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Banking on ideas to grow

Banking on ideas to grow
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First Published: Mon, Jun 11 2007. 01 36 AM IST

Updated: Mon, Jun 11 2007. 03 41 PM IST
An idea, workable or not, can fetch employees money at Samsung India’s manufacturing unit. If the idea passes muster, employees get between Rs500 and Rs2,500, and if the suggestion brings in returns to the company, they could get as much as Rs20,000. This suggestion scheme costs the Indian subsidiary of the Korean consumer electronics giant about Rs2 lakh a month, its 300-odd employees posting some 1,800 suggestions a month. Of these, only about 10% are rejected. Started in 1999, the initiative has ensured that lateral thinking and innovation become a part of the organizational DNA at Samsung.
“Innovation works better if it is a bottom-up strategy and not a top-down approach,” says Girish Shah, general manager, manufacturing, Digital Media, Samsung India Electronics Ltd. The strategy has worked. With 60,000 improvements in 2006, Samsung’s manufacturing division is now aiming to meet Toyota’s feat of 700,000 improvements in manufacturing processes a year at its US plant by the end of 2007. “Our Indian unit has become a benchmark for our other subsidiaries,” says Shah proudly.
Like Samsung, Mumbai-based Patni Computer Systems Ltd, too, values ideas. The information technology services provider has an innovation management framework called SPARK (systematic pooling, analysing and research knowledge), which allows its 14,000-strong workforce to post ideas. “A framework for innovation ensures focused development aligned to market opportunities and customer requirements. The intranet portal not only captures ideas, but also ensures transparency and accountability,” explains Dilip Dhanuka, senior vice-president and head, products and technology group, Patni Computer Systems Ltd. Once a SPARK idea passes the feasibility test, Patni’s incubation cell develops the suggestion into a plausible IT solution, which is test marketed. If it clicks, a small customer base is built before launching it into the market. The incubation cell, meanwhile, continues to research the solution, provide consulting support and help generate new releases of the offering.
Innovation has become the buzzword for companies across the world as they strive to push growth. Whether it is Apple Computer Inc.’s iPhone or Virgin Group Ltd tweaking its business model to stretch its hip lifestyle image to all its businesses, innovation is behind quite a few success stories.
Indian companies, too, are betting big on innovation in all areas of operation, be it business models, human resources, customer offerings or core operations. Experts believe that the only way companies can thrive in an increasingly challenging and globalized business environment is through innovation. “Whether in India or anywhere else, innovation is the key to survival for businesses across the board. It (the option) is either prevail, riding on the back of innovation, or perish,” says Peter Kronschnabl, president, BMW India.
The need for innovation goes beyond staying ahead of the pack. Even to stay relevant, companies need to adapt and drive change through constant innovation, say experts. This is true especially for technology-driven companies, where innovation plays a critical role in serving existing customers through higher value addition, positively impacting revenue and profit growth.
“Innovation is integral to all our business decisions. We believe in blue-ocean thinking or creating uncontested market spaces, which typically has a very positive revenue impact,” says Suresh Sundaram, vice-president, corporate marketing, HCL Technologies Ltd.
This stress on innovation is evident from a recent all-India innovation survey by the Boston Consulting Group (BCG) and the Confederation of Indian Industry (CII). The survey, conducted across industries such as automobiles, engineering, chemicals, agribusiness,mining, electronics, consumer goods and construction, found innovation to be the top strategic imperative for Indian manufacturers: 89% of respondents said the importance of innovation has increased substantially over the last 10 years and 39% felt innovation has become critical to their operations.
There are, however, problems on the execution side. While business leaders are anxious to create the right environment for innovation, there appears to be a large gap between strategizing an innovation and managing innovation as a business process.
“Most organizations we work with have within them more innovative ideas than they realize. What they lack is the process to prioritize ideas that are truly breakthrough, set appropriate success metrics, and then get them quickly to the market,” says Brad Gambill, managing director, Innosight Asia Pvt. Ltd, an innovation services firm.
Funds for innovation do not seem to be a problem. Patni invests 2% of its revenues of about Rs2,550 crore in innovation, while Samsung spends 7-8% of its global turnover in research and development. For BMW, which rolled out the world’s first hydrogen-powered vehicle in November 2006, “every investment of ours is an investment in innovation. Our state-of-the-art research and innovation lab in Munich is one such investment,” says Kronschnabl.
The BCG-CII survey, too, underscores the fact that companies in India are allocating more funds for innovation. Around 74% of the participating companies said they plan to substantially increase future investments in innovation as a percentage of profits. This, even when 60% of the Indian respondents were not satisfied with the return on innovation. Globally, less than half the companies (48%) were disappointed with their returns on investment.
Business leaders explain this by saying there is a lag time on returns to such investment. Besides, the rewards are not always tangible. “The returns are not only in commercial terms of sales and market shares, but also in terms of brand image. We are ranked 12th in Business Week’s ranking of the world’s most innovative companies,” says R. Zutshi, deputy managing director, Samsung India Electronics Ltd.
There are instances when the investments yield no results. “This implies that something is only innovative after its value has been recognized. Yet, we know that innovation often requires risk taking and is usually preceded by many failed attempts. In fact, in a rapidly growing economy like ours, it is critical for managers to understand that both failure and success are stepping stones towards the ultimate goal of achievement, profitability and differentiation,” says Ravi Uppal, managing director, ABB India and head, South Asia Pacific, for the company.
The best way to balance the risks of investments in innovation, suggest experts, is to have an ‘innovation portfolio’, which works much like a stocks-and-bonds investment portfolio that helps balance financial risks.
“A majority of a company’s investments land in close-to-the-core increments with a single, highly risky new growth initiative that has a large chance of failure,” says Gambill. “Categorizing innovations along different dimensions such as sustaining versus disruptive, level of risk, type of risk, potential return and stage of development along with signs that the portfolio has not tilted too much towards low risk, low return projects is the key to succeed,” adds Gambill.
So, it is not just innovation that is the key to growth, a well-managed innovation strategy can also make all the difference between success and failure.
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First Published: Mon, Jun 11 2007. 01 36 AM IST