The recent foray by Indian companies into the global mergers and acquisitions (M&A) arena seem to have unveiled a new image of corporate India —Indian companies as global entities than as the world’s back office. The Tata group alone has invested an estimated $2 billion in the last couple of years in acquiring US companies. Its recent bid for Land Rover and Jaguar has grabbed international headlines. Such intense cross-border acquisitions might justify those global status claims. But building truly global firms will require more than just M&A deals—it calls for sustained global leadership in innovation. Think Apple, Nokia, Toyota. So, the real test for the global status of Indian companies would be how well they can assume leadership in global innovation networks.
Why global innovation networks? There is a radical shift going on in how companies innovate—from initiatives centred on internal resources (firm-centric innovation) to those centred on external networks and communities (network-centric innovation). Companies such as Procter and Gamble, Unilever, 3M, and IBM have realized the critical need to “look outside” for innovative product ideas and technologies— the need to reach out to their customers, independent inventors, academic scientists and researchers, suppliers, innovation brokers, and a host of other external entities that constitute the “global brain”, the vast untapped creative potential that lies beyond the four walls of a company.
Growth and profits will increasingly be determined not by the internal innovation capabilities (the “local brain”) of a company, but by its ability to tap into the global brain. Indian companies’ future success and the global status, too, will be decided by their ability to harness the creative power of such external innovation networks.
The question then is: Are Indian companies prepared to tap the global brain? My research in the last few years indicates three sets of capabilities that will shape a company’s success in this.
First, companies must know which part of the global brain they want to connect with and why. There are different sources of innovation—customer networks, inventor networks, the academic research community, the open source community, etc. Which of these networks or communities is relevant for your company? What types of innovative contributions (e.g., product ideas, technical solutions) can you source from them? And, how do these contributions add value vis-à-vis your products and markets?
Second, does the company have the leadership and relational capabilities to partner with the right innovation network? To tap into the global brain, it has to establish long-term, trust-based relationships with a diverse set of network partners. Partnering with customers is different from partnering with independent inventors or with the open source community. A key leadership challenge then is to provide the “architecture of participation” for your network partners—one that would bring coherence to their activities and also align their incentives with the company’s own goals and objectives.
Third, how well-developed is the support infrastructure? For example, do firms exist that can play the role of an innovation intermediary and connect your company with independent inventors? How well established is the legal infrastructure to manage patents and other intellectual property (IP) assets? The answers to such questions reflect the support the broader economy or market can provide to such network-based innovation initiatives.
How does India fare on the above three capabilities?
Few Indian companies have so far explored the power of external innovation networks. But they may have one advantage. A significant part of the global brain is actually situated in its own neck of the woods—specifically, in India and China. For example, the rapidly growing consumer base in these two countries also represents a largely untapped pool of customer innovators. Similarly, the outsourcing revolution has helped create hundreds of small firms with world-class technological expertise who can be valuable network partners. As such, deciphering and connecting with the relevant parts of the Global Brain may not be that difficult a task for Indian companies.
The second aspect—network leadership—is likely to be more challenging. Several Indian companies have experience in playing the role of a niche player in a network. For example, both Infosys and TCS participate in Airbus’ innovation network; Nicholas Piramal contributes clinical trial expertise to Eli Lilly’s drug development network; and HCL Technologies is part of IBM’s Power architecture network. But transforming from such a role to that of a network orchestrator will require time and effort. At the same time, the experience gained in dealing with global innovation network leaders such as IBM and Boeing should greatly help in making such a transformation.
With regard to the support infrastructure, some promising trends are evident. For example, several start-ups have emerged in the last year or so, in both India and China that provide innovation brokerage services to large companies. Similarly, there has been a significant increase in the number of firms in India offering patent management and other IP advisory services indicating the growing maturity of the IP management support infrastructure. As the market for externally sourced innovation grows, the quality of support infrastructure is also likely to increase rapidly.
While there is still some distance to cover, there are several signs of the potential for Indian firms to tap the global brain. Those that start with the networks closer to home and invest in building the required organizational capabilities will more likely vault into true global players.
Satish Nambisan is associate professor of technology management and strategy at Rensselaer Polytechnic Institute. Comments are welcome at email@example.com