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Chapter - 4

Innovations and Entrepreneurship

In todays world of intense competition, along with fast- changing markets and
technologies, Innovations has achieved great importance. How to innovate is the key

What is Innovation?
Innovation is not a technical term. It is an economic and social term. Its criterion is
not science or technology, but a change in the economic or social environment, a
change in the behavior of people as consumers, producers or as citizens. Innovation is
investing of resources to create new wealth or investing of wealth to create new
resources. It is measured by assessing its impact on environment, and therefore
innovation should always be market focused.
Innovation is the responsibility of every executive, and it begins with a conscious
search for opportunities. Finding those opportunities and exploiting them with
focused, practical solutions - requires disciplined work.

Innovation & Entrepreneurship - The link

Innovation is the specific function of entrepreneurship, whether in an existing
business, a public service institution, or a new venture started by a lone individual in
the family. It is the means by which the entrepreneur either creates new wealthproducing resources or endows existing resources with enhanced potential for creating
There prevails a lot of confusion about the proper definition of Entrepreneurship.
Some use the term to refer to all small businesses; others, to all new businesses. In
practice, however, a great many well-established businesses engage in highly
successful entrepreneurship. The term then refers not to an enterprises size or age but
to a kind of activity. At the heart of that, activity is Innovation: the effort to create
purposeful focused change in an enterprises economic or social potential.

What is Innovative Strategy?

Like all business strategies, an innovative strategy starts out with the question, What is
our business and what should it be? But its assumptions regarding the future are
different from the assumption made with respect to the ongoing business.
The first objective of a strategy for the ongoing business is to optimize what already
exists. However, the ruling assumption of an innovative strategy is whatever exists is

aging. The assumption must be made that existing product lines and services, existing
markets and distribution channels etc will sooner or later will go down rather than up.
The motto of a strategy for the on going business is Better and More, however the
motto of a strategy for Innovation is New and Different. Innovative Strategy is
planned out by systematically getting rid of the old, the dying and the obsolete, because
abandoning yesterday alone will free resources for tomorrow.
The scope of Innovation is verified in terms of
Relative Advantage that the Innovation will provide them with.
Compatibility - the degree to which the Innovation will be compatible with the values
of the employees as well as the consumers.
Complexity of the Innovation to understand the period required to penetrate the market.
Why does one need to Innovate?
To face competition
To stand out in a clutter
To survive recession
To solve certain problems
Innovations and Profits: Joseph Schumpeters Theory of Profits
It has been held by Schumpeter that the main function of the entrepreneur is to
introduce Innovations in the economy and profits are reward for his performing this
function. Innovation as used by Schumpeter, has a very wide connotation. Any new
measure or policy adopted by an entrepreneur to reduce the cost of production or to
increase the demand for his product is an Innovation.
Hence, Innovations can be divided into two categories:
1. Those which reduce the cost of production i.e. which change the production
functions. In this first type of Innovation are included the introduction of new
machinery, new and cheaper technique or process of production, exploitation of
a new source of raw material, a new and better method of organizing the firm
2. Those which increase the demand for the product i.e. which change the
demand or utility function. In this category are included the introduction of a
new product, a new variety or design of the product, a new and superior method
of advertisement, discovery of new markets etc.

Role of an Innovator
Schumpeter assigns the role of the Innovator to the Entrepreneur. The Entrepreneur in
not a man of ordinary managerial ability, but one who introduces something entirely
new. The Entrepreneur is motivated by the desire to be the founder of a private
commercial kingdom, the will to conquer and prove his superiority and the joy of
creating, of getting things done or simply of exercising ones energy and ingenuity.
To perform his economic function, the entrepreneur requires two things - the existence
of technical knowledge to produce new products and the power of disposal over the
factors of production in the form of finances.
Role of Profits
An entrepreneur innovates to earn profits. Profits arise due to dynamic changes
resulting from an Innovation. They continue to exist until the Innovation becomes
Breaking of the circular flow
Schumpeters model talks about the breaking of the circular flow with an innovation in
the form of a new product by an entrepreneur for earning profits. Profits caused by a
particular Innovation tends to be competed away as others imitate and adapt that. But if
the entrepreneur comes out with another Innovation at that time when the favorable
effects of the former Innovation are dying out, he will make profits again. Therefore as
long as Innovations exist, profits continue to arise out of them. So, according to Joseph
Schumpeter, Innovation is the sole cause of profit.
Sources of Innovation: Peter F. Drucker

How to Innovate?
Peter F. Drucker in his book Innovation and Entrepreneurship answer this key
question. He says, Innovation can be systematically managed if one knows where and
how to look.
Drucker mentions the different sources of Innovation.

Sources of Innovation
Innovations can spring from a flash of genius, however, most Innovations result from a
conscious, purposeful search for Innovation opportunities, which are found in only a
few situations.
Within a company or Industry, areas of opportunity can exist in the form of the

Unexpected occurrences
Process needs
Industry and Market changes
Outside the Company in its Social and Intellectual environment, areas of opportunity
can exist in the form of the following:

Demographic changes
Changes in perception
New knowledge
These sources are different in terms of the nature of risk, difficulty in
implementation, complexity, and potential for Innovation may lie in more than one
area at a time. But together, they account for the great majority of all Innovation
For the purpose of clear understanding, we shall look into these different Sources of
Innovation with opportunities explored by the entrepreneurs (authorized dealers) in
the two wheeler industry.

Sources of Innovation:
1. Unexpected Occurrences.
The easiest and simplest source of Innovation opportunity - the unexpected.
Baja launched sunny for the rural and semi -urban markets to up-grade over
the mopeds using modern technology (no gears) which made riding more
comfortable and hassle free. But the product did not appeal to them. Here
market survey revealed that men found the vehicle less macho and hence
rejected it, but the vehicle it was well accepted by female riders who formed a
sizeable portion of riders in these areas. Bajaj smartly started advertising the
product targeting the females and now vehicle was as the new savvy thing in
the market, a product that is smart, easy an comfortable specially for the girls.
Bajaj accidentally found a new market, which was huge enough, and till now
they treated it as the spillover from the primary target - male users.
(Information Source: Sah & Sanghi Motors, Malialaxmi, Mumbai )
The unexpected failure is also an important Innovation opportunity source.
When Hero Hondas sales figures were reaching the sky with its 4-stroke economy
bike CD100, Bajaj developed its own 4-stroke economy bike 4S, which gave more
mileage than CDIOO. Bajaj, confident that its product will beat the competition,

launched the bike with great hype with publicity and advertisements comparing the
technical superiority against Hero Honda - but the public was not interested. They
had already tried and tested the CD100 and were very satisfied with its performance.
They refused to acknowledge anyone who compared with it as a result the marketing
launch failed. But this was a lesson Bajaj learnt.
When they came out with their new, model Caliber (in Jan99), they took it utmost care
not to repeat the same mistakes of comparing and positioned it in a very unconventional
way. They carried out a soft launch. The result - Caliber grabbed 15% of share in sales
within 4 months of launch.
(Information Source: VIP Automobile, Khar, Mumbai)
Unexpected successes and failures are such productive sources of Innovation
opportunities because most businesses dismiss, disregard, and even resent them. No
manufacturer thought of launching a two-wheeler for females thinking that they are not
the decision makers in buying, they do not constitute a big enough market, they can
use mopeds if they have to, they can not have their separate vehicle etc.. With such
ideas in mind no marketer was willing to leap in this market segment. The successes
of Bajaj Sunny and TVS Scooty have proved otherwise.
2. Incongruities & Disagreements
An incongruity within the logic or rhythm of a process can give rise to Innovation
opportunity. 70% of two-wheelers are bought on finance provided by banks or
other financial institutions. The process was time consuming and tidious. Also
the interest charges were high and the acceptance criteria very strict. To cut this
time and process short, and make their products available at a reasonable rate,
Bajaj started its auto finance company Bajaj Auto Finance which was provided to
all their dealers. Even the interest charged was lower than the rest. (Banks charge
18-20%, whereas Bajaj charges
(Information source: VIP Automobile)
An incongruity between economic realities can also lead to Innovations.
In the late 80s, newer vehicles with Japanese technology bombarded two-wheeler
users in India. The problem was that those who already had old model vehicles would
not buy a new vehicle until he finds a buyer for his old vehicle. Here Alibhai Premji
(dealers since 1920) found a solution. They started Exchange schemes where they
would appoint an evaluator (Usually a second hand vehicle dealer) who would
evaluate the old vehicle and buy it and that amount would be deducted from the price
of the new vehicle. This scheme facilitated the old vehicle owners and also pushed the
sales of the dealer. Many companies like Bajaj, LML, and also many dealers later
adopted this scheme.
(Information source: Alibhai Premji, Tyrewala)

3. Process needs.
We saw earlier how two-wheeler sales were promoted - through exchange schemes and
in-house financing. Now came a new element - time. Time to wait for the exchange
scheme, then finance for the balance amount and then waiting for the bike with the
colour chosen. All this took time, which an urban buyer did not have. Auto-riders came
in with a new concept. Instant Loan Melas. They would put up a stall in a convenient
location in the city a d advertise it. Representatives of their vehicle exchange
department, sales department, technicians to aid test rides and inquiries, finance
company, insurance/ RTO registration agent, stores/delivery all would be present at the
same time. Customers are promised that the entire process would take them one hour
after which they would be riding back home on a bike of their colour choice.
(Information Source: Autorider, Santacruz, Mumbai.)
4. Industry and Market changes.

Industry structures can - and often do- change overnight. Such changes create
tremendous opportunity for Innovation. Established companies, concentrating on
defending what they already have, tend not to counterattack when a newcomer
challenges them. When market or industry structures change, traditional industry
leaders neglect the fast growing market segments. New opportunities rarely fit the way
the industry has always approached the market, defined it, or organized to serve it.
Innovators therefore have a good chance of being left alone for a long time.
5. Demographic changes.
Demographic events lead times. Demographics are the most reliable sources of
Innovation opportunity coming from outside the company. Those who watch them can
reap great rewards from them. Managers have known for a long time that demographics
matter, but they have always believed that population statistics change slowly.
However, we have seen that in this century, it has changed very quickly. Innovation
opportunities possible due to changes in the numbers of people, their age distribution,
education, occupations and geographical location are one of the most rewarding and less
risky of entrepreneurial pursuits.
In the 80s, the primary target of a bike zi7as a man, SEC B/C, aged 25-40 years,
income Rs.5,000 /p.m. and above. In the 90s, the shift was clearly seen. Though this
segment was still catered by the economy bikes segment, a new audience was formed;
boy, SEC Al, A2, aged 17-21 years, pocket money Rs. 5,000/p.m. and above. The
significant part of this change was that this young audience would be the decisionmaker. Gemini Motors, Bandra, Mumbai caught on this segment. It launched the TVS
Shogun by sponsoring college festivals like Mood Indigo I.I.T, Povai, Malhaar in St.
Xaviers, etc.. Where this young audience was able to test ride the vehicle. So huge was

the response and success, those Gemini Motors has since then sponsored many college
festivals on a regular basis and launched two other models using this ready audience.
All this was supported by TVS (45% financial expenses).
6. Changes in perception.
The glass is half-empty and the glass is half-full are descriptions of the same
phenomenon but have vastly different meanings. Changing a managers perception from
half-full to half-empty opens big Innovation opportunities. A change in perception does
not alter facts. It changes their meaning, though and very quickly. What determines
whether people see a glass as half-full or half-empty is the mood rather than fact, and a
change in mood defies quantification. It has to be concrete, defined and could be tested.
Then it can be exploited for Innovation opportunity.
We saw earlier how Bajaj Sunny discounted as a rural small town Scooterette and as
replacement for conventional Moped. The dealer in the in bigger town however, saw
sales picking up by women riders and this finding was passed to the company, which
smoothly positioned the vehicle as an easy riding machine and strategically placed it as
apt for female riders. This strategy was then supported by the dealers who provided test
rides to these users who were able to get a feel of the vehicle, its driving ease and
comfort. The result - Sunnys sales increased 300% within 3 months of the new
(Information Source: Shah & Sanghi Motors)

New knowledge. These are the superstars of entrepreneurship. they earn the
publicity and the money. They can be scientific, technical or social. They are
what people usually mean when they talk of Innovation. Knowledge-based
innovations differ from all others in many ways. Like the time they take, their
predictability, the challenge they pose to entrepreneurs etc.. They have the
longest lead time of all Innovations, long time span between the emergence of
new knowledge and its convergence to usable technology.

Kinetic Honda launched the first gear-less scooter in India. Indians saw, this as a
technological innovation. To supplement it and to support it Autoriders developed a
test track at its workshop. The customers could actually experience the vehicle and
also have their queries answered by the engineers at the workshop. No other
automobile dealer, has yet been able to copy this as they do not have the infrastructure
support. Also Kinetic Honda has protected this commitment by huge territory rights to
(Information Source: Autoriders)
Other Innovations observed in this industry:
VIP Motors - Any inquiry which is made by a prospective customer is recorded in the
computer. All details regarding the model preferred, the mode of payment,

approximate date/ occasion when purchase is intended, the users name, address,
profession and even some points of the conversation are recorded. The salesman also
puts in the date when he should give a follow up to this inquiry (usually 8-10 days
later). The computer system is so built that on that particular date, the salesman the
will get a print out on his table reminding him to contact that person and also gives all
the details of the last conversations. In addition, in his absence, another salesperson
can continue the sale.
Alibhai Premji - The oldest player in this in market (since 1920) and still going
strong. They have a supermarket for two-wheelers where they offer all brands and
surprisingly at a cheaper price than the authorized dealer of the company himself. All
through the years they have continuously innovated to survive the competition.
Presently they run high in their exchange scheme, keep in touch with the prospective
customers by keeping records of their responses to test rides, etc..
Sai Service Motors - They haze realized the importance give servicing and after sales
service. At their at their showroom at Andheri, they have kept their workshop walls of
glass so that everyone who visits the showroom can see the quality of technical service
they offer.
Gemini Motors They have bought a Delivery cum Breakdown Van. The van is used
to deliver bikes, which could be surprise gifts and to help distressed customers who
need help at times of breakdown. A unique service offered by only them. The
showroom also boasts of a guest lounge for waiting customers whose vehicle are being
serviced. It has a carrom board, television etc. The proprietor promises one such
Innovation every year.
Fort Point Motors - Hero Honda is the bike for the economy seeking masses, They
are found working at factories, offices find it difficult to take out time to visit the
showrooms. Fortpoint Motors thus have developed a corporate sakes department,
which puts stall at big companies, and offer vehicle to the employees at special price
and loan scheme.

Principles of Innovation
Purposeful, systematic Innovation begins with the analysis of the sources of new
Opportunities. Depending on the context, sources will have different importance at
different times. However, whatever the situation, Innovators must analyze all
opportunity sources. Because Innovation is both conceptual and perceptual, would-be
innovators must go out and look, ask and listen. They should use both the right and the
left side of their brains. They look at figures they look at people. They work out
analytically what the Innovation has to be to satisfy an opportunity. Then they go out
and look at potential users to study their expectations, their values, and their needs.
Effective Innovations start small. They try to do one specific thing. Even Innovations

that create new users and new markets should be directed towards a clear, specific and
carefully designed application.