From Caboose to Engine: Captiv-ating Innovation

A Captive centre is often like a lazy hammock tied and forgotten somewhere in a busy household. It usually serves its purpose by being visible to visitors and giving that ‘it’s still there feeling’ to even inmates. But what if it did more and had the right people spending time there and at the right time?

Pratima H

BANGLORE, INDIA: If you had to reinvent the wheel, say something square, it won’t be so preposterous an idea if you did it in a disruptive way and provided you could figure out some adjacent questions. Like – what vehicle will this new wheel bolt onto or who will drive this cart or what roads would it run on or would it be better in pulling old wheels out of a rut?

Disruptive innovation, as a word, sounds splendid but there is a whole new radius of issues and challenges that orbit around when it comes to pushing bizarre ideas out of the backyard.

That reminds us, did you know that a 10 per cent increase in investments in information sharing in innovation centers is associated with a mean increase of 45 patents filed with the Indian Patent Office?

Is it possible that an innovation centre may be held back for reasons as simple as dearth of right people or a sloppy information pipeline? Is it also possible that an innovation centre spins more than some paperwork and rings in real revenues for its parent?

GMI needle is swinging at that and at many other spots like gaps on talent, the paradox of collaboration, and need for not-so-anarchist business models for captives of multinational majors.

GMI or GIC Maturity Index for global in-house centers (GICs) or wholly owned and operated subsidiaries of multinational companies (MNCs) in India reflects the efforts of researchers at the Indian School of Business (ISB) and Deloitte Consulting, in association with NASSCOM. GMI seems to track well the evolution of GICs from cost centres to innovation centres, and is claimed to establish performance benchmarks for each maturity level and identify investments that yield optimal performance at each level of the maturity model.

The study that covered 40 GICs across major industries, was led by Professor Deepa Mani, Joint Executive Director of the Srini Raju Centre for IT and the Networked Economy (SRITNE) at ISB. Dr. Mani happens to be an assistant professor in the Information Systems group and Research Fellow at the Indian School of Business as well as the faculty coordinator for the IBM Research Collaboratory in service science at ISB, with incisive research interests at the intersection of technology, organisation, and society.

That makes her perfect to help us wheel through many other hidden layers like IP monetization, tolerance for failure and entrepreneurship as well as adequacy of attention and significance that universities play in the journey of disruptive innovation. Excerpts.

What have been the key highlights that you would like to mention from this study?

Over time a lot of cost centres have transformed into innovation centres and R&D activity of a large number of MNCs has increased. We wanted to see the capabilities and state of relations between parent company and these subsidiaries. We felt that cost centers must engage in process standardization and data integration for optimal performance. Benefits of process optimization include lower operating costs per employee (20 per cent savings) and lower marginal costs of increasing scope of operations (over 100 per cent savings).

Another interesting insight is that focus on cost and quality require fundamentally different levels of autonomy than a focus on innovation. Increased involvement of the parent in key strategic decisions lowers operating cost but increases attrition rates and decreases innovation.

Is there a ‘vs.’ element between modularisation and collaboration happening at GICs, if you can elaborate?

For optimal performance, cost centers require investments in task redesign and technologies that allow them to function in a modular manner while quality and innovation centers require investments in information sharing and building common ground that allow them to integrate their actions with other centers.

Now, transition from a cost center to a competency center requires an increase in investments in information sharing and building common ground by nearly 20 per cent. Conversely, 5-2 per cent of the GIC’s investments in modularization and technology-enabled communication are rendered redundant as it transitions from a cost to competency center. To closely align with strategic tasks, captives need information sharing and many companies are not doing that enough. Captives need lot more head-quarter control because they drive strategy but if you are thinking of an innovation centre then quintessentially, the control mechanism would not fit and instead would hurt the output that is desired. Innovation centres require more autonomy and you cannot suddenly jump from an old scenario to new one.

Many companies have incidentally upped their tech-spends on collaboration in the recent times. Any observations there?

Technology enables a co-ordination mechanism but a cultural shift has its own importance. Technology facilitates integration but to optimise that one needs underlying business processes and that cannot happen unless basic culture is also addressed.

Have we progressed enough on more 'appetite for failure' today?

The cost for failure is high because seed capital plays a role. If you start as a cost centre then unless you are evolving and the culture is developing, it’s a hard journey. Start-ups face lot of issues and capital and talent are primary ones. They also need a broader eco-system. Your emphasis on innovation is reflective of your idea-embracing and risk-taking tendency. But that could be constrained by financial or control reasons. In general, openness to ideas leads to emphasis on innovation. Ex- What P&G did with its ‘Innocentive’ initiative when it saw its R&D plateauing possibly.

When we start looking at innovation centres beyond the cost-centre stereotype, do we also factor in current spike of patent wars or IP monetisation somewhere?

In some sense, patent landscaping is a factor. Some wars are intense and some trolls are there just to squeeze money. But patents are important for certain level of products.

Is there enough scope for experimentation and courage for really-disruptive innovation out there?

That will require a different approach. When you see a product usually you tend to be adaptive and disruptive so unless one pushes the envelope, it’s hard. The talent gaps on engineers and R&D side is a big consideration and limitation. It also connects to the ‘how’ of education and not just ‘how many’ or ‘how much’, because academic rigour and independent thinking plays a crucial role if you are seeking disruptive thinking. If you add behaviour habits around insubordination or hierarchy to these constraints, you have created more barriers to disruptive thinking. But GICs have started addressing these problems.

What kind of talent issues do your findings hint at?

Managerial talent and personnel with global experience are invaluable as the GIC scales the maturity curve. In innovation centers, a 10 per cent increase in workforce with global experience yields an eight to 25 per cent increase in process, strategic, structural and personnel innovations. A five per cent increase in the managerial workforce yields 20 to 40 per cent increase in structural, process and procedural innovations. The GMI study assumes significance in the current day IT scenario in India, as there are more than 750 MNCs which have established GICs in India across a range of industries. The management of modern day GICs, including their growth, involves significant challenges. They need to continually evolve their business model to align with the parent’s changing business and needs, deal with pressures of growing resource costs, source and retain key talent, and resolve tradeoffs between building efficient versus innovative organisations.

Do education partners or universities play a stronger role for companies today than they did earlier?

One thing that characterizes and separates India here is the industry-academia linkages, and we are doing more of that. At ISB, for instance, SRITNE is where we work hard with the industry. Universities must evolve as partners at a broader level and bring more rigour and cutting-edge thinking for these organizations.