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The motivation for this piece began when Bill Gates, on a visit to Israel, commented on the difference in the technology industries of India, on the one hand, and Israel on the other. Gates said,

“There will be competitors for Microsoft and for Israeli companies coming out of those countries (India and China) although today the success, particularly in India, has mostly been in the software services area, outsourcing work, doing call centers and things like that,”

This is not how we want to be viewed by the world. “Outsourcing and call centers” should not be the focus of our technology industry; we ought to be aiming far higher. We do not want our Telecom minister saying things like “BPOs are the nation’s pride”, (as he did a few weeks ago). Because in contrast to India’s tech industry, here’s how Gates sees the U.S. and Israel:

“In contrast, Israel, along with the United States, is focused on inventing new, patented products and software.”

That is where we ought to be - defining the industry, not servicing it.

The next giant leap for the technology industry in India is to create a Silicon Valley-like environment which produces great companies, people, and products. What made Silicon Valley the hotbed of technological revolutions? What made it build global giants? What made it throw up legends? If we understand the difference between Silicon Valley of the 70s and the Indian IT industry, we can usher in the technological revolution the IT industry has promised for so long, but failed to deliver.

Silicon Valley can be summed up in one word - Innovation.

That one characteristic defines the culture of Silicon Valley and persists to this day, making it the technology capital of the world. Services offer extremely low scope for innovation. And that is inherent to the business - a services firm is essentially doing something that it has been told to do by some other entity. This is in stark contrast to a product development company. Vivek Paul, former CEO of Wipro, in an interview to Knowledge@Wharton, said:

“Frankly, I feel that when people work in a service business like ours, it’s almost like we give them a lobotomy. I don’t think — and I hope I’m wrong — you will see a single successful product startup coming out of people who were working at Wipro or any other similar companies. You’ll find that innovation comes from people who worked for Intel India; they’ll go off and come up with a new chip. Or someone at Cisco India will come up with a new router.”

Let’s examine four points of difference between India’s IT industry and Silicon Valley, and we’ll see how innovation is at the core of each on of them. Each of these four points is inextricably linked to the others, and transforming today’s IT industry will mean tackling all four at once.

1.) Home-grown: Silicon Valley was constituted almost completely of home-grown startups which grew up to be the giants of today. Bangalore, in contrast, is home to the Indian development centers of those same companies. Therefore, the vision, strategy and tactics for the company are never going to be defined by an Indian board, and decisions are never going to be vetted by an Indian management. Even if the most high-end technical work is “moved” from the West to India, while the top management is non-Indian, the country can never define the direction of technology.

Vivek Paul, in the same interview, stressed the difference between going out and discovering something on your own, as opposed to implementing something that someone has told you to do. You may implement better than anyone else, but discovering something is a class apart. He was speaking for engineers; it’s the same for management.

The “Indian arm” of any Silicon Valley company will never be larger than the company itself. We can not create global giants out of subsidiaries. Sony would not have been Sony if it was the Japanese outsourcing center of Hewlett Packard.

2.) Entrepreneurship: The entrepreneurial spirit that swept the U.S. West Coast back then - when every Bill, Steve and Marc with half an idea set up a technology company - isn’t quite reflected here - yet. Entrepreneurship implies a certain amount of risk-taking, which seems to be a trait Indians as a society seem to lack. Gurcharan Das, in his seminal book “India Unbound” bemoans this too. He initially thought that it was simply a matter of Indians as individuals not taking risks, but over time has concluded that it might be a societal trait. In addition, the Government still makes it extremely difficult for an entrepreneur to set up a business quickly and easily. But great wealth can be only created when you own the company. You can only match world-class companies when you take them on in the marketplace, not be content doing some part of their work which they’d rather not do.

India’s flagship “old economy” companies - the Tata Group, the Birla conglomerate, Reliance, Bharat Forge - are all companies which have been founded by Indian entrepreneurs. These great institutions were also built in the age of excessive Government regulation, and before Globalization as we know it today. “New Economy” has been contrastingly risk-averse, creating services companies which work for larger Western companies. To actually create a new industry, define a new market, it needs entrepreneurs - people who bet on an idea, on a vision.

A culture of entrepreneurship necessarily implies a culture of innovation. Rajesh Jain, in his essay “India needs more entrepreneurs” outlines the three requisites for entrepreneurship: “People with Passion, Constructive Capital, and Big, Bold Ideas”. Personally, I have seen plenty of small-time innovation from bright young engineers around. Some have been process-oriented, some product-oriented, but no outrageous ideas to define new products and markets; nor with the vision to convert those ideas to products, products to businesses. Yahoo!, Intel, Lotus, Apple - all these companies dreamt big, and had the vision - and the guts - to realize those dreams.

3.) Universities: Silicon Valley firms were founded by graduate and post-graduate students from Universities in the area (think Google, Sun, and Yahoo). Surely it isn’t coincidence that Berkeley, USC, UCLA, Caltech and Stanford happen to be in California, and MIT and UMass Amherst happen to be in Massachusetts - the West and East Silicon Valleys? In contrast, there is no interaction between business and academia at all back home. And it’s a symptom that spans all industrial domains.

India tends to view its engineers as assets only once they graduate, unmindful of the fact that people are at their creative best when they are students. Faculty, senior technical staff and top management from the industry, and undergraduate/graduate students form a potent combination of ideas, application and capital. It is a model that Silicon Valley utilized to spectacular effect. It is only companies as large as IBM and GE that can afford to maintain their own Research departments. Other companies would do well to collaborate with Universities for their R&D needs, on a case-by-case basis, which could develop into more substantial relationships. The University gains handsomely in that it does research which is relevant to the industry, it gets better funding than it would if it relied solely on sources such as the Government. And of course, by performing research at that level, we can build world-class Graduate Schools like in the US. (The IITs, for instance, are only world-class Undergraduate schools).

The best business schools in the US also sprang up either as part of, or very close to, the best Universities. Think of Stanford Business School, Wharton (part of the University of Pennsylvania), and Harvard (adjacent to MIT). These schools provided the business know-how, support for budding entrepreneurs in the form of Venture Capital, legal skills, even Business Incubators, encouraging the best technical ideas to find the best business skills to form the best startups. In India, our premier business schools are often criticized for producing managers, not leaders, with too much emphasis on getting placed and too little on building businesses, teaching too much about management and too little business, too much theory and little application. And the practice of our technical institutions working along with our business schools is almost non-existent - other than students passing out of our technical institutions and entering our b-schools.

4.) Local Market: Most of those great companies started by concentrating on local markets, not those in Europe or South America or Asia. Why was that? It wasn’t that you were more likely to be successful if you went local, but because the opportunity was right at home, at the right time! As is the case in India - now! In the seventies, there were roughly 250-300 million Americans (probably smaller) - the initial market for Silicon Valley startups. Today’s Indian market is three times that size - and virtually untapped. The obsession with creating global players has made us ignore one-sixth of humanity back home!

Only a miniscule percentage of revenues of our IT services companies come from Indian clients. But their entire business model’s been optimized and tuned for cost arbitrage - and the cost advantage disappears once the client itself is in India. Companies successful in the Indian market will be very different from the current ones. They’ll be the ones who’ve been setup with this market in mind.

There is a huge latent demand for solutions to problems that are uniquely Indian - but we haven’t looked at them hard enough. The Simputer is a wonderful application gone wrong - it still costs too much (last heard it was about Rs. 12000), and has not been marketed well enough, despite the hype. But it could have been a fantastic tool with almost limitless applications in India.

The spread of mobile devices in semi-urban and rural India has meant that those populations have leapfrogged the fixed land-line era, moving on from the telegraph straight to mobile phones. This is one area; there are scores others. Most of these solutions will lie in the areas of cost-effective infrastructure development, like low-cost community wireless internet, so we don’t have to criss-cross the country with costly, ugly and cumbersome optical fiber connections. If you’re in the mechanical industry, solutions like faster and safer train designs on the same track infrastructure will be immensely successful. Again, for the mechanical industry: startups that deal in low-cost solar power generators, or wind turbines are great ideas - these are products where 1.) there is a demand, 2.) there is ample Government encouragement - there was news of some sort of tax benefits for organizations which invest in producing wind energy, 3.) there is a huge chance that it’ll work - given that wind and sunshine are in no shortage in the subcontinent! – So early-stage funding shouldn’t be a huge problem.

Finally, we need to remember that Innovation does not mean Improve, it means Transform! In the words of Guy Kawasaki, part of the team that built the most innovative product of them all – the Macintosh computer:

“Jump to the next curve. Too many companies duke it out on the same curve. If they were daisy wheel printer companies, they think innovation means adding Helvetica in 24 points. Instead, they should invent laser printing. True innovation happens when a company jumps to the next curve–or better still, invents the next curve, so set your goals high.”

So Go, Innovate!