Tuesday, December 29, 2009

In India, Anxiety Over the Slow Pace of Innovation
NYT, December 9, 2009

This article highlights the importance of a supporting, societal, innovation infrastructure. It would be great if our friends in India could comment for our community--it is more than just being a great company:

"BANGALORE, India — In the United States and Europe, people worry that their
well-paying, high-skill jobs will be, in a word, “Bangalored” — shipped off to
India. People here are also worried about the future. They fret that
Bangalore, and India more broadly, will remain a low-cost satellite office of
the West for the foreseeable future — more Scranton, Pa., in the American
television series “The Office,” than Silicon Valley.

Even as the rest of the world has come to admire, envy and fear India’s
outsourcing business and its technological prowess, many Indians are
disappointed that the country has not quickly moved up to more ambitious and
lucrative work from answering phones or writing software. Why, they worry,
hasn’t India produced a Google or an Apple?

Innovation is hard to measure, but academics who study it say India has
the potential to create trend-setting products but is not yet doing so.
Indians are granted about half as many American patents for inventions
as people and firms in Israel and China
. The country’s corporate and
government spending on research and development significantly lags behind that
of other nations. And venture capitalists finance far fewer companies here than
they do elsewhere.
“The same idea, if it’s born in Silicon Valley it goes
the distance,” said Nadathur S. Raghavan, a investor in start-ups and a founder
of Infosys, one of India’s most successful technology companies. “
it’s born in India it does not go the distance.”

Mr. Raghavan and others say India is held back by a financial
system that is reluctant to invest in unproven ideas, an education system that
emphasizes rote learning over problem solving, and a culture that looks down on
failure and unconventional career choices.

Sujai Karampuri is an Indian entrepreneur who has struggled against
many of these constraints.
His Bangalore-based company, Sloka Telecom, has
developed award-winning radio systems that are more flexible, smaller and less
expensive than equipment used by phone companies today. Mobile phone companies
and larger telecommunications equipment suppliers are buying and testing his
products, but he has not been able to interest Indian venture capitalists. For
the last five years he has run his firm on $1 million he raised from

“I can only afford to trial with one customer at a time and
that takes three months to materialize,”
said Mr. Karampuri, who has
considered moving the company to the United States to be closer to venture
capitalists who specialize in telecommunications. “You are always worried about
paying next month’s salary to people. Should you keep the money for this trial
or next month’s salary?”

Companies like Sloka Telecom are important, analysts say, because they
are more likely to create the next wave of jobs than large, established Indian
technology companies, many of which are experiencing slower growth. These
companies could also help offset some of the outsourcing jobs the country will
likely lose because of greater automation and competition from countries where
costs are even lower.

There are historical reasons that starting a business in India
is difficult. During British rule, imperial interests dictated economic
activity; after independence in 1947, central planning stifled entrepreneurship through burdensome licensing and direct state ownership of companies and banks.

Businesses found that currying favor with policy makers was
more important than innovating. And import restrictions made it hard to acquire machinery, parts or technology. Inventors came up with ingenious ways to overcome obstacles and scarcity
— a talent Indians used the Hindi word “jugaad” (pronounced jewgard) to describe. But the products that resulted from such improvisation were often inferior to those available outside India.

“We were in an economy where, forget innovation, expansion was
discouraged, creating wealth was frowned upon, there was no competition to speak
said Anand G. Mahindra, who heads the Mahindra & Mahindra
business group and has spoken about the need for more innovation.
Indian leaders began embracing the free market in the 1980s and stepped up the pace of
change in 1991 when the country faced a financial crisis. Those changes
increased economic growth and made possible the rise of technology companies
like Infosys and Wipro, which focused on providing services for American and
European corporations.

Yet, the government still exerts significant control,
especially in manufacturing, said Rishikesha T. Krishnan, a professor at the Indian Institute of Management in Bangalore. “To start a services company it really takes you just two or three days to get going,” said Mr. Krishnan, whose book, “From Jugaad to Systematic Innovation: The Challenge for India,” is to be
published next year. “The moment you are looking at manufacturing, there are hundreds of inspectors and regulations.”

Raising money is one of the biggest challenges entrepreneurs
face. Venture capital funds have flocked to India in recent years, but they are more likely to invest in established businesses than young firms.

In the United States, Israel and elsewhere, the
initial, or seed, capital for many start-ups comes from rich individuals known
as angel investors. But most rich Indians prefer to invest with family members or close friends because its considered safer and provides assurance that the lender will be able to borrow from relatives in the future.

“If you want to raise $3 to $4 million, it’s doable,” said Sumir
Chadha, who co-heads Sequoia Capital’s Indian operations. “But it’s difficult if
you want to raise $300,000 or $400,000,” a typical investment at the early
stages of a company’s life.

When Cellworks Group, which has most of its operations in Bangalore,
was looking to raise money last year, executives talked to venture capitalists
here and abroad. But the company raised all of the money it needed in the United
States, because most local investors did not have the expertise to evaluate the
biotech firm, said Taher Abbasi, the chief executive.

Cellworks has planted its corporate headquarters and a small staff near
San Jose so it can be close to investors and American universities for research
collaboration on cancer drugs.
“To really kick off entrepreneurship without
local money is very difficult,” Mr. Abbasi said.
Still, he said, India has
its advantages. Engineers and biologists are plentiful, though they need to be
trained more than their counterparts elsewhere. And operating costs are a lot
lower than in the San Francisco Bay Area, which was critical more than two years
ago when he and his partners started the company with their own money.

There may yet be hope for Indian innovation.

Some are looking to fill the venture fund vacuum. A group called Mumbai
Angels holds Saturday meetings every two months at which entrepreneurs pitch
ideas to affluent investors. Members of the group have invested in about 20
companies, said Prashant Choksey, a co-founder.
Separately, N. R. Narayana
Murthy, the chairman of Infosys, recently sold $38 million worth of shares in
his company to start a new venture capital fund. Mr. Raghavan, the former
Infosys executive, has invested about $100 million in start-ups like Connexios
Life Sciences, which is developing drugs to treat diabetes and other diseases.
Many Indian universities have also started entrepreneurship programs and

Vivek Wadhwa, a former technology entrepreneur who now
researches innovation, said the climate for start-ups in India was a lot better than it was a few years ago. It should continue to improve, he said, in part because companies like General Electric have hired tens of thousands of engineers in India to work in research and development
“Once they
have been working on these projects for a few years they will outgrow the
companies that they are working for,” he said. “They will hook up with these
entrepreneurs that failed” on previous start-up attempts and create new

Another change may augur well. Until early this decade, the Indian
market was too small and isolated to make it very lucrative for businesses to
develop products here, so most technology companies focused on selling services
to the West, said Girish S. Paranjpe, joint chief executive of Wipro’s
information technology business. “That will change dramatically because the
Indian market has become bigger,” he said.

In the last eight years, the size of the Indian economy has roughly
doubled along with the importance of foreign trade. There could still be
something to envy and fear. "

Monday, December 21, 2009

Share of Which Market?
Wed, 2009-07-29 17:27 — Sat Duggal

Very interesting article:

"In our quest for organic growth, we can often be our
own worst enemy. In the development of a win share strategy one of the most
obvious, critical but often neglected question is – what market are we trying to
get an additional share of? When marketers or executives are asked this question
their response is usually formed on the basis of their product or service
category i.e. we are in the credit card market, the market for inventory finance
or the market for car audio systems. Sometimes this is even taken to the next
level by adding entry-level, mid-range, premium and super-premium labels before
the product/service category.

This can be a real issue in the development of the strategy because it limits the ideas and solutions to the possibilities of today’s products and services. It is very difficult to craft unique innovations when you and your competitors are tweaking today’s products and services. It is very difficult to invent the next mini-van or iPod when you set off to win share in the mid-level family sedan or Walkman/Discman market.

Breakthrough innovations come from a fresh assumption-breaking definition of what market we belong in. The basis for the market definition should not be on what we sell but what the customer needs. The true basis of a market definition is our customers and how they meet their needs by considering various alternatives."

Monday, December 14, 2009

Can Amazon Be Wal-Mart of the Web?
NYT, 9/18/09

Amazon’s success is nothing less that astounding considering its brief history and the dot-com bubble it survived. Their focus is not just on sales but on critical processes to drive efficiency, accuracy and cost.


"Fifteen years after Jeffrey P. Bezos founded the company as an online bookstore, Amazon is set to cross a significant threshold. Sometime later this year, if current trends continue, worldwide sales of media products — the books, movies and music that Amazon started with — will be surpassed for the first time by sales of other merchandise on the site. (That transition already occurred this year in its North American business.)….
In other words, in an increasingly digital age, Amazon is quickly becoming the world’s general store. Alongside the books and CDs and DVDs are diapers, Legos and power drills…..
“Amazon has gone from ‘that bookstore’ in people’s mind to a general online retailer………
……. “It means we are becoming increasingly important in the lives of our customers, which has been our mission from the beginning,” said Jeff Wilke, Amazon’s senior vice president of North American retail. “We had the chance to earn the trust of the customer beyond media, and we took it.”


"AMAZON’S incursion into general retail has rivals scurrying to regroup and stop its advance.
In August, Target, which allowed Amazon to run its Web site for the last decade, announced it would end the affiliation when its contract was up in 2011, following other one-time Amazon partners like Borders and Toys “R” Us. This month, Wal-Mart said it would allow other retailers to sell their products on Walmart.com, mimicking Amazon’s third-party marketplace and trying to match its vast selection. Analysts believe Sears, which owns Kmart, is preparing to allow outside sellers on its sites as well.
But the Amazon effect may be most deeply felt by small independent stores, which cannot hope to compete with Amazon’s selection and prices and recall in fear how the company hastened the fate of both independent booksellers and prominent electronics chains like Circuit City"


"It has also lured an increasing number of small sellers to list their own products on Amazon.com, and takes around a 15 percent cut of each sale. Such third-party transactions now account for 30 percent of all the sales on the site. And Amazon continues to expand its network of more than 25 distribution centers around the world, where it constantly hones the art of getting products to customers as quickly as possible.
Next week, Amazon will take yet another step in this strategy, expanding its private label business with a line of Amazon-branded audio-video cables and blank media discs. Amazon already offers hundreds of private label kitchen products and outdoor furniture, and uses these direct relationship with manufacturers to further undercut prices from the competition."


"Inside Amazon’s vast shipping centers, the company’s growing capability as a general retailer is nearly invisible. What is clear is that the normal rules of retail don’t apply here.
Instead of storing similar items next to each other — televisions with other electronics, shampoo with other personal care items — randomness abounds…………Amazon says it stores dissimilar products next to each other on purpose, to minimize the possibility that employees select the wrong item. That seems unlikely: every product, shelving unit, forklift, roller cart and employee badge in these shipping centers has a bar code. Each physical move is orchestrated by software that calculates the most efficient path from shelf to the shipping area, telling employees on their wireless bar code readers which aisle and palette to go to next."


"Amazon also benefits greatly from its advanced inventory management methods and ability to negotiate beneficial payment terms with vendors. The company sells such a large volume of merchandise, and can predict customer demand so accurately, that it generally sells products within 65 days, before it has to pay suppliers for them.
That arrangement, which analysts call “negative working capital,” is unusual outside of grocery stores and allows Amazon to avoid the huge capital charges associated with buying and storing such a broad line of inventory. It also boosts the company’s cash flow, which it has used to pay down its debt to $109
million at the end of June from a hefty $2 billion in 2000, and to add more product lines to its Web site. "

Monday, December 07, 2009

At the Base of the Pyramid
When selling to poor consumers, companies need to begin by doing something basic: They need to create the market

WSJ, 10/26/09 http://online.wsj.com/article/SB10001424052970203946904574301802684947732.html

This article from the Wall Street Journal highlights not only the challenge of creating business opportunities at the bottom of the human pyramid, but also interesting insights of consumerism in developed markets:

"Around the world, four billion people live in poverty. And Western companies are struggling to turn them into customers.

For the past decade, business visionaries have argued that these people, dubbed the Base of the Pyramid, make up an enormous, untapped market. Some of the world's biggest, savviest corporations have aimed to address their basic needs—by selling them everything from clean water to electricity.

But, time and again, the initiatives have quietly fizzled out. Why?

Because these companies were looking at it all wrong.

Put most simply: The Base of the Pyramid is not actually a market. True, those billions of low-income people have a lot in common. But they don't have two of the vital characteristics you need to have a consumer market. They haven't been conditioned to think that the products being offered are something one would even buy. And they haven't adapted their behaviors and budgets to fit the products into their lives. A consumer market is nothing less than a lifestyle built around a product.

Think of an example close to home. In the 1970s, bottled water was a foreign idea to most Americans—it wasn't part of American consumers' lifestyle. It took decades for large numbers of consumers to accept the notion of buying something you could get free out of a faucet—and turn bottled water into a big business. For many poor consumers, paying for clean water or sanitation products seems just as outlandish.
The answer? Companies must create markets—new lifestyles—among poor consumers. They must make the idea of paying money for the products seem natural, and they must induce consumers to fit those goods into their long-held routines.

That means working closely with local communities in developing products and businesses, to give consumers a stake in adopting the goods. What's more, companies must take a wide-ranging approach in their marketing, to give buyers as many reasons as possible to give the products a try."

Thursday, December 03, 2009

Finding the Right Job For Your Product
By Clayton M. Christensen, Scott D. Anthony, Gerald Berstell and Denise Nitterhouse
April 1, 2007

A key underpinning of the MDG process is the concept of innovating across the full business design:

• Customer Segmentation: Innovate on targeting and understand your customers differently than competition.
• Value Proposition: Innovate on developing a compelling value proposition for the target customer
• Value Capture: Innovate on how we make money.

Clayton Christensen’s article highlights the critical importance of starting the innovation process with segmentation:

"The market segmentation scheme that a company chooses to adopt is a decision of vast consequence. It determines what that company decides to produce, how it will take those products to market, who it believes its competitors to be and how large it believes its market opportunities to be. Yet many managers give little thought to whether their segmentation of the market is leading their marketing efforts in the right direction. Most companies segment along lines defined by the characteristics of their products (category or price) or customers (age, gender, marital status and income level). Some business-to-business companies slice their markets by industry; others by size of business. The problem with such segmentation schemes is that they are static. Customers’ buying behaviors change far more often than their demographics, psychographics or attitudes. Demographic data cannot explain why a man takes a date to a movie on one night but orders in pizza to watch a DVD from Netflix Inc. the next.

Product and customer characteristics are poor indicators of customer behavior, because from the customer’s perspective that is not how markets are structured. Customers’ purchase decisions don’t necessarily conform to those of the “average” customer in their demographic; nor do they confine the search for solutions within a product category. Rather, customers just find themselves needing to get things done. When customers find that they need to get a job done, they “hire” products or services to do the job. This means that marketers need to understand the jobs that arise in customers’ lives for which their products might be hired. Most of the “home runs” of marketing history were hit by marketers who saw the world this way. The “strike outs” of marketing history, in contrast, generally have been the result of focusing on developing products with better features and functions or of attempting to decipher what the average customer in a demographic wants."