2009 Headlines
Erik Simanis and Stuart Hart define a new paradigm of innovation
Paper published in MIT Sloan's Management Review shows how communities, companies and consumers work together to build long-term growth
July 1, 2009 | Ithaca, NY | Innovation is about pushing the envelope of consumer value by bringing new and better performing products and services to the market. Or is it? Erik Simanis, co-director of the BoP Protocal Project at the Johnson School's Center for Sustainable Global Enterprise, and Stuart Hart, Samuel C. Johnson Chair in Sustainable Global Enterprise and Professor of Management at the Johnson School, offer a new way to think about innovation in a paper published today by MIT Sloan's Management Review. Their innovation paradigm, called Embedded Innovation, identifies a new frontier of customer value rooted in community identity, rather than product consumption. By engaging stakeholders and customers in co-creating a new shared community vision centered around a new business, companies can create a platform for long-term growth and corporate renewal.
Based on lessons learned from the authors' field work with leading corporations such as S. C. Johnson & Son and DuPont to develop an innovation protocol for the Base of the Pyramid (the approximately four billion consumers with incomes below $3,000 per capita), the new model shows how companies can create new markets and consumer demand by building a social movement around a new business.
The traditional innovation paradigm—-which the authors trace back to the late 1800s, when markets and economies became viewed as systems separate from broader society—-is based on solving consumer problems and needs better, faster and cheaper than competitors through structural changes to a company's business systems. The end goal is to get less expensive and better performing products into consumers' hands. As companies have reached a high level of proficiency in structural innovation, competition has intensified. This innovation model has also trained consumers to watch for better, faster and cheaper products from competitors. Without a shared commitment on the part of the company and the consumers, switching to lower-cost competitors becomes hard-wired into consumer behavior. This forces the company to continue on the short-term value capture cycle.
In order to step off of this innovation treadmill and create long-term growth opportunities, the authors argue that innovation has to re-embed consumers and producers back into society. This requires seeing value first and foremost in terms of the community of relationships that give shape to people's identities and sense of belonging. Creating new communities allows people to reinvent themselves and to have a different vision of the future. With embedded innovation, therefore, stakeholder engagement takes on a new meaning. According to the authors, "engagement is a personal change process that instills responsibility and commitment in business partners, breeds dedicated customers and creates an ecosystem of people and institutions that embrace the enterprise's values."
With embedded innovation, competitive advantage rests on what the authors call business model intimacy. Business model intimacy is a kind of relationship in which the identity of a community is fused with that of the company. This fusion occurs by working together to construct a shared vision of a better life and community anchored around a new business enterprise. This instills a sense of responsibility in the community for growth and success of the new enterprise.
According to Simanis, "Business model intimacy is about co-creating a new community from the ground up, with the company embedded in its foundation. Such vibrant ventures are built on dialogue and joint action, not data and delivery times."
To date, four companies have used the BoP Protocol innovation process including S. C. Johnson & Son in Nairobi, Kenya in 2005; and Solae LLC, subsidiary of DuPont, in 2006 in a village and urban slum in India. Two new projects were launched in 2008, including the Water Initiative in Mexico and Ascension Health in Flint, Michigan, proof that the BoP Protocol can be adapted to the developed world.
