10 Reasons Why India Can Innovate

‘Lack of Resources is Our Biggest Asset’  – Vijay Govindarajan

Vijay                                    Before 1990, India was an economy where production was all that mattered. Thereafter (1993-2005), Indian companies were successful by just being efficient and removing the ‘fat’ built during the licence raj. That game is pretty much over. Now, there is no choice; they must innovate. This is how Vijay Govindarajan, Earl C. Daum professor of international business at the Tuck School of Business (US), deconstructs India’s post-Independence history.

Innovation According to Vijay Govindarajan some of greatest innovations from Indian companies in the last five years

• ITC’s e-choupal has transformed the rural sector by helping farmers increase farm productivity and get better prices;

• Narayana Hrudayalaya provides world-class bypass surgery for $1,500 by re-engineering      the healthcare value chain;

• Tata Motors has designed, engineered and manufactured a high-quality automobile,  Indica, cost competitively using 100 per cent indigenous resources; and

• ICICI Bank has changed the financial services industry with Internet banking and electronic      payment systems.

Vijay Govindarajan is consultant to some of the biggest names in business — Boeing, BT, Colgate-Palmolive, IBM, JP Morgan Chase, The New York Times, PricewaterhouseCoopers and Sony, to name a few. In an exclusive interview with BW’s Aarti Kothari, he talks about India as an innovation machine.

Excerpts:

Do you believe that corporate India has managed to create a culture of inovation?

Indians are creative and entrepreneurial. Our biggest liability (lack of resources) is our biggest asset. It forces you to become competitive. One just has to go to a village to see how poor folks ‘do more with less’ — that is entrepreneurship at its best. But Indian companies sometimes stand in the way of innovation. The two biggest barriers for Indian companies to be innovative are short-term performance-oriented management systems and a ‘silo’ mentality. The performance scorecard must be made multidimensional, including measures to evaluate innovation effectiveness. Collaboration across functions, products and business units must be encouraged. Companies also need to change their focus from a manufacturing orientation to market orientation. Therefore, companies need to fundamentally change their organisational DNA to unleash the creativity and competitive spirit that Indians naturally have.

Breakthrough innovations often conflict with a company’s established processes and values. In the Indian context, the problem is further exacerbated as many of the big firms are family-managed and there is inter-generational friction. How should companies resolve this problem?

The answer is complex. There is resistance in large corporates globally as well. One source of this resistance is that people who are managing today cannot see beyond today. Second, new ideas often lead to cannibalisation of existing products. Third, if you invest money in the core business, you’ll get results quickly, whereas a new business will take time to become profitable. Finally, new business requires new competencies, but the core company doesn’t recognise this.

Let me, therefore, re-emphasise that the answer lies in transforming the company’s DNA. Companies need to rethink performance evaluation, rewards, strategic planning, recruitment and so on. Family-managed businesses have a big advantage. They are more patient and willing to wait for the long term because it’s all in the family. And big innovations take years to show results. Now if they could embrace modern management concepts, it would be a great combination.

A majority of business innovations in India are really price innovations. Isn’t that a very narrow approach ?

Most Indian companies make low-priced, simple products. Mahindra & Mahindra (M&M) makes small-horsepower tractors that suit small-sized Indian farms. But they are of high quality. Now, M&M is looking at selling them in the US. So, price innovation may well be the thing that Indian companies take abroad. It’s not too different from Japan’s approach. Historically, Japan has excelled in making good-quality small automobiles. But Toyota, for instance, has since moved up the value chain to make Lexus cars. Similarly, Ranbaxy started with generic drugs and now wants to move up the value chain by competing in the patented drugs segment.

The Indian market is unique in size and diversity, making it a great lab for innovation. Do you see Indian companies exploiting this opportunity sufficiently?

Indian companies should first innovate in the Indian market and use that to launch their global strategies. ITC’s e-choupal or Tata Motors’ $2,000 car have the potential to disrupt markets in other parts of Asia, Europe and the US. Companies like M&M in the agricultural equipment industry and Ranbaxy in pharmaceuticals have already shown that Indian corporations, beyond IT services, can launch global strategies. There is potential for more Indian multinationals.

Why do they hesitate to take these innovations abroad?

Indian companies must fully exploit the Indian market first. Wal-Mart stayed in the US market for 35 years till that market got saturated and only then did it look elsewhere. This gave it the cash flow and profits to go abroad. So also with ITC’s e-choupal, which first needs to implement its IT platform in the 600,000 villages in India.

Often innovation is confused with R&D or product innovation. Do you believe this is the case in most Indian companies?

Innovation is a very broad term. Indian companies must excel in many different types of innovation — process innovations, product innovations, management innovations, business model innovations, etc. Innovation is not an R&D function. Every employee should be thinking about innovation.

But how is that possible when Indian management is known to be very top-down?

This would call for a major role reversal in Indian companies. Historically, Indian companies have been too hierarchy-bound. That must change. Younger front-line employees must be empowered to contribute to strategy dialogue. Infosys’ voice of youth programme (where young employees provide critical inputs for strategy decisions) provides the direction for all Indian companies to follow.

What, according to you, are the greatest innovations from Indian companies in the last five years?

There are several examples :
• ITC’s e-choupal has transformed the rural sector by helping farmers increase farm       productivity and get better prices;
• Narayana Hrudayalaya provides world-class bypass surgery for $1,500 by         re-engineering       the healthcare value chain;
• Tata Motors has designed, engineered and manufactured a high-quality automobile,       Indica, cost competitively using 100 per cent indigenous resources; and
• ICICI Bank has changed the financial services industry with Internet banking and  electronic       payment systems.

 Source : Businessworld

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