Emerging market Innovators Guidelines

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Emerging markets are characterized by high volatility. Economic circumstances are constantly changing. Growth rates are often in double digits, and the competitive landscape is often shifting. New laws and regulations are constantly being put into place, and policy is constantly evolving. So emerging market innovators need to experiment as they go along and be willing to try multiple options, rather than adopting one approach at the start and sticking to it thereafter. Unlike their counterparts in Silicon Valley, emerging market innovators do not attempt to work everything out in advance or rely on a business plan to determine the mid- to long-term roadmap for their new ventures. Instead, they improvise their next course of action as circumstances change, and they do so from within a framework of deep knowledge and passion. Their approach is in fact more akin to a jazz band than to an orchestra: everything is improvised, fluid, and dynamic. As such, their strategies are organic and emergent rather than predetermined. emerging market innovators’ flexible thinking—their ability to improvise—serves themespecially well when confronted with adversity. Given their propensity for improvisation, emerging market innovators don’t rely on forecasting tools like scenario planning, as many Western companies do, to assess future risks. They believe in Murphy’s Law—anything that can go wrong will go wrong—so what’s the point of anticipating every single obstacle that might appear down the road? emerging market innovators don’t have a Plan B, let alone a Plan C. Rather, when confronted with an unexpected hindrance, they rely on their innate ability to improvise an effective solution to overcome it, given the circumstances at that time.

In emerging markets, new threats and opportunities can emerge from anywhere. This forces emerging market innovators to not only think but also act flexibly. By demonstrating agility, emerging market innovators can deal with unanticipated challenges faster and seize unexpected opportunities—such as changing customer needs—more swiftly than their competitors. Zhang Ruimin is one such emerging market innovator who thinks and acts quickly. Zhang is the CEO of Haier, a Chinese consumer goods company that is making appliance manufacturers like GE and Whirlpool nervous. Under Zhang’s leadership, Haier has, in the space of a decade, made huge inroads into North American and European markets by selling quality appliances at lower prices than those of Western suppliers like Whirlpool and GE. Armed with its ‘‘value for money’’ strategy, Haier is disrupting the consumer goods market not only in mainstream segments like air-conditioners and washing machines but also in niche segments like wine coolers. For instance, Haier launched a $704 wine cooler that is less than half the cost of industry leader La Sommelière’s product. Within two years of this launch, Haier has grown the market by a whopping 10,000 percent and now controls 60 percent of the U.S. market by value. What makes Haier so innovative is not just its cool products, butalso its flexible organizational structure. Zhang believes that in the Internet era, appliance makers like Haier need to shift from mass production to mass customization—and start thinking and acting nimbly, as Facebook and Google do. As Zhang explains: ‘‘The focus on promoting your cost or price advantage has shifted to a focus on service differentiation, mostly centering on customer experience.’’

To sense and respond to his retail customers’ needs faster than rivals can, Zhang came up with a emerging market innovation: he radically redesigned Haier’s organization, which currently employs over fifty thousand people worldwide. Specifically, he replaced Haier’s organizational pyramid with a loosely coupled network of more than four thousand self-managed, cross-functional units (including R&D, supply chain, sales, and marketing) that interact directly with customers and autonomously make decisions. Each unit operates as an independent profit center and is evaluated as such. Zhang refers to this organizational innovation—which empowers autonomous units of frontline workers to sense and respond to consumer demand—as ‘‘making a big company small’’—that is, allowing a big company like Haier to maintain the unique flexibility of a small startup. To make this bottom-up, customer-centric organizational structure work, Zhang shifted the role of managers from being commanders and supervisors into being supporters and providers who ensure that the independent units have the resources they need to meet customer demand as promptly as possible. He doesn’t want managers to be in charge, as they aren’t directly in touch with customers.

Haier’s organizational agility enables it to react swiftly to rapidly changing—or unexpected—customer needs, and to innovate faster, better, and cheaper than its rivals. For instance, in China, any call placed to Haier’s national customer service center is answered within three rings and a technician is dispatched to your house within three hours—even on Sundays. A few years back, one such call came from a farmer in a remote village in Sichuan province who complained about the constantly clogged drainpipe in his washing machine. The Haier technician who went to investigate found that the farmer was using the machine to wash the mud off his freshly harvested potatoes; it was this mud that was causing the clogging. ‘‘Most companies would react by saying ‘This machine is not designed for this purpose,’’’ explains Philip Carmichael, Haier’s president, Asia-Pacific, ‘‘but Haier’s approach was to say, ‘This guy (farmer) isn’t the only one who’s tried to wash potatoes. Is there a way to adapt this product to this requirement? Maybe we can make a machine that actually washes potatoes and clothes.’’’

Haier’s flexible thinking was spot on: it turns out that millions of farmers across China routinely use their washing machines to clean their vegetables. Sensing a big market opportunity, Haier’s cross-functional teams quickly acted on their intuition by developing a washing machine with larger pipes that could also handle vegetables. The product was a big hit among farmers. But Haier’s creative teams didn’t stop there. They also invented a washing machine that can peel potatoes and even designed a model for herders in Inner Mongolia and the Tibet an Plateau to help churn yak milk into butter! These inventions eventually inspired Haier to introduce, in 2009, a washing machine able to wash clothes without detergent. That ground breaking innovation helped propel Haier to the number one position in the laundry equipment market not only in China but also around the world.

Improvise, Experiment, and Adapt
To break free from the constraints that keep Western companies inflexible, Western companies must learn to improvise, experiment, and adapt their business models to changing circumstances. But breaking free is not easy: pressures to deliver strong short-term quarterly results often deter management from thinking radically. Still,there are many strategies that Western companies—knee- deep in traditional, structured processes and approaches to innovation—can employ to cultivate and sustain flexible thinking and action.

Break Rules and Shift Values When Necessary
Even conventional beliefs and values have a shelf life: there is nothing eternally wise about them. Breakthrough innovation occurs when commonly held beliefs and values are challenged, not reinforced. For instance, in many companies, flexible thinking is sacrificed at the altar of ‘‘corporate values.’’ These companies often fail to realize that their corporate values have lost their value as the times have changed—and need to be overhauled to reflect new market realities and major societal shifts.
In July 2003, to prevent such ossification from setting in, IBM’s then CEO Sam Palmisano organized ‘‘ValuesJam’’ —athree-day-long online brainstorming session in which all employees were invited to renew and update IBM’s century-old value system. This collaborative exercise recontextualized the very notion of innovation—IBM’s core value—as something measured not by the number of patents filed or products shipped but by the impact that IBM makes on society. This ability to reassess where the company stands and this willingness to change its direction led IBM to embark on its Smart Planet initiative, which uses technology to build sustainable communities worldwide.

Don’t Let Inflexible Investors and Customers Dictate Your Innovation Agenda
Because external stakeholders often tend to be conservative or lack the perspective to appreciate vision or foresight, it is probably best not to seek their validation for bold new products and services. Recall what Henry Ford famously said: ‘‘If I had asked customers what they wanted, they would have said ‘faster horses.’’’ More recently, Apple didn’t do extensive market surveys to come up with the iPad. This may have been just as well, given that many consumers, analysts, and media experts were convinced that there was no market for the product. Yet the iPad turned out to be a breakthrough innovation now eagerly copied by Apple’s rivals.

Create Time and Space for Employees to Improvise and Experiment
Companies can hardly expect employees to think flexibly while they maintain their regular routine and operate in their usual work environment. To be able to think and act flexibly, employees need dedicated time and an inspiring space to experiment with new ideas. Google is a good example of a company that allows employees ample time for improvisation. It employs a 70/20/10 model for organizing work: its employees spend 70 percent of their time on core business tasks, 20 percent on related projects, and 10 percent on projects totally unrelated to their core work. Many of Google’s commercially successful innovations such as Google Maps and Google Mail were developed by employees during the 20 percent of the time spent outside their day-to-day activities—when they were able to unleash their outside-the-box thinking.
Recognizing the company could do still more to encourage such creative thinking, Google launched a new experimental incubator in January 2011 dedicated to building mobile, social, and location-based applications. The incubator is located in San Francisco—an hour away from Google Headquarters in Mountain View—and operates with a small team of twenty people empowered to think flexibly and to ‘‘hatch new startups’’ in Google. Heading the team is John Hanke, who ran Google Maps for six years. ‘‘Our goal will be to pump out prototypes quickly and see what sticks,’’ says Hanke. Of course, many of the ventures conceived at this incubator will fail, but some will succeed and evolve into billion-dollar businesses for Google. By giving its employees a safe place to experiment—and fail—Google can sustain the flexible thinking that leads to truly breakthrough innovation.

Get Outside Your Comfort Zone to Gain New Perspectives
To truly think flexibly, managers need to be taken out of their comfort zones and exposed to new situations that challenge them to think differently. DuPont sent its senior executives to rural India, where they received a somewhat humbling revelation. None of their expensive technological solutions, designed for Western urban markets, seemed relevant to low-income Indian villagers. This experience forced these DuPont executives to go back to the drawing board and cocreate with local communities a whole new set of affordable and sustainable solutions designed for fast-growing emerging markets.

Partner with Flexible Thinkers
Sometimes the best way to develop a new mind set is to seek inspiration from outside your company. Thus one way to nurture flexibility is to partner with other companies that are already flexible and agile. For instance, electronics retail giant BestBuy has deep ties with Silicon Valley start-ups that tend to innovate faster and better than the large electronics vendors that supply BestBuy.
As a result, Best Buy is able to bring groundbreaking technologies to market much faster than even its large electronics suppliers can. For instance,after getting an early look at Sling Media’s Slingbox(at echnology that lets consumers pipeTV programming from their homes to their mobile devices wherever they are), Best Buy brought this innovation to market months ahead of its competition.
IBM is another company that partners with nimble thinkers. Although it employs three thousand in-house research scientists and engineers and files more patents annually than any other company, IBM has nevertheless opened ‘‘collaboratories’’ in leading universities worldwide. In these collaboratories, IBM technologists work closely with agile-minded university researchers to cocreate cutting-edge technologies. These technologies include smart electricity grids, resilient transportation networks,and cost-effective healthcare delivery solutions with the potential to have a big social and economic impact globally.

Experiment with Multiple Business Models
Often companies become too attached to a successful business model and find it nearly impossible to let go of it, let alone to explore alternative options. But competition can spring from unexpected corners and disrupt your business model overnight. Flexible thinkers keep all options open—and experiment with multiple business models simultaneously. The Indian biotech company Biocon, for instance, has developed an insulin treatment for diabetes that it commercializes through direct channels in emerging markets but licenses to Pfizer for deployment in Western markets. Similarly, Amazon.com, aware of the potential for its own online model to be disrupted by digital e-readers, has been flexible in developing and promoting a new business model around its own e-reader, the Kindle, while maintaining its dominance in online retailing.

Fail Cheap, Fail Fast, Fail Often
A corollary of the willingness of emerging market innovators to continually experiment is their willingness to fail cheap, fail fast, and fail often. Fernando Fabre, president of Endeavor, a global non profit that supports high-impact entrepreneurs from emerging markets, highlights the fact that emerging market entrepreneurs typically do not take large risks. Based on a detailed study it conducted on fifty-five high-impact entrepreneurs across eleven countries, Endeavor found that, unlike Silicon Valley entrepreneurs—who, backed with venture capital, go for broke (it’s either the next Facebook or it’s not worth doing)—emerging market entrepreneurs start with what they have (not much) and who they know (friends and family). They rarely do something so rash as mortgaging their houses. Consequently, they have small initial budgets to work with—which, rather than cramping their style,forces them to experiment in a frugal manner that does not result in large losses (that is, they fail cheap). Their initial budgets also force them to change tack as soon as one means to achieving their goal shows any signs of not working (thatis,theyfailfast).Finally, given their willingness to try out different means to reach their goals, they are willing to do so several times over in an iterative fashion (that is, they fail often).

Western innovators have much to gain from adopting these practices of emerging market entrepreneurs. They can look to Google and Best Buy for inspiration. At Google,failure is widely celebrated—especially if you fail fast and cheap. For instance,in June 2011 Google pulled the plug on two high-profile projects—Google Health and Google PowerMeter—which were launched, respectively, in May 2008 and February 2009. The company mentioned its ‘‘inability to scale’’ as the main reason to shut down these two projects. Similarly, in early 2011 Best Buy shut down its big-box stores in China a mere five years after entering the country—citing stronger than-expected local competition and the fact that its Westernized store format failed to appeal to Chinese consumers. ‘‘We experimented with a new approach in China,’’ explains Kal Patel, former president of Best Buy’s business in Asia. ‘‘It was worth trying—given the sheer size of the Chinese consumer market. But it didn’t work—so we pulled the plug before we incurred too much loss. We tried to be flexible in both entering and exiting China. It’s vital that you fail early and cheap in unpredictable markets like China.’’ In contrast to Best Buy, other Western manufacturers and retailers continue to pump billions of dollars into expanding their presence in China even though they are steadily losing their market share to local rivals.

Gain Speed
Flexible thinking must go hand in hand with flexible action. In today’s fast-paced environment, with product lifecycles growing ever shorter, companies need to break down organizational silos so they can convert breakthrough ideas into breakthrough products faster. Facebook under- stands this: although its subscriber base has grown to more than eight hundred million users, the company still employs only about thirty-five designers, using a flat organizational structure.42These designers work closely with marketing executives, engineers, writers, and researchers in multidisciplinary teams that can convert bright design ideas into new user experiences within hours. Soleio Cuervo, the second designer that Facebook CEO Mark Zuckerberg hired in 2005, says, ‘‘When I started, it was only a handful of product designers. Now, engineers work with us directly. We don’t throw documents at them with specs. We all focus on the site’s user experience versus the code.’’

Breaking down internal silos is even more critical when you are trying to quickly bring to market brilliant ideas from external sources. For example, Procter & Gamble has established a mechanism called Connect & Develop to fast-track the sourcing and commercialization of bright ideas from creative external partners. Now P&G can launch promising products within months rather than years. One such product is the Pulsonic toothbrush, which P&G codeveloped with a leading Japanese firm. P&G brought this product to market twice as fast as it would have if it had tried to build the product on its own. In October 2010, Bob McDonald, CEO of P&G, set a bolder target for his company: to triple the impact of Connect & Develop so it can potentially contribute $3 billion to the company’s annual sales growth. ‘‘We want the best minds in the world to work with us to create big ideas that can touch and improve the lives of more consumers, in more parts of the world, more completely,’’ explains McDonald