This presentation shows how innovations and capability development in low-income countries could work. The presentation shows example of business ventures trying to success with business model innovation.

1. Innovation ‚with‟ low-income segments
Heiko Gebauer
Center of Innovation Research in Utility Sectors (EAWAG), Zurich,
Switzerland
Liverpool, 13-09-2012

2. © Gettyimages

3. Business research stays at a cross-road
Business at its cross-road Base of the Pyramid (BOP)
1.2 Billion (≈ $
2000 annum)
1.6 Billion (≈ $ 725
annum)
1.2 Billion (≈ $ 365 annum)
< $2,000
4,000
Exchange
market
BOP (low-
income)
market
$2,000-$20,000 2,000
> $20,000 500Industrialized
markets
Emerging
‘mass’ markets
PPP1 Population
1 – PPP – Purchasing power parity
Source Rangan, 2009:

4. Traditional business growth thinking ….
Market
penetration
Time (or cumulative
investments)
1 - Existence
2 - Survival
3 - Success
4 - Scale-up
5 - Maturity

5. … is limited when it comes to low-income
segments
BOP market
penetration
1 - Existence
2 - Survival
3 - Success
4 - Scale-up
5 - Maturity
BOP market
creation
Business model
innovation
Creating needs
where markets exist
Creating markets
where needs exist
Time (or cumulative investments)

6. Why are market creation and business model
innovation important to the water & wastewater
sector?
BOP market
penetration
1 - Existence
2 - Survival
3 - Success
4 - Scale-up
5 - Maturity
BOP
market
creation
Innovating
Business model
Mobile phones
Mobile payment
Micro-credits
Time (or cumulative
investments)

7. What drives business model innovation?
– A capability perspective or resource-based view
Source: Fischer, Gebauer&Fleisch (2012), based on Grant (1996), Teeceet al. (1997), Teece, (2007) Stefano et al.
(2010)
Market
penetration
Business model
(t2)
Business model
(t1)
Investments
Individual
skills
Sensing SeizingReconfiguring
RoutinesInvestments
Individual
skills
Sensing SeizingReconfiguring
Routines
Dynamic capabilities
Operational capabilities
Functional capabilities
Activities & tasks
Individual skills
Functional capabilities
Activities & tasks
Individual skills
Dynamic capabilities
Operational capabilities

8. Empirical examples
BOP market
penetration
1 - Existence
2 - Survival
3 - Success
4 - Scale-up
5 - Maturity
BOP market
creation
Business model
innovation
Creating needs
where markets
exist
Creating markets
where needs exist
Time (or cumulative
investments)
Re-invent the
toilet
challenge
OSHO – Bone
char filters for
fluoride
removal
Sarvajal Honeysucker
businesses
Unilever

9. The re-invent the toilet challenge illustrates
the business model innovation
BOP market
penetration
Existence
Survival
Success
BOP market
creation
Rent-a-toilet
End-product sales
Scaling-up
Micro-franchising
Time (or cumulative investments)

11. diversion toilets can be retrofitted into
existing structures.

12. Empirical examples
BOP market
penetration
1 - Existence
2 - Survival
3 - Success
4 - Scale-up
5 - Maturity
BOP market
creation
Business model
innovation
Creating needs
where markets
exist
Creating markets
where needs exist
Time (or cumulative
investments)
Re-invent the
toilet
challenge
OSHO – Bone
char filters for
fluoride
removal
Sarvajal Honeysucker
businesses
Unilever

16. OSHO goes from a charity-based to project-
based and, finally, to a profit-based business
model
No recovery of
invested capital
Repayment of invested
capital (self-
sustainability)
Financial profit maximization
Social profit maximization
Non-for-profit
organization
Social
business
Profit-
maximizing
businesses
N/A
Source: Yunus et al. (2010)

17. Non-for-profit
organization
Social
business
Profit-
maximizing
businesses
N/A
OSHO goes from a charity-based to project-
based and, finally, to a business-based
business model
No recovery of
invested capital
Repayment of invested
capital (self-
sustainability)
Financial profit maximization
Social profit maximization
B1-4
C
A
Business models (B1-4)
Flexibility between project-
base, high-volume production
business model and so on
Business model C)
Extending the
business model
scope
Source: Workshop HEKS and OSHO 20-22-08-2012

18. Empirical examples
BOP market
penetration
1 - Existence
2 - Survival
3 - Success
4 - Scale-up
5 - Maturity
BOP market
creation
Business model
innovation
Creating needs
where markets
exist
Creating markets
where needs exist
Time (or cumulative
investments)
Re-invent the
toilet
challenge
OSHO – Bone
char filters for
fluoride
removal
Sarvajal Honeysucker
businesses
Unilever

19. 0
500
1000
1500
2000
2500
3000
3500
4000
Business model innovation at sarvajal
– affordable, accessible, and pure water
Installed water
systems
2008 2010 2014 20162012
...
Source: Sarvajal (2012)

20. 0
500
1000
1500
2000
2500
3000
3500
4000
Installed water
systems
2008 2010 2014 20162012
...
Holistic extension of the business model
Sarvajal
(Franchisor)
(5000 $ /
2600$)
Micro-
entrepreneurs
(Franchisees)
500 $ (40% of
revenue)
Communities
(Villages –
3’000)
0.12 $ for 20
liters
1 : n 1 : m
Operational capabilities: maintaining and
monitoring the systems
Dynamic capabilities
Individual skills – bright brains to repetitive gains
Routines – Franchisee strategy tool / approach
to balance own / borrowed capital
Bank
Micro-credit
institute
Source: own interpretation and interviews. Based on Macomber and Sinha (2012)
Business model innovation at sarvajal
– affordable, accessible, and pure water

21. Empirical examples
BOP market
penetration
1 - Existence
2 - Survival
3 - Success
4 - Scale-up
5 - Maturity
BOP market
creation
Business model
innovation
Creating needs
where markets
exist
Creating markets
where needs exist
Time (or cumulative
investments)
Re-invent the
toilet
challenge
OSHO – Bone
char filters for
fluoride
removal
Sarvajal Honeysucker
businesses
Unilever

22. Septage sludge management can be scaled-
up through different business model
innovation
Honeysucker businesses in Bangalore
Success through
innovation
Existence & survival
Scale-up
micro-network
replication
Penetration
Septage
sludge
emptying
Time
Existence & survival
• Micro-honeysuckers start
to emerge after setting-up
pit latrines
Success
• Innovating the vacuum
truck, pumps, composite
field, use of fertilizers, &
special applications
Scale-up
• Extending the number of
mirco-honeysucker
businesses, instead of
growing the individual
businesses

23. Empirical examples
BOP market
penetration
1 - Existence
2 - Survival
3 - Success
4 - Scale-up
5 - Maturity
BOP market
creation
Business model
innovation
Creating needs
where markets
exist
Creating markets
where needs exist
Time (or cumulative
investments)
Re-invent the
toilet
challenge
OSHO – Bone
char filters for
fluoride
removal
Sarvajal Honeysucker
businesses
Unilever

24. Re-considering corporate social responsibility
enable MNEs to be more innovative
Corporate social responsibility
(CSR)
• CSR Integration – Integration with
the core business
• CSR innovation – Expansion of the
core business
• Grameen Veolia - surface-water
treatment systems
• Procter&Gamble – PUR
• Hindustan Unilever - 'Pureit'
Water Purifier
Reverse Innovation
• Previous transnational strategies
turn towards innovation in emerging
markets and bringing these
innovations back to the
industrialized markets
• Reverse innovation could disrupt
existing technology paths. But it
faces similar hurdles as disruptive
innovation
Source: Halme and Laurila (2009) Source: Govindarajan and Rmamurti (2009), Immelt,
Govindaraja and Trimble (2009)

25. Innovation „with‟ the low-income segment
facilitates a giant leap for all clean-tech
businesses
Source: Hart and Christensen (2003)
Performance
Time
Low market
High market
Sustaining technology
Disruptive technology
BOP
Market

26. “That's one (small) step for a man, one
giant leap for mankind”
 Business model innovations enable growth in
water and wastewater businesses
 Recognizing and understanding the need gaps
 Holistic view of business models support local
firms to overcome production and transaction
constraints
 Multinational firms reconsider their CSR
approaches and supplement the transnational
innovation strategy to reverse innovation
strategy