INNOBLOG

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