In an interview with Forbes Magazine's Alan Hall, Harvard Business School professor and noted innovation guru Clayton Christensen insisted that the current U.S. economy has "gone off the rails" because companies are focused too much on efficiency and not enough on the kind of innovations that create real value and meaningful jobs. ["Clay Christensen: Our Obsession With Efficiency Is Killing Innovation," Business Insider, 12 December 2012] Christensen told Hall that "there are three types of innovating. Empowering innovations, which transform expensive products into affordable ones, sustaining innovations, which replace older models with new ones, and efficiency innovations, which reduce or simplify the delivery of something. The first two can create jobs, in the case of empowering innovations, millions of them. Efficiency innovations actually destroy jobs. Unfortunately, it's that last type of innovation that's the focus of our current economy." Here is specifically what Christensen said:
"In our traditional economic cycles, all three kinds of innovations occurred within a natural and repeatable sequence. Our current economy, however, has gone off of the rails in large part because we are focused almost entirely on efficiency innovations — on streamlining and wringing bottom line savings and additional profits out of our existing organizations. ... We are focused on the wrong metrics. Our universities are training entrepreneurs — and investors — to focus on fast and efficient return on capital investment. Efficiency innovations provide return on investment in 12-18 months. Empowering innovations take 5-10 years to yield a return. We have ample capital — oceans of capital — that is being reinvested into efficiency innovation. As long as this continues to happen, we will continue to experience the tremendous chasm between capital investment and the creation of meaningful numbers of new jobs and especially of highly specialized jobs."
Empowering innovations, which "transform expensive products into affordable ones," may sound like they are related to efficiency innovations, which "wring out bottom line savings"; but, the former focuses on the product and making it more available to more consumers while the latter focuses on the organization. The former looks out and forward while the latter looks inward. Christensen is not criticizing efficiency as much as he's concerned that businesses are focused on near-term profits at the expense of long-term gains.
I'm not sure, however, that all empowering innovations "take 5 to 10 years to yield a return." I say that because innovators in emerging market companies employ an innovation technique that results in affordable products that are developed very quickly. The technique is called Jugaad Innovation. I have written on this subject before (see my posts entitled Innovation, Development, and India, The New York Times' Year in Ideas, and An Update on Jugaad). As I wrote in the latter post, Jugaad" (pronounced jewgard) is an Indian term used to describe a unique innovation process. Literally, "jugaad" means "somehow get it done." In the U.S., we might use the term "jury-rigged" in much the same way. Unlike "jury-rigged," however, "jugaad" is overcoming its pejorative past and is a process now being taught around the world. Nothing could be more empowering, or more efficient, than jugaad innovation. Peter Hesseldahl, senior innovation specialist at the Danish Universe Foundation, writes this about jugaad innovation:
"Studying how companies in the emerging markets innovate can offer Western engineers and designers important inspiration, and challenge them to develop products that are much cheaper. Such 'frugal solutions' will become increasingly important in order to stay relevant in the stagnant markets of the West – as well as for the upcoming global middle class of developing countries." ["Jugaad Innovation," Innovation Management.se, 12 December 2012]
Christensen obviously calls affordable innovations "empowering" because their benefits are accessible to more people than expensive ones. Empowerment is exactly what jugaad innovation is about. Hesseldahl explains:
"Jugaad innovation springs directly from the very concrete restrictions that characterize everyday life in India: Average income [per] person in India is less than a tenth of the Northern European average, and on a practical level, one must contend with an often miserable and unpredictable infrastructure, whether it's bad and congested roads or intermittent supplies of electricity and water. Although one can find lots of fascinating and imaginative solutions to very specific and local problems in India, the relevance to companies in the developed world comes from identifying those parts of the Indian approach to innovation, which can be used to develop solutions that have commercial potential on a large scale."
It is the large-scale implementation of jugaad innovations that creates the jobs discussed by Christensen. Hesseldahl agrees with Christensen that affordable innovations are empowering. He writes:
"The conclusion is that jugaad innovation certainly has relevance in the West – not least because there are many indications that the demand for products and solutions at much lower prices will increase. Financially strapped consumers in developed, Western markets will demand basic solutions at a low price. Low prices will also be a prerequisite for Western companies in order to address the rapidly growing middle class in emerging markets."
G. Sunderraman, head of development at the Indian industrial conglomerate Godrej, told Hesseldahl, "You've got to jump in the fishbowl, if you want to understand fish." In other words, he says, "It is crucial to know the market well, in order to distinguish exactly what end-users need to have, rather than what is merely nice for them to have." Hesseldahl describes several products that were developed in emerging markets that have made their way into developed markets. This journey is generally referred to as "reverse innovation." Greg Satell believes that reverse innovation is going to start a revolution. "Revolutions are funny things," he writes. "They succeed in large part because nobody is paying attention. The world appears stable, even comfortable and then out of nowhere someone sees a need, attracts a following and change comes, seemingly out of nowhere." ["The Reverse Innovation Revolution," Digital Tonto, 21 November 2012] He explains why he believes that reverse innovation will usher in a revolution:
"When you live in a society that doesn’t fill your needs, you find a way to fill them yourself and you learn to do it in a low cost way. So, perhaps it is not surprising that even high tech companies like GE, Nathan Myhrvoid's Terrapower and networking giant Cisco have begun to develop specifically for emerging markets in order to create disruptive innovations for their most competitive markets in rich countries. As rising living standards and mobile communications bring the brain power of billions of previously inaccessible brains, we all win. Those huddled masses are more than just hungry mouths, they represent the next big wave of innovation."
Constantinos C. Markides, the Robert P. Bauman Professor of Strategic Leadership at the London Business School, wrote an article that asks, "How Disruptive Will Innovations from Emerging Markets Be?" [MIT Sloan Management Review, 18 September 2012] He writes:
"To answer this question, I examined 21 low-cost disruptive innovations that took place in Europe and the United States over the last 40 years; my sample included not only successful but also unsuccessful disruptors. As a result, we can compare the successful disruptors to the unsuccessful ones and so identify the differences between the two. We can then use these insights to discuss what kinds of disruptions from emerging markets stand the biggest chance for success in more developed economies."
In the end, Markides concludes:
"For disruptors to have a chance of winning against incumbents, they must invest in improving the performance of their products while maintaining their significant cost and price advantages over the incumbents' products. Whether they will succeed in maintaining this advantage depends on the source of their cost advantage and how sustainable it is. ... A cost advantage is difficult to sustain over time, especially if incumbents cut their costs in an aggressive and committed way. ... However, there is one source of cost advantage that is more sustainable than others. This is the business model of the disruptors. A cost advantage that comes on the back of a business model that is not only different from but also conflicts with the business model of the established companies is more sustainable than other cost advantages. This explains the success of low-cost airlines over traditional airlines. Business models are difficult to imitate. What makes the task even more difficult is the fact that the disruptors' business models often conflict with the incumbents’ business models. ... In short, whether low-cost innovations from emerging countries end up disrupting markets in developed countries depends not only on whether the disruptors succeed in putting in place an innovative business model that supports their cost advantage but also on how aggressively the incumbents respond. For incumbents, knowing that much of their fate rests in their hands is half the battle won."
Professor Ramon Henson insists that any company with global ambitions would do well to adopt a reverse innovation attitude. ["Adopting a 'Reverse Innovation' Attitude," Organizational Behavior and Global Management, 8 December 2012] He believes that "attitude" has three characteristics. He describes them as follows:
"First, become more self-aware. Learning more about yourself, your strengths and weaknesses and where you can improve, will give you a dash of humility plus a degree of self-confidence. ... Second, develop respect for different cultures and business practices. In my MBA course on Cross-Cultural Management, many of my students who have never worked overseas are surprised at what they assume to be common management techniques and practices is not that common in other countries. ... Third, improve your listening skills. In my work with executives over the years, one common weakness I see in many of them is their lack of listening skills. For those of you managing globally, this means not only paying attention to content but to context as well."
Whether jugaad innovation (or reverse innovation) represents the first wave of a revolution ushered in by emerging market countries remains to be seen. What is clear is that empowering innovation techniques have caught the attention of some of the world's brightest thinkers. That should be enough to encourage companies to pay attention to the topic.
