'How Indian companies can promote innovation'
Vijay Govindarajan, Professor at Tuck School of Business at
Dartmouth College in the US, speaks to N. Madhavan about how
Indian companies can promote innovation. Special: Ideas from India that changed the world
Vijay Govindarajan
In 2011, Vijay Govindarajan, Professor at Tuck School of Business, Darmouth College, US, was ranked No. 3 in Thinkers 50 - a global, bi-annual ranking of the world's most influential business thinkers. Every year, he leads a team of future business leaders from top global companies to India and China to help them understand the innovation opportunities emerging markets offer. He speaks to N. Madhavan about how Indian companies can promote innovation. Edited excerpts:
Q. What would you say is the innovation opportunity for Indian business?
A. It is tremendous. India has rightly named this decade as the innovation decade. A National Council for Innovation has also been established. I think India is recognizing the huge opportunity innovation presents. The India story of the last 20 years, while impressive, is not an innovation story. It is really a performance management story. All that Indian companies have done is to make themselves globally efficient. That followed liberalisation, as the country opened up and competition increased with the entry of multinational companies. We have cleaned up our act and next phase of growth will be through innovation.
Q. While innovating whom should companies target - local consumers or global ones?
A. The focus has to be the Indian consumer, or rather the Indian non-consumer. India can be classified into three sections - 'developed' India with a population of 100 million people who live in the 15 major cities. Companies have already targeted and satisfied these consumers. Then there is 'developing India' - a population of 300 million people living in 6,000 small towns. Finally we have 'underdeveloped' India - the bottom of the pyramid - a population of 700 million living in the 600,000 villages. The one billion people who are part of the developing and underdeveloped India are the non-consumers. They have the same problems and needs as consumers but they cannot afford the solutions that are presently available. Tapping non-consumers means innovating to make products and solutions affordable while retaining their quality. That is the biggest opportunity. Indian companies can chart their global story once they meet the demands of the Indian consumers..
Q. Can you identify one sector where Indian companies can crack the innovation code?
A. Health care is a perfect example. Indian health care is pathetic. Since Independence, the government of India has done a good job of controlling infectious diseases. But it has done a terrible job of tackling non-communicable and lifestyle diseases. Non-consumers of health care in India are 90 per cent. If you want to find a solution to this problem you need breakthrough strategies. Interestingly, there are also some success stories here. Some private companies have figured out ways to reach non-consumers. Take the case of Aravind Eye Hospital. The bulk of the surgeries it does are free but it is still a profitable enterprise. Narayana Hrudayalaya does open heart for $2000 while the cost for the same in USA is $150,000. The beauty is that the quality is in no way inferior. It is a shame that there are only a few such hospitals in India. Once we solve the Indian health-care challenge, we will have the capability to take the model to developed nations such as the US where costs are very high be it health-care, education or price of energy.
Q. On a scale of 1-10 (with 10 being the best) where do Indian companies stand when it comes to leveraging innovation?
A. I would say at '2', but it is a bit unfair to rank them that way. India is an old country but politically it is just 60 odd years old and economic liberalisation happened a little over 20 years ago. The US has a 200-year-old history. All I would say is that a huge opportunity awaits India Inc and it should build the right innovation mindset.
Q. What challenges do Indian companies face when it comes to Innovation?
A. Before 1993, innovation was not part of the vocabulary of Indian companies. Even efficiency was not considered important. You could be highly inefficient and you were not penalised thanks to the license raj. For instance, the telecommunication system was bad, but still people waited for years to own a telephone. In the last 20 years, efficiency has become the mantra. Indian economy opened up and international competition arrived. Indian companies had to become efficient to survive. In a way innovation is opposite of efficiency. It is about flexibility and flexibility is inefficient. Indian companies rightly focused on becoming efficient ignoring innovation. Otherwise they would be dead. Now that they have become efficient and in a way cleaned up their acts, it is time for Indian companies to put innovation as central part of their agenda and drive growth.
Q. What should they do now?
A. Indian companies should do three things. Come up with an inspiring goal for 2020 and set a clear direction to achieve it. They also need to set smaller targets. Dreaming big is fine but we need to start small. That way we conserve our resources. Finally, the companies should pay great attention to execution issues. In my experience the biggest failure is not lack of ideas but their execution. Companies need to build the right capabilities, create the right processes and put in place the right performance metrics. If they do these things they can get the innovation engine started. The small victories they will get will build their confidence and give them momentum. India has the human potential. If the processes are in place this potential can be translated into success on the ground. The next 10 years will make or break India when it comes to innovation. We are at the crossroads. We can become a great country or remain a developing nation and that will be decided by the choices we make today.
Q. How have companies in other emerging markets fared with innovation?
A. Companies in China and Brazil have done well. There have been pockets of excellence in Africa too. But no one has cracked the innovation code yet. India is not behind on this. This is a race India has not lost yet. If we don't play it right we will lose it in the next 10 years. We have some strengths. The telecom penetration we have came through innovation in pricing. We can build on that. The mobile platform should play a critical role in our innovation journey. Also what we have done in telecom should be replicated in health-care, education and other areas. Cell phones will change India in the next 10 years in the way automobiles revolutionized America 100 years ago.
Q. The bulk of the innovation Indian companies have done so far has been frugal innovation. Why?
A. The reason is that they are innovating for the developing and underdeveloped India where affordability is critical. The frugal mindset is extremely critical. Frugality does not mean poor quality. It is about delivering quality service using modern technology at extremely low cost.
Q. What is the role of the government in fostering innovation?
A. All that the government needs to do is to provide a framework for innovation to take root. The framework should boost funding for innovation, provide fiscal stimulus by way of tax breaks and incentives and finally, promote branding. Indian success stories have to be brought into the limelight. The government should do just this and then let entrepreneurs take over.
Q. What would you say is the innovation opportunity for Indian business?
A. It is tremendous. India has rightly named this decade as the innovation decade. A National Council for Innovation has also been established. I think India is recognizing the huge opportunity innovation presents. The India story of the last 20 years, while impressive, is not an innovation story. It is really a performance management story. All that Indian companies have done is to make themselves globally efficient. That followed liberalisation, as the country opened up and competition increased with the entry of multinational companies. We have cleaned up our act and next phase of growth will be through innovation.
Q. While innovating whom should companies target - local consumers or global ones?
A. The focus has to be the Indian consumer, or rather the Indian non-consumer. India can be classified into three sections - 'developed' India with a population of 100 million people who live in the 15 major cities. Companies have already targeted and satisfied these consumers. Then there is 'developing India' - a population of 300 million people living in 6,000 small towns. Finally we have 'underdeveloped' India - the bottom of the pyramid - a population of 700 million living in the 600,000 villages. The one billion people who are part of the developing and underdeveloped India are the non-consumers. They have the same problems and needs as consumers but they cannot afford the solutions that are presently available. Tapping non-consumers means innovating to make products and solutions affordable while retaining their quality. That is the biggest opportunity. Indian companies can chart their global story once they meet the demands of the Indian consumers..
Q. Can you identify one sector where Indian companies can crack the innovation code?
A. Health care is a perfect example. Indian health care is pathetic. Since Independence, the government of India has done a good job of controlling infectious diseases. But it has done a terrible job of tackling non-communicable and lifestyle diseases. Non-consumers of health care in India are 90 per cent. If you want to find a solution to this problem you need breakthrough strategies. Interestingly, there are also some success stories here. Some private companies have figured out ways to reach non-consumers. Take the case of Aravind Eye Hospital. The bulk of the surgeries it does are free but it is still a profitable enterprise. Narayana Hrudayalaya does open heart for $2000 while the cost for the same in USA is $150,000. The beauty is that the quality is in no way inferior. It is a shame that there are only a few such hospitals in India. Once we solve the Indian health-care challenge, we will have the capability to take the model to developed nations such as the US where costs are very high be it health-care, education or price of energy.
Q. On a scale of 1-10 (with 10 being the best) where do Indian companies stand when it comes to leveraging innovation?
A. I would say at '2', but it is a bit unfair to rank them that way. India is an old country but politically it is just 60 odd years old and economic liberalisation happened a little over 20 years ago. The US has a 200-year-old history. All I would say is that a huge opportunity awaits India Inc and it should build the right innovation mindset.
Q. What challenges do Indian companies face when it comes to Innovation?
A. Before 1993, innovation was not part of the vocabulary of Indian companies. Even efficiency was not considered important. You could be highly inefficient and you were not penalised thanks to the license raj. For instance, the telecommunication system was bad, but still people waited for years to own a telephone. In the last 20 years, efficiency has become the mantra. Indian economy opened up and international competition arrived. Indian companies had to become efficient to survive. In a way innovation is opposite of efficiency. It is about flexibility and flexibility is inefficient. Indian companies rightly focused on becoming efficient ignoring innovation. Otherwise they would be dead. Now that they have become efficient and in a way cleaned up their acts, it is time for Indian companies to put innovation as central part of their agenda and drive growth.
Q. What should they do now?
A. Indian companies should do three things. Come up with an inspiring goal for 2020 and set a clear direction to achieve it. They also need to set smaller targets. Dreaming big is fine but we need to start small. That way we conserve our resources. Finally, the companies should pay great attention to execution issues. In my experience the biggest failure is not lack of ideas but their execution. Companies need to build the right capabilities, create the right processes and put in place the right performance metrics. If they do these things they can get the innovation engine started. The small victories they will get will build their confidence and give them momentum. India has the human potential. If the processes are in place this potential can be translated into success on the ground. The next 10 years will make or break India when it comes to innovation. We are at the crossroads. We can become a great country or remain a developing nation and that will be decided by the choices we make today.
Q. How have companies in other emerging markets fared with innovation?
A. Companies in China and Brazil have done well. There have been pockets of excellence in Africa too. But no one has cracked the innovation code yet. India is not behind on this. This is a race India has not lost yet. If we don't play it right we will lose it in the next 10 years. We have some strengths. The telecom penetration we have came through innovation in pricing. We can build on that. The mobile platform should play a critical role in our innovation journey. Also what we have done in telecom should be replicated in health-care, education and other areas. Cell phones will change India in the next 10 years in the way automobiles revolutionized America 100 years ago.
Q. The bulk of the innovation Indian companies have done so far has been frugal innovation. Why?
A. The reason is that they are innovating for the developing and underdeveloped India where affordability is critical. The frugal mindset is extremely critical. Frugality does not mean poor quality. It is about delivering quality service using modern technology at extremely low cost.
Q. What is the role of the government in fostering innovation?
A. All that the government needs to do is to provide a framework for innovation to take root. The framework should boost funding for innovation, provide fiscal stimulus by way of tax breaks and incentives and finally, promote branding. Indian success stories have to be brought into the limelight. The government should do just this and then let entrepreneurs take over.
