Hi friends.
Welcome to this module on Technological Innovation
and Entrepreneurship.
In the previous sessions, we covered number
of topics including what does entrepreneurship
mean, how does one undertake the entrepreneurial
journey, how does one discover whether one
is entrepreneurially inclined or not, what
are the various key steps in entrepreneurship
which we listed as ideation, prototyping testing,
validation, commercialization and so on.
We also discussed how several Indian and global
entrepreneurial companies went through these
steps and carved out niche for themselves
in the entrepreneur space.
So, in this discussion we also looked at various
pros and cons of different methodologies,
different strategies adopted by entrepreneurial
firms, entrepreneurs themselves and also what
could be the success factors.
In this session and also in the next, session
we will focus exclusively on technology.
We know that technology is the key aspect
of modern living, the several products we
see the several services we have are all primed
by technology, but looking at from a different
perspective technology has always been there.
Like when somebody innovated on printing machine
or when the automobile came.
When the machine tool produce certain parts,
obviously technology was there and when factories
were built using some of these machine tools,
testing equipment, technology was there.
So, what is new about technology now?
Why technology is such a strong buzz word
today?
Almost, assuming the universal predominant
omnipresent kind of factor driving all kinds
of industrial growth.
Why does it happen that way?
Why does it get interpreted that way?
The reason is when technology was there in
the earlier years that is in the previous
industrial revolutions technology was in a
machine and the machine operated on certain
technology, but actually it was operated by
man-machine interface, the machine tool ran
on power which itself was technologically
generated through power generating systems.
And then transmitted through distribution
systems, but the machine itself was operated
by the person, the output of the machine which
could be a camshaft or a crankshaft was measured
with an instrument, but the judgment on whether
the dimensions were correct or whether the
tolerances were appropriate was being made
by the human being.
But today we have a situation where several
of these processes are technology driven.
It does not mean automation, it only means
that wherever there was need for hazardous
activity or judgmental activity, automation
has taken place and machine has extended its
purview of operations and then technology
therefore has become little more universal
than it was before.
Secondly, all the business processes were
manual even after the advent of computerization,
man-machine interface in business process
was pretty high.
But today we have a situation where many of
the business processes are rendered machine
led which means that technology has replaced
the way we conduct business processes.
So, we say that technology is today more omnipresent
that it was ever before.
And when technology is more omnipresent than
ever before to that extent it gives several
opportunities for new companies to emerge,
new ways of doing businesses to emerge and
new products and services to emerge.
So, in this module we will discuss the role
of technological innovation and entrepreneurship,
but before we go there, we will look at the
entrepreneurial black box.
The activities which an entrepreneur does
or what the entrepreneurial organization does
could be seen as a black box.
On one side we have a product on the other
side we have a customer.
The product is made by the entrepreneur in
a particular way and then delivered to the
customer.
But underlying the product is technology and
overwhelming the customer is the valuation
of the company.
So, we have on the left side the product and
the underlying technology on the right side
we have got customer or the market place and
the overarching market valuation for the company.
So, what goes on within this box of conversion
called entrepreneurship is indeed a black
box which is very specific to each entrepreneur,
specific to each context.
But the goal of every entrepreneur is not
only to solve a problem, not only to produce
a product in an innovative way, but also achieve
a claim and also achieve market valuation.
We have discussed in the previous sessions
the concept of unicorn.
Unicorn is an entrepreneurial firm or a startup
which has achieved market valuation of US
dollar 1 billion or above.
It is a kind of benchmark that has come to
stay.
So, when we look at global unicorns, we can
look at a few of these companies by their
logos and emblems.
As I said when we present the logos, we do
recognize that these logos are being used
for pictorial representation of the companies
and for visual impact and obviously the ownership
and the copyrights of the logos stay with
the respective companies so Ant Financial
is a global unicorn which is into Fintech.
ByteDance is another company, DiDi is Uber
kind of company in China, Airbnb is a hospitality
company, Stripe is a payments company, Spacex
is Elon Musk’s space exploration company,
LU.com is an internet commerce company.
So whichever field you look at you have a
global unicorn not that all unicorns are beyond
controversy, we have JUUL which has achieved
unicorn status through the E-Cigarette product
innovation.
But opinion is divided whether that has been
a good thing or not so good thing.
So, when we look at global unicorns country
wise, we have looked at based on CB insights
data several developed and emerging economies
and you will find that US naturally leads
the global unicorn list with valuation of
678 billion dollars and China aggregates to
374.61 billion dollars.
While India has been the third largest global
unicorn club it is also evident that the distance
between the first and second and the third
which is India is significantly high, so there
is lot to be bridged.
But when we also have several developed countries
such as South Korea, Germany, Singapore, Switzerland,
Sweden, France, Australia, Japan in the mid-range
that is significantly below India and some
of them are almost near 2 billion dollar nominal
valuation amount.
This is one aspect of the global unicorn.
In terms of the percentage, 54 percent of
the global unicorn club is held by the United
States based startups.
30 percent by the China based startups and
4 percent by India based startups.
Companies in South Korea, Indonesia and Germany
contribute 2 percent each and companies in
Singapore, Brazil, Switzerland, Israel and
Sweden contribute 1 percentage.
While several other companies in other countries
do contribute to the global unicorn club,
the share is so marginal that they do not
get shown in our excel ranking.
But more importantly let us look at what is
the kind of domain distribution in various
global rankings?
In the United States, Fintech, E-commerce,
internet software and services they lead the
pack.
In China however artificial intelligences
leads the pack, it is very interesting and
India is more mimicking the Western model
with Fintech supply chain, E-commerce, auto
and transportation leading the unicorn club.
Now that is a fundamental ship therefore how
China is trying to develop itself in the new
industrial path while China may have lacked
in the data processing and also in the computerization
and software domains in the past.
Now I think China is making a very determined
effort to get into the artificial intelligence,
machine learning, deep learning space and
also achieved global leadership.
And essentially that is being done through
a variety of startup initiatives.
That said India is also starting to realize
the importance of artificial intelligence
and I do hope that given the distance between
the first and second and the third and also
given the fact that India is considered to
be one of the largest ecosystems, startup
ecosystems in the world numbering 7000 to
10000 startups depending upon how you look
at the count.
I think there is significant potential for
Indian startups to help India achieve leadership
in artificial intelligence.
Similarly, when you look at other countries
you will find that even countries which are
as developed as South Korea and Japan are
not in the global unicorn club to the extent
India has been.
That does not mean that technology and innovation
are not existing in those countries and that
India is superior to those countries in those
aspects.
Quite probably, flipping this number into
another type of qualitative analysis.
I would think that the companies in those
countries are themselves undertaking significant
technological innovation in their large corporate
labs, in their large industrial labs so much
so the need for startups to be independent
and grow those technologies is probably comparatively
less or many of these startups which are there
and which are promising in terms of the new
technologies are being observed by the bigger
companies in those industrially developed
areas before they achieve unicorn status.
So, the numbers, the valuations, the spread
are very indicative, but not necessarily fully
conclusive.
The fact that even developed industrial countries
such as South Korea, Germany, Singapore, Japan
and Sweden trial behind India in global unicorn
club does not mean that modern technologies
or futuristic technologies not being pursued
by startups in those countries.
Rather it could mean that the big companies,
big industrial labs, big corporate labs in
those countries are in the forefront of developing
those kinds of technologies that is one possibility.
The other possibility is that startups are
indeed functioning in those area and developing
those futuristic technologies, but before
this startup’s attain the unicorn status
they are being observed by the bigger industrial
companies in those countries.
So, we move on to our familiar product staircase.
We said that there are 5 important steps in
the startup journey.
The first is ideation, the second is prototyping,
the third is testing, validation and commercialization.
As I said in the previous sessions, we keep
coming back to this very important product
staircase, but the important aspect when we
look at technology is where and how does disruption
happens that is one question.
Does the disruption happens in terms of the
ideation, in terms of the prototyping, testing,
validation or in terms of commercialization
or is just a linear flow that is one question
which we have.
The second question is who is to best placed
to disrupt and transform markets and industries,
is it innovator?
Is it the differentiator?
Or is the follower?
And to make ourselves very clear on the terminology,
Innovator is a company or an entrepreneur
who innovates on a technology, innovates on
a product probably for the first time and
creates a market around that product.
He discovers a new solution for a latent problem
and offers it to the market.
Differentiator is also a type of innovator,
but he follows the overall approach, but differentiates
himself or herself with a product that is
distinctly different and probably he is also
superior to the innovator’s products.
Follower is someone who mimics the innovator
product or the differentiator product, but
comes up with a new way of presenting the
product to the customer.
Comes up with a more cost effective way of
manufacturing and delivering the product or
service to the customer.
We have also gone through in the previous
session that both innovators and differentiators
has 2 classes and followers has one large
class are extremely important for the society
to benefit from the innovation in a larger
framework.
Now when we talk about technology let us look
at how technology moves.
Technology has been moving rather slowly in
the first and second even in the third industrial
evolution, but in the fourth industrial evolution
which is where we are present should a technology
has been growing pretty rapidly.
Now let us take the example of home light
bulb and based on the information provided
by American energy star organization.
As we know the light bulb has been invented
by Edison.
Over a century between 1879 to 1985, the light
bulb remained largely what Edison discovered
as a light bulb.
However, over the last 25 years there have
been more breakthrough technologies in light
bulb than there have been ever.
Compact fluorescent lamp and LED light emitting
diode bulb technologies are two of the most
important examples.
So there has been massive improvement in energy
efficiency from the first design accompanied
by progressive drop in pricing, significant
increase in lifespan and increase in customization
options.
So if the energy cost was 7.23 dollars with
a typical life of one year in the standard
incandescent bulb it came down to 5.18 dollars
per year and 1 to 3 years of life in halogen
incandescent came down further to 1.57 dollars
per year in the compact fluorescent lamp with
a increased lifespan of 6 to 10 years.
And now in the LED stage it is just 1 dollar
that means the drop has been as high as 1\7th
of the original incandescent lamp and the
wattage which has been used by the lamp has
come from 60 watts to 9 watts and lifespan
has increased by 15 to 20 times.
Not only that the types of bulbs which are
used themselves have varied substantially
with retaining the same kind of holding system
the options available for different kinds
of bulbs to meet different room conditions,
different lighting requirements and different
ambient conditions has substantially gone
up.
So there is greater energy efficiency and
it has been estimated that if every American
home replace their 5 most frequently used
light fixtures or the bulbs in them with LED
bulbs that have earned the energy star rating
America would save enough energy to light
33 million homes for a year, save nearly 5
billion dollars each year in energy cost,
prevent greenhouse gas is equivalent to the
emissions from nearly 6 million cars.
So, all this points out to the fact that positive
technology not only improves the features
the lifestyle for the customers but also protects
the environment and improves the quality of
life itself.
So, technology is an extremely important driver
of how we progress.
We progress not only through growth and use
of more products, we also progress by preserving
our environments in a very sensitive way so
that is where technology plays a new role.
And as we go through this important aspect
of technology we will not necessarily focus
only on startups and technology we will also
focus on technology as a broader concept and
how technology could permeate different walks
of life from basic needs to the sophisticated
needs and how there could be opportunities
in all such technological value chains for
startups to come and deliver some specific
value.
So now let us look at technological innovation.
I would say that there are 2 types of innovation
one is a sustainable innovation second is
a disruptive innovation.
What is the difference between a sustainable
innovation and disruptive innovation?
We all know that generally there is a product
market situation or scenario, certain products
fit certain markets and certain markets require
certain products.
This is the product market configuration that
happens like automobiles requiring automobile
users, coal requiring thermal power plants.
So, there is a product there is a market.
Now sustainable innovation is that kind of
innovation which does not disrupt this market
situation that is the customers remains as
they are, the products by enlarge remains
they are, but the product themselves have
been substantially improved to lead to a different
kind of state of the art for the market as
well as for the product.
The example which we went through previously
that is the light bulb, the movement from
CFL to let us say LED is a sustainable innovation,
the product market configuration remained
the same, but the way the industry developed
itself and the way the consumer started using
the bulbs has substantially changed and why
this is an innovation because if somebody
does not follow this technological path and
chooses to be in the previous generation of
products that company would go away.
The industry would not go away, but the company
would go away.
Therefore, it is important for all companies
to pursue innovation.
So, within sustainable innovation we have
2 types of innovation, one is the evolutionary
innovation where the changes are incremental
and the second is revolutionary innovation.
If the CFL bulb is improved to better coating
through better strength of the light holding
area it is an evolutionary innovation.
When LED has replaced the CFL is a revolutionary
innovation but again comeback to the point
neither the evolutionary innovation nor the
revolutionary innovation does not alter the
fundamentals of product market configuration.
We have the second type of innovation which
is disruptive innovation which is a transformation
innovation which it completely changes, how
the industry does its activities.
So, when we talk about let us say electric
vehicle completely replacing the IC engine
vehicle then it is a disruptive innovation.
Why is it a disruptive innovation?
Because the way automobile will look, the
way automobile will run will change not only
that the entire component industry will change,
the fuel supply industry will change, the
battery charging industry will come in, the
profile of automobile itself will change.
Therefore, the industry itself will go through
a significant transformation therefore it
is a disruptive innovation.
Now where do the sources of innovation lie?
The sources of innovation lie in 3 places.
One, the universities, universities typically
provide the inputs for all the 3 types of
innovation although advanced countries have
advanced research labs which provide more
disruptive innovative inputs for startups
or established forms.
So when universities provide inputs for innovation
typically startups take on those innovations
and build their startups around those innovations
which is one of the reasons why increasingly
students when they are undergoing their advanced
engineering courses or advanced science courses
or taking up some of their innovative activities
in the universities or colleges as their own
startups along with the professors.
There is a trend which has worked very well
in the United States and likely to work very
well in the Indian situation also.
Over and above that universities themselves
mostly the advanced universities have their
own intellectual property generation and protection
systems and they have the ability to generate
technologies, preserve them and license them
to startups as well as to other companies.
Now when universities provide the technological
inputs the fundamental technological inputs
and when startups focus on disruptive aspects
of innovation and develop them to commercialization
stage.
We have established firms which take on those
startups and then work with them and then
absorb the startups or the technologies developed
by them for commercialization status.
In relation to that established firms could
take up directly from the universities incremental
innovation, the sustainable innovation and
then they also could develop their innovative
developments in the sustainable space, but
if you look at the overall macro picture there
is a symbiotic relationship between these
3 types of innovation.
The sustainable evolutionary innovation, the
sustainable revolutionary innovation and the
disruptive transformational innovations and
there is also the symbiotic relationship between
the 3 organizational systems which work on
these innovative aspects.
Now alluding to this further we have to focus
on where does technological innovation occur?
There are this traditional main spaces, traditional
main spaces are the companies the labs like
CSIR labs the university labs and then publically
funded, privately funded research labs, but
then we are having these new main spaces which
is the startup space which is our focus as
we go through this course.
And again, there is a symbiotic relationship
between all these 3 spaces, the traditional
main spaces as well as the new main spaces
and universities provide the core technologies,
startup develop the core technologies to a
commercialization stage and established the
firms acquire the startups or their core stages.
Now it is very important therefore for startups
to know how they are going to acquire the
technologies.
How they are going to develop the technologies
and what kind of symbiotic relationships they
should have with the universities on one hand
and with the established companies on the
other.
Now the unique role of startups can be described
in 2 ways.
One initial rejection and second eventual
dominance.
When the power of technology is so high that
the market or the user at first does not understand
the full impact, the full power of technology
and therefore there is a kind of if not rejection
there is at least skepticism whether this
is the kind of technology that is going to
deliver the goods or services for them.
But when the power of technology is understood,
the technology is accepted so widely that
there is a dominance.
So, this graph plots with x-axis being time
and y-axis being performance, how the mainstream
technology and how the emerging technology
work together.
The graph which is on the right, on the top
which is the graph which is moving up that
is the mainstream technology performance which
has got its own set linear performance activity.
As time progresses its performance gets incremented,
but then there is this potentially disruptive
technology which comes in at a point which
apparently is a bit below the established
main space technology, but very soon the path
is so fast and rapid that it crosses the technological
efficiency provided by the mainstream technology
and once this happens the emerging disruptive
technology occupies the entire space.
And it is not easy to accommodate the mainstream
technology and also at the same time encourage
a disruptive technology.
Clayton Christensen who has done extensive
research and hypothesization in the disruptive
technology area has opined that every company
that has tried to manage mainstream and disruptive
businesses within a single organization failed.
Why?
That is because the culture, the ecosystem
and the passion that are required to support
a disruptive technology are significantly
different from those required for a mainstream
technology.
In the case of mainstream technology things
almost happen automatically although there
are requirements of budgets, there are requirements
of planning, there are requirements of diligence
commitment.
The kind of passion and the hard work, the
smart work which is required for disruptive
technologies probably gets replaced by a sense
of incremental automatic development that
happens with the mainstream technologies.
So that is a principle reason why it is so.
So, if you look at for example the fixed landlines
and the cellular telephones you will find
that when the cellular telephones first came
they were very bulky probably they were as
large as let us say 6 inches by 12 inches
kind of boxy appearance.
Therefore, you can say that although it was
a potentially disruptive technology it looked
almost in terms of the volumetric size as
big as the landline.
Therefore, it did not immediately disrupt,
but the moment the form factor improved, the
moment the functionality is improved and when
the phone could be operated within the hand
obviously it overtook the landline usage.
It overtook the fascination for landlines
and changed into infatuation for the new cellular
telephone systems.
Therefore, that is how this works.
And taking on for further hypothesization
of Clayton Christensen, there are 4 features
of disruption, disruptive innovation.
One disruption is a process it is not a onetime
occurrence, it is a process that occurs every
now and then and also in a very systematic
fashion.
Second, the business models of disruptive
companies are significantly different from
business models of sustainable innovation.
Then disruption typically comes with risk
of failure because we are working on something
which has not been tried out any time ever.
But eventually all disruptions need to be
embraced by big companies.
Typically, as per the hypothesis in disruptive
innovations originate in low end or new market
foothold.
That is if you say that the market has a normal
distribution curve and if the high end is
this portion and if the low end is this portion
disruptions occur here or here.
Christensen says that disruption typically
start in the low end market and then move
up the value chain and occupy the entire market
space.
But it is also possible for disruptions to
occur in the high end market and then takeover.
For example you look at the flat panel TVs
or you look at the OLED based smart phone,
smart devices they typically occurred in the
high end and then they moved on to capture
the overall market.
Therefore, if the disruptive innovation has
been mastered at the very first go it is quite
possible that there will be there throughout
the market space completely.
It is not necessary that they should start
at the low end or at the high end.
So, when a startup looks at the disruptive
innovation it is trying to develop, it is
very important to see what kind of market
I am addressing, I am addressing the top end
market the middle end market or the low end
but broader market.
