June 3, 2011 [INNOVATION ]

2011

Entrepreneurship And Innovation for Engineers

Name: Coventry University 6/3/2011

Entrepreneurship and Innovation for Engineers

Tata motors

Table Of Content Executive Summary Introduction - Tata Motors SWOT analysis Entrepreneurial Mind Ratan Tata 3 3 4 4 5 5 7

Strategic approaches to Innovation Management Open Innovation method Innovation for mass markets in emerging economies Innovation through acquisition Jaguar Recommendations

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Executive Summary

This report discuss about innovation and entrepreneurship techniques and its impacts. Taking the case study of TATA motors and its recent activities, we analysis the innovation models used by the established in this automotive industry. This report analysis
y y y

Innovation model for Tata Nano Innovation using acquisition Jaguar acquisition Innovation model for emerging economies

Introduction - Tata Motors

Tata motors are well established Indian automobile company with a history of more 60 years. With their wide range of product line, they keep the top position in the car industry in India. Also they are pioneer in the truck manufacturing and bus manufacturing in the world. They had revenue of $20bn in the last financial year 2009-10 with twenty five thousand employees working all around the world. With their strong leadership and innovation in the products they made good business all over the worlds. Tata Motors has operations in the UK, South Korea, Thailand and Spain. Tata concentrate more into economical buyers from the Indian society. Because of this reason their innovation strategies always point into cost reduction and economical cars. With a huge population above 1Bn, there is considerable amount of potential customers in this sector. The main factors affecting these customers are fuel efficiency and low -price of the car. Aiming this sector, Tatas most success innovative strategy was Tata Nano car with cost of 1Lakh Indian rupee (1300 GBP). This priced compared as double the price of a bike in Indian market. So this attracts the middle class society who used bikes to think about buying a car with his budget money. So that Nano named a people car with this reason. With its four wheels and the protecting body, this disruptive innovation will open up a totally new world of safety and comfort for the Indians that have driven motor bikes and scooters so far . This is how Tatas CEO Ratan Tata expl ains his innovation strategy. (Dr. RolfChristian Wentz, 2010)

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SWOT analysis

Buy analysing the last Six years the innovation and acquisitions are the two key strengths of TATA motors. They made success with this strategy in their business and it opened so many doors for future expansion also. A SWOT analysis made on TATA is given below.
Strength y Acquisition strategy - eg :Jaguar(2008), y Weakness

Quality of cars Safety and features

Daewoo Motor's(2004)
y Tie up with international producers Fiat y y y

Weak in luxury car sector Older designs Poor brand name European Automotive industry

, German suppliers
y International expansion with local leaders y Pioneer in economical sector car y Tata Nano Cheapest car in the world Opportunities y

Threats y

Jaguar and Land rover can build the luxury brand Tata

Introduction of international brand into Indian industry

Expanding TATA Nano into third world countries

y y

Sustainable and safety issues Cost reduction in one side and growing material price in the side will not work hand in hand in future

Utilizing Daewoo motors for truck industry

Entrepreneurial Mind Ratan Tata

Ratan Tata, current chairman of TATA group is said to be the person behind success of TATA industries after 1990s. Also is the entrepreneur who brought revolution to the Indian automotive industry with his revolutionary idea. Under his leadership, in 1998 TATA motors launched indicia Indias first indigenously designed, developed, and manufactured passenger car, which eventually became the third -biggest seller (Anon., 2006; Kripalani, 2004). It was used by economical class and luxury editions proved its presence in market. He bought the idea of acquisition to the company by acquiring Korean company Daewoo motors and made companies famous in international market. After that move, TATA executed their plan to expand business

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to heavy vehicle sector. Next acquisitions were Jaguar and land rover in 2008 and made company expansion in UK and also expansion into luxury sector of cars. The best entrepreneurial act from Ratan Tata was TATA Nano- worlds cheapest car. His found the hidden market in Indian automobile industry and introduced th e prefect innovative piece to it. He used open innovation concept with collaboration of external knowledge and workforce. From his decisions and plans he always a good role model for entrepreneurs and he can characterise him as Investigator (INTJ) .Investigators are innovative visionaries with a determination to achieve results. They can be highly independent, needing a great deal of autonomy. Their clear sightedness and willingness to take decisions makes them conceptual, goal focussed and visionary leaders. They come across as tough and incisive but perhaps lacking the personal touch . (Type Dynamics Indicator report, 2011)
Strategic approaches to Innovation Management

Analysing TATA motors innovation strategy I found different models can be closely relate to that. It can be used very efficiently for any industry. The tree strategies are: 1. Open innovation 2. Innovation through acquisition Jaguar & Daewoo 3. Innovation for mass markets in emerging economies
1. Open innovation method

Open Innovation coined by Chesbrough can be described as: combining internal and external ideas as well as internal and external paths to market to advance the development of new technologies. This is a method of bringing a new process or product with a collective effort from internal external sources. The knowledge sharing is a key characteristic of this model. This collaboration with external source further create a additional market through then also a investment way from outside to the new thing. This pool of expertise and market will reduce the time of process and also reduce the cost of production. Major companies like CISCO, P&G, Siemens, and BP is successfully using this technique in their innovation management.

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Fig1: Open innovation (Henry Chesbrough, 2004) This open innovation is the success factor of Tata Nano. This made then delivers a car with basic features and cheap price. Tata Nano project made its innovation in all levels of engineering work. Engine, body, parts, design and marketing. They brought so many different sources under a single umbrella to execute this project. The own R&D division worked hand in hand with German suppliers, Bosch , Local researchers and bring up with a car that satisfy the hidden market in India. Also the German engineering and suppliers enabled Tata to reduce the cost of Engine control unit for Nano. Its a small electronic control unit that controls all working of engine. The usage of more fibre and plastic instead of metals also made some difference in cost. This technology was also shared from an outside source. This collective work also increased potential market wave for this car as dream car for common people. In this case we can call the innovation model as open distribution model as well. Apart from the process and production the mobilized the third party to do their product marketing at and reach. Used local services into the customer interactive forum and enabled the service of the product in every corner of the country This create a long term relation with the customer and through that brand name and trust

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will increase among the customers. Since its collaboration with third party in local areas, it will be a prestige and their business values for the local body to make the business a success. This mutual responsibility is the added benefit of open innovation in a broad sense. Three innovations in products and processes come together to support 'open distribution':
y y

increased modularity (both in products and processes) aggressive leveraging of existing third -party, often non-commercial, institutions in rural areas to more effectively reach target customers Creative use of information technology, carefully integrated with social institutions, to encourage use and deliver even greater value.
(John Hagel and John Seely Brown, 2008)

Even though open innovation has benefits like mobility of workforce, more ideas and innovation and opportunity for venture capital market it carries some issues as well. It might make issues when it comes to the patent of the product of method. Single its a shared idea they can be possible declaration of third parties on the patent .But considering WIPO intellectual properties can be divided among two parties now. This can be a good Solution for the patent issue in this model.
2. Innovation for mass markets in emerging economies

a) Disruptive technologies Disruptive technologies are simpler, cheaper and user friendly products that find out low-end profiles from main stream market. It will start the journey with low cost product in low end market or non -traditional market. After building a base it will slowly move to the mainstream market. This positional method is first used by Japanese automobile industry, and further flourished in third world countries and then came in to developed countries. (Hart and Christensen 2002) In our case of Tata motors use this same method and bought a technological innovation to into the low end auto market in India. This will be expanding soon in global market after its success in India. b) Architectural innovation Two type of architectural innovation in possible in technological products. One is keeping the core technology untouched with empowering the component linked to it

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or add new component to it. The second method is to change the core concept of the product and make a pure innovation. (Henderson and Clarks ,1990) In our case Tata used the first methodology by linking the low cost innovations into a car concept. They used open innovation model in background to implement it.

(S. Ray, P.KantaRay, 2011) c) Modularity Modularity involves a core product designed as a platform where the architecture, the interfaces and standards remain constant to accommodate future generations of the product (Baldwin andClark, 1997). Tata Nano introduced into the low end of the market with 1300 price with this idea. It contained the basic features and put slots for future expansion in future for upgrading the car. It already introduced higher version with air conditioning and airbags later. d) Collaborative partnerships and new product development Collaborative partnerships facilitate innovation by lowering costs, risks and uncertainties relating to development of new technologies or new markets (De Man

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and Duysters, 2005). Tata collaborated with international and local manufactures and companies. Almost 80% of the parts where outsourced to different companies in India itself and ECU was done by German company Bosch. For further cost reduction in the production TATA used a l abour intensive assemble method rather than capital intensive production. So these four factors can be adaptable to any innovation management strategy in a growing economy or a developing country.
3. Innovation through acquisition Jaguar

Tata group always made their growth with acquisitions. In the steel business to car business they used this same strategy. In the case of TATA motors the expand the innovations by buying companies with lots of innovation. For example they bought Daewoo in 1998, a Korean company that made them to achieve a work force that enables to expand the business into heavy vehicle sector. Similar in the case of Jaguar and land rover acquisition. Tata was very week in the luxury model cars in their product line as we saw in the SWOT analysis. This gap is filled with rich brand acquisition. Tata started a strong research centre in UK, west midlands and also started a market for Land rover in India and Asian countries. Acquisitions are often efforts to "buy" innovation, foldi ng in a so-called disruptive, or game-changing, technology developed by another firm. Or they represent attempts to bring in a staff known for its consistent and profitable creative output to the parental organization . (Bloomberg Business week, Feb 2008). This statement proved in the case of jaguar and Tata. Overall sales rose 47% to $5.65 billion and profits were $141 million, compared to a loss of $565 million a year earlier. JLR made a profit of 4.17 billion rupees ($90 million), compared to a loss of 11.8 billion rupees a year earlier . (Bloomberg Business week, March 2010)
Recommendations

Three main recommendations I am suggesting to improve the innovation in TATA motors 1. Mixing JLR work force with Tata Nano will create a good quality product with i n the economical range of cars

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2. Expansion of JLR to Asian countries will increase the company brand name and can compete others 3. Mixing open innovation model with sustainability. The next generation cars are aiming for zero emission and alternative fu els. This can be active using this concept mixing

References
Anon., 2006. Carmaking in India: a different route. The Economist December 13 Baldwin, C.Y., Clark, K.B., 1997. Managing in an age of modularity. Harvard Business Review SeptemberOctober, 8493. British Petroleum ,2006, White paper, Embracing Open Innovation: A new approach to creating sustainable value by British Telecom Dr. Rolf-Christian Wentz, 2010, Innovation Centre India: Innovation Machine Tata Motors Launches Disruptive Innovation Tata Nano. Where is Volkswagen? , available online: http://www.the-innovation-machine.com/?p=77 De Man, A.-P., Duysters, G., 2005. Collaboration and innovation: a review of the effects of mergers, acquisitions, and alliances on innovation. Technovation 25, 13771387. Kripalani, M., 2004. Ratan Tata: no one doubts now. Business Week 3893, 50 51. Henry Chesbrough, 2006, Open Business Models: How to Thrive in the New Innovation Landscape, Boston: Harvard Business School Press , Available online : http://books.google.com/books?id=4hTRWStFhVgC&lpg=PR9&ots=XrQERMv4EK& dq=open%20distribution%20innovation&lr&pg=PR4#v=onepage&q=open%20distrib ution%20innovation&f=true Hart, S.L., Christensen, C.M., 2002. The great leap: driving innovation from the base of the pyramid. MIT Sloan Management Review Fall, 51 56. Henderson, R., Clark, K.B., 1990. Architectural innovation: the reconfiguring of existing product technologies and the failure of established firms. Adminis - trative Science Quarterly 35, 930.

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Matt Vella, 2008, Innovation through Acquisition, Bloomberg business week, Available online:
http://www.businessweek.com/innovate/content/feb2008/id20080229_5 76734.htm

S. Ray, P.KantaRay, 2011, Product innovation for the people s car in an emerging
economy, Technovation, Available online: http://www.sciencedirect.com/science/article/pii/S0166497211000186

Ragavendra Prabhakar and Mahesh Natarajan, THROUGH OPEN INNOVATION, Available

2010, VALUE CREATION online:

eng.org/knowledge_bank/attachments/Prabhakar%20%20Value%20Creation%20through%20Open%20Innovation.pdf

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