modern science as well as its potential for human development. Upon India’s independence, Nehru was determined that India should not miss out on being part of the scientific revolution. He was personally involved in the founding of several of the CSIR laboratories and was present at several laboratory inaugurations.

Though the CSIR in general, and NCL in particular, were set up with an eye to using science for industrial application, it took some time for this happen. NCL’s focus in its early years was on creating the basic laboratory infrastructure and a culture and working system that supported high quality research. The laboratory’s first two directors were brought in from outside India to make this happen. The process was completed by the laboratory’s first Indian director, Professor K. Venkataraman, an expert of international stature on dye chemistry. (It should also be remembered that the Indian chemical industry was in its infancy at that time, and it took some years for the evolution of industrial collaborators with whom NCL could work.)

Working with Industry

While some first steps for the development of chemical processes for industry such as the creation of a chemical engineering group, setting up a pilot plant, and encouragement of interaction between chemists and chemical engineers had been put in place earlier, the thrust towards industrial applications had to wait till NCL’s fourth director, B D Tilak, adopted this as the focus of his tenure in the mid-1960s. Professor Tilak bid aggressively for external projects, tied up with project consultancy and engineering firms, lobbied with the government, and even gave performance guarantees so that NCL could play a substantive role in the development of the Indian chemical industry. In retrospect, it is clear that this entrepreneurial push was required to overcome the skepticism that industry had regarding NCL’s capability to create processes that would work on an industrial scale. Remember that companies often had the option of buying complete technology packages from established foreign contractors who could demonstrate working plants elsewhere in the world as well as provide performance guarantees. While many of these industry projects did not involve novel chemistry, they provided scientists and engineers at NCL a learning ground for the problems of industry, and helped the laboratory overcome the criticism of being too focused on research of a more academic nature.

It was in the 1980s that the first major industrial processes involving novel Chemistry from NCL were commercialized. Under the scientific leadership of Paul Ratnasamy, NCL developed zeolite-based catalysts that were used in xylene isomerisation processes at IPCL, then a government-owned petrochemical company. The zeolite research programme included deep basic research on the properties of the catalyst, characterization, reaction engineering, and process simulation. Strong support from the IPCL top management (the then CMD, Dr. S. Ganguly allowed the NCL catalyst to be used in the actual plant for a whole month to show that it worked), existing relationships between NCL and the company (the director of NCL was on the board of IPCL right since its inception + there were strong working relationships across the two organizations), and an industry partner who could supply the catalyst in sufficient scale and quality (ACC’s catalyst unit was later acquired by IPCL) were important factors that led to the commercial success of the encilite project.

By the late 1980s, it became clear that the environment for industrial research and collaboration in India was changing. Protection of the Indian economy was beginning to reduce, more chemicals and intermediates could be imported under Open General Licence, and price fluctuations for inputs could make processes unviable. The era of reverse engineering known processes was over. Projects like the encilite development could have a future, but any technology would need continuous improvement and enhancements to survive international competition. The level of competition faced by chemical companies was going up, economic scales of production were becoming an imperative, and companies no longer had the luxury of being able to co-develop new processes over indefinite timeframes.

Internationalization of NCL

The deregulation of the Indian economy in the early 1990s accelerated this trend. But other dimensions of the deregulation process – a greater external orientation and focus on international markets – provided new opportunities as well. Around this time, many multinational companies started embracing the now well known paradigm of open innovation and therefore sought partners for their R&D work. This was accompanied by a high degree of disaggregation of the entire R&D value chain with increasing division of labour across different entities, often across borders.

Under the leadership of Dr. Mashelkar who had become director of NCL in 1989, NCL re-positioned itself to take advantage of these opportunities. NCL became an important player in contract research, working with some of the top multinationals in the world. This allowed the laboratory to use its strong intellectual expertise to work on problems of industrial significance. But as LKD points out, this also meant that NCL was no longer undertaking end-to-end technology development. As with all contract research, the results of the research belonged to the sponsors of the research. While NCL has tangible revenues to show for this work, it’s difficult to trace the final impact of NCL’s work. In fact, even the table in LKD’s book listing NCL’s MNC partners and their projects gives sketchy titles of the projects citing confidentiality clauses in NCL’s contracts with these clients!

According to LKD, Dr. Mashelkar’s successors Paul Ratnasamy and S. Sivaram successfully advanced NCL’s integration with global companies. Sivaram charted a new direction as well by setting up an Innovation Park and Venture Centre on the NCL campus in an effort to support entrepreneurship and the incubation of companies.

The Future of National Laboratories

NCL provides an excellent example of how a national laboratory can keep pace with changing times. It started by creating a base for excellence in Chemistry research, and enhanced the scope of its research to include chemical engineering. As India grew its chemical industry in the 1960s, to make itself more relevant to industry, it developed processes to manufacture different chemicals, and worked with engineering consulting firms to scale up the processes and transfer them to companies. While this was initially done with “known processes,” the laboratory later graduated to “improved processes” that reduced the number of steps or used materials more efficiently. Still later, as the demand for reverse engineered processes came down and industry developed its own capability in process development, the laboratory came up with novel processes of its own, accompanying process development with deep research into the underlying chemistry and chemical engineering. In a globalised environment, NCL made another shift to doing contract research in areas in which it had deep competence.

What’s next? NCL’s challenges mirror those of CSIR itself. Creating a strong basic research infrastructure and training generations of PhD students as many CSIR labs like NCL do makes a lot of sense when the university system is weak.. CSIR’s recent move to get itself the status of a university may be seen in this context. However, as Toren and Galai pointed out in a paper in Research Policy many years ago, the role of national laboratories becomes more hazy as the competence of the university system grows. (For a wonderful account of what a good university laboratory can to do spawn industrial innovation, read the account of Robert Langer’s lab at MIT in a recent issue of the New York Times).

Developing industrial processes as part of an integrated research programme as Paul Ratnasamy and his team did with zeolite catalysts is a good way of driving industry-oriented research. But, historically, most national laboratories in India (including mission-oriented ones like CDOT and CDAC) have struggled to retain the motivation to keep upgrading industrial technologies they have created. Once the research content goes down, the scientists’ motivation to continue working on the technologies tends to reduce. But from the user’s point of view, continuous enhancement of the technology is important particularly to keep ahead of competition.

National laboratories were set up in India to enhance domestic technological capabilities. While that does not preclude working with MNCs, it does raise the question of whether a predominantly MNC focus makes sense. The laboratory and the individual scientists benefit, but there could be legitimate questions about the benefits to the larger economy.

In fact, the question of how the national laboratories benefit the economy has been a thorny one for decades. While Nehru was philosophically convinced that the existence of national laboratories would benefit the local economy and did not seek tangible evidence for such benefits, his successors and the broader political establishment were not satisfied that easily. Ever since the Sarkar committee was set up about 40 years ago, there has been increasing emphasis on the national laboratories making tangible contributions to the nation.

These pressures have resulted in CSIR and the individual laboratories seeking visible means of justifying their existence. LKD writes about how in his last few years as director Tilak focused much of his energies on using science for rural development. One can detect a trace of irritation as LKD writes about this, as this seemed to deviate from the focus on research and excellence that NCL was known for, and instead emphasised diffusion of existing knowledge. LKD underlines how, as Tilak’s successor, he quickly reoriented the laboratory back to its original mission for excellence.

But the pressures to be relevant haven’t gone away. Whether it be Mashelkar’s backing for grassroot innovations or the present CSIR DG’s backing of the soleckshaw (a solar-powered rickshaw), each Director General or lab director has felt compelled to show direct evidence of contributions to inclusive growth. Of course, today this is in keeping with the inclusive innovation paradigm adopted by the government through the National Innovation Council.

Yet, combining high science with “appropriate innovation” is far from easy. Too much emphasis on the latter seems to make it difficult to maintain the culture of scientific excellence that laboratories like NCL are famous for.

Perhaps the biggest challenge facing the national laboratories today is attracting and retaining talent. The country’s top talent today has myriad more opportunities than what the doyens of NCL like LKD, Mashelkar or Ratnasamy had in their time. Science and R&D are not preferred careers. Even for those who seek a career in R&D, India has a large MNC R&D sector which offers job prospects, salaries and infrastructure that are much more attractive than what the public sector has to offer.

Given this backdrop, has the time come to discuss afresh what should be the objectives, scope and structure of national laboratories in India?

Endpiece

LKD’s account of the history of NCL is essential reading for anyone who wants to understand the changing context of innovation in India. Sadly, LKD himself passed away earlier this year, but his book remains a comprehensive record of the challenges faced by an R&D organization in India, and how a successful laboratory addressed these challenges.

Will Infosys 3.0 Work?

In an earlier post written after visiting Infosys Labs (the R&D centre of Infosys), I concluded that R&D at Infosys is moving from being a demonstrator of technological capabilities to a potential source of competitive advantage. While I hinted at the challenges involved in this transition, the extent of this challenge became clear when Gopal Devanahalli, Vice President (Products & Platforms) for the Energy, Utilities, Communications & Services vertical of Infosys addressed a group of IIMB executive education participants last month.

Traditional IT Services Model has Lost its Sheen

The focus on products and platforms is one prong of a major transformation that Infosys is undertaking. This transformation – what Infosys calls Infosys 3.0 – is the company’s response to fundamental changes it sees in the business environment. With the adoption of outsourced services by most large clients and limited prospects for economic growth in the developed world in the immediate future, the growth of the IT services industry is slowing down. Greater commoditization of services and increasing price-based competition are making the traditional IT services model less attractive (there’s plenty of evidence of this all around – we need to go no farther than the quarterly results of all the Indian IT services majors!).

Is increasing scale the answer? With annual revenue of $7.3 Billion and 150,000+ employees, the management of Infosys sees linear scaling up of the present model as a game of diminishing returns. Being a company that has always prided itself on its margins (Infosys 28% vs. Cognizant 18%) and returns to shareholders, it decided the time has come to change its basic business model.

If the first 15 years of Infosys were spent on perfecting the offshore model (Infosys 1.0), the company subsequently increased the scope of its service lines to completely new business sectors under Infosys 2.0. As a result, more than half of the company’s revenues come from “non-traditional” sectors. In the process, the company built a robust portfolio of more than 500 clients. But Infosys 2.0 appears to have run its course.

Infosys 3.0

Infosys 3.0 which was launched in April 2011 seeks to balance offerings between optimizing operations (a la traditional IT services), helping clients grow in their existing businesses (through business transformation) and working with clients to create new growth opportunities through innovation. From an organizational standpoint, the transformation and innovation strategies are particularly challenging for Infosys, because they involve creating business value rather than just cost savings and working with other CXOs of the client (rather than the CIO). The business transformation piece depends on the ability of Infosys to provide high level consulting services, and the innovation piece is based largely on the products and platforms initiative. The latter is based on an assumption that their clients need partners to innovate. I guess this is a reasonable assumption given the enthusiasm with which leading companies have embraced open innovation as an integral part of their innovation process.

Infosys 3.0 is tightly wound around the company’s perspective of the major challenges large corporations will face in the years ahead. How did they identify these? 3 years ago, the company initiated a research project to determine the trends that would define the future of these organizations. They held more than 100 workshops with clients. This enabled the company to develop what it believes is a distinctive point of view of the 7 big forces shaping the business world. This took shape under the rubric of “Building Tomorrow’s Enterprise Now” – 21 ideas for the 21^st century (3 ideas for each of the forces).

The products and platforms strategy focuses on these 7 themes. The company currently has 12 product and 13 platform offerings. A platform is defined as a managed offering with guaranteed and measurable business outcomes based on Infosys or third party intellectual property, powered by best-in-class domain expertise and cloud computing.

The Transformation Process

The shift to Infosys 3.0 involved a major re-cast of the company’s organization structure. Erstwhile industry verticals were clubbed together to form 4 integrated verticals. 3 delivery organizations were formed around the 3 main offerings – services, consulting and products/platforms. As with any organizational change of this magnitude, this change precipitated much angst in the organization, and the process is still not fully complete. But the reorganization also gave the company the opportunity to bring in new talent from outside, something that was needed to make the new strategy work, particularly in an area like products and platforms where new entrepreneurial and conceptual skills were required. For example, Infosys hired the engineering head of a leading consumer electronics company to foster consumer-oriented product/platform thinking.

As you would expect from a company that prides itself on a planned and disciplined approach to problem-solving, Infosys identified what would need to change and what would not change with the adoption of Infosys 3.0.

What would change

The management of Infosys envisaged change across 4 dimensions:

• In terms of market messaging, they saw a shift from non-linearity (internally-focused) to client value (externally-focused), and from development programs to guaranteed outcomes.
• In the area of talent management, they saw a change from utilization to engineering efficiency; from a single set of HR policies, to a set of HR management models; and to having more entrepreneurial talent who could wrap their arms around a business (e.g. product/platform) and make it successful.
• The operating model would involve a shift from revenue per person billed per month to revenue per employee. Higher risks would be inevitable, and they would have to be managed well.
• The new investment model would involve upfront investment and longer time spans to recover returns on investment. Risk would have to be managed through a portfolio approach to offerings as undoubtedly some would fail.

What would not change

At the same time, the Infosys management were clear that some things would not change:

• The company’s quest for global respect
• The core value system (C-LIFE: customer focus, leadership by example, integrity and transparency, fairness and excellence in execution)
• The principles of PSPD (Predictable, Sustainable, Profitable, De-risked - though this might have to be applied at the portfolio level)
• Excellence in execution
• Focus on operational scalability

Building the Products and Platforms Business

To succeed in the products and platforms business, the focus would be on building the right offerings, building the offerings right, gaining market traction and talent management. A team of more than 1,000 engineers has been assembled for product and platform engineering. Processes are being put in place for product management.

Some gaps in talent were identified – most of these related to product-specific capabilities like product management expertise, product marketing expertise, and product sales expertise. These are being filled.

Revenue models vary depend on the nature of the product/platform and the client. Some platforms are sold in terms of a per transaction charge while others work on a revenue share basis.

Infosys plans to offer all platforms on its own private cloud.

To avoid confusing customers, a single sales person would address each client and this sales person would sell the entire bundle of offerings (services, consulting, products/platforms) to the client. But sales support would be provided by a sales support team located within the products and platforms group for that vertical.

Will this work?

While Gopal exuded confidence that all that was needed was patience and perseverance to make this work, most of the participants in our executive education class were less sanguine. They questioned the ability of Infosys to hire and retain the people suited to a product business; the company’s ability to stay the course and wait for longer term pay-offs; and whether the existing Infosys sales force would be able to “sell” relatively more sophisticated products and platforms. Above all, they wondered how difficult it is to build a product business within a successful services company.

This is, I suspect, a legitimate concern. In a study of software product development in India that Ganesh Prabhu and I did several years ago, we found that a services mindset is different from a product mindset. In a services business, the client defines the scope and definition of what is to be delivered while in a product business the company has to make difficult choices on product definition. Products meeting “average” needs often deliver below-average returns, and successful product companies often have visionary product leaders who are able to articulate user needs better than users themselves can. Products need roadmaps and a visualization of the future.

Attracting product visionaries might require different human resource policies and compensation plans. While Infosys has committed to move away from one single HR policy as at present, the shift will take time to implement. Gopal told us that so far the products and platforms business has not found it difficult to get clearances from the top management for any “deviations” from extant Infosys policy. But we need to keep in mind that most successful companies develop what C.K. Prahalad called a “dominant logic”: mental maps and models that provide the lens through which they look at their business. This dominant logic makes it difficult to run businesses with very different models and assumptions within the same corporation.

Conclusion

Infosys appears reluctant to spin off the products and platforms business as a separate company even though this could give it the focus and flexibility that would improve its chances of success. The reason for this seems to be their preference to present a single face to the client. Client problems don’t come packaged in neat buckets. Infosys is betting that by presenting a single face to the client, these problems can be addressed through a mix of services, consulting and platforms, all provided by Infosys. Since strong customer relationships constitute one of the inimitable resources that Infosys possesses, it doesn’t want to dilute or balkanize this resource.

My assessment is that Infosys has identified the transformation challenges correctly, but the question is whether the choices they have made regarding the change management process are the right ones. In his quarterly interactions with media and analysts, Infosys CEO Shibulal shows a steely determination to stay the course and make Infosys 3.0 work. Almost 20 years ago, IBM CEO Louis Gerstner did a great job of making the IBM elephant dance; let’s hope that Mr. Shibulal is able to do the same.

The Challenge of "Reverse Innovation"

MNC Structures can impede innovation flows….


In the mid-1970s, the Xerox Corporation faced the first real threat to its domination of the photocopying industry. This threat did not come from IBM or Kodak, the large American companies that had entered the industry. Instead it came from Canon and Ricoh, at that time relatively small Japanese companies.

Xerox had fortified the technological lead it enjoyed due to its patent-protected technology with strong customer relationships, a renowned service network, and a business model built around leasing large and fast copiers to central photocopying facilities within company locations. Realizing that they couldn’t possibly beat Xerox in head-on competition, Canon and Ricoh chose to change the rules of the game. They sold small, relatively slow copiers with limited functionality yet high reliability to individual managers within companies who were looking for options to meet their own copying needs.

Xerox was caught on the wrong foot. With a large base of machines leased out to customers, it was difficult for the company to shift to a model of outright sales. Further, within the US operations, they lacked a small copier product that could compete with what the Japanese were offering.

Ironically though, Xerox’s Japanese affiliate – Fuji Xerox, a joint venture with Fuji Photo Film – had developed small copiers of its own that were particularly suited to the Japanese market. Yet, in a typical case of one-way information flows that often seems to characterize MNCs, Xerox failed to immediately recognize or exploit the products created by Fuji Xerox to compete more effectively with Canon and Ricoh in the US market. By the time they did it was too late.

…But subsidiary initiative can at least deal with local competitive challenges

Innovation by MNC subsidiaries and affiliates has happened in the past when subsidiaries have had to be locally responsive to competitive challenges. In India, we saw the celebrated case of how Hindustan Lever launched Wheel to combat Nirma in the detergent marketplace. In the process, Hindustan Lever had to “borrow” several aspects of its business model from its local Indian competitors. But, such innovations often remained restricted to the host country market, and in the past were seen more as aberrations than an integral part of the company’s strategy.

In several MNCs, subsidiaries still struggle to get the authority to create new products for specific needs of their markets. Subsidiary leaders often have to display entrepreneurship or initiative to overcome the dominant logic that products and technologies flow from the headquarters to the subsidiary and not vice versa.

Govindarajan & Trimble argue for a new logic

In Reverse Innovation (Harvard Business Review Press, 2012), Vijay Govindarajan (VG) and Chris Trimble argue that multinationals need to change this perspective of innovation. And they go one step further – MNCs should not only encourage subsidiaries in large emerging markets to develop “lower cost + lower performance” products for their markets, but should actively create structures and processes to support such innovation.

The rationale for this is simple. Emerging markets are the growth markets of the future, but existing products and services are often not well-suited to these markets – they are over-designed, have too many unnecessary features, and are hence too expensive. If MNCs fail to develop products for emerging markets, they will not only lose out on important growth opportunities, but could potentially create well endowed competitors from these markets who could ultimately threaten them in their home markets.

Reverse Innovation contains some insightful case studies of companies like GE, P&G and Logitech that strategically created products for emerging markets, some of which have subsequently found markets in the developed world as well. The authors call this phenomenon “reverse innovation” because of this latter phenomenon. This constitutes a flow of innovation in a direction opposite to that of what we traditionally saw in MNCs (like in the Xerox story with which I started this post). And, the authors believe that this reverse flow may well be important for the developed world as they face declining growth, lower disposable incomes, and increasing ecological concerns.

The Challenges of Reverse Innovation

I have some reservations about the use of the term “reverse innovation.” It seems somewhat patronizing to the developing world. Notwithstanding this, it appears to be sticking, thanks in no small measure to the Harvard Business Review article by the authors of this book, and GE chairman Jeff Immelt.

But, more importantly, there are some fundamental issues with this phenomenon itself. The first issue is whether MNCs, whose competitive advantage comes traditionally from superior technology and features, can really compete in a price-sensitive, cost-driven market. Anecdotal evidence from the Indian market suggests that GE (the focal company of this book – one of the authors, VG, was a consultant and Professor in Residence at the company) has been struggling to make a commercial success of its reverse-innovated ECG machines and associated products because local competitors have been undercutting GE’s prices. This raises the question of whether, given their overhead structures, MNCs can ever hope to compete on cost with frugal local competitors.

This doubt is reinforced by one of the case studies in the book about a P&G sanitary napkin product specially developed for the Mexican market which suggests that this product enjoys less intellectual property protection than a typical P&G product does, presumably because it doesn’t have such a high degree of proprietary technology in it. At least in India, if it’s a competition for better adaptation and cost efficiency, I would be inclined to put my money on local companies to prevail.

Successful innovation often involves innovating on multiple dimensions. Studies by Doblin, an innovation consulting firm now owned by the Monitor Group, suggest that innovations are more likely to be successful if they incorporate innovation in at least 6 of the 10 dimensions of innovation they have identified. This suggests that MNCs will have to innovate on supply chain, distribution and a host of other business dimensions if they are to make reverse innovation work. (This is reinforced by Hindustan Lever’s success with Wheel where they did exactly that). But, it will be difficult for MNC subsidiaries to make that many changes unless they are really determined to do so. It’s tough to imagine the average GE channel partner selling high ticket price medical equipment being interested in selling low-priced scanners, and the challenge of setting up alternate distribution channels (which the authors say GE is doing) shouldn’t be underestimated.

While the authors should be congratulated for taking the bull by its horns in asking MNCs to embrace complete bottom-up product design if they want to be relevant in emerging markets, they should in my view put greater emphasis on the criticality of fundamental changes in business models that will be required for these newly designed products to be successful in these markets.

And, finally, I wonder whether Clayton Christensen’s theory of disruptive innovation (see my earlier post comparing disruptive and radical innovation) isn’t adequate to describe the nature of innovation VG and Trimble advocate. If so, the major contribution of this book is the emphasis on the changes needed in MNC structures and processes to facilitate such innovation by MNC subsidiaries in emerging markets.

Sweden & India: Innovation & Entrepreneurship

Sweden celebrated the birth anniversary of Alfred Nobel last week with a series of events in India centered around innovation. I had the pleasure and privilege of being a part of the CEO Round Table convened by Swedish Ambassador Harald Sandberg on November 1. On this occasion, senior executives of Swedish companies in India, and other invitees from the government and academia joined the Swedish Minister for Enterprise Annie Loof, and Indian Planning Commission member Arun Maira to discuss what India and Sweden could learn from each other on innovation.


Innovation in Sweden: A Historical Perspective

Our gracious host, Ambassador Sandberg, set the stage for the discussion with his introductory remarks. He identified four important historical milestones going back to the mid-19th century that paved the way for the emergence of Sweden as a modern industrial state. The first was the transition from feudalism to transparency. The second was a focus on literacy and education – 6 years of mandatory education was prescribed for Swedes as far back as 1850. The third was liberal reforms and deregulation. And, the fourth, an emphasis on free trade, again going back to the 1850s.

In discussions at our table, Enrico Deiaco of the Swedish Agency for Growth Policy Analysis emphasized the importance of deregulation in creating a healthy climate for the growth of Swedish enterprise. He clarified that Sweden’s initial focus was on education (rather than research) and creating good engineering talent was an important objective. He pointed out that Swedish enterprises started by licensing external knowledge and patents from others – Ericsson, for example, started by licensing Bell technology from the United States. But, Swedish companies subsequently graduated to creating their own knowledge and intellectual property. He added that Sweden’s external focus was inevitable given its small size and population (currently about 9 million).

Swedish Society, Education

I was struck by some important differences in education and society between India and Sweden. The Swedish education system, right from school is more open and practice-oriented. Joakim Bystrom of Absolicon Solar Concentrator described how he made a model of his first solar concentrator in his weekly carpentry class. His idea was developed further in an Inventors’ Club. The Swedish education system is now trying to bring ideas of entrepreneurship into the school curriculum.

Swedish society and Swedish companies are relatively free of hierarchy. In Sweden, it is perfectly acceptable to question your boss. (I am sure that can be traced back to the efforts to remove feudalism in the 19th century!) This lack of hierarchy leads to a better climate for ideas within the organization.

Sweden’s Accomplishments…and Challenges

An important insight came from Joakim Bystrom, the Swedish entrepreneur from Absolicon Solar Concentrator. His region of Sweden has a population of only 250,000, but has a complete “regional innovation system” that has been crafted in the last 15 years: an incubator, several innovation funds, and close to 50 people focused on enhancing innovation in the region. Bystrom has so far been able to raise capital proportionate to his needs at different stages of growth of his enterprise – starting with investments from friends and family, and awards from innovation contests, graduating to soft loans, angel investments, and support from the Swedish Energy Agency. He is now ready for venture capital. At least in his case, the Swedish innovation system appears to have delivered what he needed, and when he needed it!

Sweden does very well on global innovation rankings, largely it appears due to the high investment in R&D and innovation (about 3.7% of GDP). However, this doesn’t necessarily translate into new products and services. Instead it is reflected in the competitiveness of large Swedish enterprises (through higher productivity) and is manifested as enhanced living standards for the Swedish people. The high R&D intensity is driven largely by industry with government accounting for just 20% of R&D investments.

Many of the Swedes participating observed that Sweden is good at innovation but not necessarily at entrepreneurship – from this, I understood that much of the innovation is driven by large companies, and not by start-ups and small companies (though efforts are afoot to change this). In contrast, they observed that India is good at entrepreneurship but perhaps not as strong at innovation (by which, they mean R&D-driven products and processes). I guess that’s a fair characterization! Participants also referred to Sweden’s strength in “systematic innovation”: good processes to develop ideas and implement them.

But Sweden is not resting on its achievements. Swedish Minister for Enterprise Annie Loof described how Sweden’s new innovation strategy (released just last month) was created through a participatory process. She underlined the importance of an innovation strategy that has people in mind, and that people can relate to. Given Sweden’s past and its priorities, it’s not surprising that the new innovation strategy focuses on three important goals – meeting global societal challenges such as climate change and ecological concerns; increasing competitiveness and creating more jobs; and delivering public services of higher quality.

What should we learn from Sweden?

Sweden has a good record of innovation in the 20th century. Some of its prominent innovations are the computer mouse, the ball bearing, tetra pak packaging, and the heart pacemaker. So, it’s tempting to look to Sweden for ideas on how to strengthen innovation in India.

But, transferring “best practices” or policies from one country to another that has a completely different history and context is never easy. As some of the participants in the Round Table observed, Sweden is smaller than half of Mumbai! Issues of relevance and applicability come up almost immediately.

In his summing up, Arun Maira and the group flagged four themes emerging from the discussion that seemed important for India – education, connections and collaboration, finding partners, and finance. There was little disagreement that education in India needs to change, but there was concern about how long that could take to happen. On finance, Arun said that the National Innovation Council is seized of the issue, and plans to set up a Social/Affordable Innovation Fund that would provide small ticket funding for innovations with potential social impact.

“Connection and collaboration” provoked some interesting debate. Within Sweden, collaboration seems to be easy due to a lack of hierarchy, and high levels of trust. Social homogeneity helps, as does Fika, informal discussion sessions over coffee that punctuate Swedish organizational life. Rajeev Chopra of Philips pointed out that Japan and Korea are hierarchical too, but seemed to have got more innovative over time. He asked whether we can’t take hierarchy as a given and find ways around it. Kiran Karnik wondered aloud whether Japan and Korea are really that innovative or whether they are better at imitation and scaling up. Others demurred, pointing to the Toyota Production System and the growth of Korean companies like Samsung. Arun Maira commented that perhaps hierarchy is not the issue but how you use it – e.g., on the shop floor, Japanese companies are very open to workers’ ideas through their Kaizen programmes; but once the ideas are generated, they defer to senior management in terms to decide which ideas should be implemented.

Conclusion

The discussion at the Round Table reinforced some points I made in From Jugaad to Systematic Innovation: The Challenge for India and kindled some ideas I have had since. Social and cultural barriers such as excessive hierarchy, fear of failure, and the difficulties we face on working together in team often hold us back from achieving our full innovation potential. Organizations can overcome these barriers by providing a supportive context for innovation that builds confidence in our innovation capabilities (see my recent Outlook Business column for more on this theme). While some organizations in India (notably the Tata group) have instituted awards that recognize people who tried hard but failed, more fundamental organizational change may be required so that legends are built around those that failed but still succeeded.

As for innovation policy, decentralization is definitely the way to go. India is too large and too complex for innovation to be supported by “one size fits all” innovation policies run out of Delhi. We need to build regional innovation systems that can support innovation at the local level. The state level is a good place to start, and it’s good to see Karnataka taking the lead in developing state-level innovation policies.

But more than anything else, there much to be said for deregulation and transparency. People in our country can then shift the focus of their ingenuity to products, services, processes and business models rather than applying it to find ways around rules and regulations. Just imagine how much thought and creativity must have gone into the complex ownership structures and financing arrangements that are being talked about in the press today – if only the same energy could have been focused on innovation that could make a positive difference!

Last but not the least, building innovation capabilities is a long-term play, not a short-term one. Changes in policies and more fundamental social changes can take decades to show results. Today, Sweden benefits from changes that were initiated more than 150 years ago! Though we take pride in our ancient heritage and timelessness, our policies and decisions seldom demonstrate the long-term perspective such a hoary history should generate!