Chaisung Lim Miller School of MOT, Konkuk University, Seoul, KR

1. The Cheapest Car in the World : a low cost disruptive innovation by Tata Motors Presentation for SPRIE at APARC, Stanford on 15 Oct. 2009 Seokhee Han Dassault System Korea, Seoul, KR Chaisung Lim Miller School of MOT, Konkuk University, Seoul, KR Hiroshi Ito MMRC, Tokyo University , Tokyo, JP

2. 1. Introduction • The Nano from Tata Motors, India’s people’s car, started to be sold July in 2009 • Applauded as the car almost equivalent to Ford’s T model in that the car was made affordable to the potential customers with lower income

3. Source: As cited in Meredith (2008). Figure 1 Low Riders

4. Engine:623. 6cc gasoline Tata Group ranked the 6th in the Business Week-B&G 2008 listing of the world’s 25 most innovative companies

5. 1. Introduction • At the July launch: 100,000 selected out of draw of 2,000,000 applicants • Disruptive innovation • Creating a new-to-the-world product creating new market space, • Target market of the 2,500 Dollar Car • Opening new domain of competition • MNC’s move

6. 1. Introduction Puzzle: How can a company in the developing country make a new-to-the-world innovation in spite of weakness of its own human resources?

7. 2. Research Methodology • Exploratory case study approach • Text analysis • Press articles(75 press articles, 6 CEO interviews) at Tata Motor’s web sites • Other articles available • Analysis of email interview, direct interview, conference material , internet information • Focus on the process of the new business model: focus confined to available empirical data

8. 3. Puzzle • Resource constraints • Intellectual property • US patents granted Source: Patents granted in the US Patent office. PTC patent filed. 2009. 01. 08. accessed. searched with assignee name “General Motors” , “Hyundai Motor”, “Toyota Jidosha”, “Suzuki Motor” • Human resources • project leader age 37 • not having experience as a project leader of passenger car development project • average age of product development team: 20s-30s • Tata Motor’s experience of car development: India’s first indigenous car, INDICA, in 1999. expanded to a similar series of models such as INDIGO, launched in 2002, and INDIGO Marina in 2004.

9. 4. Why processes? • Resources of Tata Motors cannot explain • Processes likely to explain • Elements explaining creation of capability

10. 4. Processes for what? • Processes for BOP business model for new market disruption Application of Johnson, Christensen and Kagerman (2008) framework

11. Value to customers of a product and the total cost of a product 1. Product Performance Line 2. Affordability line of average Income customer in A.C. 3. Affordability line of low income customer in D.C.

12. 5. Processes found • The process to meet customer value proposition at affordable cost • Project started with three principles and basic model(CEO’s) in 2005 • acceptable cost ($2,500 price level) • acceptable performance(4 wheeler) • regulatory compliance (safety and environmental regulation) • Basic model: something like Maruti 800 (the cheapest car)

13. 5. Processes found • The process required to meet customer value proposition at affordable cost • New processes of product development required • Has to be the processes of reducing the product’s cost by eliminating & reducing low value design • Has to be the processes complementing weakness of resources • Trial and errors process inevitable • Need to reduce trial and errors to reduce product development time and project success in spite of the lack of experience in unexplored paths need to complement the weak competence (resource constraints) • Has to be the processes different from the old ones • Unexplored paths : defining customer potential needs, turning customer potential needs into product specifications, developing original product architecture and detailed designs of the product, developing the manufacturing processes for an original product

14. 5. Processes found • New processes developed • eliminating, reducing low value added design and activities supporting the designs (Lean product development) • Reverse process of exploration of the basic concept from the base model(Maruti 800) • Simple design strategy in the further product development stage: two cylinder engine, merge and elimination of functions and components, reduction of the size of components • Design for manufacturing applied in reduction of cost : some components modular • Involvement of lean design strategy company

15. The framework of the process of product development of in reduction of a product’s cost Base model Rev. Expl. Prod. Concept Design Prototype Product

16. 5. Processes found • New processes developed • External resource leveraged process • Product development in cooperation with external resource leveraged product development • Collaboration with Involvement of Tata group’s company as a global player: INCAT • the provider of engineering and design service. used to be British engineering company until 2005. • global leading provider of product development IT services utilizing digital innovation technology (digital innovation technology: 3 D CAD, simulation, CAE, PLM) • having the world’s premier automotive, aerospace and consumer durable manufacturers as customers • Identified engineers and INCAT CEO’s remarks

17. 5. Processes found • New processes developed • External resource leveraged process • Product development in cooperation with external resource leveraged product development • Majority of components(80-85%) from external suppliers • Participation of local resident supplier firms including MNCs • Component suppliers involved in early stage of product development • From friction to cooperation • Examples: Bosch(engine)(Germany), IDAE (Styling)(Italy), Emcon technologies(exhaust system)(US), Lumax Lighting (US) Tail light fixtures, GKN (UK) Driveshafts • Munro Associates as a partner for application of lean product development: leading consultancy in lean design strategy field

18. The framework of the process of product development of in reduction of a product’s cost Base model Rev. Expl. Prod. Concept Design Prototype Product

19. 5. Processes found • New technology leveraged process : front loaded process -problems in the later stage can be defined and checked through digital innovation technology • Strategic extensive investment in digital innovation technology • Front loaded process identified utilizing digital innovation technology: engine development, utilization of digital mockups and digital manufacturing, digital validation for assembly • Front loaded process to reducing trials and errors in product development process

20. Digital innovation technology invested in Tata Motors Courtesy of TATA Motor Limited by Nitin Rajurkar(2006) Page 20

21. The framework of the process of product development of in reduction of a product’s cost Base model Rev. Expl. Prod. Concept Design Prototype Product

22. 6 Discussion • Revealing the new processes of the new business model for new market disruption aiming at the bottom of the pyramid (Prahalad 2005; Christensen 1997) • The ‘unexplored’ process of drastic reduction of cost in product development revealed: reverse process • The processes complementing the weakness of resources

23. 6 Discussion • The Nano case, heralding the emergence of low cost disruptive innovation by local firms? • Opening up research issues • Applicability of the new processes to other cases? • Complexity of the automobiles vs complexity of other products • Automobile as one of the most challenging product for local product development • Complex product with more than 10,000 components • Specificity of the Tata Group

24. 6 Discussion • Opening up research issues • Expanding opportunities for disruptive innovation for the BOP in the developing countries • Market opportunities: Fast expansion of the bottom of the pyramid market(1,500$ GDP/capita) in China and India • Technological opportunities: Advancement of digital innovation technologies • Opportunities from the application of lean product development approach which is emerging in the 2000s • Knowledge opportunities abroad: opened accessibility of knowledge? • Management issues for managing the process of creation of the new processes

25. 6 Discussion • Alternative technology catching up strategy • Catching up through imitative innovation (Kim 1997; Lall 2002 ) and OEM and ODM(Hobday 1995; Ernst 2002 ) • Catching up through strategic resource leveraging of globally available sources of knowledge and others (Matthews 2005; Lee and Lim 2001; Perez and Soete 1988) • Going beyond imitative product development at the stage of not-sufficiently accumulated technological capability: original product development for the bottom of the pyramid local market • Tata reveals the strategy of providing luxury version of Nano • Plans to develop upgraded versions in hybrid and electrical car

26. 6 Discussion • Emergence of low cost innovation cluster? • Cluster of ultra cheap car cluster in India? –Bajaj Renault Nissan’s announcement to develop ultra cheap car in India • Confirming the argument of Kim and Mauborgne(1999) on profitable business model • Price stetting and strategic indicator first and then subsequent product development process • The development process ; eliminating, reducing and outsourcing high cost, low value added activities in value chain