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