In an exclusive interview with SME Times, Naresh N Shahani, Managing Director, Breakthrough Management Group International said that Small and Medium Enterprises (SMEs) have great ideas, infrastructure and strong products, but the problem with them is that they don't know how to scale up operations of their products and services.

Excerpts of the interview...

What kind of role does innovation plays in today's time?
Naresh N Shahani: I think it is happening both in manufacturing and in service, and both in government as well as in industry. The efforts that what we have seen in the space is a classic example of how government has fostered it and how it has reached out to people. In Indian industry there is far more entrepreneurial spirit that exists. We can see it in examples like flipkart and indigo that happened in the recent past; invention is also from the large business houses like Tata and Godrej that have created chotukool and nano. The Mahindras has also created several products and services which have been very successful in India.

How much innovation is required in the manufacturing sector of India?
Naresh N Shahani: That is required everywhere. It is required in manufacturing; it is required in the services sector. If we don't increase the product life cycle and the process life cycle then it is very difficult to survive. If it is short then it is essential for us to increase it. To gain competitive advantage, it is necessary that we innovate. If we do not innovate we will not be able to meet the cost requirement of the business or be able to re-engineer our plant or strategies as well as our manufacturing processes to the requirement of the customers.

Do you think India is competitive enough in the global arena?
Naresh N Shahani: Absolutely, they are very competitive. They are very capable. It is to put in the right structure and processes in it. Until recently, it was all seen as R&D spend but increasingly organizations are realizing that it is beyond R&D spend. There is a great opportunity due to that. The whole globe is looking at India and learning from India. Some of the examples which have come out from India and have gone back to the western world. This include low costs x-ray, low costs ultra sound machines; the example of medical care that we provide in India with respect to Aravind Eye Clinic. It is a classic global case study of how people in the western world are seeing on how can we learn from this to provide low costs medical care in their country.

Talking about the labour intensive sector, how much do you think innovation is taking place there?
Naresh N Shahani: It is not that I don't look at the textile industry or I don't look at the auto ancillary industry. All these industries are doing their great job. If you look at the cost for a tyre relative to the price of rubber, it has only fallen. For example, the rubber price moved from Rs. 80 to Rs. 240 a kilo but the cost of tyre did not move up. It was only for the manufacturing efficiency. Also, the same will be true for whether you buy a muffler or you make a assembly. It is because they have innovated on the floor. And it is actually using the worth of innovation on the floor. The problem is this kind of innovation is internal to the organization, they don't tend to be seen from outside. It is not easily visible outside.

Speaking about the textile industry, it has been repeatedly seen that the industry lag behind in innovation. They are not able to access new technology as they don't have potential finance. What is your take on this?
Naresh N Shahani:   I think there is two parts in it. When they compete globally they do a great job in it. We still export a fair amount textile products both in raw forms and in finished forms. The companies in Tirupur and North India where major chunk of knitwear are made are as competitive as companies in Sri Lanka, Philippines, Indonesia and Guatemalan. The companies that are probably struggling are labor-intensive or smaller companies which basically do the kind of job for some of the big players. I agree with you that there is some amount of technology required. The larger thing is if you seriously notice, the time taken to make a new piece of garment has become significantly more efficient than it was five years ago. And the are changes that are led by people within their facilities, they are small and incremental but are very critical to their success. It is not that it (innovation) doesn't happen. It does happen and all the time. It is just that it is not easily visible. Yes, investments are required for getting modern cutting machines or modern knitting machine or a modern machine on the floor, you need them but that is not the end of the game. Usually, a new technology takes time to stabilize. A new technology never delivers what its potential is whereas an old tested technology can always be stretched and this is where innovation comes in. It is unleashing the people to use well established technology to make it perform better.

India is also lagging behind in using modern technology. What is your take on this?
Naresh N Shahani: In labour intensive sector, it is usually shifted because they use labour arbitrage. When there is labour arbitrage it is possible to move work. For example, garment making or shirt making right here. But increasingly today many Indian companies are designing for the west. It is not that it is not happening. We are going up the value chain. The machinery that is used in India to make the shirt is comparable to a machine used in Europe. Especially in large companies, there  it is an ancillary support services for cleaning, knitting, etc, where it is highly human-intensive and because of labour arbitrage we basically spend more time here and therefore we do not invest in those machines becauseit does not give an return on investment (ROI). It is not that we don't want to. It does not provide an ROI. You can use the labour to get the work done. With the rising income classes, labour is becoming more difficult to find and you will see such technology is getting into demand. India is becoming indigenous in capital goods. Lots of capital goods are made here in India. We are an exporter of engineering products and capital goods in this country today.So, many of our companies they export or they make.

Today, 15 percent of the space program is made by the small manufacturers. It is a classic case to say that they are strongly capable to do it and they use cutting edge technology otherwise why they would do it. The big difference is in the west it is largely dependent to eliminate people requirements. You automate as much as you can. In India, you automate when required. That is the big difference. And, you really need to understand this. We will see increasing automation with the rising income level and rising aspirational levels but we will never need to be as automated as the west. It will never be required but without compromising quality.

What kind of services are you providing?
Naresh N Shahani: We basically help companies on four aspects. We basically work on two pillars -- one is to help operations and growth strategies of business. We work with large companies as well as small companies in helping them chart their growth strategies and make growth happen. We work on innovation. We work on problem solving and business transformation. We work with clients so that we deliver results. We spend a fair amount of time working with the promoters, working with the large companies in actual implementation so that they realise the games of what they want to achieve so whether they want to achieve better productivity, achieve new products, get to market faster, reduce errors in their business, deploy their strategic plans, and create their strategic plans. We work with them to develop them so that they can implement them in their business.

What kind of services do you provide to the small and medium enterprises (SMEs)?
Naresh N Shahani: We do lots of work with small and medium enterprises (SMEs) basically in their business transformation. They have great ideas, infrastructure, strong products but they don't know how to scale up those products. They have a great order based customers and great reputation but they are not able to scale their factories or they are scared to hire more people because they don't know where they are going to be in the long-term. We help them to manage their business on four aspects. One is on customer access, engage with the customers or grow customer base, on the people access on how to grow the people. We help them to develop people, manage people, create good systems and processes. We also help them in the finance side on how to raise capital, debt equity and get their funds to grow. Last but not the least, we help them in business processes and technology.

What kind of skill development is required for SMEs for being innovative?
Naresh N Shahani: The biggest skill development should be at two levels. First, what I would call translating the individual skills into company skills. So, in the SME sector there are very good technicians, specialist and people who have learned through experience in their small businesses. How can we translate that experience to become company knowledge? So, we work with companies to transfer skill-set from few individuals who really try to control a small business in order to make it sustain their business with or without people. So, we do lots of skill development there. We do skill development with respect to growth. How do I create management system in an organization to create growth? We help them to improve their system on what they are doing and to improve them better. SMEs need management development, standardization, and processing, which are essential if they want to grow.