India's invisible innovation
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0:00 - 0:03Over the last two decades, India has become
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0:03 - 0:06a global hub for software development
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0:06 - 0:10and offshoring of back office services, as we call it,
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0:10 - 0:15and what we were interested in finding out was that
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0:15 - 0:19because of this huge industry that has started
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0:19 - 0:21over the last two decades in India,
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0:21 - 0:24offshoring software development and back office services,
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0:24 - 0:26there's been a flight of white collar jobs
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0:26 - 0:30from the developed world to India.
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0:30 - 0:33When this is combined with the loss of manufacturing jobs
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0:33 - 0:37to China, it has, you know, led to considerable angst
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0:37 - 0:40amongst the Western populations.
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0:40 - 0:43In fact, if you look at polls, they show a declining
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0:43 - 0:48trend for support for free trade in the West.
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0:48 - 0:51Now, the Western elites, however, have said
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0:51 - 0:53this fear is misplaced.
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0:53 - 0:56For example, if you have read — I suspect many of you
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0:56 - 0:59have done so — read the book by Thomas Friedman
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0:59 - 1:02called "The World Is Flat," he said, basically, in his book
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1:02 - 1:06that, you know, this fear for free trade is wrong
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1:06 - 1:09because it assumes, it's based on a mistaken assumption
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1:09 - 1:13that everything that can be invented has been invented.
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1:13 - 1:16In fact, he says, it's innovation that will keep the West
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1:16 - 1:18ahead of the developing world,
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1:18 - 1:21with the more sophisticated, innovative tasks being done
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1:21 - 1:24in the developed world, and the less sophisticated,
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1:24 - 1:25shall we say, drudge work being done
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1:25 - 1:28in the developing world.
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1:28 - 1:32Now, what we were trying to understand was,
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1:32 - 1:35is this true?
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1:35 - 1:38Could India become a source, or a global hub,
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1:38 - 1:42of innovation, just like it's become a global hub
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1:42 - 1:45for back office services and software development?
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1:45 - 1:49And for the last four years, my coauthor Phanish Puranam
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1:49 - 1:53and I spent investigating this topic.
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1:53 - 1:57Initially, or, you know, as people would say, you know,
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1:57 - 1:59in fact the more aggressive people who are supporting
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1:59 - 2:01the Western innovative model, say,
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2:01 - 2:04"Where are the Indian Googles, iPods and Viagras,
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2:04 - 2:08if the Indians are so bloody smart?" (Laughter)
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2:08 - 2:10So initially, when we started our research, we went
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2:10 - 2:12and met several executives, and we asked them,
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2:12 - 2:15"What do you think? Will India go from being a favored
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2:15 - 2:18destination for software services and back office services
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2:18 - 2:21to a destination for innovation?"
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2:21 - 2:23They laughed. They dismissed us.
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2:23 - 2:26They said, "You know what? Indians don't do innovation."
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2:26 - 2:28The more polite ones said, "Well, you know, Indians
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2:28 - 2:31make good software programmers and accountants,
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2:31 - 2:34but they can't do the creative stuff."
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2:34 - 2:38Sometimes, it took a more, took a veneer of sophistication,
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2:38 - 2:41and people said, "You know, it's nothing to do with Indians.
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2:41 - 2:44It's really the rule-based, regimented education system
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2:44 - 2:49in India that is responsible for killing all creativity."
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2:49 - 2:51They said, instead, if you want to see real creativity,
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2:51 - 2:53go to Silicon Valley, and look at companies
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2:53 - 2:56like Google, Microsoft, Intel.
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2:56 - 2:59So we started examining the R&D and innovation labs
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2:59 - 3:01of Silicon Valley.
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3:01 - 3:03Well, interestingly, what you find there is,
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3:03 - 3:06usually you are introduced to the head of the innovation lab
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3:06 - 3:08or the R&D center as they may call it,
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3:08 - 3:12and more often than not, it's an Indian. (Laughter)
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3:12 - 3:15So I immediately said, "Well, but you could not have been
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3:15 - 3:16educated in India, right?
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3:16 - 3:18You must have gotten your education here."
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3:18 - 3:22It turned out, in every single case,
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3:22 - 3:26they came out of the Indian educational system.
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3:26 - 3:28So we realized that maybe we had the wrong question,
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3:28 - 3:31and the right question is, really, can Indians
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3:31 - 3:35based out of India do innovative work?
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3:35 - 3:37So off we went to India. We made, I think,
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3:37 - 3:40about a dozen trips to Bangalore, Mumbai, Gurgaon,
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3:40 - 3:43Delhi, Hyderabad, you name it, to examine
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3:43 - 3:48what is the level of corporate innovation in these cities.
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3:48 - 3:50And what we found was, as we progressed in our research,
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3:50 - 3:53was, that we were asking really the wrong question.
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3:53 - 3:55When you ask, "Where are the Indian Googles,
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3:55 - 3:59iPods and Viagras?" you are taking a particular perspective
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3:59 - 4:04on innovation, which is innovation for end users,
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4:04 - 4:05visible innovation.
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4:05 - 4:09Instead, innovation, if you remember, some of you
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4:09 - 4:11may have read the famous economist Schumpeter,
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4:11 - 4:13he said, "Innovation is novelty
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4:13 - 4:17in how value is created and distributed."
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4:17 - 4:19It could be new products and services,
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4:19 - 4:21but it could also be new ways of producing products.
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4:21 - 4:24It could also be novel ways of organizing firms and industries.
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4:24 - 4:28Once you take this, there's no reason to restrict innovation,
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4:28 - 4:32the beneficiaries of innovation, just to end users.
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4:32 - 4:35When you take this broader conceptualization of innovation,
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4:35 - 4:38what we found was, India is well represented
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4:38 - 4:42in innovation, but the innovation that is being done in India
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4:42 - 4:45is of a form we did not anticipate, and what we did was
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4:45 - 4:47we called it "invisible innovation."
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4:47 - 4:50And specifically, there are four types of invisible innovation
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4:50 - 4:52that are coming out of India.
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4:52 - 4:55The first type of invisible innovation out of India
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4:55 - 4:58is what we call innovation for business customers,
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4:58 - 5:01which is led by the multinational corporations,
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5:01 - 5:04which have -- in the last two decades, there have been
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5:04 - 5:10750 R&D centers set up in India by multinational companies
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5:10 - 5:14employing more than 400,000 professionals.
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5:14 - 5:19Now, when you consider the fact that, historically,
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5:19 - 5:22the R&D center of a multinational company
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5:22 - 5:26was always in the headquarters, or in the country of origin
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5:26 - 5:30of that multinational company, to have 750 R&D centers
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5:30 - 5:33of multinational corporations in India
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5:33 - 5:35is truly a remarkable figure.
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5:35 - 5:38When we went and talked to the people in those innovation
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5:38 - 5:40centers and asked them what are they working on,
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5:40 - 5:42they said, "We are working on global products."
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5:42 - 5:45They were not working on localizing global products
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5:45 - 5:49for India, which is the usual role of a local R&D.
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5:49 - 5:51They were working on truly global products,
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5:51 - 5:55and companies like Microsoft, Google, AstraZeneca,
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5:55 - 5:58General Electric, Philips, have already answered
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5:58 - 6:01in the affirmative the question that from their Bangalore
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6:01 - 6:05and Hyderabad R&D centers they are able to produce
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6:05 - 6:08products and services for the world.
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6:08 - 6:11But of course, as an end user, you don't see that,
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6:11 - 6:12because you only see the name of the company,
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6:12 - 6:16not where it was developed.
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6:16 - 6:19The other thing we were told then was, "Yes, but, you know,
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6:19 - 6:21the kind of work that is coming out of the Indian R&D center
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6:21 - 6:23cannot be compared to the kind of work that is coming out
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6:23 - 6:26of the U.S. R&D centers."
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6:26 - 6:27So my coauthor Phanish Puranam, who happens to be
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6:27 - 6:30one of the smartest people I know, said
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6:30 - 6:31he's going to do a study.
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6:31 - 6:34What he did was he looked at those companies
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6:34 - 6:37that had an R&D center in USA and in India,
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6:37 - 6:40and then he looked at a patent that was filed
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6:40 - 6:43out of the U.S. and a similar patent filed out of the same
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6:43 - 6:45company's subsidiary in India,
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6:45 - 6:48so he's now comparing the patents of R&D centers
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6:48 - 6:52in the U.S. with R&D centers in India of the same company
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6:52 - 6:55to find out what is the quality of the patents filed
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6:55 - 6:56out of the Indian centers and how do they compare
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6:56 - 6:59with the quality of the patents filed out of the U.S. centers?
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6:59 - 7:01Interestingly, what he finds is
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7:01 - 7:04— and by the way, the way we look at the quality of a patent
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7:04 - 7:07is what we call forward citations: How many times
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7:07 - 7:11does a future patent reference the older patent? —
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7:11 - 7:14he finds something very interesting.
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7:14 - 7:16What we find is that the data says
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7:16 - 7:20that the number of forward citations of a patent filed
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7:20 - 7:23out of a U.S. R&D subsidiary is identical to the number
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7:23 - 7:27of forward citations of a patent filed by an Indian subsidiary
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7:27 - 7:29of the same company within that company.
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7:29 - 7:32So within the company, there's no difference in the forward
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7:32 - 7:34citation rates of their Indian subsidiaries versus
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7:34 - 7:35their U.S. subsidiaries.
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7:35 - 7:39So that's the first kind of invisible innovation coming out of India.
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7:39 - 7:42The second kind of invisible innovation coming out of India
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7:42 - 7:46is what we call outsourcing innovation to Indian companies,
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7:46 - 7:49where many companies today are contracting
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7:49 - 7:52Indian companies to do a major part of their product
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7:52 - 7:57development work for their global products
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7:57 - 7:59which are going to be sold to the entire world.
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7:59 - 8:01For example, in the pharma industry, a lot of the molecules
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8:01 - 8:04are being developed, but you see a major part of that work
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8:04 - 8:07is being sent to India.
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8:07 - 8:10For example, XCL Technologies,
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8:10 - 8:12they developed two of the mission critical systems
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8:12 - 8:16for the new Boeing 787 Dreamliner,
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8:16 - 8:18one to avoid collisions in the sky,
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8:18 - 8:22and another to allow landing in zero visibility.
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8:22 - 8:24But of course, when you climb onto the Boeing 787,
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8:24 - 8:27you are not going to know that this is invisible innovation
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8:27 - 8:28out of India.
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8:28 - 8:31The third kind of invisible innovation coming out of India
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8:31 - 8:34is what we call process innovations, because of an injection
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8:34 - 8:37of intelligence by Indian firms.
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8:37 - 8:41Process innovation is different from product innovation.
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8:41 - 8:44It's about how do you create a new product or develop
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8:44 - 8:46a new product or manufacture a new product,
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8:46 - 8:48but not a new product itself?
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8:48 - 8:53Only in India do millions of young people dream
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8:53 - 8:57of working in a call center.
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8:57 - 9:00What happens — You know, it's a dead end job in the West,
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9:00 - 9:03what high school dropouts do.
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9:03 - 9:06What happens when you put hundreds of thousands
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9:06 - 9:09of smart, young, ambitious kids
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9:09 - 9:11on a call center job?
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9:11 - 9:16Very quickly, they get bored, and they start innovating,
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9:16 - 9:20and they start telling the boss how to do this job better, and
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9:20 - 9:23out of this process innovation comes product innovations,
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9:23 - 9:25which are then marketed around the world.
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9:25 - 9:27For example, 24/7 Customer,
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9:27 - 9:29traditional call center company, used to be a traditional
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9:29 - 9:31call center company. Today they're developing
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9:31 - 9:35analytical tools to do predictive modeling so that before
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9:35 - 9:38you pick up the phone, you can guess
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9:38 - 9:44or predict what this phone call is about.
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9:44 - 9:47It's because of an injection of intelligence into a process
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9:47 - 9:50which was considered dead for a long time in the West.
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9:50 - 9:53And the last kind of innovation, invisible innovation
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9:53 - 9:56coming out of India is what we call management innovation.
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9:56 - 9:57It's not a new product or a new process
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9:57 - 10:00but a new way to organize work,
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10:00 - 10:02and the most significant management innovation to come
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10:02 - 10:06out of India, invented by the Indian offshoring industry
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10:06 - 10:08is what we call the global delivery model.
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10:08 - 10:11What the global delivery model allows is, it allows you
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10:11 - 10:14to take previously geographically core-located tasks,
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10:14 - 10:17break them up into parts, send them around the world
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10:17 - 10:19where the expertise and the cost structure exists,
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10:19 - 10:22and then specify the means for reintegrating them.
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10:22 - 10:24Without that, you could not have any of the other
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10:24 - 10:26invisible innovations today.
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10:26 - 10:29So, what I'm trying to say is, what we are finding
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10:29 - 10:34in our research is, that if products for end users
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10:34 - 10:37is the visible tip of the innovation iceberg,
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10:37 - 10:41India is well represented in the invisible, large,
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10:41 - 10:46submerged portion of the innovation iceberg.
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10:46 - 10:51Now, this has, of course, some implications,
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10:51 - 10:55and so we developed three implications of this research.
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10:55 - 10:59The first is what we called sinking skill ladder,
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10:59 - 11:01and now I'm going to go back to where I started my
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11:01 - 11:04conversation with you, which was about the flight of jobs.
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11:04 - 11:08Now, of course, when we first, as a multinational company,
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11:08 - 11:10decide to outsource jobs to India in the R&D,
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11:10 - 11:14what we are going to do is we are going to outsource the
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11:14 - 11:17bottom rung of the ladder to India, the least sophisticated jobs,
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11:17 - 11:20just like Tom Friedman would predict.
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11:20 - 11:23Now, what happens is, when you outsource the bottom rung
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11:23 - 11:28of the ladder to India for innovation and for R&D work,
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11:28 - 11:31at some stage in the very near future you are going to have
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11:31 - 11:33to confront a problem,
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11:33 - 11:35which is where does the next step
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11:35 - 11:38of the ladder people come from within your company?
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11:38 - 11:41So you have two choices then:
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11:41 - 11:43Either you bring the people from India into
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11:43 - 11:46the developed world to take positions in the next step
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11:46 - 11:49of the ladder — immigration —
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11:49 - 11:51or you say, there's so many people in the bottom step
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11:51 - 11:54of the ladder waiting to take the next position in India,
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11:54 - 11:58why don't we move the next step to India?
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11:58 - 12:00What we are trying to say is
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12:00 - 12:05that once you outsource the bottom end of the ladder, you --
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12:05 - 12:08it's a self-perpetuating act, because of the sinking skill ladder,
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12:08 - 12:11and the sinking skill ladder is simply the point that
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12:11 - 12:13you can't be an investment banker
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12:13 - 12:15without having been an analyst once.
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12:15 - 12:17You can't be a professor without having been a student.
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12:17 - 12:20You can't be a consultant without having been a research associate.
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12:20 - 12:23So, if you outsource the least sophisticated jobs,
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12:23 - 12:27at some stage, the next step of the ladder has to follow.
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12:27 - 12:29The second thing we bring up is what we call
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12:29 - 12:32the browning of the TMT, the top management teams.
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12:32 - 12:35If the R&D talent is going to be based out of India
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12:35 - 12:37and China, and the largest growth markets
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12:37 - 12:39are going to be based out of India and China,
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12:39 - 12:41you have to confront the problem that
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12:41 - 12:43your top management of the future
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12:43 - 12:46is going to have to come out of India and China,
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12:46 - 12:47because that's where the product leadership is,
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12:47 - 12:50that's where the important market leadership is.
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12:50 - 12:52Right? And the last thing we point out in this slide,
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12:52 - 12:56which is, you know, that to this story, there's one caveat.
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12:56 - 13:00India has the youngest growing population in the world.
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13:00 - 13:04This demographic dividend is incredible, but paradoxically,
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13:04 - 13:07there's also the mirage of mighty labor pools.
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13:07 - 13:10Indian institutes and educational system,
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13:10 - 13:12with a few exceptions, are incapable of producing students
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13:12 - 13:15in the quantity and quality needed
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13:15 - 13:18to keep this innovation engine going,
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13:18 - 13:21so companies are finding innovative ways to overcome this,
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13:21 - 13:23but in the end it does not absolve the government
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13:23 - 13:28of the responsibility for creating this educational structure.
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13:28 - 13:31So finally, I want to conclude
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13:31 - 13:34by showing you the profile of one company, IBM.
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13:34 - 13:37As many of you know, IBM has always been considered
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13:37 - 13:39for the last hundred years to be one of the most
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13:39 - 13:40innovative companies.
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13:40 - 13:43In fact, if you look at the number of patents filed over history,
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13:43 - 13:45I think they are in the top or the top two or three companies
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13:45 - 13:49in the world of all patents filed in the USA as a private company.
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13:49 - 13:51Here is the profile of employees of
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13:51 - 13:55IBM over the last decade.
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13:55 - 13:58In 2003, they had 300,000 employees,
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13:58 - 14:02or 330,000 employees, out of which, 135,000
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14:02 - 14:06were in America, 9,000 were in India.
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14:06 - 14:11In 2009, they had 400,000 employees, by which time
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14:11 - 14:13the U.S. employees had moved to 105,000,
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14:13 - 14:17whereas the Indian employees had gone to 100,000.
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14:17 - 14:20Well, in 2010, they decided they're not going to reveal
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14:20 - 14:22this data anymore, so I had to make some estimates
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14:22 - 14:23based on various sources.
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14:23 - 14:26Here are my best guesses. Okay? I'm not saying
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14:26 - 14:27this is the exact number, it's my best guess.
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14:27 - 14:29It gives you a sense of the trend.
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14:29 - 14:34There are 433,000 people now at IBM, out of which
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14:34 - 14:3698,000 are remaining in the U.S.,
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14:36 - 14:40and 150,000 are in India.
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14:40 - 14:43So you tell me, is IBM an American company,
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14:43 - 14:47or an Indian company? (Laughter)
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14:47 - 14:52Ladies and gentlemen, thank you very much. (Applause)
- Title:
- India's invisible innovation
- Speaker:
- Nirmalya Kumar
- Description:
-
Can India become a global hub for innovation? Nirmalya Kumar thinks it already has. He details four types of "invisible innovation" currently coming out of India and explains why companies that used to just outsource manufacturing jobs are starting to move top management positions overseas, too. (Filmed at TEDxLondonBusinessSchool.)
- Video Language:
- English
- Team:
- closed TED
- Project:
- TEDTalks
- Duration:
- 15:12
Morton Bast edited English subtitles for India's invisible innovation | ||
Morton Bast edited English subtitles for India's invisible innovation | ||
Retired user edited English subtitles for India's invisible innovation | ||
Jenny Zurawell approved English subtitles for India's invisible innovation | ||
Jenny Zurawell accepted English subtitles for India's invisible innovation | ||
Thu-Huong Ha added a translation |