What are the broader lessons that Western executives should learn from this TATA NANO innovation story?

Emerging markets are a fertile ground for innovation. The challenge of reaching dispersed, low-income consumers in emerging markets often spurs significant innovation. Western executives should be careful about compartmentalizing the impact of these innovations on the edge of the global economy. As we suggested in Innovation Blowback, these innovations will become the basis for "attacker" strategies that can be used to challenge incumbents in more developed economies. What's initially on the edge soon comes to the core.

 

• Find ways to help customers and others on the edge to tinker with your products. Modular and open product designs help engage large numbers of motivated users in tailoring and pushing the performance boundaries of your products, leading to significant insight into unmet customer needs and creative approaches to addressing those needs.

Pay attention to institutional innovation. Western executives often become too narrowly focused on product or process innovation. Far higher returns may come from investing in institutional innovation-redefining the roles and relationships that bring together independent entities to deliver more value to the market. Tata is innovating in all three dimensions simultaneously.

• Rethink distribution models. In our relentless quest for operating efficiency, we have gone for more standardization and fewer business partners in our efforts to reach customers. As customers gain more power, they will demand more tailoring and value-added service to meet their needs. Companies that innovate on this dimension are likely to be richly rewarded.

John Hagel and John Seely Brown are co-chairman and independent co-chairman, respectively, of the Center for Edge Innovation, a part of Deloitte & Touche USA LLP. John Hagel writes a blog at Edge Perspectives .