Archive for June 29th, 2010
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.
“Social Innovation” and “Social Enterprise”: A Powerful Combination
When we use terms like social entrepreneurship, social innovation and social enterprise, terminologies and definitions can be vexing and it can get overwhelming with the numerous debates and discussions around the same. In his article, “Social Innovation” and “Social Enterprise”: A Powerful Combination, author Jerr Boschee tries to present his insights in a concise commentary that presents the definitions out for debate while proposing a strategic framework of combining social innovation with social enterprises as the sustainable way forward.
His commentary makes it easy to break down the issues of social enterprise and innovation for social entrepreneurship into three basic aspects:
Firstly, theory and academic research in this sector and the correlations with field practitioners- the chicken and egg story.
Boschee agrees with recent thought leadership on framing theories for social entrepreneurship and abandons the typical academic approach of “building management practice from theory” for this sector. The proposal is to adopt instead the approach of building management theory from practice and to have an academic approach rooted in practical experiences. Boschee also applauds recommendations for further research to be conducted at the interface of innovation and enterprise as this intersection seems to be the only practical solution for viability as gleaned from learnings of on-field practitioners.
Secondly, Boschee looks at the opposing views in traditional definitions of social entrepreneurshi.
The crucial need for defining the domain in a felicitous way is emphasized and Boschee brings to the fore that the best way of framing this new field lies at the intersection of the two dominant schools of practice and thought: the Social Enterprise School and the Social Innovation School.
It is the opposing perspectives of these two dominant schools of thought that have led to the contrary definitions for the sector leading to a sort of status-quo where one mandates social good through innovation and adaptation where entrepreneurs serve as change agents for creating and sustaining social value. While on the other hand, the other side argues that earned revenue is the sine qua non of social entrepreneurship because only earned income will ever allow a non profit to become sustainable and that the entrepreneurial component comes from ensuring financial viability which is essential to effect social good in a self sufficient manner.
Thirdly, Boschee takes a look at the powerful combination of innovation and enterprise as the way forward for achieving social impact in a self sufficient sustainable way.
Boschee believes he has finally found common ground and describes a migration from innovation to entrepreneurship as the way for non profits to move towards sustainability and self- sufficiency which he further describes in his book carrying the same title. He describes how he sees innovation and enterprise to be like siblings or flip sides of the same coin- different yet very deeply interlinked.
Boschee gives insights into the frustrations and operational struggles and inherent uncertainties experienced by innovators and hence requiring the enterprise approach for scaling up and to bring in the viability component to ensure sustenance. This he believes is the true differentiator between initiating new projects (innovation in concept and design) and sustaining the projects for ongoing social impact which is the underlying mandate for the social entrepreneurship sector. He perhaps implies the need for moving away from donor driven projects to self sufficient market driven initiatives as the solution for sustainability for the future.
Boschee believes social innovators are vital to any hopes we have to address the ills of the world and commends their chutzpah which is inspiring. Nonetheless, he also strongly believes that social enterprise is the tool that can move social innovators towards financial viability.
Summing up, Boschee urges the need for working together to create a harmonious eco system of innovators, entrepreneurs, academics and practitioners. He formulates a three step process for success in the social entrepreneurship sector:
- Start with practitioners
- Build theory from their experiences
- Create a strategic framework of innovation and enterprise for the next generation of practitioners to enable sustained impact.
Read Boschee’s entire article here.
This abstract has been contributed by Yeshesvini Chandar, a Villgro Fellow 2010.
How Public-Private Partnerships Can Spur Rural Employment
Villgro Fellow Mayank Jaiswal highlights the working of a new public-private partnership to address the challenges of rural employment. As part of his Fellowship, Mayank works with e-Jeevika, a Villgro incubatee company that provides employment and recruitment services for rural India.
Rural India is teeming with youth who could be made employable. This will bring the youth and their families out of a vicious circle of poverty and deprivation. It not only imparts the youth with the financial stability that comes with a job but also empowers them and develops their self confidence by enhancing their social status in the community. Companies are increasingly relying on rural India to staff their front and back offices in urban and semi-urban towns.
For long the most coveted jobs in India were with the government. Rapid economic growth, driven by a thriving private sector has changed that, but the government isn’t completely out of the picture as yet. In fact a new initiative in the southern state of Andhra Pradesh, offers models for public-private partnership in providing employment to rural youth. The The Employment Generation & Marketing Mission (EGMM), headquartered in Hyderabad, not only trains young people, but also helps them get employed. The project was started by World Bank and was taken over by the state government of Andhra Pradesh.
The program identifies Grad 10-level students studying in government schools (where education is free) in rural Andhra Pradesh, who can be trained, groomed and prepared for an assortment of entry-level jobs in a range of sectors, including telecom, hospitality, manufacturing, retail and outsourcing. EGMM proactively talks to the industry and develops a curriculum, which it makes sure to include essential soft skills . The Mission provides a basic 75-day residential training program, which includes English and computer-skills classes, personal hygiene sessions and counseling. To minimize preconceived notions of what employment might entail, the last 15 days of the program provide on-the-job training at prospective workplaces ranging from security agencies and telecom firms to pharmaceutical companies and retail outlets. This allows trainees to get a feel for the work environment and see what’s expected of them. The familiarization helps youth adapt to their new lives later.
EGMM is a small but important start. If other states are able to replicate the model, there could be enough ammunition to handle India’s rural employment dilemma.
Read more about the EGMM, here.
Mobile Banking in 2010
Mobile Banking technology has played a huge role in financial service delivery, and therefore financial inclusion. The industry and its players have also moved rapidly to develop partnerships with social enterprises engaged with delivering financial services to low-income markets, be it microfinance institutions, technology enterprises, large-scale commercial banks and so on. In this post Robert Moore, Villgro Fellow 2010, reviews literature that provides insight into the working of the industry.
“Mobile banking may be an industry I would like to start a business in: There are millions of people with phones but not bank accounts – mostly in developing countries”. This quote is from my first blog post of 2008 on www.poorbillionaire.com and marks the day I started taking a big interest in the mobile banking industry.
If you take a lesson from the telecommunications industry you can see that the developing world has “skipped” a step in development: starting with no phones at, skipping land lines, and adopting mobile phones. If this could influence the banking industry the developing world can go from having no bank accounts at all straight to mobile banking – both a leap in the standard of living for the poor and a leap in the progress of the banking industry. Think of all the things you can do with your mobile that you can’t do with a landline and you will start to realize the impact this change in the industry will have.
To support the growth of this industry a conference called the Mobile Money Summit was started in 2008. An example of this conference’s impact is showcased in a paper produced from the 2009 summit titled “Accelerating the Development of Mobile Money Ecosystems ” which talks about how quickly this industry is growing and how the challenges both as a market opportunity and as a poverty alleviation tool are being better understood.
But the paper I really want to talk about is Nexbillion.net Editor Nathan Wyeth’s three part article titled “Report from the Mobile Money Summit”. His introduction says: “My hope in attending the summit was to share with NextBillion readers the state of the industry and what can be expected in the future outside of places where mobile banking and payment systems have already taken significant hold – namely Kenya and the Philippines (and significant branchless banking in Brazil) – as well as indicate how mobile money systems can be brought into base of the pyramid business models not only for microfinancial services but far outside of the financial services sector – in health, education, agriculture, energy, and more.”
His article brings you up to speed about the potential of this industry and teaches a little about the developing world market. Part one – “State of the Industry” talks about the industry’s markets structure, business model structure, and the banks’ need/priority of “stability before inclusion”. The idea that the poor will actually except negative interest on savings accounts if they are able to save their money securely is one of the interesting concepts that he mentions in Part two – “Product Innovations to Reach the Poor” and that credit profiles can be generated based on current mobile banking transactions for future use in microloans. Part three – “Learning from Agent Networks” discusses the distribution channels involved in making this all happen.
Nathan’s article is a worthwhile read for those interested in Mobile Banking or a glimpse into the world of developing economies and one of the angles that is being used to approach them.
Is All Entrepreneurship Social?
In all the talk of social entrepreneurship, we often forget the social value that regular entrepreneurs hold. While their enterprise, or innovative product may not be designed specifically for, or with the explicit need for to solve a social need, the benefits derived can not be ignored.
In an article in Standford Social Innovation Review, Carl Schramm, CEO of the Ewing Marion Kauffman Foundation, walks us through why we shouldn’t ignore the contributions of regular entrepreneurs.
He builds his thoughts around the process of development and entrepreneurship that the United States of America went through. For example, he points to how delivering improvements in health care are always perceived as being social value that the government or non-profits add. However, as in the case of the U.S, private entrepreneurs and businesses have contributed significantly to improvement in health standards as government health programs.
These private sector contributions came in the form of improved quality of services that contributed significantly to overall improvement of living standards. For example, the development of the rail network lead to more movement of goods and services across the country, which in turn enabled cash-strapped Americans to earn a higher wage, and live better lives. Another example he sites is that of the growth of industry that lead to better quality clothing and shelter – two other goods that Americans in the mid-19th century did not have access to. Improvements in these three areas lead to unprecedented rates of change in the 19th century.
Schramm moves on to draw a parallel to 21st century development efforts. Case in point: cell phones. While disease still plauges much of the world today, as it did 19th century America, the power of the cell phone to overcome these difficulties has been remarkable. While cell phones themselves can not cure disease, Schramm points out that they have been and can be instrumental in developing new business models, companies and technologies, and as a consequence have a direct bearing on economic growth.
In conclusion Schramm does not belittle the efforts of social entrepreneurs, or even programs targetted at improving development indicators. Rather the point he reiterates that in the years to come larger social change will be had as a result of the work of regular entrepreneurs. And therefore, they must also be lauded in their role in improving society.
Read the complete article here.
Being Intentional About Innovation
Innovation is often about what is new, what is being done differently. Innovation in the social sector is also rife. But can one develop a strategy around innovation, to maximize social value? Can being intentional about innovation contribute to the creation of more consistent and reliable commodity for social good?
The WB Kellog Institute commissioned a study, “Intentional Innovation: How Getting More Systematic About Innovation Could Improve Philanthropy and Increase Social Impact” to explore these questions. The work has been carried out jointly by the Monitor Institute and Clohesy Consulting.
The purpose of the report is to help non-profits and philanthropists understand that innovation is not necessarily as organic as it might seem. Drawing from several case studies, reports, books, and conversations, it lays down a framework for building a “Creating a Culture for Innovation.” The framework it points to has five sections:
1. Setting the Conditions and building the committmenent to innovate.
2. Defining the Problem or Opportunity. In short identifying the targets for innovation.
3. Generating the idea
4. Engaging in piloting and prototyping.
5. Diffusion and scaling the innovation.
By understanding the framework and the process of innovation, the report provides a tool for donors and philanthropists to formulate ways in which they can be ‘intentional’ about creating innovation, and thereby increasing their social impact.
Read the entire report here.