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InMobi’s Miip May Be More Important to India than Pichai

The emergence of an IP and technology-based leader from India will have a bigger long-term impact than a few Indians heading major global corporations

Isn’t it strange that we were obsessed with happenings at Google while the really momentous news of the coming of age of a serious desi challenger got lost in the noise?

Sundar Pichai and Google

News of Sundar Pichai’s ascension to the Google throne hogged media headlines for almost a week.

While I could understand the excitement instigated by the front page of Dainik Bhaskar in a young tier-2 and tier-3 city audience for whom a compensation of Rs 300+ crore would seem out of this world (however misleading that figure is since Pichai’s actual compensation in his new role is not known, and conversion from dollars to rupees doesn’t make sense anyway), the hoopla in the metro-based English language press was surely misplaced.

After all, what’s surprising? Indians including Ajay Banga (MasterCard), Victor Menezes (Citibank), Indra Nooyi (PepsiCo) and Anshu Jain (Deutsche Bank) have been CEOs of global corporations. And it’s now more than 20 years since Rajat Gupta became the CEO of the world’s bluest blue management consulting firm—McKinsey!

Indians are smart, ambitious and can communicate well. Once they have studied at a top US university and worked there for a while, they fit well into American corporate life, capable of discussing football and technology, and being politically correct. Most importantly, they can be quite conformist and refrain from rocking the boat. Clearly a good choice if you are a culturally diverse company like Google.

And, mind you, this may not really be the throne anyway as Larry Page and Sergey Brin are just one degree of separation away.

I have nothing against Pichai who appears to be a perfectly competent technical manager with the right credentials. But for me there were more interesting and promising events happening recently that didn’t get the attention they deserve.

What We Should Have Focused On…

For years now, we have bemoaned the absence of a Google-like company from India. Yes, we have had successful tech enterprises from India but these have been in the difficult-to-relate-to business-to-business (B2B) IT services space. The real big news of the last few weeks is that we now see some green shoots pointing to the emergence of an IP and technology-based leader from India.

On August 5, in a virtuoso performance that had a clear Steve Jobs touch to it, the CEO of InMobi, Naveen Tewari, introduced his company’s new advertising platform, Miip, to a gathering of who’s who in the technology world at Bangalore.

For the technological cognoscenti, InMobi is not a new company. It calls itself the “world’s largest independent mobile advertising platform”. Funded by Softbank, Kleiner Perkins Caufield and Byers and Sherpalo to the tune of $220 million, InMobi reportedly served 2.2 trillion advertisement requests in 2014. Its revenues are not in the public domain though some reports suggest that they could be as high as $500 million.

So, What Is Miip and Why Is It Significant?

Firstly, mobile advertising is huge and growing rapidly. With the shift of the internet to the mobile, most dramatically underlined by some Indian e-commerce giants’ decision to be “mobile-only”, the clear trend is for advertising on mobile.

Secondly, the whole promise of internet-based advertising (and now mobile-based advertising) is better targeting and customization. But this promise has to a large extent been belied. I am repeatedly amused by the fact that after I have purchased a ticket from, say, Indore to Delhi, I see online advertisements offering me low-priced Indore-Delhi tickets. These are completely wasted on me.

And, as InMobi keeps reminding us, many users see advertising as a distraction and an intrusion rather than something they find useful or enjoy.

Most extant internet or mobile-based advertising is intent-driven. You search for something you want to buy by entering it in a dialog box, and the search engine helps you by displaying related advertisements in addition to the search results. Once you have done such a search, related advertisements keep popping up even though the purchase may have been completed or you no longer have the requirement.

Such advertising makes limited use of analytics and doesn’t prompt you to check on other things you may be interested in. The range of products or services offered is also very narrow even though we know that there are hundreds if not thousands of companies that may be offering other products or services that may be of interest.

InMobi’s Miip is a mobile-based discovery platform that not only uses advanced analytics to overcome this problem, but also features a cute mascot that enters into a dialogue with the user to make suggestions and elicit user feedback. Along the way, the user can consult her friends before making a purchase choice using social media. All of this is done with high-quality visual content that exploits the superior graphics of today’s smartphone screens. Together, these enable an enjoyable and comprehensive shopping experience.

What’s significant in this case is that the company is already a strong player in the mobile advertising space, having entered at the right time about seven years ago. This gives it the muscle and the connections to capitalize on a big bet like Miip .

I particularly liked the launch of Miip in San Francisco, Bangalore and Beijing in quick succession, as these could very well represent loci of technological advancement and economic growth for the next decade. Unlike the earlier generation of Indian companies that shunned collaboration, it was good to see InMobi sharing space with important partners like Paytm and Walmart at the launch event itself.

I have only one regret about InMobi: I wish it wasn’t into push-based advertising that will promote even more consumerism.

India as a Product Nation

India’s success in services came from our ability to write high-quality software at low cost, without the need to make large irreversible upfront investments in technology or products. Companies like InMobi represent a new frontier where we are taking large bets and investing in platforms and new technologies.

This article is not only about InMobi, but about this new generation of companies that’s changing the way we do business. If sustained, this trend could help India become a Product Nation. In the long run, that would have much more impact than a few Indians heading major global corporations.

Reblogged from FoundingFuel

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Getting The Funding Piece Right

Creative inventors with creative ideas need creative capital

“As a first-gen entrepreneur and professional by training, I have become contemptuous of the local investor community—it uses a cookie cutter approach with very limited imagination. They would rather blow their cash on an app (without proof of concept) than on a good service model that has growth potential. We pretend in India to be like the Silicon Valley guys, but we don’t really have the b****s!”

This was the explosive start to a mail I received recently from an obviously frustrated entrepreneur. The irony is apparent. As Govind (not his real name) struggles to raise a few crores to scale up his business, thousands of crores have been pouring into e-commerce and asset-light technology-driven businesses patterned on an Uber or an Airbnb. While it is possible that some of these new models will become big in India, the fact is that many of the individual companies funded will crash as each model is likely to witness only two or three big winners.

Govind is not alone. Other types of new ventures are facing similar problems. A recent article in Mint points out that dozens of innovation-driven tech start-ups are struggling to raise money to take their businesses to the next level.

The Funding Challenge

Over the years, at the aggregate level, there has been a substantial increase in the funds available to Indian businesses from private equity and venture capital. Today, large international funds have an Indian presence. Though there are frequent murmurs about the vagaries of the Indian taxation system, billions of dollars of venture capital/private equity investment have been pouring into India.

But I wonder whether these are the only type of investors we should be seeking. The classical venture capital model is predicated on seven-eight of every 10 investments tanking, one-two having some moderate success, but huge returns on one in 10 investments that make up for the poor returns on the others. Recent reports speak about blurring of lines between private equity (which typically comes in at a later stage) and venture capital as everyone wants to be at the party.

Govind ended his mail with:

“I think investors must look at roping in domain experts (beyond their own borders) so that they develop in-depth understanding of these sectors. I think the challenge in India is that the people facilitating investments are not themselves entrepreneurs (or led by entrepreneurs) in many instances—so they are risk averse (a bean counter mindset) and exhibit a herd mentality (apps are the new sunshine).”

How do we catalyze such investments by domain experts? Here the role of seed capital for new funds comes in. Israel’s famous Yozma model which brought into that country highly accomplished tech investors with substantial operating experience has been around as a role model for a couple of decades. It’s good to see that we have finally realized the value of Yozma.

In its quest for growth and employment, the current government has actively embraced a pro-start-up stance. One of its initiatives is the recently announced India Aspiration Fund (IAF) built on the Yozma concept. IAF is conceptualized as a “fund of funds” and will invest in venture capital firms, not directly in enterprises. I am hoping that the government will ensure that its 2,000 crores is well-distributed across investments in different sectors and business models.

But even the IAF will not be able to meet the needs of all types of firms. I often come across business ideas that have moderate risks with moderate returns that don’t fit the profile a typical venture capitalist is looking for. Unfortunately, these firms lack the assets that could be offered as collateral security. Our already risk-averse banks are now focused on addressing a huge problem of non-performing assets (NPAs), so it’s unlikely that they would be very enthused to fund such businesses anytime soon.

From Creative Confidence to Investment Confidence

Much has been written and debated about the recent criticism by Infosys founder NR Narayana Murthy that India has not been the source of major inventions in the decades since independence. While there has been a tendency to blame our scientists and engineers or the government, I would lay some of the blame on our financial system as well. Creative inventors with creative ideas need creative capital!

Herd behaviour or what organization theorists would call isomorphism is not uncommon as a risk mitigation strategy. But, as a student of strategy, I would back distinctiveness any day. Doing whatever everyone else is doing can’t create a distinctive competitive advantage and that is true for investment firms as well.

In our work on building innovation capabilities, we emphasize the importance of building creative confidence. This is not a term we coined, in fact it comes from the Kelley brothers of the iconic design firm, Ideo. Creative confidence has a special resonance in India where over a couple of hundred years we lost our faith in our own creative abilities. But successful innovation requires not only the creative confidence of the inventor but the confidence of the investor to back new ideas.

What kind of an investor is likely to have that confidence? Probably one who has the experience of doing it himself. As Govind wrote in his mail, an investor with a primarily financial background is unlikely to have the confidence to back a radically new idea.

And, finally, some Bigger Questions

Sometimes, I wonder whether there is a fallacy in basic economic theory. For, Economics tells us that in an efficient market, investments will go into the most productive applications. But, is driving consumerism or bringing more taxis onto India’s already jam-packed roads the best use of money?

In the adoption of technology or new business models, India tends to imitate the West with a lag. But, given that our needs are so different, does that really make sense?

Not so long ago, there was a lot of interest in innovation at the bottom of the pyramid, and so-called frugal innovation. These were seen as critical to solving the myriad social problems that India faces. But now these have been displaced, at least from media glare, by the stratospheric valuations of online food or grocery stores. It would be a mistake to lose sight of the importance of these innovations and we need to find ways of continuing to support and nurture enterprises built around them.

In many cases, these enterprises are social enterprises with positive societal externalities. The National Innovation Council under the previous government had a plan to create an India Inclusive Innovation Fund to support such enterprises. I hope this idea is not lost in the noise and excitement that we are seeing today.

Reblogged from FoundingFuel

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Lessons from the House of Tata on Technology and Innovation

There are increasing signs of breakthroughs that could provide disproportionate returns to Tata companies.

One question that I am asked frequently by companies that have launched innovation programmes is: “How do we sustain interest and commitment from employees across the company?” In other words, how do we keep up the momentum?

After attending the final presentations and awards ceremony of Tata Innovista 2015 recently, I realized the Tata group has found an answer.

This year, Tata Innovista, a “celebration of creation and innovation within the group”, had more than 2,700 teams participating from 65 companies across 18 countries. Thirty thousand people have participated in Innovista since it was started a decade ago. I don’t know where to look for comparative statistics, but it’s reasonable to assume that this is one of the largest corporate innovation events in the world.

Innovista is just one of the initiatives of the Tata Group Innovation Forum (TGIF), a group of CXOs across the Tata group that evangelizes innovation. Innoverse, another TGIF initiative, is a crowd-sourcing platform; 16 Tata companies are active participants; 685 problems were posted last year resulting in 45,000 ideas, 513,000 conversations and 2,400 ideas taken forward.

While the TGIF itself meets as per a calendar, it has a team working behind the scenes to keep up the momentum of these initiatives. This team is housed in group-wide Centres of Excellence like Tata Quality Management Services and Tata Management Training Centre.

Ratan Tata provided the initial impetus for all these initiatives. He set an example for the group through his close involvement with the development of the Nano, and other innovations like the Tata Swach and Ginger hotels. But his lasting influence may well be the creation of the TGIF under the leadership of Tata Sons Director R. Gopalakrishnan with the mandate of building an innovation culture in the group.

With Ratan Tata’s support in the background, Gopal has been the force behind TGIF. At this year’s Innovista, he was felicitated on the completion of 10 years of TGIF. In Gopal, we have the answer to the question I raised at the outset—a committed executive sponsor with an effective corporate support structure can make all the difference.

Gopal’s Takeaways

Gopal, who has passionately backed innovation activities over the last decade, had some interesting takeaways to share.

The first was to revel in stories, as these are the best ways to share the hope and meaning of human progress. I couldn’t agree more. This is why, inspired by the Heath brothers Chip and Dan, Vinay Dabholkar and I centred our book 8 Steps to Innovation: Going from Jugaad to Excellence (HarperCollins, 2013) around stories. Stories, and even myths at times, play a crucial role in overcoming the fear of failure, one of the biggest obstacles to innovation. One of the world’s most innovative companies, 3M, does this wonderfully well when it encourages storytelling about the hundreds of inventors within the company who went on to succeed at last in spite of failing many times on the way.

Revel in stories, as these are the best ways to share the hope and meaning of human progress.

The second was to focus on the innovation and not the innovator. Gopal gave the example of Tim Berners-Lee, considered one of the fathers of the World Wide Web (WWW), who has steadfastly refused to hog credit for the WWW, always insisting that many different people played a role. If Gopal was trying to point out that very few innovations are the outcome of a single person’s effort, it’s difficult to disagree with him. But, stories usually centre around individuals and not teams, so I wonder how to reconcile this insight with the first one.

Focus on the innovation and not the innovator

Gopal’s third point was that an idea is no innovation. In fact, according to Gopal, it is the struggle to nurture and deliver the idea that is innovation. This point again has strong resonance with what we have seen—the road to developing an idea, seeing whether it works, refining it, combining it with others, making the process as robust as possible and finally delivering value or benefit is at the heart of innovation. This is an important lesson for youngsters, in particular, who tend to find the creative process of ideation far more exciting than the rocky road to execution.

It is the struggle to nurture and deliver the idea that is innovation.

“Rely on the compass, not on the map” was Gopal’s final point. If you think about this carefully, you’ll see it’s quite profound. Innovation tends to be an evolutionary process, with many twists and turns. Traversing existing roads will result only in incremental change. Bigger impact will need trying out the road not taken, but you have to get the directionality right. This last point is particularly salient because, in the corporate context, an innovation that lacks alignment with corporate strategy is unlikely to reach fruition. This lesson seems to have been absorbed well in the Tata companies—I found a close fit between innovation and strategy in most of the innovations I saw.

Rely on the compass, not on the map

What’s Next?

Ever since open source software became successful, the social “bazaar” has emerged as an alternative to the corporate “cathedral” as far as innovation is concerned. Coupled with the explosion of information, and the wide dispersion of creative efforts across the globe, this has induced companies to open up their innovation processes. Some Tata companies have embraced this idea with Tata Consultancy Services (TCS), for example, having pursued the concept of a Co-Innovation Network (COIN). Tata Innoverse that I mentioned earlier already provides one possible platform for collaboration between group companies.

But, the strength of a group like the Tatas lies in the diversity of competencies and markets that it encompasses. Foreigners who visit India are struck by this even if we take it for granted. Some past Tata innovations—most notably the Tata Swach water filter—have demonstrated the power of such collaboration.

A big challenge is how to encourage collaboration between independently managed companies with their own stakeholder groups. Tata Chairman Cyrus Mistry referred to the importance of such collaboration in his concluding remarks. But my own sense is that the key to unleashing the next wave of innovation in the Tata group may lie in fostering such collaboration not only with other group companies but with the wider world.

Tata companies are on the cusp of a major jump in innovation. Earlier, “invisible” innovations in processes resulting in efficiency improvements were the mainstay of innovation. But there are increasing signs of technological breakthroughs that could provide disproportionate returns to Tata companies. Two big acquisitions that Ratan Tata made—Corus (now Tata Steel Europe) and Jaguar Land Rover—already possess the capability for such technological innovation. If they can be harnessed as role  models and mentors, the Tatas may well be able to set benchmarks for technological innovation just as they did for employee welfare a hundred years ago.

This article was written for FoundingFuel.

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The Future of India

Trends in the US could portend the challenges India will face.

independence-day-67aLike many people, I dislike long flights, particularly since my body does not deal well with jet lag. I therefore try to avoid visiting the United States more than once a year. But every time I visit that country, I remind myself how important it is to keep in touch with what is still the powerhouse of the global economy, for that enables a better understanding of India’s challenges in the years ahead.

This time, my visit spanned the whole country – a few hours in transit on the east coast, a day in the mid-west, two days each in Texas and California. My reflections suffer from one bias though: my visits were primarily to universities. Yet, speaking to academics helps understand some of the broad trends, even if these institutions tend to be more liberal than the rest of the country.

The Decline of the Middle Class

A distinctive feature of the United States in the 20th century was the emergence of a large middle class. But an equally striking feature of the early years of the 21st century has been the decline in living standards of this same middle class.

In his book Fault Line: How Hidden Fractures still threaten the World Economy, Raghuram Rajan spoke of the challenge of re-tooling the American blue collar worker for the new workplace. But, this is not a problem of factory workers alone.

While in the US, I realized that at least four of my 51- or 52-year-old IIT classmates don’t have full-time jobs anymore. Their opportunities have declined as the number of middle-to-senior managerial positions has shrunk. Further, many organizations prefer younger employees.

By the way, in case you thought that this trend is restricted to the US, think again – we see a similar nascent trend in Bengaluru, particularly in MNC subsidiaries.

The New Economy

The US continues to be a leader in engineering. I had a ride in a Tesla car, and I was really impressed by its smoothness and its ability to bridge the gap between an electric car and one based on the internal combustion engine. Universities like MIT and the University of Illinois at Urbana-Champaign continue their focus on core engineering and devices.

But, value added in manufacturing is on the decline, with even sophisticated design no longer enjoying a cachet. Hardware companies don’t count for much anymore – a friend in Silicon Valley was telling me that a company that designed a high tech drone with all possible bells and whistles gets valued at $200 million, while companies of the WhatsApp ilk are valued at multiple billion dollars. This change in value is reflected in the geography of the Valley itself.

Over time, there has been a northward shift in the centre of gravity of corporate activity, in the direction of San Francisco. Chip companies in the southern part of the Valley are passé.  Youngsters prefer to live in San Francisco even though they don’t get to spend much time there if they work in Mountain View-based Google, the northern edge of the southern part of the Valley. The geographic shift also represents the difference in skillsets required by social media and other emerging consumer-centric startups. This shift in value is visible in India too – just check out the sky high valuations of India’s e-commerce companies. According to a recent article in Business Standard, Flipkart is more valuable than Tata Steel or Mahindra & Mahindra!

It’s not clear how long the best and brightest of the United States will work in hard engineering if the money is chasing e-commerce and social media!

It’s not clear how long the best and brightest will work in hard engineering if the money is chasing e-commerce

Change in the Nature of Work

It’s time we thought seriously about the future of work and society. While in Silicon Valley, I caught sight of the Google driverless car prototype on multiple occasions. The grapevine has it that the prototype works well, and only regulatory issues can delay its commercialization. Driverless vehicles will change transportation completely. Car ownership will decline, while public transportation will get a boost. Though driverless vehicles on India’s chaotic roads may seem utopian, just imagine their impact on the employment of drivers.

India is ramping up for a foray into manufacturing just as manufacturing is on the cusp of major changes. Automation is accelerating, and China has the largest number of robots in the world. As automation spreads, routine jobs that require limited skill levels will go to lowest cost locations. And, companies are smart enough to compute the overall costs, and not focus on wages alone. Overall costs factor in labour productivity and the efficiency of logistics as well as the regulatory environment. India will struggle to be competitive when these overall costs are taken into account even if we improve our skill levels.

India is ramping up for a foray into manufacturing just as manufacturing is on the cusp of major changes.

Winner-takes-all Economics

The decline in the middle class reflects another important shift – income distributions are veering farther away from “normal”. While in the Valley, I attended an interesting talk by Sanjiv Das, a professor at Santa Clara University, in which he emphasized how few things in the world are distributed in the favourite “normal distribution” of our statistics professors. While the internet may be democratic in terms of access, it has only accentuated winner-takes-all economics.

All these changes in wealth and income distribution combined with changes in the nature of work don’t bode well for India. India may create the largest workforce in the world, but what if such a large workforce is not required?

India may create the largest workforce in the world, but what if such a large workforce is not required?

Winner-takes-all economics is spreading in a way to the broader society as well with income and wealth inequalities deepening. At the same time, governments are unable to manage social welfare systems efficiently. While the resultant tensions may be manageable in the small, wealthy countries of Europe where minimum living standards are already high, it’s not clear how countries like ours will manage these issues.

Public-private gaps are visible in US infrastructure as well. I was struck by how the freeways and public roads in the Bay Area are not in the best shape while private buildings get fancier and new dwelling units appear in hitherto low-density areas like along the sides of El Camino Real, the north-south artery through Northern California. This uncannily reminds one of India.

Monopolies and winner-takes-all trends are active in the non-internet world as well. While Starbucks Coffee outlets dot the US landscape, I was amused to find that other outlets including hotel coffee shops also now serve Starbucks coffee and proudly advertise so. Starbucks is practically the only coffee brand on offer now!

But, even Google has its Limits…

In all of this, it’s good to see the Americans retain their sense of humour. I particularly liked one hoarding in front of a church in Silicon Valley: “Google can’t satisfy every search.” I hope we can retain our sense of humour too!

Reblogged from FoundingFuel

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Can India Arrest the Slide in its Innovation Ranking?

Over the last few years, the Global Innovation Index (GII) compiled annually by INSEAD, WIPO and Cornell University has become the most commonly accepted global indicator of nations’ innovation performance. So, there has been much angst in India over the last couple of weeks once it emerged that India has fallen 10 places in the last year from 66 to 76. 

About the Global Innovation Index

I have written about the GII in this blog before. Just by way of reminder, the GII measures national innovation performance by looking at a whole set of variables related to both innovation input and output. The innovation input index is a function of institutions, human capital and research, infrastructure, market sophistication and business sophistication. The output index considers knowledge and technology outputs as well as creative outputs.

My main reservation about the way this index is computed is that some of the variables are general business climate variables and not specific to innovation per se. I also wonder whether there is a degree of double counting in the index – at the minimum, I suspect some of the variables they measure are strongly correlated with each other.

But the good thing about the GII is that it has now fallen into a pattern, is fairly stable in the way it is compiled year after year, and therefore should give us a sense of broad trends even if the exact score computed is not sacrosanct.

Why are we slipping?

To see why we are slipping, I took a closer look at the scores of India vis-à-vis China. As the two “emerging market” giants, the world often sees China and India as competitors (though we all know, of course, that China has been ahead of India in the economic sweepstakes). And, to make it even juicier, China’s rank on the GII has been improving unlike ours which has been steadily declining!

There is not much difference in scores between India and China as far as institutions are concerned and this has been the case for the last few years. Not surprisingly, China scores much better than India on infrastructure, but many of the infrastructure variables captured in the GII are broad ones like electricity output and logistics performance, and we know that India has a long way to go on these parameters. So, there is no great surprise here.

On market sophistication (credit, investment, trade and competition), India has actually pulled marginally ahead of China in GII 2014, though we trailed China last year. Many of the parameters that go into this metric are again broad ones that would go into any competitiveness study and are not specific to innovation.

On business sophistication (knowledge workers, innovation linkages, knowledge absorption), China is ahead, but the gap has declined marginally from 2013 to 2014. That’s a good sign, and India is even ahead of China on a couple of sub parameters that add up to this score – state of cluster development and joint venture/strategic alliance deals.

Then, where is the slippage and is it a cause for concern?

Yes there is a concern, because the most serious gaps between India and China are on two critical parameters that are linked intimately to innovation: the input parameter relating to human capital and research, and the output parameter relating to knowledge and technology outputs.

Though we keep emphasizing the importance of leveraging the demographic dividend, and both education and skill development have been flagged for some years now as critical issues, India’s Achilles heel continues to be what is represented by the Human Capital and Research (HCR) parameter of GII.

We are behind China on every single component of this parameter. The three main constituents of HCR are (school) education, tertiary education and research and development. On both (school) education and R&D, the gap between India and China is widening fast. Only in tertiary education is the gap narrowing, and that is because of recent improvements in India’s Gross Enrolment Ratio.

School Education

This assessment of (school) education is corroborated by reports like the Annual Survey of Education (ASER). ASER 2013 shows that while the percentage of children out of school has declined, the percentage of children in Standard V who can read a Standard II text has also declined from 52.9% to 47% between 2009 and 2013. While there have been noteworthy efforts to improve school education including the government’s Sarva Shiksha Abhiyaan (which can take some credit for the improvement in school enrolments) and private efforts like that of the Azim Premji Foundation on the quality side, clearly we have a long way to go before we can ensure a foundation of good schooling to our kids.

Research and Development

The R&D issue is more tricky. India’s R&D intensity has remained stubbornly range-bound between 0.9% and 1% for the last two decades. We pride ourselves on our ability to make do with less as exemplified by the achievements of the Space programme in the public sector, and that of automotive and pharmaceutical companies in the private sector. Yet, our adverse trade balance and poor standing in high technology industries (except for a small number of honorable exceptions) show that we have been unable to develop the sophisticated technological capabilities needed to hold our own in global markets.

There is a “chicken and egg” problem here – some firms don’t invest in R&D because they don’t have the right people to do R&D. And, in those companies where they do have the right people, the top management does not have the confidence to put enough resources behind the team. Either way, firms fail to develop a sound R&D and innovation capability.

Given these problems, it is not surprising that India lags on knowledge and technology output as well.

I have my doubts about the GII’s methodology in calculating the other output parameter – creative outputs. GII shows a huge swing from 2013 to 2014 on this parameter with India well ahead with respect to China last year, yet lagging China significantly in 2014. Since a country’s creative outputs can’t change that rapidly, I am inclined to just ignore this parameter.

Conclusion

I am not too optimistic about India reversing this downward trend in GII quickly. Some of the announcements by the new government will help enhance economic institutions, investments and infrastructure if they are pursued seriously. But, it is not clear how and when the slide in human capital and research (as measured by the GII) will be arrested. Some of my pet ideas in this direction are in the slide below.

[The views expressed here are the personal views of the author.]
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India to transform into a software product nation

The Finance Minister’s recognition of software products as a distinctive category which can propel India forward as a product nation could well mark a new era in India’s industrial development.

At the time of independence, we had very limited industrial capabilities. But, in the last 67 years, we have built a strong foundation across industries ranging from tractors to telecommunications, and dairy to drugs. Yet, we fall short of getting global recognition because we lack enough widely visible products and brands.

And, software products could well be the arena to change this image. We have companies that have shown they have what it takes to be global leaders – InMobi challenges Google in mobile advertising, and Fusion Charts is a preferred source for visualization tools. India’s software services industry has helped develop a huge talent pool that can write the most complex software.

In addition, today’s youngsters have the aspiration, ambition and confidence to build sophisticated and powerful products.

Sales and distribution is no longer a problem because the internet allows you to serve a global market. The missing link to creating the next Facebook or Google from India is a supportive ecosystem that promotes rapid growth.

Identification of software products as a category distinctive from services should help us overcome some of the barriers to creation of this ecosystem.

Multiple levels of taxation, difficulties in availing R&D tax credits, and barriers to venture capital investment are some of the issues that can be sorted out now that the potential of software products has been recognized.

The significance of software products goes well beyond their potential contribution to Brand India.

Well-designed software products that combine the special needs of Indian customers with the right technology have the potential to transform the productivity of India’s large MSMEs (Micro, Small and Medium Enterprises) sector across industries.

Just one such product, Tally, has made accounting easy for millions of Indian enterprises.

Software products can provide platforms for improvement in government functioning and effectiveness whether it be the issue of birth certificates or facilitating financial inclusion. They can help provide better healthcare and education.

The most sophisticated defence and aerospace products have software at their heart, so software product capabilities could in the long run help our security and defence as well.

Success in software products could help promote product thinking in other industries as well. The advantage of focusing on software products first is that unlike many other product categories (like drugs or semiconductors), the upfront investments are much more manageable, and we already have the talent base and skills to get going.

Why is product thinking crucial? Because it makes possible the capture of value within our country. According to one estimate, Apple earns $368 out of every $560 iPhone. In contrast, Foxcon’s margin on every iPhone that it manufactures for Apple is less than $15. We need to change from “India Inside” to “India: Product Nation” so that we can appropriate a significant part of the value created by our talented designers, engineers and scientists.

The Vajpayee government is often given credit for removing the barriers to the growth of the software services industry through policy changes it made in the late 1990s. If the Modi government takes today’s announcement to its logical conclusion, it could be on to something much bigger – positioning India for success in the trillion dollar software product industry.

100,000+product start-ups, employment for 3.5 million technical people and more than $500 billion in market value are some of the results we can expect in the next ten years. But the biggest prize would be the spillover effects of unleashing India as a product nation.

Cross Post from BusinessToday

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Disruptive Innovation Revisited

Disruption and disruptive innovation have been in the spotlight of late. The guru of disruptive innovation, Clayton Christensen, and his famous theory were put under the scanner in a highly critical if somewhat flippant recent piece by Jill Lepore in the New Yorker. Just a few weeks earlier, the New York Times carried a provocative article titled “Business School, Disrupted,” that examined the potential of MOOCs to change management education and chronicled the troubled efforts of arguably the world’s strongest business school brand, Harvard Business School, to embrace MOOCs.

Is the problem with disruptive innovation or innovation itself?

Though Lepore’s article is ostensibly targeted at disruptive innovation, her grouse seems to be with innovation itself. She chronicles how “progress” used to be the ideal, till the notion of “progress” got discredited because of the many negatives that came along with it (atom bombs, for instance). Today, innovation has become the holy grail even though innovation can result in several unanticipated negative consequences.

As someone who has beaten the innovation drum for close to 2 decades now, I have to admit that some of this criticism is justified. The word innovation is used quite indiscriminately these days because it’s the “in thing.” I remember grimacing when I once read a report on the Indian BPO industry that gushingly identified picking up and dropping employees at home as the most important innovation of the industry! But, many people are sensitized to this debate – whenever I try to define innovation in my class these days, we end up having a lively discussion about the difference between improvement and innovation. I must admit that in keeping with the times, and reflecting the importance of small changes in most business contexts, my own definition of innovation has become much broader over time (see below)!

Innovation can be criticized on several counts including a propensity to create needs that are not fundamental, being wasteful of resources, and, at times, acting as a smokescreen for other less desirable activities. The best example of this last one is the success of the pharmaceutical industry in justifying high prices for drugs in the name of innovation, when some studies have shown that what really pushes up the price of drugs is the marketing activities undertaken by these companies (that these marketing practices are often far from kosher is another dimension of this story!).

Lepore’s criticism

But Lepore’s main target is disruptive innovation. Much of her criticism is targeted at the process of Christensen’s theory-building. She cites examples from Christensen’s own work to try to establish that disruptive innovation is not based on strong empirical evidence. She faults it for not being predictive, pointing out that Clayton Christensen predicted that the iPhone would not be successful! She accuses Christensen of picking and choosing data to suit his theory, and suggests that the cases he cites don’t take alternative explanations into account.

Some of this criticism may be unjustified. As far as I can make out, there is no “theory” of disruptive innovation. It’s an interesting concept, particularly when it is contrasted with “sustaining” innovation (for a review of disruptive innovation, see my earlier post. Incidentally, this is the post on my blog that has the highest number of hits!). Christensen advanced the concept of disruptive innovation as an explanation for why several successful companies failed.

In fact, disruptive innovation can be subject to legitimate criticism, but not along the lines of many of Lepore’s arguments. Christensen sees disruptive innovation as a new way of doing things that is often inferior to the existing way, but one which advances rapidly thereafter, so much so that it can overtake the sustaining innovation trajectory at some point. One of the difficulties I have always found is identifying which (potentially) disruptive innovation will actually succeed and which will fizzle out.

Which disruption will succeed?

MOOCs is a good example. Plain vanilla online learning has been around for some time, and the demise of education as we know it has been predicted for the last 15 years. But, the first phase of online learning proved to be a complement to conventional education rather than a substitute. It’s only in the last few years that the improvement in streaming technologies and the huge increase in the availability of low-cost internet bandwidth have resulted in the take-off of MOOCs. Interestingly, MOOCs are still dependent on the teacher, only you now see her in video streamed from the MOOCs site.

However, even today, the jury is out as to whether MOOCs will replace classroom education. MOOCs seem to work well for self-motivated adult learners but there are many aspects of education that can’t be achieved through MOOCs such as socialization, working in groups, and values.

Lepore is critical of the way people tend to see disruption lurking everywhere. But, there are two reasons why disruption has become a part of our everyday lexicon. The first is that the internet has been a trigger for disruption in different industries and product categories. Particularly where the product itself is digitisable (books, movies, photos, music, etc.), the internet has clearly acted as a force for disruption. The second is related to cost and reach. The focus on reaching out to price-sensitive “unserved” or “under-served” markets (the so-called “bottom of the pyramid”) has led to people trying to discover ways of delivering products and services shorn of frills, and at the lowest cost possible. This has inevitably led to attempts to “disrupt” markets in the way that Christensen suggests. But, though this sounds easy, it’s not so in practice as several efforts have shown (see, for example, my earlier post on chotukool).

Tailpiece: What can we learn from this episode?

There may be a lesson for would-be management gurus from the Christensen experience. He has become an easy target because he appears to be a “one-trick pony,” known for disruptive innovation and nothing else. Contrast this with Michael Porter (5-forces framework, generic competitive strategies, competitive advantage of nations, clusters, CSR and shared value) and CK Prahalad (strategic intent, core competence, bottom of the pyramid) and you realize the difference. Both Prahalad and Porter moved on to other ideas, and such portfolio diversification made their reputations less vulnerable to sniper fire!

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A 10-Point Agenda to Support Technology-driven Innovation

With a new government at the helm, this is the time for wish-lists and advice as to how it can make a major impact. Here’s my two pennies worth on what should be the government’s priorities if it wants to promote technology-driven innovation and entrepreneurship.

Ease of Doing Business

India routinely does badly on the World Bank’s survey on ease of doing business. But, from talking to entrepreneurs, I get the sense that setting up a new services business is fairly straightforward, that’s why we see so many new service businesses springing up all the time. While there is always scope for improving the time taken to set up a service business, the real issue is with manufacturing businesses.

Most of the barriers to set up a new factory are at the state level, but the central government could help by creating a blueprint for a genuine single window approval system (possibly by studying the relatively more efficient states) and diffusing it to other states. Perhaps the centre can even incentivize states to adopt such a system (through a special grant?).

Availability of stable power is another important framework condition to encourage entrepreneurship in manufacturing as few entrepreneurs can afford to invest in large gensets for a fledgling enterprise.

Finally, while ease of setting up a business is important, ease of closing a business is equally salient. That’s an area for immediate attention.

Strengthen support for technology development

India’s success in services has obscured the fact that we are slipping backwards in several technology areas. In both more mature areas like electronics as well as important new areas like nanotechnology and new energy technologies, India is far away from being a serious player.

Over time, the government’s support programmes for technology development by industry have stagnated, and in some cases withered away. The only exception has been in Biotechnology where a robust set of support programmes is in place thanks to the initiatives of Dr. MK Bhan when he was Secretary of the Department of Biotechnology (DBT). [See my earlier post on Dr. Bhan’s initiatives at DBT.]

Some features of the DBT’s initiatives are (1) close involvement of industry in the design of support programmes; (2) willingness to support small firms with outright grants for genuinely innovative technology development efforts; (3) a variety of schemes tailored to meet the size and needs of different biotech enterprises; (4) a strong delivery mechanism (a separate Section 25 company) to execute the programmes. These could either be replicated in other sectors, or the Department of Science and Technology charged with rolling out large horizontal programmes along these lines.

There is an urgent need to start at least ten national collaborative R&D platforms involving industry, academia and research institutions to support technology development and commercialization in areas of critical importance to the country. Previous experiences such as the NMITLI programme of CSIR and the CAR programme of the office of the Scientific Advisor to the Cabinet can be drawn upon to design effective collaborative programmes. [See my earlier post on collaborative R&D programmes.]

Public procurement plays an important role in government support for local technology development. Government should give short-term preferential procurement to products based on local technology, developed specifically for Indian needs, which have been granted Indian patents. And, it should play a proactive role in helping local firms meet pre-qualification norms rather than using such norms to prevent local firms from participating in government tenders.

Promote Application-oriented Research in Academia

There is frequent criticism that Indian academia is too theoretical and lacks an application focus. Not enough research is done, and whatever research there is tends to be esoteric and abstract. Genuine application often involves crossing disciplinary boundaries, but Indian academia works within tight disciplinary silos. Yet, we also know that innovation in frontier areas has its seeds in academic research.

A first important step would be to recognize the importance of application-oriented research in Indian academia. The most prestigious science awards in India are the Bhatnagar awards, but these are based on research alone. I hear that there is a committee to set up a similar set of awards for translational research (this is the term in vogue for application-oriented work), this needs to be expedited and efforts made to find really outstanding people to be the first recipients of the awards.

Application-oriented criteria like patents, technology transfer/commercialization need to be included in the faculty evaluation process at our top institutions with some fungibility between these criteria and publication-related criteria.

At least 2 -3 positions of Professors of Practice need to be created in each department in an IIT or NIT which can be used to attract researchers from industry on either a fulltime or adjunct basis. The criteria for appointment of these professors of practice need to be different from those applicable to regular faculty appointments with a greater focus on application and commercialization. These professors of practice will also hopefully act as a bridge between the institution and industry, and enhance communication between the two.

Faculty should be encouraged to get involved in start-ups, either directly or as mentors. All restrictions on such activity should be removed. Strengthening of faculty evaluation processes within institutions will help dispel any concerns of faculty members pursuing commercial interests at the expense of their academic commitments.

Joint appointments need to be encouraged to promote inter-disciplinary work. Inter-disciplinary academic programmes and research projects can also help.

Inter-disciplinary work can also cross institutional boundaries. A couple of existing programmes catalyzed by Dr. Bhan show how this can happen – (1) the Stanford India Biodesign Programme brought Stanford Design School, All India Institute of Medical Sciences and IIT Delhi together to create a new generation of designers of biomedical equipment, and a whole slew of new products; (2) the IISc-St. John’s Glue project brought together India’s leading science institution and a leading centre for medical research. Though located in the same city, these two premier institutions hardly used to interact with each other. Such glue programmes/ projects are particularly relevant to our country since we have a large number of high quality specialized institutions but a small number of high quality multi-disciplinary universities.

Some institutions have already set up tinkering labs to enable students to experiment in a non-formal setting. The government should give a one-time grant to the top 50 technology institutions to set up such labs.

Summary: The Ten Point Agenda

 

[The views expressed here are the personal views of the author. Some of these ideas have been expressed before in different forms by others, and I thank everyone who has contributed.]

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Can we build IP-based Product Businesses from India?

My interest in knowledge management has always been from the perspective of knowledge creation. So, I readily agreed to participate in the CII Knowledge Management Summit this year in a session that focused on this dimension. Ganesh Natarajan, Sharad Sharma and I were together on a panel to explore the potential of, and challenges in, the creation of intellectual property (IP)-based businesses from India.
I began my talk with a historical perspective. For the first four decades after independence, India tried to build core industrial capabilities. The focus was on understanding, assimilating and improving on manufacturing processes. It’s only in the last two decades that we have seen some momentum building up in the arena of new product development.

IP-based Successes from India: Bajaj, Vigyanlabs, Praj & NCL

We have several examples of this trend. My favourite one is of Bajaj Auto. As a scooter maker, Bajaj restricted itself to making cosmetic changes to the Chetak. But after it entered the much more competitive motorcycle space, it came up against powerful competitors like Honda (at that time in the Hero Honda JV). After several unsuccessful attempts to adapt Kawasaki’s bikes to the Indian market, Bajaj was finally successful when it developed and launched the Pulsar around 2001. The Pulsar offered power and style at a reasonable price and operating cost to a new young generation of bike riders who wanted something more than the efficiency of Hero Honda’s Splendor. At the heart of the Pulsar’s engine, was Digital Twin Spark Ignition (DTSi) technology, a patented method of overcoming the traditional trade-off between power and fuel-efficiency. The DTSi patent itself has been the subject of litigation over questions of novelty and non-obviousness, but the Bajaj Pulsar is certainly a landmark in terms of a successful Indian product riding on IP covered by a patent.

In some of my earlier posts, I wrote about other companies that are doing a good job of IP-based innovation. Vigyanlabs, winner of the 2013 Nasscom award for technology innovation, has a novel solution to reduce power consumption in data centers – the core of this is covered by a US patent. Praj Industries started by developing improved continuous process technologies for fermentation of cane molasses, but is today doing research at the molecular level so that it can convert different types of waste into next generation biofuels. Praj already has patents covering processes to produce ethanol from lignocellulosic material, and I presume more patent applications will follow.

Our public research institutions have also been successful in creating core IP that is at the heart of commercial products. To give just one example, Dr. Sivaram and his team at the National Chemical Laboratory (NCL) created a microencapsulation technology covered by 6 US patents that is today being used by Procter & Gamble in their high end Downy fabric softeners for controlled release of perfume that lasts many days after the clothes have been washed.

Yet, Challenges Remain…

I recently met Anjan Mukherjee, co-founder of HyCa Technologies. HyCa has been a pioneer in the development of hydrodynamic cavitation, a technology that has applications in areas as diverse as treatment of effluents and ballast water. Anjan and his team have won several awards, and been invited as guests of different countries. But, commercialization on a big enough scale has eluded HyCa so far. One of the main reasons for this is the absence of an effective public procurement system for new technologies. While in most countries public procurement helps in certifying and establishing locally-developed technologies, in India the rules of public procurement are loaded against the purchase of novel technologies developed in India.

The Indian pharmaceutical industry graphically portrays some of the other challenges in building IP-based product businesses from India. While the leading Indian pharmaceutical companies were already strong in process innovation, they invested in new drug development when India decided to sign the GATT/WTO agreement in the mid-1990s. But, after some early success in out-licensing molecules at early stages of the drug development process, they have found the big wins hard to come by. As a result, some of them either sold out or cut back on new drug development.
Why is it so tough to develop new drugs out of India? The combination of large upfront investments, a long gestation period (trials and approval can take 10+ years) and uncertain outcomes (a drug can fail in advanced trials, rendering several years of effort infructuous) make drug development challenging anywhere. But, in India, this is compounded by the absence of knowledgeable and patient capital, and a lack of deep expertise in biotechnology and disease mechanisms. Recent curbs on clinical trials in India have made the trial process more expensive and cumbersome. Local regulators lack the sophistication and expertise to make a rigorous assessment of a new drug. IP protection is also an issue with Indian IP laws perceived as being against new drug development.

Many Challenges are Ubiquitous

But, in fairness to the Indian environment, some challenges in IP-based product development exist everywhere. Even in the US, the assumed Shangri La for new product development. I often relate the story of Robert Kearns, who invented the first intermittent windshield wiper. He applied for a patent, and then offered his technology to the automotive majors. They didn’t license his technology, but introduced similar products of their own some years later. Kearns sued Ford and Chrysler, but won a pyrrhic victory– by the time he won in the courts, he suffered several personal losses. If this David vs. Goliath battle can play out in the US, one can only imagine the challenges of defending one’s patents in India.

Apart from the IP itself, there is the importance of the possession of complementary assets in getting value out of IP. In many industries including biotech-based Pharma, in order to make money you need to have a good understanding of the regulatory process, staying power and resources to complete trials and the ability to market your product if you want to capture a major part of the value created by your IP.

Conclusions

India has the potential to build IP-based, product businesses. We have people with ideas, in many areas we have people who have gained deep expertise, and access to funding is improving.

But there are serious weaknesses as well including the absence of support from public procurement, regulatory gaps, absence of specialised funders, and shortages of talent, and infrastructure that can be used on a shared, chargeable basis.

The keys to success include the ability to stay the course (for a much longer time than in developed markets), internationalization, and getting the business/commercialization model right. I can’t over-emphasize the internationalization dimension – other countries can be much more accepting of new, cutting-edge technologies; you get a large enough market to amortise the cost of your development; and Indian customers are more positive once you have proven yourself elsewhere.
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Innovation in India: Where do we stand at the end of 2013?

As the new year approaches, its customary to review the year that has passed. Here is my take on where we stand on innovation at the end of 2013.

Positive Highlights of the Indian Innovation scenario in 2013

Innovation in the public/strategic sectors took two important strides. The first was the successful launch of the mission to Mars (Mangalyaan) which demonstrated India’s ability to undertake complex scientific and technological projects at low cost. The second was the initial operational clearance for the Tejas Light Combat Aircraft by the Indian Air Force.

The emergence of a new generation of Indian technology companies like Vigyanlabs, winner of the Nasscom Innovation Award in the Technological Innovation category for 2013 was another positive development. Vigyanlabs solves an important problem (high consumption of power by data centres) with a system solution that is backed by a US patent.

VigyanlabsSome of the most important innovations took place in the political sphere. Two new entities demonstrated the potential for such innovation. The success of a young political party, the Aam Aadmi party, in the Delhi elections demonstrated the value of a grassroots approach to politics backed by creative use of the social media. In Bangalore, the Bangalore Political Action Committee B.PAC seeks to be a catalyst for “good politics” by supporting candidates with a clean record. B.PAC also trains aspiring politicians.

Another timely organizational innovation was the launch of the Indian Software Product Industry Round Table (iSPIRT), a think tank devoted to the promotion of India as a power in the software product industry. Two initiatives of iSPIRT – one to connect Indian product companies with the requirements of India’s large small and medium enterprise (SME) sector, and the other to create a vibrant market for acquisition of software product companies (“M&A Connect”) have shown the potential of efforts to close the gaps that hinder the emergence of a vibrant product ecosystem [Disclosure: I am associated with iSPIRT as a member of its Founders’ Circle.]

iSPIRTMarket-driven innovation efforts by large multinational companies such as Renault (with the Duster) and Gillette (with the Guard) showed that some MNCs are coming to grips with what it takes to innovate for the Indian market. Yet, the overall MNC innovation scenario in India was mixed with some companies scaling down their efforts to use India as a base for emerging market innovation.

The Indian Industrial Innovation Scenario

2013 was a decidedly mixed year for industrial innovation in India. One of the mainstays of Indian industrial innovation, the transportation sector, had a poor year. Despite several efforts, Tata Motors was unable to revive the fortunes of the Nano, and sales remained muted. Mahindra’s earlier success in the SUV market with products like the Scorpio and XUV 500 was eclipsed by determined efforts by MNC automotive companies (Renault with the Duster, and Ford with Ecosport). By all reports, the initial results of Mahindra’s acquisition of Reva (India’s pioneering electric vehicle company) have not been great either with their first post-acquisition product, the E20 seeing only moderate success. Neither Tata nor Mahindra had successful launches during the year. In contrast, MNCs had several successful launches including Honda’s Amaze and the SUVs mentioned above.

Zydus Cadila successfully completed trials for what may become India’s first new chemical entity to reach the market. But the Indian pharmaceutical industry faced several setbacks as prominent companies came under the scanner of American and European regulators, and big names including Ranbaxy and Wockhardt faced regulatory action. Since, their ongoing operations in the bulk drugs (APIs) and generics space provide the cash to fund their innovation efforts, any setback to these businesses could have a long-term negative impact on the Indian pharmaceutical industry.

Traditional Indian business groups have begun to realize the importance of a more structured approach to innovation, but are struggling to evolve appropriate processes to do so. My co-author, Vinay Dabholkar and I received enquiries from such companies in different sectors, but few of them translated into specific assignments.

The Innovation Ecosystem

Reflecting India’s overall struggles with enhancing innovation output, India slipped two positions on the Insead/WIPO Global Innovation Index in 2013. India’s biggest weaknesses are in the institutional environment, and in higher education and R&D.

Where does India standThe latest available R&D statistics (pertaining to 2009-10, released on September 2013) show that India’s R&D expenditure as a proportion of GDP is static at around 0.88% since 2005-06. But, there are two important changes to note. The sectors accounting for the largest proportion of industrial R&D spending – pharma and transportation – continue to be the largest, but their share has come down to 27.7% and 14% respectively from 45% and 17% respectively earlier. This is a positive development as it shows other sectors increasing their R&D spend faster. The other interesting development is that private sector industry now accounts for 28.9% of all R&D expenditure and the entire industrial sector (private + public sector) for more than 34%.

Sector wise R&DOne piece of good news is that the proposed Inclusive Innovation Fund has taken a step forward with an in-principle approval of the first tranche of funding. But the operational details still seem some distance away. It looks unlikely that the Fund will be put in place before the next general elections, and it remains to be seen whether the next government will see it through to fruition.

During the year, the Department of Scientific & Industrial Research re-jigged its schemes for supporting R&D by industry. New schemes include “Patent Acquisition and Collaborative Research and Technology Development” (PACE) and “Promoting Innovation in Individuals, Start-ups and MSMEs” (PRISM). As far as I can make out, the PRISM scheme is not too different from the TePP programme that was quite popular earlier. The PACE programme provides loans for companies to acquire patented technologies and then work on them further. In the past, the common problems of government support schemes included processing time, centralization in Delhi and inadequate scale. Let’s hope the government is able to address such issues this time.

Another useful development is the incorporation of innovation into the Results Framework with which the Performance Management Division of the Government of India measures the performance of government ministries and departments. This will hopefully result in a greater focus on innovation in the government.

Conclusion

2013 wasn’t a great year for innovation in India. Industrial innovation, in particular, seems to be at the crossroads. I hope that a focus on innovation will return once we have a new government in place later this year.

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Why we won’t have a Steve Jobs from India

Two copies of Walter Isaacson’s biography of Steve Jobs have been on my bookshelf for close to two years now, but the size of the book deterred me from starting to read it. I didn’t think I was ready to read 570 pages about the enfant terrible, particularly after I heard that the book had several instances of his petulant and downright bad behavior. So, I must thank my colleague and friend Sourav Mukherji for giving me the impetus to start reading it. And, I was not disappointed. In fact, I spent two whole days immersed in the book, literally gobbling every word in print (yes, I still read books the old-fashioned way!).

As I was reading, one question kept popping up in my mind – could we have a Steve Jobs from India? The immediate trigger came from a recent interview in Mint with legendary tech investor, Vinod Khosla, in which he said that the environment for entrepreneurship in India is improving, and we could see a Facebook or Google in the years ahead. I have asked similar questions earlier, most prominently in one of my columns in Outlook Business.

What made Steve Jobs “Steve Jobs”?

I guess I don’t need to list Steve Jobs’ accomplishments here (Isaacson lists eleven instances where Steve’s products transformed industries! – see below).

So, let’s jump forward and take a look at the man himself.

Steve had some distinctive characteristics: A keen sense of aesthetics; an eye for detail; an intuitive understanding of what makes for an outstanding user experience; a belief in simplicity and minimalism; an obsession with getting things right, even if that took more time and considerably more resources; a very strong and highly polarized opinion about anything coupled with the ability to change his opinion if convinced; strong self-belief; showmanship; ability to communicate and connect with an audience; the ability to “distort reality,” to make people think they could do “impossible” things in crazily ambitious timeframes; the perspective to combine art and technology to create well designed, high technology products for (a relatively affluent?) mass market.

Where did these attributes and skills come from? Was Jobs simply born with them, or did he develop these along the way? And, what external influences played a role in this process?

The Source of Steve Jobs’ Genius

Isaacson’s book offers some clues:

Steve Jobs’ (adopted) father Paul Jobs re-conditioned old cars and then sold them. He had a workshop at home where he spent hours in various mechanical activities. Paul also built anything needed for their home, from cupboards to a fence, himself. Steve learnt the importance of craftsmanship and focusing on the details from Paul. Steve’s obsession that whatever is invisible to the customer should be as perfectly designed and executed as what is visible had its origins in Paul Jobs’ attitude towards his own work.

Steve’s practical bent was helped by his early exposure to Heathkits (“do-it-yourself” kits for electronic products and amateur radios), membership of the HP Explorers’ Club, and an electronics class at school where students were encouraged to tinker around with a variety of electronics components. An area in which Steve exercised his ingenuity was in playing pranks on fellow students and teachers, leading to several punishments by his school. Jobs’ first “business” came from trying to “fool” the telephone system into making long-distance calls for free by simulating the tones that routed signals on the phone network, and then selling the box that allowed him to do this. (The box itself was designed by Steve’s friend and Apple co-founder, Stephen Wozniak, as were many other gadgets including the Apple II computer).

Steve had a spiritual side to him from an early age. This appears to have been partly driven by his endeavor to come to terms with his biological parents giving him up for adoption, and partly was a function of the times – Steve was a teenager in the late 1960s, a time of great political and social ferment in the US. This was the time of the anti-Vietnam protests, an interest in Indian spirituality and culture. This is when Ravi Shankar became famous, and the Beatles embraced Mahesh Yogi!. Steve spent several months in India connecting with different spiritual leaders, and this was the start of a lifetime interest in Zen Buddhism. His belief in simplicity and minimalism, and his ability to maintain a laser-like focus on a few priorities had strong links to this interest.

Isaacson quotes Jobs as saying, “I began to realize that an intuitive understanding and consciousness was more significant than abstract thinking and intellectual logical analysis” (p. 35).

Steve dropped out of college after a year because he didn’t like the regular routine and the mix of subjects he had to study. But the college allowed him to continue to attend courses of his interest for some time. It was during his stay at Reed College that he developed his lifelong interest in calligraphy (which played a big role in the graphics capabilities of the Macintosh), and took basic courses in design.

Why India won’t have a Steve Jobs

Very few of us in India do things with our hands. “Brahminical” India consistently ranks the brain and intellect over the hands and creative skills. So much so that even people from traditional craft backgrounds want to flee to white collar vocations. How many of us grow up with a workshop in our homes? No Paul Jobs-like inspiration is likely in our immediate environs…

Most Indian families would shudder at the kind of unstructured experiences that a young Steve Jobs had. Hanging around in another country for months in the quest of a spiritual experience? I can’t imagine anyone I know allowing their children to do that. And this is not a financial issue. So many of my friends and acquaintances are spending upwards of $200,000 educating their children in the US or UK. But they would go apoplectic if their children were to take a “break year,” let alone get an unstructured experience of the Steve Jobs type.

I was recently chatting with the fellows at Ashoka University’s Young India Fellowship (YIF)  Programme, an exciting postgraduate, liberal arts / critical thinking-oriented education initiative created by my good friend Pramath Raj Sinha. I was surprised to learn from many of them that they had a tough job convincing their parents that YIF was a worthwhile investment of their time! Recently, one of my acquaintances, a senior manager in a leading multinational decided to cycle from Bangalore to Hubli – by his own account,  his mother and brother made a considerable effort to dissuade him from doing any such thing. I am sure everyone has heard similar stories or faced related experiences…

Our whole system pushes people towards conformism. A good friend, HR head of a leading multinational, proudly told me over dinner recently that HR is good at getting people “in line.” And snuffing out enterprise in the process?

Are things changing? I was enthused to read about Akhil Mohan, a young student, who has become a passionate advocate of conservation after an interactive trip with the Bishnoi tribe in Rajasthan. But, how many of our young students get exposed to such experiences?

Conclusion

Of course, Steve Jobs’ success was not due to his individual genius alone. He grew up in the right place at the right time – Silicon Valley in the late 1970s was the centre of the personal computer revolution. As Amar Bhide pointed out so eloquently in The Venturesome Economy, customers in the US have shown a proclivity to try out products from unknown entrepreneurs that is perhaps unmatched elsewhere.  The US is certainly a more conducive place to do business than India – in Isaacson’s book, you won’t come across a single one of the typical constraints that a company in India faces. Steve’s colleagues and employees at Apple, Next and Pixar seem to have put up with a lot of his bad behavior, and I am amazed that in a country as litigious as the US, he got away with all this without a significant lawsuit against him

But it seems clear to me that as long as we cloister and mollycoddle our youngsters, and prevent them from having a wider range of influences and experiences, our chances of ever producing a Steve Jobs from India are very dim indeed.

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Where does India Stand on Innovation?

How does India stack up on innovation compared to other countries? Are we getting more innovative over time? These are questions I have been grappling with since I started studying innovation more than two decades ago.

In recent times, the growing importance of innovation to economic growth and prosperity has induced many efforts to measure innovation at the national level. In my book From Jugaad to Innovation: The Challenge for India (Utpreraka Foundation, 2010) [FJ2SI], I cited studies like the UNCTAD Innovation Capability Index, Georgia Tech’s High Tech Indicators and the Economist Intelligence Unit’s Innovation Study to show that India is a laggard as far as innovation performance is concerned.

As I noted in FJ2SI, each of these studies emphasized a different set of variables. The UNCTAD approach was based on human capabilities, and therefore focused on human development indicators. The Georgia Tech approach used high tech exports as a proxy for innovation sophistication. And the EIU used patents as its primary measure.

A few years ago, INSEAD and the World Intellectual Property Organisation (WIPO) launched a joint effort to develop a more comprehensive innovation index. In a short time, this index has gained credibility with policy-makers. The latest report of this Global Innovation Index (GII) came out last June.

India’s Position

India ranked in the middle of GII 2012 with a rank of 64 out of 141 countries. India’s rank remained virtually unchanged from 2011 to 2012. Apart from the GII itself, the GII methodology involves the computation of three other indices – an innovation output index, an innovation input index, and an innovation efficiency index. India was ranked 40, 96, and 2 respectively on these three measures in 2012.

The innovation input index rests on five pillars: institutions, human capital and research, infrastructure, market sophistication, and business sophistication. The innovation output index consists of knowledge and technology outputs and creative outputs. The innovation efficiency index is based on the ratio of innovation output to innovation input.

To get a clearer sense of where India stands, it is useful to compare India with China, as I did in FJ2SI. China does much better on the GII with a 2012 rank of 34. It was ranked 19, 55 and 1 respectively on innovation output, input, and efficiency.

China outclassed India on 3 of the 5 input pillars – human capital & research, infrastructure, and business sophistication – with a rank difference of 40-50 places. I am not surprised by the huge gap on the first two, but I am certainly intrigued by the huge difference in business sophistication (I’ll come back to this shortly). China was marginally ahead of India on the other two input parameters – institutions and market sophistication.

On the output side, China ranked 5 globally on knowledge and technology outputs while India came in at #47. The only measure on which India did better than China was on the output measure of creative outputs.

Digging Deeper

Looking at the raw scores that underlie the ranks, I found a few interesting contrasts:

• China does much better than India on institutional factors like ease of resolving insolvency and ease of paying taxes;
• The biggest differences between India and China are on the education-related indices of reading skills (a real shocker – India scores 4.41 against 100 for China; but the ASER reports have been showing this for years), and pupil-teacher ratio;
• China’s score on Gross expenditure on R&D is twice that of India;
• China’s score on ISO 14001 environmental certificates is about 7 times that of India (I need to dig into the significance of this number, but I guess the trend is clear enough);
• China’s higher score on business sophistication comes from the proportion of firms offering formal training to their employees (16% for India vs. 85% for China), R&D performed by businesses (34% for India vs. 72% for China), and high-tech imports (this is, I suppose, more reflective of China’s position in high technology manufacturing vis-à-vis India);

India’s bright spots (vis-à-vis China) are:

• Press freedom (not a surprise!);
• Efficiency of energy use;
• Ease of getting credit, and ease of protecting investors;
• Services exports (again, hardly a surprise)

What Needs to be done

The GII underlines something we already know – India’s biggest failure as an independent nation is in the arena of literacy and basic education. No other country with which we compare ourselves has such a poor record on this basic pre-requisite of a modern country. While government initiatives like the Sarva Shiksha Abhiyan and the Right to Education Act have belatedly acknowledged this failure, I don’t see a sense of urgency in addressing this problem. This has serious implications not only for innovation but for the very existence and progress of India itself.

While we often rationalize Indian firms not embracing an R&D culture by arguing that perhaps it’s not a business imperative, the fact that Indian firms are laggards on environmental certification as well as training suggests that we are simply not investing enough in the long term future of our enterprises. This is a sobering thought as we contemplate the future of Indian business and the Indian economy, and should be an important subject for reflection by India’s leading industry associations.

Some Concluding Remarks on Innovation Indices

One problem with innovation indices such as the GII is apparent from the above observations: they are constructed on the base of very generic parameters. The variables that are used to measure the GII (like the ease of setting up a business or the ease of paying taxes) seem no different from those used to measure competitiveness or the business environment. At the same time, the GII omits relevant measures such as the level of protection for intellectual property in a particular country.

In an effort to use “objective measures,” these indices appear to be measuring phenomena that are somewhat removed from innovation per se. Instead, the simple OECD model that I adapted for use in FJ2SI seems much more relevant to measuring the environment for innovation, and the resultant innovation output.

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Why does India struggle to develop its own complex high technology products like fighter aircraft?

Dr Raghuram Rajan, Chief Economic Adviser to the MoF, GoI, was the chief guest at the IIMB convocation this year. I had the privilege of meeting him briefly before the convocation started. We talked about jugaad, Indian industry’s innovation capabilities, and which companies stand out on the innovation dimension.

One question that Dr. Rajan asked was something that I have thought about often: why do we struggle in our large projects that involve the development of complex products like tanks or fighter aircraft? And why are we able to do relatively better in areas like space and missiles?While I gave an immediate response to his questions, these are important enough questions to merit a more elaborate response.

1. Overly-exacting Specifications
The starting challenge for creating defence products from India is the product specifications. One common criticism of our armed forces is that their specs are usually a combination of the best performance on each parameter offered by different vendors. Often, a product with such a combination of characteristics is either unavailable anywhere, or if it exists, is exorbitantly expensive.

There seems to be some truth in this criticism. Consider this example: according to press reports, in the now “under the scanner” Westland deal, there was only one helicopter globally available that met the specs set by the Indian Air Force. Much of the current debate is about who “diluted” the specs to “allow” the Westland chopper to be considered!

2. Lack of Clarity regarding what Local Development means
Designing a product locally does not mean that all components and sub-assemblies have to be made locally. In fact, one of the key decisions to be made is what will be done locally and what will be sourced from elsewhere.

Take the example of Embraer, the Brazilian aircraft company. Embraer retains ownership of design and system integration, but collaborates with other companies as diverse as Hitachi and GE for important sub-systems. Yet, Embraer aircraft are still regarded as Brazilian planes! Their big supplier partners share some of the investment and development risk with Embraer.

Contrast this with the development of the LCA. Much is made of the fact that India has not been able to develop its own engine for the LCA. But most aircraft companies don’t design or make engines themselves!

Most defence products require higher grade components with “MIL” certification. For many components, it’s cheaper to import from existing suppliers than design and manufacture them in India to MIL standards.

A related issue is the definition of the objective of the development project itself. Whenever I have spoken to people involved with the LCA project, they have proudly drawn attention to the number of new technological capabilities ranging from composite materials to advanced avionics that were developed in India as a result of the project. So, even though the LCA itself may not have been inducted into the Air Force so far, India has undoubtedly gained from the LCA project. Of course, this is limited consolation as the country has not got the aircraft we needed for the defence of the country!

3. Lack of Technological competence in Advanced Technologies
Complex products require advanced competence in diverse areas. Often, India does not have companies or institutions that have the required level of competence in each of these areas. Even when available, such skills may be relatively shallow and limited in scope. When the skills exist in the academic or research institutions, they may not be application-oriented.

LCA project head Dr Kota Harinarayana gave some interesting insights into this challenge when I spoke to him some years ago. When the LCA project started in the mid-1980s, we faced serious handicaps in composite materials, avionics and a host of other technologies. Dr. Kota Harinarayana who headed the Aeronautical Development Agency (ADA) that was created for the LCA project realized that it would not be possible to create all the needed expertise within ADA or HAL. He therefore visited all the leading engineering schools in the country, made an assessment of the expertise available, and created a large collaborative platform to rope in this expertise. Very soon he realized that these individual faculty members lacked either the managerial expertise or the interest to manage complex research projects. So, ADA had to work with the professors to break down the problems into more manageable pieces, each of which could be tackled as a Ph.D. or M. Tech. project. ADA funded the creation of physical infrastructure wherever necessary and did the overall programme management and coordination. So, there is a great deal of managerial effort that has to go into working with academic research partners who might have the required technical expertise.

4. Inadequate Number & Frequency of Experimentation and Testing cycles
While complex products are today largely designed on the computer (the Boeing 777, for example, was designed predominantly based on simulation through CAD/CAE), some amount of physical prototyping and testing is always required. Rapid testing, using low cost mock-ups and prototypes, wherever possible, is critical to completing the project quickly. But, design of complex systems in India is undermined by inadequate resources for experimentation and testing. This results in overly long development cycles.

I don’t have hard evidence, but I am sure the CAG’s notion of wasted and infructuous expenditure also hampers adequate experimentation. In 8 Steps to Innovation, we wrote about “failure fallacy” – the purpose of experimentation is testing assumptions and learning, not success and failure! Given our administrative rules and audit procedures (the infamous “Infructuous expenditure” that is the subject of criticism of successive CAG reports!), it appears that our system can easily fall prey to this failure fallacy.

5. Design/Development & Production Gap
After independence, India adopted the Soviet model of separation of design and development from production. As a result, we have a huge network of government owned and operated research and development laboratories and facilities, and a separate network of production units/factories (like the ordnance factories in the case of defence).

The separation between R&D and manufacturing has worked to our disadvantage in multiple sectors. Take the case of telecom, where the Centre for Development of Telematics (CDOT) set up in the 1980s created contemporary digital exchanges that were well suited to the hot and dusty conditions of India and the then prevalent high number of “Busy Hour Calling Attempts.” But as I documented in From Jugaad to Systematic Innovation: The Challenge for India, the separation of the technology provider from the manufacturers (a set of licensees who themselves had limited technological capabilities) meant that CDOT was one step removed from the marketplace and that the licensees never invested in creating their own technological capabilities. As a result, over time, the CDOT technology failed to keep pace with the needs of the market and lost out to products imported from global telecom giants.

The separation of R&D from production is particularly detrimental to the commercialization of new technologically-intensive products. The designers tend to be relatively insensitive to concerns of manufacturability or support, and hence the product can prove difficult to manufacture in large volumes, or at a reasonable cost. The manufacturers have inadequate understanding of the know-how and know-why, and in the process of trying to make manufacturing easier or more streamlined make changes in the product or process that make it deviate from the required specifications.

Commercialization of complex technologies needs close working between R&D, engineering and production, and this becomes more difficult if this involves crossing organizational boundaries. There are major challenges even within the same organization – the success of Samsung in the memory chip industry, for example, is often attributed to the co-location of these three functions as this makes communication and problem-solving much easier.

6. Lack of Tacit Knowledge
Besides, successful productionization or commercialization of products involves the generation and retention of a large amount of tacit knowledge. I am reminded of an experience that was narrated to me by the Chairman of Samtel Color, Mr. Satish Kaura, many years ago. Samtel entered the Colour Picture Tube market in the early 1980s when colour TV was first introduced to India. Samtel sourced its technology from a leading Japanese company. However, they struggled to achieve the same level of productivity of CPTs as the company from whom they sourced the technology. However, a leading Korean company was able to master the technology from the same source. Ironically, Samtel had to hire consultants who were ex-employees of the same Korean company in order to get the tacit knowledge of how to improve the yield of the production line!

Successful product companies build huge internal repositories (both informal and formal) of such tacit knowledge. It is this knowledge that helps them avoid repeating the same mistakes or being able to move ahead rapidly when a project gets stuck. Building this knowledge requires going through multiple product development cycles and finding ways of capturing and building on such knowledge from one project to another. But, if one project takes 30 years, you have a problem! In complex product development like aircraft design, we have not gone through a complete project cycle even once. That is a major disadvantage we face.

Why have we done better in the Space Programme?
My hunch is that we have done better in the space programme because that is a vertically integrated programme, has much clearer strategic objectives, is managed more effectively, and because its not a volume-oriented programme – you don’t have to move to serial production, so many of the productionization and commercialization problems don’t exist.

What needs to be done to improve our ability to build complex engineered products?
This is a big question in itself and I will leave it to a future post!

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The Gap Unfilled

No one is sure of their exact number, but a census of micro, small and medium enterprises (MSMEs) done a few years ago estimated that there are 26 million small and medium enterprises in India. It is well known that this market is fragmented and price-sensitive and, hence, large companies have tried to tailor products and services to target this market. But, is that enough? Take a look at the case studies below and see for yourself. 

MSMEs often complain that they don’t have adequate access to financing. One reason for this is that banks and financial institutions find it expensive and difficult to do a thorough analysis of a small firm’s credit-worthiness. Seven years ago, Crisil, India’s premier rating agency, stepped in to address this problem. The challenge was that any credit-worthiness assessment had to be completed within a reasonable period of time, maintain Crisil’s standards of analysis, and yet be affordable.

Crisil launched SME ratings in 2005. It created a network of qualified individuals in more than 180 cities, who were given intense training based on a specially-developed methodology, and had to meet rigorous certification requirements. This network of trained professionals became the bedrock of the SME rating system. To attract these individuals who are not formal employees of Crisil, the company even brought their parents to the Crisil office to show them that the company was solid and that this could be a career option. Reputed chartered accountancy firms with an all-India reach were hired for verification and oversight. The rating was based on a simple, two-dimensional scale of performance capability (five categories) and financial  strength (two categories). Once all the data is collected, technology is used to complete a rating in a few days. Overall, the rating is completed within about a month. With this process in place, Crisil is able to do about 10,000 SME ratings a year, making it the largest SME rating agency in the world.

With a credit rating, an SME can get better access to bank finance and, sometimes, even lower interest rates. However, even with these benefits, the Rs 50,000-1 lakh price tag was found to be too expensive by many SMEs. So, in spite of the well-designed product, and the business and process innovation that Crisil introduced to make the rating product accessible, the government had to step in to provide a subsidy for those MSMEs who couldn’t afford it. But, pricing is not the only barrier to adoption of new products by MSMEs. In 2007, India’s largest IT services company, Tata Consultancy Services, identified SMEs as an important segment. But since it lacked adequate experience in working with SMEs, the company met with more than 250 organisations to understand how they use technology.

TCS found that SMEs had made significant investments in devices and hardware, including networking, and used their computers mainly for accounts and inventory. But MSME owners complained that the reports they generated didn’t reflect actual performance because there were islands of data that were not integrated with each other. Others reported that they struggled to keep up with technology changes, keep their systems virus-free, and to hire and retain staff for IT. Even evaluating offers made by vendors was a tricky task.

Based on these customer inputs, TCS saw an opportunity to take responsibility for running SMEs’ IT, based on some basic principles such as covering all key business processes and providing for all statutory compliances. To avoid fresh capital expenditure, the company provided an operating expenditure-based service.

The resultant TCS cloud-based solution, TCS iON, was launched in the market in March 2011. iON is periodically upgraded by TCS, but the user doesn’t have to do anything extra at his end. Though iON is available across six verticals, in the first year and a half TCS had only about 300 installations, with the largest concentration in the education space, apparently much less than what the company hoped to achieve.

Overcoming the trust deficit between technology acceptor and new product is the biggest barrier to innovating for the MSME market

At the other end of the spectrum is Tally, arguably the most successful product ever built for MSMEs in India. It is estimated to be in use by about two million users although less than one million users have purchased licences. Right from the beginning Tally was built with Indian users in mind — it used minimum hardware resources, and was tailored to Indian accounting practices. Even novice users were able to quickly learn how to use the product and it rapidly gained a large installed base of users, thereby creating a platform for the positive returns of network economics. Tally worked closely with hundreds of institutes across the country to impart training and thus create a base of accountants with Tally skills. Early on, Tally created good relationships with the chartered accountants community. With its huge installed base, Tally has become a basic requirement for any accountant in India — if you don’t know how to use Tally, you can’t be a practising chartered accountant! 

To address the piracy issue, Tally reduced its prices substantially a few years ago. The product has also kept up with changes in technology and applications — it was very quick in providing VAT functionality after the law changed; it is available on the cloud; and the product today addresses much more than just accounting, it has become more like an ERP software. Of course, Tally’s success was also the result of some historical factors such as the decision of the Income Tax department and the Department of Company Affairs to make e-filing compulsory. Not all companies will have this path-dependent advantage.

The formula for success

So, what does it take to innovate for the SME market? Recently, a senior industry executive told me that the key to meeting the needs of the MSME market is realising that it is more like the enterprise market of the West than the consumer-like Small Office Home Office (So-Ho) market. Early adopters in the MSME market are very small in number and crossing the chasm to a larger “technology acceptor” market is very difficult. Many “technology acceptors” are reluctant to buy a new product even when they see a business case for it because they have had bad experiences in the past with products that were pushed to them with exaggerated promises, at high prices, and with limited post-sales support. Overcoming this trust deficit that has been created is the biggest barrier to innovating for the MSME market.

Innovation may be the solution to this problem as well. iSPIRT, a think tank recently launched by software product companies, is creating iSMB to be a market maker for software products in the MSME community. iSMB will bring out product guides for important segments of the MSME sector so that they can make informed choices regarding the software products that suit them. They will also certify products and encourage product companies to create visible dispute settlement mechanisms.

So, the key to innovating for the MSME market is not only tailoring products to their needs at easily affordable price points, and updating them to adapt to evolving use needs as Tally has successfully demonstrated, but providing effective ways of bridging information gaps, establishing and communicating a clear business value proposition and lowering the risk of purchase by the customer.

This article was first published in Outlook Business

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Will B.PAC and iSPIRT Transform Urban Politics & the Software Product Industry Respectively?

While we usually focus on product, process and business model innovation as the main facets of innovation, some of the most impactful innovation can be the result of new organizational forms.

Take the case of India’s white revolution. This was driven by a unique 3-tier structure of organizations – the farmers’ cooperative at the village level as the basic organizational unit; a district-level federation of cooperatives with milk processing and marketing capabilities; and a state level apex body with brand and product management capabilities. And, behind this structure were larger organizations like the National Dairy Development Board at the national level that channelizes resources, support long-term investment activities, and accesses new knowledge and inputs. This arrangement takes advantage of flexibility – when required NDDB can look like an extension of the government, when required it is an independent body working with farmers’ cooperatives. This flexibility has helped it manage in a complex environment.

Last week saw the birth of some organizations nowhere as complex as the milk production structure, but with the potential to have major impact.

B.PAC

NR Narayana Murthy launched the Bangalore Political Action Committee or B.PAC as it is being called. This is the first time we are seeing an organization christened as a PAC in India, though this is a common term in the US. I presume this similarity is not just a matter of coincidence. PACs in the US are not political parties, but organizations created to advocate and support a particular agenda. The B.PAC has similar objectives. At one level it aims to restore the quality of life of the city of Bangalore. But at another level it is a pressure group for more political power to cities which are the value creation engines of a modern economy.

The B.PAC’s initial agenda is to enhance urban (read middle class, educated) voter enrolment and voter participation. They also promise to support candidates who back their agenda (new forms of city government, more resources, better urban planning, etc.) In the forthcoming assembly, parliament and municipal corporation elections. Subject, of course, to their meeting other criteria like no criminal cases against them, no record of corruption, etc.

B.PAC has been formed by a group of resourceful and successful individuals who have for long been expressing their dissatisfaction with the state of affairs like Kiran Mazumdar Shaw and Mohandas Pai. It represents their response to many of the issues they have raised in the past falling on deaf ears, and their inability to have a sustained impact on the political system.

Of course, the “involvement” of successful industrialists in efforts to improve Bangalore is not new. During the chief ministership of SM Krishna (1999-2004), the Bangalore Agenda Task Force was created under the chairmanship of Nandan Nilekani. The BATF tried to play the role of a coordinating body, creating a platform for different civic agencies, citizen groups and the state government to come together. While the BATF did manage to do some of this as well as have new bus shelters and toilets built, it was a body without any political legitimacy and was hastily disbanded after the Congress lost the 2004 elections in the state.

Newspaper reports indicate the existence of a similar attempt in the last few years under the chairmanship of Rajeev Chandrashekar. However, this one has been low key, restricting its role to that of a think tank. But again the long term impact doesn’t appear to be substantial.

B.PAC is an interesting development because it shows an inching of rich, successful “middle class” entrepreneurs towards electoral politics. Though apolitical in the sense that it is not a political party, B.PAC clearly has a political agenda. It represents a growing realization that technocratic approaches can’t solve India’s problems. It also suggests that the efforts to create alternate public spaces such as those tried out by Janagraha or the BATF itself could have only limited success. The creation of the B.PAC is a welcome development, for the next logical step will be immersion in electoral politics. I hope to see a party such as the German Green Party emerging out of this process with the ability to push urban issues at the national level.

iSPIRT

The second organizational innovation in the last week was the creation of iSPIRT – the Indian Software Product Industry Round Table. It came into the public view amidst controversy with a Times of India headline announcing it as a breakaway trade body from Nasscom. iSPIRT’s spokesmen were quick to assert that the organisation is an industry round table (not a trade body), that it will not offer membership, and that the founders will continue to be part of Nassom (Disclosure: I am a part of the iSPIRT Founding Circle).

I am excited by the prospect of iSPIRT because of the new activities it is promoting. An important role it will play is to act as a market maker. India has lakhs of small and medium businesses. These businesses are important sources of employment and economic growth but they face a major challenge of maintaining their competitiveness. Information technology has the potential to enhance the efficiency of these businesses. However, these SMBs often lack the ability to evaluate vendor proposals. They are price-sensitive, and risk-averse as far as IT is concerned. Burnt by past experiences, they are wary of making fresh investments in IT.

Under its iSMB initiative, iSPIRT plans to bridge the gap between domestic software product vendors who have relevant solutions and SMB customers. ISMB will study different verticals, map needs, and certify products meeting the vertical’s needs. Only product companies that have customer dispute resolution mechanisms in place will be accredited. Product companies will get feedback on where their solutions fall short of customer requirements. This initiative is designed to bridge the trust deficit that exists today between vendors and users.

ISMB will build on the positive experience of CIO Connect, an earlier effort to bring Indian product companies and large Indian corporate IT users together.

Both B.PAC and iSPIRT are Market-Makers

Though in theory markets provide the opportunity for sellers and buyers to come together, information asymmetry and high transaction costs can prevent markets from functioning efficiently. Initiatives like ISMB and CIO Connect help smoothen out these market imperfections.

B.PAC can also be seen as a market maker. A democratic system in which a whole chunk of voters does not participate will not reflect the needs of different interest groups accurately.

We tend to expect government to combat market failure. Both B.PAC and the ISMB initiative of iSPIRT represent voluntary, community efforts to do so. I will watch both these organizational initiatives with interest.