This presentation shows how innovations and capability development in low-income countries could work. The presentation shows example of business ventures trying to success with business model innovation.
Business research stays at a cross-roadBusiness at its cross-road Base of the Pyramid (BOP)1.2 Billion (≈ $2000 annum)1.6 Billion (≈ $ 725annum)1.2 Billion (≈ $ 365 annum)< $2,0004,000ExchangemarketBOP (low-income)market$2,000-$20,000 2,000> $20,000 500IndustrializedmarketsEmerging‘mass’ marketsPPP1 Population1 – PPP – Purchasing power paritySource Rangan, 2009:
Traditional business growth thinking ….MarketpenetrationTime (or cumulativeinvestments)1 - Existence2 - Survival3 - Success4 - Scale-up5 - Maturity
… is limited when it comes to low-incomesegmentsBOP marketpenetration1 - Existence2 - Survival3 - Success4 - Scale-up5 - MaturityBOP marketcreationBusiness modelinnovationCreating needswhere markets existCreating marketswhere needs existTime (or cumulative investments)
Why are market creation and business modelinnovation important to the water & wastewatersector?BOP marketpenetration1 - Existence2 - Survival3 - Success4 - Scale-up5 - MaturityBOPmarketcreationInnovatingBusiness modelMobile phonesMobile paymentMicro-creditsTime (or cumulativeinvestments)
What drives business model innovation?– A capability perspective or resource-based viewSource: Fischer, Gebauer&Fleisch (2012), based on Grant (1996), Teeceet al. (1997), Teece, (2007) Stefano et al.(2010)MarketpenetrationBusiness model(t2)Business model(t1)InvestmentsIndividualskillsSensing SeizingReconfiguringRoutinesInvestmentsIndividualskillsSensing SeizingReconfiguringRoutinesDynamic capabilitiesOperational capabilitiesFunctional capabilitiesActivities & tasksIndividual skillsFunctional capabilitiesActivities & tasksIndividual skillsDynamic capabilitiesOperational capabilities
The re-invent the toilet challenge illustratesthe business model innovationBOP marketpenetrationExistenceSurvivalSuccessBOP marketcreationRent-a-toiletEnd-product salesScaling-upMicro-franchisingTime (or cumulative investments)
diversion toilets can be retrofitted intoexisting structures.
OSHO goes from a charity-based to project-based and, finally, to a profit-based businessmodelNo recovery ofinvested capitalRepayment of investedcapital (self-sustainability)Financial profit maximizationSocial profit maximizationNon-for-profitorganizationSocialbusinessProfit-maximizingbusinessesN/ASource: Yunus et al. (2010)
Non-for-profitorganizationSocialbusinessProfit-maximizingbusinessesN/AOSHO goes from a charity-based to project-based and, finally, to a business-basedbusiness modelNo recovery ofinvested capitalRepayment of investedcapital (self-sustainability)Financial profit maximizationSocial profit maximizationB1-4CABusiness models (B1-4)Flexibility between project-base, high-volume productionbusiness model and so onBusiness model C)Extending thebusiness modelscopeSource: Workshop HEKS and OSHO 20-22-08-2012
05001000150020002500300035004000Business model innovation at sarvajal– affordable, accessible, and pure waterInstalled watersystems2008 2010 2014 20162012...Source: Sarvajal (2012)
05001000150020002500300035004000Installed watersystems2008 2010 2014 20162012...Holistic extension of the business modelSarvajal(Franchisor)(5000 $ /2600$)Micro-entrepreneurs(Franchisees)500 $ (40% ofrevenue)Communities(Villages –3’000)0.12 $ for 20liters1 : n 1 : mOperational capabilities: maintaining andmonitoring the systemsDynamic capabilitiesIndividual skills – bright brains to repetitive gainsRoutines – Franchisee strategy tool / approachto balance own / borrowed capitalBankMicro-creditinstituteSource: own interpretation and interviews. Based on Macomber and Sinha (2012)Business model innovation at sarvajal– affordable, accessible, and pure water
Septage sludge management can be scaled-up through different business modelinnovationHoneysucker businesses in BangaloreSuccess throughinnovationExistence & survivalScale-upmicro-networkreplicationPenetrationSeptagesludgeemptyingTimeExistence & survival• Micro-honeysuckers startto emerge after setting-uppit latrinesSuccess• Innovating the vacuumtruck, pumps, compositefield, use of fertilizers, &special applicationsScale-up• Extending the number ofmirco-honeysuckerbusinesses, instead ofgrowing the individualbusinesses
Re-considering corporate social responsibilityenable MNEs to be more innovativeCorporate social responsibility(CSR)• CSR Integration – Integration withthe core business• CSR innovation – Expansion of thecore business• Grameen Veolia - surface-watertreatment systems• Procter&Gamble – PUR• Hindustan Unilever - PureitWater PurifierReverse Innovation• Previous transnational strategiesturn towards innovation in emergingmarkets and bringing theseinnovations back to theindustrialized markets• Reverse innovation could disruptexisting technology paths. But itfaces similar hurdles as disruptiveinnovationSource: Halme and Laurila (2009) Source: Govindarajan and Rmamurti (2009), Immelt,Govindaraja and Trimble (2009)
Innovation „with‟ the low-income segmentfacilitates a giant leap for all clean-techbusinessesSource: Hart and Christensen (2003)PerformanceTimeLow marketHigh marketSustaining technologyDisruptive technologyBOPMarket
“Thats one (small) step for a man, onegiant leap for mankind” Business model innovations enable growth inwater and wastewater businesses Recognizing and understanding the need gaps Holistic view of business models support localfirms to overcome production and transactionconstraints Multinational firms reconsider their CSRapproaches and supplement the transnationalinnovation strategy to reverse innovationstrategy