Can India’s Model Follow the Silicon Valley Path? Should It?

Rajeev Srinivasan suggests that the Silicon Valley model of entrepreneurship supported by the government and an appropriate regulatory environment may be the right model for innovation in India. 

There is no question that the San Francisco Bay Area is, for the moment and perhaps even for the foreseeable future, the global center of innovation. There have been other hotspots for innovation – for instance, Britain during the Industrial Revolution era, post-war Germany and Japan in engineering industries and electronics respectively, Boston’s Route 128 in the era of mini-computers in the 1980s – but none has caught the public imagination to the extent Silicon Valley has. This is partly because of the larger-than-life pioneers there like Steve Jobs and partly because of its direct impact on people all over the world, including India, with the proliferation of Internet technologies and gadgets.

Now that Prime Minister Narendra Modi is making a visit to the area, it may be good to understand the models of innovation they use, and how and why India might benefit from trends there. I have had the privilege of seeing an earlier, successful model of innovation at Bell Labs, as well as in Silicon Valley where I lived for almost 15 years, so to a limited extent I can compare and contrast the two. It is interesting to speculate which model may best suit India, given its endowment and core competencies.

The era of extraordinary invention and innovation at Bell Labs is described in detail in many books, especially “The Idea Factory”. There were fundamental inventions – for instance, transistors, lasers, charge-coupled devices, UNIX, communication satellites and (I think) fiber optic networks. Almost all of these have made a huge impact on society, but they are built-in, anonymous, infrastructure-type inventions, that often became innovations that made other companies wealthy.

In contrast, what Silicon Valley has excelled in – mostly, but not entirely – is in things that are directly sold to end customers, so that there is customer awareness, brand-building, and end-user impact. For instance, the 5ESS switch from Bell Labs was the foundation of the excellent telecom network in the US in the 1980s, but nobody has heard of it; whereas everybody has heard of, say, The Pill, the birth control pill that Carl Djerassi invented in the foothills next to Stanford.

That difference is captured in a basic categorization of innovations: technological, market-driven, and need-seeking. An article in strategy+innovation from Booz&Co, a management consultant made that distinction clear. Some innovations are based on technological leaps that end up changing things in ways that the inventor never dreamt of. An example is a motorcycle, which the German inventor thought would be a good vehicle for the village postman. Or UNIX, which because of its design simplicity, is now ubiquitous through its descendants Linux, iOS and Android. Some of them are disruptive in the sense used by Chris Christensen, the innovation guru from Harvard Business School.

Other innovations are based on a clear understanding of where the market is going. Many of these are incremental and are the focus of internal efforts in market research, competitive analysis, R&D, and innovation efforts in most large companies. They are necessary to keep abreast of competition. An example would be the provision of lithium-ion batteries in laptops, as compared to the earlier generation of nickel-hydride batteries. Every manufacturer rapidly moved to Li-Ion as soon as it was available in the market.

The third type of innovation is the most intriguing, and, when it works, the most stunning. This happens when you divide an unarticulated need among the customer base and then offer a solution. The result is a smash hit product, such as a few years ago, the Sony Walkman. The trick is to provide something that is almost magical: they didn’t know they needed it, but once they have it, they don’t know how they lived without it. Obviously this is a risky option, although Silicon Valley seems to pull it off now and then.

Bell Labs, Xerox PARC, and 3M specialized in the first type: technological innovation. They also had a penchant for multi-disciplinary, cross-pollinated new ideas. They often worked outside in: they looked at a largely known problem. Most companies do the second type, market-reading innovation. Silicon Valley has successfully done the last, need-seeking, with the Apple iPhone, Google search, and Facebook social media.

There is perhaps also a philosophical difference between the Bell Labs style and the Silicon Valley style: the former is additive, incremental: take on big challenges; think. No good idea is discarded; but by adding on layer after layer of intense effort, insights are turned into innovations. The latter revels in throwing things away: tackle a narrowly defined problem, converge on a solution rapidly; fail fast, fail often, discard previous ideas to rapidly ‘pivot’ to the successful solution: a sort of Schumpeterian creative destruction. Of course, the narrow problem can take on a life of its own and become life-changing, too.

In any case, both the technology-driven and need-driven mechanisms have their vulnerabilities. The former depends on massive marketing. In the case of Bell Labs, once corporate parent AT&T ceased to be a captive market, it faded into relative obscurity from being a national jewel. In a sense, the same happened to Xerox’s Palo Alto Research Center, the legendary lab in Silicon Valley that invented almost everything that we take for granted in desktop computing, but failed to appropriate the value: Microsoft and Apple did.

Need-seeking depends on continually coming up with amazing new things, and there are some who fret that, despite Silicon Valley’s ferment, the blockbuster hits have slowed down. Where is the new new thing? Even the fabled iPhone – a new version is to be launched shortly – is now getting to be ho-hum. And how much more social media hoopla can a person deal with, honestly? Some believe that, given China’s success in cloning everything Silicon Valley does (Xiaomi for Apple, Baidu for Google, Alibaba for Amazon et al., equivalents for Uber, Twitter, etc.) it is only a matter of time before the mantle passes to China. But the Valley may also be re-inventing itself as we speak, with Tesla’s electric cars, Google’s self-driven cars, virtual reality, energy technologies, and biotech 2.0.

So which of these models is appropriate for India? The technology model requires massive investment. AT&T, a regulated monopoly, was a cash machine prohibited from making a return of more than some 10%, so it ploughed excess profits into Bell Labs, allowing scientists and engineers to do pure science, such as finding the background radiation in the universe (the static created by hydrogen at -273 degrees Celsius or “4 degrees above absolute zero”). Given the parlous state of Indian science, and of the Indian economy, it is not possible to imagine such a thrust being successful.

It is, however, possible to imagine a Silicon Valley model succeeding in India. It may appear to be a bit of a stretch, but Bangalore has a lot of the ingredients that the San Francisco Bay Area does: from attractiveness as a place to live in, to a technological infrastructure built up on government spending especially in defense and electronics; from a certain cosmopolitan flair to the fact that both places are crammed with migrants; that there is a certain community of entrepreneurs who made big money, and thus act as role models and investors for new, hungry startups.

Bangalore, of course, lacks an anchor university like Stanford and Berkeley, both of which are among the world’s best. I am sorry, but IISc, good as it is, does not have a track record of entrepreneurial ferment, partly, I suppose because the business models for industry-academia relations are absent in India. There is nothing like Stanford Industrial Park, and the legendary professors encouraging, and investing in, promising startups. And although there is a legal, marketing and logistics infrastructure, there isn’t anywhere near the same level of venture funding available in Bangalore. However, efforts such at IIM Bangalore’s NS Raghavan Center for Entrepreneurial Learning do show what is possible there, and world-class new ideas may emerge. A somewhat desi-fied version of the Valley ecosystem may well be the ‘killer application’ that India has been waiting for, in order to take off.

The role of a determined government in catalyzing innovation cannot be underestimated. It was defense funding that created the Internet. NASA’s Moffet Field, Ames Air Force Base, and the Blue Cube, a super-secret snooping operation run by shadowy spooks, funneled US government funds into technology. Thus, efforts being made by the Indian government to support #MakeInIndia, and the recent news that the same agency, DIPP (Department of Industrial Promotion and Policy), is now in charge of the startup agenda, is good news for the would-be entrepreneurial ecosystem.

There is one more factor that may well suggest that there is a future for Silicon-Valley type entrepreneurship in India, in Bangalore or perhaps some of the futuristic #SmartCities that are planned: the inevitable pressure of demographics. It is clear that the consumers of the future will be in the Indian Ocean Rim and the Asia-Pacific, especially in Africa and Southeast Asia. Their needs are quite similar to those of consumers in India. It has also been demonstrated in at least a few instances – such as GE’s low-cost ECG machine – that ‘reverse innovation’ from India can appeal not only to poorer consumers but also to rich ones.

Thus, it is a fair bet that a Silicon Valley-style entrepreneurial ecosystem, if it can be created – with a regulatory framework that doesn’t hinder it – may well be the right idea for India. Silicon Valley firms and India may have more of a love fest than we currently believe. I once took a dynamic Indian Chief Minister to visit the CEO of the Valley company I was working for then: and I was amazed how well the two of them understood each other, although sad to say the immediate investment went to another state, not the one the CM represented! An Indian leader who can speak the language of business will appeal to the bosses of the Valley and to their fabled venture investors. I wish the PM and his impressive team, such as the Commerce Minister and her babus, a productive visit to Silicon Valley.