A Nano Leap Into the Future
Monday, January 14, 2008
He’s been hailed as the world’s foremost thinker. He revolutionized the way corporate chiefs looked at markets through his bestseller, ’The Fortune at the Bottom of the Pyramid’. And now, management mahaguru C. K. Prahalad writes exclusively for Sunday Times on the Nano launch. By C.K. Prahalad
He’s been hailed as the world’s foremost thinker. He revolutionized the way corporate chiefs looked at markets through his bestseller, ’The Fortune at the Bottom of the Pyramid’. And now, management mahaguru C. K. Prahalad writes exclusively for Sunday Times on the Nano launch.
The Nano represents an important inflection point in the global auto industry and in the evolution and maturation of Indian industry. There is great excitement because Tata Motors has introduced the global auto industry to a whole new consumer segment.
This emerging consumer base around the world will be a major engine of global growth. However, this growth will not materialise without fundamental rethinking of the price-performance (value equation) in the entire industry. I believe the Nano will spawn a new debate about manufacturing methods, use of materials, energy efficiency, and transportation.
In India, it lays to rest skeptics who five years ago assumed India cannot compete in manufacturing.
Yes, Indian engineers?given the right challenges and leadership?can out-innovate and out-engineer others. Seldom does a single product introduction challenge the received wisdom in the industry so radically.
The Nano also sheds light on how to leverage emerging markets as innovation hubs. We can constantly complain about constraints. We can also use constraints as levers for breakthrough thinking. I call this process of constrained innovation as working within the Innovation Sandbox. Consider Tata Nano. It starts with clear, self-imposed constraints:
Price: Rs 100,000 (a significant change from the lowest cost car in India and elsewhere in the world). A 3X improvement. This constraint is also critical to create a new consumer market?the emerging middle class in India (and India-like markets).
Scalability: This market is large and scale is critical both to meet the price-performance targets and to satisfy the customer base (Think Model T again!)
Aspirational: The design and features must be such that is aesthetically pleasing and desirable. It must be modern. It must represent smart basics and must not crowd the offering with features that do not represent core value to the customer base.
Resource efficient: It must be efficient in the use of resources?capital, raw materials and energy.
Now consider these four principal constraints as the boundaries of a sand box. Allow managers to innovate within this sand box and not violate these self-imposed constraints. I am sure that Tata Nano represents thousands of small and significant innovations within these constraints. It is this approach to innovation ? embracing constraints and leveraging them for breakthrough innovation ?that got us the Rs 100,000 car, in spite of the dramatic increases in the price of raw materials.
I consider Tata Nano as an innovation platform. Of course, the features and functions will evolve rapidly based on experiences of consumers and feedback from the market. Both the company and consumers will learn. The challenge for the company and all associated with it is to rapidly and continuously innovate around the platform as an ecosystem of suppliers, and dealers.
The power of this innovation to shape the global auto industry is forcing a debate already; including in India. What about pollution? Congested roads? Poor infrastructure? I think this is the wrong starting point for debate. We should ask ourself: What if we devoted the same energy and ingenuity to solving the problems of discipline in traffic management? In energy efficiency? These problems may lead us to breakthrough innovations. But I am glad that the debate has started. That is a good sign. This innovation is serious.
But now, let us celebrate. I just want to say: Ratan, what an extraordinary New Year gift to India and the world! To ordinary people! Ratan Tata, Tata Motors, and all the suppliers and dealers deserve our thanks for rekindling the innovative spirit of India.
(The writer is the Paul and Ruth McCracken Distinguished University Professor, Ross School of Business, University of Michigan)