Saturday, March 24, 2012

Next Generation Business Strategies for the BoP

C.K. Prahalad and Stuart Hart changed the way we think about the poor and their participation in business and commerce with their “Base of the Pyramid” (BoP) paradigm. Though the BoP concept has been the subject of criticism for (i) being definitionally imprecise; (ii) for seeing the poor only as consumers (and, by implication, as the next target for greedy large corporations!); and (iii) for its lack of success on a scale that matches the potential identified by Prahalad and Hart, there is little doubt that it remains a subject of great interest for business managers and researchers.

There are important efforts on to take the BoP concept forward. Stuart Hart is today committed to taking it more aggressively to the field, and one of his new initiatives is the Indian Institute for Sustainable Enterprise (IISE) being set up right here in Bangalore. And, the combined learning and experience over the last decade is being used to refine the BoP concept itself.

Next Generation Business Strategies for the Base of the Pyramid is a recent book (FT Press/Pearson Education, 2011) crafted by Ted London & Stuart Hart that helps us understand the “State-of-the-art” of the BoP concept. Naturally, the book starts by paying tribute to CK Prahalad for, among other things, his “ability to amplify weak signals” and “demonstrate dimensionality and directionality” (p. xxiv).

London and Hart make an effort to dispel some of the criticism against the BoP concept, pointing out that production and consumption are linked – if you have more time freed up, you can devote your energies to more income generation; if you pay less, you have more income for other needs; therefore, the key is increasing disposable income (p. xix). The current paradigm of BoP is much more participative and more rooted in the communities for whom products and services are designed, so it’s becoming more difficult to criticize the BoP concept on the way it treats the poor.

In fact, the most insightful parts of this book are those that engage with understanding the poor and the under-served, and that create a conceptual basis for the greater “embeddedness that characterizes BoP 2.0.

Analyzing why BoP customers have not shown much interest in MNCs’ basic needs products – e.g. P&G’s PUR water treatment that was a big failure - Erik Simanis argues in Chapter 4 that the BoP does not constitute a market. According to him, a consumer market is a lifestyle built around a product. Consumers have an inherent sense of when value is valuable, i.e. what is the value of what they are purchasing. In a consumer market, members “embed” a product and its value proposition into their lives. Simanis concludes that for a BoP product to succeed, the company has first to create a new consumer market which is, essentially, a new lifestyle (a value proposition worth valuing + embeddedness in one’s life).

Simanis underlines the point that strategies that work in existing consumer markets are not the same as those needed to create new markets. In the latter, both customers and sellers lack reference points that allow them to compare and choose. The most attractive BoP markets involve addressing non-consumption, i.e., creating new markets. A consumer market is “a community of people for whom the idea and practice of paying money for a value proposition is second nature and who have embedded a product into the fabric of their lives.” (p. 112). “A consumer market is the end result of a successful collective sensemaking effort that has infused a product with personal meaning and significance.” (p. 112).

Simanis suggests that products and services addressed at the BoP start with a “value open proposition” so as to avoid getting boxed into a single category. Embedded innovation would help as “the most effective way to get someone to desire a value proposition and consumer offering and to then invest the time and effort to learn new routines and behaviors is to have him or her feel a sense of ownership for it.”( p. 117). Simanis proposes three phases of embedded innovation: seeding, base-building, growth and consolidation and emphasizes that doing this effectively might need a 5 – 7 year time frame.

Another insightful chapter is by Madhu Viswanathan (“A Microlevel Approach to understanding BoP Marketplaces”). He points out that activities that are routine and predictable for people with means can be quite unpredictable for the poor. The poor tend to resort to “concrete thinking” to cope with uncertainty – e.g., they focus on a single piece of information; or, they focus on the immediate; or they seek familiar context. They also tend to follow pictographic thinking or a matching logic. Viswanathan argues that low literacy can result in low self-esteem, and that for the poor the selfworth that is important for human existence comes from human relationships. Their lack of material resources tends to enhance reliance on families, traditions, and social surroundings. Transactions tend to be characterized by fluidity and customization. He concludes that “solutions succeed and fail based on the extent to which they are based on a deep understanding of life circumstances” (p. 153).

Patrick Whitney identifies the potential of design thinking to reframe BoP problems. Reframing “user insight enables the redefinition of the problem to one that is based upon the user’s activities instead of the company’s product.” (p. 178). Thus Godrej’s chotukool became more about improving people’s lives rather than just selling them a refrigerator.

In his chapter on “BoP Venture Formation for Scale,” Allen Hammond of Ashoka suggests three approaches to help BoP initiatives achieve scale: (i) Build both local and Global DNA (in financial structure, management capacity, etc.), (ii) Build an entire ecosystem to support scale (this often involves expanding the scope of venture creation) and (iii) consciously build hybrid organizations involving both NGOs and business, generating value for both.

In the final chapter, London draws attention to some of the unaddressed issues in BoP research. One of the issues he identifies, the internal organizational challenges of the BoP business in a large organization context, is from what I can see one of the main reasons why we are unlikely to see significant traction in the BoP space for quite some time to come. The logic of BoP is so different from the dominant logic of most large corporations and the time taken for results to appear so long that BoP business models are unlikely to become commonplace anytime soon.

Overall, this is a thought-provoking book with several useful examples. I particularly liked the one on Life Spring Hospitals, a Hyderabad-based network of low-cost maternity care hospitals that has applied the “Aravind Eye Care logic” to maternal healthcare. This is essential reading for anyone studying or applying BoP business concepts.

Tuesday, March 20, 2012

Scale: Challenge to Necessity to Opportunity for Global Leadership

I am fascinated by how, in the context of innovation in India, scale has moved from being a challenge to a necessity, and now  an opportunity for global leadership.

Please check out my column in a recent issue of Outlook Business that explores this theme:

Friday, March 16, 2012

The Box - How Containerized Shipping Changed the World

Containerized shipping seems like a most mundane and routine activity. But Marc Levinson makes the saga of the adoption and diffusion of this game-changing innovation a memorable experience in The Box (Princeton University Press, 2006).

While it’s extremely difficult to estimate the exact impact of containerization, Levinson convincingly establishes that it revolutionized the carriage of freight and much more. As he pithily puts it, as a result of containerization, “transportation has become so efficient that for many purposes, freight costs do not much effect economic decisions” (p. 8).

In The Box, Levinson underlines different facets of the innovation process in an eminently reader-friendly way. Here are my key takeaways from the book:

Ideas take time to germinate, as Steven Johnson explained in Where Good Ideas Come From. The first containers were in use as far back as the late 19th century. But it wasn’t until the mid 1950s that the container got effectively commercialized. And this happened because of the concatenation of two important events: the large inefficiency of port operations that led to significant costs of transportation, and the determination of Malcom Maclean, serial entrepreneur and intrepid innovator, to find ways of reducing costs and injecting efficiency into the shipping system.

Execution of the idea is key – this involves overcoming a variety of barriers. Maclean identified an outstanding design engineer Keith Tantlinger who could design containers that could withstand transportation and be stacked one upon the other. He re-designed ships so that they could carry containers efficiently without wasting space. He created new port infrastructure (at hitherto under-utilized ports) specially suited to the loading and unloading of containers. He overcame the objections of unions and regulatory barriers. He took big risks by offering to demonstrate the utility of containerization to the US armed forces in the middle of the Vietnam War (incidentally, a highly successful demonstration that gave him exclusive access to military cargo for the rest of the war).

Diffusion of an innovation depends on social, economical and political factors. Powerful dock unions were against it, though in retrospect it is now clear that they under-estimated the changes that containerization would bring about. Cartelization of shipping (through “conferences” of shipping companies) delayed the diffusion of this innovation because it provided a price umbrella for inefficient shipping modes. Standardization played a role (though it happened 7-8 years after the container was first in use on a commercial scale) – in its absence, there would have been no interchangeable use of containers across players and transportation modes, and purpose of containerization would have been defeated.

External events play a major role in the diffusion of innovation. This is evident in the pace of diffusion of containerization. The Vietnam War graphically demonstrated the utility of containerized shipping and got the strong endorsement of the US military. The first oil shock (1973-74) depressed demand for world trade and put a spoke in the wheel of rapid containerization – players who had invested in high speed ships that consumed a lot of fuel were at a serious disadvantage. Equally, subsequent stabilization of fuel prices made those who had invested in slower ships lose out.

The full impact of an innovation can take many years to be apparent. Initially, the benefits of containers were not passed on fully to customers. Containers also did not immediately displace traditional methods of shipping because of regulation and cartelization (subsidies for ships carrying the national flag; cartels/conferences kept prices high). But ultimately containerization changed the world in myriad ways. It started by reducing loading, unloading and trans-shipment time at ports dramatically. It made port activities much less labour-intensive. It reduced theft and damage. Over the longer term, it reduced transportation and logistics costs, and enhanced efficiency. Looking back, it played a major role in helping Japan, Korea and later China become major exporters. It facilitated disaggregation of industries, and helped specialization leading to the global value chains that are commonplace today.

Innovation can have a profound impact on economic geography. Ports that did not (or could not) embrace containerization lost out. Social communities in the periphery of ports got uprooted. Many industries located near ports for logistics reasons no longer had to do so. New ports emerged, and containerization sparked off competition between port cities as they vied to set up better infrastructure. The ultimate impact of containerization has been in globalization and the growth of world trade.

First-movers don’t necessarily dominate unless they manage to create some barriers to entry/imitation or create lock-in effects. Particularly if technology is changing fast, a late mover who understands the changing industry dynamics better may have an advantage over early movers. Initially investments in containerization for shippers were not huge – companies modified existing ships of World War II vintage that had been acquired at low cost, so no major capex was involved. Later, an intense competitive battle to acquire large ships with huge container capacities involving major capex ensued. This resulted in price wars as shipping companies were desperate to fill capacity. Many of the early movers lost out, and the ultimate winners were lines like Maersk that focused on efficiency and logistics, etc. (reminds me of the airline industry!).

Wednesday, March 14, 2012

Recognizing Grassroot Innovators is Key to Creating an Innovation Culture

As I argued in From Jugaad to Systematic Innovation, we need to create societal conditions to support innovation in the country. One such important step is to make sure that innovators get the respect and recognition they deserve. After all, they overcome difficult odds to pursue innovation in our environment.

The National Innovation Foundation has been doing a wonderful job in identifying and recognising innovative citizens across the country. President Abdul Kalam initiated the practice of inviting these innovators to Rashtratpati Bhavan, presenting them awards, and then hosting an exhibition of their innovations. Its great to see President Pratibha Patil continuing the tradition. The latest awards ceremony was held a few days ago. Details are available at

Thursday, March 8, 2012

IBM Research India: Technology to Solve National Problems

In the world of computers and information technology, IBM has an iconic status. For decades, the company was the undisputed global leader in hardware. While the personal computer was not invented at IBM, the company can legitimately take credit for igniting the PC revolution. The company survived a major dip in performance in the early 1990s before then CEO Louis Gerstner transformed IBM into a technology-driven services company. Today, IBM has a majority of its revenues coming from services, but continues to be a technology giant.

Amidst all these ups and downs, one of IBM’s important strengths has been in research and development. IBM’s research laboratories in the US have been important locations for cutting edge IT research. IBM research has successfully transcended from hardware to software and services, and the company has pioneered the study of Services Science.

IBM Research India, located in Delhi and Bangalore, is an important part of IBM’s global research network. Over time, it has created a distinctive position for itself as it works on problems that are uniquely suited to the Indian and emerging markets contexts.

The current director of IBM Research India, Manish Gupta, is a passionate advocate of India’s research potential. I have had the opportunity to hear him speak on a couple of occasions, and also to interact with him. This blog post is based on what I heard him speak on these occasions, and some follow up research on the net.

Supporting IBM Services Business in India

Some of the work IBM Research has done in India is directed towards the specific needs of IBM as a major IT services provider in India. (As an aside, IBM takes the Indian market very seriously, and provides the IT backbone to Bharti Airtel and Amul, two of India’s biggest consumer brands!).

For example, in recent years, IBM has been one of the largest recruiters in India. The company receives as many as 60,000 resumes every month. IBM Research has an “India workforce management initiative” that focused on the development of tools to automate the recruitment process. A major area of work of IBM Research India is text analytics. This capability has been used to extract salient points from applicants’ resumes, and do a quick qualitative screening/evaluation of prospective candidates. This has increased productivity 20-fold.

Another similar tool developed by IBM Research India is “OptiManage” that helps optimal assignment of employees to projects. The objective, of course, is to reduce bench size and make more efficient use of available manpower. The use of this tool saves IBM millions of dollars each year.

But the more interesting dimension of IBM Research India is its attempt to take advantage of the unique opportunities India provides for service delivery leadership. As Manish writes in his message on the IBM Research India homepage: “In developing solutions for the region, we deal with the unique challenges that we face in India (e.g., massive scale of operations, price sensitivity, heterogeneity and noisiness of data, inadequacies of power and “wired” infrastructure) and target innovative solutions that have the potential to enable leapfrogging and be applied to the rest of the world.”

Research for Service Delivery Leadership

IBM Research India’s work goes well beyond supporting their Indian IT services business to providing a platform for leadership in service delivery.

Managed Customer Relationship Management

India is an important location for voice call centres that provide customer support. Measuring customer satisfaction is a challenging task, and is often measured by supervisors monitoring a subset of calls. But this only helps measure overall satisfaction levels and does not help get back to dissatisfied customers. If customer satisfaction measurement could be automated, that would help reach out to unsatisfied customers and prevent churn. IBM India Research Centre has developed “Voice of customer” analytics that addresses this problem and gives insights into customers based on their interaction with call center agents. Acoustic features and text analysis (based on speech recognition) are combined to give a weighted score for the emotion expressed by the customer on the call. This has led to hundreds of millions of dollars revenues.

Taking Advantage of Scale in Mobile Services Data Centres

Though no US company has more than 100 million customers, India has three! As a result, India has some of the largest datacenters. Given the imperative of providing low-cost mobile services, these have to operate at as low a cost as possible, and hence super efficient IT infrastructure is required. The call detail record is the primary record maintained in a call centre and high level analytics of call records helps increase efficiency and quality of service. IBM Research India has developed some process streaming methods that they believe are far superior to analyzing static data. This solution is now being sold to customers in the US, and is another example of "Reverse" innovation or leapfrogging.

Solving National Problems

IBM Research India has moved beyond the challenges of the services industry to take the first steps towards applying its capabilities to solve problems that arise in a peculiarly emerging market context. Two examples stand out:

Traffic Management

Many countries including Sweden and Singapore have smart transport systems based on video recording, user charges, etc. But applying such solutions in India is problematic with even the basics of traffic discipline like driving in lanes more the exception than the rule. What’s a good way of measuring traffic flows here? IBM Research India is pioneering low-cost acoustic traffic sensing for emerging markets that is able to distinguish between stuck, medium flowing, and smooth flowing traffic, thereby allowing dynamic remote management of traffic.

New Methods to Bridge the Digital Divide: Spoken-web

Today, India is a mobile country. There are close to 800 million phone numbers and 15 million are getting added every month. Most handsets are plain vanilla phones and few subscribers can afford GPRS and internet access through the phone. Besides, India has a literacy rate of only 70%, and a long-standing oral culture which means that people prefer voice as a means of communication.

IBM Research India developed Spoken-web to provide a complement & alternative to the internet. Analogous to the internet, the Spoken-web has voicesites, voicelinks and its own Hyperspeech transfer protocol. Users access different applications through an interactive voice response (IVR) system. User-generated information can be posted on a voice portal. Applications include matrimonial advertisements, and posting election speeches. Families have recorded and posted a kid's voice for the rest of the family to access. Spoken-web has been used to create an employability platform in the state of Karnataka. IBM hopes that smaller companies will build value-added services on this platform.

While the technological potential of the Spoken-web is considerable, at this point of time the business model needed to make the Spoken-web work is not clear. Issues include cost-benefit for users, cost-benefit for organizations, enhancing usability for end-users, making it more usable by organizations including the government, and questions of who will offer the service (IBM? Telecom service provider? Other organizations?).

The Future

With its strong IT capabilities, IBM Research India believes it can apply IT to national problems. The challenge is to find the right mix of business model & technology.

One important arena where they hope to make an impact is education. The number of teachers is unlikely to scale up quickly enough to meet the demand for teachers. Some families spend more than half their income on education. Indian students spend a billion dollars a year on Australian universities. Can technology be used to solve these problems? This is the kind of question on which IBM Research India hopes to make an impact in the future.

Thursday, March 1, 2012

Apple's Product Development Process

My friend & co-author Vinay Dabholkar and I have been going back and forth for some time now trying to discover the essence of the Apple innovation model. In one exchange, I described it to him in shorthand as “Steve Jobs brainstorms with his key team, identifies an opportunity, and then shapes the product. Top down. Dependent on Steve Jobs’ intuition / insight. Often right, sometimes wrong.” Vinay responded: “What is the evidence? Has Steve Jobs or any Apple employee mentioned it anywhere? It could be true but I don’t want to treat lack of information as a proof.”

I read the book Inside Apple (London: John Murray, 2012) by Adam Lashinsky, Senior Editor of Fortune magazine, hoping to find an authoritative account of the Apple innovation process under Steve Jobs with which I could provide such evidence to Vinay. The good news is that I did discover some of its elements. But, several questions remain.

Opportunity Identification & Product Definition

I always thought that Apple under Steve Jobs was like an Italian design house under a Salvatore Ferragamo or a Gucci. Lashinsky confirms this when he describes Apple as a consumer-electronics fashion house. Jobs provided the vision: “To harness the power of computers to improve human life.” Jobs and his key colleagues were all enthusiastic subscribers to this vision, and were able to define the right products because they were building products for themselves. Jobs was a master at defining a product that would carve out a unique position for itself in the marketplace.

Lashinsky gives a good example of Jobs’ genius in this direction in the case of the iPhone: “a revolutionary device combining the convenience of a smartphone with the music storage and listening capability of an iPod” coupled with “a design-snob-worthy look, a user-friendly software interface, and a wow factor” (p. 3). Jobs was clearly the final decision-maker as far as design choices were concerned, and Lashinsky points out that Apple has never used techniques like crowdsourcing that are a staple of Google’s innovation process.

What enabled Jobs to come up with such products with such a distinctive positioning? We don’t have an MRI scan of his brain, but he clearly had the ability to synthesize diverse design elements together in a unique way.

Product Integrity

Of course, the ability to come up with a new, distinctive product concept that meets an unarticulated need of users is only one of the critical abilities needed to make a successful product. A product that depends on synthesis, on getting the mix just right, and providing a seamless experience to customers must have a high degree of what Clark and Fujimoto called “Product Integrity” in their classic Harvard Business Review article of the same title.

Lashinsky provides several insights into how Apple under Steve Jobs ensured product integrity. Jobs believed in an obsessive focus on the product, down to the last detail (again like a master designer?). He believed that attention to detail shows that you really care about the user. Such perfectionism pervaded the company with Jobs willing to settle for nothing but the best. Jobs’ emphasis on simplicity and elegance is also well known.

Integrity was also facilitated by the way Apple was designed as an organization. While the broad product design would be created by the Design department under Jobs’ protégé Jonathan Ive, the Apple New Product Process would start after the design process started. The main players in this were Apple’s supply-chain team and its engineering corps (p. 56). How would the inevitable conflicts be resolved? – Primarily by what’s “the right thing for the product” (though it’s not completely clear how this would be established if you don’t believe in looking at market data or consumer preferences! Present CEO and the architect of Apple’s supply chain, Tim Cook enabled Apple to ensure integration even when working with external vendors. A “design, build and test” cycle within Apple at the prototyping stage would be repeated with vendors to ensure the user experience was maintained in mass manufacture. Lashinsky calls this integration across partners “control without owning.”

Focus on a single product or limited set of products

Another way in which Jobs ensured quality and an unforgettable user experience was through his emphasis on remaining focused by “saying no.” For example, when he returned to Apple in the late 1990s, he focused all of Apple’s attention on the iMAC. He often advised other entrepreneurs to “just pick one thing that you can do great.” Under Jobs, in an effort to make outstanding products, Apple had a maximum of three projects at any time, avoided feature creep, and never chased revenue for revenue’s sake. (There’s a clear lesson for product start-ups here – you can create outstanding products only if you are completely focused on the product you are developing. I have always wondered whether Indian product start-ups that do a lot of other stuff in parallel to ensure cash flows were doing the right thing – after reading this book, I am more convinced than ever that they are not!!).

Functional Structure

Jobs encouraged specialization at Apple and ran an organization that had a functional structure (I suppose this could work in a company of Apple’s size only because of Apple’s focus on a few products at any time and the ability of Jobs, the design team and the engineering team to hold things together). Jobs believed in really small teams of outstanding people to achieve challenging tasks: for example, according to Lashinsky, Apple had only two crack engineers working on the Safari browser for the iPAD.

People Policies

Contrary to contemporary folklore about what an ideal product company (think Google or 3M) should be like to work for, Apple under Jobs would never have won an award for the best place to work in. Jobs wanted Apple to be a place where you would love to work because you were addicted to the work and creating the coolest products, not because it was a nice place to work in. Obviously this suited some people at least: Apple’s core team, particularly at the senior level remained unchanged for several years under Jobs. Lashinsky’s account suggests that Apple could be a stressful place to work in: an employee’s status in the company is related to which project she is working on and can change rapidly if corporate priorities (as then decided by Jobs) changed.

Another challenge to Apple employees according to Lashinsky was Jobs’ obsession with secrecy. Walls would suddenly come up and your access could be suddenly withdrawn when a new product became Apple’s focus. Information within Apple is distributed on a “need to know” basis. A discussion meeting would not start unless everyone present was “disclosed” on it, i.e., authorized to be privy to information regarding the product. What is the logic of this obsession? According to Lashinsky, every Apple launch is like a Hollywood movie debut and Jobs believed it was important to build up anticipation and not allow competitors time to respond. Further, avoiding premature release of information could help avoid cannibalization of existing products. Controls on information flows could also ensure coordinated messaging at the time of a launch.

Integrated Branding

Under Steve Jobs, Apple was great at integrated branding, but unlike in the case of the supply chain where this integration was achieved through organizational design, here it was dependent on Jobs himself.


In an era where many believe that products are passé and solutions are all that matter, Jobs showed that products are not dinosaurs yet. Many of the design and product marketing principles that Steve Jobs espoused are clearly articulated in Inside Apple. But opportunity identification and timing – two key factors in Steve Jobs’ success – still remain a product of the black box representing Jobs’ right brain. Perhaps neuroscience will one day unveil the secrets of his creative process.