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Vijay Vaitheeswaran: Good morning, ladies and gentlemen.
Welcome to the age of disruptive innovation.
I'm Vijay Vaitheeswaran. I'm the China Business, Finance,
and Technology editor for The Economist magazine and it's my great pleasure to be
your moderator but also hopefully provocateur as we have this terrific panel
of experts and business leaders to talk about I think one of the most important
dimensions of the new global economy.
Now when we talk about innovation in my experience it is one of the most abused
and misused words in the English language.
Let me take a show of hands. How many of you in this room are in favor
of innovation? Put your hands up high.
Okay, now hands down. How many of you are against innovation?
How many of you are anti-innovation, think it's a terrible thing?
Exactly, you see my point. So we can have an hour-long discussion
about the dimensions of innovation. Everyone thinks they agree and they leave
and you find out that in fact you were talking about different things.
And so let me not make that mistake. Let me offer you a definition of
innovation. I spent 20 years at The Economist thinking
about this subject and as an old MIT engineer I thought a lot about the
technological dimensions but also about the economics, business, societal aspects
of this and I'll be coming out shortly with a book called "Need, Speed,
and Greed" available at a good bookstore near you on the future of global innovation.
And in that experience I came up with one simple idea.
First what innovation is not.
Innovation is not just technology,
it's not IP, it's not gadgets and gizmos and patents.
Although it's often conflated with invention it's different from invention
and bigger than I think. All those things are important but in
fact if they don't create value for a customer, for society, for your employees,
your shareholders in my opinion it's not innovation.
Innovation is fresh thinking that creates value.
And this doesn't have to be new technology.
It can be an old idea applied in a new place.
Let me just give a small example. We know the Premier this morning talked
about innovation and how important innovation is here in China.
I would even pose it that if we're able to tackle the grand global challenges,
be they ranging from resource constraints - one of the big themes of this Summer Davos
- to climate change or the deadly pandemics, to an era in which
urbanization, demography, aging are posing enormous challenges to our health
and other systems, we need to accelerate the meaningful pace of innovation in the world
I would argue but it doesn't necessarily have to be just technology.
One hundred and forty years ago America faced an energy crisis.
But it's not what you think, it wasn't about transportation.
The whalers in my native Connecticut managed to kill off most of the whales in
the world for the blubber which was used to light the lanterns of New England so
there was a major lighting crisis. And they sent - they knew there was some
oil in Pennsylvania coming out of the rocks and they thought "Well this could be
a substitute fuel." And so a group of investors from New
Haven sent a very shady character named Col. Drake to Pennsylvania to see if he
can find a way to harvest this new fuel. And like everyone else who was there he
started digging for oil and of course it didn't work.
For months and months they tried different places and finally the investors
gave up. They said "Colonel, we're out of money,
come home." And on that day, out of sheer desperation
and a flash of brilliance he remembered his history books, he remembered that
China had for centuries drilled for salt
and he said "Let me try that" what the Chinese have tried and of course
on that day he hit a spectacular gusher of oil, inventing the modern oil industry,
transforming the fortunes first of lighting and ultimately of transportation
and empowering the century of oil. Now that is innovation - it wasn't a new
technology but it was an old idea applied in a new place, a new context in a way
that met and unmet need. I think that's really the essence of
innovation. When we talk about disruptive innovation
what are we really talking about? We're moving towards an era in which
established business models, established technologies can be upended much more
quickly and even at the level of industries, perhaps even with the rise of
China and a number of other BRICs economies, or could it be at the level of
countries. That's the question that many people
around the world are grappling with. I'm delighted to say I have
a distinguished panel here to help us think about this.
But let me turn perhaps for a little bit more clarity and to help us think about
this in a little smarter fashion that I have to Joseph Schoendorf who's a partner
at Accel Partners, a leading venture capitalist, he's a member of the
foundation board here at the WEF, to help us think about disruptive innovation.
Joseph.
Joseph Schoendorf: It's exciting to be here.
It's been a bit of a momentous summer for me.
I just finished 45 years since I came to Palo Alto to go to work for a little
innovative, almost startup, called Hewlett-Packard that was a $200 million
company about to get into the computer business.
And companies like Intel, etc., etc. have been thought of at that point so I've
had a fairly good seat, if you will, at what's happened in the technology world.
It occurred to me to just start by thinking about this subject by talking
about some of the member so the forum who were not in business when Klaus started
the World Economic Forum in the early ג€˜70s
just to make an example of disruptive innovation.
And three that came to mind are Microsoft - started in the mid to late ג€˜70s, Cisco -
started in the late ג€˜80s, Dell - started in between those two.
The forum was started in the early ג€˜70s. Now what did Microsoft do?
We tend to take it for granted now but pre-Microsoft the world ran on mainframes,
there was a centralized infrastructure and employees were told what to do.
Microsoft was the first freedom act that basically let people with PCs be empowered
to solve their own problems.
Dell wiped out, if you will, by selling direct.
They disrupted a whole retail chain of events.
And Cisco was startup and most people don't know this story - ended up buying
IBM's networking business, SNA, because IBM would not change to an open standard.
Now as I think about it and if we have time you could look at all three of those
companies who've become world leaders and say "Now we're they threatened by the next
wave of disruption?" and we'll talk about that I hope for
a little more but I wanted to set the stage a little bit.
Vijay Vaitheeswaran: Absolutely. I mean you bring up a great point and if
we extend to the Fortune 500 or any of these other sorts of measures of leading
companies we know that large companies are dying, by and large, for various reasons
and most of the job growth, for example, in a country like the United States
although last month there were no jobs created, if we're to take a 10 or 20-year
perspective almost entirely created by small companies, new companies, new ideas,
new businesses, and increasingly we're also finding that the engines and drivers
of this disruption is coming from the emerging world of course and one of the
great trends is in frugal engineering. And here we have a wonderful example of
a company that has grown to tremendous prominence by being a disruptor.
We have Liu Jiren, Chairman and Chief Executive of Neusoft, if I can turn to you
to give a couple of thoughts on disruption.
Liu Jiren: For disruptive innovation for emerging nations.
As a business we try to get new market space so that means by providing the local
services like our product, like our custom, easy to access our services or
product and by value the society development to go in our business so
basically drive the consumption of the business.
I can give you examples about healthcare.
In general in the past certain years the people accumulate the wealth but at the
same time the chronic disease also increase very much, almost double digital
growth, much higher than GDP.
The people before were hungry but now they have money so much, they do spending,
an diabetes - the risk of people, heart disease is number one in the world.
We have 90 million people who have diabetes problem, we have around 200
million people who have blood issues.
So if we look at the trends who can pay this money and we learned from the US.
If today we say Obama government, the higher income or budget of healthcare I
kind say that kind of story will happen in China in the next 15 or 20 years.
That budget, that kind of money will make this country bankrupt because we cannot
afford one billion people to spend a lot of money like the US today for healthcare.
Vijay Vaitheeswaran: Tell me the potential, as I spent the last five years
covering healthcare, including the US healthcare reforms, a country that spent
18% of its GDP on healthcare, has a tremendous chronic disease problem can't
possibly afford this wave and as you say China, India are following right behind
with the chronic disease problem.
Is there a potential for technology, new business models, the things you're working
on to come to the rescue? What do you have in mind?
Liu Jiren: Firstly of course you need to provide technology which is cheaper,
easy to upsize. We are lucky today we have a clock
computing, we have internet, various communication and like we develop more
terminals in rural areas that is [inaudible 10:48]
all kinds of measurement of the body information which can be sharing by
southern family in a small village. So we spend the knowledge of medical care
to the last few hundreds to near by the classroom, we develop like a watch,
that watch with various functions, you can measure all of your movement functions,
you can get real time otherwise basing on the doctor's knowledge.
So that is a way I can say we teach traditional healthcare model where like
the people spend only a few dollars, they can tag high quality healthcare in the
whole. So I think that is a way we can solve the
problem of cost of healthcare, not only just budget, a lot of money for that.
Vijay Vaitheeswaran: Let me pick up on that example.
I think healthcare is a wonderful example.
Energy would be another big asset-intensive, inefficient industry
that's quite ripe for disruption and we may hear from one of our other speakers
about some energy ideas from Korea. But just on the healthcare point I want to
underline - it's not just about the technology.
Although the advances in technology are fantastic with miniaturization,
electronic medical records, the use of the cloud, real time sensors,
miniaturized diagnostics, and portable diagnostics there's a revolution coming, putting them
together as a huge technological task but ultimately the insight that the great Clay
Christensen, a Harvard professor, who coined the phrase "disruptive innovation "
is not just about the new technology -- cheap hard drive storage was the one he
looked at 30/40 years ago -- it is the business model that's attached to that
and that can sometimes kill even the best technologies or most promising
technologies if you don't find a good business model that offers good enough
services. I learned this myself -- very briefly - on
the question of medical devices. China is a great frugal innovator as
is India. Countries are developing wonderful cheap
and cheerful technologies that are just good enough rather than the gold-plated
scanners that might be very, very expensive and just a little bit better
than the previous edition. GE is one of those companies,
Philips, Siemens. A number of western companies are learning
from Chinese counterparts how to do frugal engineering.
But are they taking it back to Europe and America and Japan where they're very high
cost? So in fact, at least in the case of GE,
I had a chance to interview Jeff Immelt recently and I asked him "Why are these
not being sold more prominently in the US?" and one of the answers from his own
healthcare chief was "This new product costs $10,000.
My salesmen make more on a commission on their current $100,000 product that they
sell than this new product's value." So I ask the Chairman, Mr. Immelt "What
do you say to this?" He said "I'm going to have to find
another way to pay my salesmen."
I think that gives you a sense of the challenge to established businesses
because the wave is coming as happened early on for example with Japanese cars
that initially were not so good but ultimately came to dominate the US
and other markets. There was a disruption.
We saw it in steel, we saw it in shipbuilding, it will come in other
industries but what will the established industry giants do?
We have in fact a company that is now an established firm and even though it's done
its share of disrupting. Let me ask CP Gurnani, chief executive
officer of Mahindra Satyam. As an established company now you have
assets to defend, you have quarterly profits to worry about, what do you do
about disruptive threats from the new upstarts that are nibbling at your heels?
Chander Prakash Gurnani: I guess with Liu here on the panel it's difficult to argue
whether established global multinational is doing enough to look after the
challenges that can come from any quarter. Liu talked about Silicon Valley and how
a few companies are born, how the few companies he has seen grow.
I mean let me give you another perspective.
The perspective is that a firm like ours - in the IT sector we employ about 65,000 people.
If I look at the whole of Mahindra right from farm equipment to holidays we have
like 130,000 people. And having a presence in over 40
countries I mean you do realize that the culture of innovation, the culture of
disruptive innovation, the culture of challenging your own paradigms it is not
by serendipity. It has to be cultivated.
So the right model that we work on is that we recognize that there will be
a challenger group which will come and challenge us.
Instead of waiting for somebody else to challenge us, the way we foster that
disruptive innovation is, A -- we focus on our own costs, we focus on our own growth
but more importantly is that we have within our own firm people who challenge
the conventional thinking, people who are challenging the current paradigm.
And I can give you many examples as we go along but the point here is that we have
to recognize that existing processes, existing value systems,
existing structures are designed for sustenance and if you have to recognize that there is
a new player going to be in the market which will challenge you - whether it
is healthcare. I agree that China and India have
a similar example. When we did a social inclusive project
for emergency healthcare we didn't copy US.
US cost us $400 per 911 call whereas we couldn't afford more than maybe $1.
How having identified the need we decided how we are going to innovate, how we are
going to do it differently, and how we are going to start definitely be a challenger
to a technology that is coming in form the US.
Vijay Vaitheeswaran: I heard two things there.
First and last you said you see the potential for leapfrogging by not
following the same path of maybe a gold-plated or intensive ways that are
done in the OECD countries. I think that's a great theme of modern
business. Everyone in this room is certainly
familiar with that. But the other point you said was that
even within your established organization which is really about incremental
innovation, about delivering and sustaining profits, you do have
individuals who are trouble makers, who come up with provocative ideas.
And so I think the challenge as a Chief Executive and for other senior managers
is to nurture those people because the organization has antibodies and I see
Joseph is nodding his head. He used to be at Hewlett-Packard, a big
company, and Xerox would be another big company where lots of great ideas came but
not necessarily were financially beneficial for the company.
Much of the internet it is claimed [inaudible 17:56]
was invented at Xerox PARC but the company didn't make money on much of it.
Again, this is an apocryphal storyline. How do you sustain your current profits
even as you encourage and nurture those that might disrupt them so that you have
the business of the future?
I know that Takeshi Natsuno, Professor at Keio University, Japan you thought about
this question, about the incumbents and how you deal with disruptive threats.
And I think you might be a little bit more skeptical than some of our panelists.
Tell us your view. Takeshi Natsuno: Actually if you look
back at the history of the Japanese industry Japanese companies were very good
at nothing - crazy ideas and provides fund and money to crazy guys.
And actually there was the social disruptive innovation actually as well as
incremental innovation. These top executives didn't expect a lot
from the bottom up innovation for the first time but after they found out that
this innovation really works they set up a platform for innovation, both in terms of
money and the incentives, and because of that a lot of innovation came out from the
industry. But now big companies in Japan started to
save R&D cost, started to save costs at minimum and because of that money is not
going to the innovative guys or crazy guys so that is why innovation form Japan
is now decreasing. Vijay Vaitheeswaran: So what I'm hearing
is that there was a time when there was enough money and tolerance for the crazy
guys at the bottom, not just the design from the R&D team but unexpected
surprises. But as budgets have been cut internally
that's not happening. Let me turn to Joseph Schoendorf for
a minute because this connects with the point we were discussing in the green room
behind that you think actually the cut in R&D across the world is changing how
innovation happens. Joseph Schoendorf: I haven't seen the
aggregate numbers but if I just look at what I do see - to give you some examples
- Hewlett-Packard. When I worked there in the ג€˜60s and ג€˜70s
and I was there 18 years we spent 10% on R&D.
You got the laser printer out of it, you got the hand held calculator, you got all
the good products you know. They're down to 2%.
One of the great institutions in this world was Bell Apps - from that you got
the transistor which produced trillions of dollars of economic value.
You had IBM Yorktown. I will just say to you all the companies
I've looked at that have been big technological innovators are in a process
of decreasing not increasing R&D and what that's resulted in is a lot of the
startups that we do are now being purchased by those bigger companies as
a safer way to do R&D, i.e. the product it's market testing.
Vijay Vaitheeswaran: Now it sounds like you're a little bit regretful that an era
has passed. But let me challenge you a little bit if
indeed that's what you think. Isn't it also true that at the same time,
thanks to globalization and Google-ization, the trends that have
upended the global economy we are actually in a world with much more open innovation,
where collaborative methods are actually the way forward?
As Bill Joy famously said, co-founder of Sun Microsystems "The smartest people in
your industry don't work for your company" and that's even more true today than it
might have been before as we move towards an age of much more democratic innovation
- many more countries, many more bright ideas from around the world can contribute
to the innovation process now. Isn't it perhaps good that you don't have
ivory towers and instead have maybe beacons - you have to be good enough to
attract the best talent and to be able to work with Ching-Wa University or with
a leading institute in India or Brazil but nevertheless be able to work as a partner
and collaborator, not in-house. Joseph Schoendorf: I don't want to leave
you with the wrong impression. We were talking specifically about big
company R&D. In the 45 years I've been in Silicon
Valley I have never seen more innovation underway in the Valley than I have today
almost by an order of magnitude. And I wrote down quickly five areas -
Vijay Vaitheeswaran: And it's mostly startups I think that you're talking
about. Joseph Schoendorf: Most of it is.
If you look at Infotech as we move to the Cloud - the number of companies that are
in that area that are doing some pretty spectacular things.
I was at a conference on Saturday, Neurotech, there were a hundred startups
in a conference that's going to happen, Brain Science,
Genentech. When Craig Venter and Francis Collins decoded the human genome they spent $250
million to do the first one. We can do it for under $1000 today,
Silicon Valley startups, and the cost of decoding the human genome is coming down
at five times the rate of Moore's law.
We don't have a name for the law but it's five times faster.
You look at CleanTech and the innovations that are going on there.
I've never seen so many parallel tracks. It's just not coming form the traditional
sources and that's my point.
Vijay Vaitheeswaran: So in some sense the golden age for innovation.
I want to come to the audience in just a moment after I turn to our final panelist.
I just want to alert you - please get your questions together.
We'll put them to our good gurus on stage.
Let me turn to Suh Nam Pyo, who is President of KAIST University, the Korea
Advanced Institute of Science and Technology.
You've certainly had a great perch on which to look at Korea's leapfrogging but
I wondered if you could start by connecting the dots to the startup culture
that has been just talked about? Korea historically has made its way
through tribal and large institutions. Can you tell us, is that changing?
You yourself are involved with some startup ventures I know.
Are we going to see a big startup culture in Korea?
Is it going to tap into the trends that Joseph Schoendorf just mentioned?
Suh Nam Pyo: I'm not sure if I can respond to the way you've phrased the
problem. We started out to solve most important
problems of the 21st century. For a university that's a luxury we have.
We are not looking for making money but we wanted to solve problems of humanity of
the 21st century. So we identified four areas, EEWS -
energy, environment, water, and sustainability.
And as part of this effort we are lucky to get fairly major funding.
During the last two years -- we started this particular project two years ago -
and we spent about $50 million and today we created what we call OLEV - online
electronic vehicle. In two years we installed complete new
ways of running automobiles. The purpose of this project was to
eliminate internal combustion engines. That's a very ambitious goal - eliminate
the internal combustion engines from our streets.
So what we do is we provide power, electric power, from underground cable to
the moving vehicle so the moving vehicle has only a small battery so you can go
anywhere. So as a result of this effort we
demonstrated it can be done, we installed three systems taking passage around Seoul
Grand Park and now there is a company in the United States and there's a company in
Korea trying to commercialize this new technology.
Vijay Vaitheeswaran: To be clear is this a university venture or a joint venture?
Suh Nam Pyo: We own 30%, investors own 70% in the US as well as in Korea.
And the whole point is the following -
there are many different ways of introducing disruptive innovation and we
started out as a research goal trying to see how we can replace internal combustion engines.
And most big companies did not take us very seriously.
In fact we approached large companies that made automobiles, they all turned us
down, they did not want to talk to us because they didn't think this is the kind
of technology they want to see developed. So today it's a major accomplishment in
my opinion that in two years we developed technology, we deployed it is Seoul City,
and then we have investors trying to make it work.
Vijay Vaitheeswaran: Do you think that this is going to be a more common
phenomena in Korea?
Suh Nam Pyo: I hope so because most big Korean companies succeeded by taking on
technologies and products. They are pretty much well established in
the market place and then they became more competitive, made better products,
and then they were very successful in competing [inaudible 27:03]
to cars, what have you, and that has been the Korean formula for success.
Now we are saying that Korea cannot grown anymore based on that kind of
strategy, they need to innovate so this is where we come in.
Vijay Vaitheeswaran: Many follow ups for our team but let's see if we can get some
questions in from the audience and we'll continue the dialogue.
I see a gentleman with a hand near the front.
Let's get a microphone. Again the ground rules as ever - please
identify yourself, wait for the microphone, and I ask you please make it
a short and sweet question, not a long gasp bag intervention - nobody likes that.
Male Speaker: I'm [inaudible 27:39] from Shoe Cement India, a sustainable
company. My question to Mr. Gurnani - how do you
manage failures in innovative process? Thank you.
Chander Prakash Gurnani: I think again just a small background to the world
around us, the way it is changing. The fundamental fact is that the sector
IT or the technology sector that I represent it is evident that technology at
home today is superior to the technology at work.
The examples are that at home you use a tablet, at home you use the Microsoft
Kinect or the Wii kind of games at the games that you use, the user interfaces
are a lot better and better in real time.
The only way to do it as I said is that internally within a large organization you
create a factor, you create smaller groups which are challenging.
And sometimes it could be two or three groups addressing a similar challenge.
Now if this isג€” Vijay Vaitheeswaran: Can you give an
example of one that has failed where you didn't fire the guy in charge?
Chander Prakash Gurnani? Many of them - I'll give you an example.
Now mobility has become the buzz word today, whether it is enterprise mobility
or whether it is in terms of seeing the smaller screen or a big screen.
We invested a fair amount on a technology
called WiMAX.
Now the reality is Intel, Motorola, and some of us invested a lot of that WiMAX
technology and that technology because of the 2008 crises and eventually an LTE
which is a 4G what we know as, got enough time to catch up.
One way of looking at it is that my investment of where I was looking at
disruptive innovation for WiMAX was a failure and I write it off but the other
way is that we learned so much in mobility that we were able to re-channel that
energy into LTE. So no, we didn't fire, we actually
promoted the vice president to as running WiMAX lab.
Vijay Vaitheeswaran: That's a great example.
I mean one of the key lessons about how to think about innovation is of course to
learn how to fail gracefully. This is easy to say but it's very
difficult to do.
The endless number of books in Harvard Business School and other kinds of
[inaudible 30:35] case studies written about failure and why
managers need to learn to manage failure - it is very difficult to take type A driven
people, all of whom want your CEO jobs, your deputies and tell them that it's okay
to fail. They don't like to fail, we like to hide
our failures. And most importantly the lessons that
could be learned by sharing failures more widely with the organization are typically
buried and so a sign of good companies are ones where they actually - one company I
know actually throws a party just to celebrate shutting down of a project that
didn't work where they discuss and disseminate the findings so that other
people in the company don't make that mistake again.
I think that's the kind of new age we're living in as innovation and the metabolism
of disruption increases around the world.
There are more and more chances now or shots being taken shots on goal against
established businesses. It's not that the powers of incumbency
have gone away, it's that the barriers to entry are dropping and so you're getting
more and more new ideas, new technologies, new contenders coming at you so internally
you have to try more often and be a little bit more resilient with those failures.
I think that's one of the lessons that the experience just described highlights.
Let's take another question from the floor.
I see a lady on my right, let's get a microphone there and then I see another
lady here right in front of me - we'll come to you next.
Again, please identify yourself and a question rather than a long comment.
Female Speaker: Thank you. Stephanie Lider [phonetic].
I'm from [inaudible 31:59] in India.
I'd like to understand and perhaps I'll direct this question to Mr. Natsuno,
with your understanding of innovation is it better to give somebody a target like I'm
going to use the Indian example of the Tata Nano car.
It was the one light car. Is it better to give people a target of
what they need to achieve or to give them a concept?
Takeshi Natsuno: Actually if you look back at the industry's history so many
among the things took place in the history of Japanese auto industry and the other
telecom industry and the many industries, if you look back at the road maps they
made in the past nothing was on the road map.
Some projects were accelerated and some projects were not progressed at all but
all the managers always know this innovative culture as it is, regardless of
the failure or the success. As you know Japanese companies are very
famous for seniority system and long time employment, lifetime employment system
and in the system they're not crazy guys as a result, they didn't expect as a result.
But recently these tendencies have changed because of the economic crisis actually
and they didn't allow, they are not capable of allowing these crazy guys still
living in the company and they're bringing down the money and because of that
investment to the new world, investment for efficient things would be less
and less and less and on the contrary the banking system and the financial system n
Japan is also big company oriented and they didn't provide anything to startups.
Because of that the total number of innovative things form Japan is decreasing
as a trend. But Japan has money as a country so if we
change a little bit for the financial supporting system then I believe this new
innovations will be revived again. Vijay Vaitheeswaran: Let me just add
a small part to that. Of course you're talking about the
tension between top down and bottom up. One of the schools of thought that has
come in fashion in thinking about innovation is design thinking.
And one of the arguments there is that if you give innovators a blank piece of paper
it's actually quite difficult. Designers love to have some constraints -
to your point about targets or goals. Giving some constraints but not too many
is a way to unleash creativity whereas just giving a blank piece of paper may not
produce the results that you want.
I think there's another question, I saw the hand before, and we'll come here next
and then we'll go to the back next.
Mary Kay Magistad: Hi, I'm Mary Kay Magistad.
I'm the China correspondent for the BBC Public Radio International program,
The World. This is a question for Liu Jiren.
We were talking about failure and the need to accept failure to be able to promote
innovation. I'm wondering how you feel that's going in
China. There's a lot of pressure for researchers
to come up with patents, to come up with journal articles, to come up with
innovations and it's sort of up or out. How do you deal with it at your company
and what sorts of evolutions and changes are you seeing in the broader society
related to this question?
Liu Jiren: I think the driver for the new [inaudible 35:32]
to take activity of innovation is we try to understand what is the demand from
a market place, how to value that society. So that is a way we are not easy to make
a mistake so if we say what is demand, big demand of this emerging nation when GDP
for each family they've got more income I think two areas - we are very much focused
on one is healthcare, another is education.
That is money to be paid by each family, each individual, and also each government.
If you look at what is the pressure of the government we make like the 12th
five-year plan. I do believe, just like Premier Wen
Jiabao mentioned, a lot of money [inaudible 36:30]
and we're thinking about how to like normal people, the people who have very
low income in the rural areas.
They can access high quality services by paying very, very low price.
And then we try to innovate the technology by opening innovation, we don't
do everything by ourselves. Vijay Vaitheeswaran: Let me jump in - I
think you certainly persuaded me and many people in the room, this is a great thing
to do, but to the questioner's point are you taking risks, will you allow your
researchers to fail. The innovation process is the question.
In this process are you designing the opportunity for some of your key people to
make mistakes without paying the ultimate price?
Liu Jiren: That is what I mentioned - so the risk means if you have a wrong
direction you will take a big risk. If you have right choices that you need
to very much [inaudible 37:28]
to continue to do that for long term arrangement for your many R&D so I think
most of the risks is because the big risk is you loose opportunity, you don't take
the risk that means it's a big risk if you don't take a risk.
So another thing - the opportunity will come a little bit late so whether you have
enough resources, whether you really align your resources to waiting for some day
coming. So we don't have enough money from
resources, from capital. Compared with multinational companies we
are still small, we are weak. But every time I do believe we catch
a lot of new opportunity in this country because we recap very early, we are very
much [inaudible 38:20], we know how to build innovation platform by [inaudible
38:22] many of stakeholders, not only ourselves.
Vijay Vaitheeswaran: Let's see this lady here who's been very patient and then I'll
go all the way to the back where I see a gentleman's hand there for now.
Let's get a question here.
Please identify yourself.
Female Speaker: Can I speak in Chinese?
I want to ask a question to President Liu, Chairman of Neusoft.
I'm with the China Business News. Just now you talked about innovation.
You used to be a B-to-B company and now you are switching to B-to-B plus B-to-C.
So my question is why are you carrying out this transformation?
Is it because you are facing new business barriers, new business challenges?
That's my first question. Secondly -
Vijay Vaitheeswaran: We will receive one question for the moment please, thank you.
Liu Jiren: I see the people here mostly understand English so I'll respond in
English. If you talk about the business model we're
talking about that disruptive innovation is not only a business model, not only
technology. That is integrate a demand of the society
to innovate a business model, integrate a technology.
We're talking about before like how we take a B-to-B model is our model but today
we take a BBC that means B-to-B, B-to-C. Why are we doing that?
It's because we have 3000 hospitals who's our B cluster.
If we spend hospital services by [inaudible 40:04]
to come to each individual to the home so we make an exactly different model that
is BBC.
So that the B we value, we value all the hospitals will be very much happier
because they got a [inaudible 40:21] that cannot be used the traditional model,
they cannot afford for [inaudible 40:26] to come to hospital but today they use
their knowledge [inaudible 40:31] you can mange all the persons in the home
specially for aging society of China. So that is what we're talking about,
that is a new market place, that place we've got a lot of customers with very low
income but our customers. We value not only ourselves,
3000 hospitals is very much happy to see today the hospital can manage millions of people
who can stay at home, use their own facility, use their own room but they can
access high quality healthcare.
Vijay Vaitheeswaran: Let's go to the back row, there's a gentleman who's been very
patient. Your name please.
Male Speaker: Let me ask a question in Chinese.
I'm with the Chinese Online Banking magazine.
I have a question for the moderator.
In Premier Wen's speech this morning during the 12th five-year plan period
China will become a highly innovative country.
just now the US speaker and the Japanese professor are also talking about the
disruptive innovation and the gradual approach innovation so in your opinion
which approach in innovation would be most useful for China.
Thank you.
Vijay Vaitheeswaran: Well I think the real experts are here on the panel so I
will defer to them but I'll give you one or two sentences of my view and that is I
think China is already a tremendously innovative country but one has to look at
economic history and see what is the way that countries develop.
Traditionally it has been through catch-up growth, to use the phrase of the
economists, that is leading economies spend the money and the expense at the
technological frontier, the so called bleeding edge to invent new breakthrough
technologies and ultimately the rest of the world benefits.
It's not a zero sum game. I think that's the fundamental fallacy
a lot of people have when they pose it, that the rise of China is bad for America or
some of these arguments one hears in US politics.
I think that's fundamentally wrong. The rise of Japan was not bad for the
west. On the contrary it's a rising tide that lifted many boats.
And similarly the rise of China as an innovative economy can be a rising tide
that lifts the global economy. But historically I think it would be
a mistake to think that China's innovation will be exactly the same as Silicon Valley
in every way. Historically it has been through adoption
and diffusion and advancement of the innovation curve that countries have moved
up the innovation channel. The great question mark today and why
we're having this conversation about disruption is could there be something new
under the sun, in other words it is possible to leapfrog.
And we have seen with mobile telephony in Africa for example we're going without
fixed lines, going straight to the cellphone and mobile phone.
There are examples and healthcare in the rich world might be an example of very
asset-heavy industries that are slow to move and such is the pace of exponential
technology growth these days that developing countries can leapfrog to the
latest and best technologies with better business models.
And that's really what we've talked about.
And I might turn to Joseph to offer a thought on this question since I know you
spent a long time thinking about this.
Joseph Schoendorf: I want to go back -- to answer that I want to go back to the
failure issue because failure is actually the key to innovative success.
People ask me all the time what is it about Silicon Valley that makes it Silicon Valley.
Well first of all it's nothing about the people because if you go into Silicon
Valley today it looks like this room,
meaning there's somebody from everywhere working there.
We have funds in the US, our 11th fund in Europe, Israel our 3rd fund, in India our
2nd fund, in China our 3rd fund - we only work with early stage companies,
that's what we do. Some of the companies we have started
that you might know about Facebook, Groupon, Dropbox.
Take a famous company, look at its IPO, look at the management team that built
that company, Google or study their background - many if not most of them were
in a company that failed, that shut down,
i.e. the key to great innovation is the ability to tolerate and even celebrate
abject failure.
And unfortunately as we go around the world that culture is not in place -
everywhere in the spirit of Davos and being open while in Silicon Valley if we
fail as I said to one of the Prime Ministers who's very much against the
failure model because it created unemployment and you can't shut down
a company - I said most of the people in Silicon Valley can change jobs the next
week and stay on the same carpool. You've got in Germany, just to give you
another example, failure there pretty much puts a lifetime stamp on you in the
society which takes away the ability to take risk and great innovation requires
great risk and it requires the ability to fail because most companies, the majority
of companies in Silicon Valley fail. Vijay Vaitheeswaran: Great answer.
Let's go to this side of the room where I've been very neglectful and I apologize.
Prove me wrong by showing lots of hands and good questions on this side.
Anybody over there? Really?
So I've neglected you for a good reason? All right, let's stick with the back row
or near the back. I see a gentleman there.
Yes, right where the microphone is. Please identify yourself.
Shenggen Fan: I'm Shenggen Fan form International Food Policy Research Institute.
Could you, the panelists and the moderator, to look at the role of
intellectual property rights in making sure that small innovative ideas can be
translated into large scale innovations that can serve the whole society?
Vijay Vaitheeswaran: Ideas like golden rice?
Shenggen Fan: Well not including golden rice, biofortification,
crops, innovations?
Vijay Vaitheeswaran: Anyone who wants to tackle this question on intellectual
property rights?
Joseph Schoendorf: I'll give you a start that you're not going to like.
We see hundreds of business plans that come into us.
Somebody comes in and says "Here's a great piece of IP" and the front of their
pitch is "And here are our patents." We tend to go to sleep because yes,
we hear all of this about patents and Motorola just got bought by Google for
billions of dollars for patents and patents and patents and patents.
For little companies to succeed they have one thing that causes them - think about
this, we do startups and all of these companies up here are billion dollar
companies and have lots of resources, I'm talking about the Fortune 500.
What do little companies have? Speed - that means they've got to
innovate and then they've got to innovate again and then they've got to innovate
again. And if they're counting on patents to
protect them the next thing you know they'll be caught up in patent fights for
two or three years which they can't defend so what we want is teams that can quickly
innovate, innovate and then replace that innovation with a better innovation.
Vijay Vaitheeswaran: I see Liu Jiren has been shaking his head positively.
Do you want to add a small thought to that?
Liu Jiren: I think the people ask IPR issues and mostly they are concerned about
how to say IPR in China because many of the multinational companies very much
worry about IPR, how to protect the IPR in China.
We are a self-service company. We have the same kind of issues.
When I founded this company 20 years ago I made first a software company, I tried
to sell the copies but that has been copied by somebody else, just one year.
It costs almost all of our investment. But I learned something - if you really
want to make success in this country you need to move more fast.
You don't just keep something in your hand; you say you have something valuable.
And then from that day you're just like a runner, every day we wake up early,
we run, we run, and we look at a bike, we see what is our target.
So you don't try to protect, nothing. Today's technology is commodity.
So you can find something for a solution to answer one thing, you do know other
people already somebody have.
Secondly you'll find something never has a value.
You try to keep that, you say that is your wealth.
That is a total mistake. I think to protect yourself [inaudible
49:44] of business move too fast, always faster than your competitor, that is our
solution. Vijay Vaitheeswaran: That's a tough
advice but I think very much consistent with the idea of a world in which the very
rules of innovation are changing, where thanks to openness, thanks to the risk
that's involved, thanks to the way that we connect more rapidly, the metabolism
innovation changing - I think that's very powerful advice.
It's hard to do. It's easier in software for example than
if you are making cars or steel or developing biotech drugs - that might take
many years. It is more difficult.
But I think inevitably my argument would be patents will become less important even
as we continue to reward innovators in other ways.
And so I think innovation deserves its rewards but it may not be through the
traditional notion of keeping patents close to your chest.
I think that's the picture that's emerging.
Let's get another question here, this gentleman here straight ahead in the blue
tie has been waiting for a long time, the back with the gray suit.
Ivar Kristensen: My name is Ivar Kristensen from Nordic Innovation in
Norway. I have a question to Gurnani about when
you are a big company developing a new disruptive business model at the same time
as you have a profitable ongoing business
model how do you from a management point of view handle that challenge, having
a new business model coming and at the same time have a profitable business model running?
Chander Prakash Gurnani: Actually I'm going to give you an example not so much
from my own company but from one of the most well quoted disruptive innovation
case studies from India which was the Nano car, a $2000 car which was ultimately
going to disrupt the auto sector, completely disrupt the scooter industry ad
the motorcycle industry. Now when you look at that creation,
I mean it is not that Tata Motors went out of business and did not produce their
trucks, did not produce their other cars, did not produce their multi-utility
vehicles. Now if you look at that case study it
is clear that you can co-exist and you can decide to be disruptive or replace
a certain set of the market. Now two years later of that launch you may
come back and say maybe it was a failure because the plant which was designed for
100,000 cars a month is currently maybe producing 20,000 cars a month.
Now when you look at that again as a case study you will realize it wasn't a fault
in creating a product, it wasn't a fault in bringing in a product, it wasn't
a fault in being able to deliver a $2000 product but the fault became in marketing
and positioning.
Marketing and positioning is that it got sold as a fourth car or a third car to an
existing family instead of replacing a motorcycle or a scooter.
So my personal submission is that again I'm repeating is that innovation can
co-exist, can be a part of the DNA of a large company but it has to be driven from
the top and you need to address and you need to make sure that you have a balance
of leverage, you have a balance of people who are devoted to it and [inaudible
53:32] devote sufficient time to challenge what they already have.
Vijay Vaitheeswaran: Yes, the gentleman very animated in the second row who I
think might be one of our last questions. Please, short and sweet/
David Chen: David Chen from Microsoft. China's new priority is to change the
pattern of growth from a labor-intensive to resource-intensive to innovative
knowledge-based. Other people are concerned that China
cannot do that very successfully because of the lack of IP protection or IP
environment. China is full of talents but not a great
software company for reasons that you mentioned.
My question is that if you agree what's your advice to China?
Chander Prakash Gurnani: Again it takes a long time to build a services business
and the main reason of building a services business is because it takes - what you're
trying to earn is that I call software services business a risk management
business. The reason I call it a risk management
business is that when somebody, whether it is a new company giving you a product
development or whether it's a large company like General Motors giving you
their maintenance and testing services, they're basically asking you to take over
their risk because it is not that they don't need the maintenance, it's not that
they don't need the testing, they need it 24/7, it is mission critical.
But to build that confidence - Vijay Vaitheeswaran: Just because time
is short let me get to the sharp point that the gentleman put which you're very
effectively ducking. Are you worried for example in China your
crown jewels will be stolen?
Chander Prakash Gurnani: Sorry? Vijay Vaitheeswaran: The crown jewels of
your IP will not be protected in this country, I think that was the point of the
question. Chander Prakash Gurnani: I believe that
the two things obviously - number one is the time that you need to be able to
develop the confidence and number two I think is that while all of us believe that
China has a fairly large English speaking population but I still believe that
there's a huge gap in [inaudible 55:56] English and being able to communicate
effectively and third is that for many companies there is a perceived notion that
their IP or their assets are not safe out here so I guess it needs to be addressed.
Vijay Vaitheeswaran: All right, I think that's going to be the last word from the
panelists just because we're just about out of time.
Let me just take a brief 60 seconds to summarize.
It will be impossible to summarize all the points but I think you get the flavor.
We have a whole track on innovation during this Summer Davos to which of
course I expect to see lots of you here with so many questions.
I can see this is a topic that you're interested in deeply.
We are in an age of tremendous grand global challenges.
We know this. This is one of the great themes of the
Davos conferences. Dealing with them I would argue requires
accelerating the pace of global innovation and we are beginning to see in the ways
that we've discussed on this stage a faster metabolism in the way the
innovation happens and as well the greater potential for disruption.
I think that we can expect a lot more coming and this creates both peril as well
as opportunity, I think that's really the point.
For those companies that are complacent, especially the established companies,
you can expect to go the way - as Joseph pointed out - of the founding members of
the World Economic Forum who are no longer members or who weren't there at the
creation, let's put it that way, or of the Fortune 500 companies that no longer
exist. But equally think of the new Microsofts to
come and the Chinese and Indian and Brazilian equivalents and these are being
created every day as well. So it's a time of extraordinary risk but
equally extraordinary opportunity. I think you'll agree that our panelists
have done a wonderful job in taking on these big issues.
Please join me in giving them and the organizers a round of applause.
Thank you very much,