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“Innovation Has To Create Value In The Market”

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Vijay V. Vaitheeswaran's new book Need, Speed And Greed: How The New Rules Of Innovation Can Transform Businesses, Propel Nations To Greatness, And Tame The World's Most Wicked Problems, offers a unique view on innovation and how it is redefining the world as we know it. BW asked retail strategy and marketing consultant Sanjay Badhe to skype Vaitheeswaran to know more about the book.

Sanjay Badhe: Very early in the book, you mention innovations as processes and services as opposed to just technical inventions. How do you see our understanding of innovation changing as services and processes come to the fore?
Vijay V. Vaitheeswaran: The first is the conventional misunderstanding of what innovation is. It's conflicted/confused with technology. And in my book, you will see that I strongly disagree with the way the world looks at and measures innovation by measuring things like patents for new technologies. These are important, but I feel that it is an input into the process, not the output. So the point I am making is that innovation is about fresh thinking which may or not involve technology, and it has to create value in the market place and this value creation is the more important part of the innovation process, and the more difficult part, not the coming up with the new gadget or gizmo.

The other part is services, and how they are evolving. The world is moving towards an economy in which it is not only about brute force and manufacturing widgets, it's about thinking ultimately about services and the end user experiences. You know GE was a pioneer in this kind of thinking where they were primarily a manufacturer company, and they make refrigerators, locomotives and aircraft engines. But 30 odd years ago, they realised that rather than having customers pay for a jet engine, which might sit on the ground, and it requires a lot of maintenance etc., customers would rather pay when the plane was up in the air. So GE came up with the model of leasing, so that customers only paid when the plane was used. It's a service model, this is a well known now, but at that time it was path breaking, so the advantage is that you turn what was a widget or a commodity product in a sense , into something you manufacture into a service business, as GE did. And their customers were happy. What they cared about was reliable air travel, nobody wants to own a jet engine, so you can imagine many more things that we think of today as low-end and commodity businesses actually becoming high-touch customer-oriented services and that's where the global economy is moving very forcefully and also where most of the value addition will be. And that's also where innovation comes into its own.


If we are going to meet the needs of 7 billion people —soon 9 billion — on earth, there is no question we need to increase agricultural productivity and it's wrong to say that this has to reduce opportunities in rural areas.

SB: But do you see this as coming from an orientation towards looking at something as a service? Where do you see this coming from?
VVV: The reason this is happening is that as we move towards post-industrial models of the economy, you see the shift across economies and if you look at the OECD average of the proportion of GDP that comes from services, it's nearly two-thirds. If you look at the US, it is almost 80 per cent. In developing economies, this share is much less. You see agriculture of course, and you also see traditional manufacturing being much higher, for example in China and India and another developing economies, but the trend line is clear: as countries get wealthier, as their populations get more educated, they move up the value chain and they tend to move away from low value-added things. For example in China, when assembling iPads, they get less than $10 for their contribution to the iPad, as compared to what the designers and marketers in Cupertino, California get which is more than $400.

SB: It's interesting, you made this point about agriculture, which has been such a large driver for less developed economies, while in your book you mention that agriculture is very inefficient in the methods used as well as in terms of resource allocation. But countries such as India and China are still dependent on agriculture.
VVV: If we are going to meet the needs of 7 billion people -- soon 9 billion -- on earth, there is no question we need to increase agricultural productivity and it's wrong to say that this has to reduce opportunities in rural areas. The wrong thing to do is to look at this as a zero sum game. We should empower farmers and agricultural communities whether that's in India or in Africa -- where agricultural productivity rates are even lower than in India. And this can be done among other ways, innovatively, using novel forms of credit as well as applications of technology and information in markets as well as new ways of agricultural technologies such as controversial ones like genetic modification or less controversial ways such as drip irrigation to dramatically increase efficiency in water use. You can also imagine, for example, better application of satellite data that is now available, where weather prediction can be done for example modeling droughts, which would help farmers in poor areas get information so that they don't get gouged by the middle man when they sell produce. This is part of what mobile telephony had done in rural India, where farmers use cellphones and can go to the market with the best terms. But there are still large parts of the world including in India where the poor farmer doesn't have that information and so there are many things we can do to improve agricultural productivity, empower the individual farmer that would raise total agricultural output.

The second thing is if you look at economic history, it shows that as countries advance, they tend to urbanise. And so that is not to denigrate the agricultural economy or pastoral life, but simply to point out a fact. In the past three months, China became, officially, more than 50 per cent urban for the first time in its history. And we know that's also the history of humanity, so the challenge is how do we manage an urbanising world population in a way that cities are decent places to live with an environmental footprint that's acceptable and they provide opportunities that can actually help revive and keep agricultural communities back home because it's not an either or. We need both.


Click to read the review of Need, Speed and Greed

SB: And do you see a role for new ideas and technology? Would this be primarily technology driven or it would be products and services driven?
VVV: No, I reject the kind of ‘techno fetish', which is associated with the word innovation; it's a dangerous diversion. The future is not fundamentally about technology. Technology will play a huge role but only when we apply it in ways that create genuine value for communities, for markets, companies and citizens. So the emphasis has to be on why technology matters, not so much in new technology but a better way in applying an old technology, or may be in a new context, or a new industry or a new country or market and that will often involve learning from what others have done.

SB: One of the areas your book does cover is how do companies avoid the path to ‘gold plating ‘ inventions and related to this is the term ‘ can we make dinosaurs dance' ? But can dinosaurs really dance?
VVV: Economic history would suggest that successful corporations with high-end products are very likely to face difficult challenges, especially if we are going into an age as I see it, where disruptive innovation will become much more common. Look at the Fortune 500: in comparison with 1950 and 1975 to today, you find most of the organisations in the earlier Fortune 500 have gone. They just do not exist. Companies that were legends in the IT industry, for example, like Wang, Digital Equipment from the 1980s, who invented parts of the IT industry are now gone. Precisely because they were ‘dinosaurs that couldn't dance' and they were unable to come up with a response to the personal computer when it came. Today, we see Google and Facebook as dynamic companies and disruptive innovators but I do feel that they themselves will be challenged soon enough. Google itself really has only one business model and they have only done one thing — an algorithm for search that works well. Then they married it with advertising, but they haven't come up with the second thing that makes any money and so they are quite vulnerable for disruption and Google is a dinosaur that also needs to learn how to dance.

SB: You do say in your book about new models of organisations emerging and you mention globalisation and googlisation and sharing information across the markets. Do you see this model becoming a force for innovation in the future?
VVV: We are seeing new ways of organising intellectual capital. I have given lots of examples of open innovation, networked innovation and user-generated methods of coming up with new products. I also see new ways of doing business models. I gave an example of so-called ‘Micro Multinationals'. In the past, to be a multinational, normally you would start within the local market, build that to profitable enterprise and then slowly venture to the neighboring country, or countries, and then eventually one day become a big multinational once you had hundreds of millions of dollars of sales. Today, though, thanks to the way technology works, the way that information works, you can be a startup company and I know many of them and these are well chronicled where the brain child could be in Bangalore, the sourcing in China, the IT could be done in Chile and the market in California.. This I very easy thing to do and the barriers to entry are lower. We now have reasons to trust electronic commerce for example, which was very important establishing trust online and so you can have, with less than a dozen people, a company that is a true multinational and that is an organisational form that did not exist 10 years ago.

I reject the kind of ‘techno fetish', which is associated with the word innovation; it's a dangerous diversion. The future is not fundamentally about technology.

SB: You expect this to grow and emerge as the business model of the future?
VVV: I don't predict! I spoke about the business model in the future to point out that the old ways of doing things are not the only ways to do things anymore. And that means if you are in a traditional vertically integrated corporation that does things the old way and even has good profits and good products, I don't think you should think your competitors look like you. Your main competitors are those that you cannot even recognise yet! Your competitor may be virtual, or a very small company -- a flea -- that you don't take seriously at the moment and they may carve off bits and pieces of your value chain and reintegrate them in ways that you aren't able to and that's why you need to be quite paranoid these days in scanning the horizon for disruptive threats.

SB: You term China and India as innovation powerhouses – you mention health care innovation as an area in India. Are China and India really emerging and while this not a zero-sum game, is the West worried? And also where do you think India would be as far as innovation goes? Is there an industry or is India still finding it's way?
VVV: On the first point, I do believe, and as you know, I have chronicled the various elements of how India and China are innovating and not just in a ‘cheap and cheerful' way. The common phrase of "jugaad" has become very popular, but it's not just frugal engineering, which may be appropriate in a poor country with scare resources, as in India. Indians have always been very inventive, so there is nothing new to Indians about this. But what's new and interesting now is both world-class products as well as world-class business models are coming from India. So now what is disruptive is that it is not just cheap and cheerful, but ‘cheaper and often a much better way of doing things' and that is new and something that the world's leading multinationals are now learning from markets like India and China.

And the reason this is happening is when you rethink traditional products and practices, not only with an eye towards frugality, but when you now also say how can I make this better. Companies that are burdened with the legacy of doing things in a certain manner rarely innovate and come up with breakthrough methods. On the other hand in India and China, there are many qualified engineers — ‘tinkerers' and this is a strength. So you find a capacity to do a lot of low and mid level engineering, that could be too expensive to do in developed countries. South Korea, too, has this advantage and their companies — Samsung for example — have managed to move up the value chain beyond where India and China are, and they often come through very interesting breakthroughs. In developed markets, these could cost too much, but also it would require the company to go beyond its mindset of how it 'normally' does things. And that's problem. It is not that the resources are not there in the rich world, it is the problem of mindset and legacy assets.

As to the reactions to China and India, the US is a free-trading country and it is open to a vision of innovation where others also prosper; however, not during the Presidential election race! The other factor, though, is something important and that is due to the recession after that collapse of Wall Street, Middle America has been hit bad, particularly the manufacturing states and there it is all too easy to blame both India and China for whatever are fundamentally domestic problems.

SB: Coming back to India as an innovation hotbed and powerhouse, where do you see that going? What do you think are the industries or business models or ideas which would come up from the market such as India ?
VVV: I think India has tremendous potential. One of the great question marks of course is can society agree on what is the appropriate role for the state .There is a very political and fractious debate going on in India, about the role of the state in deciding what is strategic or where the investments should be, or what licenses are required to do what activity. I think I am very clear in my book -the government has a very important role in certain areas, but that role should be carefully circumscribed . The government has a role in encouraging R&D and developing basic infrastructure and investing in education. These are three areas are that are vital and will not be provided by the market. But to go and pick strategic industries to develop and investing policy, and then to decide in an arbitrary way which sectors can be invested in or not is a kind meddling that I think reminds us of the days of the license Raj. It makes sense to remember that the software industry in India took off on and succeeded before the government figured out what it was all about.

SB: You see other such growing stars on the horizon or...
VVV: You know, the industries of the future are just being invented. I mean at the moment we live in an age of exponentially growing technologies whether it's in genomics and proteomics, whether it is synthetic biology, whether we are looking at mining big data which is going to be a transformative industry for the world. India has natural strengths because of its strengths in science, engineering, technology as well as in some of the recent experiences with IT and software that it can emerge as a powerhouse in these new industries, but only if the government allows them to rise. I think that's really the key. The government has to provide an enabling framework to be sure but it mustn't choke off the entrepreneurs.

We need to see the world as a world of abundance, where by applying our ingenuity as well as our collective will, which is expressed through government and through the social sector, we can actually come together to solve these problems and use new technologies as tools for that purpose. And it must be done in a way that's democratic and inclusive and that empowers everyone. A world of 7 billion innovators is what I call for and we are entering an age of much more democratic innovation.