The Nano, brainchild of Ratan Tata, has been synonymous with innovations in emerging markets. His effort to fill the white spot between two-wheelers and mini cars for Indian mass family transportation needs has probably captured the maximum mind space globally as a frugal engineering success.
The success of Nano was not in just being the cheapest car in the world, at Rs 1 lakh at the time of launch. It was the innovations that made the car cheap. The global car industry is enthusiastic on modular techniques to produce automobiles with different prices and design features. The Nano is built from modular components, which can be built and shipped separately for assembly at different locations. In effect, the Nano is designed for distribution in kits assembled and serviced by local entrepreneurs globally.
Germany’s Roland Berger Strategy Consultants in its recently-released report on global innovation shifting to emerging markets, says, “Frugal product innovations must start in the company’s mindset.”
This is what Ratan Tata, outgoing chairman of the $100-billion Tata Group, has been driving in the latter half of his leadership of India’s largest business conglomerate for over two decades.
This is also the period when Indian companies saw an onslaught of global competition in the domestic markets. This made customers discerning, with better products and enhanced customer service.
“With globalisation, the need for innovation became more critical for Indian companies’ survival,” says Wilfried Aulbur, managing partner, Roland Berger, who co-authored the report with his other colleagues. “This led many companies to put more focus on innovation to address new market opportunities,” he says.
For instance, when Korean auto maker Hyundai Motor set up shop in India in 1996, there were five major auto makers in the country: Maruti Udyog (now Maruti Suzuki India), Hindustan Motors, Premier Automobiles (now Premier Ltd), TELCO (now Tata Motors), and Mahindra & Mahindra (M&M). Today, Hyundai is the second largest auto maker in India after Maruti Suzuki, still leading the pack. Tata Motors and M&M have been in neck-to-neck competition this year for the third and fourth positions.
But the most distinct part is that Hindustan Motors and Premier Automobiles are no-where in the race today, precisely because of their inability to innovate according to the changing market conditions.
Tata Motors had sensed the changing market condition and it brought out the first indigenous car, Indica, in 1999, a small truck, the Ace, in 2005 and the innovative Nano in 2008 to capture new market opportunities. There are more such examples from the group, such as setting up Ginger budget hotels in 2002 and making a super computer, Eka, in 2005.
In fact, there have been many instances when the over-a-century-old Tata Group has been a pioneer. In 1907, Tata Steel became the first Indian company to raise capital in India. J R D Tata set up Tata Airlines in 1932 and TCS in 1968. Tata Motors made India’s first indigenous light commercial vehicle, the Tata 407, in 1986.
Though innovation has been in the group’s DNA, the urgency for this became more prominent recently. When the economy first opened in the early 1990s, the group realised its business processes were weak. So, in 1995, it instituted the Tata Business Excellence Model. Any company that uses the Tata brand name or logo has to abide by the model. Under this, companies are given scores out of 1,000 every year.
But innovation within the group was sporadic. “We had to accelerate and create urgency for the democratisation of innovation. This had become more important with the Tata Group going global and the Indian economy getting globalised,” said Sunil Sinha, CEO of Tata Quality Management Services (a division of Tata Sons) earlier.
In 2006, an InnoMission (innovation mission) of 10 Tata Group CEOs went to the US and saw innovation at work in companies such as 3M, Microsoft, Intel, Hewlett-Packard and Raytheon. The next year, another mission was launched, this time in the other direction, to Japanese companies such as Fuji, Olympus, Toshiba, Nissan and Hitachi. A third mission went to Cambridge to study the eco-system for innovation there.
The first result was the formation of Tata Group Innovation Forum (TGIF), mandated to act as a catalyst for innovation. It meets every two months (in a different location so that local companies can participate) to take stock of the situation and remove hurdles.
The next step was to recognise and reward innovation within the group: InnoVista. These awards are regional as well as national. Ratan Tata gives the national awards once a year. There are three categories: Promising Innovations, The Leading Edge and Dare to Try. An independent jury judges the entries. From 101 from 31 companies in 2006, entries went up to 117 from 39 companies in 2007, then to 289 entries from 47 companies in 2008, and 1,552 from 62 companies in 2009 to 2,852 entries from 71 Tata companies in 2012.
The sharp jump in entries from 2009 had a lot to do with the successful launch of the Nano. “That fired the imagination of the people in the Tata Group,” said R Gopalakrishnan, executive director at Tata Sons, earlier.
After much deliberation, TGIF adopted the Innometer developed by Julian Birkinshaw of the London Business School. It measures the innovation process and culture on a scale of zero to five, and can be run on the whole company, a unit or even a small team.
Another barrier to innovation in the group was that the various Tata companies wouldn’t talk to each other. Ratan Tata, when he became chairman in the early 1990s, eased out powerful chieftains like Russi Mody, Ajit Kerkar and Darbari Seth. A group identity was forged, but collaboration still did not happen. So, TGIF decided to set up InnoClusters — groups of companies that could work together in different areas.
There are four such clusters: nanotechnology, plastics & composites, information technology and water. One of the biggest clusters, of 10 companies, is around nanotechnology. “The Swach water purifier is a good example where TCS, Tata Chemicals and Titan came together,” said Gopalakrishnan.
Further, the TGIF came with a web-based open innovation initiative called InnoVerse. Employees can post a problem on the intranet, to which anybody can provide a solution. People can bet on ideas with the 1,000 karma points they get.
The group spent $2.7 billion (Rs 12,500 crore) on research and development in 2010-11, about three per cent of its turnover in that year. So, has the Tata Group changed? It is still early days, says Gopalakrishnan. “It’s not as if there is a storm gathering; it’s just some rain here and there.”
