rishikesha t. krishnan1 professor, iim bangalore rishi@iimb.ernet.in

Rishikesha T. Krishnan 1

Rishikesha T. Krishnan

Professor, IIM Bangalore

rishi@iimb.ernet.in

The Story So Far…

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Some years ago,

the US Media raised the

prospect of India & China

overtaking the U.S. in the

Innovation Sweepstakes…

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India has aWorld-class Software Industry

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India is a favoured location for MNC R&D

– Who’s who of global corporations– 1998-2003, investment of $1.3B in R&D– 135 companies employing 22,980 sc/engrs– Account for 45% of the US patents from India

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India has a Strong Public R&D System

– Strategic R&D programs that have built missiles, nuclear bombs, satellites & combat aircraft

– One of the largest S&T workforces in the world

– A civilian R&D network (CSIR) that has recently been transformed into a “global innovation platform”

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World-renowned institutions of higher education

Getting into an IIT is tougher than

getting into any of the top schools in

the U.S.

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And several

Innovative Companies– Pharmaceuticals

• Ranbaxy, Dr. Reddy’s

– Automobiles • Tata Motors, Bajaj Auto

– Automobile components • Bharat Forge

– Biotechnology - Biocon

• Industry’s share of R&D spending has slowly increased to > 20%

Looks like India has all the ingredients to become the next

innovation powerhouse….

But, let’s take a closer look…

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Public R&D System

• Limited spillovers of strategic innovation• Persistent problems in production/scaling-

up/commercialisation– Missiles program – Indigenous nuclear power stuck at 250 MW– LCA not yet in commercial production– Space alone has managed to move on

• CSIR is the largest holder of US patents from India but patent revenues are paltry– Several labs are under-performers– Emphasis on patents even if they have poor

commercial value

CSIR Patents & Licensing Revenue

Indian Patents granted

Foreign Patents granted

Revenue from licensing patents (1US$=INR40)

2002-03 166 190 $700,000

2003-04 276 218 $490,000

2004-05 175 283 $500,000

2005-06 277 227 $1,000,000

2006-07 281 332 $750,000

Source: IP Mgmt Divn, CSIR, quoted in Businessworld 14 April 2008

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Indian Software Companies

– Pioneered new paradigms such as • offshore devpt centers, • proximity devpt centers • global delivery models

– Ability to quickly absorb and rapidly diffuse new technologies on a large scale

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Indian Software Industry

• Has not proved that it can ride the next wave or change strategy when it loses its cost advantages

• Process capabilities are being emulated by companies elsewhere

• Chip design forms a small part of the software industry and is largely driven by MNCs

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MNC R&D• Is it really R&D?

– Largely software development

– Very low R, some D, lots of routine SW

• Often part of global supply chain meeting requirements of MNC– No end-to-end

expertise– Limited spillovers

• Some academic collaborations…

• …. but few start-ups

Three Models:

1. Innovation in cutting edge tech:e.g. Google, Microsoft

2. R&D focused on emerging mkts:e.g. Yahoo, Cisco

3. Software development forproducts designed at HQ:Large majority of companies

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Innovative Companies

• Do not represent Indian industrial sector– ~89% of Indian companies have no reported R&D expenditure

(Bowonder, et. al., 2003)– Labour productivity of modern Indian industrial sectors estimated

to be 15% of global best => majority of companies are far away from the global productivity frontier (MGI, 2001)

• Success not yet proven– No new chemical entity from India has reached market– Ranbaxy sold out because they needed more resources

• Little to no presence in sectors such as semiconductors, nanotechnology, etc.

• Industry share of R&D spending is far away from developed countries

• Jugaad is the dominant paradigm

The Problems with Jugaad

• Based on individual ingenuity

• Inadequate scientific or engineering base– More craft than science

• Difficult to solve complex problems

• Not scalable

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Higher Education

• Poor research output except in selected fields and a few institutions– 80% of engineering PhDs from 20 institutions– “There has been a complete neglect of

research culture in universities” – government review panel

• Emphasis on quantity not quality

• Compare India & China…

• No universities in the THES top 50

• IITs score 44.5/100

• No vision for improvement/upgradation

• India graduates about 19,000 PhDs a year (1058 in Engg/Tech in 2005-06)

• 4 Universities in the THES top 50

• Peking Univ score 67.9/100

• Coherent plan to have Chinese Univs in top 100; dollar-denominated salaries to attract scholars from US

• Peking University has 4000 doctoral students

Is this an overly-critical view?

Source: DST, 2006

….Compare India’s R&D Intensity

With that of others…….

Source: USPTO, 2008

Source: Arunachalam, 2008

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Innovation Performance Index (EIU) 2007

10 9.48 9.1 8.78

5.16 5.08

0

2

4

6

8

10

12

Japan(1)

U.S.A.(3)

Israel(10)

Korea(15)

India(57)

China(58)

India’s projected rank in 2012 is #56!

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New Steps by the Govt.

• Knowledge Commission set up to recommend policy changes to help India take advantage of knowledge economy

• Spending on higher education to increase manifold during 11th 5-year plan (2007-2012)

• New IITs, IIMs, IISERs, Central Universities

• Special grants to IISc, selected universities

And…

• Several schemes to support R&D by industry and collaborative R&D – Technology Development Board– New Millennium Technology Leadership

Initiative– Small Business Innovation Research Initiative

(Biotechnology)

From Jugaad toSystematic Innovation

Change needs a “systems view”

Innovation byFirms

Inputs

PeopleFunding

KnowledgeInfrastructure

Capacity to Innovate

Incentive toInnovate

BenefitsCompetition

AppropriabilityRewards

Social Environment

Political Environment

Economic Environment

TechnologyEnvironment

Government Policy

InternationalEnvironment

Inputs

PeopleFunding

KnowledgeInfrastructure

Capacity to Innovate

Incentive toInnovate

BenefitsCompetition

AppropriabilityRewards

Start-up

LargeEnterprise

MSME

Firm 1

LeadershipManagerial Practices

Organisational Structure

Govt

Academic Instns

Research Instns

AngelsVCsTax Policy

Funding, Mentoring

R&D Funding, Shared Infrastructure

Incubators

Consultants

IndustryAssns

Support Infrastructure

Technical Knowledge

INPUTS CAPACITY

International, Technological, Social, Political & Economic Environment

Funding

Accreditation

Governance Norms

Funding

Governance Norms

Trained People

Basic Research

Ideas, TechTrained People

Basic ResearchIdeas, Tech

Firm 2

Inter-firm collabAlliancesAcquisitions

Users

User Needs

Tech Intermediaries

Firm 1Leadership

Managerial PracticesOrganisational Structure

CAPACITY

International, Technological, Social, Political & Economic Environment

INCENTIVE

Customers / users

Government

Capital Mkt/Analysts

Exit Options / Mkt for corp control

Opportunity to meet Customer N

eeds

IP Regime & enforcement

Tax Breaks

Competition Policy

Industrial Policy

Trade Policy

Valuation

Barriers to Innovation in Indian Organisations

Originate from Indian society and culture

• Poor teamwork • Enduring importance of upward hierarchical progression• A brahminical attitude that gives brainwork a superior

position over physical work• A weak systems and strategic orientation (and the

resulting paucity of appropriate change paradigms) • Low tolerance of failure• A lack of confidence in innovation capabilities• A failure to positively reinforce innovation efforts • A strong need for control that comes in the way of joint

working with other organisations.

From Jugaad to Systematic Innovation:

An Agenda for Change

From Jugaad to Systematic Innovation

1. Create a critical mass of new, innovative, technology-driven firms,

2. Enhance the technological capability of existing micro, small, and medium enterprises,

3. Transform large enterprises, 4. Create a new incentive system for universities

and other institutions of higher education, 5. Continue and enhance the process of dynamic

reform of public R&D organisations, 6. Change the structure of government involvement

in supporting industrial R&D, and 7. Create supportive societal conditions for

industrial innovation.

From Jugaad to Systematic Innovation: The Company Agenda• Strong user / customer orientation• Kindle intrinsic motivation

• Match people and jobs• Don’t over-critique, tolerate failure• Give quick feedback on ideas/suggestions• Form diverse teams

• Create internal market for capital, ideas & talent

• Design organisation for experimentation• Develop innovation capabilities through

carefully conceived projects

Thank you