The Hindu Business Line : Innovation is strongly linked to strategy and competitiveness

Continuous innovation is integral to the competitive battle in which organisations are constantly trying to get ahead of one another. — DR RISHIKESHA T. KRISHNAN, PROFESSOR, CORPORATE STRATEGY AND POLICY AREA, IIM-B

A simple search for `innovation' yields nearly 30,000 news hits on Google. "The future will be one of innovation and positive change in the world of technology," reads a quote of Michael Dell, who is banking on computer future in India. `Business success linked to innovation, hard work, integrity,' is the headline of a Karachi-datelined report on www.thenews.com.pk. `EU puts emphasis on innovation in the field of biotechnology,' says www.welcomeurope.com. Innovation, talent development, and data protection are the three areas for `enhanced focus' in the Indian IT industry, according to Mr Lakshmi Narayanan, the new chairman of Nasscom.

"The National Innovation Foundation and its affiliate organisations have documented thousands of innovations by people at the grassroots in India," says Mr Rishikesha T. Krishnan, Professor of Corporate Strategy, Indian Institute of Management Bangalore, in a recent interaction with Business Line. "We do not lack innovative abilities. But the ability to harness this innovative capacity and convert it into globally competitive enterprises in a sustained and systematic way currently eludes us." Mr Krishnan's research interests are in the areas of strategy, innovation and competitiveness. He is currently the Chairperson of Research & Publications, and of IIMB's Centre for Development of Cases & Teaching Aids.

Excerpts from the interview:

To start with, a definition of innovation, and how it is related to strategy and competitiveness...

Innovation is more than invention. The translation of an invention or discovery into a commercial application is an equally important dimension of innovation. Innovation thus has two important dimensions — novelty and utility, the latter proved by the acceptance by customers or users. Novelty does not necessarily mean "new to the world" — some of the most important innovations can be new to a country, industry or company. However, once adoption of an innovation takes place, further improvements on it, or in other words, further innovation, are often critical to successful commercial exploitation of the innovation.

The criticality of innovation, whether it is in the form of continuous improvement on the shop floor, or new products or services launched in the marketplace is widely accepted. Innovation is not limited to R&D and product design, but extends across the entire value chain — it is equally important in organisational design, the supply chain, manufacturing, financial management and in branding.

Organisations are constantly trying to get ahead of one another in a competitive marketplace. Continuous innovation is integral to this competitive battle. Companies seek to create more value for their customers without increasing the cost of their products or services. Innovation in some part (or all) of the value chain is the way to achieve this. For example, the Toyota Production System enables Toyota to create product variety yet maintain low inventory, thus combining customer benefits with low costs. Hence innovation is intimately related to strategy and competitiveness.

India, the back-office of the world. And China, the global factory. Do both the countries have a strategy to stay competitive through innovation?

The unglamorous incremental innovation in all aspects of the organisation is the lubricant of ongoing competitive success. Innovations that improve efficiencies in production operations or service delivery translate directly into improvements in the bottomline. Particularly for companies in developing countries that can be far from the productivity frontier of global leaders, efforts at continuous improvement are critical to catch-up as clearly demonstrated by successful companies from South Korea and Taiwan. Both China and India realise the need to build innovative capabilities. While we have not yet seen clearly articulated strategies for innovation at the national policy level in either country, but individual firms have formulated their own strategies.

India's innovation policy. What are the pluses and the minuses?

India lacks a coherent innovation policy. We have bits and pieces - for example, the Ministry of Science & Technology has schemes to support R&D in academia and industry but the focus is on the former rather than the latter. Yet, most research on innovation shows that the firm is the preferred locus of innovation.

People (and upgradation of skills) is another important part of innovation policy, but this falls under the purview of the Ministry of Human Resource Development (MHRD). The MHRD appears to be more preoccupied with issues of equity and control than improving quality, yet our innovation potential is directly linked to the quality of education that we can provide.

Do you think that a better collaboration among academia, research institutions, government, and corporates can help further innovation?

Certainly. But for this, each of these stakeholders has to understand the others' priorities and language. Government policy can help in this regard. The New Millennium Indian Technology Leadership Initiative (NMITLI) launched by CSIR has brought together academia, research institutions and corporations to work together in areas where India can potentially achieve technology leadership. CSIR provides low-interest funding to facilitate this joint working and also bears a part of the risk. A product suite for bioinformatics, BioSuite, is an important outcome of this recent initiative.

The Government should move towards making the inception of new high-tech firms easier, reducing their mortality, and facilitating their growth. Some specific steps to facilitate the creation of high-tech firms include seed funding through incubators; allowing scientists and engineers from laboratories and universities to start firms with technologies they have developed; allowing national laboratories (or parts) to morph into industrial units; creating publicly-owned, but privately managed high technology infrastructure in selected industrial parks; making national laboratories and institutional facilities more easily available to small firms; and relaxing collateral requirements for firms. To reduce firm mortality, the government could expand/decentralise government support programmes for technology development and commercialisation; allow small firms to bid for research contracts from scientific agencies such as DST, ISRO, DRDO; modify public procurement rules to allow short term monopolies on proprietary products; relax pre-qualification clauses in public procurement; encourage non-resident Indians to start firms in industrial parks; and increase the enforceability of IPRs.

Incentive structures also need to change, particularly in the case of academia. Academic institutions should recognise those who do outstanding research, and research should become one of the essential criteria for hiring and promoting faculty as in the U.S. tenure system. The quantity and quality of research output of an institution should be more rigorously measured in the accreditation process. Universities and academic institutions should create and manage portfolios of intellectual property with equitable mechanisms for sharing royalties with the inventors. Without these changes, academic institutions will have little motivation to enhance their research output.

Are our top companies innovating? Examples of best practices.

The Indica and the Ace from Tata Motors, the Pulsar from Bajaj, the global delivery model conceptualised by our leading software companies and the lifetime prepaid card for mobile services are all excellent innovations from our top companies. A recent report by Booz Allen Hamilton rightly points out that the innovative output of a company depends not so much on the amount it spends, but more on the company's capabilities in ideation, project selection, development and commercialisation. Many of our leading companies demonstrate these capabilities in increasing magnitude.

What can be good measures of innovation and competitiveness?

A good measure of innovation is the proportion of revenues generated by products or services launched in the last three-four years. Several studies have shown that there is a close correlation between the ability to create new products and services on a sustained basis and above-average financial returns. These studies also show that a strong customer-focused innovation pipeline is essential to be able to generate these new products and services.

Why is it necessary for public sector institutions such as banks to innovate?

Today the public sector is perhaps the most important arena for innovation. India faces several challenges in health, education and poverty alleviation. The resources available are limited, but if these can be used creatively, many problems can be addressed. Technology offers new avenues for innovation through approaches such as e-governance.

Conventional banking methods may have only limited impact but micro-credit and self-help groups offer new hope. Indian public sector banks have huge networks and cover the whole country. If they can use the knowledge they possess innovatively they can transform the economic activities of their customers in both agriculture and industry.

Can innovation be taught? Do we need special institutions for the purpose? How far do grads of our B-schools take the innovation route?

The education system is critical to promoting innovative abilities. If we over-emphasise rote-learning and do not provide an environment in which students think for themselves and come up with new ways of doing things, we will be unable to realise our creative and innovative potential. The education system has to change, right from the primary school level. We need to attract the best talent to teaching so that our youngsters learn from capable teachers. Only teachers who are completely confident in their own knowledge will encourage students to think for themselves! Working conditions and compensation levels for teachers need to be improved considerably to attract good talent. This aspect is currently being over-looked as we emphasise size and scale.

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