Interview with Vice Admiral (retd.) Mr. B. Kannan, CEO & MD, L&T Shipbuilding)

1. Congratulations on the recent feat achieved by L&T Shipbuilding, you have set a new benchmark for fastest delivery of "first of class" defence ship - the Offshore Patrol Vessel ICGS Vikram! Considering that the vessel has been indigenously designed, developed and manufactured by L&T, there must be a lot of Intellectual Property (IP) involved in the project. What strategy does L&T adopt in protecting its IP?

Thank you and that's a good question put forth. For an industrial organisation like ours which makes ships to be operated and maintained by the navy or the coast guard, there is a fair amount of sharing of information and knowledge with the customer. Unlike any other product where the information divulged by the manufacturer is essentially for the customer to use it, in our case, it is not just a question of using the ship, but exploiting the ship for the various operational roles it has been designed for. Exchange of information with the customer in matters of the capabilities and the potential of the equipment under different conditions is vital for us. In pursuance of the same, a lot of internal information of the organisation needs to be shared with the customer. in regard to in house capabilities for maintenance(know how of the equipment, interfacing, testing of certain parts, etc.) and various repairs to some level if the ship sets sail for 15-20 days. It is a custom made design and also inherent that certain information gets exchanged between the customer and manufacturer. An additional issue is that these ships are expected to be maintained by the navy and coast guard, especially when they are going to be out at sea, so they need to have in-house capabilities for maintenance & repair to some extent, and this requires a clear idea of how the equipment is integrated or interfaced and how it can be tested, repaired, etc. So a defence vessel as such requires fair amount of sharing of data and information between the customer and the manufacturer. It is intrinsic to this type of item being made, and we are anyway making the item as per their specification and requirement of the customer. Now how does L&T still protect its IPR is your question. One would expect that if you want to give a lot of information to the customer to meet all this exploitation requirement, there is nothing left here which you have not shared. But internal to us, there are aspects regarding design, production and trials which are strictly internal to us and is not shared with the customer. The information shared to the customer, in the form of a user manual, is strictly on a need-to-know basis. So when we prepare the user manual, we keep in mind what the customer wants to know and disclose information depending on the wherewithall of the customer. So when it comes to maintenance and repair of the ship, it will be done at the crew level first, if it's not fixed at that level, then it will be referred to a shore based unit which has additional skill sets for repairing, and subsequently to the original equipment manufacturer if the shore based unit is unable to fix it. That's called the philosophy of maintaining a ship - the information disclosed to a person is dependant on the level of knowledge required for him to know, and not the entire information about the ship. So preparing the user manual is an art as the filter which comes between what the designer knows and what he puts in the manual is where the protection of IP takes place and this filter is achieved by a series of internal vetting at different levels. Now most of the IP generated in our organisation is very tacit, i.e. it is at the individual's level in the form of knowledge acquired by the designer and it is proprietary to him at that point of time. Through our internal efforts, we make sure that the individual knowledge is integrated with organisational knowledge because the knowledge acquired by the employee is due to the opportunity given by the organisation in the first place. So this is done through documentation and peer review and executive review of the documentation created. Now another strategy we adopt with respect to protecting our IP is internalisation of the documentation created and ensuring strict control on the documentation at all times to restrain external circulation of it. Design and production are the two areas where our IP is concentrated in and as I mentioned, there is strict control over what information is passed on from design to production - what goes to production is only a subset of the entire knowledge we have acquired. So the information flow is again on a need-to-know basis. We also try our best to ensure that the team having a control over the activity is retained within the organisation so that the knowledge remains within the organisation by taking good care of our employees, providing them adequate training and opportunities - that's our strength. So we internalise design and production knowledge such that the knowledge is trapped within the organisation.

2. It is a common conception that trade secrets are of more relevance in the defence industry than patents. What is your view on that?

There is a patent requirement only when we have evolved a new method of designing or testing or calculating something, which is exclusively made by us such that we have a sense of ownership towards using the same. But I have so far not come across any patent related to shipbuilding that has been filed by our company. Could it be there? Yeah, I suppose it could be there, but we have not come to that level where we find that it is necessary for an invention to be patented so as to keep the ownership of the rights and assign it to people who would like to work the invention for their benefit. I would think patents would be applicable more in improved design schemes, some ways of testing equipment, etc. But given that there is a fair amount of competition in this industry, with that comes the mindset that suppose an invention proprietary to us is shared, it is easy for a competitor to replicate or modify or improve it, and then the competitor has a better chance of getting the market which we are at the moment sharing. So there is a fair amount of fear that you may lose out on your competitive edge in case you go for patenting, as a lot of information should be disclosed, which we may not want to do. So the emphasis is on trade secrets rather than patents.

3. L&T is one of the few OEMs that is uniquely placed to address complete value chain of Defence Shipbuilding (from design to manufacturing & construction to life support). In fact, L&T is said to have raised the bar for the other defence shipyards in the country by delivering vessels of perfect build quality. What sets L&T apart from the competition?

Being the only ship yard in India which does complete in-house design of a defence ship, our primary strength is organisational knowledge, which comprises of a complete package of talented, skilled and experienced people that our craft carries, which enables us to design a ship entirely. The second biggest strength is the infrastructure, especially our production facility which is configured to maximize productivity and deliver enhanced operational efficiency. Our third strength is a recently acquired capability - digitisation. We have implemented a live digital bonding between the shipyard and the design house that has enabled us to be more efficient and productive. Throughout the production process, information is tracked and every small detail is codified. Such information is then used for production, planning , procurement, quality control, etc., and as it travels through all these gates, it is all monitored in a live manner. So this digital back bone that we have created, helps us monitor various activities live, at different phases. Dashboards are created with the information assimilated, and at the click of a button, the problem or shortfall can be identified, without wasting much time. We therefore don't spend time in trying to find the status of the problem, rather we spend time on how we can solve it. We also de-risk our designs to bring about a concurrency between design and production, to be able to deliver vessels ahead of time. De-risking a design means making sure that the design does not have any pitfalls, and it is done through a strong review system comprising of peer review, senior level review, expert review, a composite review, etc. It requires attention to detail and commitment from every person at every level. To sum up, these are mainly the factors that set L&T apart from its competition.

4. What are some of the major challenges that L&T Shipbuilding faces? Is vendor development one of the challenges?

Firstly, L&T Shipbuilding only undertakes defence projects. Although we are one of the major private sector shipyards (at the moment we are number one by demonstrated performance), we are still a minority in Government ship building programmes because the Government has its own public sector shipyards to which the Government gives high value contracts on a nomination basis but when it comes to us, we need to compete through tenders in which the public sector shipyards are competing as well, and we get the contract only after winning the tender. Now since the public sector shipyards are already flushed with orders and have a comfortable cash flow, their approach towards the tender is entirely different from the private sector shipyard which does not have a comfortable cash flow situation as it has invested heavily on infrastructure and is looking for the order, to achieve a break-even or some profits. So our first major challenge is the disparity between nomination and competition.

Another challenge that we initially faced was that the Government gives contracts to shipyards to build ships that match their individual capability, and capability cannot be demonstrated unless a contract is given in the first place. So the solution to this problem is that the Government gives simple/ small orders first and then based on the performance, will differentially increase the complexity/ magnitude of the orders. L&T has so far come out with flying colours in our performance on differential building. The graph or trajectory over the last six years has been truly good and has outstandingly met all the timelines along the path, which stands out from competing shipyards. So we are a minority not only with respect to being a private sector shipyard, but also when it comes to demonstrating performance. This attracts a lot of attention and also bring along with it, some complexities.

Third point is that for public sector shipyards, the entire infrastructure belongs to the Government and is free of cost, whereas for private sector shipyards, it is hard earned money which is invested, for which some interest has to be paid or kept aside. So in a nut shell, it is not a level playing field because even the cost approach is different as the public sector does not have to factor the infrastructure costs while the private sector has to. This is a complex issue that has to be untangled and the disproportion between the public sector and private sector competing for the same tender should be bridged.

Although we are far less experienced than the public sector shipyards, that has never been a challenge for us as we have bridged the difference in experience through earnest efforts, skill sets, and our leadership.

Another challenge is that L&T has a huge brand image, and the recognition that they can do nothing wrong or shoddy. It is nice to have an image like this but it is also a huge challenge because you cannot afford to complete projects behind time or of poor quality. The public also expects the same. So its very important for us to make sure that we don't falter, and are conscious at all times, of ensuring that this image is not dented. Another related factor is that L&T has a spectrum of diverse actions like construction of airports, bridges, large buildings, etc. In this wide canvas, shipbuilding is perhaps the baby, i.e., the youngest wing. So for us, it is a challenge to ensure that we keep up the brand image at all times.

Now to answer the next part of your question, is vendor development one of the challenges; vendor development has always been a challenge because vendors find it difficult to survive in the defence environment. So to develop a vendor, we have to make them a business partner first, to ensure that there is a partnership with the vendor and that he benefits by being with us. Benefits have to be mutual, so we ensure that we provide managerial attention to his requirements, such as making sure there are no delays in payments from our side, giving adequate technological training if he requires it, ensure that he adheres to safety norms and his employees are adequately safeguarded, etc.

5. Has L&T Shipbuilding experienced instances of IP violation? If yes, how did you deal with the same?

IP violation in the form of knowledge leakage, takes place despite incorporating confidentiality clauses in our employment contracts, either inadvertently, forcibly, or sometimes by a former employee who utilises the knowledge he has acquired during the course of his employment at L&T, in his new job. So far we have not progressed against IP violation legally, however, we have brought about stringent control over internally generated documentation, as that is the explicit form of knowledge. We ensure sufficient control over documentation and the access to information or knowledge is strictly on a need-to-know basis. We have additionally adopted several network security measures to keep a check on unauthorised sharing or access of information. We keep improving and accordingly adopt new security measures dynamically, as we go along.

6. How do you perceive the ease of doing business in the defence sector in India?

On a scale of 1- 10, I would say 5.5 at this point of time. Now much of ease of doing business is related to the transparency of the selection system. I think DPP 2016 is a good procedure, there is transparency, but it is flawed. One major flaw being inequality with respect to a level playing field. As long as this flaw is not straightened out, achieving 6-7 on the scale would be difficult because although every contract would bring in a lot of opportunities for business, reaching the contract stage with all these hurdles due to the non-level playing field will be a challenge.

7. What would be your advice to MSMEs looking to establish themselves in the defence sector?

2 Ps - Patience and Perseverance. I'm sure it's tough everywhere, but I know for certain that it's almost like breaking the glass ceiling in India. Firstly, the gestation period of the product to be tried and tested is very long as the product is put to test through a series of trials, making the prototype testing a long drawn activity, and the MSME does not have the bandwidth for this. Take the example of an equipment that is fitted on an armoured vehicle. The prototype testing will involve a first round of testing at summertime in a desert, then at wintertime in the mountains, then at monsoon in the plains. So the MSME has essentially lost seasons in the testing of the prototype itself. So the fact is, there are many layers of testing which necessitates a long period of time and the MSMEs cannot afford the time as well as the investment that comes with it. So I say perseverance because the MSME has to put continuous efforts to ensure the availability of resources and equipment for repeated testing, across places. Now, how can this period be shortened? I would say, try and use simulation to test the item initially. If it clears 70% confidence level, then perform the real-time testing. So with minimum effort, products can be selected or rejected and MSMEs can be told to improve upon if need be. Another major challenge is that the specifications are very stringent on paper and is not pragmatic. So this makes it very difficult for the MSME to perceive the specifications in the first place, and thereafter ensure that the product meets the requirements, especially when there are no facilities to simulate the conditions to test the product. So be patient until things change and become more efficient, and have the perseverance to withstand challenges until then, because things will definitely change for the better.

The MSMEs are a brave lot to have not gotten dissuaded by all these challenges, but they require added elements such as guidance & awareness programmes to help them achieve what's hindering their growth. The customer, i.e. the Government has a large role to play here, especially by being more pragmatic with the specifications. Even the indigenisation drives of development of defence equipments through MSMEs are largely for substituting an earlier imported equipment. So the challenge here is that the specifications cannot be laterally shifted as what you are trying to substitute is of a different era and technology, and despite this, the specifications are stringent. The tier 1 and tier 2 companies always invariably take care of their MSME suppliers because if they fail to supply quality products in time, it can delay or directly affect them from fulfilling their orders. But wherever the Government directly goes to the MSMEs for import substitution, the MSMEs face a lot of these challenges, so the Government has a huge responsibility to mitigate these challenges for the MSMEs.