REVIEW OF BOOK INDIA INSIDE

Team Member Name Natasha Baisiwala Rahul Naidu Rashmi Upadhyay Rima Shah Sneha Verenkar

Roll No 10 17 19 20 27
EX-PGDM BATCH 2011-13 GROUP 5

Introduction . 3
The Authors .. 6 Chapter 1: Where are Indian Googles, iPods, and Viagras? .. 5 Chapter 2: Globally Segmented Innovation ..

Chapter 5: Management Innovation The Global Delivery Model .

Chapter 6: Visible Innovation: Frugal Engineering .. Chapter 7: Indias Innovation Challenge - Overcoming Institutional Constraints ... Chapter8 The Future of Indian Innovation

Introduction

It took a decade of after economic liberalisation in 1991 to get the business houses and economy in order. Prior to that the working class, would migrate to Western countries in search of greener pastures. But with changing social demographics and technological development back home made people return to our homeland. This was beginning of our advent in field of Innovation. This book takes us on a journey of innovation done in India or by Indians which prima facie may not be visible but present in a large way impacting our lives through various phases in the growing economy.

The Authors Dr. Nirmalaya Kumar is Professor of Marketing at the London business school. He completed his MBA at the University of Illinois at Chicago in 1986 and obtained his Ph.D. in marketing at the Kellogg School of management in 1991. He is currently a Professor of Marketing and Co-Director of Aditya Birla India Centre at London Business School. He previously served on the faculty of Harvard Business School, IMD-International Institute for Management Development (Switzerland), and Kellogg School of Management at Northwestern University. He has authored five books on marketing and business-related topics. He is notable for proposing the culture of "3Vs": valued customer, value proposition and value network, explained in his book Marketing as Strategy: Understanding the CEO's Agenda for Driving Growth and Innovation.

Dr. Phanish Puranam is Professor in the Strategy and International Management Area at the London Business School (LBS). He obtained his PhD at the Wharton School of the University of Pennsylvania. His research and consulting are centered on the organization of inter-firm relationships-alliances, acquisitions and outsourcing arrangements. His research has appeared in the California Management Review, Sloan Management Review, Strategic Management Journal, Academy of Management Journal, European Management Journal, Advances in Strategic Management and the Financial Times Mastering Management series. He is also a Visiting Professor at the Indian School of Business, a partnership between Wharton, Kellogg and London Business School.

Chapter 1: Where are Indian Googles, iPods, and Viagras?

Over two decades, India has established itself as the global hub for software development and back-office services. In many of these segments, India has achieved a dominant share of the offshore market. India accounts to almost 50% of the global process outsourcing industry. However many managers in India do not agree to this kind of a business model to which India is gradually migrating. They compare two firms in the IT sector: Microsoft and Infosys founded by two great visionaries of our times at a space of 5 years from each other. The difference in these firms is their business model adopted by these firms. Former is focused on developing innovative products, latter in providing services. The irony of the fact is that many of Microsofts programmers are Indians. Currently even big firms in India have realised that the next challenge is to move from outsourced and made in India to Imagined and owned in India.

This brought forth the few questions Is innovation an Intellectual Property of the West?, Is innovation practiced in East? , Are the people in East capable of doing CREATIVE STUFF?

The 2010 Business Week ranking of the most innovative companies in the world shows that lot of Japanese & Korean companies known incapable of innovation managed to secure at least 3 places in the first 10. This ranking had a lot Indian companies; along with the Tata group at 17th place a major contributor to the nations wealth. But even then a common myth observed and expressed by developed countries is Indians dont do Innovation. This comes from those who thrive and survive on Innovation driven economy.

The reason for such an opinion was the regimented and rote based Indian educational system which killed creativity. But who created Hotmail (Sabeer Bhatia), Pentium Chip (Vinod Dham)? These & many more people like them are Indian innovators of various new products or founders of companies (Sun Microsystems). These people managed to succeed in this regimented and rote based educational system back in India and were therefore able to

succeed in other parts of the world. So it was not educational system that was responsible but the will and vision for innovation which was lacking in the Indians companies and mangers. This brings us back to the doubt raised whether Do Indians really do Innovation. This doubt can be erased by the numbers given by international patents applications in United States where contribution of inventors with Indian-heritage names has increased considerably between 1998 & 2006. This book therefore tries to break the myth observed by many people that Indians dont do innovation. These critics fail to realise that in India where finding fixes, workarounds or shortcuts is a way of life popularly or colloquially called as JUGAAD; in such a country INNOVATION is a way of life.

Do Indians do Innovation? Yes and No, depending on how innovation is defined or perceived. What is Innovation? To create something new or something different. This word is used so often that it seems to have almost lost its meaning.

"Innovation," the word, was first seen in the 1540s. It comes from the Latin word innovatus, which means 'to renew or change' and is made up of two words: in which means "into" and novus which means "new." So, to innovate is to go into the new. The term innovation may refer to either radical or incremental changes to products, processes or services. The often unspoken goal of innovation is to solve a problem. Innovation is an important topic in the study of economics, business, technology, sociology, and engineering. Since innovation is also considered a major driver of the economy, the factors that lead to innovation are also considered to be critical to policy makers. Steve Jobs, one of biggest innovators of the decade quoted Innovation as But innovation comes from people meeting up in the hallways or calling each other at 10:30 at night with a new idea, or because they realized something that shoots holes in how we've been thinking about a problem. Innovation is actually the most important aspect of a business, its what makes it stand out among the market place, prevents it from going stagnant, helps it to grow and drives society, and humanity, forwards. Innovation does not only apply to products however, but to the business models themselves - to the delivery and the service and here is where the true meaning of innovation lies.

One great example of innovation in a swamped market place is the DVD rental company that works by post. Here you choose a DVD then keep it as long as you want with no fees until you decide to send it back in exchange for the next film. This changes the way DVD rental works - streamlining it to make it easier for the customer and for the business which can attract them away from the older systems. This business model was transformative meaning that there was currently nothing like it on the market which straight away got people interested. Rather its important that the company continues to innovate and to streamline every aspect of its process as it grows. The old adage if it aint broke dont fix it really doesnt apply here as theres always room for improvement - and thats the part of business thats creative, fun and worthwhile to the customer and society. If your company simply churns out orders without making any changes to its structure then it will quickly be replaced by younger more innovative companies that perform the same task in a more efficient way, or that adapt to new technologies. Even if there is no threat of competition then streamlining your business through innovations will earn you more profit, generate more publicity and provide a better service for your customers.

This is where few successful companies understand the meaning of innovation however and most continue to work a set structure. The most successful companies however realize this mistake however and encourage innovation in the work place. Google for example allow their staff to spend something like 30% of their time pursuing their own creative interests which, has lead to innovations such as Google Maps and Google Adsense which have genuinely changed the way we live and made Google in phenomenon more than a search engine thus by staying innovative Google have remained at the top of their game and driven us into the future.

Thus coming back to the Indian context of innovation, the book captures innovation in two types: Visible to end consumers and Invisible to end consumers. Research conducted by the authors shows that India is present in substantial innovation taking place in the form of invisible to the end consumers.

Diagram on page nine

The book captures Indian innovation story through these pointers in the subsequent chapters which would make any Indian proud.

Mainly, 4 types of innovation originating from India remain invisible to end consumers around the world and have been a decade in the making:

1. Globally segmented innovation led by primarily by major multinational corporations that have set up captive innovation and R&D centers in India. In chapter 2, a large number of global MNCs have setup captive R& D centers in India which is used as a platform for generating innovation for global markets. These companies have developed global products from their Indian R&D centers, just as the companies have done from the R&D centers in the West. For example: Intel launched its Xeon 7400 series in 2008, the first chip wholly designed and developed out of its Bengaluru center.

2. Outsourcing innovation to Indian firms where R&D services are provided on contract to support new product development for consumers in the developed world. In chapter 3 authors discuss how Indian companies have created an estimated $20 billion market in offshoring of R&D services. For example: HCL Technologies helped in development of Boeings 787 Dreamliner for which HCL designed 2 mission critical systems: first to avert airborne collision and another to enable landings in zero visibility.

3. Process innovation through an injection of intelligence by Indian firms. Chapter 4 reveals that process innovation is increasingly surfacing as the Indian industry because of a phenomenon we call the injection of intelligence. The availability of lowcost, high skilled labour in India has led to the assignment of over-qualified personnel to relatively routine jobs, which sometimes results in surprisingly effective process innovations, even in what were previously considered mature or low-tech settings. For example: 24/7 Customer began as traditional call center company, it now develops various analytical tools that enable in predictive modelling to add value to customer service.

4. Managing innovation of the global delivery model to effectively bring global scale and cost efficiencies to previously locally clustered service processes. Chapter 5 examines this as the most invisible of Indian innovations the global service delivery model. The model is not product or a process innovation but rather a management innovation, a new way of managing globally distributed work. Thus Indian presence is noticeably large in the invisible submerged portion. The book tries to find answers to questions like what it would take for firms to build visible Indian innovation, in terms of products and services branded for global end users. Such visible innovation has powerful brand-building effects for both India and its companies. As many Indian policymakers hold the view that building globally visible products is almost a matter of national pride to demonstrate that India has arrived on the global economic stage.

Chapter 6 demonstrates a new class of innovative products that build on what is essentially a meta-process innovation frugal engineering to develop products for the budgetconstrained Indian consumers.

Chapter 7 acknowledges and analyses several significant constraints that are, at the very least, irritants yet significant impediments to Indias potential to become an important innovation engine of the world.

In 2020, the median age in India will be 28, China would have 37, USA would have 38, Western Europe would have 45 and 49 in Japan. This gives enough reason to be optimist about the Indian Innovation story based on the mighty labour pools. Also the Indian companies and captive units are pursuing several creative strategies to overcome these challenges including using repats as talent pool and backward integration into education through the adoption of schools and universities.

The Emerging Innovation Challenge to the West Indias emergence as a global innovation hub has important implications for the developed world. Rise of India will lead to the inevitable decline of the West due changing economic positions. The book intends to raise some important questions, which will enable one to understand; how critical is it for India to move from Made to India to Imagined and
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owned in India. The authors also provide a set of recommendations to business managers and policy makers of Indian companies and MNCs related to the kind of innovation currently pursued.

The Challenge for Western MNCs

MNCs will face challenges on 2 major areas: Sinking skill ladders : A skill ladder in a career or profession implies that to do highly sophisticated, innovative work, a person must have engaged in less sophisticated work in the earlier stages of his or her career. For example: A person becoming a investment banker must first serve as an analyst. But with the R&D centers moving out of the West and the low value (monetary terms) but high value addition job done outside the western countries, there will be dearth of high level leaders to lead such firms. Considering that most western countries have strict immigration policies, it would be difficult for these MNCs to move people across countries and continents. The browning of the Top management: The challenge for the Western MNCs lies in rapidly adapting their internal organizations to a new locus of innovation and growth.

The Challenge for Policy Makers in the Developed World The rise of the two Asian giants India and China will affect the Western economies as the there will be tussle between maintaining the high standard of living of the Western people against the low-cost labour competition from China, India and other South East Asian countries.

Immediate responses by the Western policymakers are: Developed countries could adopt restricting of offshore in technology-intensive sectors, curbing immigration to minimize the transfer of jobs from current students to visiting foreigners and reducing scholarships to foreign students in western universities. There has reversal of cultures from East to West and West to the East i.e the Eastern culture of living in harmony with nature and keeping materialism to limited extent is

being replaced with the Western culture to pursue ambition, wealth and growth unabashed. The attempt of Western Policymakers would be to stress on the implementation of eastern values to lead in innovation and higher standard of living. Accepting the huge innovation capacities in India & China. Creating competitive capacities in the eastern countries by funding the education sectors in these countries for driving the growth of Western countries.

Recommendations to the Policymakers

It should have lax rules for highly skilled and talented migrants to enter Western countries and contribute to the onshore activity. While Western institutions can help build the educational infrastructure in India and other countries.

Accept that certain innovations are possible only in Eastern hubs due to cost advantages. They should focus on taking advantage from this and strengthen capacities that can flourish in the West and which are undiversifiable.

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Chapter 2: Globally Segmented Innovation

How MNCs can leverage Indian Talent?

In this chapter book captures how the Indian innovation talent works across the B2B space of which there is hardly any mention. For many firms, developing new products for consumers around the world is the most visible display of innovation the real deal. It requires different skills to mange some other firms product or services and to conceptualize a new product or service idea from conception to final sale.

However this understanding ignores the innovation which takes place in the B2B space. The new product developments are segmented across geographies but visible only in the B2B context. We Helped Develop Everything Im Talking About Right Here

This is notion held by most researchers in the Indian R&D captive units which help create products like a transparent roof made of polycarbonate used in South Shanghai South Railway station, a car bumper which self destructs on impact or a potable cardiogram that is slightly larger than a laptop. The markets for these products are truly global from US to Europe spreading across Asia and Africa as well.

This resulted in increasing patenting in the U.S by MNCs subsidiaries in India, both in terms of number of R&D units patenting and the number of patents from each R&D unit. With these truly novel and unique technology developments for global markets, global consumers are rarely aware of the Indian contribution to the innovation that takes place in the B2B space. Thus the innovation is visible to the business units only i.e within or outside the MNCs irrespective of the end user.

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The idea of segmentation of R&D activities has resulted in 2 types: Vertical Segmentation: This captures customers requirements, generate product specification, search for technological solutions for required product specification, generate prototypes and make and sell the process. Thus it is process innovation.

Horizontal Segmentation: In this type the various components required in the product are developed in parallel across various units and assembled at one common destination which supports the final interface of these components. Thus either type of segmentation would be invisible to final consumer unless he queries the salesman whether his component was created in which country provided; he is aware of the fact that MNC has R&D units at other than home country. It wraps a cloak of invisibility around the innovation taking across R&D units in India.

An Unavoidable Destination

This chapter also explains as to why do MNCs are keen on setting up R&D centers across geographies. The key factors are: Proximity to markets Access to technical talent in the labor force Strong IP regime If the market is lead market i.e. the standards & specifications set by the market are accepted worldwide. India is emerging a key player as lead market. For example AstraZenecas R&D unit in Bengaluru focuses on tropical diseases. The benefits of this research are accrued by the society, rather than the MNC itself however it would be sound economic decision in terms of investment cost and profits. This research would help patients all across the world and not just India. Also any further research in drugs of any other disease can be done easily with little modification to the existing unit.

A lot of companies admit the fact that their growth has been possible because of setting up R&D centers in India which would not have been possible in U.S or Europe. Reasons mainly were cost benefits but these slowly moved to availability of technical talent in India.

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However the biggest challenge for these MNCs is to design the R&D in such a way that the potential leakage from research in minimised due weaker IP regimes in countries like India & China. Unless backed by strong motivation, captive R&D units in Indian institutional framework are difficult to set up making India a viable destination for R&D.

Made in India, Made by Indian Firms?

Indian firms have not managed to create any world class global products except working in the B2B space for MNCs. The reasons for the same are: 1. Development on new products requires a strong IP regime. Indias IP regime has not offered robust protection for novel ideas. As a result, the new product development was not possible due unfavourable risk-return ratio. 2. Domestic market was never a lead market. Post independence, India enjoyed a well-protected and highly regulated domestic market which might have made global markets less interesting. 3. Indian firms have to face formidable challenges to gain consumer insights into global customers. Therefore they need creative partners to overcome this challenge which takes away the credit of the Indian firms. 4. New-product development is typically characterized by deferred and risky returns. Indian firms enjoy low labor cost advantages in providing services, they ignore new-product development. 5. Indian firms need to address absence of management expertise necessary for global-calibre new product development activities

Recommendations

Global Segmentation of R&D has hidden much of the innovation in India from global consumers. What does this imply to managers and policymakers?

MNCs perspective on their innovation activities in India have changed in various ways: MNCs see India moving from local market products for domestic markets to developing products for global markets.

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MNCs are now giving Indian captive units complete responsibility of horizontal segmentation of an innovation project based on the successful execution of vertical segmentation of an innovation project.

MNCs are moving to India not because of cost saving advantage but to leverage the scale of talent available in India. After decades of seeing India as a lagging market, India is now perceived as lead market in certain industries where new products or services are introduced.

Western Policymakers confident of retaining highly paid innovation in the West should be aware of: Leading MNCs see India as an unavoidable destination for innovation for their markets worldwide. The vertical and horizontal segmentation of innovation activity makes Indian contribution invisible and therefore cannot claim sole credit for the innovation; similarly none of the other R&D centers in the West can do so either. MNCs with India are observing faster migration to higher-value added projects at these R&D centers. MNCs are simultaneously ramping up R&D centers in the West and East not just in numbers but also in head count.

India counterparts attempting to develop new innovative products have to overcome the following hurdles: Weak IP protection led Indian firms not to seek new product development as source of competitive advantage. India was not a lead market for product or services, but a follower of global trends. Gaining Deep insights is essential for developing new products which for faraway markets was difficult on a standalone basis. Indians firms could easily compete on cost, but they have to develop expertise to compete on the new product development. Indian firms need to get into the game of High-Risk & High-Returns of new product development. Indian firms have substantial potential to improve innovation capability and overcome the hurdles via spillover effects from MNC innovation centers.
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Chapter 5: Management Innovation The Global Delivery Model

As discussed in the previous chapters, innovation in India is primarily invisible to the end consumer, even though we have been the largest its developers and Indias unconditional support in product and process development. In the following chapter the authors have discussed implementation of new management practices, process, structures, execution, core methodology adopted for achieving innovation. Management Innovation is the advanced parlance for managing globally distributed work.

The global services delivery model is a key transformation in enabling the availability of services/ products to end consumers. The model tightly integrates tasks which were formerly performed by employees in one location working for a single company and can now take on a distributed format, such that different parts of the work are executed in different geographies and by different organisations. The global services delivery model was conceptually created to deliver IT and back-end services to Western clients, but it has eventually become fundamental to other kinds of invisible innovations as well.

Key spaces impacted by the global services delivery model: Back-office services, Call centers, IT development, Legal services, Product engineering services, Life sciences R&D, Animation and film special effects.

The prime advantages are obvious and include the ability to1: Execute the work where the best expertise exists at the lowest possible costs, Take advantage of time zone differences for round-the-clock efforts, and Achieve some level of risk diversification by building redundancy across locations.

Adapted from the book itself

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However, the potential challenges are equally obvious, that is, how to get people to work effectively across the following and impede global competition: Natural barriers (cultural, distance) Manufactured barriers (tariffs, import duties) Organisational barriers (management, policies)

The barriers discussed above are gradually reducing because jobs have become more contestable once there is proof of concept that the same work can be done remotely.

What is the Global Service Delivery Model?

The global services delivery model reconceptualises formerly physically collated activities by breaking them up into sub tasks that can be handled in different geographical locations, and it specifies the necessary means for reintegrating this work. Such a model however is not easy to implement, as many later adopters have learned, because of complex coordination problems inherent in this structure.

The attraction of wage arbitrage and specialisation has resulted in promoting the growth of the global service delivery in India. It is highly presumed that tasks which are standardised, routine, mundane can be delivered through the global model. However, this is a misconception. Research reflects that, it is the ability to execute a take remotely has relation to whether the work itself is simple and standardised. It is the links across the subtasks which are required to be managed across distances. These links mainly need to be clear and well described which will eventually enable transfer the most unstructured and creative tasks geographically. Shared knowledge through common companys trainings facilitates anticipation of how an employee would respond to the problems faced in typical situations. Well documentation of processes results in smooth transition of knowledge else it will keep the employee in ambiguity. Similarly, coordination across processes is easier when the interactions between the process and its surroundings are simple, minimal, standardised and well documented or otherwise easy to accomplish. For instance, coordination through technology has helped engineers gain knowledge about their work and achieve cognitive collocation and thus success. Both knowledge transfer related and coordination related challenges can create significant organisational overhead expenses and can absorb up to 15 to 25 percent of the gains from wage arbitrage.

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How does the model exactly work?

Offshoring begins with an on-site visit by a small team of vendor personnel, usually called the migration team or transition team to understand the details of the process.

Next the vendor team has to determine how it will deal with interdependencies across processes. o The vendor team must decide how to manage this link between employees on different sides of the globe either by mapping out all possible situations or interaction through e-mail, telephone etc.

The vendor team now moves to the offshore location, where it forms the core of the team that implements the transition. o Now develops the knowledge transfer and business process is performed parallel at both locations, o Further bugs get worked out of the offshore process, and both offshore and onsite personnel learn from their experience.

Finally, post transfer of work to the new location, the focus shifts to ensuring integrated efforts across locations. o Hands-off communication, data transfers. o Follow-the-sun strategy, that is, work moves from one location to another as the working day ends in one location and begins in another.

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Chapter 6: Visible Innovation: Frugal Engineering

In this chapter the authors share their comparative insights on visible Innovations originating in the West and the visible innovations that increasingly originate in India. The 3D movie The Hubble provoked their thoughts and raised a question in their mind whether India could ever reach such levels of innovation. The movie had put them in a historical frame of mind to question the conventional wisdom that innovation is a uniquely Western advantage. Historically, nationalistic competitive impulses have spurred innovation the Soviet Unions success in sending manned missions to space prompted President John F. Kennedy to challenge creative minds in NASA and the rest of the United States to put a man on the moon within a decade. The demonstration effect on the confidence and competence of a nation should not be underestimated. Similarly, high profile, visible innovations quite independent of their commercial viability- could be important means for emerging countries to demonstrate they have arrived on the global stage. Thus, for companies from emerging markets, the development of innovative products to sell to the world, especially to the end consumers could mean greater corporate reputation and brand equity. Ambitious Indian companies do realize the above fact. Mahindra & Mahindras Vice Chairman Anand Mahindra firmly believes that innovative product extension is the key to reach masses of consumers who are unfamiliar with the brand/product. On a similar thought, the development of innovative Nano Car by Tata Motors not only bought far more global awareness than did any of the firms previous achievements in its seventy-year history, it also made Tata gain sixth place on Business Weeks list of the worlds fifty most innovative companies for the paradigm shift. Even though India and Indian companies want to prove themselves, the West still maintains a strong lead in the visible innovation race due to its innovative products. However, an interesting aspect about this fact is that for innovations particularly the ones linked closely to basic science, West is in lead but for innovations that have naturally germinated in context India does hold its own position.

Innovations in the West and in India

The authors do agree that United States is unmatched in its innovation capabilities, especially in exploration related to science. The majority of Nobel Prize winners in the sciences perform their research at U.S. universities that encourage curiosity, knowledge building, and the countrys long-term competitive advantage resulting in break through products and services. Therefore, in short run, countries like India and China cannot compete effectively with U.S. on innovations that are built from long term studies and break through in the basic sciences. This implies that both India and China will only be able to compete for such innovations only if they dramatically change their basic sciences infrastructure. China is still attempting the change but India is not.

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Secondly, these countries can neither compete directly on high-value-added innovations introduced by companies as these require a deep understanding of developed markets populated by rich customers. One such example is iPad which was not developed from careful market research instead was invented to satisfy unarticulated consumer needs. Its sales record of one million within twenty-eight days of its launch in the U.S. market proved the basis of the invention. Thus, the West and companies from the developed markets have an advantage by igniting the desires of consumer for innovative products irrespective of cost. The emerging markets like India and China struggle constantly to develop products that may appeal to consumers who are unknown to the physical, economic, emotional and experiential realities of their own domestic markets. In contrast with affluent consumers of iPad, the budget constrained consumers in India; mobile phone is the technology device of choice and necessity. The low priced access to communications technology by telecommunications companies in India has led to more people having access to cell phones than to clean toilets. The above differences between the expensive iPad and cheap mobile phone services highlight the different trajectories of developed emerging markets. Therefore, developed markets consumer technology innovations are built for an ever-expanding bandwidth network later progressing to fancy, costly and more network and status built devices, whereas, the emerging markets focus on the new uses for cheap basic innovations. An interesting thought raised by authors here is about the Global leadership in an industry as an outcome of the demanding domestic consumers and as a result leading domestic companies exist in such industries. Similarly, in India, innovation is a direct response to the needs of the Indian marketplace, where consumers are both demanding and budget constrained. The Indian consumers are viewed as value conscious as they probe deeper into the value of the product derived. This psyche of Indian consumer pushes the companies in Indian market to a corner, thus, leading to differentiated products. Thus, Indias budget constrained consumers led to the emergence of capabilities for a certain kind of innovation in India.

Frugal Engineering: Indias Engine for Visible Innovation

The authors in earlier Chapters 2 through 5 have discussed about the invisible innovations which were triggered by availability of highly skilled employees at low prices in India, whereas, in this chapter, they have highlighted the visible innovations from India that have been catalyzed by the need to serve markets with low purchasing power. However, it is not just making things cheaper; there is something more to this approach which is Frugal Engineering- a term coined by Carlos Ghoshn, Head-Renault Nissan. The term signifies achieving more with fewer resources. This shouldnt be confused with or used interchangeably with Jugaad (making fixes and resigning to current constraints). Frugal Engineering is a systematic approach to making current constraints irrelevant or less important. This was developed due to low purchasing power among the majority of vast Indian consumers and it is one of the foundations on which Indian innovation gains global visibility.

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An interesting example shared here is that of Maggi brand dried noodles by Nestl. It was sold only to rural Pakistan and India for about twenty cents per serving. In 2008, the company began promoting Maggi in Australia and New Zealand as a budget friendly health food with no oil, less salt and no monosodium glutamate. Thus, the fundamental re-think of a product that accompanies frugal engineering efforts in an emerging market may lead to solutions that are also valuable in developed markets. The authors have shared their further analysis on the research done on frugal engineering by them. This type of innovation is a distinctive paradigm for new product development. They have identified few related set of distinctive dimensions and underlying capabilities such as: Robustness: This refers to the stability in the face of variations in the opening environment. In India since there is harsh environment due to huge variances, the setting affects the priorities that drive product development and innovation. For instance, Nokia has managed to gain a dominant share of the Indian market and has hired more people in India as compared to other countries that resulted in developing features in India market which inventors in other countries may never imagine. Each of Nokias three Indian R&D centres is an integral part of firms global R&D infrastructure. Portability: Many innovators believe that services must be taken to people. This is due to the space constraints and the need to transport products to rural areas in India. As a result, small and lightweight became highly desirable product attributes. Defeaturing: This consists of feature rationalization or re-focuses on features that tend to accumulate in products overtime. Firms can avoid implementing features that do little to enhance the actual products in India. For instance, Siemens in India supports its innovation with a billion-euro investment dedicated solely to develop and adapt products for the local market. Thus, products in markets like India need to focus on simplicity instead of sophistication. Leapfrog Technology: Infrastructure gaps in India have positively affected Indian innovation by forcing entrepreneurs and companies to adopt technologies that make reliance on existing infrastructure simply irrelevant. Interesting innovations that were an outcome from this are battery-powered, ultra low cost refrigerator resistant to power cuts for rural areas. In contrast, people in West due to constant access to electricity have little motivation to pursue innovation. Megascale production: India has market segments which if captured could help firms drive costs down by way of massive scale-mega production. This is due to the massive population of the country. The low priced generic versions of life saving drugs brought down the treatment cost drastically due to large scale production in India. These drugs are also extensively exported to low and middle income countries by India.
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Service Ecosystems: These achieve low costs, highlight product features and thus broaden products appeal. The small repair shops and other business are the classic cases of service ecosystems that help firms enlarge their product markets.

Recommendations
Based on their research and analysis, the authors conclude that innovations in India may not be a result of breakthroughs in the basic science or for rich customers until the science infrastructure and the purchasing power of Indian consumers improve dramatically. The innovations in this country is in the context that makes frugal product development a natural practice for the consumers who are in the fastest growing segments in the world. Thus, successful visible innovation in India is the outcome of frugal engineering for budgetconstrained consumers and invisible innovation is the outcome of budget conserving talent. This impacts managers and policy makers in the following ways as described by the authors: MNCs stand to benefit by tapping into Indian frugal engineering: - The resulting innovations can be offered in India as a complete product line to meet the needs of different segments of consumers - The innovations can be offered in other budget-constrained, emerging markets. - The MNCs gain unique offerings for budget-constrained niche segments in developed markets. - The innovations can be used to help improve and simplify products that are currently offered to high-end consumers of the developed markets Western policy makers should consider how frugal engineering practices may help to provide cost efficient public services in healthcare, for instance. Best practices in frugal engineering are unlikely to come from a textbook. It is up to sophisticated Indian engineers and managers in companies to create a set of standards, a body of knowledge, and a community of practitioners around the concept, much as it has been created for quality management or the Toyota production system. Policy makers in India can help encourage research and training in codified frugalengineering practices, once these have developed sufficiently. Indian companies and MNCs operating in India need to leverage the capability that the country is developing for frugal engineering. These capabilities enable product development with the following features: Develop product robustness to harsh and varying operating conditions

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Work on portability to move solutions to people in remote and poorly connected areas Defeature products to reduce junk DNA of products to begin design afresh Leapfrog technology to make existing infrastructural constraints irrelevant Use mega-scale production to drive down costs Develop service ecosystems to help economically customize products and related services.

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Chapter 7: Indias Innovation Challenge - Overcoming Institutional Constraints

In many ways India has begun to evolve from a leader in services outsourcing sector to an innovation destination. Yet it would be foolhardy to minimize the considerable challenges that still confront the country on its journey to becoming a global innovation hub. This chapter does not discuss the problems of basic infrastructure: sanitation, health and poverty enormously important as they are. It does not even discuss the general business climate which is dismal. India is ranked 134th out of 183 countries in the World Banks ease of doing business report. The pressure of general infrastructure limitations mentioned above has not limited the world class infrastructure Infosys, Wipro, TCS or Indian School Of Business have been able to assemble. Maintaining these great infrastructures without the support of public infrastructure is definitely an expensive affair. Mostly the focus of Indian business strategies has been low cost labour, large labour pool skilled, unskilled & highly educated. The focus of this chapter is on the challenges facing some of the key institutional pillars of innovation. The capacity of innovation in any economy depends on multiple factors and interactions between multiple players, some of which can be shaped actively by direct or indirect government intervention. Accordingly this chapter has selected the institutional environment that author believes are critical to the developing both visible and invisible innovation in India, and the weaknesses therein. The author points out the important corrective actions that the private sector has already started taking and the important role the public policy. This chapter in particular focuses on the talent pipeline, intellectual property (IP) regime, and the venture capital sector within the innovation system of India. If these pillars of innovation can be strengthened. Indias trajectory toward becoming a globally important source of innovation in secure. Instead if they crumble, the trajectory will remain an unfulfilled promise.

The Mirage of Mighty Labour Pools

The heart of Indias innovation potential beats because of constant infusion of talent. Indian and China are neck to neck in the race to becoming the most populous country. It seems likely that India will reach this milestone by 2050 based on current statistics. For now India constitutes to one third of worlds low cost labour supply. More than half the population is below 25 years. Indians will come to account for nearly one quarter of the worlds working population. Even after having this vast ocean of human resource it barely creates a ripple in the pool of skilled talent necessary for innovation. Estimates place Indias R&D talent pool way below that of China, America or Russia. In terms of the education
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Needed at the front lines of innovation, Indian produces very few Science & Technology PHDs as compared to the rest of the developed and developing countries. Only about 10% of the collage aged population actually goes to college. Even the flagship institutions in India like the Indian Institute of Management & Indian Institute of Technology are notoriously understaffed. These indicators forewarn a dangerous shortfall of the talent pool for the future. The talent available is seriously way below the rate at which India is growing. We are anyways short of talented resources and administrators and now we face a risk of absolute shortfall in the near future if we continue this way. In a country of Indias size it is shameful that total no of PhDs we produce in a year is almost equal or sometimes less than that produced by a single leading Science & Technology University in America. The Indian educational system is not only failing at producing new PhDs but also failing to create new knowledge and innovation. If we look at the U.S patents granted by Patent & Trademark Office between 1976 and 2006, Indian universities are virtually invisible.

Research Productivity in India: The Case of Management Knowledge

A close look at India in a field of management research shows even more horrific picture and the state of management education. The three IIMs along with the few private institutions dominated the Indian Business School landscape until 1980. The competition of getting admissions in to IIMs was intense. They had to select a few hundred students from the hundreds of thousands of students who had applied. Yet while the Indian business schools were teaching highly motivated students, there is little evidence that faculties are creating innovative ideas through research. A database of FT for management research shows as little as 5 articles per year for the entire country. First in 1990s the most productive research was not done by Indian business schools but Indian Statistical Institute in New Delhi & Kolkata. However in 2000 the B-Schools started taking the lead. Amazingly a new B-School like ISB has taken a lead in management research even after publishing their first article in 2004.The aspiration to build a world class research culture and substantial investment in infrastructure and faculty salaries at the ISB has created this intellectual advantage. Even IIMs have done well so far without the support of such advantages. Perhaps this is signal that there might be many more ways to creating a culture of innovation and they all may not be expensive.

The quantity shortfall is not the only issue, even quality is a great concern. During the research for this book the authors met many leading R&D heads in Indian MNCs and all were of the opinion most of the talent graduating from universities is not employable. This is a serious concern and reflects the poor state of education system. NASSCOM estimates more than 50% of the Science and Technology graduates in India are not functionally effective in software oriented jobs.

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Even though we have leading technology institutes in the world but they produce handful of graduates based on the technology needs of the country. The shortage of PhD has created even more alarming problem for the future. The shortage of faculty which can teach the next generation of Science and Technology students. Historically large numbers of technology graduates leave the country for better jobs and pays taking the knowledge with them. Contributing to this is lack of public spending on education in India only 0.6 % of GDP as compared to 1.3% of china or 2.6% of USA. In addition strict government overview makes it even difficult for universities to work effectively due to bureaucracy. There are some sign of changes. In late 2009 for example, Indias central government allowed the CSIRs advanced institutes of Science & Technology to become autonomous university. The steps allow the institute to prepare the students for real world. But perhaps the most interesting initiatives are emerging from private sector, in which many players effectively backward integrate themselves into the production of their own talent. Almost all IT companies are collaborating with universities to supply course materials and their business. Backward integration is not only limited to IT services companies many product based companies such as Intel, AstraZeneca, Hero Honda, Tata Motors , Ispat Steel etc. Have come forward and realised that if most of the graduating students are not hireable mainly due to age old curriculums and lack of research opportunities then they should step in and hand hold the universities in developing their curriculum. They soon realised the challenges of working with government colleges and also the fact that they cannot train everyone. They used Train the trainer model whereby they conducted training and consulting for tier 1 collages and these tier 1 colleges will in turn pass on the same knowledge to tier 2 collages. This way through collaboration with all institutes private sector has been able bring about some changes in the education system in the country. Beyond training new talents companies are also looking for Indians settled abroad or studying in foreign universities and trying to bring them back. Recent records show that brain drain has reduced in India as compared to the 90s and also many Indians who were settled abroad are now returning due to better opportunities available back home. This is very beneficial to the companies as they not only bring knowledge of working in a matured and developed market but also the connections they have developed over the years.

Protecting Intellectual Property

The Indian IP regime has historically denied patents for chemicals, foods and drugs (but supported process patents), as well as all forms of patents protection for agriculture and horticultural products. The context of such restrictive legislation enacted in 1970, highlighted its purpose of protecting national interest, because foreign companies help most of the patents that time. Widespread fears predicted that foreign patents would prevent domestic competition with imported items, such that Indians could not access goods at cheaper prices. The original legislation may have helped India but the overall result was general lack of sophistication when it came to importance of IP and its protection. Since mid 1990 Indian government has therefore issued forth a series of amendments to the IP regime; a landmark was the harmonization of Indias IP regime with the global TRIPS standards in 2005. The
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numbers since then tell an encouraging story. In 2008 there were 35218 patent applications filed almost double than that in 2005. Yet many international Pharmaceutical companies have faced the brunt of Indias IP system. Novartis CEO Daniel Vasella says In principle you can discover in India, you can do research. There has been some increase in the protection of Intellectual Property but its not up to the standard I would expect to make an investment into discovery led research. Only time will tell whether Indian IP will eventually gain the same confidence as its Western counterparts. In the meantime companies with IP to protect cannot just wait passively for the regime to improve or watch their secrets being stolen away. To deal with this problem many companies have formed internal IP regime. A set of policies and practices which aims at protecting companies IP from leaking internally no matter how the legislation is outside. Many MNCs segment their innovation categories. Innovations which if copied will not yield much financial benefits to the person stealing. Many Pharmaceutical companies with research in India focus on developing drugs which are mostly needed in underdeveloped companies that way it is not required in the India market and less incentives for people trying to steal the IP. Companies have realised training and awareness can create a lot of difference among employees. In many companies these policies are covered during induction itself and lot of emphasis is laid on protecting IP and companies try to instil a sense of personal and local pride with this. Companies manage IP by classifying documents based on its sensitivity. Like many confidential and sensitive documents cannot be printed so this means you cant just walk away with data. Its also important the companies show how serious they are about protecting their IP and only then this sense of responsibility can be created among employees. Finally many companies conduct regular risk analysis in which the check with IP exposure.

Putting the Venture back in Indian Venture Capital

Even if Indian innovators, particularly entrepreneurs, can overcome weak IP regimes and find talent among shortages, they still must address the challenge of access to capital. India has growing and active venture capital industry, but with many domestic and international players fighting for investment opportunities, certain peculiar features of the industry make it difficult to access capital for entrepreneurs who aim to design global products. The first wave of interest in Indias venture capital industry occurred during the dot-com boom. But after 2001 few venture capitalist left standing and those who followed their footsteps, exhibited lower risk taking appetite. At the same time their desire for higher returns in the Indian market grew. Combination of these factors they were mostly funding coffee shop chains, pathology labs such venture which would yield guaranteed returns; investing in a venture which might be next Apple does not excite them because it might not be the next Apple. Fortunately though this situation is changing and many Venture Capitalists are focused on investing in companies which are looking to innovate and create world class product or services. An angel investor community is also becoming more active, filling the gap for funding request less than $ 3 million in the market. For example the collectively organised Indian Angel Network brings together highly successful entrepreneurs and CEOs from India and around who are interested in investing in start up/ early stage ventures which have a potential of creating disproportionate value.

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Recommendations
The gaps in Indias innovation infrastructure are obvious and have even begun to be discusses explicitly by the countrys politicians and leaders. MNCs can overcome weak IP regime by taking the following steps: Actively manage the portfolio of projects across the countries to limit Indian exposure. Raise IP awareness in Indian units. Put in place a disciplined process to prevent leakage.

MNCs can help overcome mirage of mighty labour pools in various ways: Use backward integration into education to produce their own talent. Adopt campuses to improve quality of output. Train the trainer through courses and internships for faculty. Seek repats or bring back qualified Indians who have settled outside.

Western policy makers need to retain their advantage over the emerging markets with respect to ease of doing business, transparency, and enforcement of contracts, while continuing to encourage the academic and industry linkages for innovation. The innovation regime in India must overcome three key obstacles: Mirage the mighty labour pool. Uncertainty around IP protection Venture Capital availability

Indian policy makers must see increasing educational opportunities and research capacity at all levels as the single biggest constraint to developing Indias potential to be an innovation powerhouse.

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Chapter8 The Future of Indian Innovation

The time has come for Indian science to once again think big; think out of the box; and think ahead of the times. This year...... we also usher in to the Decade of innovation. ---- Manmohan Singh, Prime Minister of India 2011 Indian Science conference opening address

In fifteenth century, when China was world largest economy and its seagoing expertise was substantially ahead of Europes, the Asian countries pioneered new methods of sailing that made it possible to cross oceans more easily. But Europe rather than China was the main beneficiary of these advances, because the geographical fact that Western Europe was only three thousand miles from the west coast of North America meant Europeans instead of Chinese colonized the New world. The internet has made what was considered Indias curse and public policy failure the growth of population in to its biggest strength. Much of the innovation mentioned in this book and coming out of India has been possible only due to internet. By linking the needs of the rich, developed countries to low cost labor in India, India has become the back office of the world. In this book author has clearly shown innovation is slowly but surely becoming a competitive advantage for India. To the skeptics who keep asking where are the Indian Google, I-pod and Viagras? Authors retort is this is a wrong question. Much of Indian innovation is invisible. Given the growth and size of India as well as china these are interesting market by themselves. The visible innovation emerging from India will be of a different type one based on frugal engineering (e.g.: Nano or GEs ECG machine) or of the leapfrog variety in new industries. Some of it may find a home in West, but it may matter a little even if it does not. For MNCs from developed world, its quite possible that soon the skill ladder will force the browning of the top management team. And is talent, markets and leadership moves east, then it is impossible for the political centre of gravity not to follow the suit.

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