Friday, December 28, 2012

Stanford India Biodesign: Commercialization is the next Frontier

Stanford India Biodesign (SIB), the ambitious alliance between the Design School at Stanford, AIIMS and IIT Delhi to train a new generation of medical device innovators, is making steady progress. I attended the 6th Medtech Summit held at Delhi on December 21, and was impressed to see SIB on the verge of moving to Phase 2. I wrote about last year’s summit in an earlier blogpost, and it was good to see the visible progress over the last year.


SIB’s Achievements so far




First, the overall statistics. SIB has so far trained 24 fellows. Fellows visited Stanford for 6 months to learn about the design process, and then returned to India to the SIB design studio at AIIMS to put what they learnt into practice. Fellows come from a variety of backgrounds including medicine, engineering and design. In addition, 28 interns have worked on projects at SIB in India, and imbibed much of their learning from the fellows and the SIB India faculty.

The programme has resulted in the development of 12 devices so far. 20 provisional patents have been granted to cover these devices, and 5 PCT applications have been filed. 5 products are in various stages of trials. 2 companies have been formed, and one product has been licensed for sale and manufacture by Hindustan Latex Limited to the Ministry of Health.


Future Plans

SIB Associate Director Raj Doshi mentioned that when SIB was started in 2007 the approach was to start one centre, show some success, and then expand. SIB is proceeding smoothly along this trajectory. More institutions now plan to replicate the SIB model locally. 2 biodesign centres, at IIT Madras and the Indian Institute of Science, will be funded by the Department of Biotechnology. To facilitate transfer of the Biodesign approach and curriculum, a set of Biodesign Training Modules has been created by the faculty involved in SIB. These modules were released at the Medtech Summit. Two new cross-institutional networks are being formed: the National Biodesign Alliance, and an Indian Biodesign Consortium.

Going forward, there will be a focus on innovation in two areas: Devices & implants; and Invitro diagnostics. A Translational Health Science & Technology Centre is also coming up. The SIB programme itself has been extended for another 5 years. The three prongs going forward will be research for affordable innovation, interconnecting research competencies and resources, and creating a regulatory framework for devices.

Innovations by SIB Fellows

As is the practice at the Medtech Summit, the fellows presented a quick overview of their work.


This year’s team output was showcased by Jonathan. All SIB teams follow the Stanford methodology of Identify + Invent + Implement. On return from Stanford, the team immersed itself in clinical practice to identify unmet needs that would become the focus of their innovation efforts. Clinical immersion spans the three levels of healthcare that exist in India: a community health centre, a district hospital, and the All India Institute of Medical Sciences, India’s premier reference hospital.

This year’s team focused on gastrointestinal disease, the most common cause of hospitalization in India. Their clinical immersion revealed as many as 176 needs which were successively scaled down to 43, 10 and 3 needs respectively based on a variety of criteria including impact, market, technical feasibility, personal preferences, and inputs from the SIB advisors.

All three short-listed needs have high potential impact: (1) a better way to do liver biopsies could help solve a major health problem. 10% of Indians are likely to have suffered from a liver-related disease during their lifetime. Alcohol-caused liver disease results in 40% of liver cirrhosis deaths. The burden of liver failure could exceed Rs. 100 crore every year. There is a potential demand of 4.8 crore liver biopsies every year. (2) Upper Gastrointestinal Variceal bleeding is another serious gastrointestinal health condition. If it can be stopped, 1.8 crore patients could benefit. While it is treatable through endoscopy, a typical patient has to wait upto 8 hours till he can access endoscopic treatment. (3) Abdominal paracentesis affects 3.6 crore patients every year.

Finding it difficult to prioritise between these three significant clinical needs, the team decided to address all three! They showcased Bioscoop, a low-cost device that helps perform a percutaneous liver biopsy; Variseal, a device to help stabilized patients suffering from variceal bleeding till they can be taken for an endoscopy; and Parasafe, a safe and standardized way to do paracentesis. All three devices are low cost and can be used with a high degree of accuracy by relatively less-skilled medical and paramedical staff. For good measure, the team also invented a handheld device for removing foreign bodies from the nose, a boon to pediatric ENT practice.

Innovations by SIB 2011 Fellows




The Medtech Summit was also graduation time for the 2011 fellows who completed their formal association with the programme. Ayesha Chaudhary showcased NeoBreathe, the device the 2011 fellows created to overcome neonatal asphyxia. While asphyxia can be overcome by resuscitation, existing resuscitation methods are too complex and can be used effectively only by the most skilled and dexterous individuals. NeoBreathe de-skills the process by making it much easier: a well-designed resuscitation bay takes care of neck positioning; a foot-powered suction device allows the device to be used even when there is no electricity. The device has a clear indicator that gives feedback on whether the condition is being addressed. The 2011 fellows have co-founded Windmill Health Technologies to commercialise this device. Other devices demonstrated included Uthishtami, a device to help the elderly get up from their chairs, and a device designed to reduce hospital acquired infections – it’s a smart and interactive device worn around the waist that dispenses disinfectant to the wearer. It indicates how long it is since the doctor or nurse last cleaned her hands.

Panel on Training Needs

I was part of a panel consisting of industry folks (Ravi Kaushik of GE, Sandy Sudhir of Invent India), educationists (Suresh Devasahayam from CMC Vellore, Amaresh Chakrabarti from IISc) and Dr. Sujay Shad from Gangaram Hospital. Biten Kathrani of J&J and Anurag Mairal of SIB moderated the discussion. All of us agreed that we need to scale up SIB-like efforts by going well beyond the confines of elite institutions; that innovation needs to be a more cross-functional process; and that with time the emphasis will shift from needs and ideas to commercialization and market impact. Reflecting these last two points, there will be a need for more generalists and entrepreneurs who can integrate all these together.

My contribution to the panel was a plea to extend the scope of the SIB training to include business model innovation. Understanding the motivations of Indian buyers of medical products, and their purchase processes combined with exposure to channel structures and distribution issues would help these smart inventors get the end-to-end business perspective that would help their creatively designed products reach the market.

Takeaways

Thanks to the pioneering efforts of Dr Bhan at the DBT, Dr Balram Bhargava at AIIMS, and all those involved in the SIB programme, the seeds for medical device innovation in India have been sown. As more institutions get involved, this orientation will get diffused with greater benefit to all.

Given regulatory requirements and the fact that human lives are involved, medical devices have to be robust and clinically tested. While devices can use simple concepts, and be focused on ease-of-use and low cost, one thing is clear – this is not a realm for Jugaad thinking. In fact, SIB’s greatest strength is its emphasis on a systematic innovation process. Systematic innovation doesn’t mean high technology nor does it mean high cost – it refers to a process that allows the results of creative thinking to be validated through careful experiments and trials.

The SIB format is well suited to devices of low to moderate complexity. That is what a team can work on and complete within the SIB timeframe. In his remarks, Dr. Deka, Director of AIIMS, called for taking on more complex and sophisticated products, but it’s not clear how that will happen in the present format. Hopefully, fellows will move on to such devices as they progress in their careers.



And, though SIB has done very well so far in creating capable inventors who understand the design process, the next challenge will be commercializing some of the devices. Commercialization has been India’s Achilles heel in the past. Will we be able to overcome it now?

Friday, December 21, 2012

Building Innovative Products Out of India: Lessons from Bell Labs India, CDOT, Cisco, Concept2Silicon and Ittiam

What will it take to build an Apple or Google out of India? This is a question we often ask, and you might recall that I gave one perspective on this in my Outlook Business column some months ago.




Sanjay Nayak of Tejas Networks has devoted the last decade to building high tech telecom products out of India. He is passionate about building a supportive product ecosystem in Bangalore/India. So, when he invited me to moderate a panel discussion on “Fostering an Innovation Economy in India: Issues, Challenges & Recommendations” at the IEEE ANTS 2012 conference at Bangalore last week, I jumped at the opportunity.


We had great participants - Vishy Poosala of Bell Labs, VVR Sastry of CDOT (former CMD of Bharat Electronics), Srini Rajam of Ittiam, Satya Gupta of concept2silicon (and present chair of the Indian Semiconductor Association), and Ishwar Parulkar of Cisco, I had requested each participant to start with a short account of a successful innovation project they had been associated with in India, and what made it work. Since we hear so much about the obstacles to innovation in India, I thought some bright spots may offer ways around these.


And, a real treat followed as we got some insightful examples from all the speakers.


Vishy Poosala – Alcatel Lucent (Bell Labs)


Vishy started by describing an interesting phenomenon his team noticed. Rather than download songs legally available through mobile service providers, mobile owners preferred to buy songs from a corner store. The obvious reason was cost – it’s much more expensive to buy songs "legally." Why do downloaded songs cost more? His team found out that the reason for this was that the service providers had congested networks, and therefore did not want to promote downloads that would congest their networks further. Bell Labs India proposed a solution to this problem - a "Mango Box" which could push content to users at off peak times when there was no congestion, and hence songs (or other content) could be sold cheaper. While they managed to commercialise this product in India, revenues were never big enough to excite AT&T. Ultimately, "Mango" got traction when it was deployed in the US for use on AT&T's iphone network. The lessons? Address local problems, but look out for global problems where the same solution can be applied. Vishy mentioned that AL ventures, an internal venturing arm of Alcatel Lucent played a key role in making this cross-fertilization happen.

Srini Rajam - Ittiam




Srini went next. Ittiam has completed a successful decade of a focused IP play. It earns all its revenues from licensing IP it has created. In 2009, Ittiam identified that the then smartphones did not have the capability to play HD video. Creating that capability was non-trivial because it involved change in the software architecture and working with both handset and silicon players. There was a window of opportunity open, and Ittiam sought to address this by quickly creating the IP, filing a patent and then working with the players to implement it. Not only were 10 million phones incorporating this IP sold in the first year, one of Ittiam's major clients highlighted the HD video playback in its product marketing collateral. Based on this experience, Srini stressed the importance of innovation as a process - the spark (idea), followed by implementation, and then business impact. Clearly, as in the Alcatel Lucent case, choice of the product is key as well.

VVR Sastry - CDOT


After CDOT's pioneering efforts on switching for rural exchanges in the 1980s, CDOT disappeared from public imagination. While it has continued to be involved in strategic projects, it’s no longer "visible." Sastry of CDOT gave one example of how CDOT is trying to change that. Mobile base stations are power guzzlers and are already being targeted by environmentalists for their high carbon footprint. At the same time, rural call rates are not always high, and rural cellular infrastructure is under-utilized. CDOT is trying to solve this problem through shared GSM radio. With the regulators possibly allowing spectrum sharing, this could be a way for better utilization of rural cellular infrastructure. While admittedly a late life cycle product with an emerging market focus, this has the potential to lower costs yet provide multi-operator service in rural locations. Sastry stressed "right product at the right time", providing a “total product concept" and keeping up the motivation of engineers.


Satya Gupta – Concept2Silicon




Satya Gupta's company Concept2Silicon is just 3 years old. He encourages innovation through Friday brainstorming sessions. He stressed the importance of aligning new product ideas with needs and timing. In particular, he underlined the importance of aligning products to local conditions and price points. He outlined one important opportunity. Education is rapidly shifting from the traditional classroom to electronic media. But the electronic media used in the classroom are not interactive and don't allow the teacher to adapt/change content or modify / add comments easily. Interactive whiteboards are available, but they are imported and too expensive. This is an area where Concept2Silicon sees product innovation opportunities.


Ishwar Parulkar - Cisco




Ishwar is the CTO of Cisco's Provider Access Business Unit in Bangalore. He shared the highlights of the ASR 901 router, the first product developed end-to-end by Cisco in India (see my earlier post on this project for more details). Defining what product to build in India was critical - they chose a router for access providers (= mobile service providers) not only because this was a relevant market in India but also because this was not a core segment addressed by Cisco's existing products. Scale, reliability and monetization were 3 key criteria for Cisco. To build the product in Bangalore, Ishwar's team had to persuade vendors to enhance their local capabilities. They also had to transfer knowledge in certain areas like certification. Thus product development efforts involved building a local ecosystem. The third element was creating an appropriate organizational and operational model - there were 3 stages: an incubation stage (under the radar) till a concept could be proved, a stage of scale up with "borrowed resources," and a third stage of mainstreaming with more funding.Today, ASR 901 has a market not only in India, but across the world.

Fostering an Innovation Economy

In the discussion that followed, several interesting questions came up which addressed the larger theme that Sanjay had identified for the session:

1. Will India be restricted to “late in the life cycle” or niche products, or will we be able to come out with genuinely new products?

2. What needs to be done to improve the innovation ecosystem?

3. How does India compare to China on the innovation front?

4. How can we improve collaboration between academia and industry?

5. How can we enhance the economic dividend to India of innovation activities here?

Most of the comments in response to the first question identified the usual obstacles to creating really innovative products from India: hierarchy in Indian society (vs. the questioning attitude required to do genuine innovation); fear of failure; the education system; and inadequate private sector investment in R&D. There was agreement that many of these things are changing, and the future looks optimistic. But the slow growth of private sector R&D investment continues to be an issue of concern.

Satya Gupta had some very specific and relevant suggestions on improving product innovation. His own experience in his company has been that even the components required for product innovation are not easily available, and often need to be imported with delays of upto 3-4 weeks. This slows down the innovation process, and also demotivates the innovator. He called for the setting up of resource centres – he called them ESDM innovation centres – that are fully equipped and ready-to-use for experimentation. This will help start-up entrepreneurs quickly try out new ideas.

There was broad agreement that China has been able to do several things on a scale that India is unable to even dream of – these include development of infrastructure, education in science and technology, funding for start-ups etc. China has a strong desire to dominate telecom and has therefore supported the creation of large corporations like Huawei and ZTE. In contrast, India lacks a strategic orientation, is unable to spend the R&D money committed because of cumbersome bureaucratic processes, and is no longer even the source of the largest number of graduate students abroad.

Regarding academia-industry collaboration, speakers pointed to the incentive systems in Indian academia that appear to favour academic research resulting in papers and do not give importance to industrial R&D. A specific example was given of a person with considerable international corporate R&D experience who was denied a job in one of the IITs because she did not have adequate research output (=papers in journals).

The fifth question – economic dividend for india – prompted an interesting discussion around value capture in the innovation process. Sanjay Nayak wondered aloud whether Indian companies need to invest more in marketing and branding if India is to capture more value. There was a broad agreement that collaboration was key to improving the economic returns to India – and that even multinational subsidiaries in India may gain from collaborating with each other rather than trying to “sell” their innovations to reluctant managements in the developed world.

Does innovation have to be a struggle? Or can it be the mainstream of a company’s activities? Many speakers pointed out that innovation involves change, and most human beings don’t like change. Hence innovation will always involve overcoming obstacles. Ishwar pointed out that even in Apple, ideas are hard fought. But I felt that companies like 3M, Google, and our own Titan have shown that innovation can become a more routine activity of the company.

Conclusion

I see confidence in our abilities to innovate from India growing, and that’s a good thing. There is a new generation of innovation evangelists returning to India (people like Vishy and Ishwar) who are determined to make things happen here. At the same time, we have people like Srini and Sanjay who have shown that good innovation can come out of India and that it’s possible to run innovative companies here. Of course, it’s not easy, but I see the formation of a critical mass of people who know how to make innovation work. Let’s hope a lot more people get inspired by their examples in the days to come.

Saturday, December 15, 2012

Eureka Forbes: Making Open Innovation Work


According to water.org, 128 million people in India lack access to safe drinking water. I suspect that’s an underestimate because the World Bank estimates that 21% of communicable diseases in India are due to unsafe drinking water. Water in India is often contaminated by pollution, or poor sanitation. India’s local governments in cities, towns and villages struggle to meet the drinking water needs of their citizens. Even when water is available, its quality is often in question. No wonder that several companies from the Tatas to Unilever have identified water purification as an important product category to be in.

About Eureka Forbes – a Pioneer in Retail Appliances for Water Purification


Eureka Forbes has been one of the pioneers in the water filtration/purification business in India. The company made its name as the pioneer of large-scale direct selling in India through the sale of vacuum cleaners. Few people in urban India would have escaped the attention of a Eureka Forbes salesman – it has an 8,000-strong direct sales force across 550 cities/towns Their meticulous training system for direct sales has made them the preferred source of direct sales people in the country.

Though Eureka Forbes has a formidable presence in the country through its flagship Aquaguard product, the company continues to search for new and better ways of providing clean drinking water to its consumers. Recently, Dr. Raman Venkatesh the CTO of Eureka Forbes spoke to a group of IIMB executive education participants about how his company manages its innovation activity.


Eureka Forbes’ Innovation Strategy

Eureka Forbes has some distinctive advantages in the appliance market. It has strong name/brand recognition, and distribution muscle through its direct sales force, presence in retail outlets (about 15,000 dealers across 1800 towns) and strong service network  (1100 service centres across India).  Yet, as a medium-sized company (Eureka Forbes is not listed, but it is estimated to be a Rs. 1,500 crore company), it does not have the luxury of huge resources to spend on R&D. Besides, there are important developments in water purification technology happening across the world. In these circumstances, Eureka Forbes has adopted open innovation as its innovation approach. Though it doesn’t have a structured scanning process at present, it keeps its eyes and ears open for new technologies from anywhere in the world. It encourages its employees to bring in such ideas to the company.

One important mechanism it uses is the Euro Senate – a group of 8-12 employees, cutting across functions, elected by all employees of the company every year. These eurosenators play the role of a product council to solicit and pilot new product ideas. While many of these ideas come from the field through interactions with customers, one big idea came through the sister of a Eurosenator who alerted the company to an important new technological development in water purification reported in the media in the US.

Reflecting the company’s ability to translate knowledge into innovation and operational excellence, Eureka Forbes has been a winner of the “Most Admired Knowledge Enterprise” Award four times. Other important Eureka Forbes knowledge management initiatives include an intranet portal, Euroshare, where employees submit and share their knowledge and expertise, and a knowledge helpline that employees can access to give immediate answers to customer queries.

Of course, given the company’s strong competitive position in one of the world’s biggest markets for water purification, Eureka Forbes is an obvious target for research institutions and companies trying to license out new technologies. Eureka Forbes has taken special care to build a reputation as a good partner so as to encourage more such enquiries to come their way. They have an open invitation for technology partnerships on their website!

Though Eureka Forbes takes different forms of formal intellectual property protection to improve appropriability, the company believes in frequent product introductions as a way of staying ahead (see my previous post on how effective innovators combine legal protection with product-market actions – Eureka Forbes is a good example of this). Their target is to achieve 20% of their revenues from products launched within the last 5 years, but they are currently achieving a “new product vitality index” of more than double that with 3 – 5 new product introductions every year in the last 5 years.

A Recent Breakthrough Innovation


One of the challenges Eureka Forbes faces is translating its innovations into a language that customers can understand. One of their recent products, AquaSure, is based on Amrit ®, an integrated multi-stage technology that the company sourced from Argonide Corporation, a company based in Florida. This disruptive technology based on a Nanoceram filter allows the transformation of even contaminated water into water as clean as bottled water without the use of chemicals. The filter attracts viruses and other biological micro-organisms “like a magnet,” thus providing “sabse surakshit paani.” See video of interview with Raman Venkatesh and Fred Tepper from Argonide Corporation USA to understand more about the technology. The technology is cost-effective as well with Eureka Forbes estimating a water filtration cost of 20 paise per litre.

As is often the case with successful innovations, innovation has to enter the marketing and advertising domain as well. The technology may be highly sophisticated but technology doesn’t sell unless consumers can relate to it – hence Eureka Forbes came up with the kitanu magnet campaign, a memorable advertising approach that communicated the almost miraculous power of the technology in a way the consumer can understand. (See the video which likens the process through which Aqua Sure acts like a magnet, pulling out all contaminants, to the way the police catches criminals).



Tailpiece

Of course, while open innovation may be an optimal strategy for Eureka Forbes, the challenge of putting the country on a trajectory of technology development remains. Availability of clean water continues to be a challenge in India, and several CSIR labs and other research institutions have been working on water purification methods for decades. Some of these, like the Reverse Osmosis method, have been commercialized, but it appears that we have not been able to keep pace with technological developments outside the country that allow even higher degree of purity, and safety against biological organisms. Let’s hope that we can put our scientific talent and industrial capabilities together to create distinctive technological capabilities of our own.

Saturday, December 8, 2012

Does India provide a supportive environment for getting value out of innovation?

When we talk about supporting innovation in India, the first things that come to mind are the availability of capital and people with the right skills. But, the efforts and risks involved in innovation don’t make sense unless inventors and firms can get value out of their innovative activity.


When will innovation make money for inventors? That depends on issues like: Are users willing to try out new products and services? Do the capital markets place a premium on companies that are more innovative? Can an inventor protect his innovation from being copied by others, i.e., can he be sure that he (and he alone) will be able to capture the value from the innovation he creates? The right hand side of the framework below captures these “demand-side” factors.


In this article, I will focus on the last question – the issue of value appropriation - and ask a broad question: Does India provide a supportive environment for appropriating value from Innovation?

Appropriating Value from Innovation

To answer this question, I will investigate whether the Indian system for protecting intellectual property provides an effective mechanism for protecting inventor rights. Please remember that there is an exchange relationship at the bottom of the intellectual property system: the State gives an inventor a limited time monopoly to exploit her idea in return for the inventor sharing her knowledge or idea with society. So, a good intellectual property system has to balance the needs of both inventors and society at large.

Of course, I must add that from a firm-strategy perspective, appropriating value does not depend on intellectual property alone. As the graphic below (adapted from VK Narayanan’s book Managing Technology and Innovation for Competitive Advantage) shows, a firm’s ability to appropriate value from innovation also depends on its product market actions as well as its ability to innovate continuously and stay ahead of competitors. But, the intellectual property environment, and IP strategies followed by the firm form an important third prong, and these are the focus of this post.


A Historical Perspective

Independent India started off with a fairly strong intellectual property protection system. This should not surprise us because this was intended to protect the rights of British inventors under the colonial regime. However, there was growing disquiet about this system in the first two decades after independence, particularly in the area of pharmaceuticals where strong patent protection was seen as enabling multinational drug companies to extract monopoly profits from a poor country. As is well known, this culminated in our making important amendments to the Patents Act including removal of provisions to patent new molecules, and providing relatively short periods of patent protection in all cases. The new legislation – the Indian Patents Act of 1970 - is commonly credited with the growth of India’s generic pharmaceutical industry (based on an ability to create new processes for known drugs and scale them up effectively) and some of the lowest priced drugs in the world.

By the 1990s, many things had changed. Globalization was the order of the day, and India had climbed on the globalization bandwagon. International talks were on to provide a supportive environment for global trade. These talks expanded in scope to incorporate intellectual property protection. In 1995, India signed up for the GATT treaty and promised to put in place stronger intellectual property laws by January 1, 2005. India kept its promise, though not everyone is happy about this! But, the timing was right – by 2005, many Indian companies were taking innovation more seriously, and were therefore looking for stronger intellectual property protection for their inventions.

Where do we stand today?

Information

While the law changed, the procedural aspects of patenting have taken time to catch up. One of the important characteristics of a good patent system is easy availability of information about what patents have been issued. For several years this was a major bottleneck in India with such information not available online, and available only through a set of CDs compiled by TIFAC in Delhi. Even now, though there is an online database, it is nowhere as powerful or as comprehensive as the US PTO’s website. I would have thought that with all our software and IT prowess we should have been able to build something better than what the US PTO offers but…

Procedures and Process

Another important procedural issue is the speed with which the Patent Office considers applications, and the quality of the examination process. The importance of this dimension was recognized some years ago and a drive to hire and train patent examiners was launched. But, I saw a recent advertisement of the Controller General of Patents, Designs & Trademarks calling for applications for trademark examiner positions in which they are offering a consolidated salary of Rs. 25,000 per month to people with a degree in law and 3 years experience. I am sure it will be a challenge to get well qualified people at that level of compensation.

In an alternate effort to speed up the process, there was a proposal to involve the CSIR in preliminary screening and evaluation. But this was objected to by many as the CSIR itself is an active player in the intellectual property space and is, in fact, the Indian entity with the largest number of US patents.

While it’s difficult to judge the quality of patent examination, what we do know is that after an initial spurt in the speed of examination and grants, the process has slowed down again at a time when the number of applications is on the increase. Mint newspaper carried a useful graphic recently summarizing the challenge:



The Law Itself

As far as I can make out, there has been reasonably widespread acceptance of the amendments to the Patents Act made in 2004, 2005 and 2006 except for a couple of issues. The first issue is the now infamous Section 3 (d) that seeks to prevent evergreening by pharmaceutical companies by requiring a major inventive step as reflected in enhanced therapeutic value for a molecule to be awarded a patent. This has been a contentious issue almost since Day 1 of the new patents legislation, and a series of refused / cancelled patents to big name pharmaceutical companies has shown that the law has bite.

The second issue has been the issue of compulsory licensing. On March 9, 2012, the Controller General of Patents issued the first post – 2005 compulsory licence to Natco Pharma to manufacture its equivalent of Bayer’s Nexavar, a drug for treatment of kidney cancer. This has raised a hornet’s nest, as it has raised contentious issues like (1) what is a reasonable price for a drug? (2) what constitutes “working” a patent? and (3) what is the appropriate royalty to be paid to the inventor company in the event of compulsory licensing?

It’s fascinating to note that most of the controversies regarding the new patent law in India have centered around the pharmaceutical space. Globally, the big debates on intellectual property in recent times have been in the smart phone space involving companies like Apple, Samsung, and Google (Motorola Mobility). It’s almost as though we live on two separate planets! I suppose the reason for this is that India is still not a big market for high end smartphones and therefore the patent and design wars of this industry have not spilt over into India. But this is also another indication that India has failed to find a place at the high table of the most active innovation domains (see my earlier post on the areas in which India has the most active researchers).

In our obsession with the healthcare domain, we might be missing out on developments in other sectors that call for changes in our intellectual property protection laws. A new generation of software product companies is emerging from India (see my recent article in Outlook Business), and large companies like TCS and Infosys are embracing products and platforms in their quest for “non-linear” growth. But we continue to deny software products patent protection and limit their intellectual property protection to the Copyrights Act.

Awards & Enforcement

Consistent with their position in other matters, Indian courts tend to be conservative in penalties and awards for intellectual property violations unlike the multi-million dollar (or even multi-billion dollar) awards of American courts. In a way that’s good because it prevents intellectual property from becoming a separate game of corporate strategy. But the flip side of this is that there is the distinct possibility that an inventor may not receive adequate compensation for infringement of his intellectual property rights.

This become particularly critical in the case of the small inventor who anyway fights a David vs Goliath battle if the infringer is a large company with the ability to exploit all the procedural opportunities for delay available in the Indian legal system. In fact, if I were an inventor in India that would be my main fear – I may be able to obtain a patent and other forms of intellectual property protection, but will I be able to enforce my patent rights in a meaningful and timely way? Even in the US, the inventor of the intermittent windshield wiper, Robert Kearns had to struggle for years in his battle with large US auto companies (see the graphic below); I shudder to think what would happen to an equivalent inventor in India!


As we go forward, there will also be a need to ensure greater consistency in judicial decisions in the intellectual property domain. Without any disrespect meant to our honourable judges, I can see that in some of the recent judgements they have struggled to cope with the technicalities involved. Not too far in the future, when we have a critical mass of intellectual property cases, it will help to have a single court at the appellate level as has been done in the US.

Conclusion

In the 1950s and 1960s, we saw companies like Xerox and Pilkington Glass that established monopolies in their respective industries based on technologies which had strong patent protection. Today, the pace of innovation in most industries has hastened to the extent that companies need to innovate continually to derive maximum benefit from their innovations. But, intellectual property rights continue to provide the first-level protection for innovator companies.

As India develops a modern industrial economy, and more companies depend on innovation for their competitive advantage, our need to provide an appropriate level of legal support to enable innovative companies to capture the benefit of their innovations will grow. In this, our priority should be on improving IPR-related information flows, better processes and procedures, and enforceability, and on shifting our attention beyond the healthcare industry.



Monday, December 3, 2012

The Power of Longitudinal Research

Some of the oldest and most contentious debates on human beings centre around the relative influence of heredity (genetics), environment and individual voluntary action on growth and development. These include whether mental illness has genetic origins, what factors determine “success” in life, and whether adults continue to “develop” as they grow older (or whether all development happens before a certain age). These questions cross disciplinary boundaries as they involve concepts from psychology, psychiatry, sociology, and genetics.

Great thinkers like Freud and Erikson made significant contributions to these debates, but many of their contributions were based on intuitive theorizing rather than rigorous empirical evidence. With time and careful research, some of their theories have been upheld, and others disproved! The studies that have made the most impact are longitudinal studies in which a carefully chosen cohort of respondents was tracked periodically over an extended period of time.
The Harvard Grant Study
One of the most well known of these studies is the Havard Grant study which commenced in the late 1930s and early 1940s and continues till this day. The survivors of the cohort (who were Harvard sophomores when they were recruited) have now entered their 90s, and the data collected therefore allows several inferences to be drawn on adult development.

  
George F. Vaillant was the director of the Harvard Grant Study for over two decades. His latest book, The Triumphs of Experience, presents the latest findings. I found it a fascinating read as it not only uncovers new insights, but also questions some of the conclusions reached at earlier stages of the study. The Harvard Grant Study draws its conclusions from rigorous multivariate analysis, but Vaillant presents the findings with a distinctive and rare combination of statistical rigour and empathy for his subjects – in addition to tables containing the statistical results, there are profiles (disguised, of course) of different respondents of the study, and these give the reader a sense of being part of the study team.
The original design and subsequent evolution of the study show how much our models of adult development have changed over time. At the time the study started, physical constitution and mental health indicators were expected to be important predictors of subsequent progress of the study. Parental/family relationships and childhood upbringing were thought to be unimportant. Yet, the latest Harvard Grant Study findings show that loving relationships during childhood are important for longevity and success in life.
Findings of the Harvard Grant Study

Some of the important findings of this study reported in The Triumphs of Experience:

  • Individuals develop through their adult lives as well, not only upto the stage of adolescence.


  • The impact of childhood trauma decreases over time; more importantly, the positive experiences of a loving childhood have enduring impact.

  • Being well integrated and self-driving while young helps people live longer.

  • Divorce led to happier marriages than the bottom third of sustaining marriages.

  • Alcoholism had bigger negative impacts than measured by most previous studies. It accounted for more than half of the divorces in the Grant Study. The study shows that it is unlikely that alcoholics can return safely to social drinking, thereby upholding the methodologies followed by organizations like Alcoholics Anonymous.

  • The involuntary coping styles predicted by Freud exist, and they are important for human effectiveness

Phases of Adult Maturation


I particularly liked the chapter on maturation where Vaillant extends Erikson’s work to identify six phases of adult maturation (or what he prefers to call “development tasks”). These are shown in the graphic below. These phases form an excellent blueprint for adult evolution. What struck me was how many of us get bogged down in the tasks of identity and career consolidation when there are more fulfilling tasks ahead of us. While it’s true that many people in India do get involved in generative and guardian-like tasks, these are often restricted to the family context. Though we often discuss India’s demographic dividend, remember that India has a large and growing number of older people as well, and it would be a shame if we don’t take advantage of their wisdom.



 Important Lessons for Management of Long-term Research Programs
The Harvard Grant Study is interesting from a research management perspective as well. Over its 70+ year lifespan so far, the study has transcended several research directors and team members, but the integrity of the study has not been compromised. George Vaillant estimates that about $ 20 million has been spent on the study over time, with an average cost of $10,000 per research paper published. The study has had different sponsors at different times, and while the study had to adapt itself to the priorities of these sponsors (such as a major retailer, cigarette company and a program against alcoholism), it still managed to sustain the collection of data related to its core research questions.
With its emphasis on the choice of appropriate control variables and other related issues of study design, this book is a great primer on how to design and adapt longitudinal research studies for maximum research impact. In India, we need to build a tradition of undertaking sustained, long-term research programs, and this book that describes the approach taken by the Grant study will be invaluable in this endeavour.
[See David Brooks’ nice piece on this study in the New York Times for another perspective]

Thursday, November 29, 2012

How do companies sustain innovation programs?

Companies often complain that they are unable to sustain innovation programs. In my latest column in Outlook Business, I show how companies like Titan Industries and Cognizant Technology Solutions overcome this problem.

Sunday, November 25, 2012

NCL: Great Past Performance, but what's the future of National Laboratories?


India’s National Chemical Laboratory (NCL) is an iconic institution. NCL was set up in 1950 as a part of the first wave of new national laboratories under the aegis of the Council of Scientific & Industrial Research (CSIR). Along with Mumbai University’s Institute of Chemical Technology and the CSIR’s own Indian Institute of Chemical Technology in Hyderabad, it is one of the unique research institutions that straddles the spectrum of basic research to applied research to application to industrial problems through product and process development. Reflecting this, since its inception, scientists at NCL have published more than 10,000 research papers including about 20 in discovery-based journals like Nature and Science and it has been at the forefront of patenting with 100s of US and Indian patents (CSIR is the largest foreign patent holder in India; NCL is one of the prominent contributors to the CSIR tally).

I first visited NCL sometime in 1994-95 when I was working on my doctoral thesis. At that time, under the leadership of Dr. Mashelkar, NCL was undergoing a major shift to cope with the new economic paradigm of economic deregulation. By the time I visited NCL again, it was almost ten years later, and NCL had established itself successfully as a contract research organization working on specific problems for leading multinationals and select Indian companies (more about this later in this post). My most recent visit was in 2010 when I delivered the 8th NCL Innovations Seminar Series lecture on “From Jugaad to Systematic Innovation: The Challenge for India.” Not surprisingly, some of the most insightful discussions I had on the theme of my book were during my talk at NCL.

A recent book Excellence in an Overlapping Culture: The Big History of India’s National Chemical Laboratory (New Delhi: CSIR & Routledge, 2011) by Professor L.K. Doraiswamy (LKD), NCL’s fifth director, gave me the opportunity to reflect on NCL’s significant achievements. But it also provoked fresh thinking on the future role of national laboratories in India.



NCL: The Early Years

Though the seeds for the CSIR were sown during British rule, the CSIR got a fillip thanks to the vision of Jawaharlal Nehru. Having studied in Cambridge during the early part of the 20th century, he had seen at close quarters the excitement surrounding modern science as well as its potential for human development. Upon India’s independence, Nehru was determined that India should not miss out on being part of the scientific revolution. He was personally involved in the founding of several of the CSIR laboratories and was present at several laboratory inaugurations.

Though the CSIR in general, and NCL in particular, were set up with an eye to using science for industrial application, it took some time for this happen. NCL’s focus in its early years was on creating the basic laboratory infrastructure and a culture and working system that supported high quality research. The laboratory’s first two directors were brought in from outside India to make this happen. The process was completed by the laboratory’s first Indian director, Professor K. Venkataraman, an expert of international stature on dye chemistry. (It should also be remembered that the Indian chemical industry was in its infancy at that time, and it took some years for the evolution of industrial collaborators with whom NCL could work.)


Working with Industry

While some first steps for the development of chemical processes for industry such as the creation of a chemical engineering group, setting up a pilot plant, and encouragement of interaction between chemists and chemical engineers had been put in place earlier, the thrust towards industrial applications had to wait till NCL’s fourth director, B D Tilak, adopted this as the focus of his tenure in the mid-1960s. Professor Tilak bid aggressively for external projects, tied up with project consultancy and engineering firms, lobbied with the government, and even gave performance guarantees so that NCL could play a substantive role in the development of the Indian chemical industry. In retrospect, it is clear that this entrepreneurial push was required to overcome the skepticism that industry had regarding NCL’s capability to create processes that would work on an industrial scale. Remember that companies often had the option of buying complete technology packages from established foreign contractors who could demonstrate working plants elsewhere in the world as well as provide performance guarantees. While many of these industry projects did not involve novel chemistry, they provided scientists and engineers at NCL a learning ground for the problems of industry, and helped the laboratory overcome the criticism of being too focused on research of a more academic nature.


It was in the 1980s that the first major industrial processes involving novel Chemistry from NCL were commercialized. Under the scientific leadership of Paul Ratnasamy, NCL developed zeolite-based catalysts that were used in xylene isomerisation processes at IPCL, then a government-owned petrochemical company. The zeolite research programme included deep basic research on the properties of the catalyst, characterization, reaction engineering, and process simulation. Strong support from the IPCL top management (the then CMD, Dr. S. Ganguly allowed the NCL catalyst to be used in the actual plant for a whole month to show that it worked), existing relationships between NCL and the company (the director of NCL was on the board of IPCL right since its inception + there were strong working relationships across the two organizations), and an industry partner who could supply the catalyst in sufficient scale and quality (ACC’s catalyst unit was later acquired by IPCL) were important factors that led to the commercial success of the encilite project.

By the late 1980s, it became clear that the environment for industrial research and collaboration in India was changing. Protection of the Indian economy was beginning to reduce, more chemicals and intermediates could be imported under Open General Licence, and price fluctuations for inputs could make processes unviable. The era of reverse engineering known processes was over. Projects like the encilite development could have a future, but any technology would need continuous improvement and enhancements to survive international competition. The level of competition faced by chemical companies was going up, economic scales of production were becoming an imperative, and companies no longer had the luxury of being able to co-develop new processes over indefinite timeframes.

Internationalization of NCL

The deregulation of the Indian economy in the early 1990s accelerated this trend. But other dimensions of the deregulation process – a greater external orientation and focus on international markets – provided new opportunities as well. Around this time, many multinational companies started embracing the now well known paradigm of open innovation and therefore sought partners for their R&D work. This was accompanied by a high degree of disaggregation of the entire R&D value chain with increasing division of labour across different entities, often across borders.

Under the leadership of Dr. Mashelkar who had become director of NCL in 1989, NCL re-positioned itself to take advantage of these opportunities. NCL became an important player in contract research, working with some of the top multinationals in the world. This allowed the laboratory to use its strong intellectual expertise to work on problems of industrial significance. But as LKD points out, this also meant that NCL was no longer undertaking end-to-end technology development. As with all contract research, the results of the research belonged to the sponsors of the research. While NCL has tangible revenues to show for this work, it’s difficult to trace the final impact of NCL’s work. In fact, even the table in LKD’s book listing NCL’s MNC partners and their projects gives sketchy titles of the projects citing confidentiality clauses in NCL’s contracts with these clients!

According to LKD, Dr. Mashelkar’s successors Paul Ratnasamy and S. Sivaram successfully advanced NCL’s integration with global companies. Sivaram charted a new direction as well by setting up an Innovation Park and Venture Centre on the NCL campus in an effort to support entrepreneurship and the incubation of companies.

The Future of National Laboratories


NCL provides an excellent example of how a national laboratory can keep pace with changing times. It started by creating a base for excellence in Chemistry research, and enhanced the scope of its research to include chemical engineering. As India grew its chemical industry in the 1960s, to make itself more relevant to industry, it developed processes to manufacture different chemicals, and worked with engineering consulting firms to scale up the processes and transfer them to companies. While this was initially done with “known processes,” the laboratory later graduated to “improved processes” that reduced the number of steps or used materials more efficiently. Still later, as the demand for reverse engineered processes came down and industry developed its own capability in process development, the laboratory came up with novel processes of its own, accompanying process development with deep research into the underlying chemistry and chemical engineering. In a globalised environment, NCL made another shift to doing contract research in areas in which it had deep competence.

What’s next? NCL’s challenges mirror those of CSIR itself. Creating a strong basic research infrastructure and training generations of PhD students as many CSIR labs like NCL do makes a lot of sense when the university system is weak.. CSIR’s recent move to get itself the status of a university may be seen in this context. However, as Toren and Galai pointed out in a paper in Research Policy many years ago, the role of national laboratories becomes more hazy as the competence of the university system grows. (For a wonderful account of what a good university laboratory can to do spawn industrial innovation, read the account of Robert Langer’s lab at MIT in a recent issue of the New York Times).

Developing industrial processes as part of an integrated research programme as Paul Ratnasamy and his team did with zeolite catalysts is a good way of driving industry-oriented research. But, historically, most national laboratories in India (including mission-oriented ones like CDOT and CDAC) have struggled to retain the motivation to keep upgrading industrial technologies they have created. Once the research content goes down, the scientists’ motivation to continue working on the technologies tends to reduce. But from the user’s point of view, continuous enhancement of the technology is important particularly to keep ahead of competition.

National laboratories were set up in India to enhance domestic technological capabilities. While that does not preclude working with MNCs, it does raise the question of whether a predominantly MNC focus makes sense. The laboratory and the individual scientists benefit, but there could be legitimate questions about the benefits to the larger economy.

In fact, the question of how the national laboratories benefit the economy has been a thorny one for decades. While Nehru was philosophically convinced that the existence of national laboratories would benefit the local economy and did not seek tangible evidence for such benefits, his successors and the broader political establishment were not satisfied that easily. Ever since the Sarkar committee was set up about 40 years ago, there has been increasing emphasis on the national laboratories making tangible contributions to the nation.

These pressures have resulted in CSIR and the individual laboratories seeking visible means of justifying their existence. LKD writes about how in his last few years as director Tilak focused much of his energies on using science for rural development. One can detect a trace of irritation as LKD writes about this, as this seemed to deviate from the focus on research and excellence that NCL was known for, and instead emphasised diffusion of existing knowledge. LKD underlines how, as Tilak’s successor, he quickly reoriented the laboratory back to its original mission for excellence.

But the pressures to be relevant haven’t gone away. Whether it be Mashelkar’s backing for grassroot innovations or the present CSIR DG’s backing of the soleckshaw (a solar-powered rickshaw), each Director General or lab director has felt compelled to show direct evidence of contributions to inclusive growth. Of course, today this is in keeping with the inclusive innovation paradigm adopted by the government through the National Innovation Council.

Yet, combining high science with “appropriate innovation” is far from easy. Too much emphasis on the latter seems to make it difficult to maintain the culture of scientific excellence that laboratories like NCL are famous for.

Perhaps the biggest challenge facing the national laboratories today is attracting and retaining talent. The country’s top talent today has myriad more opportunities than what the doyens of NCL like LKD, Mashelkar or Ratnasamy had in their time. Science and R&D are not preferred careers. Even for those who seek a career in R&D, India has a large MNC R&D sector which offers job prospects, salaries and infrastructure that are much more attractive than what the public sector has to offer.

Given this backdrop, has the time come to discuss afresh what should be the objectives, scope and structure of national laboratories in India?

Endpiece



LKD’s account of the history of NCL is essential reading for anyone who wants to understand the changing context of innovation in India. Sadly, LKD himself passed away earlier this year, but his book remains a comprehensive record of the challenges faced by an R&D organization in India, and how a successful laboratory addressed these challenges.

Saturday, November 17, 2012

Will Infosys 3.0 Work?


In an earlier post written after visiting Infosys Labs (the R&D centre of Infosys), I concluded that R&D at Infosys is moving from being a demonstrator of technological capabilities to a potential source of competitive advantage. While I hinted at the challenges involved in this transition, the extent of this challenge became clear when Gopal Devanahalli, Vice President (Products & Platforms) for the Energy, Utilities, Communications & Services vertical of Infosys addressed a group of IIMB executive education participants last month.



Traditional IT Services Model has Lost its Sheen

The focus on products and platforms is one prong of a major transformation that Infosys is undertaking. This transformation – what Infosys calls Infosys 3.0 – is the company’s response to fundamental changes it sees in the business environment. With the adoption of outsourced services by most large clients and limited prospects for economic growth in the developed world in the immediate future, the growth of the IT services industry is slowing down. Greater commoditization of services and increasing price-based competition are making the traditional IT services model less attractive (there’s plenty of evidence of this all around – we need to go no farther than the quarterly results of all the Indian IT services majors!).

Is increasing scale the answer? With annual revenue of $7.3 Billion and 150,000+ employees, the management of Infosys sees linear scaling up of the present model as a game of diminishing returns. Being a company that has always prided itself on its margins (Infosys 28% vs. Cognizant 18%) and returns to shareholders, it decided the time has come to change its basic business model.

If the first 15 years of Infosys were spent on perfecting the offshore model (Infosys 1.0), the company subsequently increased the scope of its service lines to completely new business sectors under Infosys 2.0. As a result, more than half of the company’s revenues come from “non-traditional” sectors. In the process, the company built a robust portfolio of more than 500 clients. But Infosys 2.0 appears to have run its course.

Infosys 3.0


Infosys 3.0 which was launched in April 2011 seeks to balance offerings between optimizing operations (a la traditional IT services), helping clients grow in their existing businesses (through business transformation) and working with clients to create new growth opportunities through innovation. From an organizational standpoint, the transformation and innovation strategies are particularly challenging for Infosys, because they involve creating business value rather than just cost savings and working with other CXOs of the client (rather than the CIO). The business transformation piece depends on the ability of Infosys to provide high level consulting services, and the innovation piece is based largely on the products and platforms initiative. The latter is based on an assumption that their clients need partners to innovate. I guess this is a reasonable assumption given the enthusiasm with which leading companies have embraced open innovation as an integral part of their innovation process.

Infosys 3.0 is tightly wound around the company’s perspective of the major challenges large corporations will face in the years ahead. How did they identify these? 3 years ago, the company initiated a research project to determine the trends that would define the future of these organizations. They held more than 100 workshops with clients. This enabled the company to develop what it believes is a distinctive point of view of the 7 big forces shaping the business world. This took shape under the rubric of “Building Tomorrow’s Enterprise Now” – 21 ideas for the 21st century (3 ideas for each of the forces).



The products and platforms strategy focuses on these 7 themes. The company currently has 12 product and 13 platform offerings. A platform is defined as a managed offering with guaranteed and measurable business outcomes based on Infosys or third party intellectual property, powered by best-in-class domain expertise and cloud computing.

The Transformation Process

The shift to Infosys 3.0 involved a major re-cast of the company’s organization structure. Erstwhile industry verticals were clubbed together to form 4 integrated verticals. 3 delivery organizations were formed around the 3 main offerings – services, consulting and products/platforms. As with any organizational change of this magnitude, this change precipitated much angst in the organization, and the process is still not fully complete. But the reorganization also gave the company the opportunity to bring in new talent from outside, something that was needed to make the new strategy work, particularly in an area like products and platforms where new entrepreneurial and conceptual skills were required. For example, Infosys hired the engineering head of a leading consumer electronics company to foster consumer-oriented product/platform thinking.

As you would expect from a company that prides itself on a planned and disciplined approach to problem-solving, Infosys identified what would need to change and what would not change with the adoption of Infosys 3.0.

What would change

The management of Infosys envisaged change across 4 dimensions:

  • In terms of market messaging, they saw a shift from non-linearity (internally-focused) to client value (externally-focused), and from development programs to guaranteed outcomes.
  • In the area of talent management, they saw a change from utilization to engineering efficiency; from a single set of HR policies, to a set of HR management models; and to having more entrepreneurial talent who could wrap their arms around a business (e.g. product/platform) and make it successful.
  • The operating model would involve a shift from revenue per person billed per month to revenue per employee. Higher risks would be inevitable, and they would have to be managed well.
  • The new investment model would involve upfront investment and longer time spans to recover returns on investment. Risk would have to be managed through a portfolio approach to offerings as undoubtedly some would fail.


What would not change

At the same time, the Infosys management were clear that some things would not change:

  • The company’s quest for global respect
  • The core value system (C-LIFE: customer focus, leadership by example, integrity and transparency, fairness and excellence in execution)
  • The principles of PSPD (Predictable, Sustainable, Profitable, De-risked - though this might have to be applied at the portfolio level)
  • Excellence in execution
  • Focus on operational scalability


Building the Products and Platforms Business

To succeed in the products and platforms business, the focus would be on building the right offerings, building the offerings right, gaining market traction and talent management. A team of more than 1,000 engineers has been assembled for product and platform engineering. Processes are being put in place for product management.

Some gaps in talent were identified – most of these related to product-specific capabilities like product management expertise, product marketing expertise, and product sales expertise. These are being filled.
Revenue models vary depend on the nature of the product/platform and the client. Some platforms are sold in terms of a per transaction charge while others work on a revenue share basis.

Infosys plans to offer all platforms on its own private cloud.

To avoid confusing customers, a single sales person would address each client and this sales person would sell the entire bundle of offerings (services, consulting, products/platforms) to the client. But sales support would be provided by a sales support team located within the products and platforms group for that vertical.

Will this work?

While Gopal exuded confidence that all that was needed was patience and perseverance to make this work, most of the participants in our executive education class were less sanguine. They questioned the ability of Infosys to hire and retain the people suited to a product business; the company’s ability to stay the course and wait for longer term pay-offs; and whether the existing Infosys sales force would be able to “sell” relatively more sophisticated products and platforms. Above all, they wondered how difficult it is to build a product business within a successful services company.

This is, I suspect, a legitimate concern. In a study of software product development in India that Ganesh Prabhu and I did several years ago, we found that a services mindset is different from a product mindset. In a services business, the client defines the scope and definition of what is to be delivered while in a product business the company has to make difficult choices on product definition. Products meeting “average” needs often deliver below-average returns, and successful product companies often have visionary product leaders who are able to articulate user needs better than users themselves can. Products need roadmaps and a visualization of the future.

Attracting product visionaries might require different human resource policies and compensation plans. While Infosys has committed to move away from one single HR policy as at present, the shift will take time to implement. Gopal told us that so far the products and platforms business has not found it difficult to get clearances from the top management for any “deviations” from extant Infosys policy. But we need to keep in mind that most successful companies develop what C.K. Prahalad called a “dominant logic”: mental maps and models that provide the lens through which they look at their business. This dominant logic makes it difficult to run businesses with very different models and assumptions within the same corporation.

Conclusion

Infosys appears reluctant to spin off the products and platforms business as a separate company even though this could give it the focus and flexibility that would improve its chances of success. The reason for this seems to be their preference to present a single face to the client. Client problems don’t come packaged in neat buckets. Infosys is betting that by presenting a single face to the client, these problems can be addressed through a mix of services, consulting and platforms, all provided by Infosys. Since strong customer relationships constitute one of the inimitable resources that Infosys possesses, it doesn’t want to dilute or balkanize this resource.


My assessment is that Infosys has identified the transformation challenges correctly, but the question is whether the choices they have made regarding the change management process are the right ones. In his quarterly interactions with media and analysts, Infosys CEO Shibulal shows a steely determination to stay the course and make Infosys 3.0 work. Almost 20 years ago, IBM CEO Louis Gerstner did a great job of making the IBM elephant dance; let’s hope that Mr. Shibulal is able to do the same.

Saturday, November 10, 2012

The Challenge of "Reverse Innovation"

MNC Structures can impede innovation flows….


In the mid-1970s, the Xerox Corporation faced the first real threat to its domination of the photocopying industry. This threat did not come from IBM or Kodak, the large American companies that had entered the industry. Instead it came from Canon and Ricoh, at that time relatively small Japanese companies.

Xerox had fortified the technological lead it enjoyed due to its patent-protected technology with strong customer relationships, a renowned service network, and a business model built around leasing large and fast copiers to central photocopying facilities within company locations. Realizing that they couldn’t possibly beat Xerox in head-on competition, Canon and Ricoh chose to change the rules of the game. They sold small, relatively slow copiers with limited functionality yet high reliability to individual managers within companies who were looking for options to meet their own copying needs.

Xerox was caught on the wrong foot. With a large base of machines leased out to customers, it was difficult for the company to shift to a model of outright sales. Further, within the US operations, they lacked a small copier product that could compete with what the Japanese were offering.

Ironically though, Xerox’s Japanese affiliate – Fuji Xerox, a joint venture with Fuji Photo Film – had developed small copiers of its own that were particularly suited to the Japanese market. Yet, in a typical case of one-way information flows that often seems to characterize MNCs, Xerox failed to immediately recognize or exploit the products created by Fuji Xerox to compete more effectively with Canon and Ricoh in the US market. By the time they did it was too late.

…But subsidiary initiative can at least deal with local competitive challenges

Innovation by MNC subsidiaries and affiliates has happened in the past when subsidiaries have had to be locally responsive to competitive challenges. In India, we saw the celebrated case of how Hindustan Lever launched Wheel to combat Nirma in the detergent marketplace. In the process, Hindustan Lever had to “borrow” several aspects of its business model from its local Indian competitors. But, such innovations often remained restricted to the host country market, and in the past were seen more as aberrations than an integral part of the company’s strategy.

In several MNCs, subsidiaries still struggle to get the authority to create new products for specific needs of their markets. Subsidiary leaders often have to display entrepreneurship or initiative to overcome the dominant logic that products and technologies flow from the headquarters to the subsidiary and not vice versa.

Govindarajan & Trimble argue for a new logic


In Reverse Innovation (Harvard Business Review Press, 2012), Vijay Govindarajan (VG) and Chris Trimble argue that multinationals need to change this perspective of innovation. And they go one step further – MNCs should not only encourage subsidiaries in large emerging markets to develop “lower cost + lower performance” products for their markets, but should actively create structures and processes to support such innovation.

The rationale for this is simple. Emerging markets are the growth markets of the future, but existing products and services are often not well-suited to these markets – they are over-designed, have too many unnecessary features, and are hence too expensive. If MNCs fail to develop products for emerging markets, they will not only lose out on important growth opportunities, but could potentially create well endowed competitors from these markets who could ultimately threaten them in their home markets.

Reverse Innovation contains some insightful case studies of companies like GE, P&G and Logitech that strategically created products for emerging markets, some of which have subsequently found markets in the developed world as well. The authors call this phenomenon “reverse innovation” because of this latter phenomenon. This constitutes a flow of innovation in a direction opposite to that of what we traditionally saw in MNCs (like in the Xerox story with which I started this post). And, the authors believe that this reverse flow may well be important for the developed world as they face declining growth, lower disposable incomes, and increasing ecological concerns.

The Challenges of Reverse Innovation


I have some reservations about the use of the term “reverse innovation.” It seems somewhat patronizing to the developing world. Notwithstanding this, it appears to be sticking, thanks in no small measure to the Harvard Business Review article by the authors of this book, and GE chairman Jeff Immelt.

But, more importantly, there are some fundamental issues with this phenomenon itself. The first issue is whether MNCs, whose competitive advantage comes traditionally from superior technology and features, can really compete in a price-sensitive, cost-driven market. Anecdotal evidence from the Indian market suggests that GE (the focal company of this book – one of the authors, VG, was a consultant and Professor in Residence at the company) has been struggling to make a commercial success of its reverse-innovated ECG machines and associated products because local competitors have been undercutting GE’s prices. This raises the question of whether, given their overhead structures, MNCs can ever hope to compete on cost with frugal local competitors.


This doubt is reinforced by one of the case studies in the book about a P&G sanitary napkin product specially developed for the Mexican market which suggests that this product enjoys less intellectual property protection than a typical P&G product does, presumably because it doesn’t have such a high degree of proprietary technology in it. At least in India, if it’s a competition for better adaptation and cost efficiency, I would be inclined to put my money on local companies to prevail.

Successful innovation often involves innovating on multiple dimensions. Studies by Doblin, an innovation consulting firm now owned by the Monitor Group, suggest that innovations are more likely to be successful if they incorporate innovation in at least 6 of the 10 dimensions of innovation they have identified. This suggests that MNCs will have to innovate on supply chain, distribution and a host of other business dimensions if they are to make reverse innovation work. (This is reinforced by Hindustan Lever’s success with Wheel where they did exactly that). But, it will be difficult for MNC subsidiaries to make that many changes unless they are really determined to do so. It’s tough to imagine the average GE channel partner selling high ticket price medical equipment being interested in selling low-priced scanners, and the challenge of setting up alternate distribution channels (which the authors say GE is doing) shouldn’t be underestimated.

While the authors should be congratulated for taking the bull by its horns in asking MNCs to embrace complete bottom-up product design if they want to be relevant in emerging markets, they should in my view put greater emphasis on the criticality of fundamental changes in business models that will be required for these newly designed products to be successful in these markets.

And, finally, I wonder whether Clayton Christensen’s theory of disruptive innovation (see my earlier post comparing disruptive and radical innovation) isn’t adequate to describe the nature of innovation VG and Trimble advocate. If so, the major contribution of this book is the emphasis on the changes needed in MNC structures and processes to facilitate such innovation by MNC subsidiaries in emerging markets.



Sunday, November 4, 2012

Sweden & India: Innovation & Entrepreneurship

Sweden celebrated the birth anniversary of Alfred Nobel last week with a series of events in India centered around innovation. I had the pleasure and privilege of being a part of the CEO Round Table convened by Swedish Ambassador Harald Sandberg on November 1. On this occasion, senior executives of Swedish companies in India, and other invitees from the government and academia joined the Swedish Minister for Enterprise Annie Loof, and Indian Planning Commission member Arun Maira to discuss what India and Sweden could learn from each other on innovation.


Innovation in Sweden: A Historical Perspective




Our gracious host, Ambassador Sandberg, set the stage for the discussion with his introductory remarks. He identified four important historical milestones going back to the mid-19th century that paved the way for the emergence of Sweden as a modern industrial state. The first was the transition from feudalism to transparency. The second was a focus on literacy and education – 6 years of mandatory education was prescribed for Swedes as far back as 1850. The third was liberal reforms and deregulation. And, the fourth, an emphasis on free trade, again going back to the 1850s.

In discussions at our table, Enrico Deiaco of the Swedish Agency for Growth Policy Analysis emphasized the importance of deregulation in creating a healthy climate for the growth of Swedish enterprise. He clarified that Sweden’s initial focus was on education (rather than research) and creating good engineering talent was an important objective. He pointed out that Swedish enterprises started by licensing external knowledge and patents from others – Ericsson, for example, started by licensing Bell technology from the United States. But, Swedish companies subsequently graduated to creating their own knowledge and intellectual property. He added that Sweden’s external focus was inevitable given its small size and population (currently about 9 million).

Swedish Society, Education

I was struck by some important differences in education and society between India and Sweden. The Swedish education system, right from school is more open and practice-oriented. Joakim Bystrom of Absolicon Solar Concentrator described how he made a model of his first solar concentrator in his weekly carpentry class. His idea was developed further in an Inventors’ Club. The Swedish education system is now trying to bring ideas of entrepreneurship into the school curriculum.

Swedish society and Swedish companies are relatively free of hierarchy. In Sweden, it is perfectly acceptable to question your boss. (I am sure that can be traced back to the efforts to remove feudalism in the 19th century!) This lack of hierarchy leads to a better climate for ideas within the organization.

Sweden’s Accomplishments…and Challenges

An important insight came from Joakim Bystrom, the Swedish entrepreneur from Absolicon Solar Concentrator. His region of Sweden has a population of only 250,000, but has a complete “regional innovation system” that has been crafted in the last 15 years: an incubator, several innovation funds, and close to 50 people focused on enhancing innovation in the region. Bystrom has so far been able to raise capital proportionate to his needs at different stages of growth of his enterprise – starting with investments from friends and family, and awards from innovation contests, graduating to soft loans, angel investments, and support from the Swedish Energy Agency. He is now ready for venture capital. At least in his case, the Swedish innovation system appears to have delivered what he needed, and when he needed it!

Sweden does very well on global innovation rankings, largely it appears due to the high investment in R&D and innovation (about 3.7% of GDP). However, this doesn’t necessarily translate into new products and services. Instead it is reflected in the competitiveness of large Swedish enterprises (through higher productivity) and is manifested as enhanced living standards for the Swedish people. The high R&D intensity is driven largely by industry with government accounting for just 20% of R&D investments.

Many of the Swedes participating observed that Sweden is good at innovation but not necessarily at entrepreneurship – from this, I understood that much of the innovation is driven by large companies, and not by start-ups and small companies (though efforts are afoot to change this). In contrast, they observed that India is good at entrepreneurship but perhaps not as strong at innovation (by which, they mean R&D-driven products and processes). I guess that’s a fair characterization! Participants also referred to Sweden’s strength in “systematic innovation”: good processes to develop ideas and implement them.

But Sweden is not resting on its achievements. Swedish Minister for Enterprise Annie Loof described how Sweden’s new innovation strategy (released just last month) was created through a participatory process. She underlined the importance of an innovation strategy that has people in mind, and that people can relate to. Given Sweden’s past and its priorities, it’s not surprising that the new innovation strategy focuses on three important goals – meeting global societal challenges such as climate change and ecological concerns; increasing competitiveness and creating more jobs; and delivering public services of higher quality.

What should we learn from Sweden?

Sweden has a good record of innovation in the 20th century. Some of its prominent innovations are the computer mouse, the ball bearing, tetra pak packaging, and the heart pacemaker. So, it’s tempting to look to Sweden for ideas on how to strengthen innovation in India.

But, transferring “best practices” or policies from one country to another that has a completely different history and context is never easy. As some of the participants in the Round Table observed, Sweden is smaller than half of Mumbai! Issues of relevance and applicability come up almost immediately.

In his summing up, Arun Maira and the group flagged four themes emerging from the discussion that seemed important for India – education, connections and collaboration, finding partners, and finance. There was little disagreement that education in India needs to change, but there was concern about how long that could take to happen. On finance, Arun said that the National Innovation Council is seized of the issue, and plans to set up a Social/Affordable Innovation Fund that would provide small ticket funding for innovations with potential social impact.


“Connection and collaboration” provoked some interesting debate. Within Sweden, collaboration seems to be easy due to a lack of hierarchy, and high levels of trust. Social homogeneity helps, as does Fika, informal discussion sessions over coffee that punctuate Swedish organizational life. Rajeev Chopra of Philips pointed out that Japan and Korea are hierarchical too, but seemed to have got more innovative over time. He asked whether we can’t take hierarchy as a given and find ways around it. Kiran Karnik wondered aloud whether Japan and Korea are really that innovative or whether they are better at imitation and scaling up. Others demurred, pointing to the Toyota Production System and the growth of Korean companies like Samsung. Arun Maira commented that perhaps hierarchy is not the issue but how you use it – e.g., on the shop floor, Japanese companies are very open to workers’ ideas through their Kaizen programmes; but once the ideas are generated, they defer to senior management in terms to decide which ideas should be implemented.

Conclusion

The discussion at the Round Table reinforced some points I made in From Jugaad to Systematic Innovation: The Challenge for India and kindled some ideas I have had since. Social and cultural barriers such as excessive hierarchy, fear of failure, and the difficulties we face on working together in team often hold us back from achieving our full innovation potential. Organizations can overcome these barriers by providing a supportive context for innovation that builds confidence in our innovation capabilities (see my recent Outlook Business column for more on this theme). While some organizations in India (notably the Tata group) have instituted awards that recognize people who tried hard but failed, more fundamental organizational change may be required so that legends are built around those that failed but still succeeded.

As for innovation policy, decentralization is definitely the way to go. India is too large and too complex for innovation to be supported by “one size fits all” innovation policies run out of Delhi. We need to build regional innovation systems that can support innovation at the local level. The state level is a good place to start, and it’s good to see Karnataka taking the lead in developing state-level innovation policies.

But more than anything else, there much to be said for deregulation and transparency. People in our country can then shift the focus of their ingenuity to products, services, processes and business models rather than applying it to find ways around rules and regulations. Just imagine how much thought and creativity must have gone into the complex ownership structures and financing arrangements that are being talked about in the press today – if only the same energy could have been focused on innovation that could make a positive difference!

Last but not the least, building innovation capabilities is a long-term play, not a short-term one. Changes in policies and more fundamental social changes can take decades to show results. Today, Sweden benefits from changes that were initiated more than 150 years ago! Though we take pride in our ancient heritage and timelessness, our policies and decisions seldom demonstrate the long-term perspective such a hoary history should generate!