Before Muhammad Yunus started the bank that would upend conventional wisdom and deliver affordable credit to the poor, he didn't conduct market research or research the best target markets. The economics professor knew enough to compile such data, but the inspiration to launch Grameen Bank in 1976 came instead from a bond between Yunus and the Bangladeshi farmers who lived in the village adjacent to Yunus's home and university
Yunus and the villagers spent time together as a community: in the rice fields in farming projects, in afternoon conversations at roadside tea stalls and in late-evening dinners and debates. They worked together and learned from one another, and together they created a profitable and scalable village banking model that neither could have conceived of independently. In time, Grameen Bank would profitably serve more than seven million women borrowers across some 75,000 villages of Bangladesh, with an annual loan disbursement exceeding $800 million.
Consumers meet most new value propositions with skepticism. But Grameen created a groundswell of demand, and as it entered new villages, it scaled rapidly while growing revenue and profits -- despite the social tensions and sometimes outright threats involved in making loans to women living in predominately conservative Muslim villages.
It was business model intimacy that created this success, catalyzing Grameen Bank's rapid and successful diversification over the past decade into new services and industries, ranging from energy and telecommunications to textiles and fisheries.
What is business model intimacy? It's a relationship in which a community's identity fuses with a company's. Holding together this shared identity is a jointly imagined vision of a better life and community -- a strategic community intent -- anchored around a new business. The community feels responsibility for the growth and success of the new enterprise.
Creating this intimacy requires changing the way we understand value and practice innovation. It's not about getting closer to the customer through "deeper" consumer research strategies, nor is it a question of mass-customizing products and services to match individual tastes. First and foremost, business model intimacy is about cocreating a new community from the ground up, with the company embedded in its foundation. Dialogue and joint action build such vibrant ventures, not data and delivery times.
Think of this as an "embedded innovation paradigm": innovation that entails creating new communities consisting of diverse people working together to create and sustain independent lives. Innovation isn't enabled by new relationships; it is the relationship.
For example, consider Mondragón Corporación Cooperativa of Spain. Founded in 1956 as a small producer of cooking stoves, MCC is today a global business group comprised of 264 companies with more than 100,000 employees. It operates in manufacturing, retail and financial sectors, and has 12 applied research centers in areas such as nanotechnology. Its revenues in 2007 for its manufacturing and retail businesses -- which include automobile parts, electronic components, along with retailing and distributing good and appliances -- reached $17 billion.
Like Grameen, MCC was a shared vision -- in this case created by Father José María Arizmendiarrieta and residents of the town of Mondragón. MCC was both the catalyst for and the result of a new community. Sent to Mondragón in 1941 by his bishop, Father José María began teaching about values and principles of cooperation at the apprentice school of a local factory. Father José María worked with the youth of Mondragón, organizing sporting, cultural and educational activities. He started a community-run training school with the active involvement and support of 600 residents. In time, a group of the school's graduates felt compelled to put into practice the cooperative vision and entrepreneurial values that had spread across the community.
The group received support from more than 100 members of Mondragón's community to establish a new company. The resulting cooking stove venture, which opened with 24 worker-members in 1954, was a success. To catalyze other such cooperative ventures, Father José María helped establish in Mondragón today's equivalent of a credit union that channeled the community's savings into developing new local businesses.
The school, the cooking stove company and the bank were all part of an embedded innovation approach that became cornerstones for a new community. The innovation process underlying MCC helped propel a social movement centered on a vision of cooperative entrepreneurship.
As Grameen and Mondragón demonstrate, embedded innovation and business intimacy create value and competitive advantage. Over the long term, business intimacy creates a locally responsive platform from which the business can be propagated in other communities.
This article is adapted from "Innovation From the Inside Out," by Erik Simanis and Stuart Hart, which appeared in the Summer 2009 issue of MIT Sloan Management Review. The complete article is available at http://sloanreview.mit.edu.