Indias invisible innovation Nirmalya Kumar
over the last two decades India has
become a global hub for software
development and offshoring of back
office services as we call it and what
we were interested in finding out was
that because of this huge industry that
has started over the last two decades in
India offshoring software development on
back office services there’s been a
flight of white-collar jobs from the
developed world to India then this is
combined with the loss of manufacturing
jobs to China it has you know led to
considerable angst amongst the Western
populations in fact if you look at polls
they show a declining trend for support
for free trade in the West now the
Western elites however have said this
fear is misplaced for example if you
have read I suspect many of you have
done so read the book by Thomas Friedman
called the world is flat he said
basically in his book that you know this
fear for free trade is wrong because it
assumes is based on a mistaken
assumption that everything that can be
invented has been invented in fact he
says it’s innovation that will keep the
West ahead of the developing world with
the more sophisticated innovative task
being done in the developed world and
the less sophisticated shall we say
drudge work being done in the developing
world now what we were trying to
understand was is this true could India
become a source or a global hub of
innovation just like it’s become a
global hub for back-office services and
software development and for the last
four years
my co-author furnished puranam and I
spent investigating this topic initially
all you know as people would say you
know in fact the more aggressive people
who are supporting the Western
innovative model say where are the
Indian Google’s iPods and viagra’s if
the Indians are so bloody smart
so initially when we started our
research we went and met several
executives and we asked them what do you
think will India go from being a favored
destination for software services and
back office services to a destination
for innovation they laughed they
dismissed us they said you know what
Indians don’t do innovation the more
polite one said well you know Indians
make good software programmers and
accountants but they can’t do the
creative stuff sometimes it took a more
book a veneer of sophistication and
people said you know it’s nothing to do
with Indians it’s really the road based
regimented education system in India
that is responsible for killing all
creativity they said instead if you want
to see real creativity go to Silicon
Valley and look at companies like Google
Microsoft Intel so we started examining
the R&D and innovation labs of Silicon
Valley well interestingly what you find
there is usually your head introduced to
the head of the innovation lab or the
R&D center as they may call it and more
often than not it’s an Indian so I
immediately said well but you could not
have been educated in India right you
must have gotten your education here it
turned out in every single case they
came out of the Indian educational
system so we realize that maybe we have
the wrong question and the right
question is really can Indians based out
of India do innovative work so off we
went to India we made I think about a
dozen trips to Bangalore Mumbai Google
Delhi Hyderabad you name it to examine
what is the level of corporate
innovation in this country in these
cities and what we found was as we
progressed in our research was that we
were asking really the wrong question
when you ask where are the Indian
Google’s iPods and viagra’s you are
taking a particular perspective on
innovation which is innovation for
end-users visible innovation instead
innovation if you remember some of you
may have read the famous economist sham
Peter
he said innovation is normal T in how
value is created and distributed it
could be new products and services but
it could also be new ways of producing
products
it could also be normal ways of
organizing firms and industries once you
take this there is no reason to restrict
innovation the beneficiaries of
innovation just to end-users when you
take this broader conceptualization of
innovation what we found was India is
very represented in innovation but the
innovation that is being done in India
is of a form we did not anticipate and
what we did was we called it invisible
innovation and specifically there are
four types of invisible innovation that
are coming out of India the first type
of invisible innovation out of India is
what we call innovation for business
customers which is led by the
multinational corporations which have in
the last two decades there have been 750
R&D centers set up in India by
multinational companies employing more
than 400,000 professionals now when you
consider the fact that historically the
rnd center of a multinational company
was always in the headquarters or or in
the country of origin of that
multinational company to have 750 R&D
centers of multinational corporations in
India is truly a remarkable figure when
we went and talked to the people in that
in those innovation centers and asked
them what are they working on they said
we are working on global products they
were not working on localizing global
products for India which is the usual
low role of a local R&D they were
working on truly global products and
companies like Microsoft Google Astra
Zeneca General Electric Philips have
already asked answered in the
affirmative the question that from their
Bangalore and Hyderabad R&D centers they
are able to produce products and
services for the world but of course as
an end user you don’t see that because
you only see the name of the company not
where it was developed the other thing
we were told then was yes but you know
the kind of work that is coming out of
the Indian R&D center cannot be compared
to the kind of work that is coming out
of the US R&D sentence so my co-author
finished puranam who happens to be one
of the smartest people I know said he’s
going to do a study what he did was he
looked at those companies that had an
rnd
Center in USA and in India and then he
looked at a patent that was filed out of
the US and a similar patent filed out of
the same company subsidiary in India so
he is now comparing the patterns of R&D
centers in the US with R&D centers in
India of the same company to find out
what is the quality of the patents filed
out of the Indian centers and how do
they compare with the quality of the
patents filed out of the US Centers
increasingly what he finds is and by the
way the way we look at the quality of a
patent is what we call forward citations
how many times does a future patent
reference the older patent you find
something very interesting what we find
is that the data says that the number of
forward citations of a patent filed out
of the US R&D subsidiary is identical to
the number of forward citations of a
patent filed by an Indian subsidy of the
same company within that company so
within the company there is no
difference in the forward citation rates
of the Indian subsidiaries versus the
u.s. subsidiaries so that’s the first
kind of invisible innovation coming out
of India second kind of energy visible
innovation coming out of India is what
we call outsourcing innovation to Indian
companies where many companies today are
contracting Indian companies to do a
major part of the product development
work for their global products which are
going to be sold to the entire world for
example in the pharma industry a lot of
the molecules are being developed well
you see a major part of that work is
being given sent to India for example
HCL technologies they developed two of
the Mission Control critical systems for
the new Boeing 787 Dreamliner one to
avoid collisions in the sky and another
to allow landing in zero visibility but
of course when you climb onto the Boeing
787 you are not going to know that this
is invisible innovation out of India the
third kind of invisible innovation
coming out of India is what we call
process innovations because of an
injection of intelligence by Indian
firms only process innovation is
different from product innovation it’s
about how do you create a new product or
develop a new product or manufacture a
new product but not a new
wrap itself only in India do millions of
young people dream of working in a call
center what happens you know it’s a
dead-end job in the West where high
school dropouts do what happens when you
put hundreds of thousands of smart young
ambitious kids on a call center job very
quickly they get bored and they start
innovating and they start telling the
boss how to do this job better and out
of this process innovation comes product
innovations which are then marketed
around the world for example 24/7
customer traditional call center company
used to be a traditional call center
company today they’re developing
analytical tools to do predictive
modeling so that before you pick up the
phone you can guess or predict what this
phone call is about is because of an
injection of intelligence into a process
which is considered dead for a long time
in the West and the last kind of
innovation innovation coming our
invisible innovation coming out of India
is what we call management innovation is
not a new product or a new process but a
new way to organize work and the most
significant management innovation to
come out of India invented by the Indian
offshoring industry is what we call the
global delivery model
well the global delivery model allows it
it allows you to take previously
geographically co-located tasks break
them up into parts send them around the
world where the expertise and the cost
structure exists and then specify the
means for reintegrating them without
that you could not have any of the other
invisible innovations tooling so what
I’m trying to say is what we are finding
in our research is that if products for
end-users is the visible tip of the
innovation iceberg India is very
represented in the invisible large
submerged portion of the innovation
iceberg now this has of course some
implications and so we developed three
implications of this research the first
is what we call sinking skill ladder and
now I’m going to go back
where I started my conversation with you
which was about the flight of jobs now
of course when we first as a
multinational company decide to
outsource jobs to India in the rnd what
we are going to do is we are going to
outsource the bottom rung of the ladder
to India the least sophisticated jobs
just like Tom Friedman would predict now
what happens is when you outsource the
bottom rung of the ladder to India for
innovation and for R&D work at some
stage in the very near future you are
going to have to confront a problem
which is where does the next step of the
ladder people come from within your
company so you have two choices then
either you bring the people from India
into the developed world to take
positions in the next step of the ladder
immigration or you say there are so many
people in the bottom step of the ladder
waiting to take the next position in
India why don’t we move the next step to
India what we are trying to say is that
once you outsource the bottom end of the
ladder you it’s a self-perpetuating act
because of the sinking skill lager and a
sinking skill ladder is simply the point
that you can’t be an investment banker
without having been an analyst once you
can’t be a professor without having been
a student you can’t be a consultant
without having been a research associate
so if you outsource the least
sophisticated jobs at some stage the
next step of the ladder has to follow
the second thing we bring up is what we
call the browning of the TMP the top
management teams
if the rnd talent is going to be based
out of India and China and the largest
growth markets are going to be based out
of India and China you have to confront
the problem that your top management of
the future is going to have to come out
of India and China because that’s where
the product leadership is that’s where
the important market leadership is and
the last thing we point out in this
slide which is you know that to the
story there’s one caveat India has the
youngest growing population in the world
this demographic dividend is incredible
but paradoxically there’s also the
Mirage of mighty labor pools
Indian Institutes and educational system
with a few exceptions are incapable of
producing students
the quantity and quality needed to keep
this innovation engine going so
companies are finding innovative ways to
overcome this but in the end it does not
absolve the government of the
responsibility for creating this
educational structure so finally I want
to conclude by showing you the profile
of one company IBM as many of you know
iBM has always been considered for the
last hundred years to be one of the most
innovative companies in fact if you look
at the number of patents filed over
history I think they are in the top or
the top two or three companies in the
world of all patents filed in the USA as
a private company here is the profile of
employees of IBM over the last decade in
2003 they had 300,000 employees or 330
thousand employees out of which 135,000
were in America 9,000 were in India in
2000 and in 2009 they had 400,000
employees by which time the USM flies
had moved to 105 thousand whereas the
Indian employees had gone to 100,000
well in 2010 they decided they’re not
going to reveal this data anymore so I
had to make some estimates based on
various sources here are my best guesses
okay I’m not saying this is the exact
number it’s my best guess it gives you a
sense of the trend there are four
hundred and thirty three thousand people
now at IBM out of which 98 thousand are
remaining in the US and 150 thousand are
in India so you tell me is Ibn an
American company or an Indian company
ladies and gentlemen thank you very much
you