The Race to the BoP
The question is, considering all that I have just outlined in the above two posts: ‘Why has this expensive-to-frugal innovation not been done in the past, and indeed, why not on grand scale?’
Entre conventional wisdom! The heavy and burdensome weight of conventional wisdom often reinforces orthodoxy and overshadows powerful ways of seeing anew. In fact, there is a saying in some of the most poorest regions in India these days ‘If you want something different, you have to do it in different ways. By applying methods that worked in the past, can only inhibit getting what you want.’
Big news is, bull elephant multinational corporations have over recent years been waking up to this fact. For one reason, there is a hefty golden purse at the end of this frugal rainbow. Think about it? If you could reduce by 90 percent the build cost of, say, a $2.5 million price tag of medical X-Ray machine, then with adjustments, it could be sold in developed nation at ultra-primus. A kind ‘reverse innovation,’ where frugal products ‘trickle up’ to the industrialized world.
And believe me, in India, in as much as Africa and East and South Asia, the international corporation is beginning to reap new ground in the so-called Bottom of the Pyramid (BoP); referring (as above) to the ~4 billion people that do in reality earn less than 2 dollars a day.
The original BoP concept was conceived by the late Prof. C.K Prahalad (CK) in his fabulous book The Fortune at the Bottom of the Pyramid. Here, individuals are largely excluded from formal markets, though they are often a source of untapped entrepreneurial energy. BoP markets are immensely diverse and fast growing productive sectors that engage people as a trinity of producers, consumers and entrepreneurs to reduce poverty and thus drive economic growth for local communities and indeed the provincial private sector.
Multinational Corporate Lessons in Frugal Innovation.
Beyond local BoP entrepreneurialship, large-scale multinational corporations such as General Electric (GE), Siemens, Heinz have invested heavily in emerging markets, both introducing high-value-low-cost technologies, and products/services; whilst seeking new found BoP opportunities.
GE’s Welch R&D laboratory in Bangalore, India, is the biggest and most liberally funded outside America. Specialising in frugal medical devices such as is the Mac 400, a masterpiece of simplification: a hand-held electrocardiogram (ECG) with a artfully reduced number of features and controls found on conventional ECG kit. It has a simple bus ticket machine printer, can fit into a small rucksack, run on batteries, the cost of each test is under $1 and the price tag come in at around $800 per unit. I got curious, so whilst on a visit to my local hospital in Brighton, I saw an all-singing-and-dancing EGG machine that cost over £10,000, doing almost exactly the same job.
Germany’s Siemens frugal thesedays; innovations in progress include: foetal heart monitors, solar-powered X-ray machines, wind power generators and road traffic management systems; all aimed at the BoP. Siemens pace is frenetic, generating ~30 percent of revenue in emerging markets, consolidating 30 manufacturing facilities in China and India over the past five years alone.
And consider super-volume producers Heinz? They learned very early how to match products and distribution methods to local needs and values of merging nation consumer markets. Heinz's Emerging Country Food Ventures apply a rigorous frugal ‘4As’ program (see below) to score a new product's Applicability, Availability, Affordability and Affinity in emerging markets.
Applicability matches local frugal needs and limitations to brand application. Availability identifies appropriate sales channels. Affordability reviews how to deliver the product at an attractive sales point. And Affinity equates to the expressed and often unexpressed intangible values to potential new offerings. If the 4As analysis suggest reasonable high scoring, managers then explore branding.
Frugal product innovation must start in the company's GigaMindset. And remember that the BoP market has total collective market value of 2.92*1012 dollar value. Foreign R&D sites must integrated into the corporation as home nation innovation centers are. Yet people and resources dedicated to frugal innovation must be native to the emerging country(s). Local teams need decision-making authority to choose which products to develop, how to produce, sell and offer after-sales service. Further, profit and loss responsibility, which is often a prime obstacle for multinationals along with the sanction to draw from corporate global resources, which is essential for leveraging corporate assets in emerging markets.
However, for many western corporations, this has been a protracted and often laborious path for multinationals entering new emerging markets. As CK, and his long time friend Stuart Hart of BoP Learning Labs put it: there are six perennial assumptions or mindsets that multinationals and even midsized overseas businesses must overcome to make the most of the BoP:
1.The poor are not our target consumers because with our current cost structure we cannot profitably compete for that market.
2.The poor cannot afford and have no use for the products and services sold in the developed markets.
3. Only developed markets will appreciate and pay for new technology. The poor can use the previous generation technologies.
4.The BoP is not important to the long terms viability of our business. We can leave Tier 4 to governments and non-profits.
5.Managers are not excited by business challenges that have a humanitarian dimension.
6.Intellectual excitement is in developed markets. It is hard to find managers and engineers who want to work at the BoP.
The Race to the BoP challenges conventional management wisdom; hence Fighting Poverty with Profitability in the BoP may seem a strange and contradictory idea. But if you provide people with life-enhancing tools and productive innovations at ultra-low-cost, then they will become more enabled, productive and efficient, and in turn people’s earning potential will increase. And the evidence is beginning to show that is possible to keep improving lives at the BoP by simply making this productive technology affordable and accessible.
So how do both the would-be GigaEntrepreneur or corporate GigaIntrapreneur conceive and develop products or services that deprived folk living on thin air, embedded in extremely harsh physical and frugal environments, acquire and then enhance their lives in productive positive-sum ways? Well, there is one quite fascinating and heart warming answer: Gandhian Innovation!
Gandhian Innovation is the conceptual brainchild of Dr Raghunath Mashelkar (Mash), a true visionary and accomplished chemist. Mash believes that India has the raw talent to drive and overcome challenges and become a nation of innovators, citing examples such as the Tata Nano, the lowest budget motorcar in the world at $2,000; a hepatitis-B vaccine which is one-fortieth the cost of convention drugs yet still meets UNICEF qualification; and the Arvin Eye Care’s cataract surgeries, performed on 300,000 patients ever year, at one-hundredth the fee charged in many countries.
Gandhian Innovation is inclusive innovation: developing products and services that improve life for everyone; it is innovation that does not leave out the poor. It raises standards of living and quality of life. It is innovation that is not merely affordable, but extremely affordable. Not low performance at a low-price, but higher-performance at ultra-low-price. It is more from less for many. It is about questioning the unquestionable and seeking new way and new methods to achieve the so-called ‘4As’ of Available, Affordable, Accessible, and Appropriate.
Mashelkar’s orginal inspiration for Gandhian Innovation came from the ‘Great Soul’ Mahatma Gandhi (महात्मा mahātmā) and his beliefs.
‘I would prize every invention of science made for the benefit all.’
Mashelkar work, Bāpu beliefs into a frugal design process:
where there is abundance the idea of frugality, reclamation and recycling has little significance (be honest!). Only, in times or in places of scarcity, aspiration is (needs) to be greater than reserves and supply (recall the sugar shortage in the late 1970s!). Hence, when people are rich in resource, ambition to progress and move forward goes quickly down. Therefore, resource rich firms are already at a disadvantage when conceiving and developing frugal systems. Here’s a tip: rent a shabby garage (al a Bill and Dave in the 1930s). No budgets for heating or air conditioning or food! Basic only! Frugal behaviour will only emerge by frugal realities.
Gandhian innovation hierarchy. Life saving - life subsistence - life enabling - life possibilites. Frugal reality, not perceived benefit, sells at the BoP. And selling life enabling systems that the BoP can afford, assists in lifting the poor out of poverty.
Move BoP consumers away from subsistence to possibilities. Thrifty appliances, economical tools or prudent communal systems move people above borderline existence to a life-of-possibilities. Beginning with access to the primary amenities of drinking water, notorious food-stuffs and basic shelter; the varying degrees of poverty; from extreme famine in sub-Saharan Africa, to the squalor on the homeless streets of London, requires different levels of frugal inventions that give access to possibilities.
Frugal Concepts. As above, turning raw ideas, sketches and scribbles into a robust FRUGAL concept needs to be embedded with BoP market realities. Roland Burger’s strategy consulting arm, has come up with a neat mnemonic for BoP product design that triggers certain stages in product development F.R.U.G.A.L:
Does the provision function(s) live up to the customer’s expectations and demands?
Is the ruggedized, easy to maintain and reliable?
Is the provision simple and easy-to-use in regarding first-time usage?
Does the market have significant volumes to achieve scale-economies and profit?
Is the provision at Frugal price-point and offer value-for-money?
A design for local emerging market or design for frugalinternational BoP markets?
Frugal functions over multiple features. Minimum optimal viable features and functions Frugal products compete on ultra-rigorous price-performance criteria. But frugal product innovation is more than mere cost reduction. To deliver superior cost effective performance over a limited set of functions, business models often need to be reconfigured to create entirely new maker-techniques and supply systems. Hence, stripping down advanced products originally engineered to promote features for high-end markets will not make a competitive platform in emerging markets. Built in costs will simply not match BoP price-point targets and local competitors will run preverbal rings with correctly targets frugal functions.
This analysis goes on in high-value products and service in high-end-markets. However, in BoP markets this takes on an altogether frugal sensibility. What is the bare minimum utility that will deliver the right level of effective usability and valuable end-product output delivery in ultra-austere environments?
Examples: Portable, solar powered fridge, that operates at 3 degrees centigrade in all ambient temperatures – simple – no more, no less. Outdoor, portable, low-energy solar energized battery celled 6 hour florescent lamp – simple – no more, no less. One man, 2 kilo, ultracompact, water resistant, aerodynamic inflatable tent – simple – no more, no less (and then of course, it is quite possible to sell these three items in developed market, at higher-end prices).
Local frugality. Products sold in emerging markets are tailored to local requirements. Product lines corresponds with the target market and customer segments, and identifies other potential products that would better satisfy customer requirements. In-depth profiles of the target markets/customer segments, buyer needs and specifications are used to build pricing and revenue models.
This phase defines the frugal product’s functions and competitive advantages, discovered through expert interviews, cross-functional workshops and extensive market research. Identifies essential and non-essential functions to satisfy customer requirements, estimates costs using different technical and engineering approaches to produce the components, then uses a cost/performance matrix to derive design options.
Breakthrough cost mindset. Okay, your board has asked you (or maybe you the Entrepreneur) to reduce the direct cost of your shinny best selling Dynamic-X product by 90 percent. Not 10 percent, but by ninety points. Believe me, when I set this challenge in my assignments, almost every time I am greeted with ‘impossible’ (and other expletives).
Again this is about GigaMindset driving strategy. For example, Roland Berger Strategy Consulting aptly explain:
‘The United Nations World Investment Report estimates that approximately 21,500 multinationals do business in emerging countries. Prominent multinationals such as Microsoft, PepsiCo, IBM, Cisco, Nokia, GE and Xerox have also established R&D hubs in emerging markets to conduct scientific and engineering research and explore next-generation business models and organizational structures. A top motivation is to design economical, sustainable products and methods for global rollout. These companies want to create new designs that could potentially reduce costs by orders of magnitude – a 90 percent reduction rather than 10% cost savings.’
And that is the breakpoint. If you were challenged to act such a scale down in costs you would naturally think in your relative local terms. And of course that would be completely restraining. But by thinking as a corporation would, systemic transformational changes and ideas you will envision and then set the solutions to achieve such seemingly impossible goals. So want to reduce your brainchild’s marginal cost by 90 percent, live and design in Manabí or Bangladesh.
Further still, if you were to design from scratch a product that the best competitor produces for a 1000 dollars, and your target make was Sub-Saharan Africa, and your price target price was at best $5. No doubt 99 percent of reasonable humans would pull out and leaving the nutty one percent to get on and fail. But such radical breakthroughs in cost happens on the unreasonable frugal fringe.
Robust design and ease of maintenance. Jungle Commando-like ruggedized and anti-use-abuse is a must. You know the old saw ‘Why don’t they make airplanes out of the stuff that the Black Box Recorder is made of?’ Where possible, maintenance free or in service maintenance that is a breeze for the novis with no tools. Again, there are no maintenance workshops in the desert. So use the latest design for rugged environment and reliability techniques (Six-sigma, TaGuchi, et al).
User-friendly Gandhian design. Intuitive user-interfacing through design intent from first encounter and usage of the service/product must be high on the design agenda. Remember the gadget will be used in the jungle, wilderness or hot conditions. It is dark, noisy, monsoon drench wet. It is wind shear minus 30. There is no one to help, no manual, no go-compare website, nadir, nooooo-thing. One trick designers use when thinking about instinctive user interface design is the toddler technique. If a three year old can use it without instruction, you are on a winner. Take the lid off a Jam Jar or turn off the TV? Think about it!
Design physical products for fast turnaround services. This enables companies to reach greater numbers of ultra-low-income consumers. They might not be able to afford the product, but rent it for a couple of hours/day/week.
Gandhian production systems. A rethink of the entire production process, often turning business models on their heads. As with the necessary frugal mind set need to get the build cost of physical product down to extraordinary low costs, the same must be applied in production.
Instead of mechanical fixings – use anaerobic adhesives and snap fits. Instead of complex systems (compressors) – use low cost cooling fans. Instead of premium material stock – use refurbished substraights (reclaimed polymers and steels). Instead of complex fragmented assemblies – use origami methods for integrated assembly design.
I could go on, but once again, this comes down to a creative and in turn innovative frugal mindset. Go to the poorest regions in the world, take and read books about Bāpu Gandhi, and you will feel it.
Gandhian (Trogon) Distribution. One of, if not the preeminent killer diseases in overpopulated, underdeveloped nations is dehydration through diarrhoea from drinking contaminated or spoilt water. This veracious disease can be quickly halted by a combination of rehydration salts and zinc tablets. But distributing such inexpensive remedies to remote third world regions is (was) not easy. That is until Simon Berry, a health worker in rural Zambia, noticed that even though it was almost impossible to get medicines to remote regions, Coca Cola was obtainable almost everywhere. So he had a brainstorm and designed a package for the salts and zinc - ‘Kit Yamoyo: Kit for Life’ - that sits between the Coca Cola bottles in the distribution crates. Berry and his wife have now set up ColaLife, and have embarked on rolling the distribution idea out in other remote regions.
It is not too difficult to imagine other major corporations, like Coca Cola, that can be used to piggy back emergency and subsistence goods and medicines quickly to isolated quarters. Think Trogon!
Ultimately Gandhian Innovation, Frugal Engineering and the Race to the BoP goes way beyond method; it is about a GigaMindset in the context of turning people’s lives around in a way that no government, no demand based charity, no percussive institute, no United Nations power pack, no peace armada, no priers, no three wishes can do. It is about developing untold GigaMarkets that ends the BoP. Once and for all ending abject poverty.
And remember the better the return for the frugal GigaMarkets, the more successful, more enabled, more independent, more progressive the people who have suffered at the BoP will be. But most of all – and think about this - what a paradox!!!