utilizing constraints for innovation

8/3/2019 Utilizing Constraints for Innovation

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Utilizing constraints to identify opportunities

for innovation

Atanu Chaudhuri


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Agenda

External constraints affecting companies andcustomers

Challenges in managing constraints

Constraints as sources of innovation

Capabilities and competencies required for

constraint driven innovation


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Indian examples of (potential) disruptive

innovation.. Lets hear from you


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http://www.cosmosignite.com/#


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Deloitte Touche Tohmatsu 2008. All rights reserved.

Constraints on companies Constraints oncustomers

Power Shortage

Delay

in

production

Revenue Loss

Low Asset

Efficiency

High cost of

Transportation

and power

High

Cost of Goods

Sold

Low Operating

Margin

Difficulty in

managing

suppliers

Low Operating

Margin

High

Selling, general

Administrative

expenses

Shortage of talent

Missed

Business

Opportunities

Revenue Loss

Low Asset

Efficiency

Non-availability

of products

at desired price-

value point

Lack of access to

product/service

Shareholder value

Stagnation in

revenue growth

Stagnation in

revenue growth

High delivery

cost

Revenue Loss Revenue Loss

Low Asset

Efficiency

External constraints affecting companies and customers

How can companies facing multiple external constraints remain competitive?


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Challenges in managing constraints

Global corporations with well-developed innovation capabilities over

decades find it difficult to adjust to resource constrained environment

and the price-performance expectations of customers in emerging

markets (Christensen, 1997, Govindrajan and Trimble, 2009 and Hang

et.al., 2010)

Companies tend to believe that they face trade-offs as they face these

constraints

Only organizations operating near the performance frontier should

expect trade-offs between efficiency and responsiveness

Chart, diagram & table timesaver6


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Constraints assourcesof innovation

The companies that operate away from the frontier level have the

potential to improve both efficiency and responsiveness

The companies that operate at or close to optimal performance levels

can strive to shift the frontier

Careful analysis constraints reveal that the constraints provide

opportunities for innovation

Such constraint driven innovation will require unique approaches and

processes

Limited understanding of how companies can systematically identify

opportunities for such innovation and convert those into successful

products and services



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Innovate to achieve higher levelsof efficiency andresponsiveness

CustomerResponsiveness

Cost EfficiencyLow High

High Getting on the

frontierorshifting it

is an iterativeprocess

Low

Lower efficiency and

responsiveness

Improved efficiencyand responsiveness

InnovationPath

Improved cost efficiency

at the expense of

responsiveness

Improved

responsiveness at theexpense of efficiency

A

B

The constraints in the external business environment provide enough

opportunities for innovation


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Innovating toovercome constraints: a four- pronged approach

Company Customers

Constraints binding

CompetitiveDiffe

rentiationthrough

Products

Process

Design newprocesses

Create newproducts

and services

Create newservice

delivery models

Collaborate withstakeholders

A

B

Getting

from A to B

Innovations

Innovating using the constraints assources: afour- pronged approach

Have companies developed specific capabilities and competencieswhich

allow them to innovate and remain competitive against all odds?

Tata Gold

Plus


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Reduce power consumption by process innovation

Trends in thermal-specific energy consumption

in the iron and steel sector

Develop a systematic process for energy and water management, from choice of equipment

and day-to-day monitoring to regular training for building awareness among employees

Make energy management part of biggerorganizationwide initiatives

India's GDP is growing at a healthy rate despite peak shortage in powersupplyremaining atsame levels

0

2

4

6

8

10

12

14

2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006

% of peak shortage in power

supply% GDPgrowth ( at constant

1999-2000 prices)

Source: Centre for Monitoring Indian Economy (CMIE) Business Beacon database for GDP

Annual Report -2006-2007 for Ministry of Power, Government of India for peak power shortage

GDPGrowth Rate and Peak Power Shortage


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Collaborate to develop new products

Collaborate with suppliers

Collaborate with educational institutions/stakeholders to attract and groom

talent

Mahindra and MahindraMahindras Scorpio ensured virtually 100 percent supplier involvement from concept to reality

Design and engineering ofsystemswas done by suppliers aswas testing, validation and

materialsselection

Establish relationshipswith educational institutions and be involved in designing courses

Develop customized training programme for employees by collaborating with world-class

institutions


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Exploit bottlenecks to create new products and markets

Bottlenecks can be looked at as opportunities to createinnovative products and business models

Can only bigger companies plan for such product innovation?

Tata Motors: Tata Ace, Indias first mini truck to transport goods speedily, conveniently,and in a cost-effective manner while providing comfort, style, and easy maintenance

Honeywell: sensor to measure water content in soil, intelligent thermostat

Du Pont: customized protective envelope for sending rakhis


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Telecom service providers in India need to install sensitive electronic telecom equipment

every 1020 kilometers, but they were constrained by inadequate and fluctuating power

outside the metropolitan areas.

In 2003, Acme, a five-man engineering consultancy firm, developed a power interface unit

(PIU) that worked on an electronic chip, unlike traditional voltage stabilizers that ran onmotors.

Acmes innovative product helped improve power correction, which resulted in power

savings of 20 percent.

Airtel instantly adopted the technology. Currently Acmes PIUs are installed at about 50,000

base stations of various telecom companies.

Acme uses a service-driven business model charging for power used and the costs of

running the sites instead of products. Thus, by recognizing the power constraint faced by

customers as an opportunity, Acme was able to come out with a simple, innovative product

that met customer needs at a lower cost.

It launched the "Green Shelter", which is a complete package to fit various environment and

temperature parameters at telecom sites, avoiding the running of backup systems like diesel

generators

Manoj Upadhyay, founder of the US$500 million AcmeTele Power considers India aland of problems and therefore a land of business opportunities.


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Exploit constraints to develop newservice delivery models

The developed world model of locating supermarkets and

hypermarkets at the city periphery will not work in India Rural India is not uniformly poor there are islands of prosperity

within it

Rural Indians shop more like Americans do they are ready to travellong distances to buy goods in bulk provided the goods are availableat their price-performance preference

There are opportunities to create unique service delivery models andopen up new markets

Hindustan Unilever: door-to-door delivery of goods by rural women and local people onbicycles_ Project Shakti

Cisco: delivering emergency services

Tata GoldPlus


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Highly fragmented rural jewellery market catered mostly by local jewellery

shops, who have long relationships with generations of customers

This gives them a clear understanding of customer needs, and allowing them to

differentiate customers based on their credit needs, paying capacity, and

preference for a particular design

They neither give any assurance of genuine 22-carat gold nor can they offer a

wide selection of designs.

The Tata group realized the immense opportunity of tapping into the rural and

semi-urban segments and providing them pure gold jewellery in designs of

their choice thus was born the Tata GoldPlus brand, separate from the

established Tanishq brand- using a franchisee model in semi-urban and rural

areas.

Tata GoldPlus stores participated in local festivals in South India, collecteddata of marriages from local priests, and were able to win many customers

away from local jewellers.

The brands key differentiation is a unique service delivery model that

addresses local needs, has a much bigger scale than local shops can manage,

and is still cost effective. 15

The GoldPlus jewellery

comes with the assurance

of purest 22-karat (916)

and 18-karat (750) gold

and premium

craftsmanship.

Every GoldPlus product is

endorsed by a certificate

that states the purity of

the gold and the quality

of diamonds used in the

article.

The gold is purchased in

the form of bars that arecertified by Reserve Bank

of India (RBI).


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How will you decide it is time for your organization to

work on constraint driven innovation ?


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Distinction between capabilities andcompetencies

Co

mpetitive capabilities

reflect the organizations actual competitive strengthsrelative to its primary competitors in target markets

Competencies

are a set of higher-order proficiencies that a company has developed, giving it a

long-lasting source of competitive advantage

are difficult to acquire or replicate and can give companies the edge in

attracting new customers and in building loyalty.

We have identified six such capabilities and competencies which can be broadly

classified as follows:

Motivators for innovation

Opportunity identification Delivering on innovation



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Capabilities/

Competencies

Classification

Recognizing that external constraints can

create competitive advantage

Competency Motivators for innovation

Bringing strategic direction to constraint

driven innovation in emerging markets

Competency Motivators for innovation

Analyzing the work the customers aretrying to achieve

Capability Opportunity identification

Understanding and analyzing customer

constraints

Competency Opportunity identification

Evaluating global market potential for

innovation

Capability Opportunity identification

Choosing the right set of metrics to

identify opportunities and track innovation

Competency Opportunity identification

Choosing appropriate collaboration

partners

Competency Delivering on innovation

Creating organizational enablers to

support constraint driven innovation

Competency Delivering on innovation

Capabilities and competencies required forsuccessful constraint

driven innovation


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Recognizing that external constraints can

create competitive advantage

Competitive advantage can be sustained if the capabilities creatingthe advantage are supported by resources that cannot be easily

duplicated

Competitive advantage of manufacturing firms result from

proprietary processes and equipment, driven by external and

internal learning Companies lacking advantage of size, experience, established

position and proprietary technology could compete using operations

based advantages

Firms in emerging markets can capitalize on institutional voids in

product and factor markets and alleviate those voids

Lack of key physical resources can provide impetus to firms to acquire unique resources

and competencies to compete in a constrained environment


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Bringing strategic direction to constraint

driven innovation

Global organizations need to provide requisite autonomy to local businesses

Adequately staff the organization

Recognize local talent

Chief Innovation Officer who can drive innovation in constrainedenvironment as in emerging markets


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Analyzing the work the customers are

trying to achieve

Companies should develop competencies to understand thepurpose of use of products and services by customers

Focused interactions to elicit information about exact task

which the non-consumers need to get done and the

willingness to pay


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n ers an ng an ana yz ng cus omer

constraints

Customers in emerging markets face constraints Due to high prices of products and services

Non-availability or inaccessibility of products and services

Inconvenience in using or accessing products or services

Understand the reasons why current non-consumers do not find any

existing product useful Are they over-served?

Existing products in markets do not address the work they are trying to

get done

Lack of access


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http://business.in.com/article/cross-border/finger-on-the-pulse-at-

last/7812/1


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Customer Constraints identified by

Godrej


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Here comes Godrej Chotukool

chotuKool, a top-loading, compact and portable cooling

solution does not have a compressor. It weighs only 7.8

kgs and runs on a cooling chip along with a fan similar

to those used to cool computers.

It consumes only 55 Watt power and runs on dual

power supply (230V AC & 12V DC). Given the power

shortage in the countryside, it can operate on battery

as well and it uses high-end insulation to stay cool for

hours without power. The operational cost ofchotuKool is low as it consumes half the power

consumed by regular refrigerators.

It is a classic case of co-creation. Godrej DI team

worked closely with potential consumers to get insights

on their needs, desired solutions and barriers to

consumption. The opportunity was shaped up by

choosing relevant technology, testing variousprototypes, validating market potential and developing

business models.

To canvass, demonstrate and take this innovative

product to villages, Godrej is developing a social

entrepreneurship channel, joining hands with NGOs,

self-help groups and micro-finance institutions.

http://www.chotukool.in/SocialImpact

/journey.html#


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Evaluating global market potential for


Innovations developed in response to constraints in emerging markets mayhave potential for application in global markets

Though triggered by local constraints, companies should explore if the

solution has the potential for adoption in global markets or even change

global practices


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Choosing the right set of metrics to

identify opportunities and track


Existing metrics do not simultaneously capture how the company is

performing on efficiency and responsiveness

With separate metrics for efficiency and responsiveness companies cannot

determine how an innovative product or service can address the constraints

faced by the company and its customers

Need to identify tailored metrics to identify opportunities for constraint driven

innovation


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Choosing the right set of metrics to identify

opportunities and track constraint driven innovation


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Choosing appropriate collaborationpartners

Companies need to create a map of all capabilities required to develop,market and service the products and identify gaps

Why collaboration may be required? Pushing the frontiers across multiple scientific disciplines to develop innovative products

Getting local market insights

Ensuring access to talent

Getting access to potential customers

Companies need to broaden their networks to access ideas from multiple

sources

Success might depend on the ability to build a network of partners and

collaborators


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Creating organizational enablers tosupport constraint driven innovation

Encouraging employees to proactively look for constraints faced by

customers and non-customers

Creating an innovation portal to share ideas

Innovation tournaments focused on addressing company and customerconstraints (Terwiesch and Ulrich, 2009)

Involving finance personnel during the selection and development of ideas

Finance should work as a business partner

Evaluation of innovative products and services originating from emerging markets should be

made independent of the conventional business plan and product review process

(Christensen and Raynor, 2003)


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utilizing constraints for innovation

Documents