has made momentous progress over the last 10 years, but it has
done so primarily by reverse engineering products introduced in
the West, imitating solutions invented elsewhere, and being a
low-cost outsourcing hub. If the country is going to continue
to grow, it will have to learn a new set of tricks. It will have
to become more innovative. Fortunately, India is a young country.
Half its population is under the age of 25. These young people
are creative, bright and optimistic about the future. Sadly, their
opportunity to contribute to the Indian economy is barred by a
number of obstacles at both the corporate and policy levels. Only
through a judicious choice of interventions at both levels can
India realise its ambition of becoming an economic superpower.
My co-author, Chris Trimble, and I studied
dozens of corporations over five years (Ten Rules for Strategic
Innovators: From Idea to Execution, Harvard Business School Press,
2005). Our research indicates the biggest barrier to encouraging
innovation in large corporations is their management orthodoxies
that support existing businesses; they get in the way of encouraging
breakthrough new businesses.
There are, of course, exceptional Indian
success stories. For example:
- Using the power of digital technologies,
ITC's e-choupal project has transformed the rural sector, both
to dramatically increase farm productivity and to help farmers
realise better prices;
- Aravind Eye Hospitals provide world-class
eye care at a very low cost to millions by fundamentally reengineering
the healthcare value chain;
- Tata Motors has led the way in designing,
engineering and manufacturing a high-quality automobile, Indica,
cost competitively using 100 per cent indigenous resources;
- ICICI has radically changed the rules
of the game in the financial services industry through such
innovations as internet banking and electronic payment systems.
Large Indian corporations have tremendous
advantages in creating fundamentally new businesses-assets like
brands, customer relationships, core competencies and manufacturing
capacity. Independent entrepreneurs might spend years building
these things from scratch. The trick for large companies is to
lend their assets to breakthrough new businesses without stymieing
the newcomers with irrelevant thinking. ITC's e-choupal and Tata's
Indica are good examples of how to do that.
|An organisation's DNA contains many reinforcers
of behaviour. NewCo's DNA must differ from CoreCo's and that
means a different approach to hiring, planning, etc.
Building a new business unit must be approached
carefully if a breakthrough idea is to have a chance. The new
business must be designed to overcome three fundamental challenges,
specifically, forgetting, borrowing and learning. That is, it
must forget the parent company's success formula, borrow the parent's
resources, and learn how to succeed in a new environment.
Most large companies underestimate just how
difficult it is for an organisation to shake itself loose from
its past. Organisations, understandably, become very complex machines-machines
hardwired to excel in the current game. As a company grows bigger,
employees become more specialised, and the number of people who
understand how the machine works as a whole dwindles. Then along
comes an idea for an innovative new business. Step one in building
it is to destroy the hardwiring. In creating the new business
unit, which we'll call NewCo, you must question every assumption
about the way the core business, aka CoreCo, works. That's a tall
task that we call "forgetting".
NewCo (e.g., ITC's e-choupal) has a business
model that differs fundamentally from CoreCo (e.g., ITC's tobacco
business). The challenge of "forgetting" is to ensure
CoreCo's success formula is not imported to NewCo. This is much
easier said than done. In our research, we observed many cases
in which NewCo's managers could clearly articulate the differences
between NewCo's and CoreCo's business models, but still exhibited
behaviours more befitting CoreCo.
organisation's DNA contains many reinforcers of behaviour. NewCo's
DNA must differ from CoreCo's, and that means a different approach
to hiring, promotion, leadership style, planning, assigning status
and authority, defining relationships between groups, evaluating
business performance, and more. For NewCo to succeed, it should
be mostly staffed with outside hires at both the operational and
management levels. It is unrealistic to expect CoreCo's long-term
employees will easily abandon its business definition unless they
are regularly challenged by an outside perspective. Only outside
hires can give this external perspective. Therefore, large Indian
corporations must rethink their "promotion from within"
policy when it comes to staffing NewCo.
Even while it is trying to distinguish itself
from CoreCo, NewCo must borrow from it. CoreCo's wealth of resources
and assets endows NewCo with its biggest advantage over competition.
Thus, the challenge of "borrowing" is to provide NewCo
with access to these resources in a way that does not damage CoreCo's
own commitment to excellence. This involves creating a small number
of carefully selected links between new and parent companies and
assigning the CEO responsibility for managing these links. The
CEO must ensure NewCo can access CoreCo's resources without readopting
the latter's DNA, thus, securing both CoreCo's competitive position
and NewCo's future.
NewCo's business is highly uncertain. It
must systematically resolve the specific unknowns as quickly as
possible and zero in on the best possible approach. "Learning"
is not easy. Many innovators figure if they are brave enough to
face their failures without flinching and evaluate them rationally
and dispassionately, they will learn. But learning is much more
likely when innovators implement a disciplined process for articulating
and testing hypotheses about how their new business will succeed.
|What India needs is not just people who
'do', but those who 'dream', who imagine new industries and
open up new possibilities, like Sarabhai, Tata, Narayana Murthy
Indian corporations must rethink their performance
evaluation systems. They should evaluate leaders of NewCo based
on their ability to learn and make good decisions, rather than
on results. Though accountability to plans is an effective practice
in mature businesses, it can be crippling in new high-potential
Tackling these three challenges-forgetting,
borrowing and learning-creates stress. Learning leads to stress
because it requires a distinct approach to planning, with an analytical
discipline that is much different from the operational discipline
of execution and performance. Likewise, forgetting and borrowing
are always in tension. At these points of interaction, stress
naturally arises because of the differences in business models,
values, styles and priorities. Managing these tensions productively
is job #1 for Indian CEOs.
Corporate change, while essential, is not
enough to cultivate a nation of innovators. India must commit
to substantive changes on a larger scale, particularly in the
areas of education, capital markets, bureaucracy and infrastructure.
India's education system focuses too much on "left-brain"
thinking: too much emphasis on imparting knowledge by rote. Rote
memorisation develops brilliant engineers who are world-class
in reverse engineering. However, what the country needs is not
just people who "do", but those who "dream",
who imagine new industries and open up new possibilities-people
like Vikram Sarabhai, J.R.D. Tata, N.R. Narayana Murthy and Verghese
Kurien. Without losing the emphasis on factual knowledge, we should
promote "right-brain" thinking in our educational institutions
through case studies and Socratic method, where students are encouraged
to critically question the status quo, promote out-of-the-box
thinking, engage in creative problem solving, and challenge the
orthodox and conventional ways of doing things. Ultimately, Indians
who are educated in both facts and critical thinking will be more
willing to take risks and embrace new ideas and experimentation.
Secondly, we need to create a vibrant and
well-functioning venture capital market, along the lines of Silicon
Valley, which provides risk capital to entrepreneurs with breakthrough
ideas. An efficient market for capital encourages more creative
ideas to surface. Additionally, Indian bankruptcy laws need to
be reinvented along the lines of the West. For instance, businesses
that fail should have the opportunity to restructure and shed
debts. After all, entrepreneurship implies pushing the envelope,
taking risks and perhaps failing. Reforming bankruptcy laws might
be one way to remove the stigma of failure. Unless people know
they may have a second chance, they are unlikely to think big.
Third, we need to remove barriers that impede
innovation, most especially red tape and bureaucracy. Even if
someone has a breakthrough idea, it takes tremendous perseverance
to work through India's government machinery. There is an urgent
need to streamline the governmental processes. This will require
the Indian government to accelerate the ideological revolution
started in the 1990s and remove anticompetitive government regulations
that protect large and inefficient state institutions.
Finally, we need a major push to dramatically
upgrade transportation-roads, airports, ports, etc.-and communications
infrastructure-bring fibre optics to every part of India. India's
manufacturing sector has the potential to become world class through
radical process innovations, but there is little incentive to
do so if the bottlenecks with the logistics and transportation
India is a country full of talented people
with tremendous potential. That is truly India's core competency.
With the right policies in place at the corporate and national
level, we can turn them loose-and we can all benefit.
Vijay Govindarajan is a
Professor at Dartmouth College's Tuck School of Business