Vivek Kaul
One of the fundamental rules of forecasting is to make as many forecasts as possible and then publicise the ones you get right. On August 4, 2012, I wrote a piece on Firstpost, in which I compared what would become Aam Aadmi Party(AAP) to a disruptive innovation.
The term disruptive innovation was coined by Clayton Christensen, who happens to be a professor of strategy at Harvard Business School. He defines it as “innovations that transform an existing market or create a new one by introducing simplicity, convenience, accessibility and affordability. It is initially formed in a narrow foothold market that appears unattractive or inconsequential to industry incumbents.”
A great example of a disruptive innovation is Micromax. Micromax and a host of other Indian phone makers built up significance presence in the smartphone market, while the biggest player Nokia was busy elsewhere.
Bharti Beetel, which produced India’s first landline phones which had buttons on them, did not wake to the opportunity of the mobile phone market. This despite the fact that its sister company Airtel was India’s biggest mobile phone service provider.
RCA, America’s leading radio company, did not see the rise of battery powered pocket transistors which were first made by Sony in 1955. Sony changed the way the world heard music by launching the Walkman and the CDman. But it handed over the digital music player market on a platter to Apple and other companies. Sony did not capture the mp3 player market because it feared that it would play havoc with all the music rights that it owned.
When it comes to low cost airlines Southwest Airlines first woke up to the opportunity. None of the bigger players in the market like Pan American, British Airways, Lufthansa, Delta etc, saw the opportunity at that point of time. Even in an Indian case, a rank outsider Indigo has captured the low cost market, instead of incumbents like Air India and Jet Airways, which continue to make huge losses.
There are scores of such examples in business, where the biggest player(or players) in the market has been rattled by a new player. AAP is a similar disruptive innovator. In the August 2012 piece, I had said that what “works to the advantage of disruptive innovators is the fact that the major players in the market ignore them initially and do not take them as a big enough force that deserves attention.”
And this works to the advantage of the disruptive innovator, which can quietly keep doing its thing. The bigger player is not interested because the market that the disruptive innovator is catering to is too small for them to take seriously. Take the case of smartphones. Smartphones have been around since the late 1990s, but they only took off in the last few years. Hence, Nokia never got around to take them very seriously.
When Sony first launched pocket transistors they catered primarily to teenagers. This led to RCA ignoring the market, because the bigger market was elsewhere. Apple’s first personal computers were targeted towards the youth, leading to the existing players who manufactured minicomputers ignoring the market completely.
Along similar lines, the Bhartiya Janata Party and the Congress, looked at AAP as a party which catered to the frustrations of the middle class. And given that the middle class in this country does not care to vote, the existing political parties felt that there was no point in paying attention to what the AAP was upto.
In fact, Sheila Dikshit, the chief minister of Delhi for the last fifteen years said so in several interviews. In an interview to the Open magazine published in early November, Dikshit said that “he(i.e. Arvind Kejriwal, the National Convener of the AAP) is not even on our radar.” In a rally without referring to Kejriwal, she even called him ‘barsaat ka keeda’.In another interview to Tehelka, Dikshit said “My reaction to the Aam Aadmi Party is nothing..absolutely nothing.” By the time Congress woke up to the threat from the AAP, it reacted the only way it could, by ordering a probe into the foreign funding sources of the party.
The Bhartiya Janata Party also woke up around mid October, six weeks before the election, and decided to project Dr Harshvardhan as its chief ministerial candidate. As the India Today reported on the issue “Highly-placed sources in the BJP have told indiatoday.in that the party wanted to go into the elections with a leader who had a clean image and that made it go with the doctor.”
The only possible explanation for this change is the fact that the BJP came to realise slightly late in the day, that the AAP was no pushover. Hence, it had to project a chief ministerial candidate with a clean image. And this got Dr Harshvardhan into the picture.
The fact that it wasn’t taken seriously by its opponents allowed the AAP to go about building itself right from scratch in Delhi. The results suggest that what the AAP has managed to do in a small span of a little over a year is unprecedented. No other political party established right from scratch has ever won the number of seats that it has, since independence, in its very first election.
On various discussions that happened across television channels yesterday political analysts brought up the example of NT Rama Rao. NT Rama Rao stormed to power by winning the January 1983 assembly elections in Andhra Pradesh. His Telgu Desam Party won 199 out of the 294 assembly seats. In comparison, AAP’s performance looks pale.
But its worth remembering here that NT Rama Rao was the biggest Telgu film-star at that point of time. He may have been contesting elections for the first time, but everyone in Andhra Pradesh knew who he was. And given how crazy Andhra Pradesh was and continues to be about cinema, NTR did not have to start right from scratch like AAP did in Delhi.
Some others also compared AAP’s success to the defeat that Mamata Banerjee handed out to the Left Front in West Bengal in 2011. While what Mamata did was huge, it is worth remembering that it took her almost three decades to do that. And when she moved out of the Congress Party to form the Trinamool Congress, a large section of the Congress Party moved with her. This meant that there was some sort of organisation that was present at the ground level when Mamata seriously thought of taking on the Left parties on her own.
When the success of AAP is looked at with these factors in mind, it really is unprecedented.
Another point that comes out here is what marketing gurus Al and Laura Ries make in their book The Fall of Advertising and the Rise of PR. In the last few decades the biggest brands have been made through public relations and not through advertising. As Al Ries told me in a October 2008 interview that I did for the Daily News and Analysis (DNA) “Almost all of the recent brand successes have been public relations (PR) successes, not advertising successes…In its first 10 years, Starbucks spent less than $10 million (total) on advertising which is a small amount in a country of 300 million people. The Body Shop has never advertised. Yet recently, L’Oreal paid $1.1 billion to buy the company…Red Bull today is a worldwide brand with $3.3 billion in annual sales, yet the company does little advertising. Same is true about Google, Facebook, Twitter, which are now some of the biggest brands in the world.”
In fact, the success of AAP is a very good example of the same. The party did not have enough money to go through the conventional advertising route of advertising on television and in newspapers. They came up with innovative ways of advertising which did not need a lot of money, like getting their volunteers to stand with banners of the party at strategic traffic points. They also advertised on autorickshaws, which was a cheap and effective way of reaching a large number of people.
In fact, they got spectacular coverage in the media by exposing corruption in business and crony capitalism. Arvind Kejriwal and the AAP were on the front pages of newspapers all over the country, for fairly long periods of time, over the last one year due to this. In the end, this strategy was overused, businessmen cracked the whip and finally a large section of the media stopped covering there exposures. The door to door campaign in Delhi that it carried out was also a spectacular public relations exercise.
As I said earlier, the big boys never really took the AAP seriously. They asked all the practical questions. Where would the AAP raise all the money to fight an election? How would they be able to put an effective organisation in place, in such a short period of time? How would they manage to achieve all that we have achieved in the last sixty to hundred years, in a period of one year?
The party did this and a lot more.
It raised money directly from people, something that has been unheard of in Indian politics. The party also innovated when it came to reaching out to people, something expected from a disruptive innovator. It organised small mohalla sabhas attended by a few hundred people at a time, all across Delhi. Of course, existing political parties used to large rallies, did not see much worth in organising events where at best a few hundred people turned up.
The AAP also used social media very effectively when it came to drumming up support, something no one other than Narendra Modi, has tried to do.
The question is will the AAP be able to replicate its success in Delhi through other parts of the country? The answer is not simple. The incumbent politicians would like to believe that it will be very difficult for the AAP to play the game of caste so important in large parts of the country.
But what should give them hope is the fact that the larger political parties are still not taking them seriously. A senior BJP leader said on NDTV India yesterda that comparing BJP with AAP was like comparing “Raja Bhoj with Gangu Teli”. Another BJP leader challenged them to win even a single seat out of the 48 Lok Sabha seats in Maharasthra.
This tells us that the incumbent politicians are still not taking AAP seriously and feel that they will find it difficult to replicate their success outside Delhi. How successful AAP is outside Delhi, only time will tell us.
To conclude, AAP’s spectacular debt in Indian democracy was best summarised by anchor Punya Prasun Bapai on Aaj Tak yesterday, when he said “Jhadu, Tiranga Ke Saath Lehra Raha Hai”.
The article originally appeared on www.firstpost.com on December 9, 2013
(Vivek Kaul is a writer. He tweets @kaul_vivek)
Clayton Christensen
What Nokia could have done to prevent its fall
Vivek Kaul
Companies like human beings have a limited lifespan. Professor Richard Foster of the Yale University estimates that the average lifespan of a company listed in the S&P 500 in the United States is only around 15 years now. This has fallen from around 67 years in the 1920s.
Why has the lifespan of companies shortened so dramatically in the last 100 years? Marketing guru Al Ries and his daughter Laura have an explanation in their book War In the Boardroom. As they write “The biggest mistake of logical management types is their failure to see the rise of a new category. They seem to believe that categories are firmly fixed and a new one seldom arises.”
The most recent example of this phenomenon is Nokia. The company was the largest seller of mobile phones in the world until Samsung overtook it in 2012. Even now it sells nearly 15% of the world’s mobile phones, but has only 3% share in the lucrative smart phone category.
Despite being the largest player in the market, Nokia did not see the rise of smart phones. In fact, this lack of foresight allowed brands like Micromax and Karbonn to rise in the Indian market. Nokia’s failure is not surprising, given that the history of business is littered with many such examples. RCA, America’s leading radio company, did not see the rise of battery powered pocket transistors which were first made by Sony in 1955. Sony changed the way the world heard music by launching the Walkman and the CDman. But it handed over the digital music player market on a platter to Apple and other companies.
Some of the biggest minicomputer companies did not see the rise of the personal computer. None of the big airline companies around the world thought there was a market for low cost airlines, until Southwest Airlines walked away with the market.
Closer to home, Hindustan Lever (now Hindustan Unilever) did not believe that there was a market for a low cost detergent. Nirma captured that market, though to its credit Hindustan Lever fought back brilliantly with its Wheel brand. Bharti Beetel, changed the entire landline market in India by selling phones which had buttons on them. But by the time it entered the mobile phone market it was too late.
So why do established companies fail to see the rise of a new category? Clayton Christensen, a professor at the Harvard Business School has offered an explanation for this, in the research that he has done over the years. Established companies have a way of doing things (their existing resources, processes, profit model, value proposition they offer and so on). Anything new that comes along threatens that status quo.
Take the case of Sony. The rise of digital music threatened the vast music catalogue that the company owned. And if it launched a digital music player, people would simply copy music instead of buying it. Kodak was the first company to make a digital camera. But it did not take the concept seriously because any camera that did not use “photo films”, threatened the ‘existing’ business model of the company.
What also happens at times is that the initial market is too small. Smartphones have been around since the late 1990s, but they only took off in the last few years. This ensured that Nokia did not take the new category too seriously because there was money to be made elsewhere.
Christensen feels that the only way big companies can be serious about the rise of new categories is to create a separate organisation within the organisation. He gives the example of IBM, which was the only big company around to benefit from the rise of the personal computers(PCs).
IBM set up a separate organisation in Florida, with the mission to create and sell PCs successfully. The organisation had its own engineers and its own sales channel, and thus did not threaten IBM’s existing way of doing things. When minicomputers went totally out of fashion in the late 1980s, IBM was the only big company around to compete in the PC market.
The moral of the story is that big companies in order to survive need to keep making small bets, which are not a part of the existing organisational set up, and see what works.
The column originally appeared in the Business Standard Strategist dated November 11, 2013
(Vivek Kaul is the author of Easy Money (Sage, 2013). He can be reached at [email protected])
We need to give Kejriwal time: he is testing the waters
Vivek Kaul
We are a funny country. We kept voting the Congress party back to power time and time again for a period of more than 65 years without asking any questions. The party made a mess, turning India into one of the most corrupt countries in the world, where governance has more or less collapsed.
And then comes a man, a former bureaucrat, an IITian, who promises to turn the system around. Arvind Kejriwal is his name. And he is—at least in terms of intentions—our best hope. But, ironically, we want him to be battle ready and give us answers for all that has been wrong with the country right-away.
Here are some doubts that I have seen appearing across the conventional as well as social media:
a) Kejriwal and India Against Corruption(IAC) are too obsessed with politics. It could be a movement if they dug up facts against municipalities, industries and others. (A status of a Facebook friend)
b) They don’t have the organisational strength to propose a viable alternative
c) If Kejriwal is starting a party I’d like to know his economic policy too. Shouldn’t just begin and end in catching thieves? (Another status of a Facebook friend)
d) What is new about all that he has pointed out? It’s just a rehash. (A favourite with newspaper editors. And something which The Economic Times suggests in its lead story today. And even if it is a rehash, does that necessarily make the issues being brought into the public domain by Kejriwal and IAC less important?)
e) What interest groups does the movement represent? What are its priorities, apart from radical transparency and a maximalist Lokpal bill? Where does it stand on religious minorities? What compromises would be unacceptable? (As an editorial in today’s edition ofThe Indian Express asks.)
While these are important questions that Kejriwal and IAC need to answer, but expecting them to answer them immediately and all at once is a tad unfair. If we Indians could give the Congress party 65 years, and still not get many answers from them, we can surely give Kejriwal and his team 65 weeks, if not months, to come up with the answers.
Let me paraphrase lines written by my favourite economist John Kenneth Galbraith (borrowed from his book The Affluent Society) to capture this cynicism against Kejriwal and what he is trying to do. “When Indians see someone agitating for change they enquire almost automatically: ‘What is there (in it) for him?’ They suspect that the moral crusades of reformers, do-gooders, liberal politicians, and public servants, all their noble protestations notwithstanding, are based ultimately on self-interest. ‘What’, they enquire, ‘is their gimmick?’” At the same time we Indians tend to ignore the absolute power enjoyed by the Congress party which has now led to a situation where the Congress leaders are simply not used to answering questions that are asked. As Salman Khurshid, the Union Law Minister, said a couple of days back “Wo (Kejriwal) kahte hain ki hum sawal poochenge tum jawab dena. Hum kehte hain tum jawab suno aur sawal poochna bhool jao.”
Getting back to Kejriwal in an earlier piece, I had equated Kejriwal’s decision (then Team Anna) to form a political party to a disruptive innovation. Clayton Christensen, a professor of strategy at Harvard Business School is the man who coined this phrase. He defines it “innovations that transform an existing market or create a new one by introducing simplicity, convenience, accessibility and affordability. It is initially formed in a narrow foothold market that appears unattractive or inconsequential to industry incumbents.”
The point being made here is that a disruptive innovation always starts small and appeals to a small segment of the market. It cannot be everything for everybody from day one simply because the resources are limited.
An excellent example of a disruptive innovation in an Indian context is the Nirma detergent which was created in 1969 by Karsanbhai Patel, a chemist with the Gujarat government’s department of mining and geology. Patel started making the detergent in a room in his house. On his way to office, which was some 15 km away, he sold 15-20 packets every day. Thus, started the great journey which within a decade would give sleepless nights to the top management at Hindustan Lever Ltd (now Hindustan Unilever Ltd).
But the point is that Nirma started small. Patel sold a few packets everyday and his area of operation was limited given the limited resources available to him. The focus was on making a detergent which was much cheaper than the Surf from Hindustan Lever, which dominated the market back then.
Amul, another disruptive innovation, started small in Anand in the Kaira district of Gujarat. But soon it would become very successful and move to other districts in the state as well. In the end it would also be responsible for making India a largely milk sufficient nation that it is today.
Another great example is that of Apple, which brought about a revolution in the personal computer market. Again Apple started small and focused on one section of the market. As Clayton Christensen told me in an interview I did for DNA, “Apple made a wise decision and first sold the personal computer as a toy for children. Children had been non-consumers of computers and did not care that the product was not as good as the existing mainframe and minicomputers. Over time Apple and the other PC companies improved the PC so it could handle more complicated tasks. And ultimately the PC has transformed the market by allowing many people to benefit from its simplicity, affordability, and convenience relative to the minicomputer.”
Another example is Sony. “In 1955, Sony introduced the first battery-powered, pocket transistor radio. In comparison with the big RCA tabletop radios, the Sony pocket radio was tiny and static laced. But Sony chose to sell its transistor radio to non-consumers – teenagers who could not afford big tabletop radio. It allowed teenagers to listen to music out of earshot of their parents because it was portable. And although the reception and fidelity weren’t great, it was far better than their alternative, which was no radio at all,” write Clayton Christensen, Michael B Horn and Curtis W Johnson in Disrupting Class — How Disruptive Innovation Will Change the Way the World Learns.
So like all other disruptive innovations, Arvind Kejriwal and IAC are small and do not have the necessary organisation to take on heavyweights like the Congress and the Bharatiya Janata Party (BJP). Also, their views on a whole lot of issues that plague India aren’t known.
But what Arvind Kejriwal and IAC have managed to do is focus on one issue – i.e. the nexus between politics and business, and the cosy relationship even between rival political parties. In the case of the Congress party, the nexus between Robert Vadra and DLF has clearly been brought out. And in case of the Bharatiya Janata Party, its businessmen President Nitin Gadkari has been accused of using his political standing to favour his businesses.
This focus has helped Kerjiwal to appeal to the so called “middle-class”. It has also managed to clearly rattle his biggest opponents, the Congress party and now the BJP. The Congress party unleashed a string of lawyer ministers to defend Robert Vadra. The BJP yesterday had both the leaders of opposition in Rajya Sabha and the Lok Sabha (Arun Jaitley and Sushma Swaraj) along with three party spokespersons defending Gadkari in a press conference.
Also right now is the time when Kejriwal and IAC are building their brand. And as marketing guru Al Ries keeps saying, “Focus is the essence of marketing and branding”. They are doing just that. There is no point in spreading their thin resources all over the place. Once the brand is built they can gradually start moving to other issues.
By then, hopefully, more people would have joined them also. Any disruption does not come as an immediate shift. Similarly, the IAC isn’t going to take India by storm overnight. It will need time. In a way Kejriwal and IAC are in a similar position like the Congress party was in 1885 when it was formed. The initial aim of the party was to get a greater share in the government for educated Indians. The party wasn’t opposed to British rule at that point of time. The point being the Congress party wasn’t clear from day one all that it would do in the years to come. As years went by, things evolved and the party led India to its independence and tried to come up with answers to questions that arose along the way.
The challenge for IAC will be to figure out how to hold the interest of the people once they start losing interest in the corruption issue. Also they might appeal only to a section of the voters initially, probably the urban middle class, like Apple PCs had appealed to children and Sony radios to teenagers. So they are likely to start off with a limited appeal. Chances are if they stay true to their cause their popularity might gradually go up over the years, as has been the case with disruptive innovators in business.
Any disruption does not come as an immediate shift. As the authors write, “Disruption rarely arrives as an abrupt shift in reality; for a decade, the personal computer did not affect DEC’s (Digital Equipment Corp’s) growth or profits.” Similarly, Kejriwal and IAC aren’t going to take India by storm overnight. They will need time. And as time goes by more questions will be asked of them and they will need to come up with answers.
As I had said on an earlier occasion, there are three things that can happen with this disruptive innovation. Kerjiwal’s party tries for a few years and doesn’t go anywhere. That doesn’t harm us in anyway. Kejriwal’s political party fights elections and is able to build a major presence in the country and stays true to its cause. That benefits all of us. Kejriwal’s political party fights elections and its candidates win. But these candidates and the party turn out to be as corrupt as the other political parties that are already there. While this will be disappointing, but then one more corrupt political party is not going to make things more difficult for the citizens of this country in anyway. We are used to it by now.
As far as Arvind Kejriwal and IAC go, they must well remember these famous lines from Majrooh Sultanpuri, the famous Hindi film lyricist and Urdu poet.
Main akela hi chala tha janibe manzil magar,
Log saath aate gaye aur karawan banta gaya.
(Loosely translated, it means this: I had started off alone towards my goal, people began joining and a huge caravan began forming!)
The article originally appeared on www.firstpost.com on October 18,2012. http://www.firstpost.com/politics/we-need-to-give-kejriwal-time-he-is-testing-the-waters-494970.html
Vivek Kaul is a writer. He can be reached at [email protected]
Why you shouldn’t write off the Tata Nano just yet
Vivek Kaul
A little over three years after it was first introduced Tata Nano is being widely touted as a flop. The car which was supposed to cause traffic jams all over India is not selling as much as it was expected to.
Between January and July this year 55,398 units of the car have been sold. This is 13.3% more than the number of units that were sold during the same period last year. So even though the numbers are looking better this year they are nowhere near the installed capacity that the Nano plant in Sanand in Gujarat has, as an earlier piece pointed out. (You can read the complete piece here).
Numbers of reasons are being pointed out for the Nano flop show. Let me discuss a few here. In the book The Little Black Book of Innovation Scott D Anthony, who is an innovation consultant, points out a conversation he had with a colleague in late 2009. ““Here’s a provocative perspective,” my colleague said in late 2009… “I think the Tata Nano is going to be a disappointment.”… So why was my colleague being so skeptical? “Look at it from a customer’s perspective,” he said. These people could already afford to pay twenty-five-hundred dollars (or around Rs 1 lakh as the Nano was expected to be priced initially) for a perfectly good used car. Instead they consciously chose the scooter.”
Ratan Tata had the idea to build a car like Nano when he saw a family of four struggling on a two-wheeler on a rainy night in Mumbai. But despite the safety hazards people still preferred a two wheeler to a Nano. “Why would consumers choose a scooter? It wasn’t that these people didn’t care about their family. Rather, they didn’t have the space to park a car, or they found scooters that fit into tiny gaps on India’ chaotic streets a much more convenient form of transformation,” writes Anthony.
Another major reason being pointed out for Nano’s failure is it’s positioning. As Rahul Shankar points out in a blog post titled “Why did the Tata Nano fail as a disruptive innovation?” “The Nano was essentially branded as the world’s cheapest car…The truth is that no one wants to own a car that is thought off as cheap. Very few people treat a car as just a machine that takes them from point A to point B. This is basically what the Nano has been reduced to. People want to brag about how awesome their car is and how it kicks their neighbor/friends car’s butt….The advertisements that I have seen for the Nano have unfortunately come off as bland and catering again to the theme of affordability.” (You can read the complete post here)
These are valid points that have been raised. Even Ratan Tata has admitted to mistakes having been made. “We never really got our act together…I don’t think we were adequately ready with an advertising campaign, a dealer network,” Tata remarked earlier this year.
But these reasons notwithstanding, it’s too early to write off the Nano. Nano is what innovation experts call a disruptive innovation. This term was coined by Harvard Business School professor Clayton Christensen. “A disruptive innovation is an innovation that transforms an existing market or creates a new one by introducing simplicity, convenience, accessibility and affordability,” is how Christensen defined disruptive innovation when I had interviewed him a few years back for the Daily News and Analysis (DNA).
An important thing with disruptive innovations is that they tend to work out over a period of time. As Christensen said “It is initially formed in a narrow foothold market that appears unattractive or inconsequential to industry incumbents.”
A great example is the Apple personal computer which took around a decade to establish itself. As Christensen put it “A great example is the Apple personal computer. The incumbent companies of the time were those like Digital Equipment Corporation (DEC) that made minicomputers, which were big machines that sold for lots of money and could handle very complex tasks. When the personal computer burst on the scene, it sold for significantly less money than the minicomputer did…the PC wasn’t as good as the minicomputer for the market as it existed at that time. Apple made a wise decision and first sold the personal computer as a toy for children. Over time Apple and the other PC companies improved the PC so it could handle more complicated tasks. And ultimately the PC has transformed the market by allowing many people to benefit from its simplicity, affordability, and convenience relative to the minicomputer.”
Given this any disruption does not come as an immediate shift. “Disruption rarely arrives as an abrupt shift in reality,” write Clayton Christensen, Michael B Horn and Curtis W Johnson in Disrupting Class —How Disruptive Innovation Will Change the Way the World Learns.
This is something that Nirmalya Kumar, a professor at the London Business School (LBS) agrees with. “What I know about is radical versus incremental innovation. The more radical the innovation is the longer the time customers take to adopt it. People think of Nesspresso as being as a great radical innovation, but what they don’t know is that for 20 years it did not sell a whole lot and then the sales went up in a spike,” Nirmalya Kumar had told me in an interview I did for the Economic Times. Nespresso is a cappuccino maker sold by Nestle.
Amazon, which started off as a bookseller is another great example of a disruptive innovation which took time to get settled in. Another great example from the field of cinema is the movie Sholay. The film was massacred by critics when it released on August 15,1975. As Anupama Chopra writes in Sholay: The Making of a Classic “Taking off on the title of the film, K.L.Almadi writing in the India Today called it a ‘dead ember’… Filmfare’s Bikram Singh wrote: ‘The major trouble with the film is the unsuccessful transplantation it attempts – grafting a western on the Indian milieu.”
The Indian audience had never seen anything like this before. And it thus took time to sink in. The film went onto become the biggest box office hit of all time.
What these examples tell us is that it is too early to write off the Nano, despite the fact that the initial planks on which it was sold are largely not true anymore. “A cheap car that’s not really cheap. A safe car whose safety has been questioned. A poor people’s car that poor people aren’t buying. That sounds like a failure, certainly. But really it’s not. It’s par for the course for almost every breakthrough innovation,” writes Matthew J. Eyring the president of Innosight, a strategy innovation consulting and investment firm, on the HBR blog network. (you can read the complete piece here). “In fact, I can think of only one example of a CEO who pre-announced an innovation that was going to change the world and actually delivered it. That’s Steve Jobs of course,” he adds.
Critics point out that a lot of assumptions that Nano’s initial strategy was built on are not turning out to be true. The two wheeler riders aren’t upgrading to the Nano as they were. It’s no longer as cheap as it was initially promised to be. And people are buying it more of as a second car rather than their main mode of transport. But this is again in line with the way breakthrough or disruptive innovations operate.
As Eyring puts it “There’s nothing unusual about a company having to adjust the price, the production process, the marketing, or even the market of a breakthrough offering. The Nano’s price changes, the new maintenance contract Tata is rolling out to assure buyers of quality, the test drives it’s introducing, the new smaller showrooms, and the new commercials — all widely discussed in the press — should not really be news.”
All these things are also happening with the Nano because Tata Motors went in for a full fledged launch of the car rather than a small one. As Nirmalya Kumar put it “When the product development is radical you always do a small launch. They did a huge launch for Nano. They should have done a smaller launch. With radical innovation you need to keep tinkering and figuring out what is it exactly that the customer wants. This is because with radical innovation pre market testing is not really relevant because the consumers are not good at telling you whether they will buy a radical new product because they have no conceptualisation.”
This is something that Godrej & Boyce did with the ChotuKool refrigeratior. “Long before most people had heard of the low-power fridge ChotuKool, Godrej & Boyce spent quite some time investigating people’s refrigeration needs, designing and redesigning the product, and redoing its distribution strategy, carefully, slowly, and quietly,” writes Eyring.
It would have helped if Tata Motors had followed a similar strategy with Nano. As Eyring points out “It might not have been easy, but had Tata piloted the Nano quietly, on a small scale, perhaps through a limited production run in a small city like Durgapur in West Bengal or Ranchi in Jharkand, its engineering, pricing, financing, and marketing might have been adjusted far from the limelight to suit the needs of an optimal target customer… the Nano might have made its debut to the wider world with less hype and greater effect. It might not have been a 1 lakh car or even an alternative to motorscooters. But when it first appeared in the mainstream, it would have been right product for the right price in the right market.”
So now the Nano has entered the tinkering phase. And as this goes along Tata Motors will figure out what works and what does not. And this may be totally different from the assumptions the company started out with.
What still doesn’t change is its low price, despite the fact that it never sold for Rs 1 lakh as it was initially expected to. As Nirmalya Kumar put it “That’s the real startling novelty of the product because there is no car available anywhere in the world for $5000.”
The article originally appeared on www.firstpost.com on August 24,2012. http://www.firstpost.com/business/why-you-shouldnt-write-off-the-tata-nano-just-yet-429044.html
(Vivek Kaul is a writer and can be reached at [email protected])
What Team Anna can learn from Nirma, Sony, Apple and Ford
Vivek Kaul
The decision by Team Anna to form a political party has become the butt of jokes on the internet. A Facebook friend suggested that they name their party, the Char Anna Party and someone else suggested the name Kejriwal Liberal Party for Democracy (KLPD).
The jokes are clearly in a bad taste and reflect the level of cynicism that has seeped into us. Let me paraphrase lines written by my favourite economist John Kenneth Galbraith (borrowed from his book The Affluent Society) to capture this cynicism. “When Indians see someone agitating for change they enquire almost automatically: “What is there for him?” They suspect that the moral crusades of reformers, do-gooders, liberal politicians, and public servants, all their noble protestations notwithstanding are based ultimately on self interest. “What,” they enquire, “is their gimmick?””
The cynicism comes largely from the way things have evolved in the sixty five years of independence where the political parties have taken us for a royal ride. Given this the skepticism that prevails at the decision of Team Anna to form a political party isn’t surprising. Take the case of Justice Markandey Katju, who asked CNN-IBN “Which caste will this political party represent? Because unless you represent one caste, you won’t get votes…Whether you are honest or meritorious nobody bothers. People see your caste or religion. You may thump your chest and say you are very honest but you will get no votes.”
Former Supreme Court justice N. Santosh Hegde said “Personally, am not in favour of Annaji floating a political party and contesting elections, which is an expensive affair and requires huge resources in terms of funds and cadres.”
Some other experts and observers have expressed their pessimism at the chances of success of the political party being launched by Team Anna. Questions are being raised. Where will they get the money to fight elections from? How will they choose their candidates? What if Team Anna candidates win elections and start behaving like other politicians?
All valid questions. But I remain optimistic despite the fact that things look bleak at this moment for Team Anna’s political party.
I look at Team Anna’s political party as a disruptive innovation. Clayton Christensen, a professor of strategy at the Harvard Business School is the man who coined this phrase. He defines it as “These are innovations that transform an existing market or create a new one by introducing simplicity, convenience, accessibility and affordability. It is initially formed in a narrow foothold market that appears unattractive or inconsequential to industry incumbents.”
An excellent example of a home grown disruptive innovation is Nirma detergent. Karsanbhai Patel, who used to work as a chemist in the Geology & Mining Department of the Gujarat government, introduced Nirma detergent in 1969.
He first started selling it at Rs 3.50 per kg. At that point of time Hindustan Lever Ltd’s (now Hindustan Unilever) Surf retailed for Rs 15 per kg. The lowest-priced detergent used to sell at Rs 13.50 per kg. The price point at which Nirma sold made it accessible to consumers, who till then really couldn’t afford the luxury of washing their clothes using a detergent and had to use soap instead.
If Karsanbhai Patel had thought at the very beginning that Hindustan Lever would crush his small detergent, he would have never gotten around launching it. The same applies to Team Anna’s political party as well. They will never know what lies in store for them unless they get around launching the party and running it for the next few years.
Getting back to Nirma, the logical question to ask is who should have introduced a product like Nirma? The answer is Hindustan Lever, the company which through the launch of Surf detergent, pioneered the concept of bucket wash in India. But they did not. Even after the launch of Nirma, for a very long time they continued to ignore Nirma, primarily because the price point at which Nirma sold was too low for Hindustan Lever to even think about. And by the time the MBAs at Hindustan Lever woke up, Nirma had already established itself as a pan-India brand. But, to their credit they were able to launch the ‘Wheel’ brand, which competed with Nirma directly.
At times the biggest players in the market are immune to the opportunity that is waiting to be exploited. A great example is that of Kodak which invented the digital camera but did not commercialize it for a very long time thinking that the digital camera would eat into its photo film business. The company recently filed for bankruptcy.
Ted Turner’s CNN was the first 24-hour news channel. Who should have really seen the opportunity? The BBC. But they remained blind to the opportunity and handed over a big market to CNN on a platter.
Along similar lines, maybe there is an opportunity for a political party in India which fields honest candidates who work towards eradicating corruption and does not work along narrow caste or regional lines. Maybe the Indian voter now wants to go beyond voting along the lines of caste or region. Maybe he did not have an option until now. And now that he has an option he might just want to exercise it.
While there is a huge maybe but the thing is we will never know the answers unless Team Anna’s political party gets around to fighting a few elections.
The other thing that works to the advantage of disruptive innovators is the fact that the major players in the market ignore them initially and do not take them as a big enough force that deserves attention.
A great example is the Apple personal computer. As Clayton Christensen told me in an interview I carried out for the Daily News and Analysis (DNA) a few years back “Apple made a wise decision and first sold the personal computer as a toy for children. Children had been non-consumers of computers and did not care that the product was not as good as the existing mainframe and minicomputers. Over time Apple and the other PC companies improved the PC so it could handle more complicated tasks. And ultimately the PC has transformed the market by allowing many people to benefit from its simplicity, affordability, and convenience relative to the minicomputer.”
Before the personal computer was introduced, the biggest computer available was called the minicomputer. “But minicomputers cost well over $200,000, and required an engineering degree to operate. The leading minicomputer company was Digital Equipment Corporation (DEC), which during the 1970s and 1980s, was one of the most admired companies in the world economy,” write Clayton Christensen, Michael B Horn and Curtis W Johnson in Disrupting Class —How Disruptive Innovation Will Change the Way the World Learns.
But even then DEC did not realise the importance of the personal computer. “None of DEC’s customers could even use a personal computer for the first 10 years it was on the market because it wasn’t good enough for the problems they needed to solve. That meant that more carefully DEC listened to its best customers, the less signal they got that the personal computer mattered — because in fact it didn’t — to those customers,” the authors explain.
That DEC could generate a gross profit of $112,500 when selling a minicomputer and $300,000 while selling the much bigger ‘mainframe’ also didn’t help. In comparison, the $800 margin on the personal computer looked quite pale.
Another example is Sony. “In 1955, Sony introduced the first battery-powered, pocket transistor radio. In comparison with the big RCA tabletop radios, the Sony pocket radio was tiny and static laced. But Sony chose to sell to its transistor radio to non-consumers – teenagers who could not afford big tabletop radio. It allowed teenagers to listen to music out of earshot of their parents because it was portable. And although the reception and fidelity weren’t great, it was far better than their alternative, which was no radio at all,” write Christensen, Horn and Johnson. Sony went onto to come up with other great disruptive innovations like the Walkman and the CDMan. But did not see the rise of MP3 players.
The point is that incumbents are so clued in to their business that it is very difficult for them to see the rise of a new category.
So what is the learning here for Team Anna? The learning is that their political party may not take the nation by storm all at once. They might appeal only to a section of the voters initially, probably the urban middle class, like Apple PCs had appealed to children and Sony radios to teenagers. So the Team Anna political party is likely to start off with a limited appeal and if that is the case the bigger political parties will not give them much weight initially. Chances are if they stay true to their cause their popularity might gradually go up over the years, as has been the case with disruptive innovators in business. The fact that political parties might ignore them might turn out to be their biggest strength in the years to come.
Any disruption does not come as an immediate shift. As the authors write, “Disruption rarely arrives as an abrupt shift in reality; for a decade, the personal computer did not affect DEC’s growth or profits.” Similarly, the Team Anna political party isn’t going to take India by storm overnight. It will need time.
Business is littered with examples of companies that did not spot a new opportunity that they should have and allowed smaller entrepreneurial starts up to grow big. The only minicomputer company that successfully made the transition to being a personal computer company was IBM. “They set up a separate organisation in Florida, the mission of which was to create and sell a personal computer as successfully as possible. This organisation had to figure out its own sales channel, it had its own engineers, and it was unencumbered by the existing organization,” said Christensen.
But even IBM wasn’t convinced about the personal computer and that is why it handed over the rights of the operating system to Microsoft on a platter. Even disruptive innovators get disrupted. Microsoft did not see the rise of email and it’s still trying to correct that mistake through the launch of Outlook.com. It didn’t see the rise of search engines either. Nokia did not see the rise of smart phones. Google did not see the rise of social media. And Facebook will not see the rise of something else.
Team Anna is a disruptive innovation which can disrupt the model of the existing political parties in India. There are three things that can happen with this disruptive innovation. The Team Anna political party tries for a few years and doesn’t go anywhere. That doesn’t harm us in anyway. The Team Anna political party fights elections and is able to build a major presence in the country and stays true to its cause. That benefits all of us. The Team Anna political party fights elections and its candidates win. But these candidates and the party turn out to be as corrupt as the other political parties that are already there. While this will be disappointing but then one more corrupt political party is not going to make things more difficult for the citizens of this country in anyway. We are used to it by now.
Given these reasons the Team Anna political party deserves a chance and should not be viewed with the cynicism and skepticism which seems to be cropping up.
(The article originally appeared on www.firstpost.com on August 4,2012. http://www.firstpost.com/politics/what-team-anna-can-learn-from-nirma-sony-apple-and-ford-404843.html)
(Vivek Kaul is a writer and can be reached at [email protected])