Point: Current non-consumers (rather than current customers) may represent the best opportunity for an innovation

Story: The future of solar power may be in the markets of Mongolia rather than in the high-tech companies of Western countries, said Harvard Business School professor Clayton Christensen at the World Innovation Forum.

Christensen’s recent visit to Mongolia led him to this view. In Mongolia’s capital, Ulan Bator, Christensen saw a very popular product in local markets: cheap solar panels attached to small portable TVs. Rural herders were buying these solar-powered products, and they were buying the products without needing government inducements to do so.

In the West, solar power competes with established power grids. As a result, solar has been seven years away from cost-competitive performance for 35 years. Solar still costs too much and needs government support (grants, subsidies or tax breaks) to create even the current low levels of adoption.

Adoption of solar power is low in the West because solar power competes with anytime/everytime electricity from 24-hour power plants and ubiquitous power grids. Sunlight, in contrast, is sporadic.

For Mongolians, the imperfections of solar aren’t a problem because the alternative is either no electricity at all or expensive disposable batteries. Almost one-third (32%) of Mongolians still live an off-grid, semi-nomadic life style. They move their collapsible, felt-lined homes to follow their flocks of goats, sheep, yaks, horses, and camels across the high plateau of Asia. Mongolians don’t expect flip-of-the-switch power for air-conditioners, hair dryers, or halogen mood lighting. Untold hundreds of millions live without power in Asia and Africa.

Christensen’s evidence suggests that solar power has the greatest opportunity to shine where it faces no preexisting electrical infrastructure. The rise of solar power may come from expanding the total base of electricity users, not from replacing one highly-optimized incumbent electrical system with another emerging innovation. For emerging technologies, emerging markets can be a key because they represent large populations of non-consumers for which the new idea needs to out-compete nothing.

The larger point is that Mongolia symbolizes a larger market of non-consumers with different needs and different requirements. Sometimes, an innovative product that can’t compete head-to-head with incumbent may nonetheless be vastly superior to the alternative of “nothing” in the population of consumers. Many companies have used this strategy to good effect.

For example, Southwest Airlines considered the car and bus — not other full-service airlines — as its primary competition. Intuit’s competitor for TurboTax software was the pencil, not other tax software packages. Tata’s Nano low-cost car competes with 2-wheelers in India. Non-consumers of air travel, tax software, and cars, respectively, were the targets for these new products, and non-consumers were a much larger markets than existing customers.

Action

• To find new markets, study non-consumers, not current customers
• Find markets in which a new innovation is better than nothing, despite the innovation’s imperfections
• Avoid head-to-head competition with a well-optimized incumbent.

Point: Innovate the experience, not just the product

Story: At the World Innovation Forum today, C. K Prahalad asked the audience about their experiences with “Build-a-Bear” — an e-commerce company that lets kids of all ages design their very own Teddy Bear. Audience members reported spending as much as $200 in choosing the look of the bear, the amount of stuffing in the bear, adding a custom sound to the bear, getting the bear’s birth certificate, buying clothing for the bear, and buying accessories and siblings for the bear. This culminates in making “The Bear Promise” to care for this personalized stuffed animal. Discussing the depth of the experience and the simplicity of the physical product revealed that the bear embodies both negligible product costs and priceless customer experiences.

One of the “trick questions” for job interviews is to ask the candidate, “How would you redesign a Teddy Bear?” This example shows that the design of the bear may not change much, but the design of the experience of buying the bear may be where the real opportunities are. In fact, Build-a-Bear is more about the customer redesigning the Teddy Bear than it is about the company redesigning the Teddy Bear. Therefore, C. K Prahalad recommended that companies think more about experience innovation to complement and enhance product innovation.

The Build-a-Bear phenomenon is not unique to toys. Other companies provide experience-intensive products. These include Medtronic’s pacemaker (the device is augmented with remote monitoring, health records coordination, and provider networking services), Bridgestone Tires (by-the-mile fleet usage pricing with value-added vehicle usage services), Nike’s iPod-connected shoes (shoe sensor feedback that drives work-out feedback and performance). The point is to think about the value chain of the experience, rather than the value of chain of the product.

Action:

• Seek to solidify customer relationships through well-designed experiences
• Innovate to improve the value of the experience, not just the performance/cost of the product
• Leverage customer innovation through co-creating experiences and products
• Create an ecosystem of collaborators to support the experience

Point: Breakthrough innovation requires nonlinear change

Story: In his presentation at the World Innovation Forum, strategist and Dartmouth professor Vijay Govindarajan used the analogy of Olympic high-jumping to illustrate the non-linear thinking that companies need to make to create breakthrough innovations. The traditional approach to high-jumping until 1920 was the “scissors” approach: jumping over the bar with a scissoring motion similar to what is used by hurdlers. The highest jump possible was about 5′ 3″.
The best approach to jumping higher, however, is to identify the limiting factor in the jump. For high-jumping, the limiting factor is the jumper’s configuration of body parts relative to their center of gravity and to the bar. In the 1920s, the innovation called the “western roll” changed the jumping style from a hurdling over the bar with a scissors kick to rolling over the bar sideways with the jumper’s back to the bar. In the 1960s, the innovation of the straddle changed the center of gravity even further with the jumpers keeping their belly to the bar. And in 1968 the Fosbury flop (invented by Dick Fosbury) changed the motion yet again: jumpers launch themselves straight up into the air using both feet, and then they twist over the bar so that the head clears first.
The challenge for organizations: you can’t win by incrementally improving the incumbent scissors kick if your competitors are inventing the western roll or the Fosbury flop. Breakthrough innovations require removing or changing the limiting factor. This often means breaking old assumptions. Prior to the Fosbury flop, all high jump techniques assumed that the jumper goes feet-first over the bar and lands on their feet. Fosbury jumped head first over the bar to flop on the mat and extended the possible jumping height to over 8 feet.
Action:

• Document the fundamental limits that seem to prevent further incremental innovation
• Consider ways to break those limits or bend those limits
• Examine the “how we’ve always done it” assumptions to find opportunities for radical change

See Vijay Govindarajan’s blog here.