pool
and advances in development tools.
At a macro level, what's driving this
trend? Is this going to be a competitive
necessity or a competitive choice?
What are the advantages to
companies that do it well?
Yes, this is a real trend, and an
important one. It is driven by the
dispersion of talent worldwide, the
enormous cost differences across
locations, and the advent of
technology that has made it easier and
cheaper to collaborate across locations.
The notion that R&D must be close to
themarket for which the innovation is
being developed, or that all R&D effort
must be co-located or be conducted inhouse,
is being rethought.
The trend of optimizing the R&D
value chain, much like the
manufacturing value chain, will
continue. In that process, I anticipate
that countries like China and India
will promote global innovation in
four ways.
First, these countries serve as
attractive locations for carrying out
parts of the R&D process, particularly
the 'D' part of R&D. With their large
pools of skilled, low cost scientists,
engineers, mathematicians, and the
like, they can help Western firms
speed up new product development,
find critical skills in short supply in
the West, serve niche markets, and
upgrade quality. Western firms will
either create captive R&D centers in
China and India, or they will seek
local providers as partners.
Second, China and India will spur a
new kind of innovation aimed at
adapting existing (Western)
technologies and products for lowincome
consumers. Just as energystarved
Europe came up with energysaving
innovations and space starved
Japan came up with space saving
innovations, so too low income China and India will promote
'affordability innovations.' Western
firms with deep roots in these
countries can also become good at
affordability innovation, as seen in
cases like Nokia and Cummins
Engine, but those that are dismissive
of it are likely to lose the battle for
market share in the long run.
Third, China and India will produce
radically new business models to
cater to theirmiddle class consumers.
Every element of the business model
will be reinvented to reduce costs or
improve service for local customers.
Local companies are likely to lead in
type of innovation, because, unlike
Western multinationals, they are not
encumbered by prior investments in
technology, organization, or
products. A good example is Bharati
Airtel, which has a large market cap
despite charging some of the lowest
prices for wireless service in the
world. Another example is Suzlon
Energy, which, unlike its Western
rivals, has both state of the art
(acquired) technology and least cost
operations in China and India.
Finally, from time to time, China and
India will produce new products and
services based on cutting edge
technology. The essential ingredients
for doing so are falling into place in
both countries: skilled manpower,
low costs, budding research
institutes, large internal markets,
and—particularly in India's case
the institutional foundations to
promote innovation, such as VCs,
strong capital markets, management
consultants, lawyers, and so on.
Chinese firms have already appearing
as first movers in solar panels,
pharmaceuticals, biotechnology, and
software. This is only the beginning.
What do you think are the critical
principles that the companies
should follow to form and manage
successful collaboration programs?
Are there any best practices from
any company?
Companies have to fight the 'not
invented here' syndrome if they are to
incorporate innovations and ideas
from outside the firm into those
existing within the firm. The
organization culture has to foster
creativity, speed, and collaboration.
The customer's point of view must
permeate all groups within the firm,
including engineering and R&D.
Managing alliancesmust itself be seen
as a core competence of the
organization. More and more, large
companies find themselves as
'system integrators' who pull together
and assemble components made by
several parties, including internal
groups. Organizations have to learn to
work as part of large networks,
sometimes as leaders and integrators
and at other times as subordinate
contributors. With the increasing
fragmentation of the value chain and
its dispersal around the world, such
collaboration, internally and
externally, will be an important
organizational competence.
Proctor & Gamble's 'open innovation'
model is often mentioned as an
example of successful inter firm
collaboration. Companies like
Corning and Eli Lilly have also been
good at creating and managing
alliances with many partners.
However, one must not overlook
interesting Indian examples, such as
Tata Motors, which developed the
Nano using a form of open
innovation. In fact, you could argue
that firms in emerging economies
have greater incentive to engage in
open innovation, because, unlike
Western firms, they lack the deep
pockets and market reach necessary
to commercialize new products
unassisted.
