Innovation Sandbox: a low-cost grass-root level example

In the previous article A look at Tata Nano through dynamic innovation sandbox lens, we saw how Tata Motors created an innovation sandbox based on an insight from Tata Group chairman Ratan Tata. At the end we asked 2 questions: (1) How do we build innovation sandboxes when you don’t have a Ratan Tata or a Steve Jobs at the top? (2) Does every innovation sandbox have to be as expensive as Tata Nano? Let’s explore these questions using an example from a technology offshore center in Bangalore.

Let’s first understand the context a little more. This technology offshore center located in Bangalore is part of a global financial services firm. It has 1000 engineers responsible primarily of the maintenance of mature technology / products. Their day-to-day work involves fixing bugs raised by customer and adding new features whose design has been worked out by experts at the headquarters. The engineers and managers aspire to own products end-to-end. However, there is a huge chasm between the aspirations and perceived capability by their parent organization. Here is what happened starting February 2008.

There was a change of guard at the top of the parent company and in his welcome speech the new president mentioned “international trading” as a possible new area the company might enter. Video of this speech was available on the corporate intranet. A manager at the India offshore center, let’s call him Ajit, watched this video and “international trading” caught his attention.

In the next few days, he gathered 7-8 engineers together, some with business background, some with back-end technology knowledge like Oracle / mainframes and some with front-end expertise like .Net / user interface. Each of them decided to study implications of supporting “international trading” from their point of view. The group met once in two weeks for the next three months mostly studying the relevant systems and running small experiments and sharing the results.

In June 2008 India center got a call from onsite saying that they are kick-starting a project on “international trading” and checking if they have any inputs. With three months of solid experimentation the boys had more insights than what the onsite could believe. Pretty soon two of the engineers joined the team onsite in the conceptualization phase. The product went live this month. It is no surprise that one of Ajit’s team ended up owning a sub-system end-to-end.

Ajit is a middle manager (not a VP) and the sandbox they created with “international trading”, a “back-end” and “front-end” technology as constraints wasn’t expensive. In fact, all the experimentation happened by stealing time from the regular hours and more often putting in extra time. Ajit certainly played a key role in both identifying an opportunity and exciting a bunch of engineers around the opportunity.

What if the “international trading” project never got started? Well, unless you have a Ratan Tata or Steve Jobs with you, systematic innovation is a portfolio game. You need to ask, “Do we have a few such innovation sandboxes active with potentially high upside?”

A look at Tata Nano through “Dynamic Innovation Sandbox” lens

Earlier this year we looked at a structure called “Dynamic Innovation Sandbox” which creates a platform for systematic innovation. In this article let’s look at Tata Nano innovation through the sandbox lens and see how the sandbox evolved over the years.

Innovation Sandbox has 3 key elements:

1. The walls: A set of constraints each corresponding to the wall of the sandbox.
2. The sand: A lab for rapid prototyping and systematic experimentation
3. The kids: A diverse set of passionate people doing the exploration

Let’s look at each element in the context of Tata Nano:

1. The walls: As Jai Bolar, senior manager (development) at Engineering Research Centre (ERC) and a member of the initial team says, “What was defined was cost: Rs. 1 lakh, without compromising on aesthetics, value to the customer or safety and environment requirements”. Soon the “transport” changed to “Rural car” and eventually to a “full-fledged car” as good as or better than Maruti-800. The safety requirements evolved into “Euro-II” compliance.

2. The sand: As Ratan Tata said in an interview, “I think more than anything else the vendors disbelieved that the project was real. They didn’t respond because they thought it was a hypothetical project.” And how did vendors begin to believe and participate? By seeing the rapidly evolving prototypes. As Ratan Tata says, “I should say that more of this car has been made under rapid prototyping by us than you would find in standard cars”. Girish Wagh, head of the Nano project since 2005 says, “Nearly everything went through continuous nips and tucks. The floor panel changed 10 times to meet noise, vibration and stiffness requirements. The dashboard and seat went through equal number of modifications.”

3. The kids: Nano team had a nice mix of people: some industrial designers like Nikhil Jadhav from INCAT, some gasoline geeks, styling experts from Institute of Development in Automotive Engineering, Italy. Wagh credits the team with both passion and resilience, two qualities helped the team cut the mental fatigue of redoing something over and over gain. What made a big difference was Ratan Tata’s personal involvement and checking the prototypes minutely.

Now, let’s ask a question: What kind of investment was it to create such a sandbox? Overall the project cost Tata Motors close to $400 million over 6 years. Let’s assume a pessimistic scenario and say that the total cost was double the original estimate and the project was delayed by 2 years. This means Tata Motors thought it would spend $200 million over say 4 years. Considering annual revenue of $2 billion in FY2003 Nano project meant significant investment. It was also perhaps the last chance for Ratan Tata to hit a sixer before his retirement. And that helped. Not every company has a Ratan Tata or a Steve Jobs who have deep insights and willing to put such bets. How are they to create innovation sandboxes? Let’s address this question soon.

(source: Tata Nano compiled end edited by Pradeep Thakur, 2009).

Tata Nano: How the story evolved over years

In the previous article, we looked at how “story” forms an important element of an evolving business model. Adapting the story as we understand market and technology better is an important aspect of business model exploration. Let’s see how “Tata Nano” story evolved over the past 6 years. We will see the remarkable difference between “Rural car” to “Global car” story and how the “open distribution” model took a back-seat after Singur trouble and perhaps the downturn. (source: Tata Nano compiled by Pradeep Thakur).

Four wheel scooter version (2003): Ratan Tata says – The two wheeler image (with the family of four) got me thinking that we needed to create a safer form of transport. My first doodle was to rebuild cars around the scooter, so that those using them could be safer if it fell. Could there be a four-wheel vehicle made of scooter parts? Nikhil Jadhav, an industrial designer part of the initial four member team recalls, “It began as an advanced engineering project. The idea was to create a low cost transportation with four wheels. It was not even defined as a car”.

Rural car version (2004): A door-less car with a bar as a safety measure, having soft doors in vinyl with plastic windows, a cloth roof, two big doors (stead of four). Conclusion after seeing the concept designs: The market does not want a half-car, it wants a car.

Global car version (Jan 2008): Who might be the buyer of this small car? Ratan Tata articulates three personas (1) If I were to look in the US or Europe, in some garages you would have a Bentley or two Bentleys or a high-end Mercedes, and you may find a Smart also in that same garage because that person thinks it’s a fun extra car to have. He doesn’t need it but he may have it. (2) Then you may have a person who needs utilitarian form of transport. He is not looking for a lot of creature comfort; he wants to get around in a sensible way. (3) Then on the other side, you have someone who aspires for a car which is beyond his reach. He has a two wheeler or a three wheeler and this fills his needs.

Open distribution with toolkit (Jan 2008): In Rata Tata’s words – My aim was that I would produce a certain volume of cars and then I would create a very low-cost, low break-even plant that a young entrepreneur could buy and that a bunch of young entrepreneurs could establish an assembly operation. Then Tata Motors would train their people who would oversee quality assurance and they would become a satellite assembly operation for us. We would produce all the mass items and ship it to them as kits so it’s similar to an SKD or CKD operation. The assembler would also be the dealers for the car and thus we would eliminate one level.

Distribution – latest version (Jul 2009): Ravi Kant says in his interview (ET 10 Jul 2009) – I am afraid we have not made much progress on that (open distribution) front because we got caught in creating a factory in West Bengal. Then we had to move it lock, stock and barrel across the country and I think that took a lot of energy. We are already beginning to look at it, but it’s taken a backseat at the moment.

Strategy as surfing a wave #4: What do successful surfers do?

We saw in previous articles how Internet wave hit Grossman at IBM and how he teamed up with Patrick to surf the wave. Skeptics asked the question, “How will we make money from this?” Unfortunately, neither Grossman nor Patrick had any numbers to back up in the beginning. What do successful surfers do in such situations? Let’s see how Stephen Denning helps us understand the surfing through “storytelling” goggle. (source: The leader’s guide to storytelling by Stephen Denning)

According to Steve, successful surfers like Grossman, Patrick and Gerstner are good at 4 things: They have (1) the ability to perceive a new story of business opportunity (2) the courage to believe passionately in that future story and act on it (3) the flexibility to adapt the story in the light of market realities and above all (4) the ability to persuade others to believe in the story. Let’s see each of these in brief below.

1. Perceive a new story: When Grossman showed Internet demo to 3 people, only one of them, Patrick got excited. Patrick recalls - Two people can see the same thing, but have a very different understanding of the implications. A lot of people did say, “What’s the big deal about the Web?” but I could see that people would do their banking here and get access to all kinds of information. I had been using online systems like CompuServ for a long time. So for people who weren’t already using online systems, it was harder for them to see. (source: Gary Hamel case study)

2. Believe in the story: Patrick didn’t stop at perceiving the story. He hired Grossman and together with Singer they started building a primitive corporate intranet. Patrick wrote a nine page manifesto extolling the Web titled “Get Connected”. It included things like: Replace paper communications with e-mail, Make top executives available to customers and investors online, Use the home-page for e-commerce. It’s only when you believe in a story passionately does it translate into actions of these sort.

3. Adapt the story: Much of the technology that Grossman and his crew first prototyped would later make its way into industrial-strength products. For example, The Web server software developed for 1996 Olympics evolved into a product called Websphere and much of what they learned formed the basis for a Web-hosting business today supports tens of thousands of websites.

4. Persuade others: Both Patrick and Grossman continuously looked for opportunities to spread the movement within IBM. Patrick would present the story in senior management forums and trade shows while Grossman would work with engineers spread across multiple businesses. Within months more than 300 enthusiasts had joined virtual Get Connected team.

We looked at Joan Magretta’s 2-critical tests to check if your business model is sound. (1) Narrative test: Check if the story makes sense and (2) Numbers test: Do some basic math and see if the numbers add up. Grossman-Patrick story tells us that when big waves hit, numbers are not available. Successful surfers learn to master the narrative test.

Strategy as surfing a wave #3: Grossman-Patrick story and “dog that didn’t bark” analysis

We saw earlier how Internet wave hit David Grossman of IBM. We stopped at a point where Grossman drove down to his headquarters with his workstation to demo Internet at Armonk. Let’s see what happened next and do a Shorlock Holmes style “Dog that didn’t bark” analysis. i.e. we will ask a question “What didn’t happen in this story?” Perhaps that will give us clues as to what happens when we surf a wave especially a big one like Internet.

· 3 people were present for Grossman’s Internet demo – his boss Irving Wladawsky-Berger head of Supercomputer division, Hohnstamm - head of marketing and David Patrick part of corporate strategy who was scouting for his next big project after a successful run as head of marketing at ThinkPad business. Within minutes Grossman had Patrick’s full attention. Patrick recalls, “When I saw the Web for the first time, all the bells and whistles went off. Its ability to include colorful, interesting graphics and to link audio and video content blew my mind”.

· Patrick and Grossman teamed up. Patrick acted as a sponsor and broker for resources and Grossman championed Net in IBM’s far-flung development community. Grossman says, “The hardest part for people on the street like me was how to get senior-level attention within IBM.” Patrick became his mentor and his go-between.

· Patrick-Grossman teamed up with David Singer, a researcher at Alameda, California who had written one of the first Gopher programs (a text-only browser). Grossman-Singer started building a primitive corporate intranet.

· Patrick wrote a “Get connected” manifesto outlining six ways IBM could leverage the Web and circulated the paper informally by email. It found ready audience among IBM’s Internet aficionados.

· Patrick and “Get connected” renegades cobbled together a mock up of an IBM home page. Patrick got CEO Lou Gerstner’s appointment through his technology advisor. When Gerstner first saw the mock-up his first question was, “Where is the buy button?”

· Patrick grabbed the chance at a senior management meeting of IBM’s top 300 officers on May 11, 1994 (note only 3-4 months have passed since Grossman’s epiphany at Ithaca). Patrick presented some of the Web sites that were already up like HP, Sun, and a page for Grossman’s six year old Andrew. Patrick ended the demo by saying, “Oh, by the way, IBM is going to have a home page too, and this is what it will look like”. It included a 36 second video clip of Gerstner saying, “My name is Lou Gerstner. Welcome to IBM”.

· Patrick continued to campaign the Web at various events like Internet World trade convention. He says, “Somebody would invite me to talk about the ThinkPad and I would talk about the Internet instead”.

· In 1996 IBM set up a small Internet group with Patrick as the chief technical officer. During 1996 during Kasparov and Deep Blue match IBM site crashed. People started asking the question – If IBM is having difficulty running a web-site for the chess match, what were the Olympics going to be like? Internet buzz started growing within IBM.

We know where the story is heading. So let’s take a pause here and ask the question, “What didn’t happen in this story?” Here are a few things I can think of:

· Two out of three people in the room didn’t get excited by Grossman’s demo.

· Neither Patrick nor Gerstner asked for a business plan or numbers when they first saw the Web demo.

· Patrick’s boss Jim Canavino didn’t set up a separate immediately, instead he said, “You know, we could set up some sort of department and give you a title, but I think that we be a bad idea. Try to keep this grassroots thing going as long as possible”.

· Not everybody jumped on the Internet bandwagon immediately. It took a few years and shocks like chess game web-site crash for the movement to gain momentum.

Source for this story is Gary Hamel’s case study. Please stay tuned for more on what we can learn from big-wave surfing.

Strategy as surfing a wave #2: More MORs (Moments of Recognition)

In the previous article, we saw how Internet wave hit IBM’s David Grossman. Let’s look at a couple of more examples how waves hit surfers.

PC-wave hits Bill Gates: This is how Bill Gates remembers PC-wave hitting him when he was 16 years old and his friend Paul Allen 18:

"As early as 1971, Paul and I had talked about the microprocessor. And it was really his insight that because of semi-conductor improvements, things would just keep getting better. I said to him, "Oh, an exponential phenomenon is pretty rare, pretty dramatic. Are you serious about this? Because this means, in effect, we can think of computing as free." It is a gross exaggeration, but it is probably the easiest way to understand what it means to cut cost like that. And Paul was quite convinced of that. So I would sort of say to Paul, "Well, you know what that means?" And he'd say, "Yeah, that is what it means." It is kind of fun to know this, and think, gosh, how are companies going to react, how are they going to respond to something that phenomenal? The early days were very slow moving, though. By the time I went to Harvard, all there was the 8008 chip. And the 8080 was just coming out, which was the first good general purpose microprocessor chip that Intel was coming out with.

Internet wave hits Jeff Bezos of Amazon:

Taken from this interview:

"I started working at the intersection of computers and finance, and stayed on Wall Street for a long time, ultimately worked for a company that did this thing called quantitative hedge fund trading. What we did was we programmed the computers and then the computers made stock trades, and that was very interesting too.

The wake up call was finding this startling statistics that web usage in the spring of 1994 was growing at 2,300 percent a year. You know, things just don't grow that fast. It's highly unusual, and that started me about thinking, "What kind of business plan might make sense in the context of that growth?" (Recall that the Grossman incident also occurred around the same time in February 1994).

Strategy as surfing a wave: David Grossman’s moment of recognition at IBM

In a dialogue between UCLA’s Richard Rumelt and McKinsey’s Lowell Bryan, Bryan says – In this (uncertain) environment if you say “I see the future. I’m visionary, I’m going to make the future happen” then it’s a hallucination, not vision. To which Rumelt adds – Good strategy is more like surfing a wave than having this clear vision of the future. I like this metaphor of “surfing a wave” (I had also liked his "predatory leap" metaphor). However, before we see what “surfing” means, let’s step back and ask - how does “moment of recognition” of a wave look like? Let’s zoom into Cornell University’s campus at Ithaca, New York in February 1994 and see what David Grossman is up to. (Full story here).

David Grossman was a mid-level IBMer stationed at Cornell’s Theory Center using a supercomputer connected to early version of Internet. Grossman was one of the first people in the world to download Mosaic browser and experience the graphical world wide web. The Winter Olympics had just started at Lillehammer, Norway and IBM was its official technology sponsor, responsible for collecting and displaying all the results. Watching the games at home, Grossman saw the IBM logo on the bottom of his TV screen. But when he sat in front of his UNIX workstation and surfed the web, he got a totally different picture. A rogue Olympics web site, run by Sun Microsystems, was taking IBM’s raw feed and presenting it under the Sun banner. Grossman says, “If I didn’t know any better, I would have thought that the data was being provided by Sun. And IBM didn’t have a clue as to what was happening on the open Internet.” When he talked to a marketing executive part of Olympics campaign, Grossman got a feeling that one of them was living on the other planet. Grossman felt – Sun was about to eat Big Blue’s lunch. Grossman subsequently took a workstation with him and drove down to IBM headquarters four hours away at Armonk, New York to personally show the Internet to senior executives.

This story shows how sensing a wave happens. But not everybody present senses the wave – at least not with the same intensity. Around the same time Internet wave hit Grossman, I was only 125 miles away from Ithaca perhaps sitting in front of a Sun workstation in Computer Science Department at SUNY Buffalo. As a graduate student I used Mosaic to surf the web and find technical papers. However, I don’t recall any moment when I felt, “Man, this web will change the world”.

By combining Pasteur's first law of innovation with surfing metaphor, we can say: Waves favor prepared mind. Stay tuned for more surfing.