Tuesday, January 31, 2012

ECON-TECH-The Emerging Innovation Challenge to the West

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India Inside: The Emerging Innovation Challenge to the West


Dec 14th, 2011



By Nirmalya Kumar and Phanish Puranam

For many firms, developing new products for consumers around the world is the most visible manifestation of innovation – the real deal. It is one thing for firms to manage another firms IT system or to field calls from its customers, but quite another to conceptualise a new product or service offering and take the idea all the way from conception to sale. This latter notion is the kind of innovation that people have in mind when they ask, ‘where are the Indian Googles, iPods and Viagras?’. The problem with this perspective is that it virtually ignores innovation in the B2B space and how new product development is currently conducted in MNCs. Today, the new-product development activities of MNCs are segmented across geographies, and consequently much of this development is visible only in B2B context. For example, most passengers neither know nor care where the aircraft engine inside airplanes was designed and manufactured; most electricity consumers do not know which country came up with the wind turbines that generate their electricity; and few computer users – hardcore technophiles excluded – realize which country designed the microprocessor in their machines. The answer, in each case, could be India.

These invisible innovations were all triggered by the availability of highly skilled employees at low prices in India (budget-conserving talent). In contrast, visible innovations from India like Nano or GE’s new ECG machine are catalyzed by the need to serve markets with low purchasing power (budget-constrained customers, though undoubtedly, the budget-conserving talent helps to make these innovations possible). However, there is more to this approach than just making things cheaper. Carlos Ghoshn, who heads Renault-Nissan, is credited with coining the term frugal engineering to signify achieving more with fewer resources. Frugal engineering is not mere jugaad, that is, making fixes and finding work-arounds. Whereas jugaads – while undoubtedly creative and inventive – essentially signal resignation to current constraints, frugal engineering can be a systematic approach to making those constraints irrelevant, or at least less important. As many are beginning to recognize, excessive dependence on the jugaad mind-set may in fact impede the ability to fundamentally transform a situation through disciplined engineering, frugal or otherwise.

Frugal engineering is very much a child of its context. Its development has been intimately tied to the brute fact of low purchasing power among the vast majority of Indian consumers. At the same time, the fruits of frugal engineering could well be valued outside India and, in our view, may be the basis on which Indian innovation gains global visibility.

In addition to making things cheaper, frugal engineering signifies achieving more with fewer resources.

For instance, when Armin Bruck, managing director of Siemens in India, set out to convince the German engineering company’s board of the potential of Indian innovation, he gave the board members the keys to a Tata Nano. He wanted to convey the smell and feel of a revolutionary mass-market product and persuade them to improve the pipeline of local inventions aimed at Indian consumers. Peter Loscher, the company’s chief executive, and his colleagues Heinrich Heinsinger and Joe Kaeser piled into the world’s cheapest car and drove to New Delhi. The test drive fortified the company’s effort to reconfigure its strategy to develop high quality engineering technology for low-cost emerging markets.

Another MNC has employed frugal engineering in a much more modest product. For many years, Nestle sold its Maggi brand dried noodles only to rural Pakistan and India, for about twenty cents per serving. In 2008 the company began promoting Maggi in Australia and New Zealand as a budget-friendly health food with no oil, less salt, and no monosodium glutamate.

Siemens, the German engineering giant, discovered that developing a low cost X-ray machine for India helped improve its models sold in Europe and the United States. While trying to frugally engineer an X-ray machine for operating theatres in its Indian R&D center, the company found that the camera at the core of the machine could be produced for about $500, as opposed to $2,000 in the western models. “The new camera is not a cheap copy of a western model,” said Vishnu Swaminathan, head of the embedded hardware system program at Siemens Corporate Technology India. “We redesigned everything from scratch with a view to cutting costs while meeting the specific needs of local doctors.” Since the new camera is much cheaper but comparable to the original version in quality, it makes sense to install it in the models aimed at developed markets.

The general principle is simple – the fundamental rethink of a product that accompanies frugal engineering efforts in an emerging market may throw up solutions that are also valuable in developed markets.

The general principle is simple – the fundamental rethink of a product that accompanies frugal engineering efforts in an emerging market may throw up solutions that are also valuable in developed markets. It should not be surprising that cutting-edge innovation in mobile phone services, alternative energy generation, and cheap mass transport may come from countries like India and China.

Reva Eectric Car Company in Bengaluru suggests this type of global potential. Its agile two-seater, called the REVAi, has been well received outside its home market. For example, in London (where the car sells as G-Wiz), a standard model costs around £10,000. Because it is an electrically propelled vehicle, G-Wiz is exempt from the London congestion charge, which prohibits most drivers from keeping a car, and parking it is free. Drivers in other European countries have found ways to buy the REVAi; new markets have sprung up in Spain and Norway, as well as on other continents, such as in Costa Rica and Brazil. General Motors agreed to license technology from Reva for its Spark car, which it planned to launch in Indian and U.S. markets. However, Reva was acquired by Mahindra & Mahindra in 2010, and GM ended its relationship with Reva soon after- which may tell us something about the seriousness with which GM view Mahindra & Mahindra as a competitor.

Innovation in India may not be powered by breakthroughs in basic science or conducted for consumers with big wallets and a taste for novelty, until India’s science infrastructure and the purchasing power of Indian consumers improves dramatically. However, the innovation that does occur in India is conducted in a context that makes frugal product development practices as natural as breathing – and it is conducted for a group of consumers who are in the fastest-growing segments in the world. Thus, success in Indian visible innovation may come largely from frugal engineering for budget-constrained consumers, just as much of Indian invisible innovation may come from budget-conserving talent available at a scale unheard-of in most other parts of the world. So what does this mean for managers and policy makers?

- MNCs stand to benefit by tapping into Indian frugal engineering:
1.The resulting innovations can be offered in India as a complete product line to meet the needs of different segments of consumers.
2.The innovations can be offered in other budget-constrained, emerging markets.
3.The MNCs gain unique offering for budget-constrained niche segments in developed markets.

- Western policy makers should consider how frugal engineering practices may help to provide cost efficient public services – in health car, for instance.

- Best practices in frugal engineering are unlikely to come from a textbook. It is up to sophisticated Indian engineers and managers in companies to create a set of standards, a body of knowledge, and a community of practitioners around the concept, much as it has been created for quality management or the Toyota production system. Policy makers in India can help encourage research and training in codified frugal-engineering practices, once these have developed sufficiently. Indian companies and MNCs operating in India need to leverage the capability that the country is developing for frugal engineering. These capabilities enable product development with the following features:


1.Develop product robustness to harsh and varying operating conditions.
2.Work on portability to move solutions to people in remote and poorly connecting areas.
3.Defeature products to reduce junk DNA of products and to begin design afresh.
4.Leapfrog technology to make existing infrastructural constraints irrelevant.
5.Use megascale production to drive down costs.
6.Develop service ecosystems to help economically customize products and related services.


The article is taken from India Inside: The Emerging Innovation Challenge to the West, by Nirmalya Kumar and Phanish Puranam, published by Harvard Business Review Press. Excerpted by permission of McGraw-Hill.

About the authors
Nirmalya Kumar and Phanish Puranam are Professors at London Business School and serve as codirectors of its Aditya Birla India Centre. They have authored numerous books and articles on marketing, innovation, strategy and Indian business.

Source: www.europeanfinancialreview.com

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