India’s growth story can only be sustainable in the long run if its decision makers in the business sector and in the policy sphere manage to 
Under the framework of Indo-German bilateral cooperation the Umbrella Programme for the Promotion of Micro, Small and Medium Enterprises (MSME) funded by the German Ministry of Economic Cooperation and Development (BMZ), GIZ India has partnered with CII-ITC-CESD to strengthen sustainable and inclusive innovations and to support the dissemination of knowledge and the scaling up of successful SI2.
As part of this partnership GIZ and CII-ITC-CESD have conducted this study with the objective to provide the innovation eco-system with information on how business in India innovates and the promise it sees in Sustainable & Inclusive Innovation.
The CII-ITC’s 8th Sustainability Summit held in New Delhi saw the release of this new report on ‘How India Innovates: The promise of sustainable and inclusive innovation.’ As economic growth rates go down and global climate temperatures go up, innovation has become nothing short of a necessity. India, too, has declared 2010-2020 as the Decade of Innovation. However, as this report finds, most companies in India are not engaged in ‘Sustainable and Inclusive Innovations (SI2)’ and they do not yet identify with sustainable development or green growth. Companies revealed that a focus on existing products and short-term financial performance remain the key internal barriers. What is needed then for the next Google to come from India?
India has declared 2010-2020 as the Decade of Innovation. The Prime Minister’s Office set up the National Innovation Council with a mandate to substantially enhance the innovation ecosystem in India.
The Council has developed a roadmap that would, among other things, create State Innovation Councils and innovation clusters. CII is a member of the National Innovation Council and is helping set up innovation clusters in a couple of sectors.
At the Centre of Excellence for Sustainable Development (CESD), we have been working with business on the future of innovation, which is “Sustainable and Inclusive Innovation”. The CESD sustainable innovation framework classifies four types of innovation – reactive, incremental, radical and transformative – based on combined scales of business and sustainable benefits. Most companies in India innovate with incremental or radical solutions. Companies have also identified exploiting green growth opportunities and reducing environmental impacts as other important factors to innovate. However, the bottom-of-pyramid market is still not an important driver for companies to innovate.
How business in India innovates
The CESD sustainable innovation framework classifies four types of innovation – reactive, incremental, radical and transformative – based on combined scales of business and sustainable benefits.
· Most companies in India innovate with incremental (71%) or radical (79%) solutions. In other words, innovations of Indian companies are incremental improvements or changes over existing products or business models that also allow for differentiation
Transformative innovations (54%) are increasingly important to Indian companies. Transformative innovations are those that are absolutely new and that have changed the industry or created a new one. There are a reasonable number of companies that produce transformative innovations that are absolutely new and their solutions have changed the industry or created a new one. The Centre believes that conditions in India are characteristic of culture to breed innovation for sustainable development solutions.
What drives India to innovate?
Most important factors to innovate are cost reduction (reducing cost per unit produced or provided), broadening the range of products, and increasing value added. These drivers are not surprising since innovation in a large part is seen as a source for competitiveness to companies.
· Innovation factors that are high on companies’ agenda
o Reducing costs per unit produced or provided (77%)
o Increasing range of goods or services (77%)
o Increasing value added (73%)
o Exploiting green growth opportunities (65%)
o Reducing environmental impacts (65%)
o Improving quality of goods or services (65%)
o Increasing market share (62%)
o Entering new markets (62%)
o Meeting regulatory requirements (50%)
o Improving health and safety (42%)
o Replacing outdated products or processes (35%)
o Entering BOP markets (31%)
o Increasing capacity for producing goods or services (31%)
o Improving flexibility for producing goods or services (27%)
Entering the bottom-of-pyramid markets is still not the most important factor to innovate. This is a surprise because globally India is viewed as one of the largest bottom-of-pyramid markets in the world. Companies mentioned to us three reasons why BOP markets weren’t necessarily important. These are:
· High uncertainty
· Long gestation period
· Lower margins
How much is process and product innovation?
Most companies have made process innovations, some also have innovated products. Process innovations appear strong with companies in India. One of the biggest reasons for process innovation is resource efficiency and cost reduction.
Companies usually take at least two years to develop an entirely new product, and between 1-2 years new product variations.
Process innovation will always remain as the most practiced form of innovation. That does not reduce its importance. Companies stand to gain distinct comparative advantage from process innovation and sometimes it can also create new industry standards.
How important is business model innovation
Business model innovation refers to the creation, or reinvention, of a business itself. A business model innovation results in an entirely different type of company that competes not only on the value proposition of its offerings, but aligns its profit formula, resources and processes to enhance that value proposition, capture new market segments and alienate competitors. As such it is inherently less risky than product innovation and can be introduced in both small and large companies and in sectors where other types of innovation often fail. It often involves changes that are invisible to the outside world, bringing advantages that are harder to copy and easier to sustain.
Some key findings
· About 90 percent of the respondents have innovated business models
· For more than 50 percent respondents, Business Model Innovation (BMI) is ‘very important’
· Most companies (67 percent) engage in BMI to exploit new markets
· Most of the companies use all the four characteristics of SI2: Sustainable and Inclusive Innovations or SI2 is defined by CESD as innovations in products, process or business models that address economic, social and ecological challenges of the 21st century.
The use of technology is a key lever for companies to innovate, leading to technology empowerment of the users and beneficiaries. Technology empowerment is one of the key SI2 strategies that companies use. Process re-engineering, high-asset use and price-modeling are other SI2 strategies most widely used by companies.
Culture that breeds innovation
Companies are beginning to breed innovation within their organizations. Company-wid innovation campaigns supported by internal marketing efforts and training and development initiatives are becoming popular.
Engagement of companies in innovation related activities
· Internal R&D (96%)
· Market introduction (89%)
· Acquisition of machinery, equipment and software (88%)
· All forms of design (84%)
· Training for innovative activities (84%)
· Acquisition of external R&D (62%)
· Acquisition of external knowledge (58%)
Measures taken by companies to focus their innovation efforts on the customer
· Designing different products for different markets (54%)
· Involving customers in product testing (54%)
· Analyzing customer data for trends (54%)
· Involving customers in product design (27%)
· Gathering customer ideas using social media (15%)
· Locating product development in specific markets (15%)
· Contests and others (4%)
Information for innovation comes from within companies, and clients and customers. Companies prefer to work within businesses within their company or group or clients and customers, over any other stakeholder. There is also a high degree of engagement with government or public research institutions and academia. Suppliers and private research institutions are still not the most preferred partners to innovate with.
What ails Indian Innovation?
High failure rates characterize the process of innovation. That requires risk taking capability of employees and companies. Many companies told us that people act as barriers as there were no or weak mechanisms to address or improve ideas that fail. Also, lack of a systematic approach to innovation makes it difficult to take the ideas to logical conclusion.
The greatest barrier to innovation in Indian companies is the governance culture that does not encourage innovation. Senior executives tend to be judgmental and do not encourage new ideas. Indian organizations are still hierarchical and paternalistic, much more than those in other cultures…change does not have the positive connotation that it should…innovation is still not pervasive.
Innovation in India continues to be plagued by quality shortfall in human capital, investments and infrastructure in research and development.
Source : Lokesh Shastri