Developing the Tata Nano: Product Development Lessons from an Innovative Product

“I observed families riding on two-wheelers—the father driving the scooter, his young child standing in front of him, his wife seated behind him holding a little baby. It led me to wonder whether one could conceive of a safe, affordable, all-weather form of transport for such a family.”

 
Those are the words of Ratan Tata, spoken at the introduction of the Tata Nano at the Delhi Auto Show in 2009. They resonate with the importance of the combination of vision and innovation in bringing any new product to market.

The Nano–the world’s most affordable car–is a vehicle that revolutionized the rules of automotive design and manufacturing, and created a totally new market, where none existed before. The lessons we at Tata Technologies learned from our work in support of Tata Motors on this landmark project are meaningful throughout the worldwide automotive industry–and, in fact, any industry.

Engineers and consultants from Tata Technologies were engaged throughout the product development process–from concept design to the production launch. We took the approach that low-cost products are not just about reducing the cost of design and manufacturing, but more about delivering high-quality, innovative products that address customer needs. The result is a real car for the Indian market. It accommodates four people comfortably. It’s fuel efficient, delivering more than 50 mpg through a 2-cylinder aluminum 624-cc gasoline engine. It’s safe, meeting all safety regulations in India; and it’s clean–meeting Indian emissions standards and Euro 4 requirements. It has a top speed of approximately 65 mph. It delivers all of this for less than $2,500 (1 lahk).

Let me give examples of innovation and frugal engineering on the Nano by contrasting two sub-systems with conventional vehicle sub-systems.

First, the seating assembly. Take a look at your own car; its seats benefit from a considerable amount of foam. Aesthetics are enhanced by plastic trim, and most vehicles include costly seat fabric. The seat frame is made up of pressed metal, and there is a fairly sophisticated seat track and recliner mechanism.

Nano foam is kept to a minimum. I’ve taken the vehicle out on the test track and it’s extremely comfortable, but seat padding is very efficiently designed. Part count is kept to a minimum, so there are very few plastic covers. The headrest is integrated into the seat. Metal tubing is used instead of pressed parts for the seat frame, and the tracking and reclining systems are rudimentary and mechanical.

A typical tailgate is designed with struts and hinges for lifting. It is made up of multiple body panels, sophisticated mechanisms and trim accessories to improve aesthetics. In addition, the frame surrounding the tailgate needs to be stiff enough to sustain the “slam” of the tailgate.

The Nano tailgate is fixed–it doesn’t open. There are no sophisticated mechanisms, it’s a single body panel and there is no special requirement of the tail post and the body, as no “slam” is involved.

All this because throughout the process, we kept in mind the customers, and the mandated price point for the vehicle.

Importance of Vision
Mr. Tata’s vision was responsible for the Nano. It was not derived from market research or focus groups. It came out of Mr. Tata’s desire to help an important demographic in India–low-income families that could not afford the $5,000 price of what was previously the cheapest car in India.

Through an innovative approach to design, engineering and manufacturing, the Nano has created a new category of Indian consumer. Every year in India, 6.5-million motor bikes and motor scooters are sold, while only 1.3-million cars are purchased. The conversion of motor bike and motor scooter drivers into car drivers represents a huge market potential.

What do your customers need and want? What can they afford? The customer was ever-present in the development of the Nano. Its price was not set by calculating the cost of production and adding a margin. Rather, it was set at $2,500 as the price that customers could pay and then we worked back. Nano engineers and partners didn’t simply strip features out of an existing car; the tack that many automotive OEMS take when entering the Indian market. Instead, we looked at customers’ lives for cost-saving ideas.

Low-cost solutions were developed, aligned with customer needs. For example, the Nano has a smaller engine than other cars because more horsepower would be wasted in India’s jam-packed cities, where the average speed is 10 to 20 miles per hour.

Rethink the Supply Chain–Learn from Other Innovative Business Models
Understanding the voice of the customer is important, but equally important is to understand the supply chain to support the launch of low-cost products. Looking upstream, Tata brought in suppliers such as Bosch and Delphi in early-stage development, challenging them to be full partners in the Nano innovation by developing lower-cost components. The focus was on how to address the product challenges together and how to drive mutual success.

Consider this interesting fact: 50% of the Nano’s components are manufactured by German companies. If most of the intellectual property and technology for the Nano is from Europe, why was this innovation born in India?

If a Western car company was challenged to develop the “lowest-cost car in the world,” the end result would be priced just under the competition and with just enough stuff to give it the feel of a high-end car. It wouldn’t be able to come up with the type of disruptive innovation that has allowed Tata to introduce the Nano at 50% less than the Suzuki-Maruti, which was previously the cheapest vehicle in the Indian market.

The Nano is not only an example of innovation, it’s an example of what India can do. India is a country that has grown out of scarcity. The low-cost mindset is part of an Indian engineers’ DNA. This is the reason that innovation leaders such as the SAP, GE and Cisco have transferred their innovation centers to India. We should all pay attention to Indian innovation–in all sectors. Currently, Tata BlueScope Steel is constructing low-cost steel housing–two- to three-bedroom flats–for lower-income families starting at $5,000 (2 lakh).

Additionally, a number of Tata group companies have collaborated to bring to market in India the Swach water purifier. A device that is improving the lives of low-income families in India immeasurably, by providing fresh drinking water for an initial investment of only about Rs 900, and at an ongoing cost of only about Rs 30 per month for a family of five.

These are concepts similar to the Nano, and inspired by the same commitment to vision, innovation, and sensitivity to customer need. For companies that are keen to exploit the growth opportunity in the developing markets, I encourage leveraging India for the type of innovative, frugal engineering capabilities that enabled Mr. Tata to keep his promise and bring the Nano to the market at $2,500.