THE
GROWTH IMPERATIVE (TGI): AN APPROACH TO ALLEVIATE/ERADICATE POVERTY
Leandro Adolfo Viltard
Pontificia Universidad Católica Argentina
Graduate School of Business, Facultad de Ciencias
Económicas, Universidad de Palermo, Argentina
Universidad de San Isidro (USI), Argentina
Universidad del Pacífico, Ecuador
Universidad Nacional de La Pampa, Argentina
Universidad Nacional de Luján, Argentina
Universidad Nacional del Comahue, Argentina
E-mail: lviltard@yahoo.com.ar
Submission: 04/04/2018
Revision: 25/04/2018
Accept: 11/05/2018
ABSTRACT
Poverty
has become one of the central issues of our society. For governments and
organizations it is much more than a strategic, marketing or philanthropic
issue; it is one of the scourges that whip our society. A new logic must emerge
in order to lay the foundations for the upcoming world. This should contain a
deeper understanding of emerging economies customers’ needs and on consumption
differences between the developed and the developing worlds. The hypothesis of
this work -which is corroborated as the main conclusion of the study- suggests
that the three theories that are presented -if combined and with a deeper
comprehension- may help to alleviate/eradicate poverty, through giving dignity
and better choices to the people who live at the Bottom of the Pyramid (BoP)
and changing the actual dominant logic that inhibits worldwide development.
This objective may be achieved through The Growth Imperative Pillars, presented
in this work. The study is exploratory-descriptive, with a qualitative
methodology. It is based on a bibliographical review of renowned specialists on
the subject.
Keywords: Bottom of the Pyramid (BoP); Reverse Innovation (RI);
Disruptive Innovation (DI); Innovation; Creativity; Competitive advantage; Corporate
culture; Leadership
1. INTRODUCTION
Poverty
has become one of the central issues in our society. Prahalad (2004) says that most governments of the world had
struggled for decades on this subject showing alarming results: almost 5
billion people (+71% of total population) belong to the BoP where there have
not been seen solutions that would help its eradication/alleviation. Moreover,
states that generally the emerging markets’ population lives -in different
geographies- at the BoP, which is a latent market.
These
are forgotten realities for many governments and organizations but -if the
actual dominant logic is changed- they could be part of a fresh business
ecosystem in which a novel set of innovations may occur.
In
this environment, the scope of this study is about three strong theories that
are shown as complementary and may help with this scourge: 1) the Bottom of the
Pyramid (BoP), 2) Reverse Innovation (RI) and 3) Disruptive Innovation (DI).
This
work finds its main motivations in the enormous challenges and opportunities
that poverty puts in our society, taking into account the following factors:
·
It is one of the big unresolved problems, making
difficult the worldwide development if demand is not expanded.
·
The past methods showed imperfection and bring us to
observe an unobjectionable and worsen reality, with no visible results, and an
alarming situation for many people of the world.
·
Through Corporate Social Responsibility (CSR)/Shared
Value Chain (SVC) principles, executives of private firms and social
organizations, and –also- government officials are increasingly becoming
conscious on poverty’s perils and opportunities, being more able to intervene
in this reality.
·
There are more and better tools available in order to
manage people’s creativity, as well as there is an increasing executives’
interest in exploiting it. This challenge needs huge creativity reservoirs to
give better replies on this fact.
As a consequence, the present
research identifies what is called “The Growth Imperative Pillars” -that favors
organizational development through strong theories- from which future
competitive advantages may come out in order to alleviate /eradicate poverty,
and give dignity and better choices to the people of the BoP.
The following questions have allowed
deepening in the subject of this study:
·
Is poverty a scourge of emerging economies only?
·
Are there strong and innovative theories that may help
to alleviate/eradicate poverty?
·
Is globalization the only possible avenue to export
products worldwide and help growth?
·
Is profitability possible producing and selling
simpler products at lower cost/price point?
The final objective of this work is
to deepen in the understanding of the BoP and applicable novel innovation
theories in order to alleviate/eradicate poverty and give dignity and better
choices to the poor all over the world.
The hypothesis of this work suggests
that the three theories that are presented -if combined and with a deeper
comprehension- may help to alleviate/eradicate poverty, through giving dignity
and better choices to the people who live at the Bottom of the Pyramid (BoP)
and changing the actual dominant logic that inhibits worldwide development.
This objective may be achieved through The Growth Imperative Pillars, presented
in this work.
After finishing this
investigation, it is possible to say that its objective was verified and the
hypothesis was corroborated.
The study is
exploratory-descriptive, with qualitative methodology. In addition, it is
holistic because it includes a wide configuration in which the studied object
is located.
As a bibliographical investigation,
data collection involved the study and analysis of information obtained through
relevant international secondary sources.
This research ranged from June, 2017
to April, 2018, and was performed in Buenos Aires, Argentina.
2. THE BOTTOM OF THE PYRAMID (BoP)
Prahalad (2004) states that poverty can be alleviated/eradicated
through giving poor people options and dignity, and including them in the
economic value chain. Also and from a worldwide population of approximately 7
billion people, the poor is a vast reality of approximately 5 billion people,
living in difficult-to-live areas of different countries. Moreover, he admits
that most of the marketing ecosystems are directed to the 2 billion people top
market.
But BoP markets are not
limited to emergent economies only. The Economist (2011) states that, in the
world’s richest countries, the hard-up represent an immense and growing market.
In the period 2005-2009, the average American saw a decline in his income and
millions of middle-class people were forced to downshift due to expenses
increase (like colleges and health care) and credit dry up.
Additionally, approximately 44 million Americans are
living below the official poverty line and consumer spending per household fell
by 2.8% in 2009 (the first time it had fallen since 1984). Also, that broadband
penetration is stabilized at nearly two-thirds of households and pay-TV is
declining its penetration.
The article suggests
that:
·
This is an opportunity for American firms like
McDonald’s that from 2006 had grown 4% its annual sales, despite the increase
in food prices. Also, it can be for
companies of the emerging markets like TracFone Wireless –México- that, since 2008,
sold +3 million pre-paid cellular phones in USA; or MedicallHome –México- that
provides phone health care advise for $5 a month as well as access to their
6,000 doctors network; or Tata -from India- and Haier -from China- that are
looking at USA as a possible market for their frugal products.
·
Frugal shops are rising in USA, too. Target and
Wal-Mart are entering in new markets (such as basic medical care) and new
places (like inner cities), and Aldi –a German discounter- is doing well in
USA. They use unfancy brands, less products in stock and they improve the
places to shop (like Aldi). Also, Wal-Mart expanded its groceries section,
McDonald’s sells healthy fast food, and Dunkin’ Donuts and McDonald’s are
challenging Starbucks by offering a drinkable coffee at cheaper prices.
·
Firms like Pawngo are giving loans to
“college-educated working professionals with temporary cash flow problems”,
Leap Wireless and MetroPCS has shown an impressive growth as pre-paid wireless
providers and Houston’s Direct Energy with a pre-paid plan for electricity.
·
There is space for collaborative consumption, allowing
people to share or rent rather than own. ThredUp enables to swap children’s
cloths and CouchSurfing offers its users hospitality exchange and social
network services.
The conclusion is that
firms’ complacency open up a place for agile and optimist competitors, and that
the BoP is a vast territory where companies that may offer ultra-low prices
will have plenty of possibilities everywhere.
Prahalad (2004) -in order to help the development of the BoP
market, where it is verified that there is money and access to products-
proposes a convergence between BoP solutions and clean technologies, taking
into consideration two fundamental assumptions:
1)
They are not State orphans and they must be turned
into valid consumers. That’s the reason why this population should be seen as a
possible market and as a source of innovation.
2)
They are neither victims nor a burden; not needing
subsidies. They should be considered a basic element of private firms’ central
mission, and recognized as consumers with a sense of value and creative
entrepreneurs.
As a consequence, the author:
·
Understands that the economic development and social
transformation must come from private organizations, local governments, civil
society organizations, BoP consumers and entrepreneurs, and agencies of
development and assistance.
·
Cites firms that are struggling and making profits in
this vast worldwide market (like Cell
Tell, Safari.com, Airtell, Reliance and Globe), and other organizations that
are helping people to:
o
Have clean energy (Tecnosol, Nicaragua).
o Decent housing and neighborhoods (Cemex, México).
o Walk regardless of whether they are disabled
(Jaipur Foot).
o Fight diseases with educational campaigns and
innovative products (Voxiva, Perú).
o Home appliances and furniture (Casas Bahía,
Brazil).
o Monitor the prices of farmers' crops and be in
connection with the world through computing (ITC-eChoupal, India).
Through these
alternatives, poor people can have both additional profits and/or savings, as
follows:
a. Additional
profits, like through
ITC-eChoupal, which gives the opportunity to sell crops when the farmer decides
to and at market prices, not through a government authority/office.
b. Extra
savings, like Cemex, that teaches
to save and invest in their homes to poor people or Casas Bahía that helps them
to have basic things for their lives, having developed a sophisticated credit
rating system and a specific psychological counseling.
Prahalad (2004) adverts
that the initial step of the whole process is to be respectful of BoP consumers
-who must be committed and activist-, and to offer them options and feed their
self-esteem. The challenge is to find creative and new ways to transform
poverty into an opportunity for everybody, through defying our actual dominant
logic, as follows:
·
Inventing ways that take
into account the amount and variability of consumers’ cash flows in this
market. They earn not much, probably between 2 and 9 US dollars a day[1], and if they lose one job
their earning won’t vary a lot as they have others.
·
Considering that with the
actual cost structure it is impossible to serve this market. Voxiva is an
example: in Perú, they fight against diseases with creative solutions. For
instance, they survey people affected to certain diseases with local people,
not with doctors, using a series of photographs that show the state and
evolution of the disease. This is a cheaper method to survey when compared to
utilizing doctors.
·
Being more committed to
product´s functionality, not to its form. In this sense, poor people need
hygiene or groceries products but in the larger formats bought by people with
greater purchasing power the BoP consumer purchase is impossible.
·
Focusing on new and advanced technologies, if needed.
For example, in these markets ATM with fingerprinting reading are used as poor
people cannot read, but also, a Tata Nano –a simple and cheap car of
approximately $2,800 dollars in India- is needed too.
·
Considering that the best top executives should be
assigned to BoP projects, helping in their development.
The study concludes that:
·
The BoP is not a company distraction, being a latent
market of products and services.
·
It is required an inclusive capitalism, as BoP is a
huge growth and innovation opportunity for everybody.
·
We should forget the old and worn solutions if we want
to develop this market.
In the following Figure 1, it is
shown a summary of this section:
Figure 1: The Bottom of
the Pyramid (BoP)
Source:
Own
3. REVERSE INNOVATION (RI)
Govindarajan and
Trimble (2012) suggest that exporting is not the only way to unlock
opportunities for multinationals, and that understanding RI is a new path for
growth and development.
They remark that we all
expect that the future will be discovered in the West (Silicon Valley or
Munich, for example) but not in the East (Bangladesh), and that developing
countries don’t need innovations because they will import them from the rich
world. This idea relies on the affordability concept, which is supported by
globalization: the innovation occurred in the developed world and
multinationals export lightly modified versions of global products, with less
functionalities. As a consequence, what was successful in the rich world it is
supposed that will have acceptance in the emerging one.
But, Govindarajan
(2012) says that RI implies just the opposite: to develop products in emerging
countries to meet needs and price points of local demographics and export them
to developed realities, to new customers’ segments. In other words, ideas are
developed in emerging markets and then they are coaxed to flow uphill in
developed markets.
Govindarajan and
Trimble (2012) suggest that it is a counterintuitive phenomenon as it is easy
to understand why a poor person would want a rich man’s product, but –on the
contrary- why a rich man would want a poor’s man product.
Govindarajan (2012)
insists that this matter possess a huge challenge as firms must outstrip their
dominant logic revamping old organizational structures, product development
areas, production methods and, also, reorienting the sales force. That is the
case of Harman, a company focused on electronic, audio and connectivity systems
for vehicles.
In 2007, Paliwal became the Harman CEO and its
infotainment division was poorly adapting premium products to lowered-priced
segments (globalization). It had 70% share of the market and accounted
two-thirds of the 3 billion revenues, but the high end products had little to
grow. That is why Paliwal approached new opportunities in developing markets
with the following main premises:
·
Setting a team in China and another in India, with
high goals, such us maintaining functionalities, and highly slashing costs and
prices.
·
Establishing a new engineering culture, new design
methods and a novel organizational structure, which included friendly
architecture; scalability; simplicity; modularity; third party and standard
solutions; and a cheaper after-sale customization. As the approach used to
perform the work was cross-functional, unspecialized, experimental, adaptive
and lean, technologies were segregated and subdivided having -in less than a
year- a new architecture and scalable products that resemble the division’s
high-end systems in its functioning, meeting the cost/price aggressive targets.
·
Setting change from bellow and above. Radical change
was proposed from bellow with specific teams in emerging markets, and was
supported from above by the CEO, orchestrating decisions and actions to make
everything happen. This included establishing radical goals; practicing a
clean-slate organizational design; leveraging global resources; choosing team
leaders without conflicting interests; re-branding the product for emerging
markets; shifting people, power and R&D investments to emerging markets;
improving knowledge and experience in emerging economies; managing business and
assuring that actual products were not cannibalized. .
This new approach -shifting
developments for emerging markets- had a lot of internal and external resistance,
and was about to derail, but after Toyota accepted the new products every
objection melted away.
Finally, they could offer a wide
range of products, from low-end to luxury. First, they marketed these products
to the development world and afterwards to the developed countries (carmakers
that were looking for simplicity and low costs).
As of 2011 and in 18 months of the
project, sales of this division amounted 3 billion dollars (a good part of the
5 year target of 5 billion dollars) and in the period 2009-2011 Harman’s stock
multiplied per 4 its value.
Harman went through two stages of
their RI initiative. First, they marketed products in emerging markets and then
in developed-countries manufacturers of lower prices. The third stage of this initiative
is connected with a modular and scalable design and production for luxury
markets.
Also, now they are looking at
infotainment systems for motorbikes, an unexploited market for China, India and
Southeast Asia. It will be based on a new platform, using the processing power
of driver’s cell phones at a target price of $20.
As a result, Harman is pushing the
limits of its capabilities through focusing on the urgency and needs of
emerging markets, and balancing business as usual with radical thinking to
provide better solutions to worldwide customers.
The study made by Govindarajan and
Trimble (2012) remarks that the dynamic of innovation is changing and that, in
certain circumstances, RI offers new and unexpected value, as it is shown in
the following examples:
·
Wal-Mart realized that in Central and South America
shoppers lack the liquidity to buy in bulk and to maintain a home inventory.
So, in order to enter into these markets they discovered that the “big box”
they used should be radically scaled down to a “smaller box”, selling less
quantity and assortment of products.
In an after
step, they realized that the small box was very useful in developed countries’
cities in which space is small and rent is high. Dense urban realities are the
rivalry of small competitors but with economies of scale in purchasing and
supply chain management.
·
Narayana Health City (NH), Ahmedabad, is a hospital in
India where an open-heart surgery costs $2,000 in comparison with US that costs
$20,000. Net profit margins are slightly higher in NH and mortality rates
lower. This is the result of a change in an occidental basic assumption
referred to the fact that every patient is unique and that a surgery is an
opportunity for process innovation, comprising standardization, specialization
of labor, economies of scale and assembly line production.
The fact is that
through a fully utilization of resources and a slash in costs they perform
hundreds of surgeries a day, as follows: a) it is used expensive equipment five
times more if compared to US; b) doctors are more specialized in specific type
of cardiac surgery; c) learning is accelerated; d) skills and quality of work
are improved. As it is seen, cost is not a primary consideration but the last.
Moreover, in
Cayman Island –one hour’s flight from Miami, USA- NH opened a large 2,000-bed
hospital at 50% below US prices.
·
Godrej & Boyce Manufacturing, one of India's
oldest industrial groups, has developed a $70 fridge that runs on batteries,
known as "the little cool". It is used by Indian farmers to have cold
beverages while they are working, and in rich countries in other market
segments like boating and camping.
As a result, the
developing world responds to new needs and opportunities through firms that are
big enough to change the rules of the game as Tata, Mahindra & Mahindra,
Reliance, Lenovo, Haier, Mindray and Suzlon, just to name some. As a result,
the next generation of leaders must be curious about those fresh needs and
opportunities.
The authors remark that
RI proposes the following benefits:
·
It is open to anyone and anywhere, needing ambition to
go after it.
·
It may redistribute power and wealth to countries and
companies.
·
It may accelerate the rise of poor countries and the
decline of rich ones.
But it is not only about
new companies that disrupt incumbents’ markets. General Electric (GE) is a case
that disrupted itself developing local technologies and –afterwards-
distributing them globally. In the period 1980-2008, this process made GE’s
revenues outside US soared from 19% of total revenues to more than half. The
magic relied on understanding that RI requires a decentralized, local-market
focus which clashes with the centralized, product-oriented structure used by
multinationals in globalization.
As an example and for
India, GE developed a portable handheld electrocardiogram that is sold for
around $1,000 and for China, a low-cost and portable stethoscope, PC-based
ultrasound, sold for as little as $15,000 (a conventional ultrasound equipment
may cost +$100,000). It is important to understand that -for China and India-
portability is a must as patients hardly move to see a doctor if they are ill.
These kinds of products
establish lower price points and even cannibalize higher-margin products in
rich countries, defying also the original GE globalization model.
They conclude that:
·
Emerging economies are growing at fantastic rates.
That is the reason why RI projects–that flow uphill- must: a) be identified and
pursue; b) global organizations must be aligned to emerging markets, creating
new business units and scorecards; and c) strategy must come from a deeper
comprehension of the differences between emerging and rich-market needs.
·
It is required far more than simply geographic
expansion to be successful in emerging countries. It is about understanding
needs of emerging economies that are different from those at developed
economies.
·
Consumption should have its own understanding: in the
rich world a few people spend a lot, but in the developing world many people
spend little. The only way to approach this challenge is with RI.
A summary of what it
was said in this section can be seen in the following Tables:
Figure 2: Reverse
Innovation and Glocalization
Source: Own
Figure 3: Reverse
Innovation - Summary
Source: Own
4. DISRUPTIVE INNOVATION (DI)
Christensen (2016)
adverts that there are firms that are well run, with good competitive
strategies, focused on their customers and that invest in new technologies but
–anyway- they end up losing market domain. Companies like Sears (vast
assortment of products at medium prices), Digital (that ignored PCs) and Xerox
(that overlooked the growth of small desktop photocopiers) have a common
characteristic: the decisions that led to their subsequent collapse were taken
when their leaders and companies were at the top of commercial and financial
analysts’ consideration.
Christensen, Anthony
and Roth, (2004) suggest that: a) past formulas may not be applicable to the
future; b) specific developments and customers may matter most; and c)
contextual factors –like barriers to innovation put by non-market players- may influence innovation.
Christensen, (2016)
shows that there are common factors in these kinds of organizations to be
considered, like:
·
Decisions are made in a way that sows the seed of
eventual failure later.
·
Principles of good management are not appropriate in
certain circumstances.
·
It’s not always recommendable to listen to the best
customers.
·
It could be a good decision to invest in lower
performing products with lower margins and to pursue small markets instead of
more important ones.
As a result, he
suggests to follow DI principles and technologies, and to understand that
decisions -that seem logic in a specific context- may lead to lose market
position or demise.
As it is remarked, DI
principles may be summarized as follows:
·
The pace of technological progress can be ahead of
market needs as firms may innovate faster than their customers’ needs,
producing sophisticated or too-complicated products/services. The bases of
these “sustaining innovations” success are that they: a) apply to the higher
tiers of the market, supplying their most demanding and sophisticated
customers, who bring greatest profitability and b) improve the performance of
existing products/services in existing markets, being -generally- incremental.
For this reason, these innovations rarely precipitate the failure of leading
firms.
·
Going upward, firms allow “disruptive innovators” to
attack a new population of consumers at the bottom of the market (BoP markets,
too) with products/services that historically were accessible to consumers who
had a lot of money and/or a lot of skills. A disruptive product/service -at
least at the initial stage- proposes:
o
Simpler products/services: less functionalities and not-so-good
performance, also below the actual minimum market requirements. These
products/services are generally supplied by new firms, not by incumbents, as
they propose lower gross margins and inferior prices.
o
Smaller target markets.
o
Much more consumers’ accessibility.
o
Less gross profit per product.
·
These products/services are a more attractive solution
when compared against traditional performance metrics. In addition and as they
offer lower gross margins, are not attractive to firms moving upward in the
market, creating an open space at the bottom of that market where the new
disruptors emerge.
·
This kind of technology precipitates the failure of
leading firms as they bring a different value proposition to the market. Some
examples are: Blockbuster, whose failure came from Netflix; Kodak, whose flop
came first from the digital camera and then from the smartphone; the PC, that
precipitated the failure of big mainframes; discount sales, as an alternative
to traditional retail purchases; and the Honda small motorcycles, creating the
off-road market in USA.
·
Failure of incumbent firms is possible as these
products/services create a new value universe, understood as the context in
which decisions are taken. In this environment, new parameters are considered
in order to identify and respond to customers’ needs; resolve problems; get
comments; react to competitors; and struggle to make a profit. So, this context
affects the economic value perceptions of a new technology and determines what
is intended to be obtained by innovations (abrupt or sustained).
In other words,
this new value universe displays a different attributes’ classification of the
product/service; has its own competitors; develops a different organizational
structure and culture; assigns a different value to the same product/service
attribute; and –finally- requires a specific cost structure. In addtion and
speaking in terms of Michaels Porter’s generic strategies, DI
firms/products/services follow a cost leadership strategy[2].
·
But, why incumbents flow uphill (in Govindarajan,
Trimble’s words) in their markets?, behavior that is influenced by the
following three factors: 1) The promise of higher margins market up, 2) The
simultaneous movement to higher markets of many of their customers, and 3) The
difficulty of cutting costs to be able to move profitably down market.
·
As it can be understood, sustainable innovations
propose just opposite decisions in comparison with DI: Increase I&D
investments; longer planning and investment horizons; exploitation; forecast
and technological planning; and research consortiums/joint ventures.
·
In front of this situation, new entrants have
advantages over the existing ones because their technologies do not generate
value in the actual incumbent’s value universe. It is not a technological
issue, but it is about flexibility to modify strategies and cost structures.
·
Customers and the financial structures of successful
companies have an important influence -and, in general, in a negative way- on
the type of investments that may be attractive when compared to firms that
enter the lower-tier market. In an opposite manner, disruptive innovators are
not tied to any customer.
Moreover, Christensen,
Anthony and Roth (2004) advert that are seen
signals of change and businesses
opportunities when there are evaluated three
customer groups:
o
Undershoot customers, as firms are introducing
up-market sustaining innovations and customers are frustrated with product’s
limitations.
o
Non-consumers, showing that firms are introducing
new-market disruptive innovations. These customers are not consuming any
product or consuming in inconvenient settings as they lack the wealth, the
access or the ability to accomplish a job for them.
o
Overshot customers, as firms are introducing low-end
disruptions, displacements or moving closer to customers and customers stop
paying for further improvements in performance.
The authors suggest
that circumstances may favor certain types of innovation. For instance, if circumstances favor up-market
sustaining innovations firms should
offer low-end disruptive products. Moreover, they say that lead customers must not be listened for disruptive
innovations as these innovations are
directed to a new market or to a low existing market.
In another work, Paris
and Viltard (2017) highlight that there are firms in the emerging world that
are not understanding DI and RI principles, and -despite having these kinds of
products- they only use them with other objectives in mind, not as a
contribution to the economic development and society welfare. This is the case
of YPF (the Argentinean petroleum firm) that has implemented small and simpler
service stations with aerial tanks (MAS, Modules of Social Supply, Módulos de
Abastecimiento Social in Spanish).
They were used in the light automotive market and in
small localities of the interior of Argentina, although they count with the
potential to generate benefits for the community, the environment and YPF (SVC,
Shared Value Creation concept developed by Porter and Kramer (2011) they were
utilized only as corporate image in 15 distant towns with less of 2,000 people
and service stations at +30 kilometers. Specifically, the MAS is a modular
system with three modules: service, supply and beach loading.
They operate with alternative energy (wind turbines or
solar panels) that provide much of the electrical energy necessary for their
operation. In the
following photo, it is shown a MAS:
Photo 1: MAS located in El Huecú,
Neuquén, Argentina
Source: Own
Before the MAS installation, there
were many people who make their living transporting fuel in drums and then
storing it and selling it at 60/70% above its price. The way in which the fuel
was transported and stored represented a latent danger for the population and
the environment.
As a result of this study, It is
stated that -as SVC reaches greater diffusion, scale and is combined with other
strong innovation theories, in this case DI and RI- can become the support of a
profitable and transformative business for companies, helping to solve or
mitigate the environmental and social crisis that the planet is suffering. In
addition, the MAS and similar products can be implemented in small towns and
big cities –where space is scarse and expensive-, challenging the business of traditional gas stations.
As a conclusion
on DI products/services, (CHRISTENSEN, 2016) says that they are a huge headache
for managers, proposing not rational decisions, as they are:
·
Simpler, cheaper and promise lower margins per
product.
·
At the beginning, they are sold in small markets and
are adopted by less profitable customers.
·
Companies depend on their customers and investors to
obtain their resources. That is the reason why the most profitable customers of
the leading companies do not want and/or cannot use products/services based on
disruptive technologies. As a consequence and if leaders want to be successful
launching DI products/services, new market segments must be approached, with
new rules and procedures.
Summarizing, DI
products/services must:
·
Find new markets that value their benefits, matching
DI to the right customers.
·
Be focused on small and profitable markets,
anticipating failure in early stages and at reduced cost.
·
Be developed in separate business units of the
incumbent firms, with different policies, procedures and processes.
·
Be understood as trial and error exercises as these
markets didn’t exist before and are difficult to be analyzed (in these cases
every number is wrong). In this context, (VILTARD, 2015) insists that learning
plans -and not business plans- are applicable
Finally and when DI
makes base in a market, the author suggests that defenders/incumbents have
three difficult decisions to take: 1) To leave the activity that they already
know, 2) To continue with what they already have and work hard to improve or
win customers, and/or 3) To continue their activity and start investing in the
new technology to be prepared for the future.
A summary of this
section is shown in the following Tables:
Figure 4: Disruptive
Innovation (DI) path
Source: Own
Figure 5: Disruptive
Innovation (DI) Summary
Source: Own
5. THEORIES’ COMPLEMENTATION
As a result of the
analysis performed in this study, these three theories –if adequately combined,
understood and implement- may help to alleviate/eradicate poverty as they offer
a common posture and reply to the same market segment, the BoP, as follows:
a)
Main
objective pursued: they can help to eradicate/alleviate poverty,
creating non contestable markets, and a new path for growth and development.
b) Focus: on emerging markets development,
no matter if they are small at the beginning. Also, these markets are not
limited to emerging economies, being an opportunity for the developed-world
firms, too.
The BoP, DI and
RI should be considered as basic elements of private firms’ central mission. It
is required a decentralized and local market focus, and a deeper understanding
of the differences between emerging and rich-market needs.
c)
Opportunity: for
agile and optimist firms of emergent and developed markets that may work up a
radical thinking and push the limits of its own capabilities to offer ultra-low
prices/costs and serve new consumers’ needs.
In these markets
are applicable the following concepts: standardization, specialization of
labor, economies of scale, assembly line production, fully utilization of
resources and costs reduction to unimaginable limits.
SVC-Bop-RI-DI
may become the basis to support a profitable and transformative business,
helping to solve/mitigate the environmental and social crisis we are going
through.
d)
Products
needed: they create a new value universe, establishing lower
price points through an inferior performance and gross profit per product;
frugality/simplicity (not sophisticated, not too-complicated); pre-paid;
cheaper; collaborative consumption; healthy; unfancy brands; and reasonable
places to shop. They can even cannibalize higher-margin products in rich
economies (like what is proposed for the MAS project for traditional gas
stations), disrupting, also, the glocalization model of multinational firms.
It is important
to match them to the right customers, in small and profitable markets, and be
developed in separate business units with trial and error exercises.
e)
Targeted
consumers: they are people who have unresolved needs, uphill customers
and new segments in developed markets. They could be overshoot, undershoot
and/or non-customers, but must be treated as consumers with a sense of value.
It is not always recommendable to listen to the best customers of the
upper-markets to serve this segment appropriately.
f)
New
logic needed: it is necessary to apply: a) creativity and
innovation; b) understand that there are decisions that seem logic in a
specific context that may not be applicable to these markets, and that what is
successful in the rich world may not have acceptance in the emerging world; c)
be respectful of these consumers and take into account the amount and
variability of their cash flows; d) propose a drastic cost structure change; e)
have a commitment to products’ functionalities, not their form; f) focus on
novel and advanced technologies, if needed;
and g) assign the best executives to these markets.
Every firm
should have a change in the actual dominant logic that governs its decisions,
including multinationals that may disrupt themselves, as GE did.
It is required
to revamp old organizational structures; product development areas and
production methods; and reorient the sales force.
g)
Benefits:
as this approach is open to anyone and everywhere, it may redistribute
power and accelerate the rise of poor countries. It proposes growth and
development for firms and society; widen the economic benefits of the democracy
of commerce; and improve social equality and balance for a sustainable and more
livable world.
The following Tables show a summary of what was said
in this section:
Table 6: Three theories
combined - Focus
Source: Own
Figure 7: Three
theories combined - Summary
Source: Own
6. CONCLUSIONS
For governments and
organizations poverty is much more than a strategic, marketing or philanthropy
issue; it is one of the scourges that whip our society.
It is suggested that
-if it is developed a deeper comprehension on the three theories exposed in
this study- it would be possible to change the actual dominant logic, give a
reply to The Growth Imperative (TGI) and, finally, help to alleviate/eradicate
poverty, giving dignity and better choices to the people who live at the BoP
all over the world.
It is said that private
organizations, local governments and other civil agencies may help on this
crucial matter, but it is required a stronger intervention, based on the
following pillars:
·
Recognize
the unbalance situation between the rich and the poor (BoP) as incrementally
less people in the world can have a good quality of life and can be part of the
production/consumer market. To be aware that this market is a crucial component
of every country, no matter if it refers to a developed or emergent economy is
vital to tackle this moon shot.
·
Include
the BoP into the economic value chain and make it
part of a new-look and booming global economy, through:
o
BoP
principles comprehension that should: a) take into account the
cash flow variability of these consumers; b) reinvent cost/price structures; c)
be more committed to product’s functionality, and to frugal, pre-paid and
collaborative products; d) consider that technology does not necessarily means
huge investments or state-of-the-art advances and e) assign the best talent to
the BoP projects.
o Reverse Innovation (RI): has the capability
to: a) redistribute wealth and power among countries and companies, b) may
accelerate the rise of poor countries and c) it is open to everyone
everywhere.
o Disruptive Innovation (DI), that
proposes to focus on smaller and profitable markets, and to new customers’
segments, for which simpler products and lower cost/price points are needed.
·
Innovation
implementation needs: a) More diffusion and better understanding of new
theories that may help to tackle poverty in novel ways, b) Agile, disruptive
and global organizations with aligned strategies to emerging markets, b) A
separate business unit, with different policies, procedures and processes, c)
Learning Plans (LP) -not Business Plans (BP)- in which a fresh innovation
culture and trial/error exercises should be part of the experience collected in
these markets, understanding that failure is an opportunity to learn and go
forward.
Summarizing, this study
focus on poverty alleviation/eradication through giving dignity and better
choices to the poor. This objective –a real moon shot (HAMEL, G, BREEN, B,
2013)[3]-
may be achieved through The Growth Imperative Pillars, as it is shown in the
following Table:
Figure 8: The Growth
Imperative (TGI) Pillars
Source: Own
Global markets have
become tough and volatile, and growth and development show to be an imperative
for countries and organizations. In this context, emerging economies are
growing at faster rates than developed economies but unequally, and geographic
expansion is not enough to be successful in business.
Throughout this
investigation it is indicated that a new logic must emerge in order to lay the
foundations for the upcoming world. This should contain a deeper understanding
of emerging economies customers’ needs and on consumption differences between
the developed and the developing worlds.
Novel theories show a
different perspective on things that appeared to be stabilized by a dominant
logic which -through decades- seemed immovable. New insights on management,
entrepreneurship and each individual´s value added should help with newer-found
propositions which may come up with a fresh stage on the worldwide quality of
life.
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