A Hepatitis B vaccine is 1/40th the cost of traditional vaccines but meets UNICEF’s quality requirements; cataract surgeries, performed on 300,000 patients annually by a single hospital, at a cost that is just 1/100th of that charged in other countries but still meets global quality standards; a refrigerator that costs less than $70 and runs on battery; farmers operating water pumps in fields even as they use mobile phones to conduct other chores; mobile banking, including financial services, that takes such services into the hitherto cut- off hinterland.
All of the above epitomise the innovations taking place that are not just technological or market breakthroughs. They are changing people’s lives. The process of converting an idea into an innovation, which makes tremendous impact, is difficult to realise. Not all attempts succeed. There are four characteristics that set these innovations apart from the ones that do not go very far:
- Such innovations add value to the life of the people much beyond the immediate use of the product or service;
- Such innovations create a product or service of an uncompromising quality at a price that is affordable;
- Such innovations address the challenge of resource use efficiency to manage drastically low cost structures; and
Finally, such innovations are scalable and replicable to suit requirements of local circumstances and complexities.
Innovations meeting these characteristics have been termed as ‘Sustainable and InclusiveInnovations’, orSI2 ,by the CII-ITC Centre of Excellence for Sustainable Development. These innovations, as this report presents, are needed if we have to tackle the twin challenges of the 21st century: poverty and natural resource strain.
Since the time Clayton Christensen and C K Prahalad focused the attention of the world on issues like ‘disruptive innovation’ and the ‘bottom of the pyramid’, respectively, as being the next big market opportunity, there have been many attempts by various organisations, particularly companies and financiers, to tap this potential. This opportunity also opened the floodgates to a galore of experiments, ranging from dumping of stripped-down product variants (mainly low-quality and low-cost) to changes that very efficiently responded to the real needs of the market.
At the outset, however, there were very few who were convinced and there were even fewer disrupted technologies to serve the largest market that has ever existed. Those that dared to take the uncharted path, triggered creation of not just more enterprises, but also different types of enterprises (new-age enterprises, social enterprises, community-based enterprises, hybrid organisations and inclusive businesses). More money flowed into such areas, as confidence grew on the basis of increasing success stories. New- age enterprises affected industry structures, challenging established models. Few companies had the vision to innovate completely new business models to become competitive in saturated urban markets. While some innovated products and services that would create new industries, others brought about innovation in processes.
Again, none of these innovations would have succeeded had they not addressed the issues of sustainability and inclusivity. SI2 is about innovation that improves the lives of everyone; innovation that does not leave out the poor. There are four billion people living on incomes less than $2 a day. To raise their standards of living and quality of life, goods and services will have to be ultra-low-cost, extremely affordable, and at the same time be high on performance and world-class in quality.
The value of SI2 is generally perceived to come true in the low-income markets, but any industry, in any geography, can generate similar breakthroughs by creating a similar context for itself. Not only can these be replicated in low- income countries, but they also have the necessary space in developed countries. Vijay Govindrajan calls such a process reverse innovation.2 This takes place when an innovation developed in a poor country turns out to have broad utility in the developed world as well. This is validated through GE’s Mac 400, a hand- held electrocardiogram (ECG) unit. Here, the multiple buttons on conventional ECGs have been reduced to just four. The bulky printer has been replaced by a tiny gadget normally used in portable ticketing machines. The complete unit is small enough to fit into a small backpack and can run on batteries as well as on general power supply. It sells for $800, instead of the $2,000 that a conventional ECG costs, and it has reduced the cost of an ECG test to just $1 per patient.
SI2 must be scalable and replicable, for only then will such innovations reach the poor and the very poor. Integrating the creativity of poor people and the entrepreneurs, who serve them, is the most efficient way to find some of these solutions. SI2 are essential if businesses are going to offer high-quality, affordable products and services to the poor. To deliver social goods, such as healthcare, energy and clean water, even as one gets the economics right is no less important than it is in any other kind of investment.
SI2 that work are those that are responsive to the limitations imposed by small, irregular customer cash flows and credibly address distribution questions. When engaging low-income segments, as suppliers or producers, a successful SI2 will attend to the costs that a low-income supplier may face in switching livelihoods and to the cost of aggregating and managing large numbers of small suppliers.
SI2 have recently attracted strong interest in the action against global poverty, in part due to the remarkable success of micro- finance and unending possibilities of ICT (including the Internet and mobile platforms).
SI2 means adding value to potential customers, who are currently left out of a market because existing offerings are too expensive or complicated or they lack access. Such consumers fall all along the socio-economic spectrum, although opportunities to democratise products in emerging markets and reach the so-called bottom-of-the pyramid are particularly ripe. The global economy creates new opportunities for innovative companies to bring goods and services to those previously unable to access them. As the global economy fuels upward mobility for even the poorest in developing nations, many companies are finding growth by breaking down barriers for the millions of poor they previously thought to be unreachable, unprofitable, or both.
Nokia’s cheapest mobile handsets come equipped with flashlights (because of frequent power cuts), multiple phone books (because they often have several different users), rubberised key pads and menus in several different languages. Tata Swach uses rice husks to purify water. It is not only robust and portable but also relatively cheap, giving a large family an abundant supply of bacteria-free water for an initial investment of about $24 and a recurring expense of about $4 for a new filter every few months. Tata Chemicals, which is making the devices, is planning to produce one million over the next year and hopes for an eventual market of 100 million. Anurag Gupta, a telecom entrepreneur, has reduced a bank branch to a smart-phone and a fingerprint scanner that allows ATM machines to be taken to rural customers. Godrej & Boyce Manufacturing, one of India’s oldest industrial groups, has developed a $70 refrigerator that runs on batteries. First Energy, a start-up, has invented a wood- burning stove that consumes less energy and produces less smoke than regular stoves.
What these companies and entrepreneurs are doing is very different from product or service stripping to make them affordable for the poor. They are taking the needs of the poor as the starting point and then working backwards. There is more to this than simply cutting costs to the bone. SI2 solutions need to be high quality at affordable prices. SI2 also means being sparing in the use of raw materials and being considerate about their impact on the environment. SI2 is not just about redesigning products and services; it involves rethinking entire production processes and business models.
Our findings about the sources of success and failure of SI2 yield important lessons and conclusions:
- Market-based approaches in developing countries have generated remarkable benefits to low-income people and offer enormous value to do even more in the future.
- Central to this are innovations that are both sustainable and inclusive. This will result in solutions tailored to the particular socio- economic conditions of the poor and ecological structure of the geography.
- As has happened in microfinance and decentralised energy, new-age enterprises are more likely than conventional businesses to lead sustainable and inclusive innovations in low-income markets. Current cost structures and organisational settings of conventional businesses, particularly large companies, are self-prohibiting. Unless they restructure and reorganise, a huge market opportunity is off their limits. Exceptions, though, will be those companies that engage poor people as suppliers.
- Innovation in seed funding SI2 plays an important role in getting to low- income markets, even though beyond a certain point, conventional financial markets can still be leveraged. But innovation has always required parts of public and ‘soft’ funding, even in the developed markets.
- It is untrue that innovations for low-income cannot be scaled by small enterprises. Those restricting their understanding to scaling up as the only method risk losing out on opportunities beyond. The other methods to scale innovations are scaling-out and diffusion.
- Customer value proposition in low-income segments is more than adding to product or service use. Companies tend to focus on innovations that deliver ‘job-to-be-done’ by their offering. While this is required and is sustainable, innovations that go beyond ‘job-to-be-done’ are best suited to make an impact on society and be inclusive.
Source: CII REPORT ON SUSTAINABLE & INCLUSIVE INNOVATION