Making Innovation Real – Tata Group

Vision, Capacity, Culture at the Tata Group

Companies require three core competencies to make innovation real: vision, to bring innovation closely in alignment with strategy; capacity, to create the systems that can ensure that innovation is sustainable over time; and, culture, to ensure that innovation is deeply embedded within and across business units. Without these three major elements, innovation efforts within a company lack focus, energy and support. With them, the sky’s the limit as we can see in the recent history of Tata Group.

Leaders Give Good Reasons to Innovate

When Ratan Tata became the Chairman of Tata Group in 1991, he had already seen for years that it was likely that India’s socialist economy would undergo significant changes.

Since 1981, Ratan had been chairman of Tata Industries, which functioned as the business think‐tank for the entire Tata Group. World history was being shaped during that time by Perestroika, Michael Gorbachev’s effort to move the USSR towards a market‐based economy. The implications of Perestroika were too great to ignore, an opinion he shared with his uncle and predecessor, Jehangir Tata. So, Ratan prepared not only for an India that would remain true to 40 years of socialism (hadn’t Cuba?), but also for a very different economic world – a world being changed by globalization, competition coming from overseas and the growth of the developing world.

Innovation Leaders Have Ambitious Targets

When Tata became chairman of the entire Tata Group in 1991, he moved quickly as socialism waned in India. His first task that year was to make Tata much more efficient and able to compete globally: he downsized the company from 250 to 80 businesses, instituted standards of conduct, leadership, and innovation while ousting managers who could not adjust to the changes.

In a few years, Tata Steel and Tata Consultancy Services became profitable thanks to that global vision. Tata Steel became one of the best low‐cost steel manufacturing firms in the world. Tata Consultancy succeeded by availing companies and organizations from outside India to highly educated and skilled Indian workers at labor rates far lower than those of developing countries. We now call this “outsourcing.”

The Nano – Tata’s Vision for Domestic Markets

With demand growing from the bottom of the economic pyramid after the liberalization of the Indian economy in 1991, Ratan Tata responded with the Indica, an inexpensive car selling for around $7,000 which was introduced in 1998 by Tata Motors. But Ratan would push for even more radical innovation, which was spurred by two events. The first was Tata Motors suffering its largest loss in revenues ever in fiscal 2000 – $110 million.iii The second occurred when Ratan saw families of five riding dangerously on two‐ or three‐ wheeled vehicles. The answer to the growth gap and the problem facing these families was the Tata Nano – a $2,000 mini car. By 2005, Tata told his engineers to break all the rules, imagine the impossible and think of an entirely different way to make a car in the next few years.

This represented a truly new business model: selling cars at a smaller margin to a huge new market. Thanks to the precedent of the Indica, going from $7,000 to $2,000 represented a far easier task than, say, leaping to $2,000 from a $15,000 or $20,000 price point. The reward for undertaking this “big, hairy, audacious goal” seemed to have paid off when the Nano was launched in April of 2009. Tata Motors received more than a total of 200,000 paid orders for the Nano: the basic model at $2,200 as well as a higher‐end model costing $3,300. Without ambitious goals like the Nano, Tata could have easily seen its revenues shrink and growth stagnatev.

Tata Motors’ recent history demonstrates the imperative of sustaining innovation over time. Despite Tata’s success in creating the Indica, Tata Motors was not at all immune to potentially disruptive revenue losses and had to create new value through a new product and business model. Creating an ambitious but still realistic vision – driven by a revenue crisis and/or the ability to satisfy an unmet need – is the first and crucial step of innovation. What is your case for change and what audacious targets are you setting to close the growth gap?