How does India view invention, and how do we compare with the rest of the world?

In a recent issue, Time magazine had an interesting story on the “Spirit of Invention” that explored attitudes towards invention across “mature” (developed) and emerging (developing economies). The survey addressed middle class consumers, broad elites and business decision makers. India was one of the 17 countries surveyed.

Considering the number of path-breaking inventions that happened during the first part of the 20^th century (antibiotics, transistors, jet engines, radar, lasers to name just a few), one thing I found surprising about this poll is that respondents across countries saw the post-1980s digital revolution as the most inventive period. The mobile phone and the internet seem to cast a big shadow over everything else, but I wonder how things will appear when people look back 100 years from now!

My interest in this story was to understand perceptions of invention in India, as this will help us understand the Indian environment for innovation better. Luckily, apart from the Time story, Qualcomm (the sponsor of the study) has also placed online more details of the data collected.

India and Invention

Drivers and Barriers

Emerging countries like India ranked a good higher education system (29% for India) as more important than “a society that values creativity and ingenuity over wealth and financial gain” (23%) as the most important factor to foster inventiveness. In contrast, the corresponding scores for the US were 22% and 31% respectively. This could reflect both a stage of evolution theme as well as widespread current dissatisfaction with higher education in India.

While consumers from most countries saw a poor education system or lack of protection for inventors’ rights as the biggest barrier to invention, Indian consumers chose political instability as the biggest barrier to invention. Looks like the 2014 elections are looming large on people’s minds as, by international standards, we have seen stable government for well over a decade!

Like the rest of the world, Indians think (by a ratio of almost 4:1) that invention is a much more collaborative process than it was in the past. By a similar ratio, they also believe that collaboration leads to better inventions. This seems strange to me because, on the ground, India appears to see much less collaboration happening than elsewhere. Or, perhaps, there is a “saying-doing” gap?

Overall, emerging country respondents (including those from India) gave more importance to the role of national governments in facilitating invention than did respondents from mature economies (typically 60% vs. 40%; India was a tad higher than other emerging countries at 70%).

Inventors: Born or Made?

43% of Indian respondents (the highest among all the countries surveyed) felt that genuine inventions are rare (“once in a lifetime”) as opposed to happening everywhere In general, emerging countries felt more like India, and differently from developed nations on this score. Korea seems to have completely embraced the invention buzz: 95% of Korean respondents felt that invention is happening everywhere!.

Belief in the democratization of invention is generally significantly higher in mature economies than in emerging countries. Only 23% of respondents from India believed that “anyone can be an inventor” compared to 38% for the US and a breathtaking 68% for Korea. There is something fascinating happening in Korea that I still don’t fully understand – while the chaebol continue to dominate the economy, clearly the cache of the individual inventor has completely transformed in the last decade as a result of the digital and mobile revolutions!.

One piece of good news is that survey respondents generally felt that inventiveness can be learnt. India reflected this overall trend with only 23% of the consumer respondents saying that inventiveness is inherited and the other 77% saying that it can be learnt. But I wonder how this gels with the previous observation on the democratization of invention – if inventiveness can be learnt, then why can’t more Indians be inventors? The only way of explaining this is that Indians believe that external factors will prevent them from exercising their inventiveness.

An amazing 99% of consumers in Indonesia said that inventiveness can be learnt. I wonder where this comes from - is this just a general reflection of current optimism about the Indonesian economy?

Are you an inventor?

I was surprised that a greater proportion of Business decision makers in India see themselves as inventive compared to the emerging markets average – 67% vs 50%. I wonder where this number comes from. My guess is that it’s a reflection of the number of challenges that businesses in India have to overcome with the constant change in regulations and tax laws, and the increasing quantum of competition.

Korea offers some mind-boggling numbers on this same question of whether people see themselves as inventors. 94% of consumers, 89% of broad elites and 90% of business decision makers see themselves as inventors compared to the global average of 38, 43 and 46% respectively. The more I think about this, I wonder whether this is the “Samsung effect.” Samsung’s success in taking on Apple, a company often rated as the world’s most innovative, may have had a rub-off effect on the Korean people. How else do you explain such a big difference?

India has one of the highest scores on respect for inventors: 91% of consumer respondents (against 71% across all countries surveyed) believed that inventors are respected by society. On this score, the only country ahead of India is the UAE. Korea scores only 49% on this dimension. That’s puzzling, doesn’t seem to match the other data reported above.

One measure gives a critical insight into why India is not as inventive as we would like it to be: this is the set of responses related to critical attributes of an individual inventor. Only 17% of Indian respondents rated persistence as one of the top 10 attributes needed by an individual inventor. In contrast, most other countries rated this much higher (in the US, 50+%). Indian respondents rated imagination and ambition as much more important than persistence! Remember Edison’s comment on 1% inspiration and 99% perspiration? No wonder we don’t see Edisons from India!

Motivation for Invention

Emerging countries like China, India and Indonesia see social good as significantly more important than making money as a motivator for invention.

Some more food for thought: Respondents in China, Kenya and India see invention as important for society (95. 92 and 91% respectively) while only 56% of Korean respondents see invention as very important for society.

Patents

With the passage of the new Patents Act and efforts by Dr Mashelkar and others, you might have thought that patent awareness has improved in India. Think again! Indian consumers had one of the lowest awareness of patents (only Kenya and UAE below us) at 72% (against an average of 86%).

Amazingly, though, according to this survey, India has one of the best systems to protect inventor rights. In the consumer category, India had the highest score – 42% think that the country protects inventor rights well (against 18% for the US and 5% for Korea). Even among broad elites and business decision makers, the perception that India protects inventor rights well is among the highest of all countries. I just don’t know how to explain this as it conflicts with what most people tell us. At same time India also has the highest score (23%) of people (consumers) who believe that “an inventor’s hard work should not be protected from unauthorized use by others.” Somewhat bizarre!!

The Future of Invention in India

Indians are quite optimistic and confident about the future. 32% of Indian respondents voted for India as likely to be the most inventive country of the next century! In contrast, only 1% of American and 2% of Chinese respondents voted for India!! Not clear how we are going to achieve this if we fail to emphasise persistence as an individual trait.

What will it take for Indian companies to embrace Radical Innovation?

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.

Do Standards and Specifications Spur or Hinder Innovation?

When we talk about innovation, we usually emphasise how important it is to understand user needs and requirements well. Contemporary innovation paradigms like design thinking require empathic understanding of user needs through immersion in users’ lives. Not only does such a process reduce risk by aligning innovation with what the user or customer is looking for, it also helps identify user needs that the user has not articulated, or peculiarities in the manner of use that have got internalized by users.

But, there is an additional complication to this picture. In many product categories, there are existing specifications that have become de facto standards, or, sometimes, standards laid down by government or regulatory bodies that have to be met. Do such specifications and standards help or hinder innovation?

Regulatory Requirements can help…. but, it’s important to get them right

Regulatory requirements can spur innovation. Perhaps the best example is in the environmental domain where tightening of pollution norms has resulted in better engine and exhaust technologies.

But, standards bodies can sometimes fall behind the curve and this could mean not setting tight enough specifications or not mandating rigorous enough tests and protocols to test new technologies. The story of Lithium-Ion batteries in Boeing’s Dreamliner is a case in point.

According to reports in the press, when Boeing went through certification of the Dreamliner, the US Federal Aviation Administration (FAA) did not have clear specifications and tests for such batteries as they had not been used before in commercial aircraft. The FAA therefore placed some “Special Conditions” as extra requirements for Lithium-Ion batteries – these included computer control to prevent over-charging, isolation of the battery in a separate enclosure, etc.

Around the same time, Boeing was itself part of a consortium of companies that was evolving new standards for testing Lithium-Ion batteries. This consortium ultimately came up with standards more stringent than the FAA’s special conditions, but Boeing’s Lithium-Ion batteries were not formally tested to these standards because the Dreamliner had already entered the FAA’s certification process.

Adoption of more stringent standards may have spared Boeing some of its subsequent travails with the Lithium-Ion batteries in the Dreamliner.

Large companies sometimes use the absence of standards as a way out of problems. Remember the efforts by Coke and Pepsi some years ago to escape the charges made by the Centre for Science & Environment regarding pesticide content in their soft drinks by pointing to the absence of BIS standards!

Standards, Specifications and Innovation for Emerging Markets

In an earlier post, I referred to the excellent talk by Dr V. Sumantran at the Nasscom Engineering Summit. One of the points he emphasized was that cost gets defined by the requirements, and hence it is important to define (and re-define) requirements carefully if you want to lower costs. He gave the example of the Indian low-cost Common Rail Direct Fuel Injection (CRDI) systems for automobiles that are specified quite differently from their more expensive European counterparts.

There is a growing if controversial view that the key to innovation for emerging markets is “good enough” products that meet essential needs but don’t go overboard in terms of what they offer. This view is driven by the fact that in many products a large proportion of the features and functionality are not used by most users, and that cutting these out can reduce costs. Companies like Mahindra & Mahindra have demonstrated that you can provide about 95% of the features and performance of advanced country products at a much lower price.

Kannan Lakshminarayan on the Tyranny of Existing Standards and Specifications

At the DSIR conference on “Accelerating technology innovation for inclusive and sustainable growth” held at New Delhi on November 7, Kannan Lakshminarayan of Fractal gave some fascinating examples from his experience in developing low cost and relevant products for the Indian market. The best known example he related is that of Vortex, the low-cost Automated Teller Machine specially designed for rural markets.

Vortex has a robust design, incorporates biometric authentication, consumes small amounts of power (just 50W; this is an essential requirement for rural applications where reliable power supply is a major challenge), does not require air conditioning, and can handle both fresh and soiled notes. But Vortex faced an uphill battle in getting accepted as it did not provide all the bells and whistles that the ATMs of established (read “large,” “MNC”!) suppliers did.

Kannan has also been part of the team that developed a spinning machine that reduced the minimum economic scale of spinning by a factor of 100. This machine focused on outcome indicators that are critical to the final product such as feel, fall and drape, but did not focus on traditional parameters like strength, uniformity and fineness that are no longer so critical because of changes in loom technology. Here, as far as I can make out, it was more a case of not meeting the de facto (commonly accepted) standards of the textile industry rather than a problem of regulated or mandated specifications.

Kannan’s third example came from the training domain. India is struggling to impart skills on a large scale to a new generation of people about to enter the workforce. One of the important skills taught in ITIs is welding. Kannan related how welding is traditionally taught in the same sequence as welding technologies were invented. But, this sequence means teaching the most complex methods first resulting in a very steep learning curve for students. Instead, the Aura MIG Training tool overcomes this problem by teaching the simplest (and most contemporary) method, MIG welding first. Ironically, MIG welding is not a part of the syllabus in most welding training programmes!

At the same DSIR conference there was a fascinating presentation by Professor Ashok Jhunjhunwala of IIT Madras on a new energy paradigm that could ensure uninterrupted power supply even within the present constraints of power generation. I didn’t understand all the technicalities, but one thing that struck me was the number of regulatory and standards changes his proposed solution would need. I just can’t see how all those will ever come about in a sector that is as regulated as power.

Conclusion

Because of the stakes involved, standard-setting is often an arena where various pulls and pressures are exerted. A senior manager at a leading auto component company was telling me today how in spite of the emission norms becoming more stringent for cars and many commercial vehicles, three-wheelers still remain outside the purview of new standards because the existing technologies can’t be upgraded to meet more stringent norms. New technologies that would enable more exacting standards would push up cost by 25 to 30% the cost of three-wheeler. The lobby for low-cost transportation makes sure that standards are not raised in a hurry even if that means that we as a society bear the cost of such externalities.

So, while standards can occasionally play a role in enhancing innovation, they can often be tools for maintaining the status quo and the interests of existing players.

Guest Post by Professor Sourav Mukherji: Inclusive Businesses can Solve Tough Social Problems

[Sourav Mukherji is my colleague in the Organizational Behaviour at IIM Bangalore. He has been taking a close look at Inclusive Businesses in the last few years.]

For the past four years, I have been researching the domain of inclusive business – businesses that address the needs of the poor in a financially sustainable manner. More than half a billion Indians are economically underprivileged having limited sources of livelihood. This results in their living in squalid conditions, with little or no access to healthcare, education, sources of energy, clean water or sanitation facilities, all of which contribute to a vicious cycle of poverty from which they are unable to extricate themselves. Acts of oppression, discrimination and exploitation make things worse.

Eradication of poverty was traditionally thought to be the responsibility of the government. Over a period of time, several not-for-profit organizations have complemented government’s efforts by delivering products and rendering services that cater to the needs of the poor. Such organizations often raise money from philanthropists and donor organizations to sustain their efforts. However, such efforts have not been enough – data from post liberalized India indicates that levels of inequality have gone up, rural indebtedness has increased and a lot more needs to be done if the fruits of India’s economic progress is to touch its billion plus population. Who will do this? The answer probably lies in looking at the world of business.

The Potential of Business to solve Tough Problems

Businesses have been able to solve some of the toughest problems facing mankind through various innovations and efficient deployment of resources. They are also able to attract good talent because of their ability to pay powerful financial incentives. This led economists and management thinkers like Muhammad Yunus and C K Prahlad to hypothesize that if one is able to deploy business principles of innovation, efficiency and financial incentivization (not philanthropy) to solve problems of the poor, we might be able to come up with solutions that are both sustainable and scalable. Indeed, work of several organizations worldwide and in India such as Selco, Narayana Hrudayalaya, Grameen Bank shows that it is possible to build inclusive businesses that can manage the duality of meeting the needs of the poor as well as being profitable themselves.

At the heart of such inclusive business models are one or several innovations that enable these businesses to overcome various tradeoffs that cause market failures as well as noble intentions of the innovators and entrepreneurs who want to maximize social returns rather than profitability.

The Case of RuralShores

One such innovative business model with potentially far reaching efforts is that of RuralShores – a business process outsourcing (BPO) organization setup in rural India. Founded by Mr. Murali Vullaganti, RuralShores has fundamentally changed the theory of business prevalent in the BPO industry by creating multiple small BPO centres all across rural India that provide high quality transaction processing and vernacular voice services to domestic clients. It employs village youth from neighborhood who have high school education and provide them intense training so that they become familiar with business rules of their clients and professional conduct that is expected from them. Apart from being innovative in providing such training, RuralShores had to ensure that it was not handicapped by poor infrastructure that is endemic in rural India. Therefore, it built redundancies in electricity supply and telecommunication links. All of RuralShores centres are certified in terms of security and it relentlessly focusses on cost control without making compromises on quality.

The result has been impressive. RuralShores is able to deliver quality of service that is equal to, if not better than its urban counterparts at a price that is 30% lower than the urban BPOs. Many of the large urban BPOs are now outsourcing some of their jobs to RuralShores simply because of the superiority of its model compared to theirs. And the social impact has been significant. One of India’s biggest structural problems is the fact that more than 60% of its population lives in villages, with less than 25% of livelihood opportunities being generated in villages. This causes large scale migration to cities or disguised unemployment in villages. The poor quality of lives that migrant employees lead and lack of livelihood opportunities act as dampener to the village youth in terms of being educated. This is especially true for girls for most of whom, migrating to cities in search of jobs after education is not an option.

By creating jobs in rural India, RuralShores is obviating the need for migration, creating livelihood opportunities for village women that in turn is resulting in giving economic independence, voice and empowerment to these women. Many of RuralShores women employees are now able to convince their parents that they should not be married off early, that they too can take care of their parents (and hence they are not paraya dhan) and thus acting as role models for the future generation.

RuralShores today employs about 1200 rural youth in its ten centres. There is no denying that it has several challenges in terms of sustainability and scalability. We need RuralShores to scale up ten times (they have ambition of setting up 500 centres) and several other organizations to create similar inclusive models if one is to solve the problem of rural poverty.

Lessons from RuralShores

From the success that RuralShores has had so far, one can learn the following:

1.       For making an inclusive business sustainable and scalable, it must be run as true business. RuralShores is getting business and winning against its competitors because it is able to deliver good quality service at low prices, and not because it employs people from the economically challenged background

2.       Even while RuralShores has created this new livelihood opportunity for the village youth, it has tried its best to blend in with, rather than disrupt the socio-economic fabric of rural India. While urban BPOs are likely to insist interaction among its employees across gender, such interaction among unmarried men and women would be frowned upon in most Indian villages. Thus, it is not uncommon in RuralShores to see male and female employees sitting in separate clusters and interacting only within themselves. RuralShores often talks to village elders and parents of employees to gain their confidence in the kind of work that their sons and daughters would be involved with. It also ensures that all its women employees are back home before sunset

3.       The BPO market in India as well as across the world is intensely competitive. The rural BPO model does not have high entry barriers, especially for large incumbent urban BPOs. Thus, it is not inconceivable that once RuralShores established a viable business model operating from rural India, the incumbents could have setup centres on their own and driven RuralShores out of business. However, because RuralShores decided to offer complementary services and got into alliances with them, this seems unlikely to happen. This would overcome one of the scalability challenges of such innovative business models, which are often viable at low scale, but are driven out of market by powerful incumbents if they scale and start to act as a threat to the incumbents.

I am very hopeful that RuralShores will be able to achieve its target of scalability even while remaining ideologically committed to helping the economically underprivileged. It will thus inspire many more entrepreneurs and innovators to leverage the power of business to solve problems of poverty. 

Ajit Balakrishnan, rediff.com and riding waves of change

What does it take to pioneer a new industry from India? Particularly if the industry is just emerging globally, and the rules of the game and factors for success are not clear? In The Wave Rider, Ajit Balakrishnan, founder of Rediff.com provides a first-person account of such an experience.

Ajit Balakrishnan & Computers

Ajit’s introduction to computers was at IIM Calcutta when he was doing his MBA. But his involvement with the computer industry began in the early 1980s. Till I read this book, I didn’t realize that Ajit Balakrishnan was one of the co-founder of PSI Datasystems, one of the early computer pioneers in India. (By that time, Ajit had already been successful in co-founding Rediffusion with Arun Nanda, one of the first of a new generation of less constrained and more creative advertising companies. Rediffusion became famous at the national level for working with the Congress party on one of the first political advertising campaigns in India).

PSI was one of those brave companies back in the 1980s that dared to think it could make computer hardware for the Indian market in spite of the then extant import restrictions and crippling duties. A lack of venture funding made things worse. Not surprisingly, the company struggled, and the Indian promoters ultimately brought in Bull, a French company, as a joint venture partner. But even Bull’s participation couldn’t save PSI in those days of tight controls and a limited domestic market. (Other companies which tried to make hardware at that time including HCL and Wipro finally found their salvation in moving to the software business. Ajit relates how PSI-Bull had the opportunity to do that too, but PSI-Bull turned down the possibility of software development for GE in the early 1990s because Bull had no interest in being in software outsourcing!).

Trigger for Rediff.com

Ajit’s trigger to start what would ultimately become Rediff came from attending a management program at Harvard Business School, soon after the decline of the hardware venture. A case study discussion on CompuServe, one of the first companies to try and create virtual communities aroused Ajit’s interest. This interest got sharpened further in 1993 when, during a stint in the UK, he had the experience of visiting CompuServe chat rooms.

One important thing I realized from this book is that Ajit got a whole lot more first-hand international exposure than the average Indian. All credit to him that he used this to do something different. As I wrote in my earlier post on Steve Jobs, greater exposure to a broad variety of experiences and contexts is critical if we want Indians to be radical innovators!

The advent of the browser made the fledgling internet accessible to the individual user. In 1996, Ajit got a leased line from VSNL (I am quite surprised that he got it so easily, Ajit explains this away by saying that he was one of the only people seeking a leased line at that time!) and rediff.com was into business. By 1998, the company started providing “lightning fast email” when it realized that users were spending very little time at the rediff site itself. That was a very successful initiative, many people continue to have rediffmail.com IDs even today!

The Role of Global Capital

One point that comes through clearly from Ajit’s account is the role played by global capital and the flavor of the season in an enterprise accessing capital. As an early player in the Indian internet space, rediff.com was the focus of interest of investors in the heady days of the internet boom. Ajit recounts how investment bankers chased him to do an issue of American Depository Receipts to capitalize on this interest. Though Ajit was unsure about whether he needed the money, and even less sure about how he would service the capital once it was raised, he realized that bankers were likely to invest in some other company in case he demurred. By the time he decided to go ahead with this, the internet boom was beginning to stall, so there were anxious moments before the issue was successful. But the end result was that rediff.com was the first Indian internet company listed in the US and now had a war chest to work with. However this did not prevent the struggle of trying to meet investor expectations

Redif.com went public in 2000 and faced a baptism by fire when they had to face a class action lawsuit from disappointed investors as early as mid-2001. The financial damages were minimal as rediff had insurance against this eventuality, but this was the first time that Ajit had to face the litigious nature of American investors. (In recent years, companies as tony as Infosys have had to face up to the reality of American lawsuits. My fear is that as Indian companies become larger and more successful, much more of this will follow. But Indian companies are ill-prepared for such eventualities.)

Ajit’s close involvement with some of the new legal challenges posed by the internet persuaded him to get involved in the drafting of new cyberlaws. Interestingly , though, he seems to have some sympathy for the government’s position and is not a supporter of unfettered privacy on the net.

The Difficulty in Riding Waves

The difficulty in riding waves, the subject of this book is reflected in the experience of Rediff.com itself. Considering it has been around for such a long time, it still remains small, and is currently not profitable.  Why did this happen? (The book doesn’t cover this, the following comments are my own).

I can recall a time when I used to visit the rediff site to get consolidated Indian news. But that was before Google News India became available and provided an “easy to scan” page with all the top headlines. At one time, rediff.com was a major source of India news to the NRI community. But now several alternate channels including live television exist. At some point, Rediff bought India Abroad, a well-regarded Indian community newspaper in the US, but that doesn’t seem to be doing well amidst the steep decline in print in the US.

Rediff was one of the pioneers in the online marketplace space as well, though it appears that they have been overshadowed by the aggressive growth of specialized online retailers like flipkart.

Another Rediff.com business is a corporate email business that has large Indian corporations as customers. Though they have some big clients, I wonder about the future of this business when you have competition like google .

One business that looks exciting (and is growing fast too) is a local TV advertising business that allows local merchants to insert advertisements on a set of national channels in select cities.

On the whole, rediff seems to have caught the broad trends well, but not been as successful in consolidating and “winning” the trend.

But, I wouldn’t be too critical of Ajit and his team. At one time, Orkut was lauded as the pioneer of social media. But, just a few years later, Orkut was overtaken by Facebook. People have different explanations for why orkut failed – poor speed, badly designed UI, wrong technology choice, poor understanding of customers, engineering-driven, lack of fun, etc. Deciphering trends and what consumers will prefer is not always easy!

Tailpiece

Returning to the book, I only wish that Ajit had devoted a larger part to narrating his personal experiences. The few experiences he has related are quite insightful, and I would have loved to read more. 

Innovation for Emerging Markets: Insights from Renault’s Duster and Gillette’s Guard

In earlier posts and articles, I have written about the challenges faced by MNCs in innovating for emerging markets. This week, I focus on two recent success stories to see whether they offer new insights.

The two cases are Renault’s successful SUV, the Duster, and Gillette’s razor system, Guard. Duster has enabled Renault to find a sweet spot in the increasingly crowded Indian automotive market and achieve a significant volume of 60,000 to date. Guard has enabled Gillette to target the huge market of male shavers who use conventional double edge blades instead of more modern cartridge type shaving systems.

Immersion in Customers’ Lives: Key to Success

The first thing that strikes one on reading these two cases is how they depended on straightforward but in-depth consumer research. In both cases, teams from the companies immersed themselves in the lives of users to understand their needs.

In the case of the Duster, this revealed that customers were looking for a vehicle with the looks of an SUV, but a driving experience more akin to that of a car. This process also helped identify a vacant price band in which the product could be offered. Specific customer requirements like better rear air-conditioning and more comfortable rear seats also emerged from this exercise. [As an aside though, I should mention that most foreign car makers have known for several years that cars sold in India need to offer a much better rear seat experience than that offered in developed markets – so I am surprised that this was a big revelation.]

For the Guard, customer immersion alerted Gillette to the fact that many Indians shave without running water, and they also don’t shave every day, hence the blade system needs to be easy to clean, and also able to deal with longer and tougher hair.

Interestingly, neither of these products required Steve Jobs like skills of understanding needs that users had not expressed. Instead, all that was required was in-depth understanding of existing user needs. This only confirms what I have suspected for a long time – at the current stage of evolution of most Indian product markets, there are enough opportunities to be had simply by identifying user needs that have not been addressed by existing products and solutions. No sixth sense is required!

Clean sheet or De-featuring?

While the Duster was developed by starting with an existing Renault vehicle and adapting it to local needs, the Gillette Guard appears to have started with a clean sheet. Readers of my previous post might recall that I wondered when it would be appropriate to start with a clean sheet, and when to de-feature or modify an existing product. The Duster and the Guard offer a possible answer to this question: when you need to make a really revolutionary change in cost structure to address an almost unthinkable price point (as in the case of the Guard), clean sheet is the only way. The Guard razor retails for Rs. 19 and the cartridge for Rs. 7 – neither of these price points would have been even remotely reachable starting with a product like Gillette’s Fusion or Mach 3 razors.

The Guard is certainly the more enterprising product of the two. It has only a single blade (unlike Gillette’s array of high end multi-blade products). It uses drastically fewer components than a typical Gillette razor, uses much less material and has a very simple structure. All of these contribute to its low cost. Yet, all reports suggest that it gives a good, safe (cut-free) shave for customers shaving in conditions of poor light and no running water.

But Questions Remain…

Margins & Profitability

Yet, the Guard raises several questions. Firstly, there is no way that a product like this would yield anywhere near the 35% EBIDTA margins that P&G (Gillette’s corporate parent) is used to from shaving products. This is corroborated by the financial performance of Gillette India over the last few years. By a quirk of fate, Gillette’s India operations are not yet fully integrated with that of P&G because Gillette in India is a publicly-listed company with an Indian partner (the Poddar group). Hence, we have access to the financials of Gillette India. These show that while their top line has been growing by about 15% every year, the bottom line has been declining in most of the past few years. Though this decline can’t be attributed to Guard alone, the fact remains that this is clearly a low margin product and it’s likely that its increasing volumes are adding to the top line but not helping the bottom line. While Gillette might nurture the dream of upgrading its Guard customers to higher margin shaving products, that’s unlikely to happen in any foreseeable future. (Instead some reports indicate growing interest in the Guard in developed markets!).

Imitation & Appropriation of Value

The second issue is “barriers to imitation,” and concerns related to appropriating value from a new product like the Guard. Historically, As a company. Gillette has depended on R&D to come up with improved shaving processes, and comprehensive intellectual property protection to ensure that the value of its proprietary technology is not appropriated by others. For the Sensor, Gillette built a wall of 22 patents; for the Mach 3 razor, a much bigger wall of 57 patents. But, it’s not clear to me how Gillette will prevent imitation of the Guard. A quick internet search does reveal some design patents covering the design of the Guard, but there doesn’t appear to be as impregnable a patent fortress as in the case of the Sensor or the Mach 3. Instead, Gillette seems to be relying on the superiority of its design, the choice of materials and the complexity of manufacturing as barriers to imitation.

Though the Duster has been successful in the market, its success has already been threatened by the launch by competitors of new products like the Ford Ecosport. Renault can take credit for identifying a market gap and addressing it, but the company seems to have no easy means of preventing others from coming up with competitive offerings to address the same market.

But the Biggest Threat maybe to Indian Companies…

The fact that MNCs are coming to grips with understanding Indian user needs and can then use their technological strengths to address these needs constitutes a significant threat to Indian companies. As MNCs get their emerging market innovation act together, Indian companies’ failure to embrace systematic methods of innovation is going to place them at a significant disadvantage.

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.