The Tata’s want to become a internationally international car manufacturer and compete with likes ofToyota, GM, Ford, Hyundai, Nissan, Mitsubishi, Honda and the others. The opportunities in the overcrowded car manufacturing space are very limited for new entrants – relative toToyotaand GM, Tata’s could be considered a new entrant. In the regular manufacturing space the leadings companies have entrenched their position and have through sustained incremental improvements availed all opportunities.
The international players as a result of incremental improvements keep on giving higher quality products over time. The users ability to use all the advanced features is limited because factors such as traffic jams, speed limits, and safety concerns. Because of technological advancements customers are not able to utilize all the bells and whistles coming out the stables of leading car manufacturers. If Tata’s entered the premium segment, then leading car manufacturers would be motivated to fight the new entrant. The established players have deeper pockets than the Tata’s. Instead of fighting an entrenched battle, Tata’s want to fight a battle with no competitors – the battle not on their turf. The another advantage for Tata’s to manufacture Nano was that the car target customers are living inIndia. Tata motors had an option of entering Hybrid car or much lower quality car using disruptive technologies – Nano car project. Of the two new car business opportunities, Nano project clearly offered better opportunity considering the risk and the return.
Consider a scenario: Mr Ratan Tata’s motorcade was zipping through theMarine Drivein Mumbai on a rainy day. Large numbers of scooters are on the road and Ratan’s limousine pass them. In one of the scooter has a family of four with a child clinging onto mothers arms at the rear and another child clinging to his dad at the front of scoter . There was a splash of water on to the children faces and they shrieked. Ratan felt very sad but at the same time he got an insight to develop a car which is affordable to such families around $2000 Ratan realized there is a clear cut JTBD – to make cars affordable around $2000 with less bells and whistles. Ratan Tata looked out over this scene, he saw a critical job to be done: providing a safer alternative transportation for scooter owners He understood that the cheapest car available inIndiacost easily five times what a scooter costs. Many of these families could not afford to buy a car. Offering an affordable and safer car for scooter families was a powerful value proposition, one with the potential to reach tens of millions of people who were not yet part of the car-buying market. The question arises: should Tata’s get into manufacturing such a car project just because Mr Ratan got an insight for tremendous opportunity. Or alternatively, should Tata’s do a opportunity analysis like the one done for Blackberry above.
Can privately funded businesses be run on insights alone? My answer is No. Privately run professional businesses cannot be run on insights alone. There is no place for emotions in a business. There is no doubt that insights are definitely very good. All innovators need to get insights. The insights need to be to be analyzed for opportunities before any major business investment is made. Only novice business people make investment decisions based on insights alone. In this chapter we would explore the type of opportunity analysis Tata’s would have made before deciding to manufacture Tata Nano.
Based on Mr Ratan’s insight, Tata Motors like all other professional organizations got an opportunity market research conducted. As all the leading car manufacturers were very well positioned and entrenched, opportunity survey showed rating of virtually all desired outcomes to be less than 10. Tata motors knew if it entered the core car business, it would be under extreme financial pressures as all the other car manufacturers have deep pockets and would always prevail because of their stronger position. Tata motors wanted to fight the battle in new battlefield which offered an equal chance of success with the veteran automobile manufacturers.
It was a dream come true for scooter owners as car would be in their reach for first time in their lives. Ratan Tata creating a financially viable business had a readymade potential customer base of millions. Ratan Tata realized that the existing business model could not be used for making such a low priced car. He knew there would less profit margins at such a low price plus the costing of car had to be drastically reduced.
Tata built a small team of fairly young engineers. This team dramatically minimized the number of parts in the vehicle, resulting in a significant cost saving. Tata also reconceived its supplier strategy, choosing to outsource a remarkable 85% of the Nano’s components and use nearly 60% fewer vendors than normal to reduce transaction costs and achieve better economies of scale.
History has proven many times in different industries, that when a company starts with a disruptive technology, with a inferior product, over a period of time it scales up and starts competing with the premium segment of the industry.
It has been seen that the leading car manufacturing companies find sustaining innovation are so important and attractive, relative to disruptive ones, that the very best sustaining companies systematically ignore disruptive threats until the game is over. Tata’s were competing in a price segment which no other car manufacturer was present, so it least bothered the car manufacturers.
It will not be very long, before Tata’s Nano technology will advance and would enter premium segment premium segment of automobile industry. Automobile industry history has shown that new entrant with disruptive technologies has gradually scaled up and competed in premium segments. For instanceToyotaentered automobile sector with very low end Corollas in early 1980s. It was not very long beforeToyotaentered the premium segments by producing cars like Lexus’s in the 1990s. LikeToyota, Hyundai entered the automobile segment with low end cars in 1990s and gradually scaled In late 2000s to enter the premium segments. On a similar basis, it will not be very long before Tata’s start competing with premium car manufacturers in a few years
In Airline industry, Deccan Airways was formed to cater to non air travelers. It was not very long beforeDeccanscaled up and started targeting low end of regular flyers. Seeing it markets under attack, King Fisher bought Deccan Airways and renamed it King Fisher Red. On the similar basis, Jet Airways bought Sahara Airways and renamed it Jet Lite.
Industries is full of stories companies who start as industry disrupter s eventually scaled up and threaten the well entrenched players. Indian economy offers tremendous opportunity for all inclusive growth model of business. Innovators before entering a a new target segment must ask a question that if there is a very large segment of customers who have no money to pay premium prices and so are left out of the market. If the answer to this question yes, then there is tremendous opportunity to use disruptive technologies to target the segment.
Filed under: Secret of Innovation in India |
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