AUG. 27; 12.53 P.M.: A snap followed the deal. Snapdeal co-founder Kunal Bahl, aged 31, was in the same frame as Ratan Tata, aged 73, who had made the Tata Group a $100 billion (Rs 6.1 lakh crore) global empire from these shores. Bahl tweeted the photo, confirming that Tata had made a personal investment in India’s largest online marketplace.

When Ratan Tata arrived at the helm of the Tata Group in 1991, the showpiece companies were Tata Steel and Tata Motors. By the time he stepped down, and the Bahls and Bansals (Kunal Bahl of Snapdeal and Sachin and Binny of Flipkart) came of age, India had turned into a services economy, led by the offshore IT services trinity of Tata Consultancy Services (TCS), Infosys, and Wipro. In 1989, the services industry accounted for 32% of India’s GDP, against manufacturing’s 20%. In 2013, 59% of GDP came from services, 14% from agriculture, and 27% from industry—of which manufacturing’s share was a mere 14%. Within the Tata Group, TCS was
the showpiece.

While the pioneers of the IT services industry thrived by taking their competencies abroad, especially to the U.S., new-age entrepreneurs like Bahl have started leveraging the power of the Internet to kick-start a bunch of innovative ventures—from e-retailing to e-ticketing, online hotel reservation, hyper-local search engines, health-care services, and more. It’s no surprise that the services industry has been the preferred playground of entrepreneurs. Its low entry barriers, shorter gestation cycles, and hunger for software made the segment ripe for disruption.

The home market now has a technology frontier in its own backyard—a phenomenon that has not only accelerated local consumption on a massive scale, but is also changing the country, its economy, and its capabilities. Flipkart and Snapdeal have each breached the 20-million user mark, though there would be some duplication. That’s close to the population of a European country like Romania. Their growth has been in no small measure because of the rise of venture funds, which pumped in $7.6 billion in the past decade, with at least 200 venture deals being signed each year since 2011. Ratan Tata’s investment in Snapdeal (and later in jewellery e-retailer Bluestone.com) may very well be a part of this evolving piece.

Is India in the throes of disruption, even though only a handful of industries with technical underpinnings seem to be in the forefront? Classicists may not agree, especially as Clayton M. Christensen’s seminal 1997 book, The Innovator’s Dilemma, refers to “disruption” as a radical change in technology and business structures that will cause market leaders or the establishment to fail. Back then, the Harvard Business School professor distinguished “sustaining” technologies from “disruptive” technologies. While the former stood for incremental improvements, the latter included stuff that started small but eventually transformed markets. (Think back to what digital cameras did to Kodak, or mobiles did to the pager.)

Written before the Internet mainstream, Christensen’s book amassed evidence from manufacturing, services, and the disc-drive industries. For example, mini mills in the North America of the 1960s produced cost-competitive steel from scrap at one-tenth the scale needed for an integrated steel mill. By 1995, the most efficient mini-mill required 0.6 labour hours per tonne of steel produced, whereas the best integrated mill needed 2.3 labour hours. While an integrated mill took around $6 billion to be built, mini-mills needed $400 million. Christensen thus demonstrated how a niche idea of the ’60s had disrupted the steel industry in a few decades.

He also looked forward. “In the near future, ‘Internet appliances’ may become disruptive technologies to suppliers of personal computer hardware and software,” he posited. (What Christensen called “appliances”, we call “applications” or “apps”.)

His thesis has endured, notwithstanding the slicing and dicing of his theory on the innovator’s dilemma. “It’s still a powerful idea,” says professor Rishikesha Krishnan, director of Indian Institute of Management, Indore, and one of India’s foremost experts on corporate strategy. According to him, Christensen’s later works broadened the concept beyond innovation and highlighted two scenarios. One, when an existing market is over-served. “If a market provides the same quality and performance, a new offering that is not high on performance but low on cost takes away the market,” explains Krishnan, citing discount retail stores in the West. The second case is more pertinent to India. “At times, customers cannot accept [an offering] because they can’t afford it or lack access. Here, disruption creates a new market by making it affordable.” Think low-cost aviation, mobile telephony, and retail.

In this part of the world, disruption does not arise from developing an iPhone, Google, or WhatsApp. Not yet. Innovations in India are mostly about resolving last-mile issues—in sync with customer convenience—and scaling them up. Even as Airtel was taking mobile telephony to new circles, Sunil Mittal’s biggest woe was getting enough customers. In the ’90s, mobile calls were priced at Rs 17 per minute. Mukesh Ambani fired the first salvo: Reliance Infocomm, he declared, would bring down the price of a call to that of a postcard. With the price war on, customers soared. (The strategy backfired shortly after; see story on page 146). Airtel, meanwhile, took a different route, when it introduced prepaid cards, where Indians could recharge their phone balance on a need basis (rather than pay a bill, which required an address, etc.) from almost any shop. Even today, more than 90% of callers in India are prepaid customers. Both Ambani and Mittal had faced last-mile problems. While Reliance used price to create a market, Airtel disrupted mobile telephony with prepaid. Triggers of disruption in India do not have to be inventive. They have to be simple—as basic as cash on delivery (COD) in e-commerce—to scale up rapidly, and disrupt businesses.

UNLIKE IN THE WEST, where a relative upstart like Apple could outclass IBM in the personal computing space, disruption in India is not yet about incumbents “failing”. That’s mainly because technology—the primary peg for disruption across industries and sectors—is nowhere close to maturity. Connectivity, device access, and tech-enabled enterprises are all at different stages of evolution. Mobile Internet, a much-touted game changer, is still gaining scale; only 20% of the 920 million mobile phone users here own smartphones. This may get a boost with Google’s recent tie-up with low-cost handset manufacturers to take Android One—and the Internet—to the masses, allowing access to infotainment in various languages (see story on page 118).

Nandan Nilekani, co-founder and former CEO of Infosys, who set up the nationwide digital identity project Aadhaar in 2009, credits the coming-of-age of an ecosystem—primarily in the form of mobile devices—for the rise in Internet uptake. “People who hated to use keyboards [mostly because they are not literate or can’t read English] are very comfortable with touch [screens],” he says. “The touch interface and low-cost smartphones have dramatically expanded Internet usage and brought in more opportunities.”

But all said, the tipping point for Internet-based lifestyles can only be reached when online payment becomes a force to reckon with. As of now, out of the 243 million Internet users, only 50 million are estimated to be productive for businesses. And given the nascent state of things, even established players, focussed on adaptability, can catch up with the likes of Flipkart and Snapdeal, which depend on technology for their success.

Consider what Kishore Biyani, the senior statesman of Indian retail, is doing with his Future Group. In the late ’90s, Biyani’s Big Bazaar replicated the popular ambience of kirana shops while creating a modern shopping experience for families. He expanded into Central Mall, for apparel and fashion, and into eZone, for electronic goods. With the rise of e-commerce, there were murmurs that the Future Group story would be passé. But Biyani is reinventing the company by setting the stage for omni-channel shopping (see story on page 124)—even as Flipkart and Snapdeal continue to grow. In another example, Tata Group-promoted Infiniti Retail, which runs the consumer electronics chain Croma both online and offline, entered a strategic partnership with Snapdeal in September. This will place the Croma-brand store on Snapdeal’s marketplace to tap more customers.

The reverse is also happening: Be it job portal Naukri.com, eyewear e-retailer Lenskart.com, or online home shop Zansaar, digital outfits are increasingly investing in physical locations, to avoid missing out on offline consumers or late Internet adopters. Info Edge, the Rs 549 crore parent company of Naukri.com, has 76% of its workforce dedicated to offline sales, spread across 56 branch offices in 42 cities.

“You can innovate and leverage demand online, but in India, entrepreneurs have to grapple with all the complexities that the offline world presents,” says Prashanth Prakash of venture capital fund Accel India. Nowhere is that more evident than when a Flipkart has to develop the COD system to reverse the innate customer distrust of online transactions. Without such intervention, online shopping wouldn’t have become a $2.5 billion juggernaut in just five years.

ANOTHER ASPECT is that a history of scarcity has made the market hungry for disruption. Buyers are now willing to experiment more, making the market more consumerist.

“The upsides are so high that this is the time for bet-taking—you have to go for big hits,” says Damodar Mall, CEO (value format) of Reliance Retail. “This is an assertive market, and anybody who is big in India already has global scale. But if you just do incremental things like some of the MNCs do, you will miss the big opportunity.”

He points out how many Indian states have produced multicrore local food brands, such as Bikanervala’s bhujia from Rajasthan, Haldiram’s Diet chiwda from Nagpur, or ID idli and dosa batter, which started out as a small shop in Thippasandra market in Bangalore. So while there is a market here for global products like pizza and burgers, local businesses can create new segments, and sometimes break into existing ones, with something like kathi rolls.

Already, the MNCs here have shorter gestation cycles and have shown the willingness to localise. If McDonald’s took 14 years to spice up its fries and serve vegetarian food, KFC, Domino’s, and Pizza Hut have taken less time to localise up to 40% of their menu, says Mall. Meanwhile, Indian businesses are learning from the multinationals’ backend efficiencies.

Disruptive opportunities also stem from India’s cultural idiosyncrasy. MakeMyTrip (MMT), a $255-million online travel agent and the market leader, is studying last-minute hotel reservation as an emerging opportunity. “Indians don’t really plan. They often show up in a town or city and look for rooms,” says Rakesh Magow, co-founder and CEO of MakeMyTrip (India). The company will soon make discounted inventory available for last-minute booking via its mobile app.

It has been a musical-chair affair so far in some sectors. In mobile handsets, Nokia won the first leg till 2009. Samsung appeared to be winning the smartphone race until last year, when Micromax toppled it with attractive devices at affordable price points. Now, Xiaomi is at Micromax’s heels. With its reputation of being China’s Apple, the brand sparked consumer frenzy, crashing the Flipkart site within seconds of being up for sale in late July.

Back in 2003, Air Deccan jolted Indian aviation by ushering in the low-cost aviation (LCA) model. While the business model became quite popular, Air Deccan struggled until its hasty sale to Kingfisher Airlines (which, in turn, literally grounded Kingfisher). Learning from Air Deccan’s mistakes, new carriers like IndiGo and SpiceJet streamlined the LCA business and differentiated themselves with service benefits like on-time performance and sale of in-flight food and beverages. Air Asia’s entry earlier this year further heated up the low-cost war.

But barring examples like the Tatas, big companies seem to be out of the disruption fray. A key reason for this is their large bets between 1999 and 2009 were somewhat dampened by the global economic slowdown and the general pessimism in the domestic market. “There’s [also] an industrial divide here. Unlike digital startups, large companies have focussed on building roads, bridges, airports, hospitals, etc. [which are more dependent on government policies and the macro climate],” says Vani Kola, managing partner of the $350-million fund Kalaari Capital.

Nevertheless, there are winds of change, and hi-tech innovations may soon flood the Indian markets. For instance, auto supplier Bosch India (ranked 123 on the Fortune India 500 list for 2013) showcased a locally developed health-care product—a handheld camera that captures the image of the front and back of the eye. The software used is both cloud- and smartphone-compatible. “We need to screen what the problems are in India, and then see what we can do with the ideas and technologies we have,” says Steffen Berns, president of the Bosch Group in India.

YESTERYEAR ENTREPRENEURS such as N.R. Narayana Murthy, Sanjeev Bikhchandani, and Deep Kalra began their careers with large companies before incubating Infosys, Info Edge, and MakeMyTrip, respectively. (Murthy worked at computer firm Patni Associates; Bikhchandani was with Lintas, an ad firm, and GSK Consumer Healthcare; and Kalra worked at GE Capital and ABN Amro Bank.) Even Flipkart co-founder Sachin Bansal worked at Amazon Web Services in Bangalore. But the current era may well see the best minds leave college—or large corporations after much briefer stints (see story on page 142)—to pursue entrepreneurship.

Such minds could easily be found in the technology neighbourhoods of large and growing companies. They are hard to miss in Powai in Mumbai, the suburbs of Bangalore and Pune, or the coffee shops of Hauz Khas village in New Delhi. In fact, Alok Goel, CEO of Freecharge in Bangalore, likens the growing movement to the Xerox PARC (Palo Alto Research Center) days in the Silicon Valley of the ’70s. Many startups began—or grew rapidly—from the ideas incubated at Xerox PARC. Those were companies like Apple, Microsoft, and Adobe Systems.

According to Goel, Bangalore, too, is seeing a wave like that. “The talent is moving around from startup to startup, accelerating the pace of innovation for the entire ecosystem,” he says. Now, talent from companies like MakeMyTrip, Flipkart, InMobi, Sify, and Naukri move on to lend their ideas to the next problem to solve. “If there is a problem in business today, you need not solve it the hard way. You will certainly find somebody who has solved that problem and you can reach out for advice,” says Goel, who had moved from Adobe, Google India, and redBus, before arriving to head Freecharge.

Perhaps the biggest challenge for legacy companies will be holding on to, and replenishing, talent. “The outlook regarding a career is changing. [The definition these days] depends on how much risk young people are willing to take, and when,” says Santrupt B. Misra, group head of human resources at the Aditya Birla Group. “They have continuous exposure to international developments and media—be it TV, the Internet, or even the film on Facebook (The Social Network).” Nilekani agrees: “The new generation is fearless, ambitious, globally connected, tech savvy, and market savvy in a way we were not.”

The message: Fortune India 500 companies have to build moats around their best minds, and constantly empower as well as challenge them. The fundamental ways of developing talent may not change, but Misra says tools and techniques will get tweaked, with a bigger playing field for mobile learning or gamified training.

Kola of Kalaari Capital, who had co-founded two startups in Silicon Valley, says local talent is developing in line with the growth in the venture capital industry. “In Silicon Valley, entrepreneurs understand the nuances of funding because they have seen the venture industry mature. Now, Indian entrepreneurs also understand some of these nuances after seeing how a Snapdeal or a Flipkart progressed.”

Meanwhile, a steady stream of Indian techies and NRIs are returning to the country, and many of them are fit to lead this era of disruption. Dhruv Agarwala, co-founder of online real estate advisory PropTiger.com, studied engineering and later management in the U.S., and grew in operational roles at GE, before moving to India. He headed GE’s infrastructure business here, before founding iTrust Financial Advisors in 2006. He sold that to online trading and financial services company Karvy in 2011, and started PropTiger from Delhi.

Or take Advitiya Sharma, a millennial from a family of doctors in Jammu, who spent his formative years in Saudi Arabia, studied at IIT Bombay, and took a cushy job at A.T. Kearney for a few months in 2012, before leaving it to co-found real estate search startup Housing.com, which got $20 million in funding this June.

Internet business pioneer Sanjeev Bikhchandani is more circumspect: “There is only one Amitabh Bachchan, and then there are thousands who struggled and didn’t make it. Even today, only one in 200 business plans get funding.”

Still, few can deny a sea change from the ’70s and ’80s when techies only eyed the U.S. as a market to leverage their learning and ideas—a generation of Indians represented and inspired by Vinod Khosla, who co-founded Sun Microsystems, or Gururaj Deshpande, who co-founded the Internet equipment manufacturer Sycamore Networks.

Damodar Mall of Reliance Retail sums up the mood in terms of a generational shift. “Until the ’90s, big companies had technology; the common entrepreneur didn’t. Now, it’s the big guys who are stuck with legacy systems because technology has a bias for small entrepreneurs.” The new-age entrepreneurs have less to fear, more money at their feet, and see the world at play. Call it capitalism. Call it patriotism. Call it disruption.

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