Tata Nano: Innovation around Cost

This morning I was making my bed, listening to all the bad economic news – worst holiday retail sales in five years, the housing crisis, gas prices and now egg and milk prices skyrocketing– and wondering if I still had enough chutzpah to shout about the importance of innovation in such a spiraling environment.

When companies hit hard times their initial reflex is to cut down on long term risky projects, which is to say breakthrough innovation programs. Then I heard about the new ‘People’s Car’. Yes, Tata Motors of India unveiled a car that will cost $2500! That’s the cheapest car ever made. It gets 54mpg. Such a low cost car may be welcome in America if other costs keep rising as they have been.

Tata People’s Car

It turns out Tata Motors is a company devoted to innovation. They adapted lighting technology used by the Indian film industry and developed the only world class crash facility in Asia outside of Korea and Japan by innovating while reducing costs. In fact Tata’s mantra is innovation around cost. This is different than the focus of new product development in the nineties around efficiency and cost reduction.

Innovating around cost can reshape the competitive landscape and change the world. Of course many environmentalists are worried that that such cheap cars will greatly accelerate global pollution levels —-and that is something to worry about. (It is reported that the Tata Nano complies with the ‘Euro III’ pollution standards that prevail in India and should meet the tougher Euro IV standards with a bit of tweaking).

But back to innovation and why companies pull back from it just when they really do need it. They are scared of uncertainty and don’t realize it is everywhere and that they need to have dedicated systems or an infrastructure to deal with it. At least three companies we studied faced a very serious decline in their mainstream businesses. When the going got really tough two pulled their breakthrough innovation programs. Of these two, one filed for bankruptcy and the other is floundering. The company that maintained its commitment to breakthrough innovation won three prestigious innovation awards last year and is viewed by some on Wall Street to be on track for a strong comeback. So what is my point? Well I like this idea of innovating AROUND cost. But it is more than that.

Breakthrough innovation is a mindset, not a luxury or something that others must think about. If you have a system that allows for opportunity identification and articulation, experimentation with technology, markets and business models and development of new business creation, given any circumstance there are opportunities to capture value from breakthrough innovation.


  1. Very well said.
    We need more useful innovations than useless addons.
    I never knew India has a crash test facility after Japan and Korea!


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