In my last two posts, I investigated the idea of jugaad, or gutsy, improvisational innovation as practiced in India. Here, I'd like to share an excerpt from the book Jugaad Innovation: Think Frugal, Be Flexible, an Generate Breakthrough Growth by Navi Radjou, Jaideep Prabhu, and Simone Ahuja.
Here it is, with permission from the publisher, Jossey-Bass. Enjoy the read--and the case studies and tips.
Jugaad Innovators Adapt to Survive Anyone who has attempted to negotiate street traffic in India (or in any other emerging market, for that matter) knows instinctively the importance of thinking and acting flexibly. The sheer unpredictability and diversity of life on the road demands such flexibility. Vehicles come in all shapes and sizes and travel at a range of speeds. Animals and pedestrians compete with buses, trucks, cars, scooters, and cycles. The terrain can be of varying quality and topography: roads, such as they are, may be dug up or undergoing repairs. Vehicles are likely to veer in and out of lanes (if there are any), and all this with the liberal aid of horns (though not necessarily with any other type of signaling). Paradoxically, a linear and orderly approach to driving in such an environment would lead to an accident. The only way to survive is, ironically, to accept the unpredictability of everyone else on the road and to respond by being similarly adaptable—in both thoughts and actions.
As with the roads, so too with the economic environment in emerging markets. The sheer diversity, volatility, and unpredictability of economic life in emerging markets demands flexibility on the part of jugaad innovators. It demands that they think outside of the box, experiment, and improvise: they must either adapt or die. In many ways, this diversity, volatility, and unpredictability also enables flexible thinking and action on the part of jugaad innovators.
Through our interactions with jugaad innovators, we have identified four crucial ways in which they think and act flexibly in response to the environment they face.
Jugaad Innovators Think the Unthinkable There is mind-boggling diversity in emerging economies. The heterogeneity of populations in these markets demands unconventional, nonlinear thinking. Traditional approaches and cookie-cutter solutions to complex challenges are unlikely to work. Jugaad innovators therefore dare to challenge many ingrained beliefs and turn conventional wisdom on its head.
Harish Hande is a jugaad entrepreneur who dared to think the unthinkable, and succeeded. Hande, who founded India’s Solar Electric Light Company (SELCO) in 1995, set out to provide solar energy to the rural poor of India with the intention of debunking three popular myths: (1) poor people cannot afford sustainable technologies, (2) poor people cannot maintain sustainable technologies, and (3) social ventures cannot be run as commercial entities. Having installed his solar energy solution in more than 125,000 rural households in India, Hande has successfully busted these three myths by demonstrating his flexible thinking in three particular areas: (1) financing his business, (2) pricing his services, and (3) distributing and maintaining his solution.
Take financing: Hande started his business in 1995 with very little seed money, as conservative banks and cautious venture capitalists deemed his unproven business model in an unproven industry (solar energy) too risky. Undeterred, Hande bootstrapped SELCO with his own money—$30, to be precise. With it he purchased his first solar home lighting system, which he then sold. With the revenues, he then bought additional systems, which he also sold, and so on.
Hande, however, soon hit a wall. As he penetrated deeper into rural India, he learned that his potential consumers—many of whom earn $1 to $2 a day—could not afford the up-front costs of buying and installing his solar lighting systems. Even if these systems somehow got installed, there was no economical way for him to maintain them for rural consumers scattered across multiple villages. To overcome these twin problems, Hande applied flexible thinking to improvise a truly creative solution that involved a network of small-scale entrepreneurs in rural communities.
These grassroots entrepreneurs would own and maintain the solar panels as well as the batteries they could charge in their stores. The entrepreneurs would then rent out the batteries to end consumers daily on a pay-per-use basis—and collect payment every day. This ingenious business model made SELCO’s solution affordable and accessible to scores of rural customers who couldn’t make an up-front investment in SELCO’s solution. These customers included mom and pop store owners, small-scale farmers, and women who work from home. SELCO’s approach also created an incentive for local entrepreneurs to distribute and maintain the equipment over time. Using this approach, SELCO was able to scale up the distribution of its solar lighting system to over one 125,000 households within a few years. It now aims to serve 200,000 households by 2013. For thinking the unthinkable—that is, that poor people can indeed afford and maintain renewable energy solutions—Hande was awarded theWorld Economic Forum’s Social Entrepreneur Award in 2007 and, in 2011, the Ramon Magsaysay Award, considered by many to be Asia’s Nobel Prize.
Jugaad Innovators Don’t Plan—They Improvise 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 jugaad 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, jugaad 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. Jugaad innovators’ flexible thinking—their ability to improvise—serves them especially well when confronted with adversity.
Given their propensity for improvisation, jugaad 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? Jugaad 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.
A good example is that of Tata Motors, the maker of the $2,000 Nano car. The Nano was the brainchild of Ratan Tata, chairman of the Tata Group (Tata Motors’ parent company), who conceived it as an affordable, comfortable, and safe alternative to the perilous two wheelers that often carry entire families on Indian roads. In 2006, Tata Motors announced that the Nano would be manufactured in Singur, West Bengal, an East Indian state. The factory was to be built on land acquired from farmers by the state government in a bid to boost local industry. Tata Motors intended to roll out its first Nanos from the Singur plant in late October 2008.
In 2007, however, local farmers began protesting against the acquisition of land for the factory. The dispute rapidly escalated into a political issue—and caught Tata Motors off guard. As the protests intensified through 2008, Ravi Kant, then managing director of Tata Motors (and later its nonexecutive vice chairman) made a bold decision. He set aside his firm’s prior manufacturing plans and swiftly shifted the production of the Nano to Sanand, in the investor-friendly state of Gujarat, on the other side of the country. He didn’t hire a management consultant to advise him on the move; he just trusted his instinct that this was the right thing to do, given the circumstances. In just fourteen months (compared to the expected twenty-eight months for the Singur plant), Tata Motors built a new factory in Sanand, Gujarat. The new factory began production of Nanos in June 2010.
One year later, Ravi Kant and his team had to demonstrate the ability to adapt to rapidly changing circumstances yet again: the Nanos weren’t selling as well as expected. Monthly sales had fallen well below the optimistic forecast of twenty thousand units. Rather than being disappointed by the Nano’s lackluster performance, Tata Motors’ leadership used this early market feedback to improvise a plan to shore up sales. Ratan Tata originally envisioned a distributed supply chain model whereby Tata Motors would dispatch flat packs to local entrepreneurs across the country, who would do the final assembly of Nanos close to customers—thus creating gainful employment in local communities. With flagging sales, however, this original vision had to be revised: Tata Motors’ executives went back to the drawing board and quickly revamped Nano’s logistics network to a more straightforward one, which involved manufacture and assembly at one site in Gujarat, and distribution through a traditional dealer network throughout the country. But again Tata Motors hit a snag: rural customers—such as farmers—were not venturing into Tata Motors’ showrooms in small towns. Among other things, they felt intimidated by dealers dressed in suits and ties.
This setback led Tata Motors’ management to redesign their rural showrooms to make them more informal—for example, by staffing them with casually attired salesmen who could pitch the Nano to farmers over a cup of chai. Tata Motors also launched a nationwide TV campaign and began offering consumer financing at highly attractive rates to lure frugal Indian consumers. By constantly adapting and refining its business model—and implementing changes within weeks, not months—Tata Motors invigorated sales of the Nano, which, although still lower than expected, are gradually beginning to pick up. Indeed, it is very likely that the future success of the car will depend on more such quick adaptation and flexible thinking by the managers of Tata Motors.
Jugaad Innovators Experiment with Multiple Ways to Reach a Goal Unpredictability is the norm in emerging markets. Because of diversity and rapid change, it is hard to predict how consumers will respond to new products and services—and how new business strategies will perform in, say, rural markets. Jugaad innovators may have a singleminded vision of where they want to get to, but they must be willing to try different paths to get there. Specifically, they must be willing to keep experimenting in order to attain their goals—and they must be flexible enough to quickly switch from one path to another along the way.
Dr. Mohan, founder of Dr. Mohan’s Diabetes Specialities Centre in Chennai, for instance, experimented with a number of different ways to frugally yet effectively engage rural communities both as consumers (patients) and employees. When he first sent his expensive technicians from his city hospital to work in remote villages, he found that these technicians—although highly competent—would soon leave, wanting to return to city life. Learning this, he developed a training curriculum in his city hospital to impart to young men and women from villages the basic skills they need as health care workers. After about three months, these newly trained health care professionals would return to their rural homes, where they were more likely to want to remain. This in turn helped reduce costs and turnover in Dr. Mohan’s business model. Dr. Mohan had a similar experience with his attempts to work with nontraditional partners to develop a cost-effective telemedicine platform. Although he initially contemplated partnering with more typical—and expensive—technology providers, Dr. Mohan eventually linked up with ISRO, which provides his roaming telemedicine van with a free satellite uplink to his clinic in the city of Chennai.
Jugaad Innovators Act with Speed and Agility In emerging markets, new threats and opportunities can emerge from out of the blue. This forces jugaad innovators to not only think but also act flexibly. By demonstrating agility, jugaad 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 jugaad 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, but also 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 jugaad 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 Tibetan 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 groundbreaking innovation helped propel Haier to the number one position in the laundry equipment market not only in China but also around the world.
Jugaad innovators—such as Haier’s employees—are highly adaptable. They are capable of thinking on their feet and acting with great agility. Being nimble-minded and nimble-footed serves them well in the context of emerging markets, which are characterized by extreme unpredictability. Western leaders confronted with increasing volatility and uncertainty in their own business environment must also learn to think and act flexibly—but that’s easier said than done.
Reprinted by permission of the publisher, John Wiley & Sons, Inc., from Jugaad Innovation: Think Frugal, Be Flexible, Generate Breakthrough Growth by Navi Radjou, Jaideep Prabhu and Simone Ahuja. Copyright (c) 2012 by John Wiley & Sons, Inc. All rights reserved.
Image: Meena Kadri/Flickr
Reena Jana is frog's Executive Editor. Based in New York, Reena is the former innovation department editor at BusinessWeek, and has contributed to a variety of publications including Wired, the New York Times, Harvard Business Review online, Fortune.com, and numerous others.