Archive for the ‘Innovation’ Category
Building Blocks of Innovation
This post is contributed by Villgro Fellow, Jeanne Chen.
A few weeks ago, the Wall Street Journal (WSJ) featured an article: “The Origins of Good Ideas” discussing how many successful innovations aren’t revolutionary, but rather built on existing products. The premise: Existing Products + New Idea + Modified Application = Innovation. The corollary is that new ideas result from cross-industrial applications – the article gives the example of using a motorcycle battery to power an infant warmer. This example and conclusion should be familiar to those in India’s social enterprise sector, where adapting motorvehicle batteries has created a reliable source of power in rural districts. What’s critical to note from the article’s examples is how innovation often arises from sharing ideas across industries, which highlights the importance of bringing ideas together to facilitate innovative adaptations.
In my opinion, this facilitation of idea sharing is one of the more valuable and intangible differentiators of social incubators like Villgro. Bringing together innovations from multiple disciplines, incubators can furnish a fertile environment for new ideas to develop. While incubators can actively facilitate cross-pollination of ideas as part of a recommended course of action, many times the facilitation is passive simply by creating a network of innovators. For example, Villgro’s annual Unconvention social entrepreneurship conference hosts InnoHub, specifically for nurturing partnerships between innovators and entrepreneurs. The exhibition brings together Villgro’s network and creates opportunities for meetings and discussions, which can lead to an alternative application of an innovation resulting in meaningful social impact. In the larger social sector, this is a significant way for Villgro to contribute to the further development of new innovations.
Villgro also hosts monthly Learning Saturday Workshops for its incubatees and staff. Each month’s sessions focus on different themes of best practices, sectoral knowledge, and general social development information with featured experts and guest speakers. These learning sessions have a tremendous potential to help teach incubatees to improve or adapt their technology as well as to encourage staff to look at existing ideas with a fresh eye. From innovative marketing to design, having specific events for the entrepreneurial community to exchange ideas and knowledge helps the sector to apply new ideas to existing systems.
The conclusion of the WSJ’s article, while not a surprise, is a good reminder to all of us that we can all encourage more innovation through the facilitation of platforms for idea exchanges. Social incubators, like Villgro, have a unique advantage in bringing together their entrepreneurial networks and actively creating opportunities for those networks to interact is an important part of their core functions.
The Role of Civil Society in Affordable Housing
Contributed by Robert Moore
India recently saw a spate of announcements for affordable housing projects being launched in various parts of the country. So, what has led to developers getting involved with affordable housing projects in India? A closer look at some of these projects where developers are launching projects in the price range of INR 4-10 lakhs ($ 8000 – 20,000) shows that in most of these projects there is a collaboration with a Citizen Sector Organisation (CSO).
Read more about these potential partnership here.
Open Innovation: Innovation Through Networking
In this article, Vijay Rangarajan, a Villgro Fellow, takes a look at the ‘open innovation’ route to innovation, and looks at its relevance for social enterprises.
In 2004 Proctor and Gamble was able to accelerate the launch of their new line of crisps, Pringle Prints using a new approach to innovation – open innovation. P&G was looking for a way to introduce edible printing on to each crisp. The idea was to have trivia, pictures and words printed on each crisp. Rather than develop the technology in-house, P&G floated the requirement globally, and acquired the technology from a small baker in the Italian city of Bologna. Taking this route allowed them to take the product to market at a fraction of the cost of the traditional innovation model. The term ‘open innovation’ was first used by H.W Chesbrough, of the University of California, Berkeley in his book Open Innovation: The new imperative for creating and profiting from technology. Open innovation is defined as “the use of purposive inflows and outflows of knowledge to accelerate internal innovation, and expand the markets for external use of innovation, respectively.”[i]
Traditionally, companies follow the invention model to innovation. If it is a well established firm, they create infrastructure and recruit the best talent from their internal fund to produce innovative products. A fortunate startup or a mid-sized firm would do the same using the funds from venture capitalists. The idea behind this is to keep the innovation within their four walls and gain an edge over their competitors. The focus in this model is on talent and not on the business model. World class talent developed valuable innovation that finds its way to the market. Through this process, the innovations which are not useful to company’s core business are shelved. Often the people involved in developing the idea leave the firm and commercialize the innovation on their own. As a result the firm which financed the innovation is not able to enjoy the benefits. Chesbrough, uses the example of Xerox Palo Alto Research Centre (PARC) to explain how Xerox failed to capitalize on disruptive innovations developed by their own staff. These products were later launched by companies set up by former Xerox employees. The market capitalization of these companies collectively exceeded Xerox itself.[ii]
Secondly, the invention model is not able to sustain the high levels of top-line growth. Stagnation in R&D productivity leading to flattened sales and squeezing by nimble competitors mandated change in the innovation model. Important innovations were originating mostly from small and midsized entrepreneurial companies. Individuals, university and government were looking for ways to make money out of their intellectual property. The above factors led to the new paradigm of open innovation.
Rather than developing all the innovations inside the firm, the idea behind open innovation is to look outside the boundaries of the firm for innovations that can solve business problems. Also, the intellectual property created inside the firm can be licensed to other firms for application in other markets. It is important to understand that open innovation is different from outsourcing innovation. Outsourcing is transferring work to low-cost players. But open innovation is about finding good ideas that are almost ready-made solutions that suit your requirements. Open innovation is a form of crowdsourcing that helps companies to have a rapid design process with the help of ideas of people available globally.
Changes in the way innovations are done in firms have led to emergence of players who play a significant role in connecting technology seekers and providers. They act as knowledge brokers between the R&D labs of multinationals and scientists in government and private labs, consultants and universities. The benefits that the firms that seek them get are several times greater than the seeking charges that these brokers charge. Ninesigma, Innocentive, Yet2.com are some of the intermediaries who provide services to accelerate the process of open innovation. Other ways of looking out for innovations outside the firm would be to have your own people to look out for ideas or look out for innovations among the partners and suppliers you engage with.
The Institute for One World Health (IOWH) is a perfect example of a social enterprise capitalizing on open innovation. The organization is a pharmaceutical social enterprise founded in 2000 that is dedicated to developing drugs that can cure diseases affecting millions irrespective of their ability to pay for the drugs. They conduct an international search for most promising solutions that can cure the most infectious diseases in the world. After evaluating each identified lead, they closely work with the inventors, form partnerships to seek funding, and secure rights to develop these innovations for the noncommercial markets in the developing world where they are needed most. Through their efforts, they are able to provide an appealing outlet for idle intellectual property of pharmaceutical and biotechnology companies. Pharmaceutical scientists, drawn to a mission of saving lives and improving health worldwide, are eager to participate in groundbreaking and compassionate research and development. IOWH also plays a significant role in bringing promising drug research from the lab into the clinic and onto regulatory approval and manufacturing.
These examples show how open innovation can lead to more players entering the market, as well as direct benefits to us, the consumers who use these innovative products. The IOWH example shows how social enterprises can use the idea of open innovation to possibly create greater social impact. Open Innovation has helped realize the full potential of every innovation. But we must remember that it is not a substitute for in-house innovation, which is still required for the development of ideas that do not find a solution outside the company.
[i] Open Innovation Blog, http://blog.openinnovation.net/2010/08/definitive-open-innovation-primer.html
[ii] http://www.quickmba.com/entre/open-innovation/
Clean Energy and the BoP: More Power to the People
In this article Robert Moore shares his thoughts on a blog post by Think Change India, which reflects on the issue of clean energy at the BoP. Read the original article here.
IFMR Centre for Development Finance and the World Resources Institute are coming out with a report focusing on clean energy options for the base of pyramid in India, this report is titled “Power to the people” which was released in Mumbai on the 28th of September 2010 in front of a host of social sector investors and companies.
This article introduces the realities of rural electrification and the basis for their upcoming report. It showcases a few significant concepts such as electricity access statistics, reliability, and the current market for alternative energy sources.
In India only 40% of rural households have access to electricity and 85% depend on kerosene for lighting and firewood for cooking. However the problem is actually worse than that because as an apple farmer quoted in the article astutely said “Most houses have electrical connections, but what is the use? We have power for a few hours a day. Even when there is electricity, it is barely enough to operate one or two light bulbs. We cannot rely on it.” This farmer makes an important point but this leads to an even deeper issue – imagine the trouble that commercial companies would have trying to rely on such energy distribution. How can India move manufacturing, processing, and industry jobs closer to the villages if the electricity isn’t even reliable enough for consumer use?
As the article goes on to illustrate, there are companies such as SBA Hydro which are selling clean energy products and services directly to the Base of the Pyramid population. The SBA Hydro company sells hydroelectric power but there is also SELCO which sells solar power and Husk Power Systems which sells biomass power to name a few others. Many of these company’s customers actually have access to electricity but as the quote above illustrates, the current available electricity just isn’t enough.
With SBA Hydro’s $1.26m investment from Acumen Fund allowing them to reach 6000 households, SELCO reaching over 120,000 households in the last 10 years, and Husk being able to reach over 10,000 households you can see that these companies are doing a great job providing solutions to the BoP. But even if 100% of their sales were to be from rural customers with no previous access to electricity this still only solves 16% of the 81 million rural households without electricity in India.
While each of these alternative energy companies are still pretty small and face their own challenges the “Power to the People: Investing in Clean Energy for the Base of the Pyramid in India” report should provide valuable information to both the investors and entrepreneurs trying to meet the needs of India’s rural electrification market. Hopefully with more reports like these the energy companies can make smarter decisions and investors will feel more confident about the financial and social returns they will achieve from deploying capital in this industry.
Ed. Note: Read more about the report’s launch on the IFMR website, and access the report here.
Innovation and India
In this article, Mayank Jaiswal, Villgro Fellow 2010, looks at how innovation in India differs from innovation in the West, and what might help bridge the gap.
I have always been intrigued by the question – why does systematic innovation and product design happen so much better in the developed world compared to the developing world?
In this piece, I have tried to triangulate the causes and potential solutions, using my reading and understanding of the book “From Jugaad to Systematic Innovation” by Rishikesha T Krishnan, talking to Heather Fleming (Co-founder, Catapult Design) and my own grey cells. I have also attempted to predict some future trends. First, it is pivotal to confirm whether the developed world actually does design better products than those of the developing world? I am not going to quote texts, tomes, or indices as mentioned in the book, but from first-hand experience, the details and attention to efficiency, ease of use and the ‘user experience’ derived from a salt shaker or an airplane, I can say product design is executed better in the developed world than the developing world.
This begs the question: are product design skills God’s gifts to certain individuals or are they acquired? I turned to Heather Fleming for answers. Fleming has worked with Engineers Without Borders both in Kenya and India. She is also an Adjunct Professor at Stanford University, where she teaches at the School of Design where she interacts with students from different nationalities. Speaking to her, I got a sense that genetic disposition may not be a factor, i.e, you don’t have to be born with keen spatial or aesthetic sense. But the cultural differences surely are. For example, Flemming suggests that in the US there is an ‘innovative air,’ particularly in Silicon Valley. This spirit to innovate and make things better is ingrained deeply in the US due to the capitalist nature of society which rewards better processes and innovative solutions to problems. India has slowly started emerging from the quasi-socialist model, moving towards a capitalist model for economic governance. I am not criticizing or condoning the reasons why India took the quasi-socialist route to develop after independence, since I believe that is a separate discussion altogether. However, it is a fact nonetheless and in this model’s focus was on provision of jobs and making mega industries with foreign help.
So is culture the only aspect? Not quite, there’s actually more! Applied design also has a strong role to play in developing a sound innovation system. Fleming pointed out that she went to Stanford to study design and right from the get go the focus was on applied design. This mirrors the discussion about educational institutions and academic institutes referred to by Krishnan in his book. The incentives for educational institutes in the US (and now China too) are tied much more closely to research and innovation as compared to Indian institutions. Also, the funding for basic science research like Physics and Chemistry is huge in countries like the US as compared to India. This leads to more innovative products, which in turns leads to more innovation and better designed products.
The academic research is followed by great infrastructural support. If an individual is passionate about innovation and product design there are a plethora of companies in the US one could join and hone these skills. Apple, which makes the ‘coolest’ products, as well as more mundane businesses like Kellogg are working grounds for product designers. (Yes, Kellogg! I personally think they need to figure a way to increase the shelf life of their product, as well as use less packaging material.) Not to mention established design shops like IDEO or start ups like Catapult Design.
Are we to assume then that individuals do not matter? Is it just the infrastructure? Well, that would not be fully correct. Heather attributes Stanford for her ability to design for “American companies,” but it was her zeal and passion for sustainable design which led her to self-learn concepts of sustainable design (the basis of all of Catapult’s work). Due to her experience, Heather and Catapult incorporate a holistic view of design beyond the nuts and bolts to include questioning who the consumer, what competition exists and how the consumer use the product. Heather has actually taken a few pages from the business analysis book and uses it to design a complete, practical and implementable solution for her clients. Thus, it is not all about the infrastructure!
Finally, what does the future hold? Will the balance remain as is – developed world doing all the design and the developing world following along? This is a tough one, and one can but make educated guesses at best. We can clearly see a trend in countries like India and China towards innovation. There are more incubators opening and more incentives for academic institutions to do cutting edge research, but is the developing world there yet? I would say not really, that it is on the right track but still has a ways to go. On the other hand, is everything hunky dory for the developed world? Not really! The U.S state of Ohio recently banned outsourcing of federal or state government contracts. It is getting tougher for foreign nationals to get jobs in the developed world, given that a major recession is going on and the developed world is facing unemployment issues, but the flight of talent to the developed world was a key reason for its cutting edge technologies. Companies such as Microsoft, Intel have openly valued the role foreign nationals played in growing their companies. Thus these trends do not augur well for the innovation ecosystem of the developed world, but what has to be seen is do these trends continue when the developed world has come out of the recession.
Of course, an ideal situation would be when both the developing and the developed world ignite a healthy competition to attract human resources – the key to innovation – and simultaneously provide infrastructure to support them. In such a situation the world will come out ahead.
The author would like to thank Heather Fleming, Co-Founder of Catapult Designs who graciously gave her time to talk on the subject and review the draft of the article.
Simply Fly: Chapter 1
Traditional businesses have a lot to offer social enterprises. Several pioneering business models are perfected in mainstream markets before being adopted by social enterprises. The low-cost business model is one such concept that has taken root in the sector. In a series of blog posts, Devyani Srinivasan will provide chapter-wise reviews of the book, “Simply Fly” by Captain Gopinath, the founder of Air Deccan, India’s first low-cost airline. The book promises to hold some interesting lessons for social enterprises looking to work with the BOP. This month Devyani presents a review of Chapter 1
In July of this year, the Monitor Group released “Building Houses, Financing Homes: A Study Report of India’s Rapidly Growing Housing and Housing Finance Markets for the Low-Income Customer”. In this report, Monitor defines the low-income customer as one with a monthly household income of between Rs.7,000 and Rs.15,000. In contrast, the BoP literature and books such as Paul Polak’s Out of Poverty talk of the dollar-a-day customer. A back-of-the-napkin calculation suggests that the monthly income of a dollar-a-day customer in India would be around Rs.1,200. Even if this dollar-a-day customer has other family members who are working, it is unlikely that their monthly household income would reach Rs.7,000. Therefore, the low-income customer of the Monitor study is clearly different from the dollar-a-day customer of the BoP literature and Out of Poverty.
Nevertheless, there may be lessons to be learned from Monitor’s business model and other innovative solutions to meet the need of low-income urban housing that can be applied to reaching the dollar-a-day customer. It was with a similar thought in mind that I started reading Captain Gopinath’s Simply Fly, published last year. Captain Gopinath founded Air Deccan, India’s first and largest low-cost carrier. While Deccan is exalted for enabling the “common man” to fly, this “common man” is again not the dollar-a-day customer. Nevertheless, I expected that elements of Deccan’s business model would be applicable to reaching the BoP. In addition, Simply Fly is the autobiography of an Indian entrepreneur, and therefore could be also be relevant to efforts to promote entrepreneurship, and incubate entrepreneurs, in India.
The first chapter of this book, the subject of this post, is on Gopinath’s life from childhood to the time he becomes an officer cadet in the Artillery School. The reader learns that Gopinath’s father is a role model for him during his childhood. Gopinath enters military training, enrolling in a boarding school called the Sainik School where he suffers from homesickness. It is then that Gopinath’s father advises him to be courageous, to take hold of his life and to make something of it. The reader assumes that it is these lessons, learnt from his father, that stand Gopinath in good stead later in his career as an entrepreneur.
However, there are some contradictions that emerge in the first chapter as well, both in the lessons that Gopinath’s father teaches him, and in comparison with the military training that the boy receives. Firstly, while Gopinath’s father is himself a schoolteacher, he likens school to a jail, saying that it is too regimented and that, “real education is in life’s experiences.” He therefore decides that Gopinath will be taught at home until the fifth standard or grade. Not unexpectedly, both the Sainik School and the National Defence Academy, in which Gopinath subsequently enrolls, are highly regimented in contrast, and Gopinath says that he “deeply resented” and “hated” this.
The second contradiction is between equality and hierarchy. Gopinath’s father imbues him with a sense of equality, disapproving of the superior status that the Brahmins (of which he was one) in their village held with respect to the artisan class and Dalits. The army is, in comparison, hierarchical, and on the last page of this chapter, Gopinath describes his discomfort in occupying a position of formal superiority over junior commissioned officers and jawans. I’m interested to see how these contradictions play out in Gopinath’s life, and whether they contribute to his later decisions to leave the army and start Air Deccan.
Clean Sweep: Supporting Entrepreneurs in the Energy Sector
In this day and age, most of the world is worried about climate change. That is why instead of delivering energy through top-down initiatives like large-scale utilities, E+Co looks for small enterprises that can take hold locally. Rather than bringing in Western business experts, it hires regional field staff who recruit and support entrepreneurs in their own communities. Moreover, its efforts are inspiring others to see the connections between energy, poverty, and climate change. Alvaro Illanas Cerezo summarizes Susie Boss’s article “Clean Sweep” from Stanford Social Innovation Review, below.
Energizing entrepreneurs
E+Co’s portfolio proves that there’s no shortage of clean energy ideas or entrepreneurs in emerging markets.
A report stated that willing entrepreneurs represent an abundant but largely untapped resource. It also noted, however, that technical assistance for small business is simply not available in many developing markets.
E+Co unleashes this entrepreneurial potential with a three-part model that combines technical assistance with capital.
- Part 1: It helps entrepreneurs develop solid business plans. Field staff use a toolkit and their understanding of local issues to help would-be entrepreneurs analyze their market and select clean energy products. The business development process is thorough but not over-sophisticated. Similarly, the organization prefers proven solutions to cutting edge technologies.
- Part 2: It lends seed capital, typically $25,000 to $500,000 at average annual interest rates ranging from 8 to 12 percent. Getting to yes requires approval from an independent, unpaid investment committee made up of finance professionals. The experts bring a deep understanding of niche energy markets and small- to medium-sized enterprises.
- Part 3: It provides access to growth capital.
Measuring everything
E+Co relies on concrete metrics to convince diverse investors to fund the organization. A triple bottom line scorecard rolls up data from 30 indicators across three categories: financial, social, and environmental. E+Co admits that it can be swayed by stories of lives improved, but he’s also hard-nosed about numbers, and so looks to the scorecard to see that the portfolio’s average annual return is 8 percent.
Grant funding has become a smaller piece of the pie now that loan repayments generate revenue to reinvest.
E+Co is similarly analytical when it comes to evaluating risk. Although the organization steers clear of untested energy ideas, it sometimes approves demonstration projects that bring proven products to new markets.
Growing the space between
E+Co must now make sure the funds keep flowing. Its loans fall into what its CEO calls the space in between: bigger than microfinance but smaller than corporate-size deals. This “missing middle” is unfamiliar territory for many public and private investors. The main goal is to start a movement, so that small and growing enterprises have ready access to capital. Global acceptance of microfinance has taught E+Co the value of aggregating players to speak with one voice.
Have you had any experience in supporting small businesses in the energy sector? Share your experience with us in the comments section.
The University as a Center of Innovation
In this article, Villgro Fellow Jeanne Chen explores the role that universities play in social enterprise and innovation.
Innovators are everywhere – from slum dwellers who find new uses for waste materials to technology developers. However, not all innovations can be commercialized, and at the same time, many great innovations are left uncapitalized. It remains a difficult task for social investors and innovators to find each other.
One innovation ecosystem which has drawn a lot of attention is Silicon Valley’s university-driven model. Academic research centers are the perfect, fertile ground for incubating potential great ideas and turn them into viable innovations. The only question is how do we replicate the Silicon Valley model elsewhere. As the New York Times article “The Idea Incubator Goes to Campus” reports, a number of university campuses are establishing “proof-of-concept” centers to help test and develop great ideas. While certain top research-heavy universities (e.g., Harvard, MIT, Stanford) already have strong technology transfer support systems for their innovators, many other universities around the country are beginning to adopt the model. Most recently, the US government has allocated $12 million to funding this proof-of-concept model.
These proof-of-concept centers are a bottoms-up approach to funding innovations. Directly at the source of where many great ideas are born, the incubator centers in universities help innovators realize ideas that may not have been carried forward otherwise. The NY Times article provides a number of great examples of innovations which have flourished with the help of tech transfer and incubating experts. Lantos Technologies (www.lantostechnologies.com), which makes a 3-D scanner was the brainchild of an MIT professor, who might not have commercialized the idea if not for the support of MIT’s Deshpande Center for Technological Innovation. The Deshpande Center is just one of many across the US, which provides consulting advice for innovators on how to commercialize their idea from providing support for technology transfers to raising capital.
It seems to me that there are few key advantages to this university innovation model:
- Universities are the nature breeding ground for great ideas – the free flow of information between students, faculty, and visiting lecturers is more likely to spawn innovative thinking than anywhere else
- Academic centers offer a ready support network for development – academic centers tend to be a microcosm of expertise that exist in the real world, condensed onto a small parcel of land
- Participants of university life have more time to dedicate to innovations – one of the challenges of following through with an innovative idea is balancing that work with the quotidian job that is your sustainable livelihood
Therefore, the logical thing to do, as the US has begun to do is:
- 1. Establish support centers to help develop and test ideas – employ experts in technology transfer or venture fundraising to guide likely innovators and entrepreneurs
- 2. Create capacity building programs to encourage more innovative thinking – have classes on innovative design, entrepreneurship, and venture creation
- 3. Create an ecosystem of innovation exchange between universities – allow for the collaboration between innovators at multiple universities, who have different realms of technological expertise
While the academic innovation hub concept is starting to grow in the US, this concept is still relatively foreign in India. Although social enterprise has bloomed within the last 5 years on college campuses, with many of the new innovations coming out of IITs and IIMs, there still remains a large gap between the innovators and social investors. Some campuses are luckier than others, like IIT Madras that has the support of Rural Technology & Business Incubator (RTBI), which has incubated a number of successful social enterprises. Yet, the majority of India’s campuses remain an untapped wealth of bright ideas.
Enter Villgro’s My Idea Program and capacity building program. I was immediately reminded of these more under the radar programs that Villgro operates when I read the article. The My Idea Program hosts capacity building workshops at regional technology universities, helping young entrepreneurs understand how to get started on their own ideas. Villgro is also piloting a social entrepreneurship minor with IIT Madras, which allows some of the brightest engineering minds in the country to think about their ideas within the context of social entrepreneurship. While, these initiatives are still nascent, an expansion of such programs across India would certainly help to diminish some of the gap between great ideas and commercially viable innovations.
How Social Ventures can be Learning Laboratories
In a time of economic crisis, it is crucial that business entrepreneurs focus their innovations on the long-term effects. Previously, capital market innovations have focused on short-term profit, resulting in permanent damage to the economy. In their article, “Social Ventures as Learning Labs,” J. Gregory Dees points to how social ventures can be useful “learning laboratories” in which innovative business ideas can be tested without distorting markets. Rachel Padmanabhan, provides an overview of his article.
A decrease in economic opportunities exacerbates other social problems and in turn reverses progress made by impoverished families. This financial stress has proven to result in tension within communities, fewer children attending school, and inadequate health care. In order to make any improvement on these super-sensitive social and environmental problems, the markets must turn to social entrepreneurship.
Innovation by social entrepreneurs can reverse the pattern of destructive markets by focusing on the social impact that innovations can offer. Social entrepreneurship also allows experimentation of innovations that could potentially solve many issues on a small scale, while effectively working to achieve a larger goal. Social entrepreneurs, Dees says, provide what has been called a “learning laboratory” for these innovative business methods to be tested without negatively impacting the market. The resulting successful models can then be replicated and scaled to create a greater social impact.
The primary difference between these social entrepreneurs and others in the business world lies within their motives. While profit-seeking business entrepreneurs and corporations measure financial success quantitatively, social entrepreneurs measure success by the opportunities they create for the future. An example Dees points out to is 2006 Nobel Prize winner Muhammed Yunus and Grameen Bank that focused on micro-credit with the goal to alleviate poverty. While Bangladeshi officials did not see this as a substantial business opportunity, microfinance is now growing in popularity among mainstream business entrepreneurs and financial entities. Decades after the initial idea of microfinance, markets are beginning to acknowledge the viability of this method as an effective business opportunity.
Implementation of creative business models paired with resourcefulness is necessary in order for entrepreneurs to succeed. Recently within social venture business models, there has been a growing trend away from reliance on subsidies towards commercial strategies. Reliance on solely either of these funding methods is hardly optimal for social entrepreneurs to succeed. In order to create sustainable ventures, entrepreneurs must utilize a mixture of both commercial and philanthropic methods. As proven by VisionSpring, a non-profit organization in China, low-cost technologies paired with innovative business models are an effective way to both provide affordable products and create sustainable job opportunities.
The aforementioned application of these “learning laboratory” experimental innovative models to other businesses requires them to be replicated as well as scaled. This means that in order to be considered valuable, it is necessary that they be cost-effective and transferable as well as socially-impacting. However, entrepreneurs can also benefit from recognizing the failures and patterns of these experimental business models and applying new knowledge to future innovations. As financial crisis pushes businesses towards innovation, it can be expected that the growth trend towards social entrepreneurship will continue due to necessity. If this trend persists, many of the social and environmental issues that have been attributed to capitalistic markets in the past can be alleviated over time.
Read the original article here.
Disruptive Innovation and Conventional Strategic Management Theory
In November 2009, Hari Nair, partner at Innosight Ventures wrote an article in the social enterprise magazine Beyond Profit on his company’s philosophy of supporting “disruptive innovation.” This form of innovation typically involves those that are smaller, cheaper and simpler than those of the traditional market leaders. Such innovation often reshapes a market. An example of such innovation would be Razor Rave — a booth-operated micro franchise that offers premium grooming services for men at costs far lower than than conventional service providers.
Mayank Jaiswal, Villgro Fellow 2010, takes a look the the concept of disruptive innovation through the lens of conventional strategic management theory.
Read Hari Nair’s full article here.
Hari Nair, in his piece, “Shaping For-Profit Enterprises Through Disruptive Innovation,” presents the concept of “disruptive innovation.” In this analysis I have attempted to understand it through the lens of conventional strategic management theory.
In the diagram alongside, the curve ODT represents an efficient Price Quality Frontier (which essentially means that it represents the best quality for a certain price and vice versa available in the market).
Disruptive innovation moves the frontier to point C so assume a curve passing through OCT rather than the solid curve shown passing through ODT. What this means is a business has found a new way of doing something which either provides a better quality at the same price as the efficient frontier or same quality at a lower price than the corresponding efficient frontier.
Let us further assume that A and B were established players who were providing a certain quality for a certain price. For example A is a Ramada Inn, which is a budget hotel with best quality in class similarly B is a Taj Palace, high quality for high price. We also see that both A and B have ‘influence circles’ – it is the area from which A and B derive their consumers. Thus if a company comes along and ‘breaks’ the frontier at D and raises it to C, we can have two types of migration – the ‘quality migrators’ people willing to pay slightly higher prices for a much higher quality or ‘price migrators’ people willing to settle for slightly lower quality with a considerable decrease in price. Thus we see flight of two types of consumers.
Additionally, it might so happen that region D was a consumer ‘wasteland’ say 20 years ago – i.e. no consumers existed in that region. However, with the change in the economic conditions may be region D has now become a ‘hot spot’, the entrenched players A and B usually miss out on these if they are not conducting timely surveys of the consumer landscape, and keeping themselves abreast of the latest changes in consumption patterns.
Razor Rave is a case in point. A can be thought of as the street hair dresser and B as the high end salon. With the entry of Razor Rave kiosks and the fact that there is more disposable income with Indians especially in the middle class, Razor Rave is C. It has come in where no players existed and has created disruptive innovation by serving the consumer professionally (quality axis growth) at not very high price points.
The theory has implications for new social enterprises as well. I If new enterprises can develop innovative approaches which provide better services orquality at similar prices or similar quality at lower prices and can identify “consumer wastelands” which will be no more, there is scope for a successful enterprise to be set up. The need and chances of developing such enterprises in the social space are very high given the current rate of growth in countries like India.