In the global geography of innovation, India is straddling two continents. Its engineers have contributed to the success of the Silicon Valley: the father of the USB socket, the inventor of the Intel Pentium chip, the general manager of Microsoft are Indian, as is part of the senior management at Google. The success of this Diaspora reflects the talents of Indian engineers, but it can also be linked with an original innovation culture, which expresses itself in an amazing ability to reverse concepts. Three meta-innovations illustrate this Indian way.
Conventional wisdom is double-edged. On the one hand it is the product of experience, a body of ideas and rules that, over time, have proven their efficiency. On the other hand, by being adopted by an increasing number of players, they end up defining a space so crowded and competitive that their competitive advantage vanishes. If everyone uses the same methods, they no longer allow to make a difference.
It is in this context that innovators enter the game, sometimes expanding conventional wisdom and adding a couple of new tricks, sometimes adopting an entirely new approach, sometimes creating a whole world. This is called meta-innovation. A well-known example is the quip attributed (mistakenly, it appears) to Henry Ford: “If I had asked my customers what they wanted, they would have answered: faster horses.”
Radical innovators do not just change the rules. They create – or reveal – a completely new space. This talent of theirs, which emerges from both realism and imagination, consists in showing us what had always been before our eyes, but a certain intellectual laziness rendered invisible. Innovation then is about reversing prospects, moving objects, and illuminating them with a new light.
In recent decades, the digital wave has been associated with a number of meta-innovations: the “free” business models or the value of relationships are well-documented examples, among others. They do not always have a patented inventor, but they rather are a formulation composed of a bunch of new emerging ideas that appeared around the same time. However, some of them remain inseparable from the name of their creator – and when these artists happened to be born in the same country, one can wonder about the culture of innovation that brought them together.
C.K. Prahalad and the forgotten markets
In 1998 C.K. Prahalad and Stuart L. Hart published an article that would dramatically change our understanding of emerging markets: “The strategies for the bottom of the pyramid.” C.K. Prahalad – an alumnus and a former member of the faculty the Indian Institute of Management, Ahmedabad – developed this thesis in a book published in 2004 and which is now a reference, The Fortune at the Bottom of the Pyramid.
The expression “the bottom of the pyramid” was coined by Franklin D. Roosevelt in a 1932 campaign speech entitled “The Forgotten Man.” It referred to the millions of American farmers who, during the Great Depression, had no access to the market, thus condemning the manufacturing sector to idle. Prahalad and Hart reemployed this formula in the context development economics, a domain that for decades had been marked by pessimism.
In 1998, the fragile growth of the so-called emerging countries prefigured an opening. But the two authors did not just draw the first lessons of globalization. They overthrew the table, with a few simple, new, radical ideas.
First idea, most multinational companies target the populations of developed countries and the rich in poor countries. Yet there is a submerged continent, the billions of people living on less than two dollars a day. They certainly live largely outside the formal economy, between auto-consumption, barter and informal economy. But these forgotten people are still consumers.
Ignoring them is an economic folly, for two dollars per day multiplied by billions represent a huge market. Furthermore, the poor of today are the middle class of the future: there we have an investment that could be very beneficial to firms that would prove bold and smart enough to address this new consumer segment. As noted by Prahalad and Hart, the top of the pyramid, targeted by multinational companies represented (in 1998) 800 million people, a saturated and highly competitive market. The base of the pyramid are in fact billions of new consumers.
But reaching them requires ingenuity. They rarely have access, for example, to the banking system and thus to credit. But they have needs, including not covered needs in basic goods or services such as water, electricity, health care. Meeting these needs requires developing products and business models adapted to these constraints.
Difficult, but not impossible. For the giant step was not to reach these consumers. It was to have made them visible. The Prahalad and Hart’s stroke of genius was to put the spotlight on an until-then economically invisible world, and to have reversed the perspective by presenting the “bottom of the pyramid” not just as a social issue or a field for charities action, but as a great business opportunity.
Subsequently, the concept has been refined, taking into account the general output of poverty and stretching the upper limit to 8 or $10 per day. Far from distorting the original model, this extension allows to point out the importance of the BOP collective buying power, which easily reached the third of the overall purchasing power in the main concerned areas (Latin America, Asia, Africa, and to a lesser extent Russia and Eastern Europe).
The concept emerged and multinational food companies like Danone have made it a strategic tool. It also spread: three outstanding innovations bear its mark.
The first one is the rise of micro-credit. This old economic tool, formalized and promoted by economist Muhammad Yunus since the 1970es, found a renewal in the theories of Prahalad and Hart, by defining itself more firmly as an instrument of transition to the formal economy. Yunus himself has become a controversial figure, perhaps reflecting a tension between the initial design of micro-credit, whose horizon was somehow to escape capitalism, and its current horizon: join it. Micro-credit can now be seen as a way to contribute to the solvency of the bottom of the pyramid’s market.
We find the same ambiguity in the global craze for social innovation, with more and more initiatives at the crossroads of charity and business. In a symposium held in Paris in November 2011, Arnaud Mourot, CEO of the Ashoka Europe, told an Indian story which well indicates the interpenetration between the two worlds. An NGO which funded cataract operations saw its funds suddenly dry up. Even if this operation is not very expensive, many families were unable to finance it. One volunteer had the idea to make them pay anyway, on the basis of what they could give. It soon appeared that a budget of fifty dollars was within their means. On this basis one could build, not a charity complement, but a real business model. The volunteer turned into an entrepreneur and set up a structure that today manufactures intraocular lenses in large quantities. The pivot of this winning strategy? Consider the poor, not as recipients of humanitarian aid, but as a market. The humanitarian cause does not suffer from it. On the contrary, the company has helped restore sight to four million people – and it is profitable. Profit and non-profit thus coexist in an intelligent and original way.
Our third example is an attempt to build low cost cars, not for the poor among the poor, but for this segment of the population that today has no access to the new cars market and can only buy motorbikes or used vehicles. Dacia’s Logan car (Renault Group), sold especially in Eastern Europe, has become the reference example with more than 3.5 million sales in 10 years. Going further, Tata group launched its Nano car at $ 2,000. Admittedly, it had trouble finding its audience. But the idea of low cost cars to off-market segments is still relevant, and Renault has benefited greatly from its early positioning in this market. Such an idea is in line with the great tradition of automobile industry pioneers such as Henry Ford; but it owes much to Prahalad’s putting the spotlight on the “bottom of the pyramid.”
Jugaad Innovation and the value of low tech
The irony of Nano’s commercial failure (250,000 cars sold between 2009 and 2015) is that the ideas implemented by Renault and Dacia were very close to Indian concepts. Carlos Ghosn, Renault’s charismatic CEO, developed in the early 2000s the concept of “frugal engineering” and in 2013 prefaced Jugaad Innovation, by Navi Radjou, showing well that both concepts have in common the objective to “reduce complexity, eliminate the superfluous, and go back to the essence of the product. Give life to concrete products that consumers want and need without going over and above sophistication.”
It is no coincidence that Renault and its partner Nissan have chosen Chennai to launch their Renault Nissan Technology and Business Centre India Private. This R&D center’s mission is to design a range of ultra-low-cost car based on a new A-Entry platform to be launched in India and other emerging countries. This platform is designed as a synthesis of frames of mind and skills of different cultures: it combines the Jugaad Indian engineers’ mindset, the competence of French engineers in the management of similar projects and the technical expertise of Japanese R&D teams.
Jugaad innovation unfolds in two directions. It infuses the Western industrial world, serving as a model to design cheaper products, functionality reduced to the essential, designed to reach new consumer segments. But it also has its own space in the grassroot innovation, which has become India’s specialty and whose simple and innovative products, (known as low tech) are destined to spread throughout the emerging world and in some parts of the developed world.
Anil Gupta, professor at IIMA and founder of Honey Bee, a local innovations detection network, also brings the richness and depth of the reservoir of creativity found at the bottom of the pyramid. “If the poor are economically poor, they are not poor in knowledge. Their ideas can push the boundaries of science and technology. Even better, we can learn new ways of thinking and solving problems. Having no material resources, they maximize what they have in abundance: imagination. Brains in margin are not marginal minds. In other words, if you want to become a resource-efficient economy and productive in ideas, you have to learn from these people.” He recommends in this regard to connect traditional knowledge and grassroots innovations in modern science. Similarly, and in the spirit of microcredit, he launched a micro-capital venture funds; the technology commons concept, inspired by what is done in free software, also allows the diffusion of innovations.
Prahalad encouraged large industrials to sell to the poor; Anil Gupta offers them to do the exact opposite, that is to say, to buy from the poor. “People who are at the bottom of the economic pyramid are not at the bottom of the pyramid of knowledge, or at the bottom of innovation.”
This reversal opens limitless opportunities and radically changes the perspective in development economics. But it also introduces a new way of designing and understanding organizations, enhancing knowledge at the bottom of the managerial pyramid. Vineet Nayar has made it the basis of a radically new management method.
Vineet Nayar’s reverse pyramid
Mr. Nayar is today a very active retiree, head of the Sampark Foundation, a charitable organization that helps educate children. But he is best known for his work as head of HCL Technologies, a reference in all business schools. His innovative methods have led Fortune magazine to add him to its World's Executive Dream Team. Nayar's approach is summed up in a saying, which became the title of his book: Employees First, Customers Second.
A mere paradox? No. Behind this approach lies a reflection on value, which enabled HCL Technologies to overgrow its competitors. Mr. Nayar takes care to avoid any misunderstanding: “Conventional wisdom requires companies to always put the customer first. Yet in a service industry, the real value is created in the employees' interaction with customers. By focusing on employees, a company can provide its customers a unique value.”
When Mr. Nayar took charge of HCLT in 2005, the company was doing well but its growth was losing in force. A classic response to this slowdown was a repositioning: search for new products, new markets, and set ambitious goals.
This is not what HCLT did. Many companies, observes Vineet Nayar, give themselves targets (say point B) without bothering to consider the point from which they start (point A). Now sometimes point A is not on the map any longer. This was the case for his company in 2005, and also, structurally, for all technology firms if they miss a step.
For HCLT the fundamental change of scenery was the fact that since the early 2000s, computer technology had become the heart of all business strategies, from Amazon to Boeing. Among the immediate consequence, the role of the Chief Information Officer becomes central. The CIO is not any longer a simple transmission belt of strategies agreed elsewhere: it is on his or her initiatives that the company's survival depends.
This is not without consequence for a company like HCLT, a natural partner of CIOs. But recognizing a new reality is far from easy. This requires a debate, free speech for both employees and executives. The exercise is difficult because the identification of risks to the business may be perceived as criticism. During a first round of discussions, Vineet Nayar discovered this reluctance but also identified a category of “transformers” who longed to be allowed to comment on the strategies of the company and felt stifled by the hierarchy. Other employees, realistic about the dysfunctions and risks, remained confined to their pessimism and a culture of excuses.
Vineet Nayar compares managerial relationships and family relationships, noting that in modern families– decomposed and recomposed, and having their concept of authority undermined, what works revolves around confidence and autonomy. Creating a culture of trust appears as one of the conditions for the emergence of a constructive and bold speech, one realistic in front of problems but also committed to solve them.
Transparency emerges as an essential condition for confidence. A culture of transparency leads to open the windows on information that was previously hidden, both on financial issues and on followed strategies – and even more on debates surrounding such strategies.
By cultivating transparency, Vineet Nayar’s method undermines the foundations of traditional hierarchy. He created an online forum where any employee can ask a question directly to the top management. The idea is also to insist on accountability: “The employees whose manager is ready to be accountable feel more involved in the company, their relationship with the customers being subsequently impacted.”
Here we are getting close to the heart of the model, which is “to serve the value-creative zone”, to “free the minds” of teams. One of the reasons that pushed Vineet Nayar to move in this direction is the importance, in his industry, of Generation Y, young people for whom transparency and sharing are key values, and who quite often are not comfortable with the very idea of hierarchy. These are also the most inventive employees, those who better understand the implications of technological choices and can imagine future innovations. It will be them, too, who will help build innovative strategies for customers, to either spend less or to increase profits.
The implications for management are immediate: “A company exists to create value for its customers. The employees who have direct contact with customers, are the ones who create added value.”
The main task of a manager is to help and motivate his employees. The manager delegates to the teams the responsibility of change. Going further, he asks them questions about their own strategic choices and gets a feedback allowing him to refine information. Employees are self-managed “passion communities” and even allow to proceed to internal changes – another way to release dynamisms and creativity.
The reversal of the organizational pyramid brings a radical redefinition of the leader’s role – a leader who needs to “stop considering himself as the only source of change” and ask questions rather than always giving the answers. It’s a culture of change that profoundly alters professional identities (executive, manager, employee), as well as managerial relationships and the distribution of knowledge within the organization. A firm like HCLT, which employs over 100,000 people, has now the agility and responsiveness of a startup.
The similarities in these three meta-innovations might not have passed unnoticed by the reader, as they compose a coherent universe, with cross references and figures that move from one innovation to another.
So is the “bottom of the pyramid” model, which we met in the three examples. The formula flows from one author to another. The work of C.K Prahalad is one of the major references of Vineet Nayar, who employs the neglected skills of the “bottom of the (organizational) pyramid.” Jugaad’s innovation promoted by Ravi Nadjou and Anil Gupta encourages the dramatic ingenuity at the bottom of the social pyramid.
However, these three lines of innovation have developed in different conditions, and without any of the innovators having in mind to apply in their field the discoveries of others. What unites them is rather a certain mindset, away to turn problems into solutions.
In his preface of Nadjou’s book, Carlos Ghosn noted the importance of context when referring to frugal engineering, “a deeply ingrained mindset in emerging economies, where entrepreneurship means transforming daily adversity into opportunities. In Russia, India, China, and in[his] native country Brazil, business leaders consider the rarity not as a problem but as the mother of inventions.”
Indian innovators, be they small inventors of the grassroot innovation or academic creators formalizing meta-innovations, are therefore marked by a strong sense of constraints, resulting in an amazing ability to outwit them. A strongly felt constraint requires to be even more strongly bypassed. To give an example: Respect for hierarchy and bureaucratic habits characterize any large global company, but these traits can take more force in India, with its strong hierarchical tradition. Nayar, as an entrepreneur operating in globalized markets, was more sensitive to this question... and it is precisely because the problem was more acute in his company that he proved able to identify and develop innovative management.
The weight and intensity of constraints, including scarcity coercion, would then be one of the secrets of the Indian art of innovation.
But this does not explain the amazing ability to reverse these constraints, to outsmart them. For Indian meta-innovators know better than other show to reverse concepts and change perspectives. One reason could be their own cultural experience: Prahalad as Nadjou are expatriates, Nayar is in close contact with the western world, and the mixture of proximity and distance allows them to build different perspectives. The same could be said in the context of modern India, with Indians “from the inside” who live and think in a multilingual context. We must remember here the insights of Claude Lévi-Strauss in Race and History, about the added value of cultural diversity, which gave the European sphere a decisive advantage over the Amerindian sphere when they first met. Modern India is – like California today – a land of cultural diversity, and Indians who have a higher education have an unmatched ability to play with two or three languages, that is to say with different representations of the same object. This gives them a special mental agility, which is another mark of the Indian art of innovation.
Finally, we must go back to the common figure in the three meta-innovations quoted in this article, the reverse pyramid. The importance of castes in the Indian world is one of the elements in the puzzle we are trying to solve. The three meta-innovations we have considered are all marked by the same jubilant energy of this revolutionary move: turning things upside down. Such a move is possible and makes sense when the old world remains, but already started to crumble. The Indian art of innovation, as expressed in the figures of the reverse pyramid, would be less an expression of a culture than that of historical circumstances. Such circumstances question this culture and lead it to transform its original into figures both completely new and still recognizable.
The expatriation of the Indian diaspora is one form of these historical circumstances. The modern democracy after decolonization, with its egalitarian tendencies, is another form. The digital era would be a third type, with the proliferation of horizontal forms of organization (peer to peer, cooperative networks, collaborative economy, clusters) that corrode hierarchical conceptions. It is not uninteresting to notice that it is in India, and not elsewhere, that the valuation of the “bottom of the pyramid” developed. It could also be that the tension between the vertical structure of the old hierarchical world and the “horizontal” values of the Y generation, shaped by the Internet, is stronger in India than anywhere else. So strong, indeed, that it reaches a breaking point, one of those disruption points when, in the middle of the old world’s collapse, the new world arises.
This article was first published in ‘Technomic Review,’ our Indian edition operated in partnership with the Indian Institute of Management of Ahmedabad.