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In today's complex and competitive world, generating growth and profit is closely linked to an organisation's ability to generate new ideas and creative solutions. Clearly, those that do not have the capacity to embrace new ways of doing things and put in place flexible business models may risk falling behind. As the world's economic wheels continue to move from West to East and North to South, the importance of innovation has increased exponentially in rapid-growth markets, such as India and China. In fact, the emerging and developing countries now account for half of the world's GDP (in Purchase Power Parity terms), and in 2012, they overtook developed countries as leading recipients of FDI for the first time. Expenditure on research and development is four times more in emerging markets than mature ones, with companies spending millions of dollars on innovation to ensure their survival and future growth.
Make innovation a strategic priority
India has recently witnessed a number of high-profile product and service innovations, and some Indian companies have also adopted innovative measures to match current business needs. However, relatively, innovations by Indian companies have been fewer. The power of innovation is amply evident from the performance of the five most innovative Indian companies featuring on Forbes' list : Larsen & Toubro, Hindustan Unilever, Infosys, Tata Consultancy Services, Sun Pharmaceutical Industries. They have generated healthy profits in the last five years, and three of them have been able to maintain a net margin between 20 per cent and 30 per cent during the last three years. Innovation is a strategic priority for these companies, which they use as a tool to grow, achieve market leadership and define their future.
Improve your business model
With the constant need to streamline business, companies today should consider the breadth of innovation beyond products and services, and recognise that implementation of adaptable and flexible business models is an imperative for long term success. This is more significant, given that innovation in products and services can easily be copied by competitors.
A common challenge faced by several Indian companies is their approach to growth. They prefer diversifying their portfolios to refreshing or rethinking their current core products or business models. They need to be mindful that by not being innovative in their existing approach, they are creating risk for their market positioning and brand identities. It is not enough to be innovative some of the time, but crucial to be innovative all the time.
Rethink and "reinvent"
Innovation and invention are entirely separate. While invention relates to new discoveries, innovation entails continuous iterations that add value and meaning to already invented products, services or business models. "Frugal" or reverse innovation is fast becoming a popular trend in rapid-growth markets, such as India. Increasing disposable incomes and education levels are making rural India - comprising around 70 per cent of India's population - the most sought after market opportunity in the country. Some domestic companies are already leveraging this potential by redesigning their existing products. Inexpensive cars, refrigerators and water-filtration systems are a few examples that have worked well for these companies. In fact, some large global market players are also following the reverse approach in markets such as India. These companies are developing local technologies in and for growth-market regions and are thereafter distributing them globally. This is clearly demonstrated by the large number of MNCs setting up their global R&D centres in India to pilot their next-generation business models and organisational structures, and develop cost-efficient, sustainable solutions.
Inculcate an innovation culture
All the top innovative companies in the world have one thing in common - an organised innovation-supportive corporate culture. Professionals working in corporate houses and entrepreneurial ventures need to realise that today, a successful organisation needs to implement a culture that nurtures and supports innovative thinking and practices, encourages ideas from all levels of organisational hierarchy, and most of all, has the ability to accept failure and move on.
Leadership mindset to promote innovation
Innovative companies are led by innovative leadership. It is their responsibility to lay down the right foundation of a creative culture in any organisation. Stakeholders need to encourage, sponsor and lend their strong support to eliminate hierarchical barriers, network smart, accept failures and place high emphasis on the need to innovate. Many creative organisations put in place leadership teams or departments that focus on creating an innovation-friendly culture.
Encourage ideas from everywhere
The world's most innovative companies encourage their employees to think imaginatively and freely present their ideas to the leadership, irrespective of their seniority and functions. Some Indian companies, particularly in the IT sector, have formed internal innovation communities and promote entrepreneurship to harness employee insights and creative thinking across ranks, geographies and functions. In some cases, this has helped the organisations establish new and successful ventures that now contribute to new employment.
A large number of global companies are using external resources to their advantage and are innovating successfully. Today, it is not uncommon to hear about collaborations between global companies, even if they are competitors, but in the Indian scenario such partnerships are infrequent. In today's era of global "connectedness," it is important to emerge from under the "protectionism" umbrella and be more open to collaboration with a broad group of peers, including suppliers, consumers, the government, competitors and academic institutions.
Tolerance to accept failures
The burning question is: "Are you ready for failures?" Only organisations that think it is all right to make mistakes and then learn from these have the potential to join the league of the most innovative companies in the world. In the case of many Indian enterprises, risk tolerance is low and ideas are often crushed for the fear of failure. It is essential for such organisations to focus on their learning and not the failures. They need to empower their employees and give them the confidence to fail and then try again, after having learnt from their mistakes. Such an experimental and iterative learning process results in innovation.
Execute ideas
There is no point in merely creating a pipeline of fresh ideas or being obsessed with these without getting them out to the market. In today's highly competitive environment, organisations need to move fast with relevant ideas. If they do not, someone else will. Furthermore, the search for ideas, quick evaluation of the right ones and the process of executing these should be managed rigorously in an organised manner. There has to be a clear and defined organisational process to move ideas forward: approve, experiment, fund and implement. It has been seen that rapid implementation of ideas gives rise to further innovative concepts and faster realisation of benefits.
Celebrate innovation
The innovation process can become very effective and encouraging if it is backed by appropriate reward and recognition systems. The most effective form of recognition is to use people's ideas and give them credit for these. A few companies also organise regular "Innovation awards". These are ceremonies to recognise successful innovators inside and outside the organisation. In fact, today, most innovative companies reward the "sincere" failure of initiatives undertaken in good faith. For example, a large Indian conglomerate has implemented a program that rewards honest failures to encourage its employees to experiment and innovate.
Sunil Chandiramani
Partner & National Director, Advisory Services, Ernst & Young
Partner & National Director, Advisory Services, Ernst & Young
