Interview with Arindam Banerjee
India can play a role in using innovation to build large, successful multinational companies. To do so companies in India will have to dominate in one or two segments with products that are clearly identified as theirs.
Interview by - Pradip Sinha,
ICFAI Center for Management Research.
Arindam Banerji Arindam Banerji is a scientist and entrepreneur in the Silicon Valley. He took the usual route of going from the IITs, through a PhD in the US, to finally working in Sundry Research Labs. Some day, he plans to return to India, but for now, as time permits, he writes on various geopolitical issues.
What is innovation? How will you define it?
Innovation can be defined in many ways, but I have a very different view on innovation as a whole.
Innovation is more than just a great idea, it is the entire process that makes an idea, big or small, commercially successful
Innovation is the enablement of creation of new ideas, at a grass-roots level, in our schools and universities.
Innovation, is a numbers game -the better the odds for our scientists to be successful-the better our chances of producing commercially viable innovations.
Innovation is a key catalyst for India to take its rightful place in the comity of developed nations.
Innovation, for us in India, must include a rural and socially relevant focus. Innovation in India will probably have more to do with problems in India, and countries in South East Asia or Africa, rather than the US.
Innovation implies a kind of leadership, that will hoist some of the best companies from just being competitive in niche markets to broad household names.
Innovation is an attitude, that must be inculcated in our students-the attitude to believe that they can change the world with their ideas.
How critical is innovation for survival in the 21st century?
Innovation has always been critical -it was critical in the last century and will remain so, this century too. Countries like the US and Germany drove innovation in large parts in the last century - India has a chance to take this leadership position this century.
We must realize that political and economic conditions change. The same conditions that attract a lot of price-differential based work to India, may see it go to other countries in the future for exactly the same reasons.
Depending upon cheap labor is not a long-term strategy for countries like India. In fact, just last week, talking to some Indian executives of outsourcing companies, I heard them complain about price-differentials for work done in India becoming consistently thinner. Remember, Mexico has seen a lot of its automobile component manufacturing move to countries like China, Brazil, and now India and it was the unquestioned price differential leader for such outsourcing only a decade ago. The price- differential based industries have a tendency to move elsewhere.
So, the question is - what option does a nation have?
The answer lies in looking at another analogy. Look at the technology to make commercial grade jet engines. The basic technology for jet engines was invented in 1930, and realized operationally by the late 1930s. So, it is a technology that has been available at least for 60 odd years, if not more. But, how many countries can produce jet engines commercially today?
Very few-the reason- countries like the US, UK, France have built on the base innovation that makes it impossible for any country to catch up and produce jet engines, without huge investments. Essentially, they have managed to procure an unfair advantage, that very few countries can take away from them. This shows you the long-term nature of innovation.
Countries like the UK, US, France, Russia and others have long held on to the jet engine manufacturing industry and it is not moving away any time soon. This is a critical lesson for this century too.
Innovation based industries and intellectual property based industries can be held on to. This is true even in the software industry, for example, a company like BEA openly claims (in news.com) that it does all its key architectural work and intellectual property creation in the US itself. Oracle, with its productized intellectual property in databases, will be one of the strongest players in databases for a long time to come. Now consider what will happen if IBM's services arms move some of its operations to Mangalore and Bhubaneshwar, what price advantage will Infosys, then enjoy?
For countries, as well as companies, long-term survival and sustained growth comes only through innovation. Innovation is the unfair advantage that countries, as well as companies need to grow over a long-term.
What is the relevance of innovation for the successful and not so successful companies of today?
I would really look at the Infosys-Google gap. No, I'm not bashing Infosys here-I have a lot of friends there-but there is a gap that has to be noticed.
Google is arguably the hottest company in Silicon valley, while Infosys, clearly is one of India's best known. Infosys has ten times the employees that Google has and has been around for about 23 years, while Google has been around only for six years. But, the difference in market capitalization is staggering - Google is well over two times as valuable as Infosys. It is worth over $25 bn, while Infosys is just over $12 bn, the last I checked.
This does not mean that Infosys is not successful, but that its long-term growth is predicated upon creating intellectual property (read innovations) that it can brand and sell for high margins. This is how some of the Indian companies can become large enough to have market caps of $50 bn-$60 bn.
But, it is more than just the numbers. Google is now a household name and in fact, its part of our vocabulary- "googling" is a word that I often hear in nightly sit-coms. The question is, what will it take for an Indian company to get there. The answer at least "starts" with innovation.
I was recently involved as an expert witness, in a case where a small company had sold some of its patents to a Fortune 50 company for nearly $500 mn. This company with fairly nominal sales had, through a set of good ideas produced over a few years, managed to get the kind of cash infusion, that most companies struggle to achieve. This shows you the possibilities.
Having said this I would like to point out, that innovation is not just about owning a handful of patents, or just the technology idea. It is about the entire end-to-end management of innovation, from management of the idea, shaping products around the idea, building a successful business model around it, pricing it and readying it for easy adoption, amongst other things.
Innovation without this end-to-end value chain does not help the companies that create it. Let me give you one example- I worked at a Fortune 50 company, that had a large research lab separate from its product divisions, but I would consistently notice that most of the adopted innovations would actually come from small research groups working surreptitiously within the product divisions themselves, instead of the large heavily funded research lab. The reason - the research groups within the divisions were just better connected to the end-to-end value chains and could produce work that fit the business needs much better. It is this connectivity between innovation and business needs that successful companies like 3M have consistently created.
In fact, it is this connectivity that I find in most successful companies, that have been around for a long time.
What role do you think India can play in this era of innovation?
You know, when I compare the graduating classes, say from Stanford, with my graduating class from IIT-Kharagpur, I think my class at IIT, on the average was better intellectually. Similarly, when I was running labs in the UK and India concurrently, I noticed that after some initial hiccups, the overall work done by the Indian teams was far better than the work coming from the corresponding UK teams. It is this innate ability of Indians that we must utilize for going forward.
Indians already dominate most non-defense centers of innovation within the US-this for a country whose engine of growth is innovation. The question is, why can't this happen within India, too. We produce a very large number of qualified professionals, every year. Indians represent a group of people, if appropriately rewarded, can be very flexible and hard working. The question is what can we do with these basic ingredients of successful manpower and size?
The answer has to start with our own unique needs. India as a country has unique needs. So, for example, we could produce $400 tractor add-on. This would not make sense for US farms, but would be eminently usable anywhere in South East Asia and Africa. The point is, India could become the center of innovation for low-priced but very appropriate products for the entire under-developed world. Believe me, the US engineers are not going to worry about producing a $400 tractor add-on, but for Indian farmers, this becomes heaven sent.
The next place where India can play a role is in using innovation to build large, successful, multi- national companies. I mean companies the size of an Oracle or a 3M. To do so, companies in India will have to dominate in one or two segments with products that are clearly identified as theirs.
This means innovation, innovation at a cost, i.e., one-fifth of what it would cost in a western nation. So, for example, when we created an AIDS cocktail that was just as effective as those from the international drug majors, but at a fraction of the price, we created a stir. We just need to do a lot more of that. We need to focus on places, where we can create a difference immediately, such as IT, pharma, healthcare, automobile parts and so on. Doing so, will allow our nascent billion dollar firms to shoot past the $10 bn mark in revenues.
Finally, in terms of our national defense, innovation is important. We spend ridiculous amounts on buying jets from countries like France, if our aerospace program succeeds, we could save many millions of dollars in our defense budgets within the next decade. Similiarly, once you have technology of your own, the armtwisting that major powers can exercise on countries like India, also dissipates. You will notice that as our LCA nears operational status with our airforce, we'll start getting a lot more offers from the US companies wanting to sell us stuff at prices that they would not consider at this point in time. India lives in a dangerous part of the world, but we need to convert this into an asset by using innovation to develop a defense industry that can access a large part of the world defense market-this will not only bring in a lot of foreign exchange for us, but also get rid of the unnecessary arm twisting that is foisted on India these days.
Any other thoughts/views you would like to share with our readers?
I think the most important aspect of the next few years for India is to focus on a few specific things:
For us - Focus on improving the odds for Indian scientists to succeed.
For the Government of India - Improve the quality of engineering, science and medical education provided by second and third tier colleges and universities.
For state governments - Use government funds to encourage VCs and financial institutions to invest in rural technologies and innovation in areas that help India as a whole.
For the media - Journalists and media outlets need to push Indian companies and their CEOs to innovate more- especially the CEOs of larger companies.
For NGOs and industry c o n s o r t i ums-R e w a r d scientists and professors who create new ideas significantly- even if they are part of Government of India research institutions.
For our industry consortiums - Create high level groups in Industry consortiums (CII, FICII, etc.) to help co-ordinate key areas of research, such as in smart materials- CII, FICCI, NASSCOM must step up to the plate and deliver measurable results in enabling innovation in India.
For Indian executives - Get India, Inc. to invest more in R&D-even if you have to go hire the right people, even if you have to take that extra risk, even if you have to take that extra hour away from your short-term goals.
For Indian teachers - Focus on teaching your students intellectual arrogance, tell them that they can come up with world-changing ideas. Our teachers, even at the IITs do not teach us this.
I will repeat, the most important issue is to improve the odds for Indian researchers and scientists, and many groups, subgroups and individuals have a role to play, in this.
For executives, my parting message would be: Do not wait for innovation to happen, do not wait for the government to come and help you.
Innovation in the small must start with you-it must start with steps taken by individual executives at small and large companies. Small baby steps taken by individual executives will lead to the kind of watershed innovations that we dream about.
In the end, innovation is about our attitude.