Companies

Innovation, only source of competitive advantage, says PepsiCo’s Shivakumar

Rajalakshmi S | | Updated on: Sep 18, 2014
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Why do companies need to constantly innovate? For the good reason that it’s the only competitive advantage in a rapidly commoditising world.

“All advantages that were available earlier such as access to finance, technology and people are no longer there. The only sustainable advantage is innovation,” said D. Shivakumar, Chairman & CEO, PepsiCo India.

Shiv, as he’s popularly known, was delivering a lecture at the IIT Madras’ Leadership lecture series by alumni of the famed institution.

Top 5 innovative countries

Shiv, a mechanical engineer of the 1982 batch, told the students that the most innovative countries were small in population and resource constrained, with the exception of a large country like the US.

The top five innovative countries are Switzerland, the UK, Sweden, Finland and the Netherlands, with the US at sixth spot. “If a country does not place emphasis on safeguarding patents and codifying knowledge, it can’t be innovative,” he added.

Top five innovative companies

The top five innovative companies for 2014 are Salesforce, Alexion Pharma, ARM Holdings, Unilever Indonesia and Regeneron Pharma, with Amazon at the sixth spot. The lessons from these companies, Shiv said, is that one needs to be different but relevant to be innovative.

'Innovation sieve'

If one had to put these companies through an ‘innovation sieve’ to distil what makes them tick, there are five distinct points that emerge: Is the innovation driven by strategy; how big do they see the opportunity; will it yield a sustainable competitive advantage; how resource intensive is it and lastly, will the company need new capabilities. “This is the sieve I have used right through my career based on learning from innovation gurus like K M Clark,” Shiv told his attentive audience.

Right strategy

Referring to strategy, Shiv said that getting strategy right is crucial. “If you take a bet with a strategy then you have to live with it for 10 to 20 years.” Giving the example of Boeing and Airbus, he said the former is betting on speed, while the latter on size. Whose strategy is right will be known only down the line in a few years.

Mobile phones, Internet

Elaborating at length on the cell phone innovation, Shiv said that steel took 123 years to reach 80 per cent of the global population, while the Internet took 20 years. Mobiles took just 13 years to reach as many people and countries.

Cell phones were initially weighing at least 5 kg and even at that weight, erstwhile CEOs carted them around, some even having a lackey to carry it for them, Shiv said, to much laughter.

Cell phones today are as light as 140 gms. All markets, which were infrastructure deficient, were transformed with the coming of the cell phone. “Every day was an innovation in the industry; what you knew yesterday didn’t matter as tomorrow would be different,” said Shiv, recalling his eight years as Nokia’s chief in India.

Pyramid innovatons

Referring to the bottom of the pyramid innovation, a phrase made popular by management guru, the late C K Prahalad, Shiv said that the mistake that marketers made was offering price downs on products and downgrading quantity and quality.

“But, poor people don’t want half products at half the price. They want the full thing. The challenge for marketers is ‘how do I make affordable aspirational and not the other way around’.” Sachets are a great example of making categories affordable in unit price but aspirational in emotional appeal.

Failed innovations

Shiv pointed out to two big ideas which ended up as failed innovations. One was of the satellite phone, Iridium, which never really took off as a business model.

The other he pointed out was the super sonic jet, Concorde. It couldn’t get many airports and countries to allow it to land, due to the huge sonic boom the aircraft caused. “They couldn’t get the eco system to work with them; you need to collaborate with the eco system to succeed with innovation,'' he added.

Published on March 12, 2018

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