July 2010
http://hbr.org/2010/07/innovations-holy-grail/ar/1
Executive Summary
Innovation, after vanishing from corporate priorities during the recent recession, is slowly making its way back onto to-do lists in corner offices. In most companies, though, the innovation process is coughing and sputtering like a rusty old engine. Not unlike internal combustion, traditional innovation is heading for obsolescence—because parameters have completely changed—and it will take unsuspecting organizations with it.
Most innovation programs are built on the assumptions of affluence and abundance. The more, the better. Striving for bigger margins is B School 101. However, we see shaken consumers in the United States and Europe asking for inexpensive or value-for-money products and services. We see billions of first-time consumers in China and India—where economic growth is surging and 2 billion to 3 billion people will join the middle class in the next decade—who can afford only the cheapest offerings. We see the rich and the young in both the developed and the developing worlds demanding environment-friendly products and services. Affordability and sustainability, not premium pricing and abundance, should drive innovation today.
Companies can respond to the challenge by developing strategies that allow them to create more products with fewer resources and sell them cheaply. The search for lower manufacturing costs and fresh sources of talent will increase pressure on them to globalize, leading to more-complex knowledge chains, supply chains, and cross-border interdependencies. At the same time, the new processes will make products and services accessible to a greater number of consumers the world over. Learning to do more with less for more people, we believe, should be the innovator’s dream.
While this undertaking is proving to be a nightmare for many Western companies, our research suggests that a few pioneers in developing countries are showing the way. They design inexpensive products and manufacture them with so little capital and on a scale so vast that their prices—1 cent for a one-minute telephone call, $30 for cataract surgery, $2,000 for a car—are, by an order of magnitude, the lowest in the world. Faced with shortages of capital, technology, and talent, audacious entrepreneurs in emerging markets have had no choice but to overturn accepted wisdom. A potent combination of constraints and ambitions has ignited a new genre of innovation.
Nowhere is this more evident than in India, which was not exactly famous for innovation until recently. Indians used to joke that it was prophetic that a local mathematician had arguably, around 500 AD, invented the number zero—because that was how many innovations Indians developed thereafter. No longer can anyone say that. Smart Indian companies have come up with new technologies and radical business models to penetrate the country’s mass markets. They have done this by transforming almost every element of the value chain, from supply-chain management to recruitment, and creating novel business ecosystems.
Some describe this phenomenon as an extension of the Indian tradition of jugaad: developing alternatives, improvisations, and make-dos to overcome a lack of resources and solve seemingly insoluble problems. However, the term “jugaad” has the connotation of compromising on quality. We prefer “Gandhian innovation,” because at the core of this type of innovation lie two of the Mahatma’s tenets: “I would prize every invention of science made for the benefit of all,” and “Earth provides enough to satisfy every man’s need, but not every man’s greed.” Affordability and sustainability were Gandhi’s touchstones six decades ago, and Indian companies have recently discovered their power.
In the following pages, we will describe the factors that led to this genre of innovation in India, unveil a framework that will help executives understand this approach, and present some ideas that will allow companies everywhere to develop Gandhian innovations.
Three Kinds of Gandhian Innovation
Over the past three years, we have studied how Indian companies and organizations innovate, often backed by the government. Some are established companies, and others are start-ups. They aren’t confined to a few industries; they run the gamut of manufacturing and services—automobile manufacturing, drug development, health care, leather finishing, mobile communications, oil drilling, retailing, supercomputing, water purification, wind energy—and cover a range of capital and labor intensities. The only common link is that they’re all radically innovative.
C.K. Prahalad was the Paul and Ruth McCracken Distinguished University Professor of Strategy at the University of Michigan’s Ross School of Business. He wrote this article, his 16th for HBR, before he passed away on April 16, 2010.R.A. Mashelkar is a CSIR Bhatnagar Fellow at the National Chemical Laboratory in Pune, India, and a former director general of India’s Council of Scientific and Industrial Research. He serves on the boards of Reliance Industries and Tata Motors, one of the companies cited in this article.
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