Technological innovations and its inuence on the growth

of auto component SMEs of Bangalore: A case study approach

K.N. Krishnaswamy, M. Mathirajan, M.H. Bala Subrahmanya
*
Department of Management Studies, Indian Institute of Science, Bangalore, India
a r t i c l e i n f o
Article history:
Received 30 October 2012
Received in revised form 11 January 2014
Accepted 22 January 2014
Keywords:
Technological innovation
Product innovations
Process innovations
Growth
Auto components industry
a b s t r a c t
This paper describes the nature and dimensions of technological innovations leading to the
development and introduction of new products and market expansion along with enter-
prise growth with reference to three auto component SMEs of Bangalore in India. The
study brings out that the entrepreneurs played an instrumental role in recognizing market
opportunities, building up crucial in-house technological capability, supplement it with
appropriate external assistance to carry out technological innovations including its mod-
ications to suit customer requirements and nally deliver it to the market. An important
feature of these innovations is that constant interaction with its customers is in-built into
the system. As a result, all the three SMEs could achieve successful product innovations
which led to their gradual growth over time in terms of employment, investment and
more importantly in terms of sales turnover. Further, by stringing the inferences of the
three cases a theoretical construct of the growth of innovations in SMEs in three stages of
their development start-up and stabilizing, building technological credibility and
opening up of new markets is proposed. These stages are (i) attaining design standards,
(ii) incremental innovations, and (iii) ushering radical innovation.
2014 Elsevier Ltd. All rights reserved.
1. Introduction
Small & Medium Enterprises (SMEs) have exhibited
their inherent capability to undertake technological in-
novations in different economic environments [3,27]. Their
unique features such as a simple organizational structure,
better internal communication, better focus, quick decision
making, greater exibility, etc. (across economies of vary-
ing sizes and which are at varied development stages) are
considered to be their inherent advantages for carrying out
technological innovations. But it is pertinent to state that a
large number of start-ups fail in the initial years after their
origin and it is only a smaller proportion which survives
and succeeds and grows subsequently. It is the dynamic
and innovative SMEs which succeed in terms of prot-
ability and grow. Therefore SMEs play a unique and
complicated economic role as far as technological innova-
tion is concerned. However their innovative capacity and
ability to develop new and innovative products, processes
and services varies signicantly depending on the sector,
size, focus, resources, and the business environment in
which they operate [5]. Several researchers have tested the
effect of a large number of innovation related variables.
However, even though they tested similar variables, they
ascertained differing degrees of association with the rate of
innovation [3]. This could be the reason why the innovation
process is still poorly understood [7].
Bala Subrahmanya [2] covering manufacturing SMEs of
Bangalore in the auto component, electronics and machine
tool sectors, attempted to understand issues such as what
* Corresponding author.
E-mail addresses: knk@mgmt.iisc.ernet.in (K.N. Krishnaswamy),
msdmathi@mgmt.iisc.erent.in (M. Mathirajan), bala@mgmt.iisc.ernet.in,
mungilabala@gmail.com (M.H. Bala Subrahmanya).
Contents lists available at ScienceDirect
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http://dx.doi.org/10.1016/j.techsoc.2014.01.001
0160-791X/ 2014 Elsevier Ltd. All rights reserved.
Technology in Society 38 (2014) 1831
factors drive SMEs to innovate, what is the nature of SME
innovation and what are the achievements of SME inno-
vation efforts? The study revealed that a considerable
number of SMEs in all the three sectors innovated infor-
mally, which was attributed to a combination of the level of
technological capability owing to self motivation, technical
qualication and knowledge of the entrepreneur, his
innovative ideas, presence of an exclusive design ofce,
pressure on the SME due to customer demands, and
competition. Most of the SMEs were aiming at quality
improvement, cost reduction and market share expansion.
The majority of these SMEs carried out incremental in-
novations. There was a signicant correlation between
innovation sales (innovated products as a percentage of
total sales) and sales growth. The study brought out sub-
stantial evidence to prove that innovation contributed to
SME growth [2].
Of the internal factors that inuence rm technological
capability, the background and role of the entrepreneur is
crucial for SME innovation [28] and innovative activities
might be directly connected with the educational levels of
entrepreneurs [1]. Though these studies have thrown light
on SME technological innovation in a broad way, they have
failed to give an in-depth picture of the internal processes
of innovation in SMEs. In view of this, it would be appro-
priate to undertake case studies to illuminate the process
and outcomes of technological innovations in SMEs. The
case study approach is qualitative in nature and has the
advantage of being an in-depth study [15].
In the present study, technological innovations are
dened to cover both product and process innovations,
whether new or improved. This is a generally accepted
denition of technological innovations in the context of
manufacturing sector [3]. SMEs are dened to as
manufacturing enterprises with an investment in plant &
machinery not exceeding US$ 2 million, in accordance with
the current denition of SMEs in India [18]. The three case
studies were carried out by the authors by conducting two
eld visits for each of the three SMEs during June
December 2007.
1.1. Research setting
The focal point of interest in an SME is the entrepre-
neur as he is the key decision maker of the rm. There-
fore, we have concentrated on the entrepreneur, his
perceptions of the need, processes and opportunities of
technological innovations and how the organization has
adapted and implemented his ideas regarding innovation
and of the route to growth. The authors had detailed
interviews and discussions with both the CEOs and heads
of the technology group but the bulk of information was
obtained in the interviews with the entrepreneurs and
supplemented by in-house publications, brochures and
technical documents, among others. The case study pro-
tocol consisted of questions on the history of rm
growth, characteristics of the industry, management
problems, views on what causes growth, whether inno-
vation helps growth, whether technological innovation
was spurred through organizational and marketing in-
novations/changes, the role of government rm growth,
problems of innovation management, incremental and
radical innovations, and interaction with other organi-
zations for innovation. Each of these issues was discussed
and elaborated during the interviews. The interviews
were transcribed by the authors themselves and the
transcription was used for case development and
analysis.
In a SME, the entrepreneurs perceptions about the
strengths and weaknesses of the enterprise and his
cognition of threats and opportunities in the environ-
ments have a dominant inuence on the success of the
enterprise. These were captured through interview data,
case analysis and information with the entrepreneur in
the form of a cognitive map. The cognitive map is a pic-
ture of the perceptions of a decision maker about a de-
cision problem or situation. The cognitive map offers a
holistic picture of the perception of the decision maker
[15]. In the cognitive map, the links are represented as
lines and the perceptions as nodes. The value of the
nodes increases as we go up the diagram and the top
node has the highest value to the decision maker. The
nodes with a large number of links are the critical ones.
Furthermore, cognitive maps help in understanding how
the SME is guided by the entrepreneur towards success
and growth. This insiders view supplements the facts of
the case collectively. We developed cognitive maps for
each of the three cases after the case analysis to bring out
the relationship between innovation and growth of sales
revenue.
The three case studies were conducted by the three
authors themselves. In every case two visits were made to
corroborate certain details. The questionnaire used in the
survey was also completed. The interviews were two
hours each in duration. We did not choose SME units
randomly. The investigators wanted to study the units
which were innovative and grew rapidly in comparison
with others. Accordingly, our case studies consisted of
three SMEs in the auto components industry of Bangalore
with the objective of understanding the processes of
innovation in a SME, and the role of the entrepreneur in
this process. These units are chosen for in-depth study
from 65 auto component units surveyed for the study of
SMEs in 2006. Table 1 gives a picture of the relative status
of case study SMEs in Bangalore with respect to innova-
tion and growth in sales revenue. The growth of sales
revenue is calculated in constant prices. Innovation sales
represent the value of innovated products as a percentage
share in total sales revenue.
Table 1
Innovation sales and sales growth of auto components SMEs.
Sample of 65
units (excluding
the three cases)
Case I
(BSC)
Case II
(PE)
Case III
(KLNEP)
Average innovation
sales (%) during
2001/022005/06
16.48 26 30 38
CARG (%) of sales
growth during
2001/022005/06
28.67 29 32 37
K.N. Krishnaswamy et al. / Technology in Society 38 (2014) 1831 19
2. A brief literature review
Technological innovation is a key factor in a rms
competitiveness and therefore essential for rms which
want to develop and maintain a competitive advantage
and/or gain entry into newmarkets [3]. In fact, among rms
of different sizes, there is substantial evidence to showthat
SMEs in a wide variety of sectors carry out technological
innovations [13]. Given this, there are two important issues
that need to be understood: (i) Why and how SMEs un-
dertake innovations? (ii) What do they achieve due to their
innovations or what impact does it have on rm perfor-
mance? While the scholarly literature explains some of
these issues, the ndings are not uniform.
Some empirical studies have indicated that it is the
rms internal competence and entrepreneurial motivation
which drive SMEs towards innovation [9,25]. But Danneels
and Kleinschmidt [8], Tie-Jun and Jin [22], Xia and Roper
[26] and Marques and Ferreira [17] have found that SMEs
do not just depend on internal sources but are also strongly
inuenced by external environment. These studies indicate
that neither internal competence of the rm alone nor
customer requirements alone will drive a SME to undertake
innovations. Furthermore, according to Bala Subrahmanya
[1]; innovation will emerge only when a technically
competent rm is able to identify and respond to customer
requirements by developing or improving products/
processes.
If SMEs succeed in their innovations, does it contribute
to SME performance directly? Roper [19] comparing the
innovation strategies of German, UK and Irish SMEs,
concluded that there is a strong association between
innovation and sales growth. Lumiste et al. [16] found that
innovation helped Estonian SMEs to improve their perfor-
mance in terms of market share and diversied range of
goods and services. Engel et al. [11] brought out the positive
impact of innovation output on sales revenue change of
SMEs with reference to craft dominated industries of Ger-
many. Coad and Rao [6] examined the relationship between
innovation and sales growth for incumbent rms in the
high-tech sectors of the USA. They claimed that a rm may
grow for a number of reasons that may or may not be
related to innovations. But based on quantile regression
approach, they observed that innovation is of crucial
importance for a handful of superstar fast-growing SMEs.
The above discussion enables us to formulate the
following research questions to examine whether they are
supported by the case studies conducted for three auto
component SMEs in Bangalore:
How did internal and/or external factors inuence and
enable SMEs to carry out technological innovations?
Do technological innovations have a positive impact on
SME sales growth performance?
3. Auto components industry in Bangalore: a
backdrop
Karnataka state has a history of pioneering industrial
development initiatives since the time of the Princely State
of Mysore and subsequently in the post independence era.
Over the last 100 years the State has had the distinction of
building a strong and vibrant industrial base, which com-
bines the intrinsic strengths of large industrial public sector
undertakings, large and medium privately owned in-
dustries and a wide and dispersed small-scale sector. Today
it is among the top ve industrialized states in India. It has
achieved substantially in promoting hi-tech industries in
key sectors like automobiles, electronics, telecommunica-
tion, information technology, precision engineering,
readymade garments, biotechnology and food processing
[12].
The automobile industry is undergoing rapid trans-
formation in the global market in terms of number of rms
and their growth. A signicant feature of this development
is the rapid expansion of major players such as Honda,
Toyota, Suzuki, Hyundai, GM, Ford, Daimler Chrysler and
Fiat into industrializing economies in South East Asia, China
and India, among others [21]. In India, the presence of the
automobile industry is steadily growing in Karnataka,
thanks to the favorable industrial policy of the State. In
Karnataka, Bangalore is industrially more developed and it
occupies a unique place in the industrial map of India. The
city has the presence of multinational companies such as
Bosch, Toyota and Volvo, among others. This has given
scope for developing formal and informal subcontracting
relationships with widely dispersed SMEs across the city.
What is more signicant is that Bangalore is the home
for a variety of R&D institutions in both Public and Private
sectors [29]. Bangalore has the distinction of being the
destination for a large number of MNCs in engineering
based industries and technology driven sectors and it is
today recognized as one of the top 10 techno polis in the
world [12]. To cap it all, it is the only global hub of
Table 2
Three auto components SMEs in Bangalore: basic features.
Name of enterprise Burgi speed on clutches (BSC) Prabhu Engineers (PH) KLN engineering products
Year of establishment 1980 1996 Late 1950s
Qualication of owner/s B.Sc. and PG Dip. in Business
Administration
SSLC BE (Ind. Engg. & Mgmt)
Age of owner/partners
Location Peenya Industrial Area Prakashnagar Rajajinagar Industrial Estate
Products CNC machine centre, Turning
centre products, pressed
components and sheet metal
fabrications, automobile clutches,
and automobile engine housing blocks,
clutch plates
Press tools for cold press working,
drill bits, and components of various
kinds for the hydraulic systems.
Traditional lters, paper lters,
depth lter, surface lter,
pre-cleaner, dry air cleaner,
disposable vaginal speculum,
K.N. Krishnaswamy et al. / Technology in Society 38 (2014) 1831 20
technological innovation in India and south Asia [23]. The
innovation process and outcomes of three auto compo-
nents SMEs are explored in this backdrop.
4. Basic features of three auto components SMEs
We have covered three auto component SMEs in Banga-
lore for case analysis andtheir proles are presented inTable
2. The rst two are rst generation entrepreneurs whereas
the third enterprise was started by the father of todays
Managing Partner who did his B.E. in Industrial Engineering
and Management. While the last enterprise was more than
ve decades oldand was set upinthe late 1950s, the rst one
was more than three decades old whereas the second one
was one and half decades old. The entrepreneurs of all the
three SMEs are in the 4555 age group. Thus both the en-
terprises and the entrepreneurs are fairly experienced and
therefore appropriate to ascertain and understand the pro-
cess and outcomes of technological innovations.
The three SMEs manufacture different auto compo-
nents: the rst one is initially heavily engaged in the pro-
ducing KSRTCs requirement of clutches and later they are
diversied into producing engine housing blocks for Tre-
lawny, UK, International Tool Company and involved in
producing spares for Tractors & Tillers. The second rm
manufactures Press Tools for Cold Press Working, Drill Bits,
and components of various kinds for the hydraulic systems
to sell to the Public Sector including Bharat Electronics
Limited (BEL), Bharat Earth Movers Limited (BEML), Na-
tional Aeronautical Laboratory (NAL), Gas Turbine Research
Establishment (GTRE), and public transport bus corpora-
tions. The third company produces various types of lters
for customers such as TELCO, TAFE, Simpson, Ashok Ley-
land, LG, HM, Cater Pillar India, Rane Group, Forbes, etc.
Thus, the end products of the three SMEs are used in the
day-to-day activities of the rms/organizations/institutions
which are their customers. Therefore, there is considerable
scope for interaction with customers for product feedback
and development.
5. Process and outcomes of technological
innovations: observations and analysis
While studying the three SMEs and their technological
innovations, we have obtained their product proles, fac-
tors which led to their new product development, mana-
gerial motivation for innovation and their subsequent
achievements. This has been done enterprise-wide.
5.1. Case 1
The entrepreneur who is a graduate in Science and Post
Graduate Diploma in Business Administration started the
Burji Speed on Clutches (hereafter it is called as BSC) pri-
vate limited in 1980 at Peenya Industrial Estate. Prior to
starting this enterprise, he worked for about a year in
Rajamane Electronics, which was an ancillary to Indian
Telephone Industries (ITI). It was the prospect of becoming
ancillary to Karnataka State Road Transport Corporation
(KSRTC) that made himset up BSC with modest investment
in engineering and production work facilities. He incurred
an initial investment of about US$ 0.04 million (with a loan
of US$ 3000/- from Karnataka State Financial Corporation
(KSFC) and US$ 1000/- of his own) and hired six employees
to achieve a sales revenue of about US$ 0.08 million.
Initially BSC worked in general engineering and sheet
metal manufacturing with occasional orders from KSRTC.
Owing to Government of Karnatakas drive for promoting
rural bore well drilling (during 198387), there was a great
demand for hand pumps and their spare parts. The entre-
preneur of the BSC seized the opportunity and started the
manufacture of hand pumps which were suited to the sheet
metal working and general engineering facilities available
with BSC and to the availability of components locally.
Special pressed components were manufactured based on
samples provided and using reverse engineering principles.
This in combination with odd auto components for
KSRTC formed the products of manufacture of BSC during
198086. The manufacture of clutches against drawing
from KSRTC started in the early 1990s when KSRTC placed
orders on BSC (managed through personal contacts of the
entrepreneur of the BSC) during an industrial boom in
Peenya Industrial Estate. Nearly 75% KSRTCs requirement
of clutches and other components were met by BSC using
locally available components and fabricating pressed
components. Subsequently BSC planned to cater to cus-
tomers owning Computer Numerically Controlled (CNC)
machines to be in a position to completely manufacture the
clutches which were of higher technological complexity
than hand pumps. The demand from KSRTC for auto com-
ponents dwindled drastically in 2001/02 and in that year
BSC discontinued their relationship with KSRTC.
The continued recession during 19982001 (during
which Small Scale Enterprises in Karnataka in general,
Peenya Industrial Estate in particular suffered consider-
ably) prompted the entrepreneur of the BSC to technolog-
ically upgrade in order to diversify and survive. In 2002/03
he attempted a major technological up-grade through the
acquisition of CNC machines. This greatly helped the en-
terprise in its export efforts. The enterprise entered the
export market in 2004. This export orientation resulted
from various enquiries that resulted from their listing in
Karnataka Small Scale Industries Association (KASSIA) and
Peenya Industrial Association (PIA) directories. The entry of
BSC into foreign markets was accidental. Trelawny of UK
was looking for a supplier of auto parts and components for
them and they came to know that BSC had a Mekino CNC
machine. They approached the entrepreneur of the BSC
seeking the development of engine housing blocks. They
were happy with the initial supply of these products. In the
initial years, Trelawny accounted for not more than 10% of
the sales revenue of BSC. Since then the entrepreneur of the
BSC never looked back. He claims that, so far, he has
developed about 120 components based on the drawings
provided by Trelawny. Today Trelawny buys more than 50%
of the sales revenue of BSC. At present BSCs major cus-
tomers are Trelawny, UK, International Tool Company, UK;
(spares for) Tractors & Tillers, Bangalore, (clutch plates for)
Ghatge Patil, Kolhapur and (machine items for) Pragati
Tools, Bangalore.
Developing product and design to the requirements of
foreign customers product has taught BSC the importance
K.N. Krishnaswamy et al. / Technology in Society 38 (2014) 1831 21
of alertness in all dealings with the customer, time con-
sciousness particularly in keeping delivery promises, ner
nuances of quality not only in functional aspect of the
products but in their get up, appearance and aesthetics and
even in the design of packing. This has transformed his
manufacturing system, the men and the machines working
to new levels of efciency and effectiveness and has
inuenced even their products supplied to the indigenous
customers and has drawn the appreciation of major cus-
tomers like Ghatge Patil.
In January 2005, the entrepreneur of the BSC obtained
ISO 9000 certication. Recently he has procured a Vertical
Machine Centre from the US costing about US$ 80000/.
Today BSCs current value of investment is about US$ 0.3
million (including the recent imported machine), with 28
employees and sales revenue is likely to be about US$ 0.4
million. About 60% of the sales revenue is realized from
exports approximately US$ 0.24 million. Thus, the enter-
prise has steadily grown in size over time. The entrepre-
neur of the BSC attributes the success of the enterprise to
his timely technology upgrade in 2001/02. For this, he
thanks profusely the former Commissioner for Industrial
Development.
Currently the range of products manufactured by BSC
are CNC machine centre, turning centre products, pressed
components and sheet metal fabrications, automobile
clutches and automobile engine housing blocks. Though
the entrepreneur of the BSC was not explicit about his in-
novations, he made it clear that generally his customers
never helped him in his product development efforts.
Usually they gave only drawings and subsequently prod-
ucts were developed by the BSC using reverse engineering.
However, he has not developed any exclusive design team
within his enterprise. He has a CNC programmer and a
production supervisor, who jointly with the entrepreneur
of the BSC develop products based on the drawings pro-
vided by their customers. Of course, informally they have
got help from Central Manufacturing Technology Institute
(CMTI) of Bangalore.
The consistent and steady market growth has been
signicantly responsible for the growth of BSC enterprise in
the current decade. This has prompted the entrepreneur to
come out with new ideas for enterprise expansion. One
major problem faced by the entrepreneur of the BSC is that
of labor attrition. According to him, SMEs have become
labour training centre for big MNCs. Recently three of his
key employees left for Singapore for better employment.
Overall, the observation is that BSC enterprise is
customer focused and accordingly, it has developed prod-
ucts required by its customers from time to time based on
the drawings provided by them. Thus implicitly, this en-
terprise has been doing incremental product innovations.
Technology up-gradation has also contributed to its incre-
mental innovation efforts and customer satisfaction.
5.1.1. Case analysis
The entrepreneur of BSC, being qualied in business
management was an opportunity seeker, rst he exploited
opportunity of KSRTCs patronage obtained on personal
contact and supplemented it with other general jobbing
work and incidentally took up manufacture of clutches and
also made use of the opportunity of fabricating of water
pumps and spares. With signs of KSRTC distancing from
him, he prepared for other markets by updating his tech-
nology, this was innovative. While the Indian market was
gradually growing, with the help of KASSIA, he took the
opportunity of entering foreign markets through the
updated (CNC) technology. To make him competitive in
foreign markets he took help of R&D organizations around
Bangalore and concentrated on the true values of business
ne tuning quality and keeping promised delivery
schedules and instilling aesthetics into his products. He
diversied to engine block manufacture among other
automobile components and has planned further updating
of technology to foster his exports and indigenous supplies.
The entrepreneur of the BSC is an astute business man
keeping the customer focus and prot as the primary
objective and technology improvement to compete or to
gain new markets as necessary and has always been on the
look out for opportunities to enhance his business.
The innovation chain has taken the path of learning by
reverse engineering, shop oor experiments and trials,
customer interaction and technology updating to enhance
operational capability to meet technology demand and as a
nal result, the interactions with R&D institutions for new
product development. The typical process of product
innovation that takes place in BSC is schematically shown
in Fig. 1 as an innovation chain.
5.1.2. Cognitive map of the entrepreneur of the BSC
From the cognitive map of the entrepreneur of the BSC
shown in Fig. 2, it is demonstrated that product design and
innovation are critical to technological excellence. Accord-
ingly, the entrepreneur of the BSCs perceptions can be
appreciated as follows:
When an opportunity presents develop a facility to
tackle it.
Concentrate on process innovations to delivery goods
for which the design is available (using some times
reverse engineering as an innovative effort).
Use present contacts in central SME organizations for
satisfying market needs.
Prepare for a new product technology by updating the
desired process technology (as he did for clutches/en-
gine block manufacture for foreign market).
Focus on the customer and satisfy him by achieving the
appropriate quality of product, meeting delivery
schedules and packaging requirement.
When own efforts of process improvements do not give
the adequate product quality, go for interaction with
R&D organizations to meet customer product re-
quirements and diversify.
5.2. Case 2
The entrepreneur, who set up Prabhu Engineers (PE)
Private Limited for manufacturing press tools in 1996, had
only higher secondary education. He later started produc-
ing borewell bits and hydraulic systems for borewell dril-
ling. The entrepreneur of PE was born in 1956 and he
studied up to SSLC in Vellore, Tamil Nadu. He migrated to
K.N. Krishnaswamy et al. / Technology in Society 38 (2014) 1831 22
Bangalore in 1976 at the age of 20 years. Up to 1981, he
worked as a tool maker in a small scale enterprise in Ban-
galore. In June 1981, he started Santosh Engineering Works,
with just one more employee apart from himself. He
invested about US$ 40/- for a lathe machine, one y press,
one drilling machine and one bench grinder.
The entrepreneur of PE is a rst generation entrepre-
neur as his father was a farmer. For one year, he worked on
press tools. In the initial years, he got job work from M/s
Vishnu Forge (located in HMT Industrial Estate, Bangalore,
India), which originated from Bharath Heavy Electrical
Limited (BHEL), Bangalore, India. From 1985 onwards he
focused on bore well bits and hydraulic system based
hammers on jobbing basis. He worked virtually round the
clock throughout the year in the very rst year. The sales
revenue in the rst year was US$ 1920/-.
Soon the demand and varieties of borewell bits and
hydraulic systems continuously increased from 1980 on-
wards, The entrepreneur of PE decided to set up additional
and complementary small scale units to meet the
increasing demands. Furthermore, needs for different units
were felt because manufacture of different products
involved different special operations/machines. Accord-
ingly, in addition to the PE, he set up Micro make
enterprises in 1987, the Chamundi Engineering works in
2000 and the VST Rock drills in 2003. In 2005, the PE won
ISO 9000 certication. In the same year (2005) he set up
vertical milling machine centre with BFW charka models
worth US$ 0.96 million (CNC machines) in the premises of
PE.
The ow of production tended to be across the units.
The different units were registered as separate units. In
each of these units production engineers were recruited
and posted. Altogether they have 3 BE graduates and 8
diploma holders. Today the ve enterprises of the group
have grown in size and their size indicators are shown in
Table 3. There were not many logistic problems as these
units are located close by in the Rajajinagar Industrial area
of Bangalore.
His clients include major Public Sector Undertakings
(PSUs) located in the city such as Bharath Electronics
Limited (BEL), Bharat Earth Movers Limited (BEML), Na-
tional Aeronautical Laboratory (NAL), Gas Turbine Research
Establishment (GTRE), etc. PE has received recognition
fromall these PSUs. PE manufacture against orders. Initially
they made press tools for cold press working (for various
makes). However, they manufacture drill bits in various
sizes (1
00
to 14
00
) and types in batches and inventory
Job
component
drawing
Customer
Others (R&D Organizations)
Clutches
drawing
Field
Trials
HP
Export
Enquiry
Enter
Export
market
Interaction
Trials
Expand
Foreign
Market
Expand
Indigenous
Market
BSC
General
Engg.
Manufacture
components
Develop
Clutches
Develop
Products
Update Tech.
CNC M/c.
Develop
Engine Block
& other Auto
Components
Update
Tech.
VMC
Reverse
Engineering
GTTC
CMTI
NTTC
HP - Hand Pumps
BSC - Burji Speed on Clutches
Opportunity
Fig. 1. Burji speed on clutches (BSC) the innovation chain.
K.N. Krishnaswamy et al. / Technology in Society 38 (2014) 1831 23
them in the lean periods for delivery in the peak season
(usually summer). The hydraulic systems are manufactured
purely on order basis, and are marketed by another agency.
The rm designs and develops complete hydraulic
hammer systems. The rm gained good developmental
experience in the 80s. The successful development of a
major hammer using reverse engineering done in 1984/85
was a major prompter of his innovation. To acquire addi-
tional protability, he was prompted to develop new de-
signs for new products. He has understood the value of
market acceptability in developing his innovation. He un-
derstood the value of quality for business success through
good designs. According to him practical knowledge is
more important than theoretical knowledge based on
technical degrees.
There are 14 component items in hydraulic hammer
assembly. Initially a sample was used to be given to him. His
innovation took on the major route as: Sample Copy
Modify Trial Tenor Design of Working Product Own
Design and Innovation. Copying was a fairly straight-for-
ward effort. But use of the bits and the hydraulic hammer
system encountered large combinations of the needed
Technology
update
Growth
Product
range
Enlargement
2
nd
Tech.
update
Export
customer
satisfaction
Development
of Engine
Blcok
Export
enquiry Clutches &
Auto
components
Indigenous
customer
increase
Customer
Orientation
Jobbing
Experience
Education in
Business
R&D
Interaction
Set up
own Co.
(KSRTC)
(MAD)
Auto
Components
.
.
.
MAD - Manufacture against Drawing
Customer
satisfaction
.
.
Pumps
Fig. 2. Cognitive map of the entrepreneur of the BSC.
Table 3
Growth of Prabhu Engineers.
Name of Enterprise Labour Investment Turn over
Prabhu Engineers (PE) 18 US$ 0.3 million US$ 0.4
million Chamundi Engineering
Works
18 US$0.2 million
Micro make Enterprises 10 US$ 0.12 million
Santosh Engineering
Works
12 US$ 0.16 million
VST rock drills 6 US$ 0.012 million
Common ofce staff 8
K.N. Krishnaswamy et al. / Technology in Society 38 (2014) 1831 24
changes in the components. The design of matching com-
ponents had to be altered and the required performance of
the hammer assembly had to be obtained rst in the trial
and error experiment in the shop oor and then in the eld.
The eld conditions are wrought with many kinds of
complexities such as number of layers of crust and then
crust thickness, size of grains etc.
When multiple bits are embedded in the hammer head,
in some cases it was necessary to keep the hardness of
different bits at different levels in order to get best results in
drilling. The trial and error process which was necessary to
achieve the optimum combination gave the entrepreneur
of PE a lot of insight into the redesign of hydraulics ham-
mers. This was, in his opinion the best innovation carried
out by PE. This innovation led to many hybrid type design
implementations in a wide range of soil and geological
conditions affecting the drilling operations. Another major
innovation achievement was the development of parts
made by them as required by BEML, Mysore engine divi-
sion. BEML provides them with drawings, components and
if necessary, discuss the process and provide gauges. BEL,
Jindal, Vishnu Forge are all their present customers and
they provide good technical support to them.
The entrepreneur of PE claims that his company also
specializes in process innovations. They do manufacturing
against customer orders (job work) only. Innovations con-
sisted mainly of replacing jig boring operations by simple
engine lathe operations using general engineering set up.
This saved considerable investments and reduced the cost
of operations. The entrepreneur of PE found that in most
orders while he was aiming at the modication of the
products, the PE really did a lot of process innovations.
Most of the designs new to PE required considerable
reverse engineering efforts and with limited specialized
equipments, considerable process innovations resulted in
enriching the worker skills and expanding their capability
to execute product modications in an innovative way.
Roughly one third of PEs sales revenue is accounted for by
innovated products. The entrepreneur of PE prides over the
fact that they have not failed in any assignment which
involved production oor experiments and changes in
processes.
Service quality and prompt delivery are important for
success according to the entrepreneur of PE. This is ensured
by PE through commitment to work and to schedules. They
ensure quality by in-house empirical testing (both of drill
bits/and hammer systems) in the presence of customers,
tests include testing life of borewell bits (bits can generally
be used for a drilling up to 1200 m whereas the hammer
system can be used up to 10,00012,000 ft).
Summer (just before monsoon season) is the peak sea-
son for the demand of boring operations. The peak season
varies from state to state depending upon the cropping
patterns. The PE keeps the boring bits in inventory to
facilitate quick and timely supplies during the peak season.
The manufacturing of bits is scheduled in the off-peak
season so that there is some equitable load on the facil-
ities during the entire year. In this connection it is relevant
to note that they meet all the requirements of BEML for
their earth drilling and moving equipments. The word of
mouth helpful communication from BEML led to other
PSUs approaching the company for their requirements.
BEML praised PE for their services and helped them in the
past in locating other customers for them.
The PE has a marketing department which is primarily
concerned with locating sources of demand for their
products i.e. from borewell companies. A constant assess-
ment of requirements is carried out and any small variation
in demand estimates are closely watched and monitored.
For all the expansions of manufacturing facilities and
adding units the company depended heavily on private
loans as the entrepreneur of PE found getting loans from
public sector banks extremely cumbersome and slow. He
took full advantage of BEMLs vendor development
approach and obtained help in the form of training his
workers, guidance in manufacturing and manpower assis-
tance and obtained material rebates from suppliers.
5.2.1. Case analysis
This is a case in which the entrepreneur having no
family business ties or advantage embarked on building his
own business. He was not technically qualied and had
little education. He migrated to Bangalore and worked
opportunistically on press tool making. With his diligence
he developed technical skills in the same eld. Recognized
demand opportunities for drill bits and hydraulic drilling
systems, he set up a small rm with the help of relatives
and with hardly any staff. After a couple of years he gath-
ered some staff and as demand increased set up additional
small units in the same locality. He provided them with
production engineering graduates and modern machines of
different types to cater to the variety of drill bits and hy-
draulic systems.
PE believes in learning by doing and looks skepti-
cally at the practical ability of technically qualied people.
PE conducts a lot of shop oor experiments, as a true
innovator and has practiced reverse engineering by trial
and error and successfully innovated drill bits/drilling
systems to suit different soil conditions and use conditions.
PE accepts that its customers have taught the CEO all that
he knows about the products. He prides himself in the fact
that he never failed in meeting any of the customer de-
mands even when they involved innovative efforts, many
experiments and trials. He has stuck to his main product
lines. Customer interactions/successful eld trials/
production oor experiments have led to product in-
novations via process innovations (Fig. 3).
5.2.2. Cognitive map of the entrepreneur of PE
The entrepreneur of PE is expecting orders from Ger-
many and is developing his company with his sonwho is an
MBA. His aim is to ensure that his rm will face the future
challenges through recruiting engineers and his son to lead
the company later while he still remains as a guiding
champion of the rm.
Choosing a product purely according to his technical
experience initially was the technical motto of the entre-
preneur of PE. He focused all his design and innovation
efforts on reverse engineering (from samples) strength-
ened by shop oor trials and concentrated on process in-
novations. The entrepreneur of PE learned by copying and
K.N. Krishnaswamy et al. / Technology in Society 38 (2014) 1831 25
went beyond it by shop oor experimentation. In this he
reinforced his efforts by customers views and interactions
and aimed at product innovations through them. Customer
satisfaction was all that mattered to him. He achieved it
through eld trials and open trials. He creatively expanded
the plants to meet additional demand (Fig. 4) which led to
the growth of PE.
5.3. Case 3
The entrepreneur who set up KLN Engineering Products
(KLNEP) in the late 1950s is an engineer. He had worked as
a tribologist (a tribologist is on who applies the principles
of friction, lubrication and wear in Engineering industries)
in Tata Engineering and Locomotive Company (TELCO)
which was producing auto components. Air and oil lters
used in automobiles were being imported by TELCO. The
entrepreneur of KLNEP decided to manufacture lters
indigenously and supply to TELCO. With the encourage-
ment of TELCO, the CEO set up KLNEP as an ancillary unit of
TELCO. Initially KLNEP manufactured depth lters but in
the early 1970s TELCO shifted over to paper lters.
Accordingly KLNEP switched over to paper lters but this
was not for long and in the late 70s the entrepreneur of
KLNEP passed away.
The wife of the entrepreneur of KLNEP, had a Masters
degree and took over the company in 1979 managing the
rm until 1982 when her son joined the company after his
graduation with a B.E. in Industrial & Production Engi-
neering from Dayanand Sagar College of Engineering,
Bangalore. At that time, KLNEP started as a supplier of
automobile components to TAFE (Tractors and Farm
Equipments) and Simpson, as major customers. The major
product, however, remained as lters. At present the
entreprenuers son is the Managing Director of KLNEP, he
will be referred to as Mr. NL.
In the 1980s, KLNEP did not bother about product
development or innovation due to the lucrative market it
enjoyed. In the 1980s they thought of innovation for the
rst time because of growing market competition and
technically varying customer demand. However, the in-
novations were conned to small and minor changes. There
were many reasons for this changed scenario. Since price
competition became strong, the need to reduce costs was
felt by the rm. The product variety (lters) increased due
to the growth of automobile industry and the need to suit
the different varieties of application arose. Newusers under
different eld conditions like newengines, newvarieties of
fuel and engine oils needed changes almost continuously in
minor ways. The products had to be exible to t multiple
users.
In 2000, they developed a new design of a product it
was a dry air cleaner. But this product did not take off in the
market because its design was faulty. The development of a
newdry air cleaner was based on a design froma published
technical literature and was done somewhat in isolation of
customer interaction and knowledge of customer require-
ment. The design thus tended to be faulty not in basic en-
gineering but from the point of view of suitability in
customer use. When customer requirements were specif-
ically considered and the redesign was nalized, it became
a success with TAFE. TAFE started absorbing 100% of these
products produced by KLNEP to meet their needs. KLNEP
could redesign (innovate introducing minor changes) this
product for other customers too.
The advantages of both depth lter and surface lter are
carried to the second stage lter design. This is a hybrid
lter. Hybrid lter was developed in 2002. This is very well
accepted in the industry. ACzech expert working with TAFE
had worked closely with MR. NL for the development of
this product. The hybrid lter was about 20% more
expensive but highly efcient. In 2002, they had obtained a
Customer
Job
orders
Increased
demand &
clientele
Customer
interaction
Successful
trials
Customer
interaction
Successful
field trials
PE
Expansion
of facilities
DB manu-
facture
Dev. of
composite
DB
Reverse
Engg.
New
design
Production
floor expts.
Process
innovation
Experience
in Press Tool
making
Learning by
doing
.
.
. Prabhu
Engineers
Fig. 3. Innovation chain (incremental innovation).
K.N. Krishnaswamy et al. / Technology in Society 38 (2014) 1831 26
patent for their products. One of the process improvements
achieved by them was the substitution of steel by
aluminum in lters and mufers.
At KLNEP all designs are usually validated using inter-
national design specications. Though, in some cases, the
product met international standards, as tested by the rm
they were unsuitable for use in Indian conditions. The
products passed laboratory tests but failed in eld trials.
Design changes had to be improved, in interaction with
customers to make themworkable. A composite design had
to be developed as in the case of depth lter in which the
features of two disparate designs had to be integrated. For
example, the ratio of coarse particles to ne ones in air
varied from 10% to 90% in the use of air cleaners. This also
necessitated changing the lter paper so that the lters
could be reused efciently. Further, the shape of the lter
paper also had to be modied to suit different devices so
that the ow in ltering process was of suitable speed.
KLNEP got its rst patent in 1996/97 and a second in
2000 for medical devices. Both of these products were not
commercially successful. They were developed with
interaction with medical experts but without much
customer interaction. Moreover, it was a eld totally newto
them. It was more a technological challenge than a strict
commercial production innovation. Reverse Hydrocon was
patented in 2002. The entire technological capability of the
company is centered around Mr. NL, who acquired tech-
nical expertise over a period of time by working in the
company. He did not have any formal training. Mr. NL felt
there was no dearth of technological information obtain-
able for innovation purposes or for that matter to help in
the form of ideas and services. Many times, he bought
testing meters from competitors. Exchange of information
among competitors is common. Mr. NL talks to his former
employees who have joined large companies.
According to Mr. NL, innovation is developing an
entirely newproduct design. Demand from the customer is
the prime motivation for this innovation. Thus, innovation
is primarily need based. For every innovation, they worked
very closely with their customers. In fact both of quality
improvement and innovative change are competition
driven. His enterprise has environmental concerns as well.
PE PRABHU ENGINEERS
Firm Growth
Profit
Customer
Satisfaction
Market
Growth
Field Trials
Customer
Interaction
Plant
Expansion
Product
Innovation
Demand
Assessment
(Marketing
Partner)
Personal
Experience
Choice of
Product
EST of PE
Process
Innovation
Shop floor
Expts
Reverse
Engg.
Copy
.
.
Fig. 4. Cognitive map of managing partner of Prabhu Engineers.
K.N. Krishnaswamy et al. / Technology in Society 38 (2014) 1831 27
He constantly strives for waste reduction. He does minor
innovations constantly. This is a must for KLNEPs success.
In this effort he has encouraged the use of value engi-
neering techniques heavily.
According to him, innovation is crucial for the growth of
an enterprise. For both of his products lters and si-
lencers, he faces tough competition from companies in
north India as those companies are able to get exempt from
duties and utility charges. Had there been no innovation,
Mr. NL feels he would have suffered against competition
from cheaper products. In the last 810 years, their
customer base has remained the same. This is because their
company has grown along with their customers, who are
major companies, such as Tractors and Farm Equipment
(TAFE), Simpson, Ashok Leyland, Lucky Goldstar (LG), Hin-
dustan Motors (HM), Cater Pillar India, Rane, Forbes, etc.
The only customer whom they could not retain is TVS-
Suzuki. They were supplying oil lter to Simpson and
later started supplying air lter as well. Air cleaners and
exhaust mufers supplied to TAFE. They established con-
tacts with TAFE through Simpson. Ashok Leyland buys
about 9095% of their lters. This throws light on the sig-
nicant role of innovation in the survival, success and
growth of an individual SME as experienced by Mr NL,
though this cannot be generalized in the context of all
innovative SMEs.
In the 1970s they started exporting their products to
Africa due to the entry of TATA into those countries, though
they have not developed any product exclusively for ex-
ports. In early 2007 they set up a unit in Sri Lanka with the
objective of serving their customers better, since they
export their products to that country. They are exporting to
Africa and Europe apart from Sri Lanka. Exports currently
account for about 10% of their total output but Africa is not
a major destination for their exports now.
They have developed multiple plants and currently,
they have a plant each in Bangalore, Chennai and Rajas-
than. The slow growth of demand and customers in
Bangalore alone, has forced them to go for multiple
plants. Location of multiple plants in Chennai and Alwar
(Rajasthan) apart from Bangalore, is the location of their
customers. Ashok Leyland asked KLN to open a plant in
Rajasthan. In Sri Lanka, they have about 4050% market
share. According to Mr. NL, the individual is the one who
drives an SME and its innovation. Innovation is mostly
related to cost. This is a constant process in which waste
reduction results in cost reduction. For this reason he
feels innovations are constantly happening on a day-to-
day basis. Mr. NL believes that even in a group engaged in
innovation, ideas come from an individual for a particular
innovation.
For SMEs, personal relationships are important for
success. According to Mr. NL, the chemistry of success is
notionally as follows: Innovation (40%) personal credi-
bility (30%) market condition (30%) 100%. There is a
specic reason for this perception of success. He feels the
leader/champion senses the sensitiveness of customer to
cost or quality or changed product and guides and drives
the small group towards it quickly. This entrepreneur feels
that quality is a factor more consistently contributing to
success than innovation.
The general operational problems faced by KLNEP are:
1. New plant location: situation near the customer con-
centration in order to facilitate customer interaction and
taking the product to user site is important for interac-
tion purposes location has to be determined on
customer convenience.
2. Innovation does not arise out of changes in customer use
or condition alone. It may arise out of packaging or a
change in one component. This necessitates the change
in others in an integrated assembly (as in the case of
mufers) which has to be carefully considered.
3. Changes are acceptable in lab or plant and not accept-
able in eld conditions and these have to be
investigated.
4. Lending machines to subcontractors for rentals without
distributing their own schedules seriously.
5.3.1. Case analysis
This is a case where the experience of the entrepreneur
in a large organization has led him to the identication of
(a) an opportunity of using technical skills protably for
developing his own business (b) a source of stable demand
for a product (lters) which could be extended and (c) the
critical encouragement of the parent company (TELCO).
The company had a set back soon, with the death of the
CEO but soon found in his son, a technical graduate to prop
it up and take it forward. The new leadership initially
concentrated on quality. However, soon in the late 1980s
the need for innovation was felt by him as competition was
increasing and the automobile industry was rapidly
growing. Initial innovative efforts were small and minor
changes.
Luckily KLNEP had developed a strong rapport with
many giant public sector organizations and private sector
companies to get orders. However, as perceived by Mr. NL
the relative need for each of the trinity of cost reduction,
quality and innovation was varying. This required a good
understanding of the customer needs, market uctuations
and the correct choice of the strategy to peg back compe-
tition. This indicates that the credibility of the entrepreneur
plays a central role. The subtle knowledge gained infor-
mally about demand variations, how the competitors are
aligning, what the forthcoming requirements of the cus-
tomers tend to be, becomes central in this. The market
condition is moving in several directions overtime and
pulls innovation efforts or quality improvement efforts or
cost reducing processing strategies to cope with varying
competition of sorts. The entrepreneurs credibility in the
SME industry, his sensitiveness to this movement of market
enables him to choose the right effort or strategy at a
particular point of time.
The rm moved from Manufacturing Against Drawing
(MAD) and Manufacturing Against Samples (MAS) in the
1980s to both process and product innovations by 2000 by
developing a Quality and R&D team. At the same time both
quality and price competition became strong and variety of
automobile air and oil lters increased thus simultaneously
involving efforts of incremental innovations to meet indi-
vidual customer requirements and quality at low cost to
K.N. Krishnaswamy et al. / Technology in Society 38 (2014) 1831 28
beat back competition. The innovation process itself was
highly customer induced with initial interactions and eld
trials to test the suitability of the innovated changes.
However, a lot of lab/shop oor trails were involved
actually.
KLNEPs efforts to develop new product designs based
on technical advice from doctors and supported by tech-
nical literature tended to fail in the market and was suc-
cessful only after the design were modied based on eld
trials during interactions with prospective customers.
These are highlighted in the innovation chain in Fig. 5.
5.3.2. The cognitive map of Mr. NL
Fig. 6 depicts the cognitive map of Mr. NLs perceptions.
He mainly perceived the strategies as (i) incremental in-
novations based on customer interactions and the R&D
team to meet varying customer requirements, (ii) design of
the lters, reducing the cost by using alternate material and
(iii) improving the quality of lters by redesigning their
structure. He felt an appropriate choice of the strategies (or
mix of the strategies) was possible only if he is able to
assess accurately the market conditions, to develop high
credibility with customers and to sharpen his technical
discernment.
6. Inferences and conclusions
The three cases demonstrate that SMEs in the auto
components industry of Bangalore are able to aim, plan,
strategize and implement technological innovations
successfully in terms of new product developments.
Entrepreneurial motivation was the prime factor which
was responsible for the emergence and implementation of
innovations in all the three cases. Entrepreneurs played an
instrumental role in recognizing market opportunities,
building up crucial in-house technological capability, sup-
plement it with appropriate external assistance, put in
place the process of carrying out technological innovations
including its modications to suit customer requirements
and nally deliver it to the market. An important feature of
these innovations is that constant interaction with its
customers is built into the system. This brings out that both
internal and external factors played a crucial role in the
planning and successful implementation of technological
innovations in SMEs. This answers our rst research
question.
Periodic new product developments have been the
performance indicators of their continuous innovations.
A natural development of this process of innovations is
the entry of these SMEs into the international market
which facilitated their learning process further. The
overall outcome of innovations is the growth of SMEs,
experienced not only in terms of factor inputs but more
importantly in terms of sales revenue. This answers our
second research question that technological innovations
do have a positive impact on the growth of sales revenue
of SMEs.
Furthermore, from the aggregate analysis of the three
cases we have tried to develop a theoretical construct on
the inspiration of the arguments of Eisenhardt [10],
Customer
KLNEP
(Incremental
Innovation)
KLNEP
(Radical
Innovation)
Change of use
condition
Failure in
Field
Successful
field trial
Market
rejection
Selected customer
interaction
Field
trials
Market
acceptance
Manufacture
Develop new
Design
Successful
lab trials
Modify design/
redesign
New product
idea
Basic product
idea
Develop
product design
Manufacture Eliminate Design
Lacunae
Supply design
(Parent
company)
Product possibility
(medical
specialist)
Technology
literature
Fig. 5. Innovation chain (KLNEP).
K.N. Krishnaswamy et al. / Technology in Society 38 (2014) 1831 29
Siggelkow [20] and Burgelman [4] on case studies. In our
view, the innovation process in a SME is an evolving pro-
cess with three identiable stages as outlined below:
In the rst stage, start up and/or in the immediately
following period, the company is protected by a defensive
strategy, sticking to standard products meeting the speci-
cations of an already existing product, substituting im-
ported material carrying out minor modications.
But in the second stage, the SMEs try to establish
credibility among the customers in the market niche for the
products it handles, by meting customers special re-
quirements arising out of changes in their technology and
product needs. Incremental innovation of a higher order is
the hallmark of this phase. Interactions with the customer
and customer acceptance and satisfaction play a dominant
role. Worker training becomes critical to develop innova-
tive skills. New technology like computer software im-
provements for quality gain and cost reduction are
attempted.
The credibility and support of the entrepreneur plays a
central role in the success of the SME. Suitable knowledge
of the demand variations and how competitors align for
forthcoming requirements of customers decides to be of
great importance in it. The choice of strategies of cost
reduction or quality improvement under varying compet-
itive forces at a particular point is critical to both innovation
and success.
In the third and nal stage, new markets, particularly
the foreign markets are explored. The rm tends to link
marketing and innovation strongly and projects its tech-
nological capability (in exhibitions and conferences). The
opening of foreign markets further boosts the renements
of process and product attributes and efforts.
In the light of these close observations and inferences,
we recommend an innovation promotion scheme as part of
Indias SME policy. Such a scheme must address the in-
house technological capability building requirements in
SMEs, information on kinds of external assistance that they
Growth
Target
Performance
Hold on to
the Major
customers
Diversify
Selectively
Customer
acceptance
Expand
facility
Appropriate
product
strategy
Customer
interaction
Cost
reduction
Quality
improvement
Competition
Assess market
condition
Develop
personal
credibility
Technical
qualification
Build R&D
Team
Incremental
innovation
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Fig. 6. Mr. NLs cognitive map.
K.N. Krishnaswamy et al. / Technology in Society 38 (2014) 1831 30
can access, workshops to motivate dynamic entrepreneurs
to undertake innovations, involvement of banks in
extending support to innovative SMEs, linking large en-
terprises with SMEs having threshold technological capa-
bility, etc. Promoting SME innovations and SME growth
would contribute to the efcient growth of SME sector at
the aggregate and in turn industrial development of the
country. Furthermore, it would enhance the internation-
alization process of SMEs to the larger benet of Indian
economy.
Acknowledgement
This paper forms part of a research project on The In-
uence of Technological Innovations on the Growth of
Manufacturing SMEs sponsored by the Department of Sci-
ence & Technology (DST), Government of India. The views
and analysis contained in the paper are those of the authors
and not that of the sponsor. The usual disclaimers apply.
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