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Innovation From the Inside Out

July 1, 2009 | Erik Simanis, Stuart Hart | Strategy
Business gurus commonly preach that disruptive innovations originate from companies that listen attentively to their customers. But the authors argue that corporations need to go a step further by practicing what they label as "business model intimacy." In essence, such businesses create products or services by patiently nurturing ideas that are forged out of a dialog between the corporation and its community of potential customers. Customers are coded into the DNA of the innovation, a process that the authors refer to as "embedded innovation." The more traditional strategy of "structural innovation"--which is overdependent on such arm'slength tools as focus groups to identify unmet needs--has proven itself to be brittle in the long term, breeding a fickle customer base and exposing its practitioners to getting clobbered by cheap imitators.
As an example of their innovation framework in action, the authors point to Grameen Bank, a nonprofit
that got its start by providing small loans--no collateral required--to the rural poor in Bangladesh.
Grameen has attracted competitors, but it has continued to grow and diversify precisely because
the commitment it shares with its customers has become the foundation of its value. By contrast, businesses that practice structural innovation get trapped atop an "innovation treadmill," pushed there by customers who continually demand better and cheaper iterations.
After dissecting the two paradigms of innovation--breaking each down into its core attributes--the
authors show how the management practice that they have built for serving developing countries can
become a growth platform for multinationals. Their base of the pyramid (BoP) protocol not only helps
foster future opportunities, but it also accommodates the corporation's need to integrate its sustainabilityrelated goals. Still, they warn, opening up markets this way will require companies to become less solution driven and more experimental, cultivating the humility and respect critical to driving inclusive capitalism.
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