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Speech at XLRI

 
Speech to be delivered on May 8, 2012 at XLRIJamshedpur

 

Reverend Father E. Abraham, Respected Dean, dignitaries on the dais, ladies and gentlemen and the Graduating class of  the General Management Program 2012 and Executive Diploma Programs

 It is indeed a privilege and an honour to have the opportunity to come to XLRI and share some ideas with you. XLRI is an institution that is well respected and recognized all over the country. Members of your alumni are among the leaders in the business, academic and professional world.

 I must also confess that I have a personal debt of gratitude to the Jesuit educational institutions.They serve our country selflessly and in an exemplary manner. The students in these institutions excel in learning but that is not all that they do. TheJesuit institutions instill in them values that shape them for the real world. I know this first hand because I went to both school and college at St. Xaviers’in Calcutta and I serve on the Board of your sister organization Xavier Instituteof Management, Bhubaneswar. And for all that I am deeply grateful.

Today, I am going to share with you two thoughts. Theymay seem not connected but yet they are as I shall presently explain. The first idea is how disruptive innovation is creating enormous wealth without the requirement of investing huge capital. This clearly is  a new phenomenon.

Take the example of this township Jamshedpur –named after a visionary who hardly has an equal in the history of Indian business. In his days you needed big dreams, a pioneering spirit, organization skills, the latest technology and the best human talent .But you needed large capital as well. Today you need everything else but in some cases you do not need the large capital that you will still need to set up a modern steel plant. That is the magic of a connected and digitized world .There are four  major disruptions in the business world that are driving innovation –digitization, cloud, mobility and analytics.

India will participate in this yagna of innovation and Indians will create wealth in the coming decade through worship of creativity and disruptive technological innovation. And I have no doubt in my mind the graduating students present in this hall will be part of that great festival of innovation.

I will talk about the first idea now. If I told you at thebeginning of 2012 that a start-up company barely 16 months old with only 13 employees will be sold for $1 billion, you would have thought I was dreaming. Not really, we are talking about Instagram. It was founded in October 2010 by two enterprising individuals in San Francisco –Kevin Systromand Mike Kreiger. The company was acquired on 12th April by Facebook for $1billion (mostly with Facebook stock and some cash.

 Instagram is a free photo-sharing program but very different from others. It allows subscribers to take a photograph and then apply digital filters to it and share it on Instagram’s own site as well as various social networking platforms. Instagram has some eerily old- world looks but it uses cutting edge technology. The photos are square shaped similar to the formats used by Polaroid and Kodak. Instamatic.
 
But alas Polaroid has since perished. And Eastman Kodak is hobbling in a bankruptcy court. Digital photographs taken on almost all smartphones are not square but have a 4:3 aspect ratio. So Instagram is like the new Beetle or the Mini Cooper. The look is old and familiar. But the engine and  parts are manufactured with brand new technology. It is like new wine in an old, familiar bottle. 

Instagram never came from the world of Nikons, Canons and Leicas and adapted itself to the mobile platform as a way of survival. It was born in the mobile platform ecology and started life with pictures taken on i-Phones.But it was not born of Apple nor was it born of Google. Only, as recently asApril 2012, Instagram began offering an Android version . 

Because Instagram was the first mover it began signing up subscribers at lightning speed. Within 3 months of launch, the company signed up 1 million subscribers. In June 2011 it had 5 million subscribers, in September 2011 it doubled this number to 10 million and in April 2012 itannounced it has crossed 30 million subscribers with customers multiplyng  almost at a viral rate. In the first 12 hours of the Android version becoming available Instagram reported 1 million downloads.

 

It is important to realize that it had 13 employees only. In an IT services company which charges-by-the-hour, much of the value is derived from the size of its employees. In a products company like Instagram, number of employees is not what drives value. When you sign up 30 million subscribers,you cross the tipping point and wipe out other players in your space. Now it is just winner takes all.

 

But why was Instagram imagineered by a couple of start-up guys and not by Apple which lives by innovation and creativity . Why not Google or Microsoft both of which have some of the best talent and a vast chest ofresearch dollars? And the billion dollar question is why Facebook did notinvent Instagram?  

To answer these questions we have to understand the start-up culture of a disruptive innovator like Instagram. It is clearly a pioneer in disruptive business model which fills the need of " a fast, beautiful and fun way to  share your photos with friends and family.”

Usually the seeds of disruption lie in the imagination of the  inventor or founder and not in business plans or research strategies. It  germinates within the rich soil of a unique culture of dreams, innovation and  creativity that has a single-minded focus of creating an exquisite product thatis really easy and intuitive to use.

 

But why is it so hard to create and difficult to copy? The answer is mostly in the cultural underpinnings. Let us look at a familiar example. Everyone knows that that secret of Germany’s economic prowess is in its Mittelstand-the medium –sized, family owned enterprises. The Mittelstand  thrives inside a web of unique culture, business practices and vocational  training infrastructure. All these elements are hard to import and reverse engineer. And culture is the most difficult ingredient to copy or create and the easiest to destroy.

 

A large multi-national company recently acquired a creative shop  producing mobile apps. As part of the post-acquisition integration process , a   team of corporate executives arrived from the headquarters immaculately groomed and in dark suits. They were horrified to find that the small company they had acquired at a large price had a hippie-like culture. Everyone was young. Some of them had scraggy beards, others pony-tails and some dyed their hair purple.They came in bright T-shirts, jeans, Bermuda shorts and sneakers.

 

The “suits” wanted the “hippies” to conform to the corporate norms of dressing, grooming and behaving as part of the cultural assimilation process. The farsighted CEO intervened. He knew that the quickest way of  destroying value in the acquired company was to force the creative people to goto a tailor or a barber. Remember Samson and Delilah? Samson’s secret of power and strength came from his long hair. He could be weakened and vanquished only after they could shave his seven locks of long hair. 

Mark Zuckerberg is not going to make the same mistake. In the case  of Instagram he has publicly declared, “We're committed to building and growing  Instagram independently. Millions of people around the world love the Instagram app and the brand associated with it, and our goal is to help spread this app and brand to even more people.”

In the next few years we will see disruptive innovation spawning  more and more valuable companies and the key challenge will be to promote a salad bowl of diverse cultures in the portfolio and not insisting on a meltingpot approach. This is a good story of how two smart guys made a $1 billion dollars in 16 months and I hope some of you will be smart and lucky to follow in their footsteps but creating and consuming wealth should not be the sole objective of your lives. 

The stories of Instagram and Facebook at the same time excite and trouble me. Even in the US, the Occupy Wall Street Movement is creating a mood for change towards a more equitable society. President Obama’s re-election campaign is recognizing it. The elections in France will be a harbinger of change in Europe. So here is my second thought :the worship of innovation  should not become the worship of Mammon –the god of material wealth and greed.

I came this morning by Lalmati Express from Kolkata   to Jamshedpur. I feasted my eyes on the greenery of the countryside and the beauty  of the red soil (lalmati) from Jhargram to Jamshedpur. But the pervasive poverty of the villages did not escape my notice either. There is a story about an oldman from Jhargram who had come to visit his son in Calcutta. He was dazzled by gleaming lights of Park Street and the skyscrapers---the like of which he hadnever seen. While he was returning he climbed into a wrong train in Howrah.After a while he asked the person in the upper berth where the train was going.He said Delhi. The old man was even more impressed. The upper berth was goingto Delhi and the lower berth to Jhargram. It is black humor and yet it is  true that India and Bharat seem in the same  train but headed in different directions. This is not sustainable.

All of you who are smart and bright and fortunate are growing up as global Indians. In our generation we had to prove ourselvesto be accepted in the West and we had to constantly prove ourselves in thechallenges of “show me you can”. You are not going into the global workplace with any handicap

But we are also living in an era where income and wealth disparities are widening, values are eroding and some bedrock institutions are crumbling. While institutions like the judiciary, the armed forces, the election commission and regulators, such as the Reserve Bank of India and the Securities and ExchangeBoard of India (Sebi) have demonstrated remarkable resilience and sa­gacity,the government and political institutions have be­gun to disappoint. Unlike in the pre-independence days, politics is failing to attract the best talent in the country.

Midnight’s grandchildren –and that’s what you are--must grasp the import of some of these critical challenges. First, you have to deal with the issue of poor political and administrative leadership. During our freedom movement, ourpolitical leaders were well respected. Many of them would have excelled intheir own vocation, profession or trade, even if they did not enter public life.

 

While we continue attract some dedicated and talented individuals in politics,  who are both capable and honest, they are outnumbered by people who are at best mediocre and at worst corrupt or both.Patriotism, Samuel Johnson said was the last refuge of a scoundrel. Cynics may ask if politics is their first or second refuge. The bureaucracy and police have a mixed record. There is not much debate though that their performance has  been declining over time for a variety of reasons: the quality of talent and training, interference by inept politicians, dynamic needs of a changing economy and corruption. Wh­at bothers me most is that free market-like economic policies have distorted the allocation of our talent pool away from the civil service, public sector, academics, law enforcement and public hea­lthcare to the private sector, where compensation and rewards are much higher.

Some of us are beginning to believe in the myth that if we have a high rate of GDP growth, we will create wealth that will automatically trickle down. And, as the theory goes, this will lift millions of our countrymen from abject poverty.Without some bold policy changes, that is clearly not going to happen in India.There is a serious problem of disparity. A large part of our tribal and rural  population feel marginalized and isolated from the economic and political process.They are seeking solutions outside the democratic framework and choosing the path of violent resistance.

There is a silent economic apartheid underway. The wealthy are opting out of public service delivery systems like healthcare and education and patronizing  private institutions instead. They have, therefore, no stake or incentive to lend their influence or voice to reverse the continuously falling standards of public services that now are catering only to the poor. Midnight’sgrandchildren must vow to work hard to provide fair access and opportunities to the disadvantaged. The marginalized must be br­ought back to the mainstream just as Pandit Nehru had promised in his famous independence spe­ech. “There is no resting for anyone of us till we make all the people of India what destiny intended them to be,” he said.

There is also a growing belief that if we can tighten the leash on inflation and fiscal deficits, then all our economic problems will be resolved. Inflation and fiscal deficits are certainly maladies that must be treated, but, we should not lose balance. We are a country of young people and our gr­owth strategies must be tailored to our needs and conditions. We should resist the temptation of mindlessly gr­afting growth models from the mature and slow growth ec­onomies of the West. We sh­ould not, for instance, ad­opt innovations that simply displace labour because we are endowed with plenty of hu­man talent. We should,instead, innovate to improve our productivity and quality and conserveresources that are scarce and not renewable-like water and energy.

The increasing belief in our generation that our demographic dividend is just waiting to be harvested is a myth. We have to impart skills and training to our youth on a massive scale and within a short timeframe to make them market-ready. Unless we are able to provide gainful employment to the millions of our young countrymen who are entering the labor market every year, a demographic nightmare will take away our sleep. Without a trained and educated workforce, our past will shine brighter than our future.

But you as managers have a choice.You as our future leaders have the power. You as our future visionaries have the imagination. You can change India and make it a more plural and equitable society. You have the capability of changing India –never under-estimate yourselves.

 Oscar Wilde had famously said, “The one duty we owe to history is to rewrite it.” That is the challenge. That is the new tryst with destiny of midnight’s grandchildren. Go out and rewrite history. Good Luck and Godspeed.

 

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