How can one find serious growth and market development opportunities in economies characterised by the polarities of extreme poverty, lack of infrastructure and institutions, little or no data about consumer behaviour, composition, size and their willingness to pay? How can we leverage the school of disruption and market creation that embeds itself as poignant references to the teachings and insights of Harvard Professor Clayton M Christensen to drive unparallel growth and uptake of innovation? Behold the power of market-creating innovation – a paradigm that not only generates new growth for companies but catalyzes industries that buoy frontier economies and foster inclusive, sustainable development. As Avik Chakraborty proclaims in a ground breaking HBR article; these types of innovation “not only generates new growth for companies but catalyzes industries that buoy frontier economies and foster inclusive, sustainable development”
Countries are often proclaimed to have development problems as conventional wisdom encapsulates the ‘fix itself’ approach (infrastructure, financial markets, courts, legislature, enterprise frameworks, labour markets and so on) and these are often construed as impediments to value chain evolution. Here, Market-Creating Innovations provide “strong economic foundations” as they embody several characteristics that facilitate emergent growth from the inside out. The author puts these down to FIVE elements:
- Offering product and services that was previously unaffordable or otherwise unattainable: This resonates with the theory of disruption and the definition of non-consumers (those that don’t exist in the product service consumption spectrum or only do so in inconvenient settings. Market creating innovations therefore propagate markets, products and services and augment offerings by bringing these folks into the consumption context.
- Leveraging business models and value chains that focus on profitability before growth: Here, entities often borrow existing technology and insert it into different business models. This resonates strongly with the framework I outlined in another article entitled ‘Disruptive Innovation Aims To Bring Consumption From Non-Consumption Contexts’
- Generation for and by the local market (think local, go global): Innovators in this domain must do the “arduous work of understanding the ins and outs of that market and making a product simple and affordable enough for it”. The capitalisation of labour force mobilities does not necessarily mean exploitation nor does it connotate taking advantage of low wages in other economies to make a profit. It is evident that over time as innovation takes hold and moves along its trajectory and market; wages increase. This is a diametrical contrast to the rate to the bottom phenomenon, wherein low wages are deliberately exploited, often for export.
- Generation of local jobs to fuel economies: These jobs arise specifically to serve the local market; they cannot be outsourced to other countries (and they pay better than global jobs such as low-wage manufacturing work and sourcing raw materials). The jobs created herein cannot be mobilised or portable from one region to another.
- Scaling Up: Market creating innovations make a product simple and affordable, bringing it within many people’s reach. Economies of scale rule and the law of diminishing returns is one that is hardly met.
Evidently there forces of change and perturbation are at play here, bringing order from chaos and also aligning the mindset against breakthrough opposed to incremental innovation. Emerging economies will adapt simple principles of self organisation in tandem with a framework for inspiring ideas and harnessing the collective. In fact, I wrote about this here wherein I delineated the state of business models and principals required to emerge in a networked economy. You will also find a model that will capture and leverage distributed intelligence amongst any player in the enterprise.
Concurrently, all of these efforts to bring market creating innovations to life should be based around five guiding principles coupled with models for harnessing distributed intelligence and driving emergent strategy. Creating new markets that serve billions of nonconusmers unable to satisfy their wants against products or services to accommodate problem solving will be key to cracking frontier economies. The notion of exploiting existing markets is nullified here as the process by which those markets are created is what investors and entrepreneurs need to understand.
As the article asserts “ It is precisely through innovations that generate or connect to new markets that societies can create jobs, pay taxes, and build their infrastructure and institutions. The quality that sets market-creating innovators apart—the ability to identify possibilities where there seem to be no customers—is the reason their work represents such enormous opportunity”
For more reading on creating an entrepreneurial mindset, please read this article which adopts the frame of mind that is required at multinational corporations to innovate via fast moving business models that can scale, regardless of size and leverage.