August 2009

Continuous and intuitive innovation: The Tata experience

R Gopalakrishnan, executive director with Tata Sons, addressed students at the Indian Institute of Management, Ahmedabad and spoke of innovation and its significance in the Indian context

R Gopalakrishnan
Innovation means different things to different people. The apple falling on Newton’s head represents one perception of innovation while Archimedes jumping out of his bathtub symbolises another; the Indian villager who peddles hard to pump water from a well represents a third.  Indeed, all of these are examples of innovation.
 
This word is sometimes used as a substitute for, or interchangeably with, invention and ingenuity which is why it may be useful to define what exactly innovation means to me.
  • An invention is the first occurrence of an idea.
  • An innovation is a programmed implementation of an invention.
  • Ingenuity is an intuitive form of innovation, in so far as it is not programmed.
It is sometimes unclear who the first in the world was who came up with an idea which is considered as an invention. For instance, who invented the double-entry system of accounting? It is said to have happened in 1494, but there have been versions of this system from before that precise year. Who invented the Joint Stock Company? That happened in 1856, but you would be hard-pressed to prove it.
 
Given this uncertain state of affairs, apart from God and Adam, possibly everybody has been building on existing ideas to make innovative leaps. When it comes to an invention, it seems greatly important to be the ‘first in the world’. When thinking about innovation, however, it is more relevant to be first within a defined context.
 
Innovation is about context and implementation
Innovation is about implementing an idea, making it meaningful and useful to society, even commercialising it. As those in academic institutions know only too well, there are plenty of ideas that never get implemented. Hence innovation needs to be viewed in context. It would be considered odd if I suggested that opening a teashop is an innovation.
 
Allow me to demonstrate how opening a teashop can be viewed as an innovation in one context, and in another context, it can be viewed as anything but an innovation.
 
Imagine there’s a Tamil Brahmin boy  — I’m picking on my own community in the hope that no one will object — who goes up to his dad and says, “I want to open a teashop on the highway between Trichi and Madurai.” The father would, I’m certain, feel utterly disappointed. “This is a disaster,” he’d say. “I want my son to be a graduate or a postgraduate, complete a PhD and join IIM Ahmedabad… That would be true achievement. Instead he wants to open a teashop.”
 
On the other hand, if a Marwari boy were to suggest the teashop idea to his father, the response would, just as certainly, be warm and appreciative. “Here’s your first 5,000 rupees,” he’d be told. “Open your teashop and, in time, make it a fast-food outlet, then a restaurant and, who knows, even a five-star hotel.” That’s how the act of opening of a teashop can appear to be innovative in one context and anything but innovative in another.
 
Context was a key factor in the story of how, 25 years ago, Karsanbhai Patel, of Nirma fame, came to pose the question: why should a kilo of detergent cost Rs15? He was sure he could mass-produce a detergent that would sell for Rs5 a kilo. It was a significant innovation. Mr Patel did not get a PhD for his effort or secure a patent for it. These do not detract from the quality of an idea that turned Nirma into a business that sold a million tonnes of products annually within 15 years of its launch.
 
A similar example emerges from the story of Arvind Eye Care in Tamil Nadu. A cataract operation in the United States costs $2,000-5,000 (about Rs1-2.5 lakh); Arvind does it for a fraction of that cost.
 
Amul is another example of outstanding innovation. You could argue that the concept of a dairy cooperative is not new, that the New Zealanders and the Dutch had beaten Amul to it by more than a century. But that does not diminish the innovative nature of Amul in an Indian context, as an idea and as an organisation.
 
Innovation can be of various kinds
Innovation can, of course, happen outside the realm of products and services, and of business; it can have societal applications. I recall a time when there was this red-triangle family planning campaign run by the government. The first edition of this campaign showed a young couple getting married, with a message in Hindi: “Don’t have children now. Have them after 10 years”. The message was completely disconnected from those it was aimed at. This was, after all, for young Indians in the early 1960s, a time when if you did not have a child within a couple of years of getting married there could be all kinds of less-then-discreet hints and questions coming your way. It took the government a while to understand the uselessness of its advice and switch to the innovative, and contextually appropriate, “We two, our two”.
 
The words incremental and disruptive are used occasionally to qualify innovations, but they are not really a reflection on the innovation itself. Only time can tell whether an innovation is disruptive or otherwise: the social impact unleashed by Amul — gender equality, economic liberation, rural self-reliance, etc — could not have been evident within two-three years of the cooperative’s birth. Amul was a disruptive innovation, for sure, and the disruption that it caused became more and clearer with the passage of time.
 
Fair & Lovely, fashioned by a company I was once with, was also a disruptive innovation, in so far as it was an exceptional utility for a latent desire. I’m not going to get into whether that desire was legitimate and whether it was right for commerce to satisfy it. I’ll focus on the simple insight that led to Fair & Lovely: there are billions of dollars being spent trying to make fair people just a bit dark (think of the sun tan industry), so why not spend a few hundred dollars trying to make dark-skinned people fair?
 
Disruptive product innovation also happens when you build a unique and profitable model. Until 1982, tea was available in India in two forms only: you could go and buy it in a paper bag or you could get it in cuboids. Then Tata Tea started selling ‘garden fresh’ tea. It began with an experiment in Pallivasal in Munnar, Kerala, where women sat on a table and sorted out fresh garden tea — which were original teas, single teas rather than the blended kind — and packed them in a pouch. The linkage of the pouch to freshness was established and Tata Tea had a winner in its stable.
 
Yet another kind of disruptive innovation is cemented by overcoming ‘adoption’ hurdles. Up until 1957 there were no detergents in India; there was only soap. Then a clutch of detergents came into the market. These detergents required a bucket for washing, but all Indian homes then did not have buckets, and none had the now-ubiquitous plastic bucket (such a thing did not exist). This prompted detergent producers to promote fledgling plastic bucket makers; Brite Plastics began to thrive because of Hindustan Lever and Tata Oil Mills. But how many people could afford a plastic bucket? That became an adoption hurdle till the detergent was packed into a bar.
 
Innovation is about being difficult to replicate
Innovation does not only spring from spending billions of dollars understanding the consumer; innovation is about creating a product, a service or a process that’s difficult to replicate. Nirma managed to deliver a detergent to consumers at Rs5 a kilo and that was tough to replicate. To create another Amul is very tough. But Nirma and Amul do not really register in our innovation consciousness. Take a straw poll on the best innovations globally over the last 50 years and you will get names such as Apple and Google coming up, but almost never will a Nirma or an Amul surface. In this lesser-known league are the likes of Tata Ace, a breakthrough automobile that sold over 100,000 vehicles a year within two years of its launch, and Ginger, a hotel chain that provides good and clean rooms at a budget price.
 
Similar stories abound in the parallel stream of process innovation, and these, too, rarely get public recognition. Tata Chemicals has developed a path-breaking separation and filtration technique using a French supplier’s equipment to produce cement from effluents. A greater success is Tata Consultancy Services (TCS) with its offshore delivery model. That model has been replicated, improved upon, and extended to areas like medical and legal transcription. It is unlikely that Tata Chemicals and TCS thought of themselves as innovators to start with; there was a certain lack of consciousness about their approach to innovation.
 
A look at the way the Tata companies function is germane to this essay on innovation. If I ask you how the Tata group is structured, you would say there are 150 enterprises, a company called Tata Sons at the top, and a big man heading this company.  In reality, the way Tata group operates is the other way around. Tata Sons sits at the bottom and is actually owned by a variety of philanthropic trusts. From these roots spring the values that define the group. Then there are the older, well-known companies, such as Tata Steel, Tata Motors, TCS and Tata Chemicals. Higher up are the relatively younger companies and, at the very top, are the youngest companies.
 
This is a uniquely innovative structure; nowhere in the world are you likely to find anything like it — and it has been in place for about 120 years, which means it was built to last. Usually the holding company is the one listed (Unilever, Procter & Gamble, IBM, ABB…) and then you have 100-per cent subsidiaries as far as possible. At Tata things are different: the holding company is private and two-thirds of it is owned by charitable trusts. So, when I work hard to make an extra dollar for my company, the trusts, rather than some individual benefits. Not that I mind my boss getting rich, but I like it that the trusts are the ones getting more prosperous.
 
I can think of about 30 innovations fostered under the Tata canopy, and a few stand out. One of them dates back to 1877, when Jamsetji Tata, the founder of the Tata business house, established the Empress Mills in Nagpur. Jamsetji got the idea of using ring spindles in this textile venture after visiting textile units in America. This technology had not been introduced in Britain at the time because of the threat of job losses, but Jamsetji was not concerned, because “I have not employed anyone in the first place”. Using ring spindles was hugely innovative in the context of those times.
 
Just as relevant as an innovation was the setting up, in 1892, of the JN Tata Endowment, which enabled Indian students, regardless of caste or creed, to pursue higher studies. The endowment preceded the Rockefeller Foundation and the Carnegie Trust; it may well be the first trust of its kind anywhere in the world. This amounted to a bit more than, say, building a temple in your village, a common enough practice in the Indian mercantile community, or digging a well for your community. More than 3,000 deserving scholars have benefited from the JN Tata Endowment in the 117 years of its existence, among them two who would go on to become presidents of India.
 
Tata Salt and Tata Tea provide two more examples of the innovation that runs through Tata veins. To start with Tata Salt, what could be so innovative about it? In the days before Tata Salt was born, there was no packaged salt in India. Then, in 1982, is so happened that a chemical engineer came up with the idea of processing seawater and using it in the operations of the Tata Chemicals factory at Mithapur, a place perennially short of water. What was left over from the processing was salt, which had to be disposed of. One of the contractors was called in to do the job; he said he would lift all the salt from the factory, set up small-scale units, put the stuff in packets and sell it. All he wanted in the return was permission to use the Tata name. That was the beginning of a stupendous success story that is today one of India’s most respected food brands.
 
Benetton had done something similar with apparel and it became a Harvard Business School case study, but the high innovation quotient of Tata Salt has not yet been written up as a case. Tata Tea’s acquisition of Tetley deserves mention because it was the start of a phase when Tata companies learned how to buy enterprises much bigger than themselves. Leveraged buyouts were not unique at that point globally, but in our context they definitely were. Tata Tea was the first Indian business organisation to structure a deal where the cash flows of the purchased entity financed its own purchase.
 
We tend to take many things around us for granted when it comes to innovation. If there’s a company with plenty of R&D expenditure, we think it must be innovative. Same with patents, but we hardly ever acknowledge business model innovations, let alone recognise them. That’s unfortunate because innovation, like spirituality, is a basic instinct. And it manifests itself most clearly when it comes naturally.
 
Innovating naturally
Have you ever seen a bird that ‘tries’ to fly, a fish that ‘tries’ to swim, a flower that ‘tries’ to bloom? Unlikely. Now, have you ever seen companies and managers trying to innovate? Plenty. Why do managements have to be ‘programmed’? Why can’t they innovate naturally?
 
You can be modestly innovative and consciously so, or you can be highly innovative and unconsciously so. The best example I know is the Toyota lean production system. James Wozniak and his team went to meet the Toyota engineers to find out how they did it. The engineers said, poker faced, “That’s what we do. Is there any other way?” They were not aware that they were innovating. When the whole world says what they are doing is fantastic, they say, “How can you guys be so dumb not to do it this way.” That’s unconscious innovation.
 
You can be innovative by pursuing this Holy Grail in a conscious way, with big programmes and huge budgets, the chairman making speeches and all that kind of stuff. But innovation need not be attained in this manner. Programmed innovation is a perfectly good way to go, but the ultimate goal should be to liberate the innovation gene inside a person, a company, an organisation. When a child is born, she is naturally innovative. We put blinkers on the kid and we condition her to become like us; we inhibit her. The key, therefore, to becoming innovative is not to introduce new techniques of innovation, but to unlearn the ones that stall innovation. And that’s hell of a job.
 
In the Tata group we are trying hard to remove the inhibitions to innovation. We are trying to align aspirations and create an architecture that enables us to realise our innovation objectives. This is what Ratan Tata, the chairman of Tata Sons had to say on this subject: “For some reason, in India we all get hung up on structure before we get involved with achievement. My concern is that innovation will not evolve because you create a structure. Innovation has to be part of the DNA of an organisation; it has to somehow bring out the creative strengths of our people. You don’t need to have structure for that.”
 
The Indian genotype is unique, especially so in its ability to innovate. I attribute this to many factors, the principle one being our plurality in terms of culture, religion, language and more. This country was, as C Rajagopalachari said, a civilisation without governments for the 5,000 years before the Mughals and the British arrived. India will not figure in any global list of innovative countries, yet the number, the variety and the spread of innovations across the land are striking. Our challenge is to build on this legacy of creativity. Destiny awaits us.