Values-Based Innovation of Tata Nano

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Values-Based Product Innovation – The Case of Tata Nano
Conference Paper · June 2017
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Values-Based Product Innovation –

The Case of Tata Nano
Henning Breuer*
University of Applied Sciences of Media, Communication and
Management & UXBerlin – Innovation Consulting
Ackerstrasse 76, 13355 Berlin, Germany
E-mail: h.breuer@hmkw.de
Vaishnavi Upadrasta
University of Applied Sciences of Media, Communication and
Management, Ackerstrasse 76, 13355 Berlin, Germany
E-mail vaishnavi.u04@gmail.com
* Corresponding author
Abstract: The role of values and changing values in innovation is not yet well
understood. The case of the Tata Nano allows elaborating upon the potentials
and risks of values-based innovation through a longitudinal analysis of three
stages process: 1) Development guided by the top management vision of safe
and affordable mobility for Indian “scooter families”, 2) market entry suffering
from a mismatch between customer values, value proposition and marketing
measures, and 3) market penetration based on repositioning the product as a
smart, modern city car for young achievers. Reconstructing the case helps us to
further differentiate the values-based innovation framework, and to understand
the impact of diverse stakeholder values on product innovation success. Lessons
learned emphasize the need to actively manage stakeholder values, and to make
every business model component fit not only to one another, but also to
stakeholder values and to the purpose of the whole endeavour.
Keywords: values-based innovation management; frugal innovation;

stakeholder values; product innovation; innovation marketing; business models;
automobile industry; case study.
1 Changing values in the innovation process

In 2003 Ratan Tata, CEO of Indian Tata Motors, announced to create a small four-wheel
vehicle. With a target price of about $2000 it should be affordable for the growing middle
class in India. His vision was to provide a safe alternative for “a single scooter carrying an
entire family” (Carney 2008) that Ratan Tata had noticed on a rainy day in the slippery
streets of Bangalore. When the Nano was first presented at the New Delhi Auto Expo 2008
it was conceived of as “a great symbol of Indian-ishtyle socialism” (rediff. com c.f. Chacko
et al. 2010, 107) and as “the dream of millions of Indians” (Financial Times c.f. ibid. 108).
Even beyond India it was considered as “one of the most transformational consumer
products in the century” (Luft c.f. ibid. 109) and “one of the most important cars ever
designed … a new brand of innovation that makes more out of less” (Time magazine c.f.
1
ibid. 107). Carlos Ghosn, head of Nissan-Renault at the time, is credited for phrasing the
term “frugal innovation” (Business Line c.f. ibid.) as a promising new strategy for
emerging markets across the globe.
Severe challenges characterize this ambitious project to create a “small wonder” (as
Chacko et al. entitle their 2010 project review published by Tata Motors) from the very
beginning. From its beginning the Tata Nano has been an attention seeking case of
automobile innovation and a matter of controversy for potential customers, for local
stakeholders, for industry managers and academics. It has been declared as a „radical and
a “frugal” innovation (Tiwari & Herstatt 2012), it has been considered as a disruptive
innovation (for the scooter markets). Kim and Mauborgne (2014) argued that the Nano
pursues a “blue ocean strategy” combining product differentiation with a cost reduction
approach to create a new market space in the automobile industry. However, these
frameworks and case studies pay little attention to the values and the vision that directed
the development and marketing of the world’s cheapest car. Thereby they fall short to
understand and address the unique development and marketing of the Nano on the Indian
and international market, and to address and manage challenges of similar projects in the
future.
Providing a complementary perspective this following case study applies a values-
based approach (Breuer & Lüdeke-Freund 2017) to improve our understanding of the case,
and to further differentiate the values-based framework through a longitudinal analysis. It
extends previous case discussions (ibid.) by elaborating upon the dynamic aspects of
changing values and values-based statements. In a longitudinal perspective, we focus on
three stages of the development process. We reconstruct how new constellations of
product-related values and instantiations (e.g. provided through business model
components and marketing instruments) shape innovation development. Insights and
lessons learned are derived from a detailed analysis of the case based on academic
literature, journalistic coverage, and corporate communication. Top-down values-based
innovation management led to the development (first phase) of a frugal new “people’s car”
design but faced unexpected protests against the production plants and an increase in costs.
During market entry (second phase) a mismatch between value proposition and
communication, and insufficiently understood customer values (bottom up) hindered
widespread adoption of the Nano. In a third phase of market penetration the product was
strategically repositioned around the new value proposition of a smart, modern city car for
young achievers. The initial vision to provide a safe alternative for the mass market of
middle class scooter drivers was not realized.
Lessons learned from the case provide hints how to manage values-based innovation
within each of the three phases and across the innovation lifecycle, and how to involve
different stakeholders appropriately. A better understanding of values and changing
constellations of product-related values, business model components and marketing
instruments throughout the innovation process will increase chances to design and
successfully market innovations according to what we care about.
2 Related works
Innovation comprises quite diverse activities like envisioning new, developing ideas and
solutions into prototypes, and bringing products or services onto new or existing markets.
Predominant stakeholders, values and guiding statements, and other influential factors
change according to the requirements of each phase and in reaction to external or accidental
events. These dynamics need to be understood and managed in order to drive innovation
based on values, and to design a values-based processes. Analysis of innovation failure and
success, for instance through research accompanying or reconstructing real cases, is one
privileged way to understand these dynamics and to derive recommendations for process
design.
Values remain widely untapped as sources of and drivers for innovation. A values-
based view on innovation and its management (Breuer and Lüdeke-Freund 2017)
demonstrates the potential of values to integrate diverse stakeholders into innovation
processes, to direct collaborative efforts, and to generate innovations that matter –
innovations that cater to what we really care about. The values-based view was motivated
through informal observations in innovation management, e.g. a missing sense of direction
in the search of the “next big thing”, a neglect of the normative foundations of business,
and disregard of the impact of stakeholders and networks on innovation success. The
values-based framework was then developed based on discussions of theories of values
and innovation management, sustainability management and business modelling literature,
and through a review and re-interpretation of (more than 27) case studies. These include
several cases from car companies such as Ford, GM, Volvo, Tesla and VW, and values
such as style, safety, or sustainability. While most of these cases illustrate different aspects
of the framework, some generative cases contributed to the development of the values-
based management concept. The case of an energy region paved our understanding how
values-based innovation in networks may be facilitated, whereas Aravind Eyecare
showcases how innovation in processes, products, services, business models, and even in
whole organisations and networks may be driven and guided by overarching notions of the
desirable. This paper contributes another generative case to further differentiate and
empirically add on to the values-based view on innovation management. The case of the
Tata Nano that has only been briefly discussed in the initial work on the values-based view,
but it gives reason to further study dynamic aspects of changing values through a
longitudinal perspective on innovation processes.
Values have been acknowledged as relatively stable with respect to an individual
person, and even with respect to an organisation. Still, values and values-based valuations
of individuals do change, e.g. due to reflective practise and the effort to elaborate upon
normative foundations, or triggered by impactful events. With regard to single innovation
projects, values also change as new stakeholders come on board and exert influence, or
when power relations change the attribution of resources and the whole hierarchy of
decisive values.
Several previous case studies have examined the development and market performance
of the Tata Nano. Already in 2010 Tata itself issued a book on the “Making of the Nano”
that was initially planned for circulation within the Tata organisation. It is based on more
than 100 interviews with Tata engineers, dealers and car owners, and tells the success story
that brought the Nano from vision to launch (Chacko, Noronha & Agrawal 2010).
Aschmoneit & Janevska (2013) aimed at developing a reverse innovation framework for
frugal products that has been developed in emerging markets. It focused on Nano’s
development, initial market strategy, resources and processes that Tata motor adopted and
challenges it faced. Singh & Srivastava (2012) discussed not only the shortcomings and
mistakes in Nano’s initial strategies and market positioning but also how Tata Motors
turned the project around. Singh & Joshi (2015) focused on how innovations, especially
frugal innovation aimed at low income group, can lead to new market creation. They
combine a case study with a quantitative survey on the perception and purchasing decisions
of prospective customers.
High-flying expectations, seemingly insurmountable challenges and severe conflicts
are part of the Nano story from its beginning, making it an attractive case for a values-
based analysis. Such a values-based approach to understand and differentiate the case of
Tata Nano has not yet been taken.
3 Case study approach

The case of Tata Nano reveals such changing values, and help us understand and
conceptualize dynamic aspects of values based innovation, thus contributing theoretical
notions grounded in an empirical case. Complementary, the values-based view enables a
new interpretation of the case, pointing out critical aspects that were previously neglected.
Building upon previous works we distinguish between the normative values framing or
grounding business activities (Breuer & Lüdeke-Freund 2017), and the more traditional
business model components (based on Breuer 2013), i.e. the value proposition, and
customer or stakeholder segments (demand), touchpoints, distribution channels and
revenue models (interaction), and corporate capabilities, partners and costs (performance)
(see figures 1-3 below).
In a longitudinal perspective, we focus on three stages of the development process, and
reconstruct how new constellations of product-related values and instantiations (through
artefacts and offerings including marketing communication) shape innovation
development. According to the values-based view on innovation management codification,
declaration and reinforcement through management measures turn values into normative
statements and orientations (Breuer & Lüdeke-Freund 2017, 4). Following this view, we
also focus on the relation between normative statements and decisions, and the directional
shifts in the innovation process, i.e. the development of the Nano as a product as well as
its marketing and its business model. We will also review in how the directional function
of values-based statements led to success, and in how far and why it led to failure or
required reorientation. We will describe the case, distinguish between the different the
business model components that have been reported in the new and academic literature, for
each of the three phases, and provide a values-based interpretation of critical developments
in each phase.
4 The case of Tata Nano

Tata Motors was founded in 1945 as a manufacturer of locomotives, but soon moved on to
the automotive industry based on several international cooperation agreements. In 1998 the
Indica as the first fully indigenous developed Indian passenger car was launched, the Nano
followed in 2008 / 2009. The Tata Nano was first envisioned in 2003 by Ratan Tata, CEO
of Tata Group, as a safe (Johnson et al., 2008, 54), but still affordable way of transportation
for so called “scooter families”, driving with several children on one motorbike.
Development started in 2005 after the low-cost truck Tata Ace was successfully introduced
to the Indian market. In a values-based view, we may distinguish between three phases in
the innovation process and point out critical shifts in the business model components for
each.
Development phase
The Nano project was born out of the ambitious vision (based on values of safety and
affordability) to create a new, extremely low cost “people’s car”. Already in the year 2000
Ratan Tata first talked about a car as a safe alternative to the scooters used by entire families
(Chacko et al. 2000, 3). Development started in 2003 without many fixed assumptions or
benchmarks. In an interview with the Financial Times, Ratan Tata mentioned a price
around 2000 Dollar, and news about the Rs1-lakh car was quickly published. The CEO
considered to revoke this fixed number, but then decided to “just take that as a target …
The people at Tata Motors were aghast, but the company’s chairman had his goal and his
team a cost cast in concrete” (Chacko et al. 2010, 5). The developers succeeded to create
the “frugal innovation” of an extraordinary low cost car (sold at less than 50 percent of a
standard car in the segment (Singh & Joshi 2015; Agrawal & Wadia 2008). The cheapest
car prior to the launch of the Nano was Maruti Alto sold at approximately INR 250000
(Agrawal & Wadia 2008). While it received intensive publicity, media paid attention to the
extraordinary exchange value of what was considered to become the cheapest car in the
world.
Cost efficiency and the new strategic focus on the value proposition “low cost” (Shariff
& Elsalhy 2013) drove the search for a new business model for the small car catering to
the new market of scooter families. The value proposition of “price” was set by the top
management, Ratan Tata himself (INR 100000 which at that time was approximately 2000
Dollar) (Noronha 2008), established that the “values” that lead to the development of the
Nano originated in the normative level. These values not only directed the development of
Nano’s business model but also drove to its creation. Every business model component
such as customer segment, customer touch points, distribution channels, capabilities, cost
structure etc. was influenced and guided by this price point.
Values. The genesis of Nano was driven to provide a safer, affordable and comfortable
mode of transportation to the middle-income population (Noronha 2008, Tata Motors,
January 2008) who comprise of more than 60 percent of the population of India (Shukla,
2010). Initial ideas to rebuild a car around the scooter to make it safe, or to create a rural
car without doors and windows were soon set aside. What was a vague imagination at first
took shape as a real car (instead of the four-wheel version of a rickshaw) after its
announcement in 2003.
Value proposition and stakeholder segments. Following the initial vision the Nano
was envisioned as a better substitute for a two-wheeler. It was positioned based on the
concern to improve the quality of life and provide safety to millions of Indians, and hence
was devised to be placed as the “People’s Car” i.e. affordable to every Indian.
Figure 1: Business model of the development phase: Nano’s business model was
primarily based on the value proposition of its low price.
Touchpoints, distribution and revenue model. The Nano received immense media
attention right from the time Ratan Tata announced its price (Kamath 2010). Nano was
portrayed as a revolutionary vehicle that will change the rules of the road for the auto
industry and society itself. Due to this hype in the Indian media, it received a lot of free
publicity. To be cost-effective, Tata Motors used non-conventional communication media
such as blogging and text messaging and advertised through various online marketing
platforms like Facebook (Singh & Srivastava 2012). For the same reason it made use of its
already available metropolitan showrooms as a distribution channel. Around its values of
safety, affordability and comfort, Tata Motors built a revenue model in the form of high
volume sales at razor thin profit margins (Johnson 2013; Noronha 2008).
Capabilities, partners and cost structure. The materialization of the Nano was made
possible with careful selection and establishment of its partners, its capabilities, and cost
structure. According to Prahalad & Mashelkar (2010) “Tata Motors focused on technology
as well as capabilities when it set out to create the world’s cheapest car. It worked with
several companies to develop components that would fit the Nano’s specifications.” Ratan
Tata appointed a small team of young engineers who were not expected to be constrained
by profit formulas as compared to more experienced counterparts (Aschmoneit & Janevska
2013; Agrawal & Wadia 2008). Regularly the chairman met with the team and gave out
directives to the point of design details (e.g. stretching the nose portion of the body
forward). “That idea was incorporated and the chairman had the design he wanted … the
design team … executed his vision” (Chacko et al. 2010, 18). The design team reconceived
the idea of how a car is designed, manufactured, and distributed (Johnson et al., 2008).
Processes and cost structure were redefined, analogies and synergies were identified and
utilized (Noronha, January 2014) from within and near industries like the two-wheeler
segment in order to produce Nano at lowest possible cost (Tiwari, Kalogerakis & Herstatt
2014; Agrawal & Wadia 2008). Comfort factors (like power steering or a second rear
mirror) and safety features (like airbags and anti-lock braking system) were left out.
85 percent of the component manufactured was outsourced (Agrawal & Wadia 2008)
and number of vendors/suppliers were reduced nearly by 60 percent to reduce transaction
costs (Johnson et al., 2008), parts were locally sourced to reduce inventory and logistic
cost, number of parts used in the vehicle were reduced (Rodriguez 2010) as well as material
costs were minimized. 32 patents were awarded to Tata Motors related to the Nano
development programme, and about an equal number of design applications (Chacko et al.
2010; Vutha & Agrawal 2011 report about 80 patents filed for the Nano). The selection of
Singur in West Bengal (worth a comprehensive case study itself), a state with low industrial
presence, as the location for manufacturing led to protests from local opposition groups
and farmers who felt being driven off their land by Tata Motors and the government. The
factory was intended to spur regional development and to become “an advertisement for
its [Tata Motors] competence and capabilities, its values and way of functioning” (Chacko
et al. 2010, 75), but welcoming gestures from regional stakeholders came along with
offense and violent protest from other. As Amarjit Singh Puri of Tata Motors recalls “we
did not know what the real situation was inside the villages” (c.f. Chacko et al. 2010, 77).
Conflicts and violence escalated, soon involving not only strikes, but landmines, bombs
and agitators burning construction machines on the one side and hundreds of policemen
ready to beat up protestors. Employees, suppliers and contractors, foreign consultants and
labourers were physically threatened and assaulted. After 18 months and 15 billion INR
expenditures the project was aborted. Relocating manufacturing plants to Sanand added to
the costs, challenged supply and logistics and delayed the production. Rising prices for raw
materials between 2003 and 2008 (Noronha, 2008) created further challenges to meet the
pricing target that turned out to be the most stable factor in the project.
When applying the values-based framework to the development phase model, a top-
down approach is noticed. Values originated at the highest management i.e. in the
normative management influenced its business model directing the process and production
of the product. Driven by values of safety and affordability Ratan Tata gave out his vision
and fixed a target prices as a mission for project management and engineers. Normative
statements and the chairman’s presence in the design phase directed decisions in the
strategic and instrumental level. In spite of severe challenges including new regulations,
resistance from stakeholders, and rising prices of production, Tata Motors succeeded to
release its small, innovative passenger car.
Market Entry
At the time of the launch, Nano received widespread media coverage hailing it to be a
revolutionary step in the entire automobile industry in the world. Soon after the launch of
the Nano, it was seen that Nano’s business model was not achieving its desired target and
potential. Setbacks were mainly observed in the offered value propositions, customer
segment and distribution channels and customer touch points. Instead of reaching 41
million potential customers (Mathur 2009 c.f. Business Line) that could have purchased a
new car or switched from the two-wheeler to the Nano sales figures moved from 30000 in
2009/2010 to a peak of almost 75000 in 2011/2012.
Values. While the initial values of safety and affordability were still in place
communication around both suffered from irritations. The promise of safety was broken
by incidents of safety problems when cars caught fire giving rise to concerns about the
quality of the car. In addition marketing barriers like the stigma of the cheapest,
respectively a “poor man’s car”, and inferior product, and distribution through metropolitan
showrooms are seen as major reasons why the “scooter families” as original target group
rejected the offering. Instead it was first adopted by the upper class as a second or third car
to run errands (ibid.).
Value proposition and stakeholder segments. The striking difference between the
development phase model and market entry model is the approximately 25 percent hike in
the price from INR 100000 to INR 125000 (Tata Motors, March 2009). Increase in raw
material costs largely contributed to this rise (Aschmoneit, & Janevska, 2013; Farris,
Lemley & Venkatesan 2009; Noronha 2008). As the estimated monthly income of the
target group is between INR 3750 - INR 15000 (US$ 75 - US$ 300) (Shukla, 2010) i.e.
significantly lesser than the amount of INR 25000, the price conscious middle-class family
had to financially reconsider the offering. They would have to save 65 percent to more that
100 percent of their annual salary to afford a Nano, which therefore lost its major enticing
aspect, its price.
Figure 2: Business model at the time of market entry: Tata Nano faced major problems
in demand and interaction.
Concerns were generated about the safety of the Nano due to some isolated incidents
of the Nano catching fire (Aschmoneit & Janevska 2013; Tiwari & Herstatt 2012) leading
to negative publicity in the media, thus causing setbacks due to customer perception of
Nano being a cheap inferior product (Shariff & Elsalhy 2013). Also, the stigma of being
the cheapest car around the block (Tiwari & Herstatt 2012) did not help its case. In a
country like India, a product like a car is a matter of social exhibit, status and prestige. In
buying a Nano, one would be in danger of being viewed by his friends and family as poor.
With intense perception of class position prevailing in the Indian society, people preferred
to buy a second-handed high end car instead of buying a Nano which would mark them as
poor. According to Kalla (2015) “a consumer wants to be viewed as a financially well
doing and prestigious owner of a four-wheeler and this psychological need was totally
ignored in the case of Tata Nano” (Kalla 2015, 51).
Touchpoints, distribution and revenue model. The inadequate distribution channels

and customer touch points such as the use of non-conventional communication channels,
online social media platforms, blogging, text messaging etc. (Singh & Srivastava 2012),
contributed to the failure in reaching the target group. Rural areas had difficulty in
acquiring the car as majority of the outlets were in large cities. Moreover, the target
customers not only lacked the knowledge of buying a car but also were intimidated to enter
big TATA showrooms to buy the cheapest car in the world (Shariff & Elsalhy 2013). “The
distribution strategy failed to bridge the last mile to the consumer segment that Tata
Motor’s built this car for” (Saqib 2014, 10). Moreover, Nano’s revenue model could be
considered an over ambitious notion i.e. sales of Nano in high volumes to the millions of
consumers resulting in fairly good profits even with a thin margin.
Capabilities, partners and cost structure. Ratan Tata saw the move of production
plants and the resulting costs as an essential reason for poor sales in the first years
(Aschmoneit & Janevska 2013, 68). Others like managing director Karl Slym held
insufficient capabilities in marketing and distribution responsible. Several authors claims
that a “mistaken evaluation of the target group” (c.f. Aschmoneit & Janevska 2013, 68) at
the “bottom of the pyramid” led to poor sales after the release. Slym comments: “Scooter
drivers weren’t attracted because others don’t think I’m buying a car, they think I’m buying
something between a two-wheeler and a car. Anyone who had a car didn’t want to buy it
because it was supposed to be a two-wheeler replacement” (c.f. Livemint 2013). The
intended cost structure of selling high volumes at thin margins did not work out.
In a values-based perspective on the second stage of market entry following the
product launch in 2009, a mismatch between the initial values and customer values
becomes evident. The initial vision did not translate into an appealing value proposition for
the intended target group. Likewise, according to Aschmoneit & Janevska (2013), “the key
reason why the Nano is still a commercial flop on the Indian market, is the mistaken
evaluation of the target group.” Another target group enters the scene: the effluent class
buying the Nano as a second or third car to run errands.
Market penetration
In the third phase of market penetration problems identified during the market entry phase
were tackled to revive the Nano. Product development and positioning, communication
and distribution were realigned to meet the demands of the promising target group of young
achievers. Repositioning of the Nano led to replacing the initially top-down prescribed
values of safety and affordability that directed the development process and initial
communication with new values that the new target group aspired to in a city car, namely
smartness, trendiness and modernity. Product upgrades, new customer touchpoints and
distribution channels and financing schemes paved the road to temporarily increased
market success.
Values. Values of the new adopter group of young achievers were added to the original
purpose to provide an equally safe and affordable car.
Value proposition and stakeholder segments. The Nano was re-positioned as a
smart, trendy, modern city car (Tata Motors, May 2015). The target audience was shifted
from the scooter families to the young generation (Tata Motors, May 2015), college going
youths, women, first time buyers and those looking for an additional car (Kalla 2015;
Shariff & Elsalhy 2013; Aschmoneit & Janevska 2013, Tiwari & Herstatt 2012).
Significant improvements such as enhancement of Nano’s performance (Tata Motors,

Dec 2011), Nano’s exterior design (Tiwari & Herstatt 2012) and new upgrade models
(Kalla 2015; Tata Motors, Nov 2011) with better features (Tata Motors, Dec, 2011; Tata
Motors, Nov 2011) were introduced to redefine its aesthetic value and to retain the Nano’s
appeal. All safety concerns were addressed (Tata Motors, Dec 2010) and attempts were
made to shake off the stigma of inferior quality and being a “cheap car”.
Figure 3: Adapted business model to push market penetration.
Touchpoints, distribution and revenue model. Following product enhancement-

related decisions, Tata Motors addressed the need to alter the business model and market
communication. New customer relations were built by offering various schemes such as
Tata Nano financial schemes, where customers could receive loans up to 90 percent (Kalla
2015; Singh & Joshi, 2015; Shariff & Elsalhy 2013; Tata Motors, Tata Motors, January 3,
2011; Dec 2010; Tata Motors, Dec 2010). New customer touchpoints and distribution
channels were introduced through new points of sales and access in small towns and rural
areas (Shariff & Elsalhy 2013; Tata Motors, Dec 2010, Jan 2011). The number of sales
outlet was increased (Aschmoneit & Janevska 2013; Tata Motors, Jan, 2011), small
showrooms were launched that displayed only one Nano (Singh & Joshi, 2015; Kalla 2015;
Shariff & Elsalhy 2013; Singh & Srivastava 2012). 1200 people were employed to manage
these showrooms (Singh & Srivastava 2012). The new image was communicated through
television advertising in order to divert the former association with a poor man’s car.
Capabilities, partner and cost structure. Furthermore, new partners (Tata Motors,
October 29, 2010) like the value retailer “Big Bazaar” displayed a Nano in every one of
their 70 outlets, and facilitated purchasing decisions and increase in sales (Kalla 2015).
Also, more economical options were developed to enforce a wider adoption of the Nano.
For example its compressed natural gas version, the Nano CNG emax was not only eco-
friendly with the lowest CO2 emission but is the most fuel-efficient car in India (Tata
Motors, Oct 2013). The Nano’s revival helped in increasing its sales, but they were still
lower than the estimated sales (Kalla 2015; Tiwari & Herstatt 2012; Singh & Srivastava
2012).
Applying the values-based view to this third phase, customer values of the new target
groups were taken into consideration leading to new measure of product differentiation and
communication. Embracing a bottom-up approach these changes on the level of marketing
instruments and consideration of the new target group directed further strategic changes in
the business model. Values of the new adopter group of young achievers, attributes like
smart, trendy and fuel-efficient, were added to the original purpose and mission to provide
safe and affordable mobility.
Figure 4: Evolution of Tata Nano’s business models
Aftermath
The Nano is still a controversially discussed case within Tata Group as well as for managers
and the academic community. Taken as a single product the Nano created significant
financial loss. Former chairman Cyrus Mistry (c.f. Economic Times / PTI 2017) accredited
the Nano project responsible for a loss of over 10 billion Indian rupee (about 146 million
US Dollar). On the opposite site of the balance sheet, gains in reputation and corporate
capabilities to successfully develop and market a budget car in one of the world largest
emerging economies are hard to be counted. Intangible benefits contributing to “the
chairman’s vision to make the company an international player” (Chacko 2010, 123),
building advanced competencies and capabilities in technology and marketing and
engaging in new ventures and relationships, were part of the journey from the beginning.
1998 Tata had launched India's first indigenously developed passenger (named Indica)
before the Nano challenge was set. Several passenger car models followed the release of
the Nano, including adapted versions like the Tata Pixel in 2011. In 2016 Tata defines a
new passenger vehicle strategy named Tamo (Tata’s Future Mobility). Reducing its vehicle
platforms from six to two the modular “Advanced Modular Platform” (AMP, developed
by EDAG) should become the basis for 7-8 product variants, reducing capital expenditure
while increasing coverage and allowing for flexibly sizable economies of scale. In February
2017 Volkswagen and Tata Motors sign a memorandum of understanding to cooperate on
technology, components and platforms. Volkswagen intends to adopt Tata’s AMP chassis
system, while Tata adopts VWs electrical architecture. So far the Nano does not fit well
into the new platform strategy, Top management is hesitant with the decision to phase out
the Nano. Some seem to suspect escalating commitment to not killing the patriarch’s
darling and hold the “emotional” attachment (c.f. Economic Times / PTI 2017) of Ratan
Tata responsible for its unclear future prospects after 2018.
What is even more essential in a values-based view, acknowledging the original vision
of the former CEO: What impact did the project and the Nano itself have on the safety of
scooter families? While multiple factors have to be taken into account and there is no
simple quantification of safety we have to doubt that the release of the Nano had a great
impact. Two-wheeler vehicles (scooters, motorcycles and mopeds) are still the most
popular vehicle category in India, accounting for more than 72 percent of all (182 million)
vehicles (Government of India 2017). Two-wheeler sales have increased from 11.8 million
in 2010/11 to 16.5 million in 2015/16 (SIAM 2016). Meanwhile sales of the Nano went
from 70000 in 2010/2011 down to below 16000 in 2015/2016 (SIAM 2017). WHO (2015,
147) estimated more than 200000 road traffic fatalities on Indian roads in 2013 with riders
of motorized two- and three-wheelers. They are the largest user category dying on Indian
roads (making of 34 percent compared to 17 percent for drivers and passengers of 4-
wheeled cars and light vehicles). The percentage of scooters in motorized traffic does not
seem to diminish, and safety of drivers and passengers could and should be addressed
through measures like increasing helmet, safety-belt and child restraint use as well as
reducing speed, drug and distracted driving and improving roads and signage. While only
some of those are within the established scope of a car manufacturer they still provide
levers for innovation based on Ratan Tatas vision to increase safety of scooter families. In
any case the Nano project drew attention to the precarious traffic safety situation all over
the world (with road traffic injuries as number one cause of death among those aged 15–
29 according to WHO 2015). It also pushed an already severe competition on the market
for small cars in India and worldwide.
5 Lessons learned from the Case of Tata Nano for the values-based view
Innovation management frameworks are not only required to analyse and understand new
developments and associated success factors (Cooper & Kleinschmidt 1987) and
challenges, but to appropriately set up and design and manage innovation projects. What
is an appropriate framework to understand the development and marketing of the Nano
from an innovation theoretical perspective? The idea of safe and affordable mobility
competing with two-wheelers provided direction and a heuristic for (frugal) development,
but failed to translate into widespread adoption within the original target group. Analysing
early adoption patterns and integrating values of new potential target groups led to a
repositioning of the product and moderate market success. Reflecting upon and
reinterpreting the case of Nano from a values-based innovation some critical aspects across
the three phases are brought to attention:
1. Increasing commodity prices and new regulatory norms increased pressure to
keep the costs to the price tag. The relation between values (such as wide
affordability), their implications (in the case of the Nano low-cost production
and scale economies relying on sales of high volumes with thin margins) and
alternative future developments (e.g. prices of raw materials) have to be
carefully managed, e.g. using scenario management approaches that account for
divergent developments. Exploratory future scenarios typically include
environmental factors like variance in the costs of production. Normative
scenarios would pay increased attention to different stakeholder groups

potentially impacting not only costs.
2. Stakeholders in general (such as the population near new industrial plants) and
target customers in particular need to be early on and actively involved in
processes of decision making and the definition of product related values. User-
driven innovation (e.g. van Hippel 2006) has promoted such early integration of
potential users into the development process and the strategic positioning of
product innovations. In any case the challenge persists to identify the right
stakeholders and stakeholder values early on in the process.
3. Within this process different kinds of customer values need to be considered
and integrated into the process, i.e. exchange, use, experience, sign and ideal
values (Breuer & Lüdeke-Freund 2017, 108ff). When values-based innovations
hit the market, vision, mission and purpose of the company and the development
team need to be translated into a compelling value proposition. In the case of the
Nano the initial vision to provide safety to scooter families was combined with
an ambitious pricing target (exchange value) and a reduced feature set, but was
interpreted and unintentionally turned into the sign value of the “poor man’s
car”. The sign value of status is essential for customers in emerging markets,
and turned out to be in particular relevant in India with its highly segmented
society. A historical curiosity appears if the Nano and the vision behind is
compared to the model T and Fords vision of affordable automobility for the
working class. This comparison has been made several times (e.g. Chacko 2010,
24f & 131), the Nano been proclaimed as Ratan Tatas “flattering tribute to the
adbiding power of Ford‘s vision” (o’Grady 2008; also cited in Chacko 2010,
25). Interesting enough the parallel went so far that Ratan Tata repeated Ford’s
depreciation of customer and symbolic values such as style in the case of Model
T (see Breuer & Lüdeke-Freund 2017, 92f), or status in the case of the Nano.
4. Values need to be managed as new values come into play, while initial ones
take on a different meaning. The initial value proposition based on the vision of
safety was damaged when the product just launched. Values guiding product
development may differ from those leading market penetration, and from
potential long term impacts such as threats to global warming. Potentials and
risks of such pivoting not only with respect to product features, but also to
strategic positioning and normative foundations of innovation need to be studied
in more depth. An interesting twist in the case of Tata Nano consists in the
observation that the initial values of safety and affordability are not replaced but
rather encapsulated within a new story targeting a new customer group.
5. Like with every pop-star, fame comes and goes. Nano received immense media
coverage right from the development period. The free publicity however took a
bad turn leading to criticism of the Nano even before its launch. Eyring (2011)
considers the highflying expectations before the launch of the Nano as the main
mistake of Tata Motors as it limited the companies’ ability to flexibly adjust
engineering, pricing, financing, and marketing and perfect the business model
after launch. (The author considers Steve Jobs as the “only one example of a
CEO who pre-announced an innovation that was going to change the world and
actually delivered it.”). Lean management concepts stress this Companies
should be prepared and be able to handle negative publicity and effectively stir
the conversation. Powerful Public Relations strategies need to be an essential
part of a product’s business model and its market communication.
6. Keeping costs low costs suggests to utilize already established means such as
customer touchpoints and distribution channels, but actually may require the
opposite of low efforts. (For instance Tata Motors utilized its traditional
distribution channels.) Targeting a new market segment with an innovative
products, or reinventing a product’s business model, companies have to consider
potentials for innovation in every single business model component, and
align each component not only with the others, but also with component-
specific stakeholder values, and the vision, mission or purpose of the whole
endeavour. While unthinking path dependencies need to be avoided, new
capabilities are built based on these decisions. In the case of Tata Motors
pioneering efforts in the development and marketing of the Nano helped to build
the new capabilities in the passenger car segment, which Tata Motors profits
from today.
6 Conclusions
In 2016 Tata Group recommitted to engage in “creative, low-cost solutions to tackle
societal problems” (Tata 2016). “Innovation is difficult if you are working on a project;
you need a mission - to change the world” (Katragadda 2015). Tata Group and its chairman
have been credited for “bridging the values gap” (Freeman and Auster 2015) in their
response to the 2008 terrorist attack on the Taj Mahal Palace Hotel of the Tata Group of
Industries. Employees were instantly supported through outreach centres for first aid and a
Taj Public Service Welfare Trust was set up by Tata. As Freeman and Auster (2015, 122)
report, individual mentors for those affected, provided generous settlements for deceased
employees, lifelong full salaries and medical care, and any desired education to the 46
children of the victims were provided. However, the “values through conversation”
approach, involving diverse stakeholder groups in an ongoing conversation about values,
and leading less through command but rather enabling such conversation, has not been
woven into the corporate culture at the time of Nanos development. The closed innovation
approach may have been the root cause why new government regulations caught the project
by surprise, why insufficient stakeholder management forced the company to relocate
production facilities, and why Tata initially failed to catch up with customer values such
as the need to avoid the stigmata of the poor. The generative and the directive potential of
values unfolded based on Ratan Tata’s initial vision and target price, but the integrative
potentials were missed (see Breuer & Lüdeke-Freund 2017, 20f). Tata Motors fell short to
align external interfaces to values-based developments in the environment or to even
leverage values from external stakeholders to turn the project into success, financially and
in terms of non-financial values such as increasing safety for threatened motorcyclists.
Contrary to the widespread stories of heroic leadership and the claim that values should
be imposed top-down on an organisation (Lencioni 2002), or in this case an innovation
project, the case analysis illustrates the shortcoming and potential risks of such an
approach. Instead it suggests to adequately consider all relevant stakeholders early on in
the process in order to take well-informed decisions for product development,
manufacturing, marketing and business modelling. Substantially changing the marketing
strategy and business model late in the process easily becomes a costly endeavour, which
is the reason why iterative development and “lean venturing” (Breuer 2013) approaches
utilize continuous feedback. Facing unexpected expenses and missed goals it appears like
an odd luxury if Ratan Tata (c.f. Moesgaard & Poulfelt 2014, 134) claims: “I don’t believe
in taking right decisions. I take decisions and then make them right.”
Just like previous reviews of the case this study adds a new perspective onto a case that
remains to be controversial. The ongoing story of the Nano bears enough material and
conflicts for many more, and more comprehensive case studies to follow this reflection of
the case from a values-based innovation management and a business model perspective.
Further research efforts are required to study and compare the dynamics of product-related
values in product innovation. For instance the reinterpretation of developer values through
branding and storytelling could for instance be compared with other cases of people’s cars
(like Fords Model T, the Volkswagen Beetle, the British Motor Corporations Mini or the
2012 people’s car crowdsourcing project by Volkswagen in China). In addition to the
reinterpretation of already published sources first hand interviews and participatory
observation are desirable to understand the impact of values on innovation and to identify
levers for intervention. Innovation projects are full of assumptions before they even start,
full of motivating values that are not necessarily shared, and full of bias and hidden (e.g.
legal or technical) risks and unthought issues that do turn into barriers for adoption, into
financial loss and lack of impact. Better to model first a range of alternatives than to pivot
time and again. A better understanding of values and changing constellations of product-
related values, market offerings and marketing instruments throughout the innovation
process will increase chances to develop and market innovations that do show a positive
impact on societal challenges and phenomena we care about.
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Values-Based Product Innovation – The Case of Tata Nano

Conference Paper · June 2017

Henning Breuer Vaishnavi Upadrasta

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Values-Based Product Innovation –

Keywords: values-based innovation management; frugal innovation;

1 Changing values in the innovation process

3 Case study approach

4 The case of Tata Nano

Touchpoints, distribution and revenue model. The inadequate distribution channels

Significant improvements such as enhancement of Nano’s performance (Tata Motors,

Figure 3: Adapted business model to push market penetration.

Touchpoints, distribution and revenue model. Following product enhancement-

Figure 4: Evolution of Tata Nano’s business models

scenarios would pay increased attention to different stakeholder groups

References and Notes

Breuer, H. & Lüdeke-Freund, F. (2017). Values-Based Network and Business Model

Business Line (2009). The selling of the Nano. Online, 4.4.2017:

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