While many still argue that the West will maintain its edge because of its penchant for innovation, India is not far behind. Innovation in India is already happening, but a large part of it is in the B2B space, R&D outsourcing and process innovation, which is invisible to the end consumer, claim London Business School professors Nirmalya Kumar (professor of Marketing, and co-director of the Aditya Birla India Centre) and Phanish Puranam (professor of Strategic and International Management and co-director, Aditya Birla India Centre) in their latest book India Inside. While innovative products that serve a global audience — or visible innovation as they call it — is still a while away, India is on the right path. In conversation with Preeti Khicha, Kumar and Puranam share some insights on the changing landscape of innovation in the country.
How do Indian companies approach innovation? How is it different from the way the West approaches it?
Indian companies are not willing to take that risk. This is unlike the West. When you think of some of the iconic companies in the West like Intel, Cisco or Microsoft, their model of innovation is about a high tolerance for failure. They try many things and not many of them succeed. And the few that succeed are blockbusters and they recoup their investments. In the life-sciences space also it is the same model. You invest in 10 products and spend billion dollars in each. One of them will pay off and you will recover the investment. Western companies can do that because their markets are well-developed and there is high purchasing power. That is not the situation in India.
In terms of the Indian eco-system, what are the issues that prevent innovation?
In your book you have mentioned that companies like AstraZeneca and Intel have tied up with universities to develop talent. Do you think this is a good approach to solving the talent crisis in the country?
Kumar: Yes, but that is not the best way. Backward integrating education is the way that companies are trying to solve the problem, but it raises the costs for them to do business. However, it would be much better if our education sector could produce the number and quality of people that is required. When it is a cost to the company, it makes them less competitive.
What is your prescription to correct this scenario?
Kumar: The government has a very important part to play in the education system, especially in the primary education system. It needs to remove the constraints that are preventing educational institutions from growing. It needs to stop the constraints that prevent outsiders from coming up and setting up education systems here. If MIT wants to set up an education institution to graduate 10,000 students, why should we say no? We need it. The institutions too have a part to play. Why are they putting constraints on themselves with respect to research and the number of graduates? Why do IIMs or IITs feel that they can graduate only 300 students, and not 10,000 students. Educational institutes need to get more ambitious.
Puranam: I think, the venture capital industry needs to mature. Right now, the venture capital funding is chasing easy money. They are not chasing early stage funding and early stage funding for entrepreneurs is very difficult in India.
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You shared some perspective in your book on how process innovation in India has happened in some of the less glamorous industries such as call centres, generics and metal forgings. Can you elaborate?
Kumar: Innovation is about products and processes. India is one of the few places in the world where millions of young, educated and smart people dream of working in a call centre, which in most countries is not a great job. When you put these overqualified people onto this task very quickly they get bored. Once, they get bored, they innovate. So they ask, how can we do this process better and how to do it differently? Thus in these industries, we see injection of intelligence, which results in innovation. The net result is that the call centre industry in India is more technologically advanced than its counterparts anywhere in the world. How they are innovating is that they are trying to break out of the model that you need to increase the number of people to increase revenues.
Can you share examples of innovations coming out of these sectors? Let’s take the call centre industry as an example.
Puranam: For example, the Bangalore based company called 24/7 Customer, which started out as a call centre, today is one of the leading data-analytics-integrated-into-the-call-centre model in the world. The innovation is very clever. If you call the company and I have a record of your past calls, I know what you called about and from your tone of voice, I know if you are angry or happy. Just by hearing you speak for the first 10 seconds, through my database I can judge what you are calling about, what frame of mind you are in and what agent would be best qualified to handle you. So, at all levels, they hired people who compared to their counterparts would be much better qualified. You are not going to find PhDs and statisticians in the US working in call centres, like in India. In the same way, even in the generics industry you will find a higher caliber of people in India than the rest of the world.
As you said, many companies in India do not want to innovate as they do not want to spend that kind of money. So when will things change on this front?
Kumar: This is a matter of evolution. Right now India is at a stage where for Indian corporates spending money on innovation is not as important as Western companies. The reason is we have a cost advantage. Also, we have a growing market where you can sell what you have, but once the market becomes more sophisticated and costs become higher, they will have no choice but to pay more attention to innovation. Just like Japan, China and Korea went through it, so will India.
Many argue that product innovations for the bottom of the pyramid — for example, the Godrej Chotukool — are not sustainable business models. What are your views in this regard?
Puranam: In some sense, these are experiments. What we need to appreciate about the Tata Nano, Godrej Chotukool or Tata Swach is the philosophy of engineering. It is to take a concept like a refrigerator or car and say how to strip down unnecessary features and give me a bare bones version for a low price. The approach is the innovation, not the product itself. We will never have an innovative culture unless you accept failure. Nine out of 10 products fail. Most new ideas are bad ideas. So you need to have the capacity of tolerating many bad ideas in the hope of a good one.
Is Jugaad a useful strategy for innovation in the Indian context? Many have argued that innovation needs to go beyond Jugaad. What is your take?
Kumar and Puranam: Jugaad is overcoming constraints in a creative way. However, we are more focused on creativity and innovation which is more than overcoming constraints and about going to the world. So frugal engineering may get to the world, but it is not really clear to us. I do not think Jugaad s are scalable. They are something you can appreciate and admire but they are not long-term solutions. My colleague has written a book called From Jugaad to Systemic Innovation and I agree completely with him. You need to find ways to solve problems in a systematic and repeatable way, and not come up with a particular solution to each problem. It is to say, instead of the Nano why didn’t we come with a bullock cart with a fuel pump or an engine?
Has the level of competition impacted innovation in our country?
Kumar: Yes it has. One of the reasons why IT companies are going increasingly for the innovation- and product-based model is that the model where just competing on adding labour and adding revenues is really not sustainable. So all the IT companies know that the model where revenues increase with the number of people is not an interesting model as you run into the talent crunch and also costs are going up fast. So you need to have a non-linear model which will not depend on revenue growth, highly positively correlated with people growth.
Puranam: So if Wipro and Infosys are talking about building technology platforms it is precisely for the reason that they can’t just compete based on the model of cheap people. Cheap people are available not just in India but across the world.
Will venture capital (VC) interest and investment aid innovation?
Kumar: Right now VCs are funding models that work, which they know will work and they need money to scale up. They are not funding ideas that may never work and that is our issue. It is more like a guaranteed loan to someone. It gives you good return but that is not the purpose of VC. That will come with more competition. There is change in the last couple of years and it will happen.
How do you think the innovation landscape will evolve in India over the next five years?
Kumar: You will see two things. From companies which have set up research and development centres here and IT companies which are doing innovation for the world, you will see some parts of the spill-over effect. People who have been working five or 10 years for these companies will want to do their own entrepreneurial venture. Second, for Indian companies when the growth slows down or the cost structure goes up, they will say we also want to compete on innovation. Right now most of them do not have the innovation capabilities. In the future, they will hire people out of the MNC captives to grow our innovation capabilities.