innovation in-developing-countries
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Innovation ‚with’ low-income segments
Heiko Gebauer
Center of Innovation Research in Utility Sectors (EAWAG), Zurich, Switzerland
Liverpool, 13-09-2012
© Gettyimages
Business research stays at a cross-road
Business at its cross-road Base of the Pyramid (BOP)
< $2,000
4,000
Exchange market
BOP (low-income) market
$2,000-$20,000 2,000
> $20,000 500
Industrializedmarkets
Emerging‘mass’
markets
PPP1 Population
1 – PPP – Purchasing power paritySource Rangan, 2009:
Traditional business growth thinking ….
Market penetration
Time (or cumulative investments)
1 - Existence2 - Survival
3 - Success
4 - Scale-up
5 - Maturity
… is limited when it comes to low-income segments
BOP market penetration
1 - Existence2 - Survival
3 - Success
4 - Scale-up
5 - Maturity
BOP market creation
Business modelinnovation
Creating needs where markets exist
Creating markets where needs exist
Time (or cumulative investments)
Why are market creation and business model innovation important to the water & wastewater sector?
BOP market penetration
1 - Existence2 - Survival
3 - Success
4 - Scale-up
5 - Maturity
BOP market creation
InnovatingBusiness model
Mobile phones
Mobile payment
Micro-credits
Time (or cumulative investments)
What drives business model innovation?– A capability perspective or resource-based view
Source: Fischer, Gebauer & Fleisch (2012), based on Grant (1996), Teece et al. (1997), Teece, (2007) Stefano et al. (2010)
Market penetration
Business model (t2)
Business model (t1)
Investments
Individual skills
Sensing SeizingReconfiguring
RoutinesInvestments
Individual skills
Sensing SeizingReconfiguring
Routines
Dynamic capabilities
Operational capabilities Functional
capabilities Activities & tasks
Individual skills
Functional capabilities
Activities & tasksIndividual skills
Dynamic capabilities
Operational capabilities
Empirical examples
BOP market penetration
1 - Existence2 - Survival
3 - Success
4 - Scale-up
5 - Maturity
BOP market creation
Business modelinnovation
Creating needs where markets
exist
Creating markets where needs exist
Time (or cumulative investments)
Re-invent the toilet
challenge
OSHO – Bone char filters for
fluoride removal
Sarvajal Honeysucker businesses
Unilever
The re-invent the toilet challenge illustrates the business model innovation
BOP market penetration
Existence
Survival
Success
BOP market creation
Rent-a-toilet
End-product sales
Scaling-up
Micro-franchising
Time (or cumulative investments)
diversion toilets can be retrofitted into existing structures.
Empirical examples
BOP market penetration
1 - Existence2 - Survival
3 - Success
4 - Scale-up
5 - Maturity
BOP market creation
Business modelinnovation
Creating needs where markets
exist
Creating markets where needs exist
Time (or cumulative investments)
Re-invent the toilet
challenge
OSHO – Bone char filters for
fluoride removal
Sarvajal Honeysucker businesses
Unilever
OSHO goes from a charity-based to project-based and, finally, to a profit-based business model
No recovery of invested capital
Repayment of invested capital (self-
sustainability)
Financial profit maximization
Social profit maximization
Non-for-profitorganization
Socialbusiness
Profit-maximizing businesses
N/A
Source: Yunus et al. (2010)
Non-for-profitorganization
Socialbusiness
Profit-maximizing businesses
N/A
OSHO goes from a charity-based to project-based and, finally, to a business-based business model
No recovery of invested capital
Repayment of invested capital (self-
sustainability)
Financial profit maximization
Social profit maximization
B1-4
C
A Business models (B1-4)
Flexibility between project-base, high-volume production
business model and so on
Business model C)
Extending the business model
scope
Source: Workshop HEKS and OSHO 20-22-08-2012
Empirical examples
BOP market penetration
1 - Existence2 - Survival
3 - Success
4 - Scale-up
5 - Maturity
BOP market creation
Business modelinnovation
Creating needs where markets
exist
Creating markets where needs exist
Time (or cumulative investments)
Re-invent the toilet
challenge
OSHO – Bone char filters for
fluoride removal
Sarvajal Honeysucker businesses
Unilever
0
500
1000
1500
2000
2500
3000
3500
4000
Business model innovation at sarvajal– affordable, accessible, and pure water
Installed water systems
2008 2010 2014 20162012
...
Source: Sarvajal (2012)
0
500
1000
1500
2000
2500
3000
3500
4000
Installed water systems
2008 2010 2014 20162012
...
- Holistic extension of the business model
Sarvajal(Franchisor)
(5000 $ / 2600$)
Micro- entrepreneurs(Franchisees)500 $ (40% of
revenue)
Communities(Villages –
3’000)0.12 $ for 20
liters
1 : n 1 : m
- Operational capabilities: maintaining and monitoring the systems
- Dynamic capabilities- Individual skills – bright brains to repetitive gains- Routines – Franchisee strategy tool / approach
to balance own / borrowed capital
BankMicro-credit
institute
Source: own interpretation and interviews. Based on Macomber and Sinha (2012)
Business model innovation at sarvajal– affordable, accessible, and pure water
Empirical examples
BOP market penetration
1 - Existence2 - Survival
3 - Success
4 - Scale-up
5 - Maturity
BOP market creation
Business modelinnovation
Creating needs where markets
exist
Creating markets where needs exist
Time (or cumulative investments)
Re-invent the toilet
challenge
OSHO – Bone char filters for
fluoride removal
Sarvajal Honeysucker businesses
Unilever
Septage sludge management can be scaled-up through different business model innovation
Honeysucker businesses in Bangalore
Success through innovation
Existence & survivalScale-up
micro-network replication
PenetrationSeptage sludge emptying
Time
Existence & survival• Micro-honeysuckers start
to emerge after setting-up pit latrines
Success• Innovating the vacuum
truck, pumps, composite field, use of fertilizers, & special applications
Scale-up• Extending the number of
mirco-honeysucker businesses, instead of growing the individual businesses
Empirical examples
BOP market penetration
1 - Existence2 - Survival
3 - Success
4 - Scale-up
5 - Maturity
BOP market creation
Business modelinnovation
Creating needs where markets
exist
Creating markets where needs exist
Time (or cumulative investments)
Re-invent the toilet
challenge
OSHO – Bone char filters for
fluoride removal
Sarvajal Honeysucker businesses
Unilever
Re-considering corporate social responsibility enable MNEs to be more innovative
Corporate social responsibility (CSR)
• CSR Integration – Integration with the core business
• CSR innovation – Expansion of the core business
• Grameen Veolia - surface-water treatment systems
• Procter&Gamble – PUR
• Hindustan Unilever - 'Pureit' Water Purifier
Reverse Innovation
• Previous transnational strategies turn towards innovation in emerging markets and bringing these innovations back to the industrialized markets
• Reverse innovation could disrupt existing technology paths. But it faces similar hurdles as disruptive innovation
Source: Halme and Laurila (2009) Source: Govindarajan and Rmamurti (2009), Immelt, Govindaraja and Trimble (2009)
Innovation ‘with’ the low-income segment facilitates a giant leap for all clean-tech businesses
Source: Hart and Christensen (2003)
Performance
Time
Low market
High marketSustaining technology
Disruptive technologyBOP
Market
“That's one (small) step for a man, one giant leap for mankind”
Business model innovations enable growth in water and wastewater businesses
Recognizing and understanding the need gaps
Holistic view of business models support local firms to overcome production and transaction constraints
Multinational firms reconsider their CSR approaches and supplement the transnational innovation strategy to reverse innovation strategy
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