Conquering the Chaos: Win in India, Win Everywhere (12 page)

Successful teams tend to follow lean start-up principles. The central tenet of lean
thinking is to think big, start small, fail fast, and scale quickly. That entails
creating prototypes to test market assumptions rapidly and using customer feedback
to develop them faster than through traditional product development practices. It
enables early, rapid, and less costly corrections of assumptions and therefore can
help decrease the time and cost for a new business to gain market traction. Eric Ries,
an evangelist for the lean start-up movement, articulates the difference: “A lot of
new business ventures, especially within established firms, start with an assumption
that the customer is known and what they want are reasonably known and the growth
will happen through good execution. However, the environment in emerging markets is
much more uncertain with rapid unanticipated changes. A better paradigm is to assume
that customers, features, pricing are all unknown. Winning comes from learning and
iterating fast through continuous cycle of interactions with the market and moving
faster than competitors do.”
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That’s how McDonald’s India continues to drive innovation in its menu, store formats,
and new conveniences like cashless checkouts. Pushing his team to innovate faster,
Amit Jatia directs them to test new ideas in the real world rather than debate them
in conference rooms. He also encourages them to ask for forgiveness rather than permission.

4. AN ASPIRATIONAL BRAND THAT PEOPLE TRUST.
Success in scaling an innovation requires significant thought and investment in establishing
an aspirational brand. Companies often obsess over the product, but fail to invest
in building the category and the brand. Even the most creative innovations will fail
without the necessary investments in brand. GE’s low-cost electrocardiogram and ultrasound
machines represent breakthroughs, but GE may have relied too much on public relations
rather than marketing to deliver the message.

One company that hasn’t overlooked the importance of establishing a brand is Hindustan
Unilever. As I described earlier, it created the drinking-water-purifier category
in India and sold the Pureit brand through large investments in a direct-sales force.
However, lower-cost, low-efficacy competitors soon stole market share from it. To
differentiate itself on the core attribute of safety, HUL issued a safety challenge.
It would give a prize of Rs. 1 crore ($200,000) to anyone who demonstrated a water
purifier that was as effective as Pureit. For three years, no one has been able to
claim the prize. HUL has created a campaign around the challenge, which has cemented
its leadership.

It’s possible to build a brand without a huge budget. Volvo Bus has changed the face
of the industry in India. According to Akash Passey, Volvo India’s CEO, who personally
built the bus business in India, “fourteen years ago, it was nearly impossible to
sell a bus for Rs. 50 lakh [$100,000] in a market where the maximum price-tag was
Rs. 10 lakh [$20,000]. When we introduced Volvo buses, people appreciated how quiet
the bus was; they routinely mistook speeds of 80 kmph to be 50 kmph.” Passey hired
college interns to accompany each bus, which ensured continuous passenger feedback.
He would know of problems even before the bus operators did. Volvo identified bus
drivers as critical in maintaining the buses and providing the travel experience.
It started training drivers even before selling the first bus, calling them coach
captains, and anointed them its ambassadors.

Volvo Bus spread slowly across India, ensuring that service and support grew in tandem
with sales. Starting in southwest India, Volvo India took four years to become a national
player. According to Passey, “fleet operators owners noticed that Volvo buses could
operate for long distances without the need for maintenance breaks, so two could do
the job of three.” In addition, the service could be branded, which commanded a premium.
In India, Volvo has become shorthand for safe and luxurious public transportation.
Simply writing “Volvo” on the side of any vehicle allows the driver to charge a premium.

5. A GLOBAL NETWORK.
A multinational company can win in India against fast and hungry local competitors
only if it can leverage its global assets in a thoughtful way. It cannot win by replicating
its global products and models, nor can it do so by leaving the Indian business to
do its own thing. Increasingly, multinational companies find success by enabling their
leaders in India to create new businesses by leveraging the assets of the global system
and then replicating them globally.

McDonald’s India’s local partners were quintessential Indian entrepreneurs who saw
the opportunity and the need for a low-cost business model. However, they had to leverage
McDonald’s expertise in building a brand, developing and managing a supply chain,
running restaurant operations, and so on. McDonald’s transferred capabilities from
Chicago and franchisees in Vietnam, the Philippines, and Dubai as well as suppliers
like McCain Foods. Without their support, McDonald’s India would not have grown into
a 270-outlet chain. Cummins India succeeded in the small generator sets business because
of engineering help from Cummins Inc., which also supplied key components like alternators
and controls. The parent also provided access to other markets, which ensured economies
of scale. The same is true of Hindustan Unilever’s Pureit, developed with the help
of corporate R&D in Europe and sold in Brazil and Indonesia. As GE’s John Flannery
puts it:

Success = Indian innovation + global assets/capabilities + global distribution

6. DISTRIBUTION, DISTRIBUTION, DISTRIBUTION!
Distribution makes all the difference in determining whether product innovations
remain a curiosity or ring up the cash register. GE’s much publicized MAC ECG and
VIVID ultrasound system have failed to gain traction in the market, despite being
between 50 percent and 80 percent cheaper than rivals, because of distribution problems.
(GE is now rapidly correcting this.) Similarly, the $2,500 Tata Nano car has had disappointing
sales because of a weak dealer network.

In a market with poor infrastructure and underdeveloped retail systems, innovations
in distribution may be more important than product innovation. Dell India, for example,
sidestepped the traditional national, regional, and retail distribution model to follow
one that insurance companies use. Thousands of registered sales affiliates reach out
to would-be Indian customers and give them a firsthand product experience at home
or in offices.

Had Dell followed competitors, it would have had to change its built-to-order model.
The result would have been a squeeze on margins, extended credit lines, and rigid
incentive structures. Instead, Dell opened thirty-eight stores across India and joined
hands with retailers such as the Tata Group’s Croma and Future Group’s eZone to set
up shop-in-shop counters. It franchised the outlets to sales affiliates, who are also
responsible for supporting field affiliates. “These affiliates became an extension
of Dell’s offices in a region,” explains Mahesh Bhalla, executive director, Dell India.
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Dell India backed the hybrid model by extending on-site service, initially offered
only to enterprise and government accounts, to small business and individual customers
in 650 locations. The new model worked, giving Dell access to even rural markets where
customers aren’t able to order online. Dell is growing at over 50 percent in India—faster
than in any other market—and has overtaken Hewlett-Packard as the market leader.
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Hindustan Unilever also thinks strategically about distribution. When it launched
the Pureit water purifier, it realized that many Indian households didn’t understand
the importance of safe drinking water, let alone the differences between a candle
filter and reverse osmosis. People drank tap water until they were sick; then they
drank boiled water until they recovered. Since consumer education was going to be
essential to establish the product category, HUL created a five-thousand-strong direct
sales force, entailing a $5 million to $10 million investment, over the less expensive
traditional retail model. Only in 2010, after establishing the category, did it switch
to retail distribution. Although replacement purification kits are available in retail
stores, recognizing the lack of the do-it-yourself ethos in India, HUL still offers
home delivery through two thousand partners. They account for as much as 50 percent
of kit sales.

Many companies like GE and Microsoft India have pushed promising innovations through
traditional distribution channels and killed them. For example, in 2007, to spur PC
usage, Microsoft India came up with an innovative offering called IQ. Aimed at school-age
children, the IQ PC came bundled with Windows, Office, Encarta, and education content
from a host of partners. The content focused on Indian families’ concerns, such as
learning English, tutoring for open entry examinations, and ensuring a seamless transition
from class work to homework. The IQ PC linked with Microsoft’s MSN portal where the
MSN IQ Education Channel offered more content, online tutoring, and counseling services
through partners like Tutor Vista.

While the offering was comprehensive, creative, and effective when tested, it failed
to take off, mainly because of a failure in distribution. Microsoft relied on OEMs
to sell the IQ PC, but they only knew how to push boxes; they didn’t have the marketing
muscle, selling capability, or the margins to make the IQ PC a success. A better model
would have been to strike partnerships with educational institutions. Instead, after
a year during which we sold just two thousand IQ PCs, we had to pull the plug on the
program.

7. THE “NO EXIT” POLICY.
Game-changing innovations take time and enormous tenacity before they scale, and
it is no different in emerging markets like India. They require the personal commitment
of the CEO if they are to survive. Mukesh Ambani, chairman and CEO of Reliance Industries,
calls it the no-exit policy, a version of “burn the ships.” At Reliance Industries,
abandoning a major innovation project is not an option; Ambani expects teams to learn
from failure and keep adapting until they succeed. His responsibility is to provide
them air cover and resources until they do so.

Ratan Tata, under whose watch the Tata Group has become a prolific innovator, takes
the same view. Commenting on the disappointing sales of the Nano after five years,
he candidly admits that Tata Motors has made mistakes, but exudes confidence that
it will succeed. “I don’t consider the Nano to be a flop; I believe that we have wasted
an early opportunity. The launches of similar small cars vindicate our belief that
this segment was missing. We will see a resurrection,” said Tata publicly in January
2012.
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Without a no-exit mind-set, innovation drives are doomed, as my experience at Microsoft
India illustrates. By 2005, Bill Gates and some of Microsoft’s senior executives realized
that to succeed in India, they had to think beyond its traditional strategy. Microsoft
made India the test bed for experiments in using cellphones and TV sets as computers,
putting advertising on cellphones, and finding ways to make PCs more affordable through
shared access.

A team led by Craig Mundie, Microsoft’s chief research and strategy officer, visited
India and met with India’s planning commission, which sets the country’s five-year
economic road maps. Mundie learned how committed India was to shifting from an economy
based on agriculture to one driven more by small manufacturers. India has 380 manufacturing
clusters, each dedicated to a particular industry. An average cluster has roughly
4,000 companies, most of them with fewer than 20 employees. The companies in these
clusters used no IT, beyond a cellphone.

Tirupur is the center of one such cluster. A town of nine hundred thousand people
in Tamil Nadu, it is India’s T-shirt capital. Much of the world’s sweatpants and underwear
is manufactured there, spun and dyed piecemeal by storefront businesses and microfactories
in homes. A typical garment winds eight miles through the town, from shop to shop,
before it is ready for export. Commerce is stubbornly manual and frequently chaotic,
and only the biggest exporters use computers to track orders and supplies. Office
managers memorize quantities of the fabric and trims they purchase, and place the
orders by phone. If a manager quits, all the records go with him. DSP Knitting saw
its export revenues fall from $10 million in 2001 to $2 million in 2007. DSP often
lost track of customer data, such as cost estimates, proposals, and orders. “Getting
an order isn’t a problem. The problem is in execution,” says Banupriya Senthil Kumar,
managing partner of DSP.
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When it conducted a survey in Tirupur, Microsoft found demand for technology, but
most entrepreneurs felt overwhelmed by its cost and complexity. Even though they could
get a PC for $600, it would cost between $30,000 and $50,000 to set up a local network
with a server loaded with business software and to find an experienced professional
to manage it. That’s beyond the budgets of most small Indian businesses. From 2007
to 2008, Microsoft led a project in Tirupur to roll out an order-tracking application
that knitters could access over the Web through text messaging. A partner, Affordable
Business Solutions, managed all the back-end hardware and maintenance. Fees ranged
from $100 to $250 per user per month. Microsoft created a technology demonstration
center with twenty computers, two servers, and videoconferencing equipment, which
gave live demonstrations on how a textile company could streamline its business. Eight
customers signed up the day it opened, and another fifty sent letters saying they
were interested.
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