Finance India Journal published a review of '5 Core Methods of Innovation'

Finance India, a journal published by Indian Institute of Finance, a leading business school in India published a review of '5 Core Methods of Innovation' in their September 2013 edition. The journal boasts of an editorial board composed of Nobel Laureates: I am enclosing a copy of the review below:

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Venture Finance and Entrepreneurship have provided the invisible levers controlling the growth of new Innovations in the world economy.

Intel, Cisco, Microsoft, Oracle, Amazon.com, Yahoo, TATA, Airtel, Ranbaxy,

Biocon, Infosys and many others have shown the growth potential of new

ventures. The history of growth in venture finance in US, UK, Europe, Africa,

Asia and India has been beautifully traced in Agarwal, Agarwal &

Solojentsev (2013).

Chankaya (350-283 BCE) a Professor at Takshashila University on being

thrown out by the Nanda King ventures in to make a boy wandering in the

streets the first Maurayan Emperor Chandragupta. Chandragupta Maurya

(340 BC - 298 BC) reign is remembered for defeating Alexander's Macedonian

Satrapies, Nanda Empire and Seleucus and for unifying India. The period

of Mauryan Empire (322 BC - 185 BC) is regarded as the Golden Age in

Indian History with trading done in Silver Panas. Taksha, an ancient Indian

king ventured into creating a centre of advanced learning called Takshashila

(5th century BC) for teaching of Vedas and advanced knowledge in eighteen

arts including archery, hunting, elephant lore, law, medicine and military

science. The Nalanda University (1197BC-527 BC) was the first university

to be setup in the world housed over 10,000 students and over 2,000 teachers

on the campus. The Nalanda University attracted students and scholars

from all across the globe in a period when global information flow and

transportation was negligible. The idea of Pandit Madan Mohan Malaviya

to set up a Hindu University which will spread oriental learning and

theology contributed to the development of the prestigious Banaras Hindu

University (1915), a centre of excellence even today. Kashi Naresh and Sri

Rameshwar Singh Bahadur, Maharaja of Darbhanga funded this venture.

In agriculture the share cropping institution (in which input costs and

output revenues are shared by cultivator and land owner) of land tenancy

lead to development of entrepreneurship in Indian farmers. Share cropping

form of land tenancy promoted farming in a number of non-conventional

items including tobacco.


Most of the MBA’s offered do not focus on a number

of financial issues which have attained vitality post 1985 with organization

failures due to poor management and understanding of Finance. There exists

an over-emphasis on other streams of management which were on the peaks

of organizational success in the 1950 to 1980s leading them to create general

MBAs with specialization in only one semester having two to four papers

in specific management discipline. Indian Institute of Finance recognising

this need pioneered business finance education in India in 1987.

Intel, Cisco Systems, Microsoft, Oracle, Amazon.com and Yahoo have

all shown the significance of innovative venture capital growth in

promoting growth and contributing to society. The major hindrance for

growth oriented entrepreneurial ventures was lack of adequate finance.

Venture finance provided the necessary support to tap competence,

experience and networks necessary for an entrepreneurial venture. Agarwal

(1976, 1988); Murray (1995); Mason (1996); Wright (1998); Landstrom (1998);

Shepherd (2000); Cumming (2003); Maula (2005); Solojentsev (2006); Zahara

(2006) and have all contributed significantly in the better understanding of

the concept and practice of venture capital across a modern complex resource

inter-locked globe. Innovative and venture capital are investments made by an institution,

firm or wealthy individual in business ideas which have the potential to

show meteoric rise and become dominant players in the world market.

Financing of such a venture may be in the form of equity or equity linked

investments, management buy-outs, replacement capital and turnarounds.

The return in a venture capital investment is empirically found to be in the

form of capital gains by way of sale rather than dividend income. The three

generally recognised sub-markets of venture finance include institutional

venture capital, corporate venture capital and informal venture capital.

Institutional venture capital was first defined by Wright and Robbie (1998)

as the finance provided by professional investors for long-term in un-quoted

and risky firms. Mason and Harrison (1999) further explained that the

professional investors could include pension funds, insurance companies,

banks and other financial institutions and the firms could develop into

publicly traded companies, captive subsidiaries of large banks or

independent limited partnerships. Bygrave and Timmons (1992)

distinguished between classical and merchant venture capital funds. In

classical venture capital, finance was provided by wealthy individuals and

families and who provided it in the early stage of growth and remained

actively as a part of the venture. Merchant venture capital fund is a form of

institutional venture finance which focuses on financial engineering to

invest for short term investment horizon. Hence, corporate venture finance

may take place by investing in either externally managed or internally

managed firms. According to McNally (1994) internal corporate venture

may be in the form of spin offs from the company which are managed inhouse

and external corporate venture may take place by investment in semiautonomous

and autonomous firms which are independently managed.

William Wetzel (1983) first defined informal venture capital as the finance

provided by business angels for young entrepreneurial ventures. Lerner

(2000) later defined business angels as wealthy individual who invest in

innovative ventures.

The genesis of modern venture capital in existing literature is traced to

the activity of Spanish Queen Isabella of Spain who sponsored the voyage

of Christopher Columbus. DuPont (1919) is regarded as the first modern

day venture. DuPont purchased thirty eight percent of equity interest in

General Motors. IBM was established in 1924 by a group of wealthy

individuals by merging a few smaller companies. Ralph Flanders, president

of Federal Reserve Bank of Boston proposed creation of fiduciary funds

which would enable institutional investors to invest five percent of their

assets in equity of new ventures. Xerox Corporation is an excellent example

of corporate venture finance whereby Haloid Corporation invested in the

technology developed by Chester Carlson and Battelle Memorial Institute.

The first venture capital firm in California – Draper, Gaither and Anderson

was founded in 1958 and led to development of formal venture capital firm

in Silicon Valley and San Francisco (Florida and Kenney, 1988). 

In the year 1286 in Italy, Giordano da Pisa invented eye glasses by

utilizing convex glasses to correct vision problems. However, it took more

than 400 year before a British optician Edward Scarlett created a modern

pair of glasses by connecting the frame to a “temple” passing over the ears

to hold it. For nearly 20 generations, people have had to hold the glass

frames in their hands while reading, before this easier way was found.

Almost till recently, there has been very little published work teaching

various processes to do innovation and due to the absence of such material,

it used to take a very long time, before new products could be created with

the available technologies. In the last few decades, due o rapid

communication, technology and globlization; rapid innovation has become

important to remain competitive for most corporations had Industries. The

knowledge gap between Nations has been greatly reduced by the internet.

While Spaniards could keep the recipe of making chocolate a secret for a

hundred years, it is difficult to do so in this small world. With globalization,

protectionist trade barriers which used to protect local industries have also

been removed by most nations. Leaders, from both the political and business

worlds, and from both the developed and developing worlds, have realized

that only innovation can give them competitive advantage and have been

urging their people to think innovatively.

Political and business leaders in United States and other developed

nation have been supporting the off-shoring of jobs hoping that their people

are innovative and would create new products and services. Their

assumption that future innovation will happen mostly in United States or

other developed countries is based on the fact that previously most new

products and services were created in the developed world and the developed

world has been blessed with the right social, legal and industrial

environment to support innovation. However, with the knowledge gap

between the developed and developing world evaporating due to the internet

and globlization, Innovation has become possible in almost any part of the

world. The developing world which till now has been mostly using concepts

and products created and tested in the developed world, now has the

potential and the capacity to create new products and services on their

own. Just like the last fifty year have produced a breathtaking number of

innovation like the Internet, GPS System and Mobile Phone and has

handsomely rewarded those who have produced innovative products, the

nest fifty years will also witness a race among nations, corporations and

individuals to innovate. This book is an effort to answer two main questions

in this space (a) What are the major ways of doing innovation? ; & (b) If a

particular innovation would sell in the market?

For a long time in history, it had been assumed that only a few people

with exceptional education and skills can be innovative. It was assumed

that Innovation is an inborn talent and only a few people have this skill.

When we thought about innovative person, we started thinking of only

people like Thomas Edison, Bill Gates and recently Steve Jobs. Innovation

can be done in a methodical way and the book will explain the different

ways of doing innovation. This book attempts to create and lay down different

frameworks for innovation, readers can use these to improve upon their

existing products and to create new innovative solutions and products.

The book starts with a description of the frameworks, then list a few products

and services, categorizing them into the different frameworks. It will then

explain how these frameworks can be applied to develop new products and

services. Citing examples, it later tests the understanding of innovation

examples. The reader progressively learns to identify different patterns of

innovation in various products and subsequently will be able to utilize

these framework to design new products. The book also makes an effort to

explain how to understand the consumer psychology and find out what

new products would the consumer be interested in. Understanding consume

psychology will help in designing of new products. The book is an outfall of

the Sanjeev’s experience in the venture capital industry which is plays an

important role in development of companies with new innovative products.

Innovation is a skill to improve an existing product/service or create a

new product or service. The skill of innovation is different from the skill

required for fundamental research in science. I t requires deep understanding

of the scientific theories and processes in a particular and specialized field

of science. Fundamental Research is done by those who have spent many

years in that field; typically these people have advanced degrees in their

fields of science. Innovation, on the other hand requires a keen eye to

comprehend existing and available technologies and utilize them to solve

particular needs of consumers. Many times, the outputs of fundamental

research are utilized by innovative thinking people to create customer-centric

products. For example, the founders of Google did research in data mining

on internet and used that research to create the Google search engine, which

led to many other products form the company utilizing this unique ability.

Similarly, fundamental research created electricity which has been used in

millions of ways to create new types of products. Perhaps the ability to

identify a customer requirement is more useful than an in-depth knowledge

of a particular technology or tool to create a new product or service.

The expertise and skills required to do fundamental research are

somewhat different from those required to utilize that research to create

consumer products. When we think about these tow approaches and the

important innovators in history, few people have been able to do both the

fundamental research as well as utilize that research to bring a product

fulfilling customer needs in the market. Based on the nature of contribution

in the process of product development, one can divide the contributors into

there categories: Fundamental Research based Scientists, Pure Innovator

and those how have been doing both research as well as utilizing that

Research to innovate. Scientists have been doing fundamental research

facilitating new discoveries and evolution of scientific concepts. These

contributors have expertise in their field of science and their research

produces the basic building block to be utilized in creating new products.

The work of these scientists was utilized by many people and corporations

to come up with new products and solutions, thus creating wealth for

companies, society and nations.

Innovators utilize their understanding of consumer needs and utilize

available research work to create new products and services. Steve Jobs

become a billionaire by understanding the needs of the end-user and created

desirable products from existing set of technologies. Steve jobs utilized the

concept of digital music on a handheld device to create iPod. He later, utilized

the concept of smartphones and multi-touch screens to create iPhone. He

also create the iPad that supported basic customer requirements form a

personal computer and made it easy to use. Mark Zuckerburg, another

innovator has utilized the concept of social networking to create a multibillion

dollar company facebook.com. He utilized existing set of available

tools on the internet to create this website and made it popular.

A skill to identify a customer need and then how it can be fulfilled by

utilizing existing set of technologies what is required by organizations. Few

people have both the skills of doing basic research as well as doing innovation.

One of these few people was Thomas Edison as he was equally successful in

doing both the fundamental research on electricity (had over 1000 patents)

and using that research to come up with innovative products and selling

them. It is noteworthy that many the companies started by Edison still exist in

one or the other from as large profit making corporations. His Edison General

electric which later merged with another organization become GE (General

Electric). In today’s world, Larry Page and Sergey Bring, the founders of Google

have displayed the capacity of doing both the fundamental research as well

as the ability to utilize that research for creating innovative products. The

company was founded based on their research world for their PhD program

on data mining of the we pages. Their research was utilized to create Google’s

powerful internet based search engine. Once this fundamental capability of

web search was built, other products of Google were created by innovation.

For example, Google utilizes data mining about an online user’s interests

(based on the user’s searches, the web sites her browsed and based on the

email contents he read) and matches the user to display only those online

advertisement that would be of interest to the user.

Sanjeev, has outlined five main methods to outlined the basic framework

of any innovation. The text explains how these methods have been applied

products, processes and industries as wide ranging as finance, Information

technology, mechanical tools, consumer electronic and internet. Sanjeev

Sharma gives examples of innovative products and explains the methods

that have been used in creating these products. He has explained how

products ranging from simple household items to cutting edge electronics

and telecom products, all utilize the same basic methods of innovation.

Sanjeev also shares his ideas on how these methods can be applied to solve

the existing needs of consumers and new products can be designed. He

explains what would make in innovation desirable by the consumer and

the step by step process of applying these. Sanjeev also draws on to his two

decades working experience in the financial technology world in USA and

Asia, sharing insights into the strategies of many companies and also

explains the working and problems of the venture capital industry and the

innovations there in.

Sanjeev beautifully brings forth as to how Innovation is an application

of better solutions that meet new requirements, inarticulate needs and

existing market needs. This is accomplished through more effective products,

processes, services, technologies, or ideas that are readily available to

markets, governments and society. Innovation marks the path of something

original, new, and important - in whatever field - that breaks in to (or obtains

a foothold in) a market or society. The text lays a good foundation for one to

understand and take necessary steps to induce innovation and venture

capital to have inclusive growth and development. It would have been nice

to see some detailed real life case studies given for the five core components

discussed in the text to enable the reader have a better understanding of

them. The book is relevant for post-graduate students of Management,

entrepreneurs and professors looking at text to introduce innovation and

venture capital formulations inducing innovation.

Indian Institute of Finance Aman Agarwal

Delhi, Noida & G-Noida

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