3 Challenges in building an innovation sandbox

It has been a year since C K Prahalad passed away and two years since my only interaction with him – over email. He sent his inputs to my paper on Dynamic Innovation Sandbox. CKP is remembered more for his work on Bottom of the Pyramid (BoP) and on core competence. However, for me, his metaphor of “innovation sandbox” holds more fascination. It is almost three years since I wrote about it first in 2008 and subsequently wrote thrice in 2009 (1, 2, 3). Here is an attempt to reflect on the question – What are the challenges in building an innovation sandbox?

1. Taking a strategic bet – When Biocon started its oral insulin program in 2002, they didn’t know what the product may look like if the program succeeds. Moreover, timeline was hazy. However, two constraints got identified – affordability and oral insulin and a study began. It would be another two years before Biocon partnered with Nobex to get the right technology platform. To develop an innovation sandbox, in CKP’s words, you need “an unflagging commitment to strategic intent”. I see senior management sometimes waver while taking a position.

2. Finding a leader: Playing within the innovation sandbox also means dealing with unusually high degree uncertainty. Like Ravi Rajhans, a member of the initial Tata Nano team recalled, “We were really, really scared. It was a big project and we were not sure where to start, where to draw even the first line”. You need a leader who can manage and more importantly keep the team motivated through the ups and downs. Getting these leaders is usually hard. Good organizations develop them.

3. Making collaboration work: Tata Motors ex-MD Ravi Kant has put this very well. He said, “In today’s world, you have to realize that you cannot do everything and you cannot control everything and therefore you need to have a collaborative workplace. For project of this kind to succeed, you need to have everyone collaborating, which is easier said than done. Leading collaboration is a gigantic task in any organization”. In CKP’s words, “They must not innovate in isolation”. This is hard.

Sources: (For Nano) Nanovation by Jackie Freiberg, Kevin Freiberg, Dain Dunston, Portfolio, 2010

Image source: thinkers50.com

Innovation in Railways: story of how Jaruhar enabled wagons to become heavier

I got an opportunity to meet Prof. Ramnarayan, an authority on change management, at the Innovation Educators’ Conference in ISB last week. When I asked him about his favorite organizational change story from India, he modestly pointed to his book – “Changing tracks: Reinventing the spirit of Indian Railways” which he co-authored with V. Nilakant. I bought it in the ISB book store and started reading it in Kacheguda Express on the way back from Hyderabad. It is by far the best book I have read on an organizational transformation in the Indian context. After all we are talking about a 150 year old organization whose trains cover a total daily distance greater than the distance from earth to moon and back and support 1.1 million pensioners. Here is one of the fascinating innovations from the book on how Mr. Jaruhar, member (Engineering), broke a fifty year old myth on how much weight the trains can carry on Indian rail tracks. This was one of the key levers to bring the Railways back to profitability from close to bankruptcy.

Soon after taking charge as Railway minister in 2004 Lalu Prasad and his partner Sudhir Kumar launched the campaign – “Heavier, faster and longer” trains. The first part of running “heavier” trains was based on the observation that the Indian Railways ran trains carrying about 4,700 tonnes while the comparable figure was 15,000 in the US, 30,000 in Brazil and 20,000 in China. In railway jargon, this was based on a parameter called axle load – the maximum weight of a train per pair of wheels allowable for given section of tracks. In 2004, the permissible axle load was 20.32 tonnes and it was unchanged since 1960s. The axle load ranged between 25 and 35 in other countries with rails comparable in quality.

On 4 March 2005, three days after he took charge as member (Engineering), Jaruhar called a meeting of his directorate. He posed them the challenge, “Railway needs to carry additional 350 million tones of freight in the short term and much more than that in the long term. How do we meet this demand?” His staff responded enthusiastically and within a week ideas started flowing. A number of technical objections were raised on the proposed solutions and the consensus was that this was difficult to do. Jaruhar realized he needed to challenge the engineers in a different way.

Jaruhar proposed that first they needed to investigate how the original value of (20.32 tonnes) was arrived at. Second, they needed to find if there was any permissible tolerance. How come the train becomes suddenly unsafe after the axle load goes beyond 20.32? Jaruhar knew that he was entering a forbidden territory. The laid down procedure for modifying axle load was complex and time-consuming. It involved detailed trials and studies and required the approval of independent bodies such as the Commission of Railway Safety, a non-railway body. It is no surprise the permissible axle load wasn’t modified for several decades.

A turning point came when Jaruhar realized that the existing codes and provisions allowed him to conduct experiments. He decided to experiment with running higher axle loads on trains. In consultation with traffic department, Jaruhar selected routes which had mainly freight traffic and very little passenger traffic. He increased the axle load on freight trains running on these routes. He engaged independent agencies such as Structural Engineering Research Centre, IIT Chennai and Railways’ own Research, Design and Standards Organization (RDSO) in Lucknow to measure the forces and stresses on rails.

The pilot began on 7 May 2005 and ran till August that year. The train load was increased from 4,700 tonnes to 5,400 tonnes. Extensive data was collected both by his own teams and the neutral independent agencies. Jaruhar organized a seminar in Delhi in August 2005. Each zonal railway that participated in the pilot project made presentations based on the data they had collected on rail tracks, bridges, locomotives and wagons. Two other members of the Railway Board also attended the seminar. There were no adverse reports.

Additional questions had to be answered before moving ahead. Would it increase the frequency of renewal of rail tracks? By how much? At what cost? Would it result in increased rail fractures? What if something goes wrong? Subsequently Jaruhar’s experiments addressed these issues systematically and demonstrated how axle load can be increased safely resulting in significant revenue growth. Lalu Prasad acknowledged the contribution this project in his 2006 budget speech.

For anyone serious about leading organizational change “Changing tracks” is a must read case study.

picture source: business.rediff.com

Lessons from ATIRA’s early efforts at innovating in textile mills in Ahmedabad

Eighty years after Ranchhodlal Chhotalal founded the first textile mill in 1861, Ahmedabad’s mill owners were still dependent on Manchester experts for technical guidance. By 1940s the industry had grown to run eleven million spindles and 195,000 looms. Finally the mill owners under the championship of Kasturbhai Lalbhai established Ahmedabad Textile Industry’s Research Association (ATIRA) in 1947, a co-operative research institute modeled on the lines of research associations in Britain. Scientific experiments at the lab lead to process and product improvement ideas that promised savings and productivity gains to the tune of several crores. However, the ideas were met with huge resistance from the technicians and the mill owners themselves. What could be the reason? Could it be possible that the early interventions were not robust? Let’s explore.

It all started with Kasturbhai asking Vikram Sarabhai to study the structures of industrial research institutes in the UK and Europe with a view of implementing them at home. Vikram was just back from his second stint at Cambridge. He was an apt choice because he was a trained scientist and one of their own – the son of one of the city’s leading mill owners. ATIRA, India’s first co-operative industrial research lab, was started with an initial contribution of Rs. 50 lakh from Ahmedabad mill owners. The initial staff of four – a statistician, a social psychologist, a high-polymer chemist and a physical chemist – was a unique cross-functional team. Vikram was the ring-master. Over the next few years he hired seventy people, most of them young like himself, with no experience of textile manufacturing.

By February 1952, a pilot mill had come up equipped with machinery and facilities for simulating the actual workings of a mill. Studies began to tackle the problems which were assumed to be endemic till then by the industry. One study confirmed that low productivity in spinning was due to inadequate maintenance of the machinery and absence of process controls. Another study proposed methods for reducing cotton wastage. Tamarind kernel powder, an agricultural waste product, was tested as a substitute for starch. Suggestions were made for improving ginning and weaving techniques, decreasing humidification costs, conserving energy, and so on. An estimated Rs. 20 crore, much of it in foreign exchange, was to be saved these innovations over the next two decades. And what was the result? Vikram’s methods were openly attacked in board rooms and technicians in the mills were convinced that ATIRA staffers were spies for the management. What went wrong? After all it was the same mill owners who had funded the initiative.

Well, it is not hard to see that these early interventions weren’t culture-friendly and hence non-robust. First, Vikram and ATIRA challenged the conventional gut-feel based decision making of mill owners and advocated scientific methods which were totally alien to them. Second, it emphasized independent research to home grown ideas from within the mills. It is hard to believe that there would be no bright spots in the form of ideas and practices in the century old industry. ATIRA could have identified and amplified these as a starting point. This would have built mutual trust and prepared the mills folks for accepting more radical ideas. Third, all the ATIRA staffers came from outside the textile industry and hence it became hard for them to find champions inside. ATIRA could have encouraged participation from technicians.

Over the next few years Vikram & ATIRA learnt about ‘the human problems involved in introducing change’ with significant contribution from Dr. Kamla Chowdhry, who was the head of industrial psychology division at ATIRA.

Source: Vikram Sarabhai, a life by Amrita Shah, Penguin, 2007

4 types of innovation leaders

Innovation leaders influence innovations and inspire innovators – sometimes for many generations to come. What are the different types of innovation leaders? Let’s look at one such classification: Solvers, surfers, capacity builders and champions.

1. Solver: When Gandhi returned from Africa to India there were many problems he felt drawn to – Lack of vocational education, poverty, discrimination against women, caste system, political struggle. Eventually he focused on only one of them – political freedom. And he attacked the problem in a way that is still inspiring many generations more than half a century after he is gone. Solvers like Gandhi immerse themselves in a difficult problem and are always several steps ahead of their contemporaries in their approach. Other solvers that come to mind are: Muhammad Yunus (Grameen Bank), Baba Amte (Anandwan), James Watt (Steam engine), Thomas Edison (Light bulb), Andrew Wiles (Fermat’s Last Theorem), Steve Wozniak (Apple).

2. Surfer: When ring spindle, a new technology, was brought to the notice of Jamsetji Tata he immediately bought two frames and started experimenting at Empress Mill. Neither any mill in India nor the main supplier from England (Pratt) had thought of adopting the new technology. When Jamsetji encountered a report suggesting possible iron ore deposits in Chamba district, he immediately took a sample to Germany for testing. Surfers are always looking for waves, especially BIG waves. Many times they don’t know where the wave is going to lead them to. Some of my famous surfers include: Bill Gates, Steve Jobs, David Grossman (IBM), Jeff Bezos (Amazon), Mark Zuckerberg (Facebook), Masaru Ibuka (Sony).

3. Capacity builder: When Padmanabh Joshi wrote his PhD thesis – “Vikram Sarabhai: A study on innovative leadership and institution building” from Gujarat University in 1986, the term “innovation” itself wasn’t fashionable let alone “innovation leadership”. And yet he couldn’t have chosen a more apt title for the thesis. Vikram Sarabhai was instrumental in building innovation capacity in India through institutions such as – ATIRA: India’s first textile research cooperative, Physical Research Laboratory (PRL), ORG: India’s first market research organization, IIM Ahmedabad. As if this wasn’t enough, Sarabhai architected India’s space program. The secret, according to him, was in establishing a firm foundation: “The early beginnings of any institution are crucial, and the “culture” (or lack of it) brought the first entrants plays a significant role in establishing norms, procedures and practices” he said. Capacity builders work on various elements of the innovation ecosystem. Another of my favorite innovation capacity builders is: A G Lafley (P&G).

4. Champion: George Fernandes took over as railway minister in December 1989. Next month in January, he called for a board meeting at Raj Bhavan, Lucknow. In his talk he mentioned that there were two projects which were uppermost in his mind and they were his dreams for a long time. One was a railway link between Chithoni and Bogha in Bihar crossing the mighty Gankat river and the other was the west coast railway connecting Bombay and Mangalore (later called Konkan railway). Dr. E. Sreedharan attended the meeting as an engineering member from railways. Fernandez told Sreedharan in the meeting, “I will depend on you for realizing these two projects”. Fernandes neither had the technical know-how nor had the resources. But he used his influence with Chief Ministers like Mulayam Singh and Lalu Prasad Yadav and senior ministers like Ramakrishna Hegde and Madhu Dandavate and removed the hurdles for each of the projects. Champions support others’ ideas and help them move forward faster. Other champions I can remember are: the role Einstein played for Satyendra Nath Bose or the role Patrick played for Grossman at IBM.

Sources:

Vikram Sarabhai: A life by Amrita Shah

Story of Konkan Railway of India by E. Sreedharan

Warren Buffett’s biggest mistake and the psychology of decision making

When Warren Buffett speaks it appears as though an old sage is speaking. And yet he is so fond of talking about his fallibility. During his first India visit this week, he said in an interview with ET, “I have made plenty of mistakes. Over the last 60 years, sometimes I have misread the future. [And] that’s gonna happen to me again in the future”. Interestingly his biggest mistake didn’t happen because he misread the future. It happened because he got mad at the person on the other side and ended up buying instead of selling. How did that happen? And what were its implications for Buffett? Let's see in brief below.

Berkshire Hathaway (BH) was formed in 1954 in New Bedford, New England from the merger of two textile mills each of which traces its origin to 19^th century. By the time Buffett’s buddy Dan Cowin from Graham-circle suggested him the idea of buying BH, it was making losses for over a decade. However, BH was interesting to Buffett because it was selling cheap. According to its accountants it was worth $22 million as a business or $19.46 per share. And yet, you could buy a share for just $7.50. BH’s President Seabury Stanton knew this as well and whenever he would close a mill and sell its assets, he would issue a tender to buy-back shares. So Buffett devised a strategy to buy BH on a low tide and sell whenever Stanton issues a tender for stock purchase at some profit. The point is Buffett started buying BH not for keeping it forever but for selling it.

In his usual style, Buffett drove up to New Bedford one day to see the place for himself. When Buffett was reluctantly ushered into Stanton’s palatially furnished, ballroom-size office, he saw that there was no place anywhere near Stanton’s desk to sit. The seventy one year old six-feet two niches Stanton was used to summoning people to stand before him while he sat behind his desk. The two men seated themselves at the uncomfortable rectangular glass conference table in a corner and Stanton asked Buffett at which price would he sell when the next tender comes up. Buffett said, “I‘d sell at $11.50 a share if it’s in the reasonably near future”. However, when Buffett actually received the tender letter back in Omaha a few weeks later, Stanton had quoted $11 3/8. Buffett felt Stanton cheated him for 12.5 cents less per share. He got furious and decided he would buy a controlling stake of BH and fire Stanton. And that’s what he ended up doing.

Unfortunately, what Buffett got at the end of the heroic act was a lousy business. This is how Buffett remembers what happened next in his 2010 letter to shareholders, “The dumbest thing I could have done was to pursue “opportunities” to improve and expand the existing textile operation – so for years that’s exactly what I did. And then, in a final burst of brilliance, I went out and bought another textile company. Aaaaaaargh! Eventually I came to my senses, heading first into insurance and then into other industries.” No wonder when MBA students at University of Georgia asked him about his mistakes, he said, “Number one is Berkshire Hathaway”

Elephant-Rider model we looked at earlier tells us that our decisions are mostly governed by the Elephant side of our thinking. And the Elephant is emotional. And when emotion takes over, the tiny Rider which is the rational side of our thinking has no chance of influencing the decision. This Warren Buffett story illustrates how weak the Rider is even if you have the best Rider in the world.

Source: The Snowball, by Alice Shroeder (Chapter 27, Folly).

Image source: www.rationalwalk.com/?p=5052

Innovation pipeline: a popular lead indicator metric on innovation

It is no use hearing the fire alarm after the fire engulfs you. The real value of any metric system is in raising alerts so that you have time to take action. Innovation pipeline seems to be the most commonly used lead indicator metric by CEOs to track innovation in the company. In fact, GE CEO Jeff Immelt told his top leaders, “If you can do only one thing well, this is what I’d pick: Make sure this pipeline is always full”. What kind of strategic actions are taken by CEOs after reviewing the innovation pipeline? Let’s look at a few examples from 3M, GE, Biocon, HUL and Infosys.

Following story is narrated in 3M’s storybook “A century of innovation”: One Saturday morning in 1940 CEO McKnight analyzed the “birth rate” of 3M products. He ticked them off: Wetordry waterproof sandpaper in 1921, Scotch masking tape in 1925, Scotch transparent tape in 1930, Colorquartz roofing granules in 1933 and rubber cement in 1934. Then there was a six-year dry spell. Although Scotchlite reflective sheeting was created in 1937, the rewards of that new product had not yet been recognized. “While these dates are only approximate and are really predicated on when the product commenced to yield some profit, it indicates rather a long period of hunger . . . nothing appears to have been developed since the rubber cement birthday,” McKnight wrote Carlton. McKnight took an action the same day and 3M’s New Products Department was born. In a memo dated October 12, 1940, McKnight wrote, “3M is spending a substantial and an increasing amount on research every year. It’s time to create a department to cooperate with all interested parties in studying the commercial value of each research project upon which money is being spent.”

One of the initiatives that Jeff Immelt kicked off when he became CEO of GE in 2001 was “Imagination breakthrough”. It is a pipeline of ideas that could generate more than $100M in incremental revenues. Out of the 30 ideas that entered the pipeline in the first year, about 20 of them turned out to be good projects. Today the pipeline is managed by CMO Beth Comstock and has 100 plus ideas in the pipeline with everything from new stroke technologies that are offered to ambulances to solar or wind energy technologies. Immelt tracks about 30 of them every month.

I am sure Indian CEOs review their innovation pipeline as well. Biocon CEO Kiran Mazumdar-Shaw has mentioned in the annual meeting in 2007 that there is an “enviable research pipeline” and she mentions a few programs in the pipeline like oral insulin, an antibody for Rheumatoid Arthritis etc. In a Q&A session at India Knowledge @ Wharton HUL CEO Nitin Paranjpe mentions that “We have a robust innovation pipeline across categories.” Similarly, Sandeep Dadlani, Head, Retail, consumer goods and logistics at Infosys mentioned following in the analyst meet in July last year, “There is a significant innovation pipeline of new ideas, new solutions, new IP at Infosys which is being evaluated literally every month. Business plans are being reviewed and approved.”

If everybody tracks innovation pipeline, what is the differentiator? Is it about how some of those ideas are linked to customer’s anxieties and aspirations at a deeper level? Perhaps coming out of an immersive research like P&G does or a “dreaming session” with customers like Immelt does? Is it about a discipline of funding & protecting investments in the good ideas and parking the rest? Is it about ensuring the speed of experimentation and customer feedback cycle? I don’t know. Any thoughts?

Related post: How innovative are you? A simple innovation dashboard

Walchand Hirachad Doshi: A daredevil innovator

Each of the four businessmen in Gita Piramal’s “Business Legends” – Kasturbhai Lalbhai, Ghanshyamdas Birla, Walchand Hirachand Doshi and J R D Tata – is legendary in his own way. However, Walchand Hirachand appealed to me in a special way. If Jamsetji Tata and Mahatma Gandhi epitomized systematic innovation then Walchand Hirachand epitomized non-systematic innovation. If Warren Buffett was paranoid about wide margin of safety then Walchand thrived on narrow margin of safety. Why do I call Walchand, the man behind several pioneering works in India from Bhor Ghat railway tunnels between Mumbai and Pune to Hindustan Aeronautics Limited (HAL) in Bangalore, a non-systematic innovator and yet adore him so much? Let’s see in this article.

Walchand was born on 23 November 1882 in Sholapur, Maharashtra, to Raju and Hirachand Doshi, a devout Digambar Jain trader family. Walchand learnt the tricks of trade the hard way, losing money in the first two attempts – a speculative jowar trade and even more speculative cotton trade. His loss in the second attempt was even bigger than the first. Walchand had also concluded that banking was not for him as he considered collecting interest was ‘a woman’s job’.

A turning point came when Walchand was twenty-one years old and frustrated with life. This is when he met Laxmanrao Phatak, a thirty-something ex-railway Brahmin clerk. Both shared a love for Marathi literature, theatre and movies. By the time the two met, Phatak had gained a thorough knowledge of the way the wheels of railway affairs revolved, what strings to pull, how to manipulate the allotment of funds and turn it to advantage. In 1903, Phatak and Walchand joined hands and bid for a tender to lay seven mile narrow gauge track near Barsi. Walchand convinced his father and uncle to put in Rs. 80,000 and a partnership registered in October that year was to last fourteen years and take both their careers to new heights.

Walchand entered shipping accidentally. Mr. Watson, a senior Crompton executive, told him over lunch in a train journey to Bombay that a steamer which had been purchased by Maharaja of Scindia during the war was up for sale. Walchand was so fascinated by the idea of a shipping venture that on reaching Bombay he drove straight to the docks to inspect the ship. It was love at first sight. “Then and there I resolved to leave no stone unturned in order to buy SS Loyalty”, he would recall. Before the end of the day, Walchand had roped in friends to buy the ship for Rs. 25 lakh.

A series of surprises popped up as Loyalty commenced its first voyage from Bombay to London on 5^th April 1919. Walchand was told in Bombay that Loyalty’s repair cost would be Rs. 1 to 1.5 lakhs. In London he discovered them to be Rs. 7 lakh. Six weeks of stay extended to five months. Walchand utilized the time to study his primary competitor the then Microsoft of shipping – British India Steam Navigation Company (BI) and decided to buy a fleet of six medium-sized cargo steamers from Palace Shipping Company in Liverpool for a million pounds. After paying a deposit of £100,000, Walchand realized he had to first obtain a shipping controller’s sanction. Walchand launched an emotional propaganda at the backdrop of Jalianwala massacre and ended up buying the entire Palace Shipping company instead of just six steamers. After two more rounds to Europe it was clear that Loyalty wasn’t economical and was sold in February 1923 as scrap for Rs.1,35,250.

Scindia decided to focus on cargo in Bombay-Rangoon sector, an area monopolized by BI. As expected, BI slashed its freight on rice from Rs. 18 per ton to Rs. 6. This tactic had worked for several of the 102 Indian shipping companies that went into liquidation since 1860 including Jamsetji Tata’s company. To fulfill cargo requirements Scindia started subsidiaries to trade rice and coal. Bill Gates of BI, Lord Inchcape offered Rs. 25 for every share which was traded for Rs. 6 on Bombay Stock Exchange to buy Scindia. Walchand went to meet Inchcape in Delhi along with another Director Narottam Morarjee on 14^th March 1923. Inchcape said, “We look on the Scindia Company which has trespassed into our field as pirates. That’s what you are – pirates!” Walchand flung back, “Who are pirates? We or you?” and walked out of Inchacape’s office. The second meeting opened with Walchand proposing, “Scindia is not for sale, on the contrary we are prepared to buy BI. Name your price.” It was like a local chain in Bangalore like M K Ahmed proposing to buy Wal-Mart. What guts!

This is how Walchand describes himself, “I am a dreamer, oblivious to reality, creating friction where I should not, obstinate and opinionated, allowing no peace either to myself or others.” How many of us have an image of ourselves as rooted in reality as Walchand’s? And if we have how many of us have the guts to say it openly? Hats off to the daredevil!