R1007n_pdf.fm

A few Indian pioneers have figured out how to do more with fewer resources—for more people. Included with this full-text Harvard Business Review article: Idea in Brief
Affordability and sustainability are replacing premium pricing and abundance as inno-vation’s drivers, but few executives know how to cope with the shift. Companies must make their offerings accessible to a greater number of people by selling them cheaply and must develop more products and services with fewer resources.
Westerners are struggling to tackle this challenge, but some enterprises in devel-oping countries, particularly in India, are showing the way by practicing three types of “Gandhian innovation”: • disrupting business models
• modifying organizational capabilities
• creating or sourcing new capabilities
Companies anywhere in the world can fol-low suit by striving for inclusive growth, es-tablishing a clear vision, setting stretch tar-gets, exercising entrepreneurial creativity within constraints, and focusing on people, not just profits or shareholder wealth.
A few Indian pioneers have figured out how to do more with fewer resources—for more people. Innovation, after vanishing from corporate fordability and sustainability, not premium priorities during the recent recession, is slowly pricing and abundance, should drive innova- making its way back onto to-do lists in corner offices. In most companies, though, the inno- Companies can respond to the challenge by vation process is coughing and sputtering like developing strategies that allow them to create a rusty old engine. Not unlike internal com- more products with fewer resources and sell bustion, traditional innovation is heading for them cheaply. The search for lower manufac- obsolescence—because parameters have com- turing costs and fresh sources of talent will in- pletely changed—and it will take unsuspect- crease pressure on them to globalize, leading Most innovation programs are built on the chains, and cross-border interdependencies. At assumptions of affluence and abundance. The the same time, the new processes will make more, the better. Striving for bigger margins is products and services accessible to a greater B School 101. However, we see shaken consum- number of consumers the world over. Learning ers in the United States and Europe asking for to do more with less for more people, we be- inexpensive or value-for-money products and lieve, should be the innovator’s dream.
services. We see billions of first-time consumers While this undertaking is proving to be a in China and India—where economic growth nightmare for many Western companies, our is surging and 2 billion to 3 billion people will research suggests that a few pioneers in devel- join the middle class in the next decade—who oping countries are showing the way. They de- can afford only the cheapest offerings. We see sign inexpensive products and manufacture the rich and the young in both the developed them with so little capital and on a scale so vast and the developing worlds demanding envi- that their prices—1 cent for a one-minute tele- ronment-friendly products and services. Af- phone call, $30 for cataract surgery, $2,000 for harvard business review • july–august 2010 Innovation’s Holy Grail
a car—are, by an order of magnitude, the low- ing, mobile communications, oil drilling, re- est in the world. Faced with shortages of capi- tailing, supercomputing, water purification, tal, technology, and talent, audacious entrepre- wind energy—and cover a range of capital and neurs in emerging markets have had no choice labor intensities. The only common link is that but to overturn accepted wisdom. A potent combination of constraints and ambitions has other enterprises innovate along similar lines, Nowhere is this more evident than in India, we found that two variables merit analysis.
which was not exactly famous for innovation One is, of course, the source of the technolo- until recently. Indians used to joke that it was gies involved. They can be bought; adapted or prophetic that a local mathematician had ar- synthesized in a fresh way; or built ab initio.
guably, around 500 AD, invented the number The other key factor is the organization’s ca- pabilities, by which we mean the competen- tions Indians developed thereafter. No longer cies, knowledge, and skills that the company can anyone say that. Smart Indian companies must apply in order to be successful. At one have come up with new technologies and rad- end of this spectrum, companies can disrupt ical business models to penetrate the coun- business models by using existing capabilities try’s mass markets. They have done this by but at a lower cost. At the other, they can cre- ate entirely new capabilities. Those in the value chain, from supply-chain management middle modify capabilities. (See the exhibit to recruitment, and creating novel business “Innovations in India.”) The two-way classifi- cation, we find, leads to three types of Gan- tension of the Indian tradition of jugaad: devel- Disrupting business models. Several In-
oping alternatives, improvisations, and make- dian companies have used Western technolo- dos to overcome a lack of resources and solve gies but created business models that have seemingly insoluble problems. However, the completely altered an industry’s economics.
term “jugaad” has the connotation of compro- For instance, IT-based software and service mising on quality. We prefer “Gandhian inno- providers such as Satyam, Wipro, Infosys, TCS, vation,” because at the core of this type of inno- and HCL use off-the-shelf hardware, but they vation lie two of the Mahatma’s tenets: “I deploy new talent-based business models to be would prize every invention of science made globally competitive. They have crafted meth- for the benefit of all,” and “Earth provides odologies for partitioning work so that much enough to satisfy every man’s need, but not of it can be done off-site, which allows them to every man’s greed.” Affordability and sustain- enjoy the lower costs of talented engineers in ability were Gandhi’s touchstones six decades India. Outsourcers worldwide account for only ago, and Indian companies have recently dis- about 6% of the global software business, but they have changed the industry’s dynamics.
In the following pages, we will describe the (Indian outsourcers have also added new capa- factors that led to this genre of innovation in bilities over the years—first offering lower India, unveil a framework that will help execu- costs, then creating better-quality processes.
C.K. Prahalad was the Paul and Ruth
tives understand this approach, and present They are now trying to provide novel end-to- some ideas that will allow companies every- where to develop Gandhian innovations.
Modifying organizational capabilities.
of Michigan’s Ross School of Business. Other Indian companies have synthesized sev- He wrote this article, his 16th for HBR, before he passed away on April 16, Three Kinds of Gandhian Innovation
eral technologies and, as a result, altered their Over the past three years, we have studied capabilities—such as design skills or speedy 2010. R.A. Mashelkar is a CSIR Bhatna-
how Indian companies and organizations in- deployment of resources on a large scale. For novate, often backed by the government.
Some are established companies, and others Laboratories (CRL), part of the Tata Group, director general of India’s Council of are start-ups. They aren’t confined to a few in- developed the world’s fourth-fastest and Asia’s dustries; they run the gamut of manufacturing with a whole new design using standard com- drug development, health care, leather finish- ponents. (Eka was the world’s 26th-fastest su- harvard business review • july–august 2010 Innovation’s Holy Grail
percomputer as of November 2009.) CRL en- module; Germany’s Behr for the heating, venti- gineers created a near-circular layout for the lating, and air-conditioning system; and India’s computing core, instead of alternating hot and cold aisles, and used off-the-shelf servers, dual data-rate fiber optic technology, and the Linux operating system—all supercomputing firsts.
defy the traditional innovation categories: This reduced the cost of developing the ma- product, process, packaging, and pricing. They chine to just $20 million. Moreover, the cost of tackle all those areas in new ways at the same the cooling equipment is 50% lower than it is time, rendering irrelevant the discrete catego- for other supercomputers, and the operating ries into which many executives pigeonhole in- cost is 20% lower. Incidentally, CRL is one of the first organizations to offer supercomput-ing as a service; 40 companies, such as Boeing Innovations That Change Business
and Tata Motors, rent Eka’s services every Dynamics
year. CRL is now working on an Eka++ project After India opened up to foreign investment to increase the supercomputer’s processing and technologies, in 1991, some companies al- tered the economics of fledgling industries not Creating or sourcing new capabilities. Indian
by developing state-of-the-art technologies entrepreneurs have focused not only on build- but by creating new business models. They set ing disruptive business models and honing ex- isting capabilities but also on creating or acquir- changed the way consumers could access of- ing new capabilities to solve problems, which ferings. Some products and services needed a often requires technology development or a new infrastructure for development and deliv- collaborative approach to obtaining technical ery, so these companies also built unique inno- expertise. That’s how Tata Motors came up with the $2,000 Nano car. It worked with several Perhaps the most striking illustration of this multinational and Indian companies to make type of innovator is Bharti Airtel, which won a components that would fit its specifications: government tender in 1995 to launch mobile Tata turned to Germany’s Bosch for a new telecommunication services in Delhi. Like its engine-management system; Italy’s I.DE.A. In- rivals, the company had to pay the government stitute and Trilix for styling and exterior design; a huge sum of money for the spectrum license India’s Sona Koyo for lightweight steering and invest heavily in towers, telecom net- shafts; America’s Johnson Controls for the seat- works, and support systems such as billing and ing system; Japan’s Toyo for the engine-cooling customer care centers. Partly because of these Innovations in India
Gandhian innovators solve problems in two key ways: by Drilling
acquiring or developing technologies and by altering business models or capabilities. In India, IT-based soft- ware and service providers used off-the-shelf hardware Cell Phone
from the West but devised new ways of organizing work. Services
Tata Motors focused on technology as well as capabili- Emergency-Care
ties when it set out to create the world’s cheapest car: It Management
Psoriasis
worked with several companies to develop components Treatment
that would fit the Nano’s specifications.
NT OF INNO
E
IT-Based Services,
Health Care
SOURCE OF TECHNOLOGY
harvard business review • july–august 2010 Innovation’s Holy Grail
large fixed costs, which it funded mostly being a vertically integrated company like through debt, Bharti Airtel charged subscrib- other cellular carriers. For example, in 2004, ers a high price for many years. By 2002, it was Bharti Airtel outsourced its IT services to IBM, running out of money even as new rivals were promising to pay the provider a percentage of monthly revenues and guaranteeing a mini- mum monthly payment. By tying IBM’s com- mium pricing strategy would not allow Bharti pensation to its own growth, the Indian com- Airtel to expand its subscriber base rapidly pany gave its supplier skin in the game.
and defray sunk costs. The company had to in- Beyond a certain point, if revenues continued novate. It reckoned that in India, the average to grow, IBM’s percentage would fall, allowing the buyer to share in the economies of scale.
tracked by every cellular company and ana- Similarly, Bharti Airtel chose to pay its tele- lyst in the world—was not the right indicator com network equipment vendors, Ericsson and of a customer’s attractiveness. Even if the Nokia, by the erlang—a unit of telecom capac- ARPU were tiny, Bharti Airtel would generate ity—rather than for the equipment used to large revenues if it got millions, rather than generate erlangs. The company decided when thousands, of consumers to sign up. To do and where it needed fresh capacity while the that, it would have to reduce prices drasti- vendors installed, maintained, and operated cally, so it started thinking of itself as a fac- the “boxes,” encouraging them to ensure maxi- tory that produced wireless minutes. It then focused on three measures: gross revenue and Airtel owned the equipment once Ericsson and profit, the ratio of operating expenses to gross Nokia had installed it, which gave it an incen- revenue (to track operating efficiency), and tive to use the capacity it had commissioned. It the ratio of revenue to capital expenditure (to measured network quality in terms of dropped ensure capital productivity). When it shifted calls, blocked calls, network accessibility, and its focus from the ARPU to gross profit, the voice quality. It thus converted fixed costs and company stopped targeting only a few seg- capital expenditures into variable operating ex- ments and expanded its potential market to penses, greatly reducing its dependence on Bharti Airtel had to find a way to grow with- Bharti Airtel also created the Airtel Open out worrying about financial resources in a Developer Community, making its application capital-intensive industry. One way of doing platform accessible to a large number of soft- that, senior executives decided, was to out- ware companies. It set up processes for vetting source all functions save for six—customer potential developers, providing them with management, people motivation, financial data, and managing the life cycles of value- management, regulatory affairs, brand man- added services. Bharti Airtel doesn’t purchase agement, and strategy creation—instead of applications outright; it pays developers on thebasis of the revenues their services generate,which allows it to source a large number of ap-plications at a low cost.
Three Kinds of Innovation
distribution would be critical for futuregrowth, it didn’t have the time to create its Change Business Dynamics
own channels. It decided to piggyback on dis- services in tribal, rural, and urban areas.
revenue per user to gross profit, Bharti Create New Technologies
such as Godrej and Unilever, which had oper- ated in India for more than a half century. The enterprise gave around 10,000 distributors spe- ket to the entire Indian population.
cess—that is, it gathered clinical data be- cific territories and barred them from selling Synthesize Technologies
other carriers’ products there. The distributors paid the company up front but provided credit to retailers, who could sell products from com- peting carriers. More than 1 million shopkeep- ers in India sold Airtel prepaid and postpaid harvard business review • july–august 2010 Innovation’s Holy Grail
telecom cards in 2009, and that number will worldwide are trying to emulate Bharti Airtel’s double by 2012. To penetrate rural India, Bharti Airtel teamed up with India’s largest mi-crofinance institution, SKS. The partnership Innovations That Synthesize
enables customers to take out a loan for the Technologies
Nokia 1650 and pay for it through 25 install- ments of 85 rupees a month. Bharti Airtel also cutting-edge technologies to create new capa- works with a fertilizer manufacturer, IFFCO bilities, in certain cases for the first time in the (Indian Farmers Fertiliser Cooperative), which world. They are scaling rapidly but keeping sells cobranded subscriber identity module costs low by using innovative financing meth- cards through its retail outlets. Every day, farm- ods such as public-private partnerships. These ers get three free voice updates on market companies often draw on the knowledge base prices, farming techniques, weather forecasts, of specialized institutions overseas and set the standards in India even as they develop unique Bharti Airtel even collaborates with com- petitors in order to save capital. As it ex- panded into rural India, putting up passive in- ment—in particular, the 911 service in the U.S.
frastructure such as towers, air-conditioning, that prompts an ambulance to arrive at your and generators became a large expense, espe- doorstep the moment you need it. Several am- cially in sparsely populated areas. This wasn’t bulance companies operate in large cities like going to be a differentiating factor, so the company mooted the idea of merging its in- serve people well, they remain small and in- frastructure unit with those of two other cel- vest little in innovation. Because no such pri- lular service providers, Vodafone and Idea. By vate entity existed in India, the Raju broth- December 2007, the companies had struck a ers—now in jail for embezzling funds from deal to set up Indus Towers, in which Bharti Satyam Computer Services—set up the Emer- Airtel and Vodafone each own approximately 42% of the equity and Idea owns the remain- (EMRI) in 2004. Taken over by GVK, another ing 16%. This structure allows the three com- Indian business group, EMRI has woven to- panies to share the cost of setting up passive gether the latest telecommunication, comput- infrastructure and reduces the investment ing, medical, and transportation technologies that each of them must make to expand oper- to provide affordable (read: mostly free) emer- gency services in tribal, rural, and urban areas.
Thanks to its unique business model, Bharti Given India’s environment, the organiza- Airtel is able to charge 1 cent per minute of tion has innovatively tackled the physical, cul- talk time—compared with 2 cents in China tural, and language barriers that impede its and 8 cents in the U.S.—making it the world’s ability to deal with emergencies. Getting Indi- most affordable mobile telephone service. In ans to recognize an emergency and call 1-0-8 for assistance is a major hurdle. For example, mately 100 million subscribers, and it plans to when a woman goes into labor in India, seek- double that number by 2012. The company’s ing medical care may not always be the knee- ability to scale has quickly paid dividends: Its jerk response, since many women give birth at operating margins increased from −2.25% in home. Through its research, EMRI has learned 2003 to 28.3% in 2008. Despite an intensely that 10% of Indians face emergencies but ei- competitive market, Bharti Airtel reported rev- ther don’t recognize them as such or have no- enues of $7.25 billion in 2008, and its revenues where to call. In addition to providing a num- grew 43% from 2004 to 2008. While the ARPU ber to call, the organization has developed in India was $5.95 in 2009, compared with $50 programs to teach Indians to recognize and in the U.S., the Indian enterprise was one of the world’s most profitable wireless carriers Unlike its Western counterparts, EMRI has last year, with a 27% return on capital em- designed its ambulances, trained its paramed- ployed, $2.04 billion in earnings before inter- ics, and most important, built a unique infor- est and taxes, cash reserves of $963 million, mation and communications technology infra- and zero debt. Companies in every industry structure. At the heart of that infrastructure is harvard business review • july–august 2010 Innovation’s Holy Grail
a computer network supported by a call center in each state, where 200 operators receive 1-0-8 panded rapidly, offering its services to 366 mil- emergency calls and direct 4,000 field staff lion people in Gujarat, Uttarakhand, Goa, members to respond to them. The Emergency Chennai, Rajasthan, Karnataka, and Assam, Relief Operators follow a clear process to deter- which makes it the world’s largest emergency- mine if a call is an emergency and, if so, management entity. EMRI handles 60,000 to whether it is a medical, police, or fire emer- 80,000 calls a day, has a fleet of 2,600 ambu- gency. The goal is to help victims survive the lances, attends to 7,000 emergencies a day, golden hour, the first 60 minutes, since 80% of saves 110 lives a day, and employs 11,000 peo- deaths in hospitals take place in the first hour ple. Against a target of reaching patients in 30 minutes, EMRI reports an average response India doesn’t have reliable GPS-based map- time of 14 minutes in cities, 31 minutes in rural ping, so the primary critical task is to pinpoint villages, and 28 minutes in tribal areas. EMRI the emergency’s location. The Emergency Re- spent only 50 cents per person treated to build lief Operators route ambulances using dy- the infrastructure in India, compared with namic optimization algorithms based on the $100 in the United States. The expense per am- nature of the emergency, its severity, and the bulance visit is less than $15, versus $600 to ambulances’ locations. After an officer dis- patches an ambulance, she or he calls the medical technicians in it to give them health- world with a research institute, EMRI is at the related data, connects one of the technicians with the caller, and leaves them talking so the knowledge and practices and is becoming the distraught caller is never alone before the am- best source of information for emergency care.
bulance gets to the spot. The operators exe- It archives all the calls it gets and has analyzed cute this task in 80 to 90 seconds, but the or- the data to compile regional public health pro- ganization hopes to reduce that time to 60 files. For the first time in India, data on the sea- seconds. EMRI keeps innovating: One recent sonality, timing, and nature of medical emer- experiment consists of sending a team ahead gencies are available. EMRI is also developing on a two-wheeler, which slides through traffic ways of passing information from ambulances faster than an ambulance could, enabling crit- to hospitals before victims arrive, particularly in the cases of cardiac problems, traffic acci- EMRI started out on the assumption that a dents, pregnancies, snakebites, and suicide at- public-private partnership would be essen- tempts. Indeed, its research capabilities are tial for its functioning. In India, the govern- changing the way many countries think about work with the state as well as the fire and po-lice departments. Furthermore, it recognizes Innovations That Yield New
the importance of government support in ed- Technologies
ucating people. To ensure that policy makers Many Indian companies have invested in de- and bureaucrats don’t interfere, EMRI is a veloping new products or services, but their private foundation in legal terms, although goal is usually to create inexpensive offerings 95% of its funding comes from state govern- on shoestring budgets. They succeed only be- ments. Partnerships and alliances are a stra- cause they challenge conventional techniques.
tegic focus. EMRI collaborates with organiza- Traditionally, the development of pharma- ceuticals starts in a laboratory and moves to a clinic through a complex system of validation can Association of Physicians of Indian Ori- and testing, as we all know. This can take 10 to 12 years and can cost more than $1 billion. In order to identify medicines more quickly and gency Medicine in India, and Stanford Uni- cheaply, Indian policy makers and scientists are trying to reverse the process. They are ask- two-year postgraduate degree in emergency ing what would happen if, instead of going care), as well as Singapore Health Services from laboratories to clinics, companies went from clinics to laboratories and then back to harvard business review • july–august 2010 Innovation’s Holy Grail
clinics. The idea is to use clinical and qualita- plans to launch the drug before the end of the tive data to develop target formulations that undergo preclinical and clinical research trials.
For example, around 2% of the world’s popu- million and eight years to develop a cure for lation suffers from psoriasis—a recurring in- psoriasis—a fraction of the money and time it flammatory skin disorder—and patients spend would have normally taken. Moreover, treat- approximately $5 billion a year on treatments.
ing the disease with Lupin’s drug will cost $100 Monoclonal antibody treatments, which cost per patient, compared with $15,000 in the U.S.
$15,000 to $20,000 for a course, are effective In general, the Indian market is large in vol- but beyond the reach of most Indians. When ume and low in value compared with the U.S.
Lupin, one of India’s well-known pharmaceuti- For example, Pfizer sells Lipitor for 90 cents in cal companies, announced its interest in devel- India, as opposed to $2.70 in the U.S., because oping herbal-based medicines, a practitioner of the Indian equivalent, Ranbaxy’s Atorvastatin, a traditional branch of Indian medicine called sells for 90 cents. Unsurprisingly, reverse phar- Siddha approached the company with a cure macology is gaining ground, with local compa- nies chasing multiple leads for treating cancer, handed down in his family for generations, he arthritis, hypertension, diabetes, and os- claimed that the juice of the Argemone mexi- teoporosis, among other health problems.
cana (Mexican poppy) would cure the diseasecompletely.
Rules for Gandhian Innovation
Contextual factors have undoubtedly facili- claim, but Lupin collaborated with the practi- tated the growth of Gandhian innovation in tioner, developed a formulation, and started India. One, the country’s political leaders ex- the first trials in early 2000. Dermatologists perimented with socialism for more than four used quantitative measures such as the Psori- decades, which kept out foreign capital and asis Area and Severity Index to assess success.
technologies, particularly from the U.S., but Patients who took the herbal medicine not spurred local invention. Indian engineers, only were cured but also did not suffer a re- backed by government funding, developed nu- lapse for the next three years. In January clear weapons, rockets, imaging techniques, next stage of the project and arranged part- depending only on their own ingenuity. Two, nerships with two state-owned research orga- the Indian economy didn’t start growing until nizations, the Central Drug Research Institute the 1990s, so local companies are small. For ex- and the National Institute of Pharmaceutical ample, in 2008 India’s then-largest pharma- ceutical company, Ranbaxy, made $800 mil- These organizations developed the drug in lion in revenues—60 times less than the $48.2 three phases, according to U.S. Food and Drug billion Pfizer brought in, and nine times less Administration guidelines. The first step was to than what the U.S. giant budgeted for re- identify the active elements to gain insights search. Indian entrepreneurs have a penchant into how the treatment worked and to create a for undertaking small projects and using capi- safe oral antipsoriatic formulation that would tal carefully. They’ve changed their approach lead to curative and preventive therapy. Once to scale since 1991, but they maintain an unwa- the safety and toxicity studies were complete, vering focus on capital efficiency. Three, local the Drug Controller General of India approved the drug for trials. The key objective at that rich and poor people, catering only to the rich point was to determine the right dosage levels.
limits their market. Most target the aspiring The drug went through a clinical study that middle class family, which lives on $5,000 a used healthy adults in the first phase. In the year. As a result, they’re forced to develop second phase, which ended in April 2007, the safety and efficacy of three different dosages changing the price-performance equation.
were tested on patients with moderate to se- And four, entrepreneurs, the most important vere psoriasis. Lupin completed the third driver of India’s innovation mind-set, have had phase—the final multicentric, randomized, the audacity to question received wisdom.
parallel-group studies—in March 2010, and it With increasing frequency, these leaders are harvard business review • july–august 2010 Innovation’s Holy Grail
rejecting established ways of doing business in CEOs will compel executives to be innovative favor of new practices. The mix of minuscule and entrepreneurial. The mismatch between research budgets, small size, low prices, and aspirations and resources is the essence of en- big ambitions has created the need to think trepreneurship. Executives then have only two choices: Leverage existing resources in new ways, or change the rules of the game entirely.
This process of setting ambitious goals is what Gandhian innovations. Enterprises anywhere C.K. Prahalad has called strategic intent (see in the world can do so by modifying the philo- “Strategic Intent,” coauthored with Gary sophical underpinnings of their innovation processes. CEOs must follow five cardinal We must learn to innovate even when faced
principles to get innovation right today. They with constraints. Gandhian innovators start
by accepting that there are constraints that My goal is inclusive growth. CEOs must de-
won’t go away. For example, the Tata Nano velop a deep commitment to inclusive growth, team assumed several strict parameters— which will force them to think of unserved about price, safety and environmental stan- customers, be they rural poor who don’t have dards, space, and design. Taken together, these access to telephones or urban poor who don’t formed the Nano’s “innovation sandbox”: the get emergency medical services. A focus on in- space within which the design and develop- clusion challenges executives to push price- ment teams had to exercise their creativity.
performance envelopes to ensure affordabil- (For more on the innovation sandbox, see The ity, and to think about increasing scale to New Age of Innovation, by C.K. Prahalad and lower costs. The starting point has to be the M.S. Krishnan.) Leaders must force project desire to serve more people, though. Compa- teams to work within self-imposed boundaries nies often start by asking: “Given our cost that stem from a deep understanding of con- structure, which segments can we serve?” sumers. That will result in a novel, outside-in They should ask: “Given that we need to cater to the unserved, what should our cost struc- Our focus should be on people. None of
the innovators in our research explicitly dis- My vision should be unambiguous. Leader-
cussed shareholder wealth or profit maximiza- ship is crucial to building Gandhian innova- tion. Their innovation projects had to be prof- tions in organizations. In all the cases we’ve itable and build shareholder wealth, of course, studied, leaders such as Ratan Tata (Tata but the focus was always on customers. The Group), Sunil Bharti Mittal and Manoj Kohli language inside their organizations was about (Bharti Airtel), and D.B. Gupta (Lupin) have consumers as people, suppliers as partners, articulated clear visions of what they want to and employees as innovators. Consider one accomplish. In addition, their visions always constant managerial complaint: “At the price have a human dimension: for example, help- levels in these markets, we cannot make prof- ing poor Indians travel safely and affordably its.” This assumes that companies can’t lower with their families; using connectivity to im- cost structures, that they can’t reduce operat- prove people’s work and lives; and enabling ing margins, that there’s no price elasticity, Getting Innovation patients to buy cheap medicines. These lead- and that poor people don’t have much use for
ers also engage with project teams constantly, high-tech products. The Indian innovators 1. Develop a deep commitment to serv-
providing a safety net that protects the teams simply said: “What if we change the way we from self-doubt during despondent times and operate to reduce costs and focus on return on capital employed, not just on operating mar- 2. Articulate and embrace a clear vision.
I must set stretch targets. CEOs must estab-
gins? If we reduce prices enough and make 3. Set very ambitious goals to foster an
lish ambitious goals and clear time frames for our products available to the poor, won’t there achieving them. Companies should ask: “What be explosive growth as they quickly find uses is our man-on-the-moon project?” Or, as they 4. Accept that constraints will always ex-
do in India’s boardrooms: “What is our Nano ist, and creatively operate within them.
project?” By creating aspirations that lie be- Metrics influence managerial behavior. Gan- 5. Focus on people, not just shareholder
yond the company’s existing resources or cur- dhian and traditional innovators, we find, use rent approaches to the delivery of products, very different measures to evaluate their per- harvard business review • july–august 2010 Innovation’s Holy Grail
formance. Most companies focus on profits, tion efficiency, volume, and costs—and they operating margins, net present value, time to concentrate on creating new markets. Which profit, ownership and control, manufacturing of these two types of companies do you think efficiency, intellectual-property-based profits, will win in the new age of global innovation? and known markets. Innovators in developingcountries track profits and losses, balance sheets, return on capital employed, cash flow, To order, call 800-988-0886 or 617-783-7500 capital intensity, access and influence, innova- harvard business review • july–august 2010

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