Indian business has not innovated enough because it has, so far, not had to
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We have found creative solutions to some of the problems of doing business in India. For example, cash-on-delivery to get around the broken payment system.” I was challenging one of India’s star e-commerce entrepreneurs on the paucity of innovation in the startup ecosystem. His response troubled me. He argued that there was plenty of innovation in the back-end of his company and cash-on-delivery was a critical customer-facing breakthrough. My concern is that the bulk of new businesses are going the same way as established corporates and neglecting innovation as a competitive imperative.
There are, of course, examples of innovation sprinkled across Indian business. Most are innovations of process, most importantly the offshore delivery model pioneered by TCS and Infosys. There are fewer winning product innovations. The Nano was a truly brilliant design, even if it fluffed commercially. Overall, Indian business has not chosen to compete on differentiation.
The reasons for this tardiness to innovate are complex. Some argue that Indian culture favours respect and discourages challenge to established thinking. Others point to an education system that rewards rote learning not lateral thinking. The hierarchy of traditional Indian business has not helped; key decisions are centralised with the boss and his (almost always his) trusted circle. Too few Indian businesses are customer-focused, missing the voice of the end-user — often so critical in innovation.
My own view is that Indian business has not innovated enough because it has, so far, not had to. In the days of licence raj, once a company secured a licence, goods of any quality could be sold. Over the past twenty-five years, Indian business has been transformed competitively, but the default strategy has been to compete on cost. India has provided a significant cost advantage in multiple industries, from software to pharmaceuticals and engineering, derived from the affordability of skilled people.
Cost is an easier strategy to adopt than differentiation, and it has served India well. The issue of course is that, over the longer-term, cost advantage will be competed away. Salaries in India are rising faster than in developed markets, year after year, and at some point the rupee may well appreciate.
This pattern of rising costs has been the experience of China which is no longer a low-cost centre. Even while the cost edge remains, international competitors can enter India and secure the same cost structure as domestic firms. Accenture and IBM are now among the largest employers in the country.
Companies tend to innovate when they have to, which for a small company tends to be in order to break into a market and for an established business in order to survive.When things are comfortable and growth is easy, too few companies create and sustain a culture of repeated innovation. In the US and Europe, the bulk of innovation comes from smaller, early-stage companies who have less vested interest in the present so can afford to think differently. They are often acquired by larger firms who find it easier to buy ideas than be the disrupters themselves.
Indian business needs to ramp up innovation as cost as a core strategy has a half-life. Indian startups, which should be the breeding ground of new thinking, should be more radical and persistent in crafting an intense culture of innovation of product, process and marketing.
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