India and Innovation


By

Prof. K.G. Satheesh Kumar
Asian School of Business
Technopark Campus, Trivandrum
 


For over four decades since independence, Indian companies had had very little appetite for innovation. The well-known epitome of this lack of innovation was the Hindustan Motor's Ambassador car. Operating in a largely protected market, Indian companies invested very little in R&D, technology development, new product introduction etc. Technology licensing from abroad was the preferred route to acquire technology. Foreign firms who wished to enter the Indian market had to opt for joint venture or technology licensing. In addition, capacity licensing, which required that a producer should hold a licence to manufacture, further limited the competition in the Indian market and hence the motivation to innovate.

Pursuant to the Government of India's policy of liberalization in the early 1990s, the protected markets became open to competition. New technologies, products, services, processes and business models started flowing into the Indian market. Licensing new technology became difficult under the liberalized regime because the owners of technology no longer needed an Indian partner to access the Indian market; they could do it on their own. As noted above, the licence raj had prevented the creation of new capacity in production, so that whoever had the licence to produce monopolized the markets. Once licence raj was dismantled, creation of new capacity within the country became possible, leading to further competition in the domestic market.

Faced with competition, Indian companies have been forced to innovate in the liberalized era. It is indeed a matter of pride that, over the years, India has attained considerable success in building an environment conducive to innovation. Indian companies have competed successfully, not only in the domestic market, but also in the global market in several fields. The size and number of Indian investments and acquisitions abroad have steadily grown during recent years. Examples include Tata's acquisition of Tetley Tea (2001), Corus (2007), Jaguar (2007); Hindalco's acquisition of Novelis, Canada and so on. There are many more examples.

A recent study1 found that many companies and technology leaders considered India as the second most attractive country (after USA) on "the best place to innovate". The potential and inevitability of India becoming a global innovator has become a topic of active discussion in recent years. Several reports indicate that India is emerging as an important innovator, though still performing below its potential. 2

What is innovation?

Stanford Professor, Robert A Burgelman describes innovation as any new product, service, production system or delivery system.3 One could also add new business models to this list. Innovation is different from an invention or a discovery, where the focus is limited to inventing the new or discovering the unknown. Innovation puts inventions and discoveries to practical use, economically.

An inventor is successful once the invention works, but the innovator is successful only if such working has economic value. According to the Economist, "An invention that costs US$1,000 to make can easily cost US$10 million to turn into an innovation".

Thus the key attribute of an innovation is its ability to create economic value. In other words, an innovation has to prove its worth in the marketplace. The owner of the innovation derives a competitive advantage and hence innovation is an important component of competitive strategy. This has long been realized by organizations competing in the free market. It is hence little wonder that Indian companies too have realized the need for innovation in the liberalized era.

Since Information Technology industry is of specific interest to India, it will be worthwhile to consider the growth of innovation in this sector. Between 1985 and 1991, Indian IT companies were largely performing body shopping (i.e. placing software programmers abroad) and had little understanding of even what these programmers were doing in the companies where they were placed. During the 1990s, parts of the work were brought to India using satellite communication, but there was still little scope for innovation.

The Y2K software problem (the problem feared to be precipitated in the year 2000, because of the use of two digits instead of four, in the year field in many computer applications), offered a major opportunity for the Indian IT industry to demonstrate its capability and to gain international trust as dependable source of IT solutions. The growth of ecommerce and dot com during the second half of 90s also saw many technologists of Indian origin emerge as successful entrepreneurs, venture capitalists and angels in the Silicon Valley and elsewhere.

Post Y2K, Indian IT companies started gaining increased acceptance as being capable of performing original work, especially product development. The growth of Indian market for Information technology also led to innovative products and services being produced by Indian IT companies.

All the leading Information Technology companies in India are now paying increasingly closer attention to innovation. India's biggest IT company, Tata Consultancy Services defines innovation as, "an idea that makes a material difference to an organization's current capabilities or creates a future capability".4 TCS follows the broad 3-way segmentation suggested by Harvard Business School professor, Prof. Clayton Christensen:

1. Derivative or sustaining innovation, which continuously provides improvements on current services and solutions

1. Transformational improvement or platform innovation, which facilitates a swift move to visible adjacencies in terms of emerging technologies and markets

1. Disruptive or breakthrough innovation, which enables customers to access potentially game-changing markets and business models.

To drive its IT innovation engine and to cast a wider net, TCS uses a "Co-Innovation Network (COIN)", which is a collaborative alliance of entities across the organization's extended ecosystem. The TCS COIN comprises academic institutions, research institutions, student communities, start-ups, venture capitalists, industry bodies, entrepreneurs, alliance partners, consultants and customers.

Wipro, Infosys and other Indian IT companies too talk about their emphasis on innovation to bring more value to the customer.

Innovative Economies

Till very recently, only corporate organizations had realized the value of innovation; countries had not. The forces of globalization (phenomenon by which markets become global) have forced countries to compete for resources, especially capital and manpower. In this pursuit, economies are now becoming innovative. Capital flows into economies where they get the best returns. Manpower also follows the same path, though it has certain constraints. Governments now realize that an innovation-friendly environment is a pre-requisite for the countries' economies to grow.

Reports on India innovation

In 2007, the Economist Intelligence Unit (EIU) undertook two parallel research studies to find out "how important innovation was", "which countries innovated better than others" and "why". The first was a worldwide survey of 485 senior executives to gain a better understanding of the drivers of innovation and their relative importance. The second was a ranking of 82 of the world's economies by innovation performance during 2002-06, with a forecast for the subsequent 5 year period. The report is part of a long-range project called "Foresight 2020", undertaken on three themes personalization, collaboration and innovation.

The study reports that innovation has a beneficial impact on both national economic growth and corporate performance. It identifies, as some of the key factors driving innovation, the emergence of high-tech clusters (e.g.: technology parks), growth of technically skilled work force and high-quality IT and communications infrastructure.

The other major findings are as follows.

  • Japan, Switzerland, the US and Sweden are the world's top four innovators among the 82 economies.
  • China is getting substantial capital investments for driving innovation, but is not as efficient as India (and several other countries) in converting it.
  • US is considered by survey respondents to have the best conditions for innovation; India is in second place 
  • Most valued places for innovation are countries with the following national characteristics:
  • o Robust protection of intellectual property
    o Political stability
    o Efficient regulatory environment
    o Sound institutional framework
    o Quality IT and communications infrastructure
    o Technical skills of the workforce,
    o Availability of scientists and engineers,
    o Availability of university graduates.

A similar study was conducted by the World Bank in 2007. According to this study titled, "Unleashing India's Innovation: Towards a Sustainable and Inclusive Growth", India needs to tap its innovation potential, relying on innovation-led, rapid, and inclusive growth to achieve economic and social transformation.

The report recommends a three-pronged strategy comprising (a) increased competition supported by stronger skills, information infrastructure and financing (b) improved knowledge creation, diffusion, and commercialization, and (c) increased focus on inclusive innovation, to unleash India's innovation potential.

The report further emphasizes that the three-pronged innovation strategy need to be implemented in a realistic and time-bound manner, possibly by a task force of policy makers working with business and social leaders. To capture the nation's imagination, it may be desirable to focus on grand challenges such as access to clean water throughout the country, mitigating road congestion in cities and so on. A public-private oversight mechanism may be required to evaluate and address the fragmentation of India's current innovation system with regular monitoring and periodic international benchmarking, as India's innovation potential gets unleashed. If this [unleashing] succeeds, that too in an inclusive manner, then the model will be of particular interest to other developing countries and emerging market economies.

Yet another recent report on India's innovation capabilities, with a focus on the IT sector, is the NASSCOM-BCG Innovation Report 2007, which studied the innovation management in the Indian IT-ITES industry. 5

The report addresses three aspects of the Innovation agenda:

1. Imperative for innovation: The challenges in front of the Indian IT-ITES firms and the need for the firms to look at innovation as a 'must-have'.

2. Firm level agenda and approach for firms to spur innovation; A diagnostic tool-kit through which a firm can evaluate its current innovation maturity and the processes and mechanisms for a firm to develop a practical innovation strategy.

3. Recommendations to expand the innovation ecosystem in India: Benchmarking the Indian innovation ecosystem with global innovation ecosystems and actionable recommendations to develop India's innovation ecosystem.

The report also provides numerous case studies of both innovative firms and successful ecosystems.

Conclusion

In conclusion, it is heartening to note, the stage is set for India to become a leading global innovator. Indian companies have realized this and so has the national government. The major success factors for innovation are also in India's favour. Even the challenges posed by recent US recession and dollar depreciation should be seen as opportunities because necessity and resource crunch are effective drivers of innovation. Several technology companies are already investing in R&D in India. The Indian IT sector, which started with low value-adding activities like manpower supply has now graduated into developing technologies, products and services. It is already participating in the highly competitive centre-stage markets where innovation drives competitive strategy.

While technology is a major driver of innovation, we should understand that innovation is not about technology alone. It is also about entrepreneurship and commercial application of technology to deliver more value to the customers, at reduced costs. In the Indian context, innovation will be about addressing the needs of its large population whose purchasing power is low. Prof. CK Prahlad's theory of "fortune at the bottom of the pyramid" is of specific interest in this pursuit. India has already made breakthrough innovations in services delivery. The telecommunication sector is a good example of such value creation at the bottom of the pyramid (BoP). Similar examples can be found in the health care sector, for instance, the Jaipur foot, Arvind eye care and so on.

Information technology can be a major driver for innovation in different sectors. A good example is the concept of "Smart Green Grids", which envisages IT applications in the power sector. Government of India has asked Mr. Nandan Nilekani of TCS to submit a report on how IT can bring about innovative changes in India's power sector. Let us look forward to more such instances in the near future.

References:

1. Economist Intelligence Unit (2007), "Innovation: Transforming the way business creates", The Economist, p23

2. Dutz, Mark A. (2007), "Unleashing India's Innovation: Towards sustainable and inclusive growth", The World Bank

3. Burgelman, R.A., Christensen C.M. and Wheelwright S.C., "Strategic Management of Technology and Innovation", McGraw Hill

4. Ananth Krishnan, K., "Innovation Networks: Casting a wider network for IT innovation", Tata Consultancy Services, 2008.

5. Nasscom website, www.nasscom.org, visited on 08 May 08
 


Prof. K.G. Satheesh Kumar
Asian School of Business
Technopark Campus, Trivandrum
 

Source: E-mail March 18, 2009

          

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