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Mumbai: India slipped 10 notches to the 76th position on the Global Innovation Index 2014 (GII). Gary Coleman, managing director (global industries) at Deloitte Touche Tohmatsu Ltd, and Kumar Kandaswami, senior director at Deloitte Touche Tohmatsu (India) Pvt. Ltd, talk about what’s holding back Indian companies. Edited excerpts from an interview:

Where is India going wrong in terms of fostering innovation?

Coleman: You need to have an environment for innovation and part of that environment is dictated by having talent with the right skills, public policy that allows innovation to occur, fundamentals that relate to infrastructure, and the whole area of information and communication technologies that needs to be developed for innovation to really grow. If you look at the countries that are ranked lower in the GII, they are highly co-related to the factors that I described.

Which of these factors do you see are hindering India’s progress towards innovation?

Coleman: I would say it is a combination of talent and a pro-business public policy. We did a survey of more than 7,000 millennials (those born between 1983 and 2000) and a majority said that in order to be an employer of choice, a company has to be highly innovative and have characteristics of innovation. They require that kind of environment. India also lacks some of that infrastructure piece and (faces) challenges when it comes to ease of doing business. These factors inhibit India from having a high level of innovation.

How can public policy enable innovation?

Coleman: A lot of it is public policy related to quality of higher education and the education curriculum. The other part of public policy relates to ease of doing business. According to a 2013 World Bank report, India is at the 134th spot in the “ease of doing business" list out of 189 economies. Some of the components in that include starting a business, getting a permit, land acquisition, getting credit—those are some of the factors that inhibit innovation and result in a low ranking in the innovation index.

Is there anything India is doing right, and can it build on that?

Coleman: People outside India are still optimistic about India. They do look at education in the country in a positive sense in terms of the number of engineers that graduate, they look at the relatively higher level of customer support and of course, the English-speaking skills. Those have been some of the factors that make people bet on India’s innovation capabilities. I think with the new administration, and the vision and policy reforms that the administration would like to make is also leading to some optimism.

Many global companies are setting up innovation, and research and development (R&D) centres in the country. How is that shaping India as an innovation hub?

Coleman: It could very well make India an innovation centre. The positive factors we spoke about are contributing to it. The higher number of innovation centres and the growing number of R&D centres could lend themselves to a more innovation culture.

Are more global clients inclined to come to India for its innovation capability?

Coleman: I see more evidence of clients wanting to set up R&D centres in India. A Forbes study said that 44% of MNCs (multinational companies) have plans to set up R&D centres in India. India could very well be an innovation hub, if this trend mushrooms.

One crucial factor for the country to grow as an innovation centre is to listen to what the millennials want. The millennials of today will account for 75% of the workforce in 10 years. So if that’s the case, listening to them today is important. And since over 70% of them aspire to work in innovative companies, India has to inject that culture into its businesses; 75% of them also say that today their employer does not have the innovation culture or characteristics that they desire. That means Indian companies should learn to understand the desires of the millennials and particularly about how they want to work, where they want to work. By catering to those desires, they can at least have an innovation culture to attract the best talent.

India is seeing a huge start-up culture. Is entrepreneurship paving the way for innovation?

Coleman: While entrepreneurship and innovation go hand in hand, they are very independent of each other. They can be combined, but they are independent. When you combine entrepreneurship with innovation, you can have a very powerful place in the market. Those kind of companies will also be able to attract the best talent. It is also great for the kind of economy that you sit in, as the jobs created by an entrepreneurial-innovative company tend to be higher-paying jobs.

Kandaswami: When the economy is bad, you don’t have much enthusiasm to back some of these ideas, but when the boom is about to happen, you want to back these ideas. So we will see more funding for innovation in the next two-three years than in the past 5 to 10 years.

How different is the approach of Indian companies from that of other countries with respect to innovation?

Coleman: The majority of the economy in India is at a maturity level that is commensurate with the ranking. No one has a clear definition of innovation other than the fact that it is a new product or service that has not been created before. But some companies are focusing on how they can use innovation to run their own business. For example, (private cab service) Uber is a new business model that caters to a new trend that was not spotted before—where you can follow the movement of your taxi through your phone and have a cashless transaction. It is not a new service or product, as it is still doing the same business of taking people from point A to B.

Kandaswami: There are two ends to the spectrum in India. There are the Tatas of the world who have processes to drive innovation, while a large part of small and medium companies that ought to be innovative to be profitable tend to do things that are driven by large-scale demand. For example, tier-II auto component companies do a couple of million dollars a month, and that does not give them any margin at all. It is also true that a lot of companies readily walked into opportunities for me-too products, as there was an increasing demand for them. That’s how they have gotten caught into meeting today’s demand as opposed to getting innovative.

The second problem is, the process of funding innovation has been weak in India. Alternative ways of funding for innovation have been restricted. For small companies, if they fail, they are on the streets and in the absence of a social security net, you don’t want to be doing things that are innovative and risky. The third thing that we don’t have in adequate measure is academic research. It is not of great quality and therefore that does not get converted to commercial application.

Does it help companies when they have a dedicated team or have a person like a chief innovation officer to drive innovation?

Coleman: Yes, you are seeing a trend of more companies giving titles such as innovation officer, or chief digital officer (given the correlation between digital technologies and innovation). Some companies actually have both.

What is the most common hurdle firms face when it comes to innovation?

Coleman: In innovative companies, there is a tone of innovation that is set right at the top that allows people to take risks and be allowed to fail. This fosters a culture for innovation. However, for several companies that have been around for many years, it takes a lot of effort to culturally change to a culture that allows innovation to be generated—that is their biggest hurdle.

How big an area is consulting on innovation for you?

Coleman: It is one of the fastest growing areas. A growing focus for us as part of strategies and operations consulting is helping clients to be innovative. It not only involves helping companies to be innovative, but also to develop risk mitigation strategies for disruptive innovations. All companies are subject to disruptive innovations, just like when Uber hit the taxi cab industry. It is a growing area for us to help companies address disruptive innovations and also help them devise disruptive innovations to disrupt others.

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