Silicon Valley to India: Build an innovation ecosystem and good things will come
by Rishikesha T. Krishnan
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India’s prowess in business has been powered in no small part by the ability of its entrepreneurs to innovate. Just think of Tata and Infosys, for example. But if the ability to recognize a need or an opportunity to innovate is to become part of the national business culture – and not something that separates talented entrepreneurs from the rank and file managers – changes in domains other than business will have to be made.

Last year, Indian Prime Minister Manmohan Singh declared the years 2010-20 as India’s Innovation Decade. He followed this up by appointing a high profile National Innovation Council to evangelize the cause of innovation and spread an innovation culture across the country. Can we expect India to emerge as the next Silicon Valley? Are we going to see the likes of a Google or an Apple emerge in India in the next ten years?

Why innovation?

First, let’s try to understand why there is this sudden emphasis on innovation. As is well known, India made a major effort to cut through red tape and “unshackle the tiger” a little over twenty years ago. The economy responded well, and we have seen a healthy annual growth rate averaging close to 7 percent over this period. Companies active in the Indian market – whether Indian or foreign – benefited from this growth as, to quote our Chinese neighbours, “the rising tide lifted all boats.” However, while opportunities for growth still exist, some product categories are becoming saturated, or at least the most lucrative customers have already been tapped. This is true in mobile services, for example, where penetration has already reached 70 percent. This means that to sustain growth and profitability, companies will have to look at new ways to excite customers. Ergo…innovation is on the corporate agenda.

But the bigger raison d’être for innovation is India’s humongous social challenges. With the second-largest population in the world, the world’s largest number of poor people, a literacy rate of only 70 percent, inadequate healthcare, and poor nutrition levels, India’s economic and geopolitical aspirations will have meaning only if we can raise our performance on social indicators rapidly. Given the country’s resource constraints and its poor track record in addressing these issues, there is a crying need for innovation.

Take the simple example of tuberculosis (TB). While this disease is no longer a factor in much of the developed world, it continues to be a public health scourge in India. In fact, India accounts for 22 percent of all TB cases in the world and for 25 percent of the Multi Drug Resistant (MDR) cases. All this despite the fact that we have a very effective national program to detect and cure TB, and that the whole country has been covered by both diagnostic and curative efforts. As well, we have met the Millennium Development Goals for this area. Yet, case detection has plateaued at around 72 percent and the treatment success rate is stuck at around 87 percent. There are still 280,000 deaths every year due to TB. And undetected and untreated patients spread the disease rapidly to others.

What then is the challenge? It is to create an accurate, reliable, low-cost, high-quality, easy-to-use test to diagnose TB that can replace the 100-year old, notoriously unreliable sputum smear test. While other types of tests are more accurate, the equipment costs $20,000.00 and every test is expensive.

Or, consider the need for innovative solutions in higher education. India’s Gross Enrolment Ratio – the proportion of college-age students attending college – is a measly 11 percent. With one of the youngest populations in the world, India has the opportunity to exploit the so-called demographic dividend, if only it could train and educate more young people rapidly and efficiently. Yet, clearly, we will come up against serious resource constraints such as money and qualified faculty if we just try to replicate and enlarge the existing models of higher education.

So, from the government’s perspective, the importance and role of innovation is clear: Can it enable the popular political mantra of inclusive growth?

An historical perspective

Innovation is a strong buzzword in corporate India too. But, to understand its contemporary contours, we need to take a brief excursion into history.

British colonial rule for the best part of two centuries before independence in 1947 meant that India missed out on most of the industrial revolution. While the world had seen the automobile assembly line, television, radar and the atom bomb by then, India had hardly any modern industry or sophisticated science and technology institutions. Under Prime Minister Nehru, the country used scarce resources to build the “temples of modern India” – heavy industry, advanced technology institutions like the Indian Institutes of Technology, and a network of scientific and research establishments.

The challenge that faced Indian industry from the 1950s well into the 1980s was to become proficient in manufacturing. While most industries sourced production technology from outside the country, they had to make those technologies work in different climatic conditions, with raw materials of different quality and characteristics, and with a largely untrained workforce. So, the focus of innovation was on adapting the processes to locally available raw materials and intermediates, improving efficiencies through process improvements, and getting as close as possible to global productivity levels.

When the Indian economy opened up in 1991, many Indian companies still had a lot of catching up to do. Even Tata Steel, which became a major player in the global steel market after it acquired Britain’s Corus, had to struggle hard to reach global productivity levels and remain competitive.

Recent innovation history

India has moved on from a focus on efficiency and process improvement to display significant capabilities in business-model innovation. The most impressive achievements in this direction have been the establishment and growth of the Indian software services industry, and the Indian mobile services industry. The creation and sustainability of the global delivery model for outsourced software services and the resource-light business models used to provide some of the lowest-cost mobile services in the world have been extensively documented elsewhere. Business-model innovations, combined with process improvements have been successful in the social sector as well, with the Aravind Eye Hospital offering some of the most efficient cataract surgeries in the world.

But there’s a new and even more exciting phase of innovation that is visible today. Consider the following cases that are exemplars of successful business model innovation.

  • Tata Motors wasn’t even in the car business 20 years ago. Yet, today it is India’s third-largest car manufacturer and well ahead of top brands like Toyota, Honda and Ford in terms of volumes. It has created robust product platforms around the Indica, Indigo, and Nano brands, all specifically designed for the Indian market.
  • Until a little over 10 years ago, Bajaj Auto was an insignificant player in the motorcycle industry, and still largely dependent on scooters and auto rickshaws. Today, it is the second-largest motorcycle company in the country and a strong leader in more powerful and stylish sports bikes. The root of Bajaj’s success was the development of the Pulsar, a bike that combined power, style and fuel economy based on its proprietary DTSi engine technology. The timing of the launch was perfect, as it coincided with the take-off of the software and business-process outsourcing industries that employ thousands of young, qualified, and aspirational males, who have the disposable income and the desire to own such a bike.
  • Biocon entered the biopharmaceutical business only in 1998. Yet, today it is regarded as India’s leading biotech company. It is well ahead of other Indian companies in the production of biosimilars (the biotech equivalent of generic drugs) and hopes to launch India’s first locally developed novel, biotech-based drug in the next few years. Biocon has used product and process innovation to exploit a core capability in fermentation technology, built during its earlier incarnation as an enzyme company.
  • Titan Industries, India’s largest watchmaker, has long been known for its stylish watches and tastefully designed retail stores. Yet, till well into this millennium, it struggled to grow its sales revenue. But those struggles became history once Titan transformed itself. The company’s turnover has shot up to the U.S. one billion dollar mark, riding on the back of accelerated growth in its jewelry business. Innovations like having a karat meter in every store to establish the purity of the gold in its jewelry attracted customers, who also liked the designs the company created to address the mass market.
  • Pantaloon (the flagship company of Indian retail King Kishore Biyani’s Future Group) is today one of the country’s foremost multi-format retailers with a national footprint. The company has constantly experimented with new formats, based on a culturally embedded, intuitive understanding of the Indian consumer.

What’s common among these five companies is that they have become leaders thanks to their well-developed and well-executed innovation strategies. This emergence of innovation as a differentiator in the Indian market is a recent phenomenon. It’s also impressive that, in many of these cases, innovation has enabled companies to tap a mass-market sweet spot.

Innovation for low cost

Innovation will be even more important for Indian companies — and multinational corporations (MNCs) — targeting the Indian and other emerging markets in the years to come. While there may be a fortune at the bottom of the pyramid, to quote C. K. Prahalad’s evocative idea, getting to that treasure will require an ability to understand emerging customer needs well, design products and services to meet these needs, and find processes and business models to deliver these products and services at an affordable cost.

This will pose a particular challenge to MNCs that continue to manage their product development and product strategies from an OECD-centric perspective. Let’s look at a few examples to understand why.

Consider the mobile handset business of Motorola, which never managed to make a dent in the 700-million-subscriber Indian market. The reason? The prices Indian consumers were willing to pay never offered the gross margins that Motorola’s product-development manual believed to be sacrosanct. Moreover, managers did not have the leeway to explore other business models that could offer alternate paths to profitability. Hence, the company never developed a product that was competitive in the Indian market. Look also at Nokia, once a successful innovator in the Indian market. It missed out on the huge opportunity to sell handsets with a dual SIM-card capability. The reason? Senior management in the developed world, where phones are bundled with the usage plan of a particular operator, could never understand why anyone would want to use 2 SIM cards in a single handset.

Growth-seeking MNCs are overcoming these problems by changing the way they innovate. Programs called “In India, For India” are particularly popular as several MNCs use their India Development Centres (that were originally created to support innovation for the global market) to focus on innovation opportunities in the Indian market. Some companies, like GE, have seen success already, with products like the MACi electrocardiograph (ECG) machine, a $500.00 portable and rugged ECG device designed especially for use in remote clinics.

Yet, while these low-cost products overcome price barriers, they pose other significant challenges – e.g., in GE’s case, how do you create a distribution system to reach 700,000 basic physicians who are not reached by the corporate sales force that has traditionally dealt with medium and large hospitals? This challenge clearly transcends product development to embrace all parts of the value chain.

From execution confidence to creative confidence

In the last two decades, corporate India has clearly displayed a high level of execution confidence – the ability to take on challenging execution tasks and make them happen. Scale, replication, expansion, and rapid growth – these qualities have characterized successful Indian companies from Reliance to Infosys.

Execution confidence did not develop by accident. It was built painstakingly, as companies took on increasingly challenging tasks and developed processes to reduce the risks of execution failure. As India embraces innovation, companies now face the challenge of building creative confidence, which is displayed when individuals or companies design and launch new products, services, or business models based on a belief that they know a better way of doing things or customers. Creative confidence is best exemplified by Steve Jobs and Apple.

Creative confidence has been on display in some fields for several years now – for example, in the performing arts, where Sitar maestro Ravi Shankar’s tryst with the Beatles goes back to the 1960s. But this has graduated to a new level now as music composer A.R. Rahman, film director Anil Kapoor, and film actor Amitabh Bachchan straddle the world stage. The Indian fashion industry is coming of age too as the creations of designers like Manish Malhotra, Ritu Beri and Tarun Tahiliani are being seen on ramps all over the world.

Creative confidence in Indian industry is evolving too, but relatively slowly. Many of India’s large companies are a part of family-owned conglomerates. While the owners of these companies are confident enough to make investments in large industrial fixed assets, they are wary about making irreversible investments in research and development or new-product development.

There are barriers within organizations too. As Adi Godrej, one of India’s leading industrialists and the President-elect of the Confederation of Indian Industry once said, “The greatest barrier to innovation in India is the governance culture that does not encourage innovation. Senior executives tend to be judgmental and do not encourage new ideas. Indian organizations are still hierarchical and paternalistic, much more than those in other cultures…change does not have the positive connotation that it should…innovation is still not pervasive.”

Some Indian companies, like the ones I mentioned earlier – Tata Motors, Titan, Biocon, Bajaj and Pantaloon – are heralding a fresh and positive approach to innovation. Senior members of the owner-families such as Ratan Tata, Kiran Mazumdar Shaw, Rajiv Bajaj and Kishore Biyani have embraced innovation with a passion, and not hesitated to get directly involved. Realizing that an innovation capability is built through “learning by doing,” they have supported innovation projects of increasing complexity and risk. Successes along the way have built the level of creative confidence in their companies. And, their successes are bound to be an inspiration for other companies as well.

As companies seek to spread the notion that “anyone can innovate,” company-wide innovation campaigns backed up by catchy internal marketing efforts and training and development initiatives are becoming popular. Titan has set up an “Innovation School of Management” in its jewelry manufacturing division to train shop-floor employees to spot opportunities for innovation and then make it happen. Cognizant, a leading information-technology services company, has seeded a few thousand innovation evangelists and champions across the company to create a critical mass of employee support for innovation. And a whole new consulting industry, led by Erehwon Innovation Consulting, is emerging to work with corporations in their innovation efforts.

Looking into the crystal ball…

Will India be the next Silicon Valley? And will we see a Google or an Apple emerge in India soon? That’s unlikely in my view, because Silicon Valley has a complete and reinforcing innovation ecosystem that has enabled it to ride one technology wave after another. As we have seen, the objective of innovation in India is not cutting edge technology per se, but instead the intelligent use of technology to meet important consumer and national needs.

India’s hope is to become the locus of what well-known Indian scientist Ramesh Mashelkar calls More (value) for less (cost) for more (people) or MLM innovation. But this goal, relevant though it is to an economically poor country with a rich talent pool, poses challenges for an education system based on rote learning and a society beset by different forms of stratification. India’s National Innovation Council has its work cut out, for it has to shape an ecosystem to overcome these and other barriers to innovation. Such an ecosystem would reward those displaying creative confidence, facilitate partnerships, help ideas and technologies reach the market, and encourage young professionals to set up their own business ventures.

The Author:

Rishikesha T. Krishnan
Rishikesha T. Krishnan is a Professor of Corporate Strategy at the Indian Institute of Management Bangalore, India. He has been studying innovation in India for close to twenty years. His book From Jugaad to Systematic Innovation: The Challenge for India (The Utpreraka Foundation, 2010) identified the barriers to innovation in India and proposed an agenda for change.

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