Disruptive Innovation in Service of Social Business Growth (Part 1)
The following post first appeared in NextBillion Brasil. The original post, in Portuguese, may be found here.
Innovation in social businesses is not limited to development issues: it goes beyond the borders of sectors, creating disruption in the market, with the potential to generate a new wave of creative destruction.
It is within this context that Disruptive Innovation, a phenomenon conceived by Clayton Christensen, arises. Some initiatives have explored this concept alongside social impact, such as Innosight Ventures in India, which helps to shape social businesses and invest using this concept – and two additional articles by Christensen with other academics in the field.
My article (in two separate posts) seeks practical answers close to the reality of entrepreneurs that continue their battle to ensure the survival and growth of their social businesses. The first article aligns the concept and delivers lessons on the design and implementation of disruptive innovation, while the second goes deeper into practical examples of social businesses as disruptive innovators, as well as learning that may be applied to your business.
Disruptive Innovation is Not Necessarily a Radical Innovation of a Product or Service
Christensen’s definition is based on three patterns identified by analyzing different industries. The first one is that disruptive innovations introduce a new value proposition, usually about one new package only, using existing technologies, and not necessarily a radical innovation. The second is that it starts by approaching emerging markets, and in many cases, but without generalizing, reaches established markets. Finally, products and services resulting from disruptive innovation can be characterized through a set of features, usually cheaper, simpler, smaller and more convenience.
Challenge Patterns Determined by the Market
Among the advantages of start-ups as disruptive innovators is the encouraging context and its flexibility, since they are not constrained within the limits of a technological race after specific patterns defined by the existing market, and their structures are not as robust as those of established companies. Thus, they can more easily open new markets and introduce innovations that take into account other paradigms previously ignored by mature businesses.
No-frills Businesses and New Value Proposition
A way to challenge such patterns is to understand which are the “other demands” and unfulfilled requirements of the market, as well as which are the essential attributes that must be delivered to clients, and focus on these.
Within “other demands,” new value proposals arise, based on a no-frills approach. According to research conducted by Artemisia as part of its programs in India, many businesses whose main objective is to obtain maximum reduction in service costs to make them accessible to low-income populations practice the no-frills approach. This is a revolutionary approach. It allows scale economies in a business model based on services, and may be identified not just in Indian social businesses, such as LifeSpring, a network of hospitals that focuses on maternity services and offers high-quality affordable services for low-income populations, but also in the “blue ocean strategy” applied by low-cost airlines in the United States and Europe. How can you harness both approaches for your business? This reflection deserves its own space for serious study in order to draw valuable insights.
Complementary Assets are as Important as the Innovation
The protections businesses can develop to ensure economic viability in a market with low barriers to entry include “critical complementary assets” (Teece 1986)d. These assets must be applied together with the innovation, as well as other business competences, in order to access the market and to commercialize the product or service. Examples include social capital, distribution models, infrastructures, and complementary technologies. As we will see in the next article, social businesses tend to be superior to mainstream businesses with regards to the network constituted among the low-income population they intend to serve. In many cases, entrepreneurs had a significant experience being involved with or engaged in the problems the business intends to address.
“Effectuation,” Non-conventional Planning
In order to overcome such challenges, which are inherent to all start-ups but especially acute for disruptive innovators, Christensen, Kawasaki, Sarasvathy, and London & Hart suggest non-conventional planning models, based upon attention to learning and experimentation. These make use of metrics that differ from those applied by well-established companies, since the initial proof-of-concept phase demands agile changes in order to test new business models without reducing credibility or gained investment.
There is a great difference between the failure of an idea and the failure of a company (Christensen 1997). Since start-ups tend to change after applying planned strategies, the difference between those that succeed and those that don’t is in ensuring enough financial resources for trial and error, since it is possible to get it right with the second or third strategy.
New markets cannot be analyzed through conventional means, so a new planning and analysis model is necessary. In addition, Saravasthy carried out a thorough investigation, through which she found that most successful entrepreneurs use a logic that is opposite to cause-and-effect or to predicting the future. She coined the term “effectuation” for this new logic, which uses present resources to mold the future. “Effectuation” is not necessarily better or more efficient than causal logic, each has its own advantages and disadvantages according to the situation.
In the following article, we will explore two cases of social businesses that are disruptive innovators, as well as other practical lessons related to these experiences and to diffusion in the market.
1 Schumpeter, J. A. (1964) Capitalism and the process of creative destruction.
3 Christensen, C.M. et al (2006) Disruptive innovation for social change. Harvard Business Review. pp 94-101. & Christensen, C.M. and Hart, S. L. (2002) The Great Leap: Driving innovation from the Base of the Pyramid. MIT Sloan Management Review. Fall 2002. pp 51-56.