What the West Can Learn from Jugaad
The
structured approach to innovation favored by mature companies can’t deliver the
agility and differentiation they need today.
For three generations, Gustavo
Grobocopatel’s family had pursued a small-scale, subsistence model of farming
in Argentina. Grobocopatel dreamed of growing his farm into a larger, more
sustainable enterprise, but his vision was hindered by scarcity. For one thing,
he had difficulty accessing large tracts of land. Although Argentina is a vast
country, farmland is hard to come by. Only 10 percent of the land is arable,
and much of that is controlled by a few owners who are reluctant to part with
it. Grobocopatel also faced a shortage of the skilled labor needed to scale up
his business—people who could fertilize, sow, tend, and harvest crops. In
Argentina, such labor is in limited supply, is not formally organized, is
spread out across the country, and can be costly to hire, especially during
peak harvest seasons. Finally, he didn’t have the capital to buy the farm
equipment he needed. Funding opportunities for bootstrapping new businesses are
very limited for entrepreneurs in Argentina.
Instead of giving in to these
challenges, Grobocopatel developed an ingenious business model. He overcame the
scarcity of land by leasing rather than acquiring it. He dealt with the
scarcity of labor by subcontracting every aspect of farmwork to a network of
specialized service providers, giving him access to “freelance” laborers whom
he could hire as needed. And he overcame the cost of owning equipment and the
lack of access to capital by renting the equipment needed from networks of
small local companies. By cleverly leveraging a grassroots network of 3,800
small and midsized agricultural suppliers, Grobocopatel’s company, Los Grobo,
which the entrepreneur founded in 1984, has evolved rapidly from a vertically
integrated family business to an asset-light company. In 2010, it became the
second-largest grain producer in Latin America, farming more than 300,000
hectares, trading 3 million tons of grain per year, and generating US$750
million in revenue—all without owning land or a single tractor or harvester.
Having succeeded in Argentina, Grobocopatel is now exporting his “frugal
farming” model to Brazil, Uruguay, and Paraguay.
Los Grobo’s innovative business
model was born out of adverse circumstances. It shows how a resilient mind-set
can transform scarcity into opportunity by combining limited resources with
inventiveness and a never-say-die attitude. This approach—whether it is aimed
at creating a product, service, or business model—is what we call jugaad
innovation. Jugaad is a colloquial Hindi word that roughly translates as
“an innovative fix for your business; an improvised solution born from
ingenuity and cleverness.” It is based on six operating principles: seek
opportunity in adversity, do more with less, think and act flexibly, keep
everything about the business simple, tap the margins of society for employees
and customers, and follow your heart.
The extreme conditions that make
jugaad innovation worthwhile have typically been more prevalent in emerging
markets such as India, China, and Brazil than in the United States or Europe.
But in recent years, developed economies have begun to exhibit many of the same
aspects of scarcity, diversity, unpredictability, and interconnectivity, making
these principles relevant to companies around the world.
Jugaad
Lost
The jugaad spirit, also known as the
“pioneer spirit,” was once common in North America and Europe as well—at least
until their economies matured. During the 20th century, Western companies built
up dedicated research and development departments aimed at institutionalizing
and managing their innovation capabilities. This industrialization of the
creative process led to a structured approach to innovation that spawned big
budgets, standardized business processes, and controlled access to knowledge.
Most Western firms have assimilated
the idea that an innovation system—like any other industrial system—will
generate more output (inventions) if fed more input (resources). As a result,
the structured innovation engine in most companies is capital intensive,
requiring an abundant supply of financial and natural resources at a time when
both are scarce. The 1,000 companies in the world that invest the most in
innovation spent a whopping $603 billion on R&D in 2011. But what did they
get in return? As the Booz & Company Global Innovation 1000 study has
repeatedly shown since 2005, pumping more money into R&D doesn’t
necessarily buy more innovation.
The size of their R&D
investments caused many Western firms to become risk averse, and led them to
implement standardized business processes such as Six Sigma and stage-gate
analysis to manage their innovation projects. These structured processes were
expected to drastically reduce uncertainty and the risk of failure. And they do
have several well-documented benefits, including delivering volume-oriented
economies of scale for standardized products and services, providing for the
capital-intense needs of “big risk, big reward’’ R&D projects, and enabling
more effective and efficient execution of innovation projects in stable
environments. Yet structured processes can’t deliver the agility and
differentiation that enterprises need in a fast-paced and volatile world. Six
Sigma, for example, works marvelously when you are seeking to institutionalize
“sameness.” But it can also be like a straitjacket: Once you get in, you are
stuck, and when things start to change, you can’t move. Worse, the orthodox Six
Sigma culture weeds out positive deviance—the unconventional and
counterintuitive strategies used by pioneering employees to solve vexing
business problems that can’t be addressed with traditional approaches.
The top-down R&D systems common
in the West are also often unable to open up and integrate bottom-up input from
employees and customers. But in today’s interconnected world, finding, sharing,
and integrating knowledge from across the spectrum is essential. It’s clear
that companies competing in this business environment need a new approach to
innovation and growth —one that, like jugaad, is frugal, flexible, and
participative.
Jugaad
Regained
Instead of always using a hammer to
deal with their problems, companies might find it helpful to use a screwdriver
from time to time. In other words, we are not proposing that companies abandon
their traditional structures and processes for innovation. Rather, they should
expand their innovation tool kit.
Jugaad can bring value to
conventional companies in a number of ways. They deliver economies of scope
when companies need to tailor solutions to the specific needs of multiple
customer segments in heterogeneous markets. They provide “soft” capital by unleashing
the passion of employees, business partners, and existing and potential
customers. And they enhance flexibility to better manage unexpected challenges
and harsh constraints through the improvisational use of limited resources. For
companies attempting to combine a jugaad-like approach with their existing
R&D systems, we offer two suggestions.
1. Prioritize the principles. At the corporate level, let industry dynamics and your
company’s strategic requirements determine which jugaad principles are most
critical for your business success. For instance, if you are a premium retailer
that sells luxury items, “do more with less” and “tap the margins of society”
may not be of critical relevance; however, “keep it simple” may be crucial to
streamlining the service experience for high-end customers. If you are a
consumer products manufacturer like Procter & Gamble or Whirlpool, you may
choose to “do more with less” by creating new frugal products for buyers whose
purchasing power is waning. Similarly, Western companies in industries
undergoing major turmoil, such as pharmaceuticals and automotive, would be wise
to “seek opportunity in adversity” and “think and act flexibly.”
2. Aim for the low-hanging fruit. Once you have decided which principles are of strategic
importance to you, adopt them in small, manageable stages. If “keep it simple”
has appeal, begin by simplifying the design of your products and making them
easier to use and maintain. Likewise, if you are attempting to “do more with less,”
you can demonstrate frugality by first reusing components across existing
product lines. Later, you can develop your frugal mind-set by designing
entirely new, very affordable, high-quality products. Finally, if you are an
enlightened bank that wants to “tap the margins of society”—that is, the 60
million Americans who are “unbanked” or “under-banked”—you can first partner
with an organization like the Center for Financial Services Innovation and
pilot financial inclusion solutions in a few U.S. cities before scaling them up
nationally. (But you’d better hurry, because nimble startups and established
companies like Walmart are already offering basic banking services to
underserved communities.)
To simultaneously deal with
low-volatility, resource-rich settings and high-volatility,
resource-constrained settings, companies need two sets of innovation
capabilities: the structured capability, with its volume-oriented economies of
scale, hard capital, and efficiency, and the jugaad capability, with its
value-oriented economies of scope, soft capital, and flexibility. Mature
companies that strike this innovation balance will be better positioned for
success in today’s complex, turbulent markets.
by Navi Radjou, Jaideep Prabhu, and Simone Ahuja
http://www.strategy-business.com/article/00143?pg=all
No comments:
Post a Comment