Many leaders say that business innovation is core to their strategy, but their companies fail to achieve significant innovation, because they are not set up to do so. What is the role of business leadership in creating the Innovation culture in an organization? What initiatives should be taken to foster the Innovation? How should the Organization's Innovation program be planned, managed, and tracked?

Abstract

In today's dynamic business environment, 'innovation' is the key factor that gives a competitive edge to every organization. Every body has its own perspective on 'innovation'. The informative discussion explored every aspect of innovation and how deep this 'innovation' culture lies at the company level. What are the factors that help and nurture 'innovation' at the root level?

Discussion

Pradeep Bindal: We can discuss about what is innovation because innovation means different things to different people. We can talk about why innovation? Is it important for survival or things like that? What level innovation should be in an organization, at a high level, at a low level? It should be controlled; it should not be controlled; it should be structured, unstructured. What are the success factors for innovation? There will be 100 questions and 100 answers. May be we will divide it on some success factors. Then what is the role of management on innovation? Do they control it? Do they leave it loose free and things like that, maybe what are the incentives given for people who are innovative. Do they rise in organization or they continue to be an idea making engine which can throw ideas but they cannot implemented and what is the success chances for an innovation?

Partha: As we look at innovation in the context of global sourcing, innovation in the context of what we see happening in India and other countries around the world in HCL and other companies around the world, one can argue that there is innovation happening on many, many different fronts. Coming to the topic of the panel - has innovation reached the trenches, I would say that the major evidence of innovation in the global sourcing space today, most of it frankly from the Indian companies, from companies like HCL, has really not been at the trenches but more in the company level. If you look at the innovation in terms of some of the HR policies, the HR capabilities that these companies have achieved, most of you in the audience would probably never even dream of trying to hire 6000 to 8000 people a quarter, let along training them, getting them in billable productive positions and doing that four quarters of the year and essentially which some of the companies did last year, hiring and adding a company the size of the six largest services from in the country to the payroll in one year. That in my mind is phenomenal innovation.

When you look at innovation in the trenches, I believe that there are pockets of innovation. The majority of the work today and this is where the Indian offshore industry is come from is in that utility space. Critical work but low value, really no need for innovation, it is pure execution, excellence in execution. At the high end, you have the transformation which is really where the competitive differentiation, the innovation has to come. The last point I would like to mention is when you run up against this innovation issue in the trenches, we come up against a very macro issue for India which is kind of boil the ocean problem which is India's education system is not inherently geared to produce innovators. We are geared to produce people that execute flawlessly, which is where the whole coding and testing paradigm has been phenomenal but if you take that same individual and say, ok, now go challenge the Executive Vice President in Germany and tell them what they are saying is wrong, culturally we are not equipped to do that. We don't have the soft skills, we don't have the behavioral skills, our education system teaches us not to challenge the authority, not to think out side the box and that is a fundamental problem that India as a country has to address.

If we have to truly take innovation to the trenches, going forward the good news is we do have some leaders starting to evangelize this - Azim Premji, Shiv Nadar, Narayan Murthy, have all made this crusade that we do need to start revamping the educational process but the success of that in a reasonable time frame, reasonable means the next 5-10 years even though it is boil the ocean situation and interim steps may be companies changing their training mechanisms will be the key aspects of truly taking innovation to the trenches.

Moorthy: If we really look at most of the work being offshored or outsourced, we today look at the matrix as cheaper, faster, better and nobody is looking for novelty or innovation. So that in and by itself, is not putting up as much as focus if you go on the innovation. When it comes to the capability and ability of people to innovate, I think there is lot of potential, lot of capability in India and in the partner ecosystem. To innovate, let me dwell on one or two other things, how we can build this culture or foster this innovation piece if you will. One is just the type of work that is being given the BPO or the IT type of work is more on the execution focus. So when we try to do that we are taken away, a little bit far removed from the customer and even if you really look at how things are innovated whether it is a product, process or service or whatever there is an innovation there is more understanding of what the customer really wants or what the market is and where it is heading towards. Probably, if India as a whole and this industry is a little bit far removed from that, we need to establish relevance to the customer base so that we can create opportunities for us to innovate. Transformation can happen either in transforming the scale or the threshold of viability of an idea or totally replacing and it is literally coming up with something new that replaces what ever has been in existence. So this is transformation. As I look at transformation and now let us put innovation along with transformation if you really look at it. Looking at innovation separately, innovation could be like I said either in product, process, service offering, but there is a time and place for innovation like anything else. If you really look at the timing perspective, some of the markets might not be ready to accept an innovation if it is either too early or too later as you know the cycle of revolution for any idea or the market place. So, next the infrastructure itself and then the industry. So the product, the infrastructure that is available for fostering and for supporting that innovation and then the last one is the industry. So I think in the evolution or in the cycle of evolution of where the Indian industry is, I think it is getting to that next notch of establishing relevance to the market place so that we can create, we have created the thoughts and the ideas and the capability in terms of people and the scale we have and I think we need to now step it up in terms of the entire infrastructure by establishing relevance to the market place and then we are creating the norms in the industry to support innovation if you will. So I do believe India is pretty much geared up and I thing that is the true differentiator for us to take it beyond. So it is the time for India to get into that for the reasons that Partha has alluded to-the wage inflation, the rupee volatility, the rupee gaining strength. These kinds of things it becomes even more important for us to establish our prominence in the innovation space to differentiate and add value and I do believe that there is lot of opportunity. It has not reached the trenches here but I think we as leaders everybody in this room has to create and foster a culture to create that by allowing people to take risk. One of the things we never find in the Indian culture is people tend not to give too much of liberty - as parents, or as supervisors, or managers. People are usually told to do something following a certain process and getting a certain result. Now we need to educate and we need to create an ecosystem or an environment where in we can give the freedom as alluded to by Pradeep so that the individuals can go on and tryout one or two new things and in the process not get penalized for trying that out. So it is that kind of creative liberal system that we need to create to foster innovative spirit in our people. So I am very upbeat and optimistic about innovation being driven to trenches and being a true differentiator for this industry and the country.

Khurram:. Innovation is become a fashionable word now. Any company that's investing has to have a VP of innovation or a Chief Innovation Officer. If you don't have that you probably are not innovative. So that's kind of being talked round a lot but sometimes I feel innovation is dummy down. It is confused with invention, with development, with growth, with YOY progress - all of those are important things but at the heart of innovation, if you look up the dictionary, it is about change. So innovation has to be change and in my mind, it has got to be a significant change. It has got to be industry changing, game changing, and life style changing. I do believe innovation is about change and the matrix I use in the technology industry is got to be 10x or whatever matrix you have. In my mind innovation cannot be a process. It has got to grow organically. Innovation is hard work, it is difficult, it is about change and the people who are not innovative, they are in their comfort zone, and also big companies have the same problem when you are being successful at something why do you want to change. Your CFO will tell you, you are crazy to change this. This is making so much money for us, we should keep this forever. You have one product that would last for the lifetime, you do not have to change, but at the heart of technologist and the people and panel here we are all about change and so that is the paradox. That is where we have to always struggle with is when do we change and how do we change.

R Vidyanathan: I will have to define what is invention because I will believe invent and innovate are little different. Invent is where you discover things by research for the first time. Innovate is when you apply whatever is known into the context in which you are in, which is of some beneficial value to whichever is the audience with whom you are interacting. So we look at innovation in a services industry in a completely different context. It is not the big bang effect of what your innovation is which truly matters to us. While that definitely adds value, while definitely that is important. We believe that innovation can be all pervasive. Why is innovation a significant element in our industry? First of all, our business unlike most other businesses, our capital goes home every day and our capital we need to entice our capital to come back to work the next day. So there needs to be ways and means by which you are able to excite people. Our industry, we look at interacting with our customers. We provide services to our customers. While these services are delivered through processes which are the part and parcel of an organization, the way those services are rendered and what could be done a little differently each time is something which can only be determined by the people who are actually rendering the service. So in a services industry, it is very important that a person continuously views what he or she is doing to see what he or she can do differently or better. I believe that every human mind is curious. Now if you let the curious mind continue to do a mundane act day in and day out, that mind continues to either be satiated, and remain there, or find pastures elsewhere. If on the other hand, if you are able to challenge that mind and look around the environment around you and see what is it that I can do differently, what are opportunities that exist, there may not be many, but look for it. So where you get it, how can I do things little differently? They may not translate into a significant product but they can help you in differentiating what you are and thereby what value that you bring to the organization.

So we believe that innovation is important both from a company perspective for providing value to a customer and it is important as a tool to be able to have the best employees working for you as well.

Partha: Innovation could be as RV said, doing the utility work in a very different way - may be going for that incremental process, may be bringing in something as mundane as automation into something that is very people intensive today. My view is rather than trying to define what innovation is, it is really to take a view on how you go about recognizing innovation with your client and then how you go about actually delivering that to them. There I completely agree that it has to start, the point RV made about encouraging a very different kind of behavior. If the education process and the typical Indian offshore environment that these employees have has not already killed that curiosity, then change the environment before it is too late to re-awaken that curiosity, would be my take on this.

Questions & Answers:

Question: In addition to the cultural and educational and kind of philosophical ability to come up with those new ideas, you have to have the domain knowledge necessary to do that. I think in order to get to that level with the partner, where that partner can be truly a part of your business, you have to be willing to impart that domain knowledge, nurture that domain knowledge, develop that domain knowledge, and then finally you can get to that spot where the partner is now providing some of the innovations for you. Innovation is not always just new ideas, innovation can be killing bad ideas and we have had several examples within my own experience with outsourcing where we asked a client to have suggested let us go do this work. It turned out to be really bad idea, spectacularly unsuccessful products and looking back at it and doing postmortems on those, we found that our partner thought this is probably not the right thing to do but did not have enough domain knowledge, because it is difficult as the vendor to tell the client that you are asking to pay me to do a bunch of work that is really a bad idea and I should not take your money, but sometimes that can be another level of innovation that you really need out of a partner.

R. Vaidyanathan :Technology is one dimension; the industry in which you are servicing your customer is the second dimension; the customer itself and the customer's own practices are the third dimension. One of the ways that we try and do is that we try and create employee identities around these three dimensions depending on where we foresee longevity of a person being in such an area. So it is possible that in the early lifecycle of an employee, the dimension will be predominantly technical and as the relationship matures, then it can take on any one of the other two dimensions as well, but what you have said is absolutely valid. Unless we know which race you are in, what customer you are playing up to, what is the industry, what are the nuances of the industry, who is your customer's competitor, I do not think we are in any position to be able to do anything which can add value to the relationship.

Partha:I think other critical element of that business and domain knowledge is for the offshore provider and their staff to really reach a level of credibility where you would even be willing to listen to them to accept their innovative ideas and that is an other key element in terms of if you are able to talk the business language in the context in which you are operating, the ability to get that credibility is much higher as opposed to, if you just restrict yourself to talking the technology and bits and bytes language. So that is another key element of the whole drive towards innovation.

Tim from Skandia: where can staff rewards and recognition schemes play part in innovation in trenches?

Moorthy: There is lot to be learnt in terms of domain and in terms of knowledge transfer and whatever Partha has spoken. When star contributions come up through the best practice sharing, for example, let us talk about HCL. HCL would have a lot of customer base that is each one of us and probably there could be a lot of learnings that customer base could get by their experiences with the other customers. So, learning from each other which otherwise would not be possible but for the bridge of HCL . So, in their factory model that whatever they are doing at their back end, there could be a lot that can be brought in as value and innovation to a customer by the learnings from the other customer. So that is a phenomenal opportunity. Talking about recognition and rewards, I would believe more in shared commitments and shared contributions at a very 30,000 feet level. The behavior needs to be driven to foster innovation so that it is the collective team performance, because it typically determines the delivery or performance of a big program. But, however, not to undermine the contributions of individual, we could definitely recognize and reward the individuals. The recognition and reward scheme could be dependent upon the individual companies. I think the recognition and rewards are the motivation mechanisms to foster innovation and it could come both within the back end that is with service providers like HCL and the other companies and also from the customer and when they see the value add from their point of view of innovation in terms of both performance and, or effectiveness.

Pradeep Bindal: Does the guy who innovate grow faster or the guy who just follow some standard process grow faster?

Moorthy: Both. Actually innovation is a risky route, but actually moreover there are no returns without risk, so you got to innovate and you got to take that risk and that needs to be encouraged. When I spoke about the ability to take risk, entrepreneurial spirit must be fostered and must be encouraged and compliance is equally important. The guy who does exactly what you want him to do, we need people to do that too. So there is a fine balance that one has to maintain between delivery focus and creating a culture of innovation.

Partha: If I can just add to that real quickly, one is the macro view and one is a micro view. The macro view is I think it is important for clients as part of this reward mechanism to ensure that everything they do with their providers encourages what RV was talking about, risk taking.. The second micro level issue really comes down to contracts with these providers. The number of calls I take from clients that say my offshore provider is very reactive. When I tell them to do something, they do it very well but they are never proactive, which is one element of moving towards that innovative sphere. When I asked them what kind of contract do they have and this is typically where you have had a relation three, four, or five years. The contract is very utility in nature.

Khurram: There is an inherent issue on innovation that goes back to partnership. The only way to survive that is partnership. When you are an equal partner or you are feeling that the knowledge transfer as well as the quality of the people on the other side is going to be enhanced and they are going to help you win you business. So, there is a joint ownership of the innovation and joint ownership of success. Otherwise, if it is just an outsourced model, the only innovation you can have is low cost and that by the way is not bad too. Low cost is one of the innovations. The question now is how do we innovate to drive low cost architecture technology solutions for the Indian markets. So, that is innovation too, which is probably more pertinent than new technology innovation because there is always resistance from the clients.

Audience: In an increasingly regulatory heavy world, we talked about compliance earlier. What does the panel think about improving and driving innovation where particularly from the financial services perspective where we feel stormed by that sometimes.

Partha: The regulatory environment is and associated with that and I would expand that to also concerns around IP protection is another thing that also ties in very closely to the whole issue of regulatory risk. The challenge is that there is no easy answer. The issue is you need to look for a level of regulatory knowledge in your service providers and in some domains and in some areas it exists. Even within the financial services space there is whole kind of value chain of regulation that needs to be there. You need to look for that capability within your service provider to see, can the service provider de-risks some of the elements of the regulatory risks. There are obviously significant numbers of gray areas in the regulations. They were never written with the offshore model in mind. So now you are trying to interpret the regulation in terms of what can or cannot I do in an Indian offshore perspective. You often do not have the skills to make that call. You would take that further and say you never have those skills to make that call but the challenge is and this is where it gets into a difficult situation. It is a work in progress with most of the offshore providers in terms of getting to the level of having experts that understand the nitty-gritty of regulatory impact with it, whether it is SOX or BASEL II or any of the privacy laws in Europe to truly come to a client and say and we have gone to the regulation. We understand what the impact is from an offshore perspective and we are willing to share that risk with you because this is what we believe it is safe to do and these are areas we cannot do yet because of the regulatory environment in the US , vis-à-vis the environment that may or may not exist in India . That is a critical element you need to start pushing your providers on in terms of you need to get more experts with the regulatory understanding and regulatory knowledge because it is never going to make sense for you to get there.

Pradeep Bindal: We have a very interesting question from Umesh Rajni. If domain knowledge is a key, where does out of the box thinking stand? Did the Microsoft you know originate from domain knowledge? Did Google originate from domain knowledge? Is innovation out of the box thinking by individual or is it a systematic process based thing?

Moorthy: I think that comes from disruptive innovation. There are several forms in which innovation could manifest. It could be an evolutionary product, process and market driven and some of these things like when we spoke about iPods or Google or Microsoft. Several innovations and inventions would classify themselves as disruptive. You are going and defining what the market could be or what the needs of the market are. You are totally operating in a white space rather than just making something evolutionary. So there is a combination I think, if I understand and the question - there are multiple tracks of innovation and invention building on what RV has spoken. So invention is something that could probably start up and create a new market space and totally brand new idea, and transform the user base and whereas the evolutionary ones would be you know, both in process and service.

Pradeep Bindal: The other question is from Anshul Verma. Is there is a correlation between size of the organization and ability to innovate?

R Vidyanathan: Yes and no. Let me start with the 'Yes' part first and let me start with a small organization. In a small organization, the identity of all the employees, the purpose and direction are very easily and very intuitively defined. So that helps in trying to look at a problem or whatever may be the organization's existence in a uniform way. So you are reasonably clear as to what is it that you can do and what is it that you can do differently, what are the rules of the game. The larger an organization becomes, the more distanced you become from what are the challenges of the organization, so if you were to look and say very simply is innovation, easy or difficult in a large or small, as things stand in a small organization it is easier. In a larger organization, one needs to continuously break the hierarchy. One needs to continuously reinforce what people stand for, what is expected out of you and I believe that's today a need especially in our industry if we have to survive.

Pradeep Bindal: Are the Indian companies geared up for innovation or the global companies think they should not depend on Indian companies they should do innovations themselves?.

Moorthy: I think it is both give and take. We alluded to in the previous conversations and I have expressed my opinion wherein I said definitely there is capability and definitely there is infrastructure; now that can support innovation. Building on the mindset and the US companies or the global companies and farming out the work to the Indian offshore captive units or the partners. Now, there needs to be this mindset of giving the end-to-end ownership of a given domain, a given project, a given program to the people and can come up with creative ideas. Give me three developers or five testers and to do certain work and you are always being told what needs to be done and you are constantly only doing and limiting your contribution to just fulfilling what is being asked of you but whereas if you tell them what exactly is the intent that you want them to deliver, what exactly is expected out of the offshore/outsource team, probably there is more room for them to contribute from an intellectual capability perspective or from an infrastructure perspective. I think India definitely teams are up for the game.

Pradeep Bindal: What are the chances of success of an innovative idea? Most of the report says chances of success is less than 10% . How do you cope with such kind of a less chances of success of innovative idea?

Khurram: Well, I think, it should be 1%, I mean, if you look at the number of ideas that are out there, there are millions of ideas and very few get successful and I think behind every good idea or every good new company, technology company, there is always business mind that makes it successful. Bill Gates would not have been successful just by his own technology. He had, the current CEO who has his friend behind building the business, so I think to make the idea successful it is not just the technology; it is understanding the business case; it is understanding the end customer and really thinking in that direction and that is very challenging. It is not easy to do. Developing new technology, absolutely you go to any R&D labs, you will see new technology all over the place, you will see patterns, you will see all the stuff and the question is which is going to be game changing, industry changing - that requires business acumen, that requires that kind of thought process. There are lot of good people who given the opportunity will think brightly, will execute, I think it is just given the opportunity, and initially opportunities have not being given, so in my mind to make those ideas successful. if we as companies in Europe or US want to make India successful to help us, we have to give them the opportunity.

Partha: One of the key themes was the focus on truly trying to define what innovation means to you, means in the client context before you try and say, now let me deliver innovation. There is no kind of standard definition of innovation and it has to be in the context of the client. There are cultural, education issues at play here when you look at it from an Indian perspective that you do need to take into account, but a counter-point there is that part of the issue may just be creating the right environment that might then help to negate some of the cultural issues that we all of us, as we are going through the education system, are kind of trained into stopping the use of our brain, may be creating a culture that encourages risk taking, encourages open thinking and will revitalize some of those areas of the brain that have died during that 12 to 16 year education process we go through. The focus on needing to get closer to customers and I think this came up in one of the questions as well that you cannot be divorced from your customers and then not have the opportunity to get the domain knowledge, get the intermittent business knowledge of your customers, to then be able to understand what would truly be game changing, what would be disruptive in the client's contest and then from the trenches or from senior levels of the service provider organization be able to suggest those changes. I think Khurram just gave a classic example of what he experienced in terms of one year and he has obviously created the environment for the service provider to do that, to come back with the ideas that say - hey this can be your road map for the next 12 to 18 months. Clients need to do more of that and service providers need to step up to take advantage of those opportunities. Murthy brought up an interesting kind of point between the transformation and the innovation process where you have to look at the whole innovation value chain from a product perspective, service process, timing, infrastructure, and the industry operate in and then look at what within that can truly drive transformation. You need a scale or viability or just do it being able to do things differently and in that I think the comment that one of the folks in the audience made, is that innovation can be as much about killing things that did not have a right to exist. He is very, very critical. So this applies, even without the context of a service provider relationship even within your organization, there are probably hundreds of projects going on that should have been killed years ago. So, looking at innovation as how do you recognize what can be killed effectively is a critical element. I think the point about clients being needing to be open to sharing the domain knowledge, which is a significant drain on your internal resources and it also involves your business folks who say you know if you are doing offshore why the heck do you want me to spend one week with the offshore team. I thought they were responsible for doing this work, but from investment for the long-term benefit, it is critical to do and clients that require innovation will need to step up to the plate to do that.