Sunday, December 19, 2010

Thoughts: “Innovation’s Holy Grail” by Prof.C.K.Prahalad and Dr.R.A.Mashelkar

Innovation’s been a bee in my bonnet for sometime now, and elsewhere I have written on the topic. I was fortunate enough to receive some wonderful literature from Dr.R.A.Mashelkar himself, who took time out to share his thoughts on the topic.

I thank Dr.Mashelkar profusely for this benevolent gesture of his! 

In this post, I intend to discuss a few key issues raised in an article entitled “Innovation’s Holy Grail”, authored by the late management Guru C.K.Prahalad and Dr.Mashelkar, published in the Harvard Business Review in the July- August 2010 edition.

The broad theme of the article is a paradigm shift in drivers of innovation. From premium pricing and abundance, it says affordability and sustainability” have now become the new drivers of innovation. Does this mean affordability and sustainability have earlier never featured as objectives in an entrepreneur’s scheme of things? I don’t think that is the import of the statement.

To understand the import better, I think it’s important to deal with a few concrete examples. When one thinks of American Cars, the first thought that comes to our minds is “BIG”. "Fuel Guzzlers” is another term that is often associated with the mean machines that roll out of American auto-stables. The abstract construct that is common to “BIG” and “Fuel Guzzlers” is absence of frugality.

“Use and Throw” is what most products from developed markets of the West are known for. “Use and Reuse” rarely found favour earlier. The reason probably lay in demography and geography (I could be way off the mark here). For a country which is more than 3 times the size of India and has a population which is roughly one third of India’s, the United States has enough and more resources to cater to all its needs and wants.

Consequently, the need for conservation of resources may have never been felt with the acuteness with which, say, Japan has always felt. It is but natural that these factors have had a very real influence on the patterns of consumption in the US (every time the US economy has experienced a slump, the mantra to revive has been “Spend and Consume”). Since necessity is verily the mother of invention, it is also natural that availability of resources should in turn influence the dialectics and course of innovation as well.

To add to that, if the spending power of the consumer too is high, frugality or affordability isn’t something an entrepreneur is going to rack his brains about. Bring in “branding” and “a premium for the brand”, and you have a decent explanation for the high cost of innovation in developed markets, which ultimately the consumer has to pay for.

Between “Abundance” and “premium pricing”, the latter is more abstract because one of the cardinal constituents of “premium pricing” is “perception”/”perceived value” or may be even “hype”. Why do I say so? Am I committing the sin of gross over-simplification of the issue here for want of research? No, I think I am merely putting my “native intelligence” to use.  

Let’s take “Nike” t-shirts to test the validity of the proposition; Tirupur, also famously known as “The Textile City of India”, manufactures garments for global brands like Nike, Adidas and Gap. If these manufacturers were to sell their produce at a decent profit for themselves, even then I don’t think the selling price of the shirt would come anywhere close to say a Nike T-shirt (the base minimum price of a Fade Away Nike t-shirt is USD 9, which roughly translates to INR 400).

Typically, and I don’t have empirical proof to support this, I think premium pricing adds atleast 20% to the price of the product, and this 20% is what sways a consumer’s choice, atleast in India. I can’t speak for consumers outside India, but most Indian consumers believe in “value for money”, which for them means “hard value” i.e. what is the tangible benefit that I as a consumer get by purchasing something which has the Nike Swoosh on it, as opposed to an unbranded T-Shirt from a local manufacturer who supplies to Nike?

If the answer is “the pride of wearing a Nike T-shirt, which comes with the assurance of quality and distinction”, I think it doesn’t cut much ice when the consumer knows that the shirt’s been made in India. This is not to say the Indian consumer doesn’t value the “Made in India” tag, it’s just that he doesn’t get what this deification of a brand is all about. For him a watch which works well is as good as any other, even if the other is a Mathey-Tissot or a Ulysse Nardin, the bells and whistles rarely matter to the average Indian consumer.

This disdain for, rather disinterest of the Indian consumer in brands is exactly what has flummoxed the big corporations from developed markets, because the harder they resort to puffery, the wider is the gulf between them and the Indian consumer.

This has a concrete legal angle to it as well- counterfeiting. There could be a zillion motivations for counterfeiting, but the one reason that is critically relevant in Indian conditions, is the exhorbitant price of the product which stems from perceived value. Talking heads on counterfeiting often mistake this as the Indian consumer’s willingness to compromise/trade-off on quality, which simply isn’t the case.

The Indian consumer is probably the toughest to sell your goods to; in the words of Dr.Rajesh Shukla, Director of the recently launched NCAER-Centre for Macro Consumer Research (NCAER-CMCR), the Indian consumer is a “hydra-headed monster”. Unless every why and why not is answered, you can’t sell even a pair of socks to him.

So when a company expects him to shell out 20% more, solely to recoup its lavish marketing expenditure and make some additional profit in the name of brand, I think it pushes the Indian consumer that much closer to counterfeiters. In that sense, the Indian consumer is a no-nonsense guy who wants the company to stop beating around the bush and get straight to the point- which is utility.

Corporations from developed markets have slowly but surely realized this, which is why they are forced to reinvent the wheel when they enter India i.e. they have to re-invent their own products to suit the low-cost business psyche of the Indian consumer. Is this a good trend for the society as a whole?

I am inclined to say yes because expenditure on branding which cannot be justified, if saved is income (I am sure a few practitioners of trademark law and branding experts may want to thrust a dagger in me for saying this). After all, at the end of the day, diversion of financial and material resources from branding to actual tangible innovation is beneficial for all of us. Money that can be spent on making products eco-friendly (“green”) need not be squandered on ad films and glossy hoardings.

But then, how long will this trend of re-invention to suit low-cost business models last? Is it here to stay? I ask this because there is a growing section among us which has a fetish for brands, although this is an uber-urbanized group, which is limited to a few pockets in metros.

I hope the rate of growth of this select group is significantly slower than the rate at which corporations are forced to come up with low-cost products for our markets. Until “frugal innovation” starts influencing corporations even in their domestic markets, I wish and pray that this select group which feeds on brand-frenzy remains what it is today- select... 

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