Erik Simanis, the codirector of the BoP Protocol Project at Cornell University's Johnson School of Management's Center for Sustainable Global Enterprise, took the time to speak with us about the ways communities and businesses can come together to create sustainable long-term growth not only for organizations, but for society as well.
You've discussed "structural innovation" as the method by which companies solve customer problems and needs "better, faster and cheaper" than competitors through structural changes to a company's business system. What do you see as the limits of structural innovation?
Structural innovation is a way of thinking about innovation in terms of how to provide consumers with better products at better prices. It engages consumers transactionally to get information and insights companies need to improve price and quality continuously. There's nothing wrong with it. However, it conditions consumers to think a certain way, always trying to get more bang for their buck. It instills consumers with a cutthroat, rational economic way of thinking. So companies end up putting themselves on treadmills. They race to create new products and get them out into the market. Meanwhile, consumers are constantly looking for the next best thing at a better price. There is no loyalty.
Also, there's been a huge amount of research done into innovation, and what people have found is that at this point there are certain baseline-level capabilities that all companies have. A lot of companies do structural innovation very well, and so innovation itself becomes a kind of paradox, since it doesn't afford much opportunity to break out of the pack.
Your answer to the limitations of structural innovation is what you term the "embedded innovation paradigm." How does it differ from structural innovation? Why does it work?
It's a different perspective on innovation that is complementary to structural innovation. Structural innovation is critical to staying competitive today. Embedded innovation is about tomorrow: It creates a long-term growth platform for a company with committed customers. It starts with the idea that communities are fundamental to shaping a person's identity: how you see yourself, what you value and what you aspire to. Becoming part of a new community opens new doors, it exposes you to new values, new ways of thinking, even new visions for the future. It gives you an opportunity to be someone else. Embedded innovation is about companies cocreating new communities anchored around a new business venture with the very people they aim to serve. It's much like community organizing and catalyzing social movements, which are about uniting people around a shared vision for social change. Doing innovation this way establishes what we call business model intimacy -- the identity of a community becomes inseparable from the company.
Could you discuss a company that is succeeding in creating this business model intimacy?
Grameen Bank is well known, since Muhammad Yunus won the Nobel Peace Prize for his work in starting it. People, though, tend to look at the organization's business model -- which organizes women seeking loans into groups to create viability for microfinance -- and think that that's the secret to its success. But rather, they should consider the process of how the bank got to that point, its history. Yunus lived in the community and was engaged in the community. He was asking: What is it we can do together? It was over 10 years of mutual sharing, doing and learning that the bank emerged. It came out of this chemistry: Yunus's reflection and understanding blending with the village residents' understanding. But you can't reduce it to either one.
There's a for-profit company, a little-known one headquartered in Spain in the Basque region, called Mondragón. It started in the 1950s, and you can see that it emerged out of the same process that Grameen Bank did. The company was started by a Catholic priest who engaged the residents of Mondragón in a dialogue: What kind of life is it that we want to lead? He brought to this his understanding about collectivism, and residents brought their values and dreams. Today, Mondragón, which has multiple divisions, including white goods and robotics, spans the globe with revenues exceeding $15 billion and over 80,000 employee-owners. It's a gem of an example that rarely gets mentioned in business circles.
You and your colleagues have a partnership with S.C. Johnson, DuPont, TetraPak and Hewlett-Packard that tests embedded innovation, bringing together companies with communities. How is that going? How does that work?
The work involves applying the embedded innovation approach to low-income sectors that companies don't usually see as viable opportunities. You've got to start from the ground up, building new businesses and new markets. We didn't know that we were going to come out with the embedded innovation approach, actually, but we began in 2004 and it was cross-disciplinary, bringing people together and trying to figure out how to create a natural business process.
We have several ongoing projects. There's one in Kenya. S.C. Johnson is focused on providing latrine cleaning services in slums in Nairobi. There's also work going on in India. A company, Solae LLC, which manufactures soy protein, is creating businesses in two slums and a rural village that links soy protein with better food and cooking skills and socialization among women. In Mexico, there's a start-up called The Water Initiative, which was launched last year and addresses the issue of clean water within a broader concept of health. There's also a project in the United States, Ascension Health, a health care provider, which is developing a business in Flint, Michigan, that addresses the concept of health in a broad way -- not just physical health but overall well-being.