CB BureauTalking-and-thinking points from the report ‘Sustainable and inclusive innovation – strategies for tomorrow’s world’ by CII-ITC CESD – part 1
A hepatitis B vaccine that is 1/40th the cost of traditional vaccines but meets UNICEF’s quality requirements; cataract surgeries, performed on 300,000 patients annually by a single hospital, at a cost that is just 1/100th of that charged in other countries but still meets global quality standards; a refrigerator that costs less than $70 and runs on battery; farmers operating water pumps in fields even as they use mobile phones to conduct other chores; mobile banking, including financial services, that takes such services into the hitherto cut-off hinterland.
There are four characteristics that set these innovations apart:
ï± Such innovations add value to the life of the people much beyond the immediate use of the product or service
ï± They create a product or service of an uncompromising quality at a price that is affordable
ï± They address the challenge of resource-use efficiency to manage drastically low-cost structures
ï± They are scalable and replicable to suit requirements of local circumstances and complexities
Innovations meeting these characteristics have been termed as ‘Sustainable and Inclusive Innovations’, or SI2, by the CII-ITC Centre of Excellence for Sustainable Development (CESD). These innovations, as the report
‘Sustainable and inclusive innovation – strategies for tomorrow’s world’ presents, are needed if we have to tackle the twin challenges of the 21st century: poverty and natural-resource strain.
All of the above instances epitomize the innovations taking place that are not just technological or market breakthroughs. They are changing people’s lives. The process of converting an idea into an innovation, which makes tremendous impact, is difficult to realise. Not all attempts succeed.
Looking for more instances in the league, one finds these: Nokia’s cheapest mobile handsets equipped with flashlights (because of frequent power cuts), multiple phone books (because they often have several different users), rubberized key pads and menus in several different languages; Tata Swach using rice husks to purify water, giving a large family an abundant supply of bacteria-free water for an initial investment of about $24 and a recurring expense of about $4 for a new filter every few months (Tata Chemicals, which is making the devices, is planning to produce one million over the next year and hopes for an eventual market of 100 million); Anurag Gupta, a telecom entrepreneur, reducing a bank branch to a smart-phone and a fingerprint scanner that allows ATM machines to be taken to rural customers; and a wood-burning stove invented by First Energy which consumes less energy and produces less smoke than regular stoves.
What these companies and entrepreneurs are doing is very different from product or service stripping to make them affordable for the poor. They are taking the needs of the poor as the starting point and then working backwards. There is more to this than simply cutting costs to the bone.
SI2 solutions need to be high quality at affordable prices. SI2 also means being sparing in the use of raw materials and being considerate about their impact on the environment. SI2 is not just about redesigning products and services; it involves rethinking entire production processes and business models.
None of the innovations mentioned above would have succeeded had they not addressed the issues of sustainability and inclusivity. SI2 is about innovation that improves the lives of everyone; innovation that does not leave out the poor. There are approximately four billion people living on incomes less than $2 a day. To raise their standards of living and quality of life, goods and services will have to be ultra-low-cost, extremely affordable, and at the same time be high on performance and world-class in quality.
The value of SI2 is generally perceived to come true in the low-income markets, but any industry, in any geography, can generate similar breakthroughs by creating a similar context for itself. Not only can these be replicated in low-income countries, but they also have the necessary space in developed countries. Vijay Govindrajan calls such a process ‘reverse innovation’. This takes place when an innovation developed in a poor country turns out to have broad utility in the developed world as well. This is validated through GE’s Mac 400, a handheld electrocardiogram (ECG) unit. Here, the multiple buttons on conventional ECGs have been reduced to just four. The bulky printer has been replaced by a tiny gadget normally used in portable ticketing machines. The complete unit is small enough to fit into a small backpack and can run on batteries as well as on general power supply. It sells for $800, instead of the $2,000 that a conventional ECG costs, and it has reduced the cost of an ECG test to just $1 per patient.
SI2 must be scalable and replicable, for only then will such innovations reach the poor and the very poor. SI2 that work are those that are responsive to the limitations imposed by small, irregular customer cash flows and credibly address distribution questions. When engaging low-income segments, as suppliers or producers, a successful SI2 will attend to the costs that a low-income supplier may face in switching livelihoods and to the cost of aggregating and managing large numbers of small suppliers.
SI2 means adding value to potential customers, who are currently left out of a market because existing offerings are too expensive or complicated or they lack access. Such consumers fall all along the socio-economic spectrum, although opportunities to democratize products in emerging markets and reach the so-called bottom-of-the pyramid are particularly ripe. The global economy creates new opportunities for innovative companies to
bring goods and services to those previously unable to access them. As the global economy fuels upward mobility for even the poorest in developing nations, many companies are finding growth by breaking down barriers for the millions of poor they previously thought to be unreachable, unprofitable, or both.
SI2 ecosystem
Innovation ecosystem is understood as the aggregate of public and private organizations that contribute to the generation and application of new technological and market knowledge, and policies and incentive systems within an economic system to support innovation process. Ecosystems such as these are receiving increased attention from policymakers as it helps to map out actors involved in innovation generation, to identify the linkages among them as well as gaps and missing links reducing various capabilities.
Considering there are basic challenges to sustainability and inclusivity, such as gaps in physical infrastructure that provides last-mile connectivity with beneficiaries, SI2 ecosystem includes bridging such gaps, which may not be found in otherwise evolved innovation systems. The SI2 ecosystem has four key subsystems that interact with each other. These are: focus on issues, connectivity through physical infrastructure, policy that nurtures innovation, and collective effort between different actors.
A credible ecosystem should identify priority issues from time to time. These issues include the environmental and social challenges that need to be addressed, but they also include identification of bottlenecks and hurdles in promoting innovation and making them succeed. Prioritization helps fast-track progress on some of the chronic and immediate challenges. Often, SI2 creates multiplier impact on connected issues.
For instance, provision of renewable-based decentralized energy tackles the twin challenges of energy poverty and carbon emissions.
Physical infrastructure to connect innovators with financiers and, ultimately, users is an uncompromising success factor of a good SI2 ecosystem. Last mile-connectivity using modern technologies bridges many gaps in taking innovation to the marketplace. In addition, there is also a need to provide the physical infrastructure for an innovation ecosystem, including broadband Internet access, seed funding to bridge the ‘valley of death’ between the development of a technology and its ability to generate a sustainable revenue stream for a company, and incentives and effective business services to make investment in aspiring entrepreneurs more attractive.
The importance of SI2-enabling policy can only be emphasised, and this is best provided by governments. Channelling investments to facilitating creation of market and providing a healthy intellectual property rights (IPR) regime are within the purview of governments. Changes in industry policy could also foster more effective collaborations with higher education. Industry should ‘pull’ relevant research from universities by jointly identifying their needs for pre-competitive research and communicating those needs to relevant experts at universities, rather than waiting for academia to approach them with products or processes of potential commercial value.
To develop a thriving innovation ecosystem requires a fundamental reorientation toward entrepreneurship, commercialization and collaboration on the parts of government, industry, not-for-profits, academia and investors. This could potentially reduce unnecessary duplication to some extent.
Building a robust innovation ecosystem will pay off in many tangible ways: in more powerful research in fields of direct relevance to our everyday lives; in new high-technology businesses that leverage the ideas; in higher-paying jobs, more vibrant academia, and an economy that is more sustainable; and in increased tax revenues to support programmes and services that benefit all.
The report ‘Sustainable and inclusive innovation – strategies for tomorrow’s world’ is the second in a series on sustainable innovation by CII-ITC CESD. The first report, ‘Indian companies with solutions that the world needs’, was developed in 2008, with the support of WWF-India.