Thursday, May 27, 2010

The innovation gene

I have been focusing a while on specific topics of my interest for my articles. Today, I want to abstract out at a meta-physical level and because the company, Innotomy, is about science of exploring innovations, let us focus on innovation.

A few questions we should explore to get a better understanding are:
  1. What is innovation?
  2. Why is innovation important?
  3. What traits should the innovation gene have, if there is one? What qualities innovators possess to make them different from the rest?
  4. Is this innovation gene present in all homo sapiens?

What is Innovation? It is loosely defined as an act in which the thought process is modified for either doing something totally new or for doing new things that are more useful. An important aspect of the definition stems from comparison of innovation with invention. Invention is about new ideas whereas innovation is about putting these ideas into practise. Invention necessarily has to be brand new and unique, but an innovation need not always be unique. Unique it need not be, but it must be sufficiently and substantially different to be innovative.

Arguably the most important invention of the 20th century is attributed to John Bardeen, William Shockley and walter Brattain who invented the transistor in 1947. In the same century in 1906, Lee De Forest invented the vacuum tube triode. But transistor was far superior to the vacuum tube. That is not the topic of discussion. But both of them were great inventions. These had a cascading effect then on, where inventions of personal computers, then Internet, then the web and now social networking sites such as Twitter, MySpace and Facebook are all inventions. When Subway or McDonalds use Twitter or the Internet to advertise and connect with consumers in new ways to increase their customer base, it is innovations. So inventions are very unique and rare but in the time line, usually have a series of innovations that benefit either the individuals, or businesses, or the community, or the society at large.

The train ticketing systems in the western world is another example. While the system itself may be inventive in nature, its usage can be innovative. While in Europe and the US, the gates are usually closed and they open after ticket is swiped, whereas in Japan, gates are always open, but they close when a ticket is not swiped. This is due to the fact that density of people entering the gates in Japan is very high compared to those in Europe and the US. This is a simple alteration to the invetion to suit your geographical needs. This qualifies as an innovation, because it is new, it is different and it puts into practise a system that benefits many!

The examples are varied and many. The point is hopefully clear that inventions are innovations are different and understanding that difference is key to understanding innovations. Why are they important? History is replete with examples of continuous innovations and because they bring a significant difference in quality of life, they are naturally sought after. The impact of globalisation, migration, technology and knowledge revolutions make it imperative for individuals and businesses to continue to focus on innovations that can bring about some niche area for them to be more competitive. Research shows that competition combined with strong demand is a major driver of innovation. Intensity of competition is the determinant of innovation and productivity. Innovation, besides products and services, also includes new processes, new business systems and new methods of management, which have a significant impact on productivity and growth.

We have thus far talked about what is innovation and why it is important? But who are the people behind innovations? While there can be countably few Newtons and Einsteins who were primarily inventors, there can be many innovators. In fact, I would like to argue that all of us can be innovators. But what does it take to become an innovator? THere are some qualities. What are they? Is there such a thing called the innovation gene, that brings these qualities to people? The answers may lie in what is generally described as disruptive innovation.

Disruptive innovation, as coined by Clayton Christensen, describes a process by which a product or service takes root initially in simple applications at the bottom of a market and then relentlessly moves ‘up market’, eventually displacing established competitors. An innovation that is disruptive allows a whole new population of consumers access to a product or service that was historically only accessible to consumers with a lot of money or a lot of skill. At INSEAD in France, Hal Gregersen, has published interesting results of a study he and his team conducted over last decade. He says, to be innovative, one should possess the following skills.
  1. Associating - creative people 'connect the dots', many times leading to unexpected connections
  2. Observing - you must be a very keen observer
  3. Experimenting - one may not know the solution, it is important to keep trying. call it trial and error or call it an experimenter.
  4. Questioning - observations and associations can be rationalized through questioning. No questions may not lead you much further on the road of innovation
  5. Networking - This is not social networking that can land one a better job, but as Gregersen puts it, "Innovators are intentional about finding diverse people who are just the opposites of who they are, that they talk to, to get ideas that seriously challenge their own".
It is not required to be great in all of these traits to be a good innovator. But it is imporant to exercise the ones you are better at. According to Gregersen, Steve Jobs is good at associating, Scott cook of Intuit was good at observing whereas Jeff Bezos of Amazon was an experimenter.

So that is the innovation gene. It is present in all human beings. All of us are capable of associating, observing, experimenting, questioning and networking. It means all of us can be innovators but all of us obviously are not. Why is so? It is because it is not easy for adults to practise all of innovation practises. Trying all of them together may be very counter-intuitive. It is because of the human conditioning over the years. The inventors are their prime best in their late 20s.

That is why it is often said, that in the absence of this conditioning, children are the best innovators. My daughter every now or then comes with a lateral, out of the box approach to simple day-to-day problems. It is not that she is thinking out-of-the-box, it is just that we are so completely boxed. So please grow up and be a child again !

Thursday, May 20, 2010

Electricity no cheaper!

Apologies for a gap of over two weeks since my last blog as I was on a family vacation to the US. Although the idea was to keep the blogs going, somehow the visits to Universal studios, sea worlds, zoos, river walks, city towers, and of course the fabled Disneyland with my family ensured that I could not quite keep the resolve. I am back in India 2-3 days ago. A month in the US was quite educational for my primary area of interest that is conservation of limited resources such as energy and water. What I learnt there was that even if areas and states are pronounced drought hit, no home has any less supply of water and for sure never ever is there any load shedding and lack of power supply - whether homes or industry.

Coming home from there, I hit upon a news clip couple of hours ago. I read a news item quoting the minister of power, Government of India, suggesting that the cost of electricity across the country is likely to go up by a Re 1 per KWh. This got me thinking. THe price normally goes up when either the resources are scarce or when the limited resources are made available at an extra cost (the toll). But this hike is because of the former, which means that the natural rare resources became more dear and rare. The Cabinet hiked price of gas sold to power, fertilizer and city gas projects from Rs3,200 per thousand cubic meters ($1.79 per million British thermal unit) to Rs6,818 per thousand cubic meters ($3.818 per mmBtu). So the cost of electricity goes up ! It is sad to note that although there are compulsive reasons why cabinets have to take such steps from time to time, it hardly addresses the basic requirement of higher energy that India needs. If there had been a parallel announcement of such a plan along with the Re 1 increase per KWh, it would have made more sense. So from an end user point of view all it means is that you pay more for less energy. The scheduled and unscheduled load shedding will continue. There is no promise on that. Just that if your electricity bill for consumption of 50,000 units (KWh) was INR 700,000, then now you start paying around 800,000 for no additional promise!

There is an interesting facet to this though. What it drives home the point is that it is even more imperative for users to conserve more. That is the only way they can avoid additional financial burden of paying up for the usage. The interesting part is that it in a very convoluted way actually instils the spirit of conservation and will help consumers see the benefit right away. No indirect maths is required, what you use is what you pay for and the less you use the less you pay. For companies offering energy management solutions, this means that their business case is even stronger. Without doing anything additional from a portfolio point of view, all they can now claim is that with their systems, the savings would be that much more, as the power tariff has generally gone up.

The Central government of India enacted the Electricity Act 2003 for primarily reducing power cost. But power tariff has increased many folds since and power deficit increased. Only power generators and traders are getting benefitted. Prolonged shortfalls in power supply throughout the country have led India to boast the dubious distinction of being the state that has the highest cost per unit of electricity in the world. During the first half of the 11th five-year plan, the cost rose to Rs 5.9 per unit for the 59,000 crore units flowing through the sector’s various mechanisms for inter-state trading, according to a Planning Commission report. And please remember that would becmme close to Rs 7 now with the proposed increase !

With short supply causing the price of power to rise, those states with excess energy have made a profitable scheme out of the sale of power, while managing to keep their consumer tariffs low. Unfortunately, states with power deficits are dictating power exchange trends resulting in frequent unscheduled interchanges (UI).

Each day, regional load dispatch centres prepare for the next days’ power consumption by asking states to declare how much power they will be supplying to the grid and how much they will require. When states are unable to keep their word and end up withholding power from the grid or withdrawing excess energy, they pay an unscheduled interchange surcharge ranging from 12 paise per kilowatt hour (kWh) to 735 paise per kWh, depending on the fluctuation in frequency.

Along with supply shortfalls, these UI’s have caused massive inflation in rates, which are then passed on to consumers. And although these fluctuations in grid frequency draw additional financial burden on both the deficit and surplus states, approximately 41 per cent of the volume of power trading comes from UI.

More than 48 per cent of power traded has come through bilateral exchanges while just less than 11 per cent is exchanged on India’s two power exchanges.

In an earlier blog article, I had mentioned that the energy generation scenario in India is not very good. Now it is clear that whatever little energy is generated is also not very cheap and is getting costlier by day. One just cannot shy away from the need for energy conservation in India – be it homes or industries.