Vijay Govindarajan, Earl C. Daum 1924 Professor of International Business at Tuck School of Business, is one of the eight Indians in Thinkers50, a global listing of the world's best business minds. In an interview with Alokesh Bhattacharyya and Anand J, he speaks on what has changed in innovation over the past 20 years.
On what has changed in innovation over the past 20 years
I would say there are three important differences between the way we think about innovation today and what we thought about innovation 20 years ago. The first difference is the rate of change in the world is much much faster today, compared to 20 years ago. After all, innovation is a response to change. So if there are much more rapid changes, much more unpredictable changes, the importance of innovation is that much more critical… so innovation was always important, but now it's critical. That is first.
The second big change is how we are thinking about innovation. Historically, we equated it with technology innovation, whereas today it's about business model innovation. This distinction is very important. Technology-led innovation is not unimportant, but that is only one type of innovation, you can also have commercial innovations. Go to market strategy innovation. You can innovate the business model without even touching the technology. Therefore, to me business model innovation is a much bigger price. And that is how we need to be thinking about innovation in India.
The third big difference is that we are now going to enter a slow growth world. Whether we like it or not, the financial crisis of 2008 and the recent debt crisis in the US and Europe have fundamentally reset the world. And we are entering another two decades of going to be slow growth. Therefore, the role of innovation is critical, because in a slow growth world, the only way we can grow at any reasonable and respectable level is through innovation. So I say those are the three fundamental differences.
On the role of emerging markets in fostering innovation
While we are entering a slow growth zone, not every country is going to experience the same rate of growth. Growth is stagnant or even negative in what I call the rich world. And robust and much more positive in poor countries like India. Therefore I see a huge opportunity for Indian companies to really step up to the plate and grab what I call reverse innovation. Which is focused on solving the problems in India. See, Indian companies so far what they have done is to solve the problems of the rich world customers at a lower cost. Whereas what they really need to do is really focus on India. And India has just about every problem you can think of. We have problems starting with poverty, housing, transportation, health, education… you just name it, we got it. So the question is how you take a billion and more people and their problems and solve them through innovation. That is the only way through we can solve India's problems. Because we have huge problems and very little resources, the only way to solve the problem is through innovation. And these innovations, the ultra low cost frugal innovations, will have applicability all over the world.
In fact the way one can think of it is if you can make a product for the rich people, the poor people can't afford it. But if you make a product for the poor guy, everybody can afford it. Therefore, if we can innovate for India, we can also simultaneously innovate for the world. So that is perhaps the biggest opportunity. Frugal innovation is the biggest opportunity.
On whether big corporations will be cannibalised by reverse innovation
The biggest competitors for the western multinationals are not other western MNCS. It is companies like the Tatas and Mahindras and Birlas and so on and so forth. They better be afraid of them. Because, if they don't embrace reverse innovation themselves they will be cannibilised. They will be disrupted. Therefore the biggest fear for American companies and European companies has to be these local competitors from emerging markets and therefore they need to embrace reverse innovation as well. They can do it, because they have lot of capabilities. After all they are world class companies with tremendous competencies and they better use that. But when they come to India they have to align their goals with Indian social and economic development. They can't just simply sell their products in India. Really focus on how they grow India. Both economically, culturally, socially and transform India and if they can meaningfully do that they will make a contribution to India and they will also protect their market position in their own home markets.
Perhaps the biggest struggle for the western MNCs is what I call the dominant logic. That dominant logic is based on premium products, high margins, high price. Unless they overcome the dominant logic they are not going to be successful in the poor countries. And it is not that easy to overcome that dominant logic. So therefore I would say the jury is still out, whether they can do it.
On the $300 house
In fact, the 300$ house is an example of the kind of innovation potential that exist in poor countries. After all, housing is the most basic need for a human being. We want a roof over our head. That is the most basic need. Yet in this world of seven billion people, a large fraction of them don't have that basic need fulfilled. I say, housing is a human right and yet out of the seven billion people, four billion people don't have the human right. Therefore I issued a challenge, a part experiment. Why can't we create a 300$ house for the poor. Now the point is not the 300$. In fact the way we arrived at the 300$ figure was: we looked at Mohammed Younis writings where he said using micro lending, when poor people in Bangladesh come out of poverty and they are able to construct a house for 375$. So we kind of rounded off the 375$ and made it 300$.
After all the 300$ house is not the price point. It is to challenge people to think about innovation. Because, the 300$ house, what it essentially says is: assume, you know nothing about a house. You cannot get a 300$ house by looking at your current house of four bedrooms, three and a half bathrooms, you can't make 300$ house. Assume for a moment that you landed in the Mars. You don't know anything about a house. Create one. Even if you ended up creating a 400$ house, it is okay to me. It is lot better than what we have today. Instead of saying, let us build a low cost home, which may not have galvanised people. The 300$ really galvanised people. It is an example of how and I see the 300$ house is not a problem for charity, it is a challenge for commerce. This can be tackled only through innovation and therefore private sector has to get into this. Because private sector companies know how to innovate. They know how to scale and how to execute. But private sector companies cannot do this alone. They have to collaborate with NGOs, they have to collaborate with government and more importantly they have to collaborate with the poor people themselves to make this happen and this is a good example of what we have been talking about the kind of innovation opportunities exist and this also has reverse innovation potential because whatever we learn about the 300$ house travel back to the US. Because there are lot of people in the US, who need very ultra low cost affordable housing. So therefore, this can actually come back into the US.
On whether this can be delivered
I am very optimistic. We created a global design contest. It is amazing. Every entry there, at least on paper people are saying they can design and build their house for 290$. It is kind of interesting that when you put a challenge like this, how people can think imaginatively and come up with this. So we have six design winners on January 25th. It is almost a month and half from now. We are bringing the six design winners to Dartmouth college campus. These are from all over the world. Two are from the US. Other four are from outside the US. They are going to come to Dartmouth and present the prototypes and we are going to have a prototype design workshop. We are going to pick the brains of the six design winners and come up with a workable scale of those design for a 300$ house. That is step 1.
Step 2 - we are actually going to take the design and build a prototype in Haiti.
And step three is, once the prototype is done, we are going to build a model village with multiple houses using that prototype. Those are the three steps in plan and NGOs in Haiti are very excited about participate with us. We are very excited to host these winners. So I am trying to push it. You know, I am a college professor. I am not going to construct these houses. But I am going to push it as far as I can. And my hope is once private sector companies see this is possible, they will jump in. when they jump in, I think, we have got the solution very much in sight.
What we did was, the global design contest had six winners. Then we created a special category for corporate contests. Because six design winners were individual architects. Then companies also send many entries. So we created a seperate category for them. So Mahindra and Mahindra team won that. One of the members of their team is going to come there. So we will have six design winners, who are individual architects plus Mahindra and Mahindra will also be here.
I really believe it can be done. I really believe the potential for this is huge and let me also point out that this is not just a house. What we are talking about is using the house as metaphor for delivering health, deliver education, deliver jobs, deliver water, deliver electricity . The reason why I am saying this is, you know; think about three diseases which kill millions and millions of people every year. Tuberculosis, cholera and malaria.
TB is an airborne disease. Now imagine a hut in a slum, which has no sunlight and no ventilation. That is the typical hut. Yet, there are 10 people sleeping in the hut and one of them has TB, it infects the other nine. Therefore, what I am saying is in this staying within the 300$ price point. I am going to challenge the six design winners plus the Mahindra and Mahindra to design the 300$ house with sufficient sunlight and sufficient ventilation, so that we decrease the incidence of TB.
Now cholera is water borne disease. So we are going to think about how did we connecting infrastructure to this house, so that we can supply clean water, thereby decreasing the incidence of Cholera.
Malaria is carried by mosquitoes. Again staying within the 300$ price point, we want to provide three mosquito nets for any exposed area in that 300$ house, thereby decreasing the incidence of Malaria. My point is the 300$ design house should take health into account. Similarly, think about a country like Haiti. There is no electricity. Therefore when the sun sets, the country becomes dark. We cannot even imagine living even 50 percent of our lives in pitch darkness. What does that mean is if there is a kid in Haiti, the kid is not able to do homework, the moment the sun sets. Is it the fault of that kid? Is that kid any dumber than the kids in India or America? No. therefore, we stay within the 300$ price point, we are going to provide an ultra low cost electricity based on solar or wind or whatever. They are going to bring electricity into that home thereby allowing that kid to do homework at night. My point is the 300$ house, is the design has to be thought of to deliver health, to deliver jobs, to deliver education… to deliver… that is the whole idea.