Indian Firms, Where Innovation Goes to Die

The Navi Radjou at the Harvard Business Blog writes about the dearth of innovation going on in India. It's a structure problem according to the analysis. The culprit works out to be family-run, risk adverse firms with nepotistic power structures.  

No doubt. 

The solution: bring on "Web 2.0" software to break apart the power structure and liberate the wisdom of crowds. 

No doubt, again, except....

...it seems to me that the real culprit is the "family-run, risk adverse" part. These power structures form when shareholders have few legally enforceable rights, so power is only transferred from an owner to trusted family agents, regardless of skill.  So you, the clever underling will never get at taking the reins of the company, lessening your desire to take on the risk of dramatically changing the direction of a firm.  (The counter point firm, Nokia, is not a "family-run" firm).

All the software in the world can't release innovation without incentives on the part of your clever workers, and in fact, the lack of leadership opportunities likely creates pressures on clever employees to take their ideas outside of the firm.  (It's interesting to note that overall innovation is strong in India, just not within established firms - with  venture investments in 2007  up 166% over 2006)

My takeaway - software is great, but culture and structure are far more important determinants of entrepreneurial success in a firm.  Firmer rule of law would free up the family-restricted transfers of power, and open up new incentives for Indian workers to donate their ideas to their firms.