In our innovation management class , we recently heard an
interesting presentation from a high profile IT services company that runs a
large number of innovation initiatives. One of the most ambitious of these hopes
to build five new 50 million USD businesses, based on employee suggestions, as
a part of the company’s quest to reach the magical 1B USD mark. But, though
many ideas have been proposed, so far, the company has found only one idea
which it is confident will meet the 50m target. Small ideas with incremental
impact, however, continue to be generated, and put into practice across the
company with good results.
Another very respected, fast-growing, IT services company
has been very successful in getting employees to participate in its innovation programs.
In FY 2012, 37% of this company’s employees submitted at least one idea; 14% of
the ideas were implemented. This year, the impact of innovation is expected to
cross a billion dollars. But most of this has come from “small ideas.”
Breakthrough innovations have been largely elusive.
Of course, innovating in IT services where projects are
tightly controlled and monitored by clients is not always easy. Innovation is
possible only if the client is willing to try out new things. Nonetheless, it’s
striking that both these companies which are otherwise rated very highly by
clients and analysts have found it difficult to make big ticket or breakthrough
innovations happen.
A Challenge in Manufacturing Industries as well
We have seen a similar phenomenon in manufacturing industry.
Shopfloor and process improvements under the rubric of kaizen, continuous
improvement or total quality management (TQM) have made good progress in a wide
variety of companies. As we mentioned in 8
Steps to Innovation, some members of the Indian National Suggestions Scheme Association (INSSAN) are comparable to the best in the world in terms of the
number of suggestions generated per employee. But many of these companies have
not been effective at high impact innovation.
Vinay Dabholkar and I frequently discuss this question: Why
do companies in India struggle to be effective at big ticket / high impact innovation?
Why incremental innovation is relatively easy…
There are some obvious reasons why incremental innovation is
relatively easy to adopt. Incremental ideas are usually easy to test. Decisions
on acceptance and implementation are easy to decentralize because knowledge
about the efficacy of the idea rests at lower levels in the organization.
Incremental ideas usually don’t need large investments. Risk is low though
rewards also vary from small to medium depending on the scope for
implementation of the idea.
…..and more impactful innovation is hard
In contrast, high impact innovation requires large,
relatively irreversible investments. While Indian companies have been good at
bringing down the quantum of such investments through frugal approaches (see
this interview with Pawan Goenka of Mahindra for some good examples), the fact
is that investments can still be large in absolute terms. M&M spent Rs. 550
crores and 750 crores respectively on the development of the Scorpio and the XUV
500. The manufacturing investment needed to put such product innovations into
production is even higher. Tata Motors’ Sanand plant with a capacity to produce
250,000 Nanos a year cost the company Rs. 2,000 crores while M&M spent Rs.
6,000 crores on its Chakan plant!
Is Creative confidence enough? How important is investment
confidence?
In 8 Steps to Innovation, we argued that the advantage of
innovation based on small ideas is that it builds creative confidence. But, for
big ideas to succeed, creative confidence is not enough - you also need investment confidence!
So far, wherever we have seen such investment confidence, it
has been driven by conviction from the top. Ratan Tata put his personal
prestige and authority behind the Nano because he believed such a car was
needed, and that Tata Motors could produce it. Some of his confidence to make
this investment must have come from the success of earlier products like the
Indica (people laughed at the Indica as well, but Tata Motors made a success
out of it). But, as I observed in one of my earlier posts, it is important that
such a conviction does not mean ignoring or overlooking market needs.
Steve Jobs made such a mistake once with the Lisa, an over-engineered
and overly expensive product that succeeded the Macintosh. But, he learnt well
from that mistake, and was careful to keep things simple and easy-to-use after
that.
How do we build Investment Confidence?
Top management confidence to back big ticket innovation
projects is likely to be enhanced when they have a better feel for the market.
It’s therefore very important for senior management to have first-hand exposure
to the market, and to understand the likes and dislikes of important segments
of customers. I get a sense that many Indian companies stay away from big
ticket innovation because their top managements don’t have an intimate understanding
of the market and hence lack conviction about what will work and what will not.
(Remember that Steve Jobs and his team got over this problem by designing
products for people like themselves!).
Second best is to have a trusted lieutenant who understands
the market and technology well, and builds credibility over time. Even if Anand
Mahindra doesn’t have first-hand knowledge of the Indian automotive market, he knows he can depend on
Pawan Goenka’s judgement and track record.
The R&D Challenge
Another reason for absence of support for big ticket
innovation is top management’s lack of confidence in the R&D function. In
many companies the R&D function just doesn’t enjoy credibility because, in
the perception of the top management, it has failed to deliver what is required
on time, and is not aligned with the marketplace.
Ask R&D, and you will hear a different story –
inadequate resources, unreasonable expectations, and a preference for sourcing
something proven from outside to doing things internally. Building internal
R&D capabilities takes time and patience, and few companies have enjoyed
sustained top management support in this regard. But there are exceptions like
Tata Motors and Mahindra, and the results are there for all to see.
Few managers of R&D in India have a track record of developing
successful products. So, bringing in an R&D head from outside who has
experience of linking R&D to the market and a track record of delivery is
one way of building the R&D function, particularly if the top management
lacks R&D / deep domain expertise itself.
Risk Management
Better risk mitigation methods would help manage the risks
of big ticket innovation better, and hence make taking big bets easier. Among
these, I would underline techniques like the premortem, and early validation of
any “leap of faith” assumptions inherent in the innovation (“doing the last
experiment first”). Understanding of base rates (success rates of similar
innovations in the past) helps avoid building unrealistic expectations.
When will Indian Companies embrace more radical innovation?
So far, few Indian companies have lost out
because someone else disrupted their industry. This is partly because of the
Industries in which they compete, and the fact that many of them have focused
on India. But as the Indian market grows and becomes more attractive, and as
more firms enter, they are more likely to be subject to such threats of
disruption. As I noted in an earlier post, MNCs are increasingly looking for
ways to make a big impact in the Indian market. As they do so, the risks of
inaction will increase for Indian companies. Maybe it will take the risks of
not innovating to be substantially higher for Indian companies to embrace more
radical forms of innovation.
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