CB BureauTalking-and-thinking points from the report ‘Sustainable and inclusive innovation – strategies for tomorrow’s world’ by CII-ITC CESD – part 2
So, what is the best strategy to go about doing ‘sustainable and inclusive innovations’, or SI2? There are six areas of strategic intervention, as discussed here.
High asset use
High asset use or high throughput is achieved through standardization in processes, enabling huge cost reduction, uniform quality output and sufficiency to scale and replicate.
The healthcare sector in any developing country is a fitting case for demonstration of the opportunities for SI2. Though many countries have made rapid progress, unhealthy statistics suggest the volume of work still left to be done even as it indicates the opportunities. For instance, India alone has more than six million blind people and more than 50 million malnourished children. India has one of the world’s highest rates of maternal death in
childbirth. Around the world, some 400,000 women and girls die each year from pregnancy and childbirth, and India accounts for almost a quarter of these maternal deaths, the vast majority preventable. According to a UN report, of the 358,000 maternal deaths in 2008, the majority were from 11 developing countries. (Trends in Maternal Mortality, United Nations Population Fund (UNFPA), World Health Organization (WHO), United Nations Children’s Fund (UNICEF), and the World Bank, 2010)
The healthcare sector is marred with its problems. Doctors and nurses are in short supply; healthcare centres are under-equipped and under-staffed, at times making them useless facilities; healthcare finance is inaccessible; drugs and treatment are expensive; and the physical distance between a patient and the hospital is huge. Yet, amid all these constraints, a few healthcare providers in India are establishing new global standards for cost, quality and delivery. They do it by sidestepping conventional approaches to medical practice.
Through its process-driven model, LifeSpring Hospital has developed an easily replicable model ensuring scalability and supporting rapid expansion. LifeSpring Hospitals are a network of maternity and child healthcare
hospitals that provides high-quality, low-cost maternal services to low-income women with clear and transparent pricing. It is a joint venture between the public-sector company Hindustan Latex Ltd and the US-based philanthropic funding agency Acumen Fund. LifeSpring aims to serve as a model for providing high-quality maternal and child health services to the poor in India and worldwide.
Through its model of small hospitals (20-25 beds) and prices significantly below market rates, LifeSpring has achieved financial sustainability and social impact. The first LifeSpring Hospital opened in 2005 on the outskirts of Hyderabad in Moula Ali; it broke even and became profitable in less than two years of operations. The hospital network has already served more than 25,000 low-income patients, mostly from families working in the
informal sector.
LifeSpring cut costs by standardizing its procedures, trimming expenses, increasing volume, reducing staff attrition rates and using a cross-subsidy model for three types of wards (general, semiprivate and private). Additionally, it substantially increased the typical hospital use rates of key assets, ranging from diagnostic machines to the obstetricians themselves. Most LifeSpring hospitals are taken on long leases (15-20 years)
from players who could not run them. The lease model saves hugely on land costs.
LifeSpring’s focus on a particular niche – maternal and child care – cuts down on the need for many specialist doctors and also on the range of equipment needed. It refers the more difficult cases to other hospitals, even if it means turning away customers. The equipment as well as the service is on a no-frills basis. Standardization in clinical procedures and kits brings down costs, too. It allows the network’s facilities to average eight times more procedures than other private clinics. Thus, its operating theatres accommodate 22-27 procedures each week compared to between four and six in a private clinic. It uses a narrow range of drugs and equipment for large numbers of repeat procedures and thus purchases standard equipment and generic medicines in bulk.
LifeSpring is aggressive in marketing, has low OPD fees and is located very close to urban slums. All these generate high footfalls. This increase in traffic allows LifeSpring to use doctors more efficiently; consultancy firm Monitor estimates that its doctors, on an average, perform 17-26 surgeries per month, which is four times as many operations as their peers outside. So, the network’s medical cost per patient is just a quarter of what a private hospital spends. LifeSpring doctors earn fixed salaries rather than the variable consulting fees of their private clinic peers. Doctors, nevertheless, have strong non-monetary incentives to stay; for example, less administrative duties, more clinical practice.
LifeSpring hires less qualified auxiliary nurse midwives (ANMs) rather than graduate nurse midwives (GNMs). The former are trained as birth attendants. But because the ANMs are less qualified, they are less costly to employ than GNMs, whose degrees are more advanced and expensive to attain. Moreover, their attrition rate too is low.
Further, a tiered pricing model helps its commercial viability. Women, for instance, can choose to give birth in a general ward, semi-private room, or private room. LifeSpring’s general ward, which makes up 70 per cent of each hospital, is 30-50 per cent cheaper than comparable market rates; its private room is at par with the rest of the market. Normal deliveries cost only around Rs 2,000 ($40). That includes the cost of a two-day stay in the hospital and the medicines. Caesarean operations cost Rs 7,000 ($140) at LifeSpring – just a fifth of what is charged outside. That is more than the official rate at public hospitals”which are supposed to be free though they often require undisclosed payments”and only about a sixth of the price at a private clinic.
LifeSpring plans to launch 22 more such hospitals in the next 20 months at a cost of $4 million. It is also evaluating a franchise model in hopes of scaling up rapidly to 150 hospitals over the next two years. LifeSpring’s marketing approach is multifaceted, consisting of its outreach teams, voucher programmes, health camps and word of mouth. To generate high patient volume, it targets key decision-makers in maternity matters – husbands and mothers-in-law – and has a dedicated community outreach team that customizes its message, depending on whether the woman has had an institutional delivery before, and if so, where. It also focuses heavily on customer retention and referrals – even operating a ‘pull’ programme that gives every inpatient a voucher, good for one outpatient visit, to distribute to friends and family. The low-cost outpatient department plays a vital role in attracting mothers by providing a showcase for services, including women’s health and paediatrics. A visit costs Rs 50 ($1), in contrast to a private clinic’s Rs 100-Rs 300. Moreover, it posts a price list outside the hospital, creating consumer awareness and confidence of transactional transparency.
LifeSpring’s innovation was figuring out how to deliver world-class care – it is ISO 9001 certified – at a price that many of the poor could afford and that also made economic sense. Its high throughput/high asset use business model is vastly more productive than that of its counterparts. The LifeSpring model is scalable for obvious reasons: it targets densely populated urban and peri-urban areas, offers a value proposition superior to competitors and, although more expensive than government hospitals, provides superior service, has a demonstrably no-frills cost-and-profit structure, and is verifiably replicable.
Gyan Shala (Hindi for ‘a school of knowledge/wisdom’) is an NGO provider of primary education to the poor based in Ahmedabad, Gujarat, in the western part of India. Its 330 one-room schools, located primarily in the slum districts, teach about 8,000 children in grades 1-3 at a monthly cost of $3, roughly a quarter of the cost of a government school and about a sixth of the cost of a recognized private school. School budgets are often subsidized by third-party funds to ensure affordability. Most parents pay Rs 30 ($0.60) per month per student, their monthly earning being between Rs 2,000 and Rs 6,000 ($40-$120) per month.
The performance of Gyan Shala schools is remarkable at the uncommonly low cost. Test results show Gyan Shala students outperforming students from the best government schools in Gujarat in every category, even when the government school children tested were a grade above. (Leigh L. Linden, ‘Complement or Substitute? The Effect of Technology on Student Achievement in India’, 2008, unpublished working paper)
Gyan Shala is implementing a radically engineered teaching methodology that focuses on learning processes. It has created a teaching model that includes standardized curriculum and lesson plans. These are supplemented by learning aids and continuous monitoring of classroom processes for regular staff feedback. Gyan Shala has significantly higher course-material costs – Rs 30 per child as against Rs 3 – than the typical private school. This is central to the Gyan Shala model, as extensive proprietary course materials reinforce the lesson and make it possible for junior teachers to succeed.
The design and management teams are highly skilled and compensated with high wages. But their cost is spread over 300 classrooms. Standardization facilitates teaching by junior teachers, which together keep costs low. Most of the savings on wages are made on account of the junior teachers’ salaries, who are paid Rs 1,000 ($20) a month for working three hours a day. Conversely, the amount spent on teachers’ wages is less than a third of
that in a private school – Rs 56 (just over $1) compared to Rs 105 (just over $2) per day. (ibid.)
Gyan Shala keeps cost competitively low mainly by keeping the share of teacher cost only at around 35 per cent of total cost, while in other competitive alternatives, the teacher cost is in excess of 85 per cent. The unit cost of a teacher in Gyan Shala is around 20 per cent of the salary paid in the main competitive alternative. Junior teachers are recruited from the community in which the school is located. They typically have a high school education and grade five skills in mathematics and language, but lack the formal pedagogical qualifications required of government teachers.
The use of local women is advantageous: local teachers tend to relate better to their young charges and increase children’s willingness to learn. Renting single-classroom rooms in local slums improves accessibility and increases female enrolment rates, and creates a ‘smaller size’ offering. Moreover, providing junior teachers with formal employment improves their status within the community and increases both their earnings and their future earnings potential – a far cry from their usual alternatives of working as domestic servants or garment pieceworkers. (Karamchandani A, Kubzansky M, Frandano P, Emerging Markets, Emerging Models, Monitor Group, March 2009)
Process re-engineering
Process re-engineering breaks a process into highly efficient subparts and creates specialists for each sub-part, thus opening up areas for cost reduction.
The Narayana Hrudayalaya (NH) Cardiac Care Centre, located in Bangalore, is one of the world’s largest providers of heart surgery and other forms of cardiac care, including care for children. A private corporation, it was founded in 2001. Since then, it has grown to a 1,000-bed facility. Founded by cardiologist Dr Devi Shetty, NH has re-invented the way cardiac healthcare is perceived around the globe. Dr Shetty believes his success can lead to a new healthcare model not only for India but perhaps also for the world.
‘The first heart surgery was done over a hundred years ago but even today, only 8 per cent of the world’s population can afford heart operations,’ Shetty notes. ‘In India, around 2.5 million people require heart surgeries every year but all of (the country’s doctors) put together perform only 80,000 to 90,000 surgeries a year… We clearly need to re-look and change the way things are being done.’ (http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4493
[accessed on 31 July 2010])
In NH, patients are charged a flat $1,500 (about Rs 75,000) for heart surgeries, compared to $4,500 (about Rs 225,000) that other heart hospitals charge on an average. These numbers get all the more interesting when it is compared with the US, where an average heart surgery costs $45,000 (about Rs 2,250,000). The core idea of ‘affordable’ healthcare is made available to remote villages as a result of innovation in internal process. Despite helping so many poor patients, NH is known for being so efficient that it has a higher profit margin (7.7 per cent after tax) than most US private hospitals (6.9 per cent). (Martha Lagace, ‘Entrepreneurial Hospital Pioneers New Model’, Online web page of Harvard Business school, at http://hbswk.hbs.edu/item/4585.html [accessed on 24 October 2010])
NH’s model is based on staffing doctors, who are extremely well-trained and dedicated, yet are willing to take a 50 per cent pay cut compared to what they can earn in the West.
The first element of process innovation comes from what is known as a ‘vertical’ approach towards specialization. Doctors here are highly specialized in cardiology, which means they can perform a specific aspect in a much better and faster way than other doctors with generic skills. This specialty helps NH attract patients, motivated healthcare professionals and donors. This super-specialization is way different from services offered by what are popularly known as ‘multi-specialty hospitals’, which treat a variety of diseases.
If super-specialization was the first element at NH, the second is about de-skilling a few elements in the cardiac healthcare in such a way that it results in dramatic time savings. NH recruits women with high school education and trains them in taking echocardiograms of patients, a task generally performed by trained doctors. This enables doctors at the centre to perform more immediate and complex activities. With these innovations around
internal processes, NH performs 30 surgeries per day compared with four to five performed by other major hospitals. This ‘high volume’ helps NH to reduce the cost of its services, thus attracting more patients and enabling the business to grow.
In addition, NH staff has the capability to do a large number of different cardiac procedures. The hospital’s mortality rate of around 2 per cent and hospital-acquired infection rate of 2.8 per 1,000 ICU days are comparable to the best hospitals across the world. In an article in Forbes India, CK Prahalad said the mortality rate in NH is ‘much lower than in New York state for similar kinds of heart diseases.’
In order to have a wider reach with its patients, NH has partnered with ISRO to run tele-cardiology programmes. Such programmes have been implemented in the remote areas of the northeastern states of Tripura and Nagaland, and in the south Indian state of Karnataka, using the INSAT satellite. While ISRO provides the software, hardware and communication equipment as well as satellite bandwidth for the programme, the specialty hospital provides the infrastructure and manpower, and maintains the system. The telemedicine network has since grown into 165 hospitals and has treated over 70,000 heart patients.
Technology empowerment
One of the best ways of adding value to customer proposition and reducing costs while identifying suitable revenue streams is putting technology into the hands of the user.
Low-cost treatment at hospitals is one part of the solution to providing healthcare to the poor. The other problem is that of accessibility. Most populations in developing countries live in rural and semi-urban areas. They are difficult to reach, especially when doctors are scarce (for instance, in India, the ratio of physicians to the total population is less than 1 per 100,000 people, compared with about 1 per 160 people in the US). People in the rural areas have to walk many kilometres to reach a doctor for basic healthcare. As a result, not many people attend to their medical needs in the early stage of the disease cycle. Consequently, they reach the doctor only when their condition becomes serious. This results in increased expenditure, pulling people back into poverty. About 20 million families get pushed below the poverty line every year because of healthcare expenditures alone.
Installing medical equipment in villages has its share of challenges. The alternate is to establish the right kind of reach into the village. This is what remote medical diagnostics (ReMeDi) does by setting up kiosks in villages. A kiosk is a place where the necessary equipment exists and there is a knowledgeable person to operate it. Developed by Neurosynaptic Communications, ReMeDi comprises a device integrated with audio-video conferencing software. The device runs on two watts of power and the audio-video conferencing runs at 32 kilobits per second. It also runs over reliable telephone lines or normal modems. An integrated patient-record centre helps doctors in recording all health-related issues of a patient.
(http://www.neurosynaptic.com/index.html)
ReMeDi measures four vital signs: temperature, blood pressure, heart beat and blood oxygenation. Trained operators at its internet-enabled kiosks transmit the patients’ readings to doctors, who make preliminary diagnoses and can issue prescriptions. When real-time bandwidth is more than 32 kilobits per second, stethoscope sound is heard in real time when a chest piece is put on a patient. Suitably instructed by a doctor at the other end of the line, the operator can place a stethoscope on patient’s chest. Such placements are visible on a chart to a doctor and this procedure can be easily implemented if the operator is given suitable basic training.
ReMeDi’s acceptability rate or return patient rate is about 40 per cent. More importantly, about 75 per cent of its patients did not have to travel to another town to meet their healthcare needs. There is a great amount of affordability, because this model allows patients to get access to healthcare for less than a dollar.
Technology is going to be a game changer. If people are provided with high innovation at low cost, they will become more productive and efficient, and their earning potential will increase. Lives not only in the developing world, but also in the developed world, can be improved just by making this technology affordable and accessible.
Price modelling
Rethinking price points and breaking these into affordable units can radically increase affordability of a product or service.
Aakash Ganga (AG), or River from Sky, is a rainwater harvesting system currently installed in six drought-prone villages in Rajasthan, the driest state in India. Founded by BP Agrawal, the AG system rents rooftops from homeowners and channels the rooftop rainwater through gutters and pipes to a network of underground storage reservoirs. This network of reservoirs is designed to provide 10-12 litres of water daily to every person in an entire village for a year. It has helped over 10,000 villagers gain access to clean water. Agrawal is now working with local, state and national governments for widespread adoption of AG.
Agrawal created a simple, self-sustaining execution plan – villagers rent their rooftops to others, enabling them to sell water and collect what they view as ‘free money’. Almost 70 per cent of the harvested water is sold or used for individual families; the rest goes to horticulture. This dramatically improves sanitation, creates revenue to compensate each entrepreneur, and covers operating costs. Additionally, the access to drinking water frees time for girls to attend school and for women to be more economically productive.
‘AG demonstrates an alternative model that provisions water in lieu of the typical inefficient, poorly performing public-works projects. Agrawal’s system functions as a hybrid of a social enterprise and a public-private-community partnership, and takes great care to be attentive to social issues surrounding caste, class and gender.’
(‘Aakash Ganga: Saving Water for a Rainy Day’, India Knowledge@Wharton, http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4397 [accessed 20 July 2010])
Micro distribution
Engaging community people in the distribution channel increases credibility, accessibility and offers a captive consumer base.
HUL (Hindustan Unilever) has for years been a market leader in personal care products, riding on India’s rising middle class and then introducing a wide range of brands appealing to low-income market segments. But by the end of the 1990s, margins were shrinking and competition had increased; HUL needed to find new markets and new growth. Rural India was approaching an inflection point; the challenge was to turn it into an opportunity.
HUL set up a taskforce with a clear mission: devise a model that could break the affordability and accessibility barriers of hundreds of millions, mainly in the rural areas, in a manner that would add value to their lives much beyond becoming consumers of its FMCG products. The taskforce members began to envision a business model centred on partnerships with the government-supported and micro-credit-financed village self-help groups. This
venture, called the Shakti Initiative, was to reach out to micro-entrepreneurs, identifying and training a sales force termed the ‘Shakti Ammas’. These women – who had little or no business skills – were to act as direct representatives for HUL in their villages.
This was for the first time that HUL ventured into managing business at a micro scale. For the company, it was a radical idea on many levels. It had to break the mindset that it was not viable to go directly to a village with just 2,000 residents. The team knew it needed to build an appropriate platform, so it worked to clearly define the target customer. The other was a realization that it could give something back to society on a large scale in a mutually beneficial manner. Ultimately, members arrived at a surprising customer value proposition: Shakti was not really about delivering products to the end user; it was about delivering a business opportunity.
The Shakti Ammas were the new business partners. HUL focused on the channel, delivering adequate training and support to ensure their profitability. Success of HUL was dependent on success of every member of the channel. By defining the direct representative as the customer and focusing the value proposition on giving her a viable business opportunity, HUL built a model designed for long-term growth that was difficult for competitors to replicate. Though rival Nirma, an Indian consumer and industrial products company, had beaten HUL to the direct sales approach, HUL hoped its unique focus on a partner network model would give it an infrastructure and expertise that differentiated the company in the rural market.
Early on, Shakti team members realized that the profit formula for this new model would have to tolerate low margins as the offerings gained a foothold in communities unaccustomed to purchasing branded products. They expected these margins to be balanced by increased volume, and they also included the social benefit of the enterprise in their metrics for success, a position supported by HUL’s corporate leadership. To test the assumptions underlying the Shakti model, HUL started in only one region. Just 17 women began selling hand soap, shampoo and a small list of other products in their village market, and then increasingly went door-to-door.
Training Shakti Ammas – women with varying levels of education – required HUL to innovate its training programmes. Thus, the Shakti team created training audio cassettes and invited the women to attend classroom programmes in the nearest locations. In some cases, the Shakti team hired troupes of local actors to travel from village to village performing comedic skits – a live commercial extolling brand messages. These have been traditional methods of awareness raising and rural marketing in deep pockets of rural India.
Many of those messages focused on the benefits of increased hygiene. Teaching a rural population the benefits of washing hands before eating – thus decreasing intestinal infections, a leading cause of childhood mortality – gave the Ammas increased social stature because they provided an important benefit to the village.
However, getting their products to remote villages required further innovation in distribution. Many of the target markets lacked paved roads. At first, Shakti leveraged HUL’s existing rural distribution network, arranging drop-off points for the Ammas to pick up stocks on carts towed by bicycles. As it incubated the model, however, the team found that it was more efficient to develop entrepreneurs in geographic clusters. By reducing the number of drop-off points, local distributors made higher profits, and Shakti could decrease stock requirements, which in turn increased efficiency and resource velocity.
By 2007, the model had been refined and tested extensively. Shakti expanded to include 45,000 Shakti Ammas, covering more than 100,000 villages across 15 states in the country, and reaching over 3 million homes. For their villages, the Shakti Ammas bought the equivalent of almost $100 million worth of consumer goods from HUL in 2008.
Thus, Shakti became the engine of transformational growth for HUL, dramatically increasing its rural penetration and adding new perspectives, capabilities and expertise to the parent company. HUL has nearly tripled its sales and profits over the last five years. (Hindustan Unilever, 10 June 2009, Annual Statements)