Subir Roy: Innovate and rule the world

VALUE FOR MONEY

The latest Nasscom-McKinsey report indicates that if India can beef up its supply of urban infrastructure and skills, there are at least five more years of top-of-the-line growth in software and services (IT and BPO). The two supply side challenges will not be met easily but can be, and those familiar with the way the Indian system is currently running will wager that they will be met.

But a longer and deeper look can be taken. How is the world increasingly going to look like and is India gearing up to be ready for it? James Cash, Harvard Business School professor and director on the boards of companies like GE and Microsoft, recently speculated before an Indian audience on what is likely to be the dominant organisational form of the future.

Today, 78 per cent of US manufacturing companies can't recover the cost of what they produce from price. This can be a cell phone or even a locomotive. Their aim is to make money from the experience a product provides so as to more than make up for the loss from the price. So what we are heading for is the "experience economy".

To shine in the experience economy, you need to be part of the knowledge economy. India has a grasp of the knowledge economy but its mainstay, labour wage arbitrage, will deliver for a limited period. India should use this time to move into "knowledge value added", which drives the "experience economy". China is the only country that can challenge India in this. It is India's IT advantages vs China's manufacturing advantage. The key issue is: Will China be able to use its manufacturing advantage to secure knowledge advantage? In the non-IT knowledge sector, China has an advantage. If the most positive disruptive technology of the future is life sciences, China has the advantage.

Another person who says there is no time to sit back and enjoy the low hanging fruits is Satyam Cherukuri, president of Princeton-based Sarnoff, which has a huge scientific pedigree and offers innovation services. India or Bangalore is a winning place but it is into offering services to whoever wants to reduce risks and costs. This is "me too" activity and not innovative. To meet the challenge of rising domestic costs and new low-cost challengers, it has to grow robust and innovative technology companies that can develop products for the world, he has said in an article in BusinessWeek.

So where does India go from here? One answer is that Indian companies are already innovating, if not in technology then in terms of business model. Dell and Wal-Mart are not great technology innovators but have launched innovative business models. The top India software services companies have developed the offshore delivery model, a business model, and are constantly innovating to keep growing at a breathtaking pace while improving quality.

But what do you do when Accenture has matched you in offshore delivery and in securing larger deals you find that its distributed development model has an edge over yours. As Indian companies seek to go truly global, they will be approaching global costs. In sum, you will never truly catch up with Accenture and in any case there should be other tricks in your bag.

There can be answers to that. Take heart, promising Indian product startups are going great guns and who knows, one day they will match the best in the world. So there can be a case for arguing that since India's knowledge economy is not broken, there is no need to fix it. The counterpoint to that is: Innovate you must, be it in terms of technology or business model. So what is India doing to make itself a hub of innovation so that it can offer the knowledge value added that makes for a winner in the experience economy?

The job of making the country an innovation hub goes beyond the scope of any one industry and ultimately lies with business across the board and public policy. At a country level, Ireland has achieved this remarkable transformation, catapulting it from the bottom of the European league to the top. But this is hosted innovation. There aren't that many Irish firms capturing the global imagination.

Considering the size of the Indian economy and its ability to supply an unending flow of skilled workers, it is worth taking a look at how innovation has been fostered in the US. Specifically, how can Silicon Valley, which is a cradle of innovation, be replicated in Bangalore, which is known for its skills, energy and corporate wealth but not innovation?

Curtis Carlson, president and CEO of SRI International (the initials stand for Stanford Research Institute), feels if you have to be in high tech then great research universities will be fundamental. Government policies are also vital in supporting the formation of new ventures. Next, do you respect intellectual property? That was a big issue in India ten years ago; it is still so in China. Plus, for startups to keep coming up, you need a supportive capital structure""not just VCs but banks and all the other elements that make up a robust financial structure.

People's values are also critical. Do you have a culture that tolerates risk? In Silicon Valley, only one out of ten firms makes it significantly. Lastly, there are some subjective things. Silicon Valley is in probably the most beautiful part of America. Bangalore has its weather.

"I am enormously impressed at how fast India has progressed. I see American venture capitalists coming increasingly to India and China. So that's a big change over the last five years." The only thing that could derail what is happening in India, he feels, is the government putting in place retrogressive policies.