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Over the course of two days at the World Business Forum we heard from four speakers who particularly focused on the economy: David Rubinstein, co-founder and managing director of private-equity firm The Carlyle Group; economist Jeffrey Sachs, New York Times columnist and 2008 Nobel Economics Prize recipient Paul Krugman, and former President Bill Clinton (pictured).

Rubinstein started by teeing up a list of all the problems and challenges facing us: “debt, deficit, inflation, taxes, unemployment, Social Security, Medicare, Medicaid, the dollar, savings, interest rates, and energy.” Not on this list was perhaps the biggest challenge of all – complex and rapidly shifting global politics that mark a shift from a world in which the United States was the biggest power to a “multipolar world not organized around any one particular power.”

Sachs continued the bad news while focusing his comments on the enormous challenged of climate change and the potential it brings for loss of economic growth.

Krugman discussed the economic politics underlying the financial crisis we are now in. None of these speakers highlighted the opportunities to innovate hidden in the descriptions of the challenges we are facing. Opportunities await innovators who can navigate the new multipolar political world and who can bring new ideas to the table for positive change in areas like healthcare and energy, while still successfully doing business in the post-Lehman, credit-tightened economy.

A sense of optimism about the future came from former President Clinton, who was the conference’s last speaker. His vision of how we can pull out of the financial mess and solve problems involves helping the poor, particularly in developing countries. If we reach out to help those less fortunate then we are, he said, we will create a rising tide that will lift our boats along with theirs. Further, helping others is not just right but brings security. “You can't run away from consequences of things that happen a long way from you -- inequality, instability, unsustainability,” he said.

Another point Clinton made is that there is no such thing as a solution without an unintended consequence, which I believe makes a good point for an experimental, test-and-learn strategy. Experiments are good at exposing unintended consequences.

Ultimately, Clinton issued a challenge that should resonate with innovators: How do you make the most of whatever it is that you propose to do? 

Microsoft’s recently launched OneApp software has the developing world talking. The application ‘smartens’ standard, basic phones — technically known as ‘feature’ phones — by allowing users one-stop access to applications like Windows Live Messenger, Twitter, and Facebook. Given that billions of people in the developing world do not own computers or smart phones, the feature phone is their only computing device. By allowing feature phones to tap into apps, Microsoft is bringing both convenience and access to the developing world. The addition of applications to phones is stale news for smart phone users. Yet, for those with cheap, crummy phones, OneApp has exciting disruptive potential.

For a number of reasons, OneApp is quite special. The product is as easily downloadable as a ringtone, which drastically reduces unnecessary installation time while enabling processing within meager memory capacity. Unlike apps on ‘smart phones’ like the iPhone that are accessed through app stores, OneApp software is offered through network operators who pre-determine the bundled set of offered apps. Such a configuration allows operators to centrally store and update the apps, increasing convenience for users. Under such an arrangement, users would have no concern for the local storage of their apps and would not have to comb through a store in search for an appropriate app. Also conveniently included is cloud service, a feature that improves overall performance and assists by offloading processing and storage to the Internet.

Equally intriguing is OneApp’s potential to “trickle-up.” Traditionally, sophisticated products are created in rich countries and later de-featured and repackaged for the emerging markets. Recently, a few products have reversed this process. One example is GE’s $2,500 echocardiograph machine. Initially designed for Indian and Chinese doctors who typically travel long distances to see their remote patients, the device is now making inroads in developed countries due to its effectiveness, compact size, energy efficiency and very low retail price. With similarly profound market potential, OneApp could be a major coup for Microsoft.

Although Microsoft eventually intends to unveil OneApp to the rest of the developing world, the application is currently only available in South Africa. Microsoft offers OneApp through a partnership with Blue Label Telecoms, a “mobile wallet” offerings company that is already revolutionizing the South African payments space. In a country where carrying cash is very dangerous because of high crime rates, mobile wallet allows customers to access and transfer money using their handsets. With this application, and the help of BLT, Microsoft has taken a step towards turning every phone in the developing world into a sophisticated, cost effective and user friendly device.

Microsoft’s OneApp software is highly attractive to markets in the developing world by virtue of being simple, convenient, affordable and accessible. By sacrificing raw performance in order to give customers something that is more accessible and more affordable, OneApp holds true disruptive potential. Of course, the ultimate success of the product depends on Microsoft’s execution, and competitor’s reactions. But for now, courtesy of OneApp, that $20 phone just got a lot smarter.

• Game-Changing Management Ideas - BusinessWeek

  Package of stories highlighting ways businesses are seeking breakthrough management ideas to spark growth during the recession; includes a story about innovations that are now trickling up from emerging markets instead aof the more traditional trickle-down effect innovation has had in the past.

• Attacking_Recession: How Innovation Can Fight the Downturn

  Report from UK-based NESTA puts forward a "total innovation strategy" the UK should use to fight the recession.

• Local Economies Seek Own Revival - WSJ.com

  Some cities are putting together their own "stimulus packages" to help their own economies.

• Pushing the Limits of Crowdsourcing - BusinessWeek

  Crowdsourcing continues to grow as social networking grows.

Yesterday’s panel discussion at MIT offered what moderator Jim Poterba, former head of the MIT Economics Department and current NBER president and CEO termed “a real treat.”

Bob Solow (MIT) and Greg Mankiw (Harvard), two world-renowned economists who also hold opposing political philosophies, met to offer and discuss their perspectives on the most pressing economic topics the 44th president of the United States has to consider.

The numerous topics included the current state of the U.S. economy, income inequality, healthcare, foreign trade, energy, unions, and immigration. Yet despite pronounced differences in their political views, Solow and Mankiw were aligned in two major points.

First, they agreed that the grievous financial situation needs concerted action right now. The good news is that the U.S. is not experiencing a productivity shock; i.e., no part of our industrial base is destroyed physically. Recovery will thus happen with almost perfect certainty, even if the time horizon is unclear at this point.

Second, both researchers agreed that two sectors of the economy are of much more long-term importance: healthcare and energy. These two fields demand dedicated attention, since they directly affect the U.S. social safety net and national security. These two sectors also show enormous potential for growth.

Even the more conservative-leaning Mankiw recognized that President-elect Obama not only has access to a pool of highly-regarded economic advisors, but that he is in fact very likely to actually listen to these economists – which both Solow and Mankiw can also agree is a good thing.

So, if you are an innovator coping today with the imponderability of the current state of the economy, don’t get entirely caught up in it. Focus on healthcare and energy as two spaces where tremendous opportunities lie ahead.

Highlights of Day Two of the Business Innovation Factory Summit (BIF-4) were a couple of speakers who are using innovation to try to change the world. The day kicked off with the unexpected — a venture capitalist who’s still somewhat bullish. David Berry of Flagship Ventures pointed out that VC optimism in the current economic climate depends on what the fund invests in (technology not so good; better is life sciences and energy, where Flagship invests), how they structure the exits (IPO not so good; M&A better),and where the VC is in their fundraising cycle (not so good if you’re trying to start a fund now; better if you just closed a fund). Flagship has started a company called LS9 that makes a biofuel using e coli as a building block, re-engineered so “sugar goes in and oil comes out that’s chemically identical to what goes into your car – a renewable petroleum that we can make domestically.”

Later, Cat Lainé of the inspired us all with a talk about how AIDG is innovating for people in the “bottom 4 billion,” working to improve lives not by directly eradicating disease with new vaccines, but by infrastructure improvement. AIDG brings renewable electricity and solar hot water to families and agricultural workers in developing countries. The idea is that simple infrastructure improvements have a dramatic effect on quality of life, and set the stage for people to improve their lives. Business incubation and collaborative innovation are the tools AIDG uses to create the environment where small businesses can manufacture, install, and repair simple infrastructure technologies for people who live in $2 to $4 a day.

Other bloggers at BIF-4 posted far more extensively than I have. You can find blog coverage here and Twitter stream here.

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.

In their recent Harvard Business Review article "Disruptive Innovation for Social Change, Clayton Christensen, Heiner Baumann, Rudy Ruggles, and Thomas Sadtler argue that the same forces underlying innovation in the corporate world impact the sociopolitical sphere. Just as disruptive innovations reshape markets by beating reigning solutions on previously underappreciated measures of performance think of Southwest making flying more convenient and cheaper, in exchange for no-frills service so called "catalytic innovations can transform social spheres by alleviating longstanding frustrations in areas like healthcare, education, and economic development. The key to both disruptive and catalytic innovation is finding good enough solutions for important Jobs in peoples lives.

Christensen et al. lay out "Five Qualities of Catalytic Innovators:

1. They create systemic social change through scaling and replication.
2. They meet a need that is either overserved (because the existing solution is more complex than many people require) or not served at all.
3. They offer products and services that are simpler and less costly than existing alternatives and may be perceived as having a lower level of performance, but users consider them to be good enough.
4. They generate resources, such as donations, grants, volunteer manpower or intellectual capital, in ways that are initially unattractive to incumbent competitors.
5. They are often ignored, disparaged, or even encouraged by existing players for whom the business model is unprofitable or otherwise unattractive and who therefore avoid or retreat from the market segment.

There are a number of compelling examples provided in the article; Ill focus on one, a non-profit called KickStart, here. They provide low-cost "appropriate technology solutions to accelerate economic development and alleviate poverty in central Africa. One of their most successful products to date is the MoneyMaker Pump (pictured above), a simple, foot-powered tool that draws water from nearby wells, ponds, or streams for micro-irrigation. Since its launch in 1996, over 45,000 pumps have been sold, creating as much as 10-fold increases in wages for their users, some $37 million per year in new profits and wages overall, 29,000 new jobs, and an entire value chain to manufacture, distribute, and retail the machines.

Why has this product been successful, and what lessons can be transferred to other non- and for- profit initiatives?

The pump has been successful because it provides accessible, low cost, and good enough functionality to an underserved market, thereby solving critical consumer Jobs. Many Africans farm small, non-irrigated plots that do not yield enough to pay for school fees and healthcare. They carry water from nearby sources in buckets an arduous, inefficient, and time-consuming task. Modern irrigation systems would do wonders for their crops, but the technologies in use in the developed world are simply inaccessible to these farmers; they are way too expensive, not sold locally, and if, say, an NGO airlifted a system in it would be impossible to run it, since there is no electricity. The pedal powered, limited range MoneyMaker Pump, then, is not competing against irrigation systems but against schlepping water in buckets or not irrigating at all. It is locally assembled and distributed, and relatively affordable. It would be of no use to a Western farmer, but it is definitely good enough for the population it serves. It has catalyzed economic development and alleviated poverty for many in a desperately underserved part of the world.

These factors Jobs to be Done, non-consumers, underserved populations, good enough functionality, accessibility, low-cost are central to market changing innovations. Keep them in mind when assessing the potential of new products and services.

See:

Christensen, Clayton et al., "Disruptive Innovation for Social Change, Harvard Business Review, December 2006.

www.kickstart.org