How innovation really works
A business model that allows a company to procure agri-products directly from farmers, and which allows farmers online access to faraway markets; a newspaper that's customised to meet regional requirements from Day 1 itself; a company that extended beyond its manufacturing and tech capabilities to build a distribution network, offer content at never-before price points and in the process build a sustainable brand in the home video space. Those are just three examples of outstanding innovation— and you will read more about them in the pages ahead. They're not just new products or service offerings—if me-toos can swiftly come in and do the same, then that wouldn't qualify as innovation in the first place.
So what then qualifies as an innovation? For starters, not everything that is new counts as innovation. It has to be path-breaking, potentially disruptive and sustainable. How can companies do this? One way is to use what Monitor calls the Ten Types of Innovation(TM) a proprietary framework that helps broaden the drivers of value of a particular innovation along a much wider spectrum than just what the product or service "does". Breakthrough innovations almost always include multiple types of innovation: at least 3-4 out of the 10 types in the Monitor framework.
FIVE MYTHS OF INNOVATION
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Innovation is about creating and capturing value through nontraditional approaches. It isn't only for rapidly changing, technology companies either—the traditional brick and mortar companies included in our study, from agri-commodities to print media, have each realised market success and impact in their industries from innovation.
BT-Monitor has selected eight organisations to profile in this study. Though they come from many industries—and even the social and government sector—each has demonstrated outsize impact in India based on its innovation. We carefully edited the selection to include only those companies whose efforts have not been recently or extensively reported (like the Tata Nano or the Aravind Eye Hospital). What's more, it's easy to confuse sundry launches and claims of differentiation and a competitive edge with innovation, and BT and the Monitor team looked at several examples of innovation before deciding on the final eight.
Understanding the 10 types is the first step toward being able to use them in your own innovation efforts. The remainder of this article defines each of the 10 types—broadly broken into four heads of finance, process, offerings and delivery—and provides illustrations.
Profound innovation was observed around business model, network, product performance, and customer experience. However, there is markedly less innovation among Indian companies around product system, service, channel or brand. Product systems and service (post-purchase) can enhance customisability and cement ties with customers by engaging with them throughout the ownership cycle, not just at purchase.
'Finance' Innovation:
Re-inventing business models and creating extended networks
Innovative companies are the ones who succeed by defining new economic models and create a more permeable sort of enterprise: One that aligns incentives across a broader network to creating and capture new value.
For instance, Moser Baer created a disruptive change in the Indian home entertainment industry by changing the basis of competition along with its economic model.
Companies can also be radically successful innovators when they reconsider the role they play in the ecosystem of their industry.
Innovative companies are finding new ways to position themselves within a non-linear network. Networks provide a way for companies to leverage each other's offerings, customers, and capabilities. Network and alliance innovations reflect a clear definition of each partner's strength and weaknesses, have well-crafted shared operating processes and technology, and rocksolid governance.
During the study we found compelling examples of organisations in India using networking innovations to gain sustainable competitive advantage. Fabindia draws its strength from close financial and operational ties to 17 community-owned companies which form the supplier base for its hand-crafted products. Through these tie-ups, Fabindia is able to deliver high quality products and make artisans a part of the wealth it helps create, aligning incentives with entities beyond the formal boundaries of Fabindia as a company.
We also observed organisations using networks to accomplish two other important goals. First, networks can act as a direct source of revenue especially in B2B, short for business to business, arrangements, as with the case of ITC's e-Choupal platform. Second, we saw organisations leveraging the technical expertise of network partners to create open innovation networks. Tata Consultancy Services (TCS) has created an "extended co-innovation network" which constitutes, apart from employees, Tata group companies, academic institutions and other strategic partners. This network has helped TCS create numerous marketable innovations.
'Process' Innovation:
Guts and imagination
The activities a company performs or the capabilities it leverages in order to deliver its product or service are categorised into two types: Enabling Process innovations and Core Process innovations.
Enabling Process innovation supports the enterprise's primary work, value delivery, and workers. Good enabling process innovation can help attract talent to the organisation and help people do their work faster, more easily, more efficiently, and more profitably. These processes are often the "infrastructure" that enables market-facing processes and offerings, and deliver streamlined support.
The research-intensive approach adopted by Dainik Bhaskar to launch its Gujarati daily provides a good example of how enabling processes can positively affect the outcome. Whereas most media companies rely on internal expertise to develop the content strategy for their offerings, Dainik Bhaskar used a form of "crowdsourcing" to get inputs from a large number of potential consumers in order to structure the content of its new newspaper. This not only enabled the creation of a successful product but also helped in building a customer connect that subsequently resulted in high circulation .
Core Processes are the capabilities proprietary to an enterprise that others can't duplicate. For product companies, this often involves their R&D, manufacturing, and marketing capabilities. Core process innovation typically involves dramatic changes in "business as usual".
Gyan Shala, a one of its kind budget private school in India, has innovated significantly in its core process: pedagogy. It creates detailed teaching manuals with step-by-step instructions for each minute of each day, including answers to probable questions that students may have. Gyan Shala's model is demonstrating the impact of core process innovation in even the perennially challenging arena of education.
'Offering' Innovation:
Breakthrough change, not continuous improvement
Changes to the functionality of the product/service are nearly always where conventional innovation teams start. And there is an important role to play for incremental innovation— refreshing a product or service on an annual or more frequent basis can keep customers returning and take advantage of continuing technology advances. However, companies that aim to conquer a new market or radically reshape their position need to think bigger—and differently.
In the organisations studied, BT-Monitor found that companies that innovated substantially on product performance started with a deep understanding of customer needs or industry shortcomings. They showed a willingness to look outside of the company's internal capabilities, and beyond their existing customer base. Since this often means trying to deeply understand the needs of new audiences that are not currently served by the company, this challenge may require an explicit mandate to be set forth internally since it's typically no one's job to try to understand people who are not current customers.
In our study, this is illustrated by how the financial services business unit of TCS started out by striving to understand the banking requirements of the rural Indian. Later, by leveraging its extended co-innovation network, it was able to create a branchless banking platform that was scalable in rural areas with poor infrastructure and connectivity to bricks and mortar facilities.
Product System innovation demonstrates the ways in which several individual products connect with one another to create a larger system, which can lead to enhanced functionality. These innovations often bridge the needs gap between constraints imposed by production complexity, and helping individuals fulfil unique requirements.
ITC e-Choupal's recent improvements to its well-established village kiosk model of agri-commodity procurement creates a platform that offers new consumer goods partners a cost effective way to "plug in" to the rural consumer. At the other end, the resulting wide range of products helps address a number of unmet needs of farmers. The system spans the offerings of multiple companies, linked together by a distribution model that leverages ITC'S proprietary channel.
Companies also innovate on the value they provide to customers that follows the purchase of the core product. This is the domain of service plans, customer service, information and education, and warranties/repairs. Service innovation is typically focussed on helping customers receive the full value of the products they purchase and use. For example, FedEx not only promised reliable overnight delivery, it innovated around the entire usage context to create automated tracking and integrated billing.
In India, we see relatively fewer companies innovating around postsale service. Premium products such as watches, hotels, and high-end consumer electronics are beginning to be sold along with opportunities to join customer loyalty programmes, receive guarantees, and interact around personalised information. However, there is clearly room to offer a wider audience a rewarding, full lifecycle experience.
'Delivery' Innovation:
The customer connect
How a company gets its product to the customer is the domain of delivery. There are three facets of delivery where innovation can yield disproportionately better results—Channel, Brand and Customer Experience.
Channel innovations encompass all the ways that a company gives a customer access to its offering. Successful channel innovations use an ideal mix (retailers of all sorts, wholesalers and warehouses, distributors, call centres, catalogs, Internet, home delivery, etc.) to permit customers to buy what they want, when they want it, and how they want it. For example, Nike has created eye-wateringly expensive retail cathedrals called NIKETOWN stores to use as product showcases. What most people don't know is that these get their primary use as training facilities after closing!
Brand innovations are ways that companies use their brand in novel and powerful ways. ITC e-Choupal is able to regularly add and successfully market new product and service categories through network partnership.
For this, it leverages brand e-Choupal which has, over time, built cache in the rural economy.
Finally, how your customers/consumers feel when they interact with your company and its offering can be a powerful source of differentiation that creates a long lasting emotional attachment.
Moser Baer was able to reduce the home movie release window from six months to 10 days in some cases — a feat that exceeded prevalent customer expectations.
The BT-Monitor initiative sought to define more precisely than before exactly what innovation is, and provide an analytical framework and common language that senior executives can use when thinking about and acting on innovation. The examples — drawn from the corporate, social and government sectors — demonstrate the value of the framework and the messages for professionals: get beyond products, use many types of innovations to make them defensible, start with a market and customer-centric view, and challenge orthodoxies.
TEAM MONITOR AND...
- Nikhil Prasad Ojha is the Managing Partner for India at Monitor Group. His work is focussed on growth and transformation agenda at Indian businesses.
- Parijat Ghosh is a Partner at Monitor Group with extensive experience in Innovation, Corporate & Business Unit Strategy and Capability Development.
- Sarah Stein Greenberg is a Senior Project Manager based in Monitor Group's Delhi office focused on innovation and consumer research for new offerings. She has worked on innovation across the US, East Asia and India.
- Anurag Mishra is a Senior Consultant with the Delhi office of Monitor Group. He has worked on large restructuring and growth strategy projects.
...THE BT TEAM THAT WORKED ON THE PROJECT:
E. Kumar Sharma, Suman Layak, T. V .Mahalingam, Shalini S. Dagar, Shamni Pande, Puja Mehra and Kushan Mitra
