Saturday, September 26, 2015

The Mind of the Imitator: Replicating, Improving or Evolving?

Imitation, it is said, is the best form of flattery. Imitation is the natural follow-on for innovation. Innovation itself is a complex and challenging but essential facet of progress, as we discovered in my blog post of last week. The said post on three horizons of innovation titled “The Mind of the Innovator: Imaginative, Re-imaginative or Disruptive?” was published in Strategy Musings, September 19, 2015 ( While it is good to be innovator, not all individuals or firms can be innovators. Several individuals and firms find it not merely expedient but even appropriate to be imitators. Given the high cost of innovation and the intellectual quality that drives them, innovations are protected by patents. Innovations that are not protected by patents or whose patents can be challenged and innovations that outlive the granted patent life are open to imitation.

Imitation, unfortunately, has acquired a somewhat negative connotation. Imitation, at least at an intellectually objective level, needs to be seen as a natural concomitant of human and corporate behaviour, and of social progress as much as innovation is.  Imitation, actually, is the creative aspiration and expression of individuals and firms to reach to the level of a leader. The adage ‘art imitates nature’ puts imitation in its perspective. Human innovation, like nature, is fundamental. Just as art brings nature to every home and office, imitation brings innovation to the common man. In fact, the greatest contributions, in terms of both affordability and availability, to healthcare sector have been from development of generic pharmaceuticals which are replicas of pharmaceuticals or are essentially similar in respect of biologic products. This one example, leading several other examples from other industries, is more than sufficient to demonstrate the power and relevance of imitation.

Simple but complex

Simple as may sound, imitation is also a complex subject that involves as much science and art as innovation does. Firstly, there can be no bar on, or imitation of, ideas. Creativity in ideas by a few and embracing of expressed such ideas by many is a fundamental first step for efficient and equitable socio-economic development. Parallel innovation is not imitation. This is best illustrated by Nobel Prizes which are often shared by scientists working in different universities and laboratories across the globe. Industrial development takes place innovatively by parallel developments of similar, if not identical ideas, but developed innovatively. For example, the idea of elliptical exercise equipment could be shared by many but only a few can produce differentiated elliptical equipment with truly harmonious leg and arms movement with differences in innovation (for example, Precor and Octane).

Imitation does not seek to change the product configuration or functionality. It seeks to simply make it cheaper or more efficient (or both). Lack of patent barriers does not mean that imitators have an open sky opportunity. There could be significant other barriers for imitators, including barriers related to development, production, people, quality, and market barriers. Market barriers could include brand image, channel access, distribution strength and so on. Imitation with differentiation is essential for acceptability. At firm level, viable imitation could be a matter of superior management skill but at an individual level viable imitation is harder to achieve. No individual can, in fact, be imitated though some of the characteristics can be imitated; for example, characteristics like application, communication, networking can be imitated but the total personality cannot be.

Imitation, whether at firm level or at an individual level, requires a clear strategic thinking backed by execution excellence. The reasons are obvious; an innovator has the first mover and first provider advantage and, more often than not, succeeds in building a brand loyalty. Imitator has to challenge the innovator to be able to succeed. And most imitators take the easy but important route to succeed – of competing on price. In some ways, this is a natural structural reality of imitation as the imitators do not need to commit huge sums of money in experimental R&D or prototype evaluation on one hand or on distribution channels and market making on the other. In several cases, third party manufacturing may be an available option and in some cases, the market itself may be weary of market dominance by a monopolist. The real challenge of imitation lies in none of the above which are fairly commonplace enablers or corollaries of imitation.

Three horizons

The previous blog post on innovation hypothesized three horizons of innovation, namely imaginative, re-imaginative and disruptive. The author proposes that imitation, likewise, can be made to happen in three horizons of replicating, improving or evolving. Imitation at its basic form of replicative imitation exists when a complete spec to spec to copying is resorted to. This happens, in fact, at the tail end of imitation lifecycle when a product or service is commoditized with low entry barriers. Replicative imitation can survive solely on the basis of price competitiveness for lack of any differentiating feature. Replicative imitation gets a lift when such products are offered by firms with a superior reputation for quality, customer satisfaction or scale and scope. A processed food product offered by an FMCG giant, for example, would be seen as a better product than that offered by a small scale regional player though it could just be a perception and not necessarily a reality.

Imitation in the middle horizon of improving imitation occurs when a product or service idea is imitated with notable improvements thus providing a differentiation. Firms as a matter of routine seek to imitate their own products with improvements. The personal assistants in smart phones, for example, are improvements over successive generations of their own products. Improvement in imitation can help firms gain a foothold in the marketplace in the face of dominance by an innovator. Samsung’s Galaxy phone line-up has been an imitative improvement by an imitator firm seeking a strong entry into the turf of Apple, the dominant innovator. Even innovators gain through imitative improvements. The market believes, for example, that as a concept Apple’s latest launch of iPad Pro is an imitative improvement over the rather successful Microsoft Surface tablet computer that could revive iPad sales.   
Imitation in the higher third horizon of evolving imitation occurs when a product concept is evolved to imitate innovative competition better. Bajaj Auto’s Quadricycle (RE 60, now called Qute!) is an evolution to compete with its own three wheelers on one hand and the lower end of LCVs and passenger cars operating in the taxi segment on the other. Tata Motors is taking the evolutionary imitation to the next level by launching Magic Iris, its low end LCV, as a safer alternative to Quadricycle. Evolutionary imitation has pros and cons. The advantage obviously is the ability and felicity to build on an existing platform while the disadvantage is that evolutionary product development may not mach the robustness of a ground-up holistic new product development. This is evidenced by the criticisms being faced by RE 60 in terms of safety and other challenges. Yet, evolutionary imitation represents one of the most impactful facet of balanced product development.

Philosophical balance  

As a high level philosophy, everything that is synthetic is nothing but an imitation of nature. Whether it is innovation or imitation, neither is as original as nature. To consider, therefore, that only innovation needs to be aspired for, and imitation needs to be deprecated is probably presumptuous. That said, innovation represents the higher intellectual challenge of fundamental development while imitation represents a different type of challenge of holding one’s own against innovation. With three forms of innovation (imaginative, re-imaginative and disruptive) and three ways of imitation (replicating, improving and evolving) being available, firms can develop a judicious mix of innovation and imitation. The balance between innovation and imitation depends on whether and how originality and creativity are built into only product development or all through the value chain, from development through manufacturing to delivery of the product.

There are three principles for such a philosophical balance. The first is to innovate in a niche where the firm is willing to commit significant resources, including time. This could be in terms of reinforcing the core strengths of the firm or adding new core strengths. Investments by Sony in camera sensors and by Samsung in OLED panels are two examples of the first type of innovation that strengthens the core competencies. Investments by Microsoft in devices, especially gaming devices like X-Box and computing and connectivity devices like tablet computers and smart phones are examples of the second type of innovation, The second principle is to unhesitatingly imitate a pioneer’s idea, especially when it purports to become a new wave but develop, manufacture or deliver the product in a more innovative way than the pioneer could or would. Development of elliptical trainers with additional patented movements or development of body-countered seats with electronic dynamic adjustments are two examples.

The third principle is to just imitate all through the value chain but making sure that in each part the firm offers better quality and lower cost. The third principle reflects the essence of generic competitive strategy, with a strong focus on superior execution. Markets and nations immensely benefit when a fair and judicious balance of innovation and imitation is offered to the consumers.  Firms and individuals need be neither obsessive nor deflective of either. The challenge for leadership is to develop an ecosystem wherein both coexist symbiotically because that is the way the society gets benefitted the most. In its pristine form, innovation transforms the way we live. In its sublime form, imitation stretches innovation to its limits. At some point they combine to reinvent both innovation and imitation. The brilliant mind of an artful imitator is no less important to this world than the exceptional mind of a creative innovator, and vice versa, in a philosophical sense!

Posted by Dr CB Rao on September 26, 2015  

Saturday, September 19, 2015

The Mind of the Eternal Innovator: Imaginative, Re-imaginative or Disruptive?

Innovators are intellectually and attitudinally driven people who are essential for progress. Without their innovations, the world would not have been, and would not be, a better place to live in. Granted that some of the innovations have had negative consequences for the society (for example, explosives) and granted also that each positive innovation can be wrongly used for negative purposes (for example, cyber-hacking), the overall benefits of innovation far outweigh the negative consequences. We can also take heart from the fact that misuse of innovations can be moderated, if not controlled, by positive social alignment and family environment. The common purpose of innovation is to create devices, equipment and infrastructure that can improve human life. The ultimate purpose of innovation could be to extend life by eliminating diseases and enhancing wellness, and to even monitor, regenerate and recreate life.

Innovation is not for all; otherwise there would not be two distinct classes called innovators and copiers or leaders and followers in business, academia and society. Steve Jobs once said, “Innovation distinguishes between a leader and follower”. That said, the greater the divide between the two, the greater would be the power of monopoly built around innovation and the less would be the distributed social impact of innovation. In leadership and management theories, there is an embedded view that innovation at individual level is for people with rare endowments and at a firm level is for companies that are willing to bet huge investments and efforts on innovation. Evidentially, however, the contrary seems to be true. Innovation is as much about an innovative mind-set as it is about intelligence quotient or investment commitment. Innovation is also about a facilitative ecosystem that supports generation and acceptance of innovative ideas.

Imagination, re-imagination    

Innovators not only imagine but also re-imagine. Eric Schmidt, Chairman of Google, Inc said, “The characteristic of great innovators and great companies is they see a space that others do not. They don’t just listen to what people tell them; they actually invent something new, something you didn’t know you needed, but the moment you see it, you say, I must have it’’’. This implies that innovation is about having a vision for novel products and services and converting it into commercial reality. The ‘Pushpaka Vimanam’ of Hindu mythology and the aeroplane of industrial revolution are perfect examples of imagination bringing forth new products to fulfil intrinsic needs. Organized and structured research in academic and industrial laboratories follows the path of imagination to create synthetics that mimic or excel over the natural or the pre-existing synthetic.

That said, innovation is also re-imagination of what has been existing all along. For example, measurement of blood pressure has been there from the time medicine became organized, for centuries in fact. However, making measurement of blood pressure real-time and self-monitored through a wrist band or a wrist watch is the result of re-imagination of an existing activity. Driverless car is not a fundamental creation; rather it is re-imagining the process of human driving in terms of machine driving. In re-imagining, innovators consider several parallel developments in other technologies that could make re-imagination feasible. The important point to note is that imaginative innovators and re-imaginative innovators are significantly different in their approach to life, be it individual or corporate.

Visualization, re-visualization

Imaginative innovators set out to develop reality out of the abstract. They set and re-set innovation goals, conduct and re-conduct experiments to validate hypotheses and eventually succeed in bringing to life a new product or service. They look to bring novelty as the prime dimension of their innovation. Such inventions can be very purpose-oriented and goal-driven or quite accidental and serendipitous. Development of aeroplane by Wright Brothers, imagining the bird as the inspiration, was a very specific purpose driven invention. Discovery of stainless steel by Harry Brearley while experimenting with different proportions of metals, especially chromium, in steel was an accidental discovery. So was the discovery of Penicillin by Alexander Fleming or discovery of radium by Marie Curie, in a sense. That said, imaginative inventions are never by chance but are a result of serious application of knowledge and generation of experiments in which chance may also play a part in steering the course of discovery.

Re-imaginative innovators, in subtle contrast, are keen observers of what is available to create new realities that fulfill new needs or help perform current needs in a different way. Re-imaginative visualizers adopt convergent thinking (bringing together different functionalities and products in one product) in some cases and divergent thinking (deploying current products for different functionalities) in some cases. As products and technologies keep getting developed in an exponential manner, the potential canvas for re-imaginative innovators vastly expands. The projects by Google to deploy its Google Glass technology for diabetes management is one example. Re-imaginative innovation may deploy common technologies for multiple uses. It is interesting that while one purposive mind-set drives imaginative innovation the same mind-set could block re-imaginative innovation.

Disruption, transformation

The potential for innovation is, more often than not, never fully exploited. Companies and individuals may be known for consistent innovation but could have their blind spots in harnessing the full potential of innovation. Leading automobile companies of the world, including such innovation stalwarts as Toyota and Nissan of Japan, had decades ago deployed unmanned automated guided vehicles to move materials, components and products into and out of warehouses. However, it never occurred to such innovators that they should develop driverless automated cars. The companies had, for decades, used sensor technologies to govern movement of components and fool-proofing production and change-over cycles on the shop floors. Here again, it did not occur to such manufacturers that they should lead projects to elevate sensor technology and deploy it to improve navigation and safety in automobiles.

There can be several such examples from different industries where despite commitment to, and achievements in, innovation organizations fail to make the best use of their innovation potential. The reasons are not far to seek. Firms, typically, work in silos, focusing on maximization of efficiency within the existing business construct rather than disrupting a successfully operating business model. Reverting to our example of automobile industry, innovation focused on engine efficiency, transmission smoothness, chassis sturdiness, lighter but stronger materials and elegant aerodynamics to make the automobile better and safer for driving, travelling and owning rather than eliminating driving itself. That Google and Apple have taken this project is a classic reaffirmation of Eric Schmidt’s statement that the characteristic of great innovators and great companies is that they see a space that others do not.

Innovation horizons

Fundamentally, transformative Innovation can be disruptive, and hence many firms tend to delay disruptive innovation until it begins to take the form of a serious competitive threat, especially by new entrants. Rather than baulk at the prospect of disruptive innovation, competent and capable firms must find approaches integrate disruptive innovation into long term business models in a seamless way. The author of this blog post suggests charting the business in terms of three innovation horizons, the first one being the horizon of incremental innovation, the second one being the horizon of breakthrough innovation and the third one being the horizon of disruptive innovation.  Lasting businesses can be built only when a firm operates in all the three horizons of innovation.

The first horizon corresponds to imaginative innovation for performance and specification improvement, the second horizon corresponds to re-imaginative innovation where product-market interface is completely redefined through either convergence or divergence, and the third horizon corresponds to disruptive innovation that eliminates key product anchors in favour of new disruptively innovative ones. Firms may vary in approaches with regard to revenue-investment mix in each of the three horizons; some may follow a 50-30-20 mix while others may risk a 20-30-50 profile too. The extent to which the innovation horizon model is adopted depends on the innovation mindset of firms and individuals, and the innovation ecosystem they are able to nurture in their organizations.

Innovation mindset

There are certain characteristics of innovation oriented firms, their leaders and their team members that tend to be unique. Leadership for innovation is a separate competency-set by itself. Innovative leaders explicitly seek expressions of innovation, from simple ideas to complex prototypes. They embrace the idea of products doing things differently or doing things never done before. They take responsibility for incubating ideas, providing innovators with financial and people resources as well as equipment. They also understand that intellect and data powered debate is an essential component of bringing the best of innovation to the fore. They respect the short term improvements (to sustain current business) but without losing the aspiration for longer term transformations (to reinvent and transform business).

When businesses operate in terms of the three innovation horizons they move from a position of business sustainability to ‘future-shaping’ business. Rather than keep pace with innovations that come in from multiple sources as competing businesses they create their own innovation engines to influence the future. The acid test for such innovation leadership is a willingness and boldness to make its own current products obsolete. If Apple tried to protect its iPod as a music player without providing music-play capabilities in iPhone, the latter would never have been a blockbuster while the former would, in any case, been overshadowed by other smartphones. Disrupting one’s own product line-up and business strength by norm-defying innovative mindset is probably the best assurance of business perpetuity, besides being provider of global competitiveness.


After the author has penned the post, the report of World Intellectual Property Organization (WIPO) on global innovation rankings has been published in the Press. Disturbingly, it says that India has slipped further down the Global Innovation Index, ranking 81, from 76 in 2014. In this survey of 141 countries, China retained its ranking at 29 while Switzerland had the top spot. India’s performance on innovation marks a sharp decline in the assessment of the state of innovation in India over the past few years; in 2008-09, the nation had ranked 41st globally. India’s low performance on innovation is troublingly inconsistent with the aspiration and expectation of turning into a global economic and industrial powerhouse by 2030. The author hopes that the discussion in the blog post on the types and horizons of innovation would help policy makers and leaders to embed innovation as an essential part of India’s economic, industrial and social culture.  

Posted by Dr CB Rao on September 19, 2015      

Sunday, September 13, 2015

“Too Big to Fail” versus “Too Small to Grow”: A Few Perspectives from the Indian and Japanese Micro Business Ecosystems

Indian business and industrial ecosystem has no exit or bankruptcy provisions as in the US. In fact, Indian business ventures are expected to be resilient in adversities and aggressive with opportunities. Like the oriental philosophy, the spirit of the enterprise is expected to linger on for perpetuity. This is rightly so as India needs to be on a virtuous cycle of continued growth and employment in its quest to reach its full potential. With resources being scarce, a completely capitalistic view (survival of the fittest) or a completely laissez faire view (the markets will eventually correct) are perhaps not so appropriate for the Indian economy at this stage. The Indian Governments as well as economic experts have been supportive of the perpetuity approach.

That said, failure (which starts with loss of competitiveness and ends with close of sales) is also an inevitable consequence of a globalized economy and fragmented industry structure. While there have been stories the world over of failures being turned around into successes, the preferable option is not to fail at all. In this context, the declaration by the Indian Union Government of two of the largest banks in India the State Bank of India and the ICICI Bank as being “too big to fail” comes as a fresh thought, probably taking off from the viewpoints that emerged after the 2008 global financial crisis. The markets, however, did not seem impressed. The declaration possibly needed to be backed up with concrete initiatives to achieve strong profiles. Also required is an approach to remedy the constraints that keep small scale firms too small to grow.

Big may be bountiful, but….

In developed economic ecosystems, big is considered bountiful.  Size is considered to bring advantages of economies of scale and scope, and providing several levers for driving business competitiveness. Growth, however, is a function of time and effort. It is also a function of adjacency of several related businesses. If one looks at the Indian automobile industry, there is clearly a difference between the bigness of a company like Tata Motors which manufactures virtually every type of four wheeler (Car, SUV, LCV, MCV and HCV) versus the bigness of Maruti Suzuki which specializes only in passenger cars. Similar examples of specialized scale versus diversified scale can be found across industries. Management gurus have not yet figured out when and how adjacencies must be actively sought out to achieve bigness or, on the contrary, when and how they turn out to be disincentives for growth.

The aspiration for bigness as an end in itself is a deeply ingrained characteristic of human behaviour. Bigness is taken as the marker for achievement. Listings of the largest firms by leading business magazines such as Fortune and Forbes abroad or Business Today or Business India in India have only positioned the concept of big being praiseworthy in an unassailable way. Bigness has negative consequences for the firms, industries and economies too. Apart from vulnerability to smaller and nimble competitors, in economically adverse situations they are sharply impacted. As an example,  a free fall in oil prices (imagine a deep slump from USD 100 to a forecast USD 20 per barrel), oil exploration firms are not only roiled for short term performance but also forced to drastically prune investments for the long term. Steel giants in India that have grown with huge reliance on debt are negatively impacted by the decline in global steel demand and pricing. As long as bigness is accompanied by deep cash, the advantage of being big sustains through the crises.

Small is essential

Big may be bountiful for developed countries but for emerging economies like India small is still critical. India can be considered to be a pioneer in encouraging setting up of small scale enterprises, from the early days of independence. In fact, the emphasis on cottage industries was a well merited approach towards sustaining and developing rural artisanship, individual craftsmanship and distributed self-employment. The reason for the lukewarm impact of this pioneering effort can be attributed to ignorance of the need for, and challenges of, integrating high technology with low scale in the small scale sector. Reverting to the case of automotive industry or aerospace industry, nuts, bolts and washers or springs could be simple to make but need complex technology for quality and endurance, which in turn calls for major investments.

There are areas where technology, in recent years, has helped small enterprises in marketing, and to an extent even in design. However, manufacturing continues to present major challenges for integration of high technology and small scale. India’s success in Make in India theme would depend on how this complex challenge is tackled. India’s new start-up economy is highly encouraging but given its preponderant orientation towards services and information technology, it hardly offers a solution for the small scale industry’s manufacturing owes and resource constraints. High technology equipment and new generation materials require investments which the small scale sector can ill afford while skilled scientists and engineers are not easily attracted to small enterprises. Low entry barriers to setting up of manufacturing enterprises in small scale in India only compounds the difficulties.

Big for small  

India needs a different paradigm. Angel funding rushes in to sectors and firms where it anticipates huge valuations or good returns. It is unlikely to venture into areas of manufacturing which require high investments for high technologies on one hand but are driven down by low margins of supplies to big customers who have immense bargaining power on the other. Big customers would need to take a broader perspective on this front, leveraging what could impact their income statements vis-à-vis balance sheets. In short, they would need to set up a venture capital pool to support small scale manufacturing enterprises. In a sense, it could be a revert to the early days of industrialization when big companies, mostly public sector units, set up their exclusive ancillary estates to enable contiguous, parent-supported manufacture.

Such exclusivity has, over the years, been eroded by the desire of small and medium units to seek wider markets even as big firms started feeling the responsibility of nurturing units as being uneconomical. The concept of big units sponsoring the smaller ones, however, continues to be relevant. Industrial parks which house the parent corporation and ancillary units is a common feature in modern India as well as developed countries. The challenge to corporations and such small units is how the growing smaller ones can be weaned away from nurturing and how new small units can come into play independent of such sponsorship. The earlier Small Industries Development Bank of India (SIDBI) and the current Government’s Micro Units Development and Refinance Agency (MUDRA) are evidences that the Indian governments are well aware of the need to support the small. The need, however, is for a more intensive and a more cohesive effort as in Japan.  
Japan’s SME ecosystem   

For people used to seeing only the big Japanese brands, it would be a revelation that small and medium enterprises account for 99.7 percent of all firms, over 70 percent of employment and more than 50 percent of all value added in the manufacturing industry. Japan’s industrial policy under SME Basic Act viewed SMEs, including micro units, as diverse, dynamic and independent drivers of manufacturing industry. The Japanese Government promulgated a host of acts and set up several agencies including an exclusive university system, a dedicated financial corporation and credit reinsurance support for SMEs. The policy, which also provides for lower income tax rates, recognized that SMEs have weak assets and lack access to finance as well as human resources and established a total SME ecosystem under the control of Ministry of Economy, Trade and Industry (METI). Annual budgets provide for significant financial support to SMEs. Large units also enrich the SME ecosystem through technological support, deputation of retired personnel as mentors and acceptance of single-sourcing. They realize that the hidden strength of their component makers underpins their own end-product quality.

While India may have all the structures and processes, lack of adequate and focused budgetary support as well as public sector funded and appropriately leveraged credit enhancement and credit reinsurance schemes is a lacuna. More importantly, Japan SME policy succeeds because of the uniquely Japanese obsession with technology and quality as well as development of human resources. A great example is the project to upgrade strategic core technologies to support automobile and engineering industries. Under this, 22 specific core manufacturing fields were identified to upgrade technologies and processes through experimental research and commercialization. As a result, and as an example, precision forging replaced raw forging plus machining for select automobile parts, saving costs and improving quality. In consumer products, ceramic and pottery industry collaborated with fountain pen industry to develop highly precise and elegant porcelain fountain pens.

As part of improving access to skilled human resources for SME sector, 9 universities were set up in Japan exclusively for SMEs. Trade and business organizations to support start-ups and enable overseas business expansion were also set up. While India may have all of these initiatives in some measure or the other, what differentiates the Japanese SME ecosystem is the integrated governmental approach which not only conceptualizes programmes and provides budgetary support but also monitors and counsels SME sector in terms of specific technology and business deliverables. Indian Governments and Industries would do well to study the Japanese SME ecosystem and transfer relevant paradigms that could transform the Indian SME and Micro sector from the image of low cost and low quality to one of high technology and competitive cost with access to State-funded and private-participated credit enhancement and skill honing institutions.

Posted by Dr CB Rao on September 13, 2015

Sunday, September 6, 2015

Debates on Inflation, Deflation, Globalization and Localization for India: Why Not on the Reality of a Water-stressed rather than Monetary-stressed Economy

A twist to economic debate in India has occurred in recent times with Arvind Subramanian, Chief Economic Adviser to the Government of India, and a reputed economist postulating that India is in the throes of deflation. This is in somewhat sharp contrast to what India’s other economic luminary and the Governor of Reserve Bank of India (RBI), Raghuraman Rajan holds firm on – that India is still not free of inflation! The truth is somewhere between the two polarities of expert opinion. Possibly, India is experiencing disinflation (reducing inflation rate) and is, in fact, suffering from deflation at wholesale price index level and moderated inflation at consumer price index level. As a result, the North Block seems to be batting even more aggressively for a rate cut by RBI while RBI seems to be still concerned about inflation rearing its head with a rate cut.

The fact is that India is now beset by a host of contrarian macro and microeconomic trends and compelling external and internal economic factors. The biggest positive has been the unexpectedly sharp drop in crude prices, saving the oil-dependent India millions of dollars in import bill. This has also contributed to reduced costs of feedstock and utilities for a number of industries. At the same time, the weakening of the Rupee has led to a ballooning of material costs for a number of industries that are dependent on imported raw materials and components. The slowdown in Chinese economy has given rise to hopes that India would find a new manufacturing opportunity globally at one level but is buffeted by lower demand from China and higher dumping into India at a practical level. Against the contrarian trends, the investment cycle remains subdued and corporate earnings remain muted.


India is concerned about interest rates probably more than any other country because households as well as industries are critically dependent on debt to fund their growth and sustainability. Banks are not able to pass on whatever rate reductions the RBI has done so far due to the pressure on their banking operations. Falling exports, slowing manufacturing output, stagnant infrastructure, ballooning real estate inventory, increasing discounts on durables and non-durables, unresolved stressed asset situation, volatile stock markets, and falling demand for energy are contributing to an uncertain industrial and economic environment. While Rajan may be right, from his own perspective, that RBI cannot be the cheer leader for stock markets, there is no doubt that there is a thin line that divides populism and pragmatism in so far as public policy is concerned.

One year ago, it was felt that green sprouts of economic resurgence are evident. If nothing else, a deficient monsoon has starved the sprouts of the needed nourishment, it looks. A buoyant rural demand that emerges on the basis of robust agricultural output has, for long, been the mainstay of India’s economic growth. The Make in India theme can compensate for the slowdown in the rural economy by creating more industrial jobs and generating more purchasing power but urban islands of prosperity cannot adequately make up for rural distress, with 70 percent of 1.2 billion population living in India’s 600,000 villages. While globalization couples India to important global economies, there is a clear imperative to ensure positive interconnectivity within the internal supply and demand system to cushion the economy from adverse external developments.

Water economy

Human and plant/animal life requires water; there can be no life without water. It is not surprising that lack of rains, drying up of water resources and dwindling of underground water table cause serious concern in all nations. India is particularly vulnerable. Arthasastra written in 300 BC by Kautilya mentions dams as critical to civilization and outlines principles of dam construction as necessary guideposts for orderly development of civilization. Post-independence, the Governments recognized the importance of dams and went about constructing many large dams which transformed rural economy. However, dam construction has plateaued and declined over years. Some statistics on decade-wise completion of large dams in India are interesting but are also quite concerning, given that it has not been compensated by growth in major and minor dams. Large dams in India are conservatively defined; primarily any dam with a height not less than 15 metres from the deepest foundation to the crest is defined as a large dam.
According to National Register of Large Dams, India has a total of 5171 dams. Around 11 percent of such dams, 565 to be exact, were constructed up to 1950, roughly half prior to 1900 and half between 1901 and 1950. In post-independence India dam construction accelerated up to 1990 but started declining thereafter. The statistics are quite revealing. Between 1951 and 1960, 235 large dams were completed and between 1961 and 1970 the completion rate was doubled to 497. Between 1971 and 1980, the number of completed dams more than doubled again to 1293. Between 1981 and 1990, the tempo was kept up with another 1262 large dams getting completed. Unfortunately the subsequent two decades (1991 to 2000 and 2001 to date) saw virtual halving of completed large dams to 628 and 373 respectively. As of date, only 314 large dams are under construction.


As against total arable land area of 160 million hectares (395 million acres), even as of date only around 60 million hectares are said to be irrigated. Of this, again, as much as 40 million hectares (around 67 percent) is irrigated through groundwater well system and the rest of 20 million hectares (around 33 percent) is through dam and canal irrigation system. Even this increase has come through the development of large dams. The vulnerability of the Indian agriculture to monsoons to seasonally provide water and retain ground water table is evident. Though India is blessed with a fairly long rainy season of 4 to 5 months (except in some regions), it is estimated that only 18 percent of rain water is used effectively while 48 percent is wasted into oceans. If 18 percent of effective use is linked in some way to 5000 plus large dams, it is easy to imagine that 100 percent use of water would require at least another 15000 large dams, conservatively put.

Water reservoirs in copious times not only irrigate but also generate clean electricity. More importantly, they balance out monsoon deficiencies and replenish groundwater. There is a serious debate about whether large dams are economical to construct and whether they pay back to the community. Each large dam is expected to cost between USD 1 to 1.5 billion with 5 to 10 years to complete, suffering significant overruns.  They are seen to also impact communities as the catchment areas submerge villages and habitats besides causing irreversible extinction of native forests, fauna and species. There does not seem to be much research in India to develop new knowledge of water and conservation mapping in a mix of large, medium and minor dams, with environmental sensitivity. Even greater is the need for understanding contemporaneously the techno-economic feasibility of inter-linking rivers across India. Compared to industrial projects, river projects seem to be receiving lower priority in planning and budgeting.


Foreign and private investments are seen to be the savior for everything economic in India, except projects of volatile and uncertain community returns like river projects. It appears that other sectors (industry, real estate and entertainment) seek what belong to agriculture, like land and water, but what they provide in return like economic benefits of processed foods and distribution of agricultural produce are not exactly commensurate. Governments have no way other than directly investing in a host of river projects that conserve water, control floods and irrigate arid and semi-arid areas. Dams are probably one of the highest employment generators and users of the widest range of construction materials and construction equipment.

Indian public is increasingly appreciating the importance of agriculture and pesticide and chemical free production of cereals, grains and other products. There is, however, little excitement for investing in agriculture compared to eCommerce! Only the Governments, Centre and States, are positioned to strengthen the agricultural sector through investments. Rather than direct investments, Governments can provide interest and tax subsidies through tax-free, high-interest bearing agricultural bonds which can be traded on stock exchanges. These could be a hit on the volatility-weary investor public if they are positioned with exciting socio-economic benefits, and provide several thousands of crores to fund the much needed dam and irrigation projects.  
Food value chain

The drive for India’s growth aspirations must sprout from India’s valuable and natural resources, land and water. There is a direct correlation between water retention through dams and increase in arable area, and therefore with agricultural output and economic growth. That said, challenges exist that need deployment of technology and management. The first challenge is to produce more nutritious and more organic food with less water. The second is to strengthen human and institutional governance to enable natural ownership and responsible utilization of rainfalls and water reservoirs. The third is the optimization of the total food value chain, from agricultural production, post-harvest handling, processing and storing, wholesaling, distribution and retailing, and consumption as well as optimization of water use throughout.

Current food grain production of 260 million tonnes needs to be doubled to provide to every individual the right to nutritious food. High quality food in adequate quantities not only meets basic livelihood but also promotes wellness. Nutritious food that is hygienically processed and delivered can enable health and wellbeing of population. Well-structured rain water projects can protect India’s bio-diversity and provide a competitive advantage. It is time that intellectual discourse steers away from the never-fading and ever-fashionable themes of inflation versus deflation or globalization versus localization and focus on preserving and enhancing the value of the natural resources God has blessed India with. Diversification of urban food basket is evident as one sees the retail food shelves but it produces a deep adverse skew unless it is accompanied by deepening of rural prosperity. The optimal economic balance in India emerges not from the balance of inflation and deflation rates or globalization and localization indexes but from a balance of rural and urban growth imperatives.

Posted by Dr CB Rao on September 6, 2015           

Tuesday, September 1, 2015

Innovation with Perfection: When Parts Become the Whole

Innovation is seen as the hallmark of creative development while perfection is seen as the surrogate of supreme quality. Customer delight arises from a combination of innovation and perfection. Innovatively designed products that are made to perfection surprise, delight and inspire customers. From an economic point of view, a combination of innovation and perfection results in greater productivity and sustainability. The beauty of this combination is that it is applicable not only to products and services but also to processes. Generally, however, innovation and perfection are seen to be somewhat antithetical to each other, with innovative products running the risk of failure and perfect products being a result of highly standardized inputs and processes, proven in millions of repetitive cycles. This intriguing reality has probably a socio-economic behavioural causation too; one can wait for innovation but not eternally and one can seek perfection but not at the cost of immediate needs.

While innovation could be a result of spontaneous intuition or diligent serendipity, and perfection could be a result of a mind-set steeped in conformity and quality, in most cases innovation and perfection are highly organized activities requiring time and effort. In principle, the greater the time and effort expended on innovation and perfection, the greater is the possibility of innovation and perfection. The pathway to innovation on which time and effort are spent is often dictated by the target of innovation. The pathway to perfection on which time and effort are spent is dictated by the level of specifications on one hand and usage feedback on the gap between specifications and requirements on one hand and the gap between specifications and performance on the other.  The targets of innovation and perfection are, themselves, set somewhat subconsciously by what humans as the experimenters see as the limits for innovation or perfection. As this process is complex, practitioners seek optimality which ironically could be sub-optimization.


In reality, innovation that we see in products or services is invariably preceded by innovation in basic technologies. The innovative televisions of today are made possible because of innovations in display screen technologies such as OLED that were seeded a few years ago for palm size screens. When several innovative technologies become available novel products incorporating such technologies get to be developed, albeit with a lag. Strange as it may seem, rarely innovation gets defined ab initio at the end-product level. This facet of innovation in multiple technology substrates represents both an opportunity and a challenge for product level innovation. The opportunity arises in terms of choice and speed while the challenge arises because of imbalance in innovation of parts. Rarely one gets to have a total product technology mission that targets innovation in raw materials, components, integrating systems, manufacturing equipment, production processes, and end-products as one holistic mission.

That perfection does not necessarily move with innovation, and vice versa, is fairly obvious. Apple which has seemingly attained perfection with its iPhone range until recently (say, till iPhone 5) has not necessarily been innovative in all the departments. On the other hand, as the innovation level (as exemplified by a slim form factor) got bumped up in the iPhone 6 range, perfection lagged as evidenced by bending phones, protruding camera modules and blurred images in some lots. Samsung has been innovative in form factor and stylus based phones but never reached the top in terms of perfection. Incorporation of OIS modules in slim phones represent a greater challenge in terms of achieving perfection rather than integrating innovation. Inevitably, every first generation innovative product, be it cell phone or holography headset, emerges to be a rather bulky, blunt or crude form of innovation (at least, until after the next generation products are unveiled).

Parts and the whole

The author of this blog once wrote a post titled “Style is Substance: Management of Product Design and Manufacture”, Strategy Musings, August 8, 2009 ( The post argued that the style of a product demands substance in design and manufacture of a product, and boosts efficiency, encourages creativity, promotes flexibility and drives growth but also demands management competence to ensure all of this. The blog post was, in fact, inspired by the crop of stylistic products that began to be unveiled during those years. Much intellectual water has flowed under the bridge since then with rapidly evolving products and amazingly shortening life cycles. While style and substance seem to have stood up over the last six years as a solid pair, perfection and innovation seem to be moving out of step, of late. This can be traced to the mismatch of perfection and innovation in the parts and the whole.

Product design as a technical discipline has such versatile facets that a few parts can make a significant change to performance but such trend can neither be unlimited nor perpetual. For example, a superior drive-train can step up an automobile to a different performance trajectory but without matching strides in overall strength-weight parameters or navigation systems, enhancement in performance of parts would soon be blocked. When breakthrough products are conceptualized, every part needs to be thought of for innovation and perfection. When Airbus A380 was designed as the largest commercial plane, each and every part had to be redefined to newer standards. The difference between a spaceship for a lunar expedition and a spaceship for mars mission would need a complete conceptual redesign. The challenge of perfect innovation lies in absorbing the approaches from such uncommon products to common products.

Perfect innovation

Perfect innovation may be defined as an organized process in which each component of a product is covered with innovation. This requires concurrent engineering and manufacture of a different detail and differentiated calibre. To institutionalize perfect innovation, a firm has to approach product development and commercialization in two distinct tracks. The first track covers the routinely followed quick-upgrade product cycle. This would incorporate typically certain innovative upgrades to differentiate products across generations; such product cycles may alternately focus on innovation or perfection. Typical examples are found in white goods and consumer goods sectors. The improvements in loading systems or washing cycles in washing machines, enhancements in purification and water recovery in water purifiers, integration of new materials in cooking systems, miniaturization of routers and dongles, enhancements in pixel density of display screens, improvements in aperture sizes of camera sensors and inverter integrated air conditioners are examples of such routine product developments.

The second track, which actually is the track of perfect innovation, reappraises the entire product concept in terms of the total design and functionality of the end-product at one level and the design and manufacture of every material, component, system and assembly at another level. The first editions of digital camera, smart phone, flat panel television, and several such others represent close examples of perfect innovation. The reasons are that each of the products had several totally new components (not merely upgrades of existing ones) involving new materials, new designs and new manufacturing processes. All of these products had new operating systems as well. Introduction of digital technology has enabled definition of metrics for measuring innovation and perfection. Until the entry of digital technology, mechanical fits and tolerances determined the perfection of manufacture. Digital technology helps monitor the perfection of manufacture as well as on-site performance on a continuing basis in critical equipment such as medical imaging equipment, diagnostic equipment and infusion equipment.

Bill of innovation

Perfect innovation is a multi-stage iterative process which starts in the first phase with a total redefinition of the product concept. This stage can be applied to any product, from a telephone or a television to a hotel room or operation theatre. This stage requires truly out-of-the-box thinking on product configuration, which could reposition even plateauing or declining products. For example, the land telephone which has reached a stage of plateau can be subjected to this process.  From a mere dialing instrument for physical communication, it can be converted into a home management robot. At the very least all the functionalities of a smart phone like multiple ringtones, display screens, voice assistance, voice recording and play back, and a number of utilities such as alarm, compass and calendar can be incorporated. At a higher level, it can be embedded with a mini-computer which can provide instructions to various devices and equipment in home, serve as daily organizer and also serve as a real-time camera to record entrants to the home. A fundamental re-positioning of a traditional product, based on a new technology substrate, is the first phase of perfect innovation.

The next phase is the crucial operative phase which comprises four parallel inter-connected streams of technology substrate choice, detailed bill of materials, bill of innovation corresponding to bill of materials and component-specific manufacturing perfection scheme, including testing and quality assurance and equipment planning. These four streams encompass the product on an end-to-end basis, from design to delivery. At the end of this second phase, the first prototypes of the new breakthrough product would be available. The third final phase is the iterative phase when the prototypes are honed to perfection, adding incremental innovation and perfection to each component to perfect the overall product style and substance. At the end of this phase, the product would be ready for homologation and commercial manufacture. As opposed to a typical 6 month upgrade cycle, perfect innovation would require a minimum development and commercialization cycle time of 3 to 5 years. Firms would do well to split their R&D and Manufacturing functions into Improvement Business Units and Redefinition Business Units.

Posted by Dr CB Rao on September 01, 2015