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Innovating with ingenuity

 
 

In 1908, America’s Ford Motor Company introduced the legendary Model T, the car auto historians identified as “the archetype of the American mass-produced gasoline automobile”.

 

Since then, much of the world has had a love affair with the automobile and many national identities were partly defined by the distinguishing characteristics of cars: Italian styling, German and Swedish engineering, Japanese reliability.

 

Little of this happened by accident. The leading automakers have loaded themselves up with talent and have, at their best, been relentlessly innovative.

 

Now comes the next new wave of automakers, led by China and India. These companies are bringing something special to the table: a unique understanding of developing markets and creative plans for giving customers in those countries what they want at a price they can afford.

 

Consider India’s Tata Motors. Tata recently introduced a new no-frills automobile called the Nano, expected to cost approximately INR100,000, (about  Dh9,210) or approximately $2,500.

 

As veteran US journalist Ralph Kinney Bennett observes: “The people at Tata know something that others seem to have forgotten. They have proven adept at learning not just the needs but the hopes and desires of their customer base.”
 
Bennett noted Tata is not new to this game, just new to much of the West. The firm, he pointed out, already had proven that it’s a first-rate innovator by designing and building the “Ace”, a durable, low-cost half-ton pickup truck that sells in India for just more than $5,000.

 

Bennett understands that the Nano is an example of corporate ingenuity at its best. Others focus instead on whether the company can meet its cost target or Western environmental and safety standards. Who cares? These things miss the point.
 
What matters is that a highly creative company – in this case, a company native to one of the world’s rapidly developing economies (RDEs) – recognised a need and saw an opportunity to profitably fill it. Today’s global leaders, whether in the auto industry or another, better take note.

 

Innovation, of course, is the engine that drives business. Any business that doesn’t innovate – with new products, processes, financing arrangements, new ways of thinking about customers, new ways to deliver goods and services to market – probably won’t prosper.

 

Innovation takes many forms. While extremely important, research and development activities are just one part of the equation.

 

If one analyses research and development expenditures, most RDE-based companies would appear to be severely handicapped. ZTE, for example, a leading Chinese telecom equipment manufacturer, spent a reported $360m on R&D in 2006 – or 12 per cent of its $3bn in revenues.
 
This pales next to the R&D expenditures of a company such as Motorola, which in 2006 spent nearly 10 times that amount. R&D expenditures are merely inputs. More important is what comes out the other end. Most believe there are few better measures of that than new patents. But again here too RDE-based companies would appear to be at a huge disadvantage.

 

From 1999 to 2003, companies based in China, India, Russia, Brazil and Mexico – the five fastest-growing RDEs – were granted 3,900 American patents. During that same period of time, US companies were granted 100 times the number.

 

R&D expenditures and the number of patents don’t tell the whole story. Many RDE challengers bring something extra to the game, and it’s not just low wages. It’s ingenuity – a key and often overlooked component of innovation.

 

It is widely recognised that the most successful companies in the world have a certain genius about them. This will always be true, whether these companies are rapidly growing RDE challengers, recent global technology leaders, or long-established incumbents.

 

Like successful entrepreneurs, such companies are cleverly inventive and resourceful. They are agile and fast. They know how to make do with less. They are not only dreamers, they know how to deliver, and routinely do what others only talk about.
 
And some of the most successful understand that you don’t have to reinvent the wheel all the time. You can be successful by borrowing and adapting somebody else’s ideas. We’re not talking about pirating or intellectual property theft. We’re talking about doing what somebody else is doing with a certain clever twist that makes the activity uniquely yours.
 
Baidu, for example, became the dominant web search engine in China by building a search engine that’s considered equal to Google in performance, but goes one step beyond: It uses Chinese characters.

 

As Bennett noted in his article about Tata, companies with that something extra in their genetic makeup also seem to be good listeners.

 

While designing its new E-170 regional jet, which incorporates a new “double bubble” configuration, Brazil’s Embraer shared its design ideas with airline companies all over the world, soliciting and incorporating their feedback. More than 40 airlines responded. The company listened. The E-170, which combines the economy of a regional jet with the comfort of a larger commercial aircraft, has been a huge success.

 

Whether adapting or starting from scratch, the top RDE challengers also have other common traits: extraordinary curiosity, the willingness – even eagerness – to try new things and the ability and creativity to change what they are doing at remarkable speed until they are confident they have it right.

 

Today, when we think of innovation, we usually think of the prominent US-, European- and Japanese-based multinationals, with their huge R&D budgets and long lists of patents and successful products. And that would seem appropriate today.

 

In the future, however, R&D success will not be enough. The future belongs to those who innovate with ingenuity.

 

To remain on top, today’s global leaders will need to borrow a page from Tata, Embraer and other challengers. They’ll have to become faster, smarter and more adaptable – in many cases more like they were in years past when they were young, aggressive, creative, fast and didn’t know what they couldn’t do: So they did it. Tata is not the first. And it won’t be the last.

 

- Harold L Sirkin is a Chicago-based senior partner of The Boston Consulting Group (BCG) and global leader of its Operations practice.
(The New York Times Syndicates Global Business Perspectives)
 
 
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