‘Great products need not necessarily have many features’

Professor Stefan Thomke of Harvard Business School is a frequent visitor to India. An authority on management of innovation, who is married to an Indian for 22 years, Thomke first came to India 25 years ago. “Once you are part of an Indian family, India is everywhere,” he said.

Thomke, an electrical engineer who did his PhD from Massachusetts Institute of Technology, is a former consultant at McKinsey & Co. He’s impressed with the changes that have taken place on the Indian shop floors. Excerpts:

In India, a lot of Indian companies have conceived and succeeded in what Carlos Ghosn of Renault calls frugal engineering. And you’ve been saying that companies need not spend a fortune on research and innovation. You have been studying innovation and imparting training companies on how to encourage innovation? What’s a good level of spending on R&D?
Yeah, there’s always the question. I get this question quite a bit from organisations — on what is a good level of spending on R&D, on innovation in order to get good results. If you look at industry averages, the evidence is not really clear. There has to be a certain level of investment in place to begin with, and commitment in terms of people and money. Innovation does not come out of thin air.

Once the basic commitment is in place, there’s actually a lot of different ways to innovate. Some companies spend a lot of money, but don’t have much to show for it. This often leads to frustration among CEOs.

What about Indian innovation?
Indians are very creative people. I’ve travelled across India on the IndRail pass. Outside the big cities, talking to researchers … I found it amazing how people modify things to suit them. Great products need not necessarily have a lot of features. Sometimes fewer features and simplicity will work. People want simple and powerful experience.

How important is innovation in terms of growth for a company?
Senior leaders understand that innovation is very important, especially when you want to grow organically. There are only two ways to go about it. One is to get more revenues from each product but there’s a limit on how much you can do that. The second is to innovate. These are really the two choices.
Senior leaders understand that innovation is the essence of growth and yet, at the same time, they also find it very difficult. Before I studied innovation, I spent a lot of time studying production  — I am an electrical engineer by background.

In production management, I can go to a factory and look around the premises and tell you whether the factory is performing well. There are certain things you can see right away — visual clues on the way the factories are organised and laid out. The fundamental laws of actually managing those plants … I can write a list of things to do and the working of a factory can be improved very quickly. But innovation is much more complicated than that.

Is it in terms of end results?
Everything. Quality as well as productivity. Innovation is actually more complex and will have delayed results. Often, when you do something on innovation, it will take a few years before you see the fruits. It is typical to take a few years and in some industries even longer. In factories you can reorganise the workers, the plant layout and you can see the results right away, but as a CEO, you must understand sometimes it can take longer.

Have you visited any Indian factory?
Yes, I have. I’ve been coming to India for some 25 years — my wife’s from here.  I was married to her 22 years ago, so I’ve been following India for long. You know what, once you are part of an Indian family, India is everywhere. I’ve seen over time how India has been progressing. And over time I’ve been going back to Indian factories, I’ve visited several of them.

How do they compare with peers in developed nations? Have we caught up in terms of best practices?
It’s difficult to say. Some of them are quite good. It depends on the companies. I don’t think there’s something called an Indian factory. You can go to an auto plant … it’s very impressive. Some companies I’ve visited are quite good and state-of-the-art.

Do you see Indian companies having an edge when it comes to innovation — in terms of costs involved? Can there be more partnerships with counterparts from developed nations?
That’s the big question. I’ve been thinking of it a lot. I have been discussing it as well. It happens at multiple levels. At the first level, I think there is a big opportunity for Indian organisations to understand the good practices of how to make innovation work. Just learn from the world. I’m a German, I grew up in Germany; we’ve been studying innovation for a long time, so we know a lot on how it works.

There’s a big opportunity for Indian companies to learn - and they are quick learners. Just learn what the others are doing and get better at it. How do you do project management, how do you build a research organisation and how to make great products and services. There are many companies in India and if they learn how to do it — even for the local market  — they can do a lot of wonderful things. Some companies are doing it already. When we teach innovation here, there is a lot of interest and excitement on how to create innovative organisations and just get to learn and get better than the rest. Once they adopt the best practices, they will have an edge and then they compete with other multinationals.

Will they have an edge?
I think there is something which takes me back to the frugal innovation. It is because Indians have a cultural frugality — just the way people grow up here. And there’s also the reality of the local market because. It’s not possible to develop products that are costly - those which are sold in Europe, America and Japan.

So the mindset has to be very different. We have to develop products for a market where people have lower purchasing power. That’s where frugality comes in. Very good solutions to problems in very innovative ways at very low costs.

Can you cite some examples?
GE has been talking about reverse innovation. Take Mahindra & Mahindra — there are a lot of frugalities which have resulted in big savings for the company. Scorpio is often cited as an example — Mahindras developed the vehicle at 20% of what it would have cost in a developed nation. You look around and you’ll see a lot of examples here.

Does that mean that many global innovation centres can spring up in India?
This is again a big topic of discussion. One of the big mistakes that global corporations make when they come to India is to sell a product that was devised for a different market. There are a group of people who’ll buy these products, but they are limited. When they want to go to the next level, often, people in the headquarters don’t have the mindset and the understanding on how to do well in India. That is the challenge. The answer is you have to have a local presence, a local team and give them autonomy to develop local capabilities.

Siemens is talking about low-cost products for Asia and Africa…
Siemens has a lot of experience in working in other countries — they’ve been doing this for hundred years. As a company they have always had a local presence.

Are automakers doing things differently having been confronted by many challenges including the financial crisis and now rising fuel prices?
They are, gradually. When I speak to auto executives I get a sense that their mindset is changing. They realise that the market is changing and the auto industry as well. We are doing a case study on the Tata Nano.

Are Indian conglomerates best-suited to innovate? Because they have exposure to various sectors and some like the Tatas form common teams across companies to develop solutions...
It has to do with the leadership at the top. As a leader, do you actually believe in innovation and do you actually spend time on it? While I was here, we looked at the case study of Apple, the Apple innovation model. Apple as a company is the second-most valuable after Exxon Mobil — it’s worth about $320 billion. All the products they have will fit in one sheet of paper. The revenues of each product will be of the same size of a small Fortune 500 company.

How do they do it?
We had a long session on Apple’s model. Leadership plays an important role. It’s not about just being visionaries but also allocating money, time and demanding excellence from your people. Being involved in the finer details and pushing people to make great products. If you listen to Steve Jobs you will believe him — when he says Apple is a products company.

What after Jobs?
He has assembled an excellent team. It’s a very effective machine right now. In the short term, if they execute well they will do well. Only time will tell. How can a company with no experience in mobile phones get into this competitive market and dominate it overnight?

What about Nokia?
Ultimately, it is a question of user experience. Are they able to give an amazing user experience? Unlike a catalogue that explains how a remote control works, they have been picking areas where people have had mixed experience. Nokia has to go back to its roots.

Can an Indian consumer electronics firm make a mark globally?
It is difficult. It’s a very competitive market having low margins.

You’ve done work for Bank of America. India has large public sector banks with a large branch networks. What do you think of them?
Again, at multiple levels. At the first level if we ask most people about financial services and innovation, they won’t put the two together. There is tremendous opportunity to innovate. Most people avoid banks, considering them to be a headache. A lot of banks realise that mergers & acquisitions are not the only models to grow their businesses. There are others too. More and more banks are waking up to the idea of building innovation capability.

How do you do that in banking?
Some banks have gone out and studied industrial companies, learning from them how to innovate. We don’t have to reinvent the wheel. It requires some effort. It requires leadership that will emphasise change.

Leaders have to learn and then make their own people embrace. Put the resources in place, fund them and support it. Then you decide whether to put a central laboratory or use your retail branches with live customers to do services other than some plain product. With a service, you are actually creating an experience at the point of interaction.

BoA measured customer satisfaction and measured deposit growth. They used scientific systems in their retail branches. If the Indian banks just use one or two innovations and roll them out in 10,000-20,000 branches, just imagine the potential.

Multinationals are acquiring Indian pharmaceutical companies. What’s this all about?
Growth is getting more limited in the developed markets. Patents are expiring. They have to look outside their markets. Then again, the model has to be different. The prices and products have to be different from what they sell in their key markets.

Have you studied the Toyota system? Has it flawed over time with all those recalls?
I don’t think it is flawed. A lot of ideas and principles are used by its peers now. Toyota was trying to grow very quickly. Some of the problems that they saw escalated rapidly. Some of the principles are sound. I don’t think it is Holy Grail. Some of their production systems are very complex. Other productions systems have to be tuned but my prediction is that Toyota will come back. They are going to do whatever it takes to come back. It has taken a big dent to their reputation. But they’ll come back.

Is Volkswagen the company to watch out for?
Some five years ago, if you asked auto companies who are they afraid of, they would say Toyota. Now it is Volkswagen. It is amazing how big they are and they are present in almost every segment in the industry. But they don’t have a presence in North America. Everybody is watching them enter one of the biggest markets in the world. Audi is getting strong too. If you ask BMW who’s the biggest competitor they would say it is Audi.

What makes a great company like Apple triumph every time?
I fundamentally believe that if you develop great products and services, you can get away from a lot of things. If you give a great product and the customer likes every aspect of the product they will come back for more. I think managements need to focus on that — whatever it takes, give the experience to
customers.