Innovating Cheap: The Key to Tapping the Enormous Potential of Emerging Markets: Part One
By Bill McBeath
on Jul 19, 2011
Design innovations enabled Tata to build a $2,500 car. Now that is how you get into an emerging market such as India in a big way.
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A New Kind of Innovation
Many times we think of innovation as the latest whiz-bang technology or designer drugs. But innovation takes many forms. Realizing the huge potential of rapidly growing markets like China, India, and other emerging economies will require some real innovations—radical rethinking of products to reach price points nearly an order of magnitude below current levels. This is what is needed to make expensive goods affordable for the new middle class. And that is what Tata Motors set out to do with the Tata Nano.
The Impossible Goal—Meeting a Very Specific Need
Anyone who has spent time in India is likely to have been overwhelmed by the chaotic roads, with all modes of transportation jammed together—bicycles, cars, ox-drawn carts, and scooters and motorbikes; lots of scooters and motorbikes. Besides being used to transport all kinds of goods, motorbikes are used to transport entire families. Why? Not because it’s fun. It is dangerous and uncomfortable, but it is what they can afford.
That was the impetus behind the Tata Nano. Tata decided to build a car that was within the budget of India’s burgeoning middle class. They reckoned that meant building a car that could be sold for ₨100,000, which is in the neighborhood of $2,500 (US). That was a tall order. Many said it couldn’t be done. This required some serious innovation and a fundamental reassessment of what goes into a car and how it is built.
Designed by Indians for Indians
The Nano was designed largely by engineers in India. They revolutionized the rules, creating a new market where none had existed. Starting from scratch, the Nano was developed in under five years with first customer delivery in 2009. Its 6 cylinder, 624cc engine gets 50 MPG and has a top speed of 65 MPH (adequate for the roads in India) while meeting European emissions standards. All for $2,500.
About Tata Group and
Tata Group is a $67B diversified family of businesses comprised of more than 100 companies in 7 sectors: Chemicals, Energy, Consumer Goods, Hotels (including the Taj hotels), Materials, IT & Telecom, and Engineering. Tata Group is more of a loose coalition of companies, not centrally managed. Instead it is managed through equity stakes and the strategy is left up to the management of each company. As a result, there is some overlap in what they do. In some sectors the companies actually compete, and at other times they partner.
Tata Technologies is an engineering and design company serving the automotive, aerospace and construction equipment/heavy machinery industries worldwide with its staff of more than 4,600 engineering professionals. Tata Group has a significant commitment to corporate social responsibility. They have strict code of conduct, which is taken seriously and enforced. Shady dealings are not tolerated. About two thirds of the shares of Tata Sons are owned by philanthropic trusts. Via these trusts, about two thirds of their profits get invested throughout India back into the local communities, such as hospitals, schools, and orphanages.
Tata Technologies’ Pivotal Role in Designing the Nano
I met Ron Bienkowski—EVP of Marketing and Communications for Tata Technologies—at SAP’s “Influencers Summit” a few months ago. Bienkowski used to head product development IT for DaimlerChrysler. Also while at DaimlerChrysler, he was tasked with formulating a strategy for potentially outsourcing 14 major functions across the corporation, such as design, engineering, manufacturing, procurement, treasury, HR, and back office. Bienkowski retired from DaimlerChrysler in 2006.
But he wasn’t ready to retire from the auto business. Part of Ron’s new role with Tata Technologies was to promote the company’s engineering capabilities with BETTER INNOVATION on Tour; a road show highlighting the Tata Motors Nano and the company’s role in bringing it to market. The Tata Nano is manufactured by Tata Motors for the Indian market. The Tata Technologies engineering team was responsible for aerodynamics, chassis (suspension, steering, wheels and tires), brakes, fuel system, much of the electrical system and electronics, underhood and powertrain cooling, fluid flows, heating and air conditioning, entrance and interior trim, crash and durability analysis, and vehicle handling analysis.
To run their simulations, Tata Technologies engineers used the EKA supercomputer located on the campus of the company’s Center for Advanced Engineering and Design in Pune, India. The EKA was built by another Tata group company, Computational Research Laboratories, and is one of the 20 most powerful computers in the world. The Tata Technologies design team was responsible for many of the innovations (contributing to 28 of the 59 patents associated with the Nano) critical to hitting the target price point, which some people said could never be done. In addition, Tata Technologies engineers designed the manufacturing execution systems and supply chain management capabilities for the manufacturing plants.
Bienkowski refers to the approach as ‘frugal engineering.’ This requires true creativity, throwing away conventional ideas about how to design and build a car. Western automakers would likely try to ‘de-content’ an existing car. But frugal engineering is not just about stripping out features. It involves rethinking conventional partnerships and the supply chain too. Tata Motors brought in Bosch and other partners in the very early stages of design. Design collaboration is of course not new, but bringing partners in at the early concept phase, challenging them to meet such radical cost targets, and working through those challenges so closely together is new.
Over half of the suppliers for the Nano are from Germany. The Germans are used to designing for high quality and reliability, but struggled to design for ultra-low cost. For this reason, many of the innovations actually flowed from India to Germany. For example, one German supplier was asked to build the engine control system at a certain price point. After studying the requirements, they replied, “Sorry, it’s not possible, it can’t be done at that price.” Tata Motors engineers did a rapid prototype, not even a complete one, but just enough to show what they were thinking. That did the trick and the German supplier was able to meet the cost goal and functional requirements.
Tata Motors engineers also were thinking about ways to lower the cost of service and repair. They pioneered the approach of designing subsystems that could be assembled as a kit out in the field. This way they could just ship parts to a certified local shop where they can actually assemble and service out in the villages at a low cost.
In Part Two of this article, we look at some specific examples of this frugal engineering approach for the Nano.