MNC Innovation in India revisited: New Challenges & Opportunities

The state of innovation at multinational (captive) centres in India resembles a kaleidoscope with multiple hues and colours, and a degree of flux as their fortunes wax and wane with changes in their parents’ strategies and performance.

Is “Emerging Market” excitement waning?

Much of the excitement about innovation for emerging markets that was visible a year or two ago appears to have been tempered by the challenges posed by the global economic environment. Market and investment challenges overshadow the technical ones. India’s failure to fulfill its growth and market potential threatens to cast a shadow on the growth plans of these captive centres. They now face the possibility of being restricted to their traditional roles of maintenance, testing and back office support, and even that may be at risk as our cost advantages erode and productivity levels fail to take off.

Indian Centres are no Longer Immune to Global Ups and Downs

At one time, Indian centres were immune to the layoffs and downsizing of their parent companies. That’s no longer true as is evident from the downsizing of General Motors’ R&D centre in Bangalore, the shrinking of Motorola’s R&D presence (particularly striking because Motorola was one of the early pioneers of offshoring software R&D) and Dow Chemicals’ reversal of its decision to set up a large R&D facility at Pune. When NetApp recently announced a global downsizing thanks to a dip in corporate profits, their India development centre saw a loss of jobs as well.

A Tough Time Ahead?

MNC R&D subsidiaries in India may have a tough time ahead. The cost advantage of Indian R&D manpower has considerably declined over time. At senior levels, employees expect to be paid at levels comparable to those in the parent; at the entry level the earlier 4 or 5x benefit is now done to around 2 or 2.5x. Many companies believe that labour productivity is lower in India, and that’s not surprising given the infrastructural constraints that employees have to overcome in getting to office and back! Attrition continues to further dilute productivity though the slowdown in the industry should have a sobering effect. And, as one senior MNC R&D executive told me recently, “Indian engineers today are not daunted by any challenge, but they have a sense of entitlement that prevents them from giving their best.”

But Opportunity as well…

However, there is opportunity as well. For one, the nature of R&D in some industries is changing. In telecom for example, the success of Apple and Google has brought into question the traditional paradigm of standards-driven or operator-directed innovation. Instead, innovation is becoming more consumer-driven and increasingly resembles the challenges faced by the consumer durables industry with some elements of Fast Moving Consumer Goods (FMCG) thrown in as well. Google’s acquisition of the mobile handset business of Motorola (Motorola Mobility) exemplifies this changing trend.

New Innovation Approaches: The Case of Ericsson

Even highly “engineering-driven” companies such as Ericsson are feeling compelled to embrace a user-driven innovation approach. I recently had the opportunity to hear Gabriel Broner, Global Head of Innovation at Ericsson talk about his company’s new approach to innovation under the umbrella of their Innova innovation programme. Their innovation approach is based on a framework from the iconic design firm, Ideo: Inspiration, Ideation, and Action. The starting point is identification of unarticulated customer needs using a design thinking approach. Action is focused on rapid experimentation. A specially trained Innova Squad uses the design thinking methodology to solve problems as well as diffuse the process through the organization.

 

The innovation contest as a part of Innova is in its 3rd year. Good ideas get $500 card + 1 week of time to be developed further. Strong proofs of concept can get VC-style funding including 3-9 months’ time off to work on the project.

Experimentation is a major focus including “testing without building” the entire equipment. Focus is on value for customers – e.g. one customer said, “we understand that the network will go down on occasion, but more important is how quickly can you get it up and running again?”

Some employee-driven innovations have made big contributions like using a graphics card to speed up hardware simulation and a software solution developed for customers to avoid a costly hardware upgrade for LTE.

One of the challenges of the innovation program is obtaining a greater degree of strategic alignment. One way this is being achieved is by challenges thrown from the top - one such challenge got a very good solution from the India team that has been recognized.

During Broner’s recent visit to Bangalore, Ericsson had organized a design thinking workshop and an opportunity for teams to pitch their ideas with the possibility of on-the-spot funding. Innovation expenditure is currently at 0.5 to 1% of budget. Broner made an interesting comment during his interaction with Ericsson Bangalore employees: “We can’t afford something like the Google 20% rule – where will the RoI come from?”

Conclusion

It’s now upto the Indian employees of Ericsson and other leading MNCs to take advantage of such opportunities that come their way.

From a personal perspective, its good to see companies launching elaborate innovation programmes with a lot of emphasis on participation, user-oriented thinking and experimentation. These are some of the core ideas we have emphasized in 8 Steps to Innovation.