Utilizing constraints to identify opportunities for innovation

Atanu Chaudhuri

Agenda
External constraints affecting companies and customers Challenges in managing constraints Constraints as sources of innovation Capabilities and competencies required for constraint driven innovation

Indian examples of (potential) disruptive innovation.. Lets hear from you

http://www.cosmosignite.com/#

External constraints affecting companies and customers

Constraints on companies
Power Shortage High cost of Transportation and power Difficulty in managing suppliers

Constraints on customers
Non-availability Lack of access to of products at desired price- product/service value point

Shortage of talent

Delay in production Revenue Loss Low Asset Efficiency

High Cost of Goods Sold

High Selling, general Administrative expenses

Missed Business Opportunities

Stagnation in Stagnation in revenue growth revenue growth High delivery cost Revenue Loss Revenue Loss Low Asset Efficiency

Low Operating Margin

Low Operating Margin

Revenue Loss Low Asset Efficiency

Shareholder value

remain competitive? How can companies facing multiple external constraintsDeloitte Touche Tohmatsu 2008. All rights reserved.

Challenges in managing constraints

Global corporations with well-developed innovation capabilities over decades find it difficult to adjust to resource constrained environment and the price-performance expectations of customers in emerging markets (Christensen, 1997, Govindrajan and Trimble, 2009 and Hang et.al., 2010) Companies tend to believe that they face trade-offs as they face these constraints Only organizations operating near the performance frontier should expect trade-offs between efficiency and responsiveness

Chart, diagram & table timesaver

Deloitte Touche Tohmatsu 2008. All rights reserved.

Constraints as sources of innovation

The companies that operate away from the frontier level have the potential to improve both efficiency and responsiveness The companies that operate at or close to optimal performance levels can strive to shift the frontier Careful analysis constraints reveal that the constraints provide opportunities for innovation Such constraint driven innovation will require unique approaches and processes Limited understanding of how companies can systematically identify opportunities for such innovation and convert those into successful products and services
7 Chart, diagram & table timesaver Deloitte Touche Tohmatsu 2008. All rights reserved.

Innovate to achieve higher levels of efficiency and responsiveness

High Improved responsiveness at the expense of efficiency Customer Responsiveness
Innovation Path

Improved efficiency and responsiveness

Getting on the frontier or shifting it is an iterative process

A
Lower efficiency and responsiveness

Improved cost efficiency at the expense of responsiveness

Low Low Cost Efficiency High

The constraints in the external business environment provide enough opportunities for innovation Deloitte Touche Tohmatsu 2008. All rights reserved.

Innovating to overcome constraints: a four- pronged approach Innovating using the constraints as sources: a four- pronged approach Innovations
Collaborate with stakeholders Create new products and services

Products

Competitive Differentiation through

Getting from A to B

Design new processes

Create new service delivery models

Process

Tata Gold Plus

Company

Customers Constraints binding

Have companies developed specific capabilities and competencies which allow them to innovate and remain competitive against all odds? rights reserved. Deloitte Touche Tohmatsu 2008. All

Reduce power consumption by process innovation

GDP Growth Rate and Peak Power Shortage
India's GDP is growing at a healthy rate despite peak shortage in power supply remaining at same levels
% of peak shortage in pow er supply % GDP grow th ( at constant 1999-2000 prices)

Trends in thermal-specific energy consumption in the iron and steel sector

14 12 10 8 6 4 2 0 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006

Source: Centre for Monitoring Indian Economy (CMIE) Business Beacon database for GDP Annual Report -2006-2007 for Ministry of Power, Government of India for peak power shortage

Develop a systematic process for energy and water management, from choice of equipment and day-to-day monitoring to regular training for building awareness among employees Make energy management part of bigger organizationwide initiatives

Deloitte Touche Tohmatsu 2008. All rights reserved.

Collaborate to develop new products

Collaborate with suppliers

Mahindra and Mahindra

Mahindras Scorpio ensured virtually 100 percent supplier involvement from concept to reality Design and engineering of systems was done by suppliers as was testing, validation and materials selection

Collaborate with educational institutions/stakeholders to attract and groom talent

Establish relationships with educational institutions and be involved in designing courses Develop customized training programme for employees by collaborating with world-class institutions

Deloitte Touche Tohmatsu 2008. All rights reserved.

Exploit bottlenecks to create new products and markets

Bottlenecks can be looked at as opportunities to create innovative products and business models
Tata Motors: Tata Ace, Indias first mini truck to transport goods speedily, conveniently, and in a cost-effective manner while providing comfort, style, and easy maintenance Honeywell: sensor to measure water content in soil, intelligent thermostat Du Pont: customized protective envelope for sending rakhis

Can only bigger companies plan for such product innovation?

Deloitte Touche Tohmatsu 2008. All rights reserved.

Manoj Upadhyay, founder of the US$500 million Acme Tele Power considers India a land of problems and therefore a land of business opportunities.
Telecom service providers in India need to install sensitive electronic telecom equipment every 10 20 kilometers, but they were constrained by inadequate and fluctuating power outside the metropolitan areas. In 2003, Acme, a five-man engineering consultancy firm, developed a power interface unit (PIU) that worked on an electronic chip, unlike traditional voltage stabilizers that ran on motors. Acme s innovative product helped improve power correction, which resulted in power savings of 20 percent. Airtel instantly adopted the technology. Currently Acme s PIUs are installed at about 50,000 base stations of various telecom companies. Acme uses a service-driven business model charging for power used and the costs of running the sites instead of products. Thus, by recognizing the power constraint faced by customers as an opportunity, Acme was able to come out with a simple, innovative product that met customer needs at a lower cost. It launched the "Green Shelter", which is a complete package to fit various environment and temperature parameters at telecom sites, avoiding the running of backup systems like diesel generators

Exploit constraints to develop new service delivery models

The developed world model of locating supermarkets and hypermarkets at the city periphery will not work in India Rural India is not uniformly poor there are islands of prosperity within it Rural Indians shop more like Americans do they are ready to travel long distances to buy goods in bulk provided the goods are available at their price-performance preference There are opportunities to create unique service delivery models and open up new markets Hindustan Unilever: door-to-door delivery of goods by rural women and local people on bicycles _ Project Shakti Cisco: delivering emergency services Tata Gold Plus

Deloitte Touche Tohmatsu 2008. All rights reserved.

Highly fragmented rural jewellery market catered mostly by local jewellery shops, who have long relationships with generations of customers

This gives them a clear understanding of customer needs, and allowing them to differentiate customers based on their credit needs, paying capacity, and preference for a particular design

The GoldPlus jewellery comes with the assurance of purest 22-karat (916) and 18-karat (750) gold and premium craftsmanship. Every GoldPlus product is endorsed by a certificate that states the purity of the gold and the quality of diamonds used in the article. The gold is purchased in the form of bars that are certified by Reserve Bank of India (RBI).

They neither give any assurance of genuine 22-carat gold nor can they offer a wide selection of designs.

The Tata group realized the immense opportunity of tapping into the rural and semi-urban segments and providing them pure gold jewellery in designs of their choice thus was born the Tata GoldPlus brand, separate from the established Tanishq brand- using a franchisee model in semi-urban and rural areas.

Tata GoldPlus stores participated in local festivals in South India, collected data of marriages from local priests, and were able to win many customers away from local jewellers.

The brands key differentiation is a unique service delivery model that addresses local needs, has a much bigger scale than local shops can manage, and is still cost effective.
15

How will you decide it is time for your organization to work on constraint driven innovation ?

Distinction between capabilities and competencies

Competitive capabilities reflect the organizations actual competitive strengths relative to its primary competitors in target markets Competencies are a set of higher-order proficiencies that a company has developed, giving it a long-lasting source of competitive advantage are difficult to acquire or replicate and can give companies the edge in attracting new customers and in building loyalty. We have identified six such capabilities and competencies which can be broadly classified as follows: Motivators for innovation Opportunity identification Delivering on innovation

17

Chart, diagram & table timesaver

Deloitte Touche Tohmatsu 2008. All rights reserved.

Capabilities and competencies required for successful constraint driven innovation

Capabilities/ Competencies
Recognizing that external constraints can create competitive advantage Bringing strategic direction to constraint driven innovation in emerging markets Analyzing the work the customers are trying to achieve Understanding and analyzing customer constraints Evaluating global market potential for innovation Choosing the right set of metrics to identify opportunities and track innovation Choosing appropriate collaboration partners Creating organizational enablers to support constraint driven innovation Competency

Classification
Motivators for innovation

Competency

Motivators for innovation

Capability Competency Capability Competency

Opportunity identification Opportunity identification Opportunity identification Opportunity identification

Competency Competency

Delivering on innovation Delivering on innovation

Recognizing that external constraints can create competitive advantage

Competitive advantage can be sustained if the capabilities creating the advantage are supported by resources that cannot be easily duplicated Competitive advantage of manufacturing firms result from proprietary processes and equipment, driven by external and internal learning Companies lacking advantage of size, experience, established position and proprietary technology could compete using operations based advantages Firms in emerging markets can capitalize on institutional voids in product and factor markets and alleviate those voids

Lack of key physical resources can provide impetus to firms to acquire unique resources and competencies to compete in a constrained environment

Bringing strategic direction to constraint driven innovation

Global organizations need to
provide requisite autonomy to local businesses Adequately staff the organization Recognize local talent

Chief Innovation Officer who can drive innovation in constrained environment as in emerging markets

Analyzing the work the customers are trying to achieve

Companies should develop competencies to understand the purpose of use of products and services by customers Focused interactions to elicit information about exact task which the non-consumers need to get done and the willingness to pay

Understanding and analyzing customer constraints

Customers in emerging markets face constraints
Due to high prices of products and services Non-availability or inaccessibility of products and services Inconvenience in using or accessing products or services Understand the reasons why current non-consumers do not find any existing product useful Are they over-served? Existing products in markets do not address the work they are trying to get done Lack of access

http://business.in.com/article/cross-border/finger-on-the-pulse-atlast/7812/1

Customer Constraints identified by Godrej

Here comes Godrej Chotukool

chotuKool, a top-loading, compact and portable cooling solution does not have a compressor. It weighs only 7.8 kgs and runs on a cooling chip along with a fan similar to those used to cool computers. It consumes only 55 Watt power and runs on dual power supply (230V AC & 12V DC). Given the power shortage in the countryside, it can operate on battery as well and it uses high-end insulation to stay cool for hours without power. The operational cost of chotuKool is low as it consumes half the power consumed by regular refrigerators. It is a classic case of co-creation . Godrej DI team worked closely with potential consumers to get insights on their needs, desired solutions and barriers to consumption. The opportunity was shaped up by choosing relevant technology, testing various prototypes, validating market potential and developing business models. To canvass, demonstrate and take this innovative product to villages, Godrej is developing a social entrepreneurship channel, joining hands with NGOs, self-help groups and micro-finance institutions.

http://www.chotukool.in/SocialImpact /journey.html#

Evaluating global market potential for constraint driven innovation

Innovations developed in response to constraints in emerging markets may have potential for application in global markets Though triggered by local constraints, companies should explore if the solution has the potential for adoption in global markets or even change global practices

Choosing the right set of metrics to identify opportunities and track constraint driven innovation
Existing metrics do not simultaneously capture how the company is performing on efficiency and responsiveness With separate metrics for efficiency and responsiveness companies cannot determine how an innovative product or service can address the constraints faced by the company and its customers Need to identify tailored metrics to identify opportunities for constraint driven innovation

Choosing the right set of metrics to identify opportunities and track constraint driven innovation

Choosing appropriate collaboration partners

Companies need to create a map of all capabilities required to develop, market and service the products and identify gaps Why collaboration may be required?
Pushing the frontiers across multiple scientific disciplines to develop innovative products Getting local market insights Ensuring access to talent Getting access to potential customers

Companies need to broaden their networks to access ideas from multiple sources Success might depend on the ability to build a network of partners and collaborators

Creating organizational enablers to support constraint driven innovation

Encouraging employees to proactively look for constraints faced by customers and non-customers Creating an innovation portal to share ideas Innovation tournaments focused on addressing company and customer constraints (Terwiesch and Ulrich, 2009) Involving finance personnel during the selection and development of ideas
Finance should work as a business partner Evaluation of innovative products and services originating from emerging markets should be made independent of the conventional business plan and product review process (Christensen and Raynor, 2003)