Tuesday, December 8, 2009

Innovation – Way towards sustained growth

Global organizations follow a three-step procedure to attain growth and profit: innovate, scale-up and adapt. Interestingly, these three steps embody a contradiction. In order to exploit the creativity of the individuals who create innovations, organizations have to deploy them worldwide. But size may distort the innovation. Another paradox pertains to scaling-up and adapting. Cost savings derive from selling standard products everywhere, enabling extended production runs and learning-curve savings. That is, there is a continuous pressure to make products standard. But local markets often differ widely in culture, preferences and tastes. Adapting products for each type of market can be fatal for cost and profit margins. At the same time, excess-standardization ruins the product. General Motors over-standardized its cars, so that the once powerful car brands became homogenized look-alikes.
The ultimate goal of innovation is sustained competitive advantage. Thus, it becomes imperative to wrap a business design model around a product or service innovation and manage the process down the value chain to the ultimate customer. Strategy innovation is a process of applying innovative thinking to the entire business model of a company, not just too its products or inventions. Corporations which have innovation as the baseline of their business strategy have been able to provide greater shareholder value and sustain the business over longer periods despite disruptive technologies posing major challenges.



Innovation – Helping developing economies
Of late, the sheer magnitude of size and scope of the world markets make it impossible to identify all customer needs in advance and hence even giant multinationals have failed to make their innovations satisfy all customer needs. An alternative mechanism of democratic innovation is emerging where the customers at the grassroots level, who do not have high purchasing power, can bring in innovations on the use of existing products or force large companies to innovate and produce low cost products for their consumption due to their sheer size and volume. The conversion of washing-machines into Lassi-churning machines is a noteworthy example of such democratic innovation processes. Former P&G Manager, Gurucharan Das notes, ‘International managers must think local and then apply local insights to the global scale. ‘One of Das’ innovations was to introduce Vicks Vaporub in small 5 gram boxes priced at a cheaper rate. Subsequently, many fast moving consumer goods (FMCG) are produced and sold in low quantity sachets to cater to the purchasing powers of the low-income group customers.
There is a pressing need to promote ‘inclusive innovation’ so that they are brought into the fold of beneficiaries of the changing economies. Firstly, inclusive innovations need to be consciously promoted by harnessing, increasing and redirecting formal innovation creation efforts. Secondly, there is a requirement of grassroots level entrepreneurs who can diffuse innovations for commercial gains. Finally, mechanisms need to be evolved to help informal enterprises and institutions absorb innovative capabilities already established and practiced elsewhere.

4 comments:

fibinse said...

If I thought so much, in one sitting , I would fall asleep!

varnita bose said...

@fibinse : hahah. Good to see you after a long time. Heard you are in B'lore now, how's it going?

fibinse said...

@varnita: man! you got long ears! Sahi suna.When are you coming down? Hope you can make it down to blore for New year.

varnita bose said...

Exams till 31st.