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In May, Nintendo will seek to expand its successful strategy of expanding the video game market by launching the U.S. version of “Wii Fit.” All signs suggest that Nintendo’s strategy of “competing against nonconsumption” will continue to thrive.

Nintendo’s strategy has long been one of our favorites. While Microsoft (who makes the Xbox 360) and Sony (who makes the Playstation 3) are locked in an arm’s race to provide cutting-edge game play to demanding customers, Nintendo is trying to reach new customers.

Arguably Nintendo’s first breakthrough success with this market expansion strategy was “Brain Age.” The handheld game targeted Baby Boomers who wanted an easy way to combat the effects of aging on their mental acuity—hardly the typical gamer market!

In 2006 Nintendo launched the Wii. The console’s innovative, intuitive controller makes video game playing so simple that my two-year old son can play the baseball game (admittedly not particular well).

Nintendo’s strategy is not accidental. CEO Satoru Iwata said “Some people put their money on the screen, but we decided to spend ours on the gaming experience. It’s an investment … not simply to improve the market—but to disrupt it.” 

We call this sort of strategy “competing against nonconsumption” …

Read the rest at Scott's Harvard Management blog, Innovation Insights

If you read this blog at its web location (www.innosight.com/blog or www.innoblog.com) you will have noticed a design change as of last Friday. It's just the tip of the iceberg, though -- we at Innosight are proud to announce the launch of our newly improved, completely redesigned website, innosight.com. If you read this blog in an RSS reader, we invite you to surf over and look at our new site.

Besides being prettier and more user-friendly, the site now includes a great deal more usable and useful information on innovation, particularly on Innosight's approach.

Also, for the first time we are making back issues and individual articles of our bimonthly newsletter, Strategy & Innovation, available publicly -- and for free! Issues and articles that are older than six months old are avaliable free, while issues and articles that are newer than six months old are available only to subscribers (in print format). Currently we have S&I content for all of 2007 -- all six issues -- available in the archive. (Note that the old Strategy & Innovation website now redirects to the S&I index page on the new innosight.com.)

Also available in free archives is Innovators' Insights -- our biweekly email newsletter that presents analysis of the latest business trends and developments as seen through the disruptive-innovation lens. Currently the Innovators' Insight archives are complete back through 2006.

And, our website archive of research papers and articles (including links to articles published externally) is complete.

We invite you to explore our new site. If you find something that doesn't work, please do let us know so we can fix it! All comments, good and bad, can be sent to this email address: inquiries@innosight.com .

"What’s best practice?” Just about any manager seeking to improve corporate performance has fielded this question from leadership. The theory is that the manager should find a successful company, find out what practices have made them successful, mimic those practices, and expect success.

However, blindly worshiping at the altar of best practices is dangerous. The problem is that practices that work incredibly well in one circumstance can be ill-suited for another circumstance. Even if your company has successfully overcome a problem in the past, it is always worth asking if the circumstances have changed in a way that means your approach needs to change as well.

Read the rest at Scott's Harvard Management blog, Innovation Insights.

Perform an Amazon search for INSEAD professor Philip M. Parker and you’ll see that he’s authored over 85,000 books. No, that isn’t a typo. The actual number, in fact, might even be higher (this New York Times story put him over 200,000). He hasn’t written each and every one in the traditional way, of course; to do so would take a person sixty years of writing nine books a day. Instead, he’s developed a system of computer algorithms that use publicly available information to author his works.

As this video demonstrates, many of his works are economic or market analyses and forecasts, but he also uses the technology to write about obscure medical topics – both genres that he’s able to succeed in because they are underserved by traditional authors.

Take the first Philip M. Parker work that comes up on an Amazon search: "The 2007-2012 Outlook for Lemon-Flavored Bottled Water in Japan". I can’t imagine that more than a few dozen people and/or firms on the planet are interested in this work (at most). No author or market research firm is going to write this book with such a low potential for sales and even if they did, the time and effort involved would make it expensive.

Mr. Parker, however, creates his books, on average, in half an hour and at a cost of about twelve cents (excluding printing). He can sell a single copy for $495 and make a handsome profit. If he doesn’t get any orders, he loses almost nothing. Multiply this opportunity by 80 to 200,000 books and it isn’t hard to see how he can be successful. It’s a great example of a technology facilitating a successful low-cost business model.

Typically, business model innovation is understood in the context of the for-profit sector. When looking for new ways of being innovative, companies might find inspiration in the last place they would have expected: the non-profit sector. Those tasked with running a non-profit are forced to think differently in order to maximize the impact on those in need, while minimizing overhead and reducing direct costs related to providing the public service.

In a recent article in New York Times magazine, Stephen Dubner and Steven Levitt discuss a new trend -- charitable organizations run like businesses. One of these new models is an organization called Smile Train, which calls itself a “new breed of non-profit that is run like a for profit.” This non-profit shares the same mission as organizations like Operation Smile: to provide free cleft lip and palate surgery for millions of poor children in developing countries. While traditional treatment missions offered by organizations spend as much as $1,400 on a cleft surgery, Smile Train has managed to reduce the cost of a single surgery to $250.

How have they achieved this 82 percent cost reduction? (Social) business model innovation. Smile Train has managed to innovate along the same dimensions we would consider when analyzing the business model of a for-profit organization. We think of a business model as an organization’s blueprint, a complex system governed by interdependencies between four key components: a consumer value proposition, a profit system (for non-profits would include direct and overhead costs), key resources and processes. Smile Train has managed to take an innovative approach to each of these components.

Profit systems & Processes: Traditional missions provide cleft palate surgeries by transporting philanthropic doctors to developing countries to conduct as many surgeries as possible during the short period of time they are there/where there is a need. Travel expenses, equipment and supplies may account for as much as 75 percent of the total cost per surgery. Due to a small number of doctors and a large number of children in need, nearly 80% of these children are turned away. Smile Train has taken a different approach to solving the same problem by using new technologies, including digital patient charts, virtual surgery software and a digital cleft library in order to train local physicians to perform the surgery. Not only does this dramatically reduce costs, but it enables and entirely new population of physicians to perform multiple surgeries, thereby reducing costs even further.

Key resources at Smile Train –- funds provided by generous donors -– are focused solely on covering equipment and materials necessary for each surgery and improving training programs for local doctors. In the traditional non-profit model, a percentage of these donations covers administrative costs as well as efforts to raise more money. This results in a new value proposition for donors as well. Beyond key resources and processes necessary to dramatically reduce costs, Smile Train’s founders pay out-of-pocket for all non-program expenses. As a result 100% of donations go directly towards paying for cleft surgeries, and 0 percent goes toward administration and overhead, which accounted for only 2 percent of total expenses in FY07.

In order to maximize the number of free cleft palate surgeries performed on millions of children in need, Smile Train looked to traditional businesses to find new ways to approach the non-profit model. Out of all cleft charities, Smile Train claims to have the “highest productivity and lowest overhead.” Wouldn’t any for-profit company love to say the same?

I thought I’d write a short post providing some immediate reflections from an interesting panel discussion I facilitated today.

The panel, titled “Innovation: Change Happens,” featured Dow Corning Chairman, CEO and President Stephanie Burns, Eastman Kodak President and COO Phil Faraci, and Procter & Gamble Chairman and CEO A.G. Lafley. It was part of the Newspaper Association of America and American Society of News Editors “Capital Conference 2008.”

Each of the panelists provided a short account of their respective company’s change efforts and answered audience questions. The six key points that seemed to be in common across the three companies were:

• The need for a crisis or some kind of “burning platform” to motivate transformational change
• A clear vision and strategy … that allows room for iteration
• A recognition that transformation is a multi-year journey
• A need to put the customer or consumer in the center of the transformation equation
• The critical importance of demonstrating to skeptics that different actions can lead to different results
• The need to over-communicate to employees, customers, stakeholders, and shareholders

Read the rest at Scott's Harvard Management blog, Innovation Insights

The market reacted with surprise today when it emerged that Blockbuster has offered about $1 billion to purchase electronics retailer Circuit City. The potential deal threatens to distract both companies from the unenviable task of wrestling with disruptive forces affecting their respective core business models. Over the past few years, online video rental pioneer Netflix has used its no-late-fees model to pummel Blockbuster. After dragging its heels for a few years, Blockbuster started fighting back in 2004. It now has a reasonable share of the online market but has never figured out how to be as profitable as Netflix. And Netflix is moving on to the next act -- developing a strategy to win in the video on demand market. Circuit City has had to contend with Best Buy, whose larger stores and lower prices have allowed it to dominate the electronics retailing market. Circuit City is also trying to play catch up in the emerging market for services to small businesses and individual consumers, where its Firedog service trails Best Buy's Geek Squad service. Behind Blockbuster's bid is a bold plan to expand its retail footprint and transition its business from video retailing to become in the words of CEO James Keyes a "one-stop shop with solutions for the consumers". Keyes said the combined entity could model itself after Apple's popular stores. Consumers could rent videos from Circuit City locations, or buy hardware from Blockbuster locations. Combining Blockbuster and Circuit City seems like a pretty bad idea to me (Circuit City doesn't seem to be convinced either -- the company is refusing to give Blockbuster access to its books).... Read the rest at Innovation Insights

In her previous post, my colleague Kathleen considered the implications of disruptive innovation as it applies to the business of charity. In making her point, she mentioned CK Pralahad's 2004 book, The Fortune at the Bottom of the Pyramid, and one of the success stories cited within, that of the Hindustan Lever Limited (HLL).

HLL's success is a great story of a company creating a business model customized to the local market; it is also a great story of an incumbent reacting to a disruptive startup. However, HLL almost failed to spot the disruption until it was too late, and the story of their success partially obscures the achievements by the true innovator -- a company called Nirma.

Nirma was founded in 1969 by Dr. Karsanbhai Patel, a science graduate and government chemist. Patel had been experimenting with ingredients in his back yard to make a detergent. After discovering a simple recipe, he founded Nirma to sell his product door-to-door in the neighborhood. In interviews, Patel has discussed the company's origins saying, "It all started to earn a side income, and at that stage, I had never imagined this kind of success."

Nirma retailed at only a fraction of the price of competing products, costing only Rs.3 per kg instead of Rs.13 per kg charged by the competing brands. The product was a great success not only because of its low cost and high quality, but also due to the unique door-to-door distribution model pursued by Patel.

Initially, Patel had a great deal of difficulty in persuading the local shop owners to stock his product. It was only when he recruited local housewives to help sell and create demand for the Nirma product that he stumbled upon a compelling and scalable business model.

By the early 1970's Nirma had appeared on the radar screen of executives at Hindustan Lever Limited. HHL was the manufacturer of Surf, one of the best-selling detergents in the country. However, their reaction was dismissive, saying, "That is not our market”,and “We need not be concerned."

Their perspective was that Nirma was an inferior quality product being sold to people who weren't currently purchasing Surf, and that their sales would be unaffected by any growth in Nirma's popularity.

Luckily for HHL, they soon recognized the disruptive threat posed by Nirma, and were able to adapt their own strategy to compete, launching Wheel detergent to try and stem the (ahem...) tide of Nirma into the low end of the market.

In developing their strategy to fend off Nirma, HHL’s wheel product was created specifically for low-end consumers. HHL noted that the primary source of water for washing was river water, and so created Wheel with a high percentage of oil relative to water. HHL also created entirely new production, distribution and marketing capabilities in order to deliver and sell Wheel, investing heavily in creating entrepreneurial door-to-door programs aimed at driving sales at the village level by tapping into the networks of local rural women, just as Nirma had done.

So, what lessons can we draw from this case?

1. Target disruptive products at non-consumers: By targeting non-consumers of existing laundry detergents, Nirma was able to stay 'below the radar' of Hindustan Lever, giving them time to experiment with their sales strategy, refine their business model and then grow rapidly - all while avoiding competition.
    
2. Create a compelling solution by considering Gives and Gets relative to existing solutions: Nirma offered a compelling solution allowing consumers to make a simple trade-off relative to existing products. Get a far cheaper alternative to Surf, but Give up a fraction of the cleaning power, which was already more than sufficient for most laundry occasions.
    
3. Think expansively about how you define your market. Rather than categorizing it along traditional dimensions, consider definitions using a jobs-based segmentation. Had HHL thought of their market in this way, it would have been far clearer that Nirma was a disruptive threat at an earlier point in time.

Alasdair Trotter is a venture leader at Innosight Ventures.

On Sunday, April 5th, National Public Radios Weekend Edition Saturday program included an interview with Professor Gavan J. Fitzsimmons of Dukes Fuqua School of Business focused on the findings of a recent research study. In the study, Professor Gavan Fitzsimmons and his colleagues found that even subliminal exposure to brands may cause individuals to act in accordance with the traits that accompany those brands. Participants who were exposed to the Apple logo during the experiment, for example, generated more creative results than those exposed to the IBM logo.

Viewed through a "jobs-to-be-done lens, this research may have a significant impact on the products with which consumers choose to surround themselves on a daily basis. Imagine using Nike or Under Armor not just because the clothes are functional or comfortable, but because they have the sort of brand association that addresses emotional and mental jobs like "keep me focused or "motivate me to exercise. What potential power for marketers and consumers!

In Professor Fitzsimmons study, two separate groups of students were given a visual task to complete. The students watched a projection that alternately displayed numbers and patterns and were asked to sum the numbers as they were displayed. During the display, however, four versions of a companys logo would individually flash on the screen for 13 milliseconds, so quick as to ensure the impression wouldnt consciously be noticed by the participants. After completing the visual task, the students were then asked to list unusual, but not ordinary or impossible, uses for a brick. The total number of uses generated, as well as the creativity of those uses, was assessed to compare the overall creativity of each group of students.

In the first test, when researchers exposed one group to the Apple logo and the other to the IBM logo, the Apple-exposed students generated, on average, a longer list of uses for the brick as well as a more creative list of uses than the IBM-exposed students. In the second test, researchers primed students with either the Disney Channel or E! Channel logos and had each group complete a task designed to assess the level of honesty with which they answered questions. The results again showed a difference. On average, the students exposed to the Disney Channel logo proved more honest than those exposed to the E! Channel logo. The researchers also verified that none of the participants of either study could identify that they had viewed logos during the process.

The researchers concluded a paper on their study by raising intriguing questions on the impact of such brand priming on social activity: "If a consumer drives past a FedEx logo, will he drive faster? If he drinks from a can of Pepsi at a work meeting, will he behave more youthfully? Of course, more research needs to be conducted to truly demonstrate repeated causality. But in the meantime, it is interesting to contemplate the competitive advantage those companies, whose brands have a desirable impact on consumer behavior, might have over those companies whose brands have a less positive, neutral, or negative impact.

 

The markets that exist at the bottom of the pyramid (BOP) have been garnering increasing attention in recent years. Traditionally, these markets have been served by charities and government aid programs but for-profit companies are increasingly targeting the BOP. This makes sense for two reasons. One: the business models of many charitable organizations and government aid programs are broken. Two: the opportunities for profit and impact in serving BOP markets are attracting for-profit players.

Why are charities and government aid programs ripe for disruption? First, the top-down business models offer opportunities for corruption as funds are collected and doled out by a centralized organization. Start-ups avoid dealing with the complaints of existing channels of distribution that have vested interests in continuation of an existing model. Moreover, the administrative costs incurred in order to prove to donors the efficacy of spending and services leads to unnecessary bureaucracy and reporting. For-profit start-ups do not have to chase elusive metrics of success such as improvements in well being. Entrants that seek a double bottom line can instead focus on more streamlined measures such as "increase in income or "jobs created as well as profit. Finally, continued operations of most charities are based on donated dollars rather than the self-sustaining revenue of for-profit businesses. The scalability of charities and aid programs tend to be linear with donated dollars while for-profits can invest in future growth without dependence on external resources.

Meanwhile, in the for-profit world, the buzz about selling to BOP markets and successful examples of such ventures are becoming more commonplace.
C.K. Prahalad's 2004 book, The Fortune at the Bottom of the Pyramid, promoted the idea of targeting products and services to the 5 billion people who live on less than two dollars per day.
Inspired by the Grameen Bank microcredit model, Grameen Phone created a business in which cellular phone access is sold to rural consumers by local entrepreneurs who make a profit by renting out small quantities of access to community members. Unilever famously reached rural non-consumers in India by selling small sachets of soap and other products through local, independent agents to customers who would not be able to afford a larger-sized quantity of product.

Given the large opportunities for both profit and impact, one might wonder why for-profits havent been interested or able to serve these markets in the past. I think the jobs-to-be-done lens can shed some light on the reasons for-profits have not gained more traction in the BOP in the past and how they can approach these markets successfully.

Companies need to recognize the distinct barriers to consumption and product "hiring criteria that exist for consumers in these markets. The lack of wealth, skill, time, and access present in the lives of those at the BOP serve as barriers to consumption. These barriers and the distinct set of "jobs to be done that these consumers have relative to consumers in Western markets mean that products and services may be evaluated along different performance dimensions by BOP consumers. New products that offer lower prices or greater access to information/communication may be of particular interest in these markets, even if performance along traditional measures is diminished.

By understanding these barriers and hiring criteria, and by taking to heart the concept of "good enough, some solar companies are finding that BOP customers constitute an ideal foothold market. Solar technologies that offer only a few hours of energy per day at a lower price are attractive to BOP customers who are overshot by the always-on, expensive power supply options marketed to wealthier consumers who have a different set of performance criteria. As these technologies develop in markets that are unattractive to incumbents serving the high-margin Western markets, they will inevitably improve in function and capacity to move up market. This phenomenon is not limited to emerging technology areas like solar is there any doubt that the operational and technological innovations involved in creating the one-lakh car wont be applied to Tatas future higher-end products?

One last point: in the competition for talented employees, for-profit start-ups have another edge over charities and governments. They meet the job-to-be-done of "doing well in addition to "doing good of those bright minds the organizations seek to attract.

Its always good to look for analogies when brainstorming. For example, if you are brainstorming a better cartridge solution for a printer youd think about things that perform similar functions or have similar characteristics, like fuel in a car, batteries in a toy or any other consumable that fuels a larger entity. Doing so can jumpstart creativity, highlight elements of the analogous situation that can be ported over to the product at hand, and help everyone see things in a new light. But what about actually inviting people from these analogous markets to the brainstorming session? Is this a good idea? Theres an argument to be made both ways.

One reason not to invite participants with analogous experiences is that they will likely be less familiar with the particular focus problem than the assembled group, and might therefore simply be off base, causing more confusion than good. Given their outsider status, they also might be especially inclined to reinvent the wheeland in the process come up with ideas that make no sense.

On the other hand, analogous outsiders will suffer less from what the authors of the book Made to Stick call "the curse of knowledge; they are less likely to be blocked or biased by existing solutions. This enables them to bring new solutions to the table that could be applicable to the target problem.

New research being conducted at the Institute for Entrepreneurship and Innovation in Vienna suggests that, if the circumstances are right, inviting users from analogous markets is the right thing to do. Researchers conducted a pilot with three groups of users who faced a common challenge improving protective equipment. They brought together carpenters looking for ideas for respirator masks, roofers looking for ideas for safety belts, and skaters looking for ideas for knee pads. Their findings showed that users from analogous markets in general had better ideas than target market users alone.

The key learning here is that there was a high-level problem or job ("protect my body while I undertake an activity) common across the user groups. In these situations it makes sense to cast a wide net, to bring together a broad user set who face similar problems in order to surface the most innovative ideas. So long as the analogy holds true at the level of the job in question (i.e, the analogous users have the same ultimate job to do), bringing them into a brainstorming session makes sense.

Do you have other examples of analogy-based brainstorming?