New Types of Innovationin Global Economy

Balázs Hámori bhamori@uni-corvinus.hu

New Ideas in a Changing World of Business Management and Marketing

3rd Central European PhD Workshop on Economics and Business Studies

Faculty of Economics and Business Administration, University of Szeged, 19-20, March, 2015

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Outline

o Innovation of innovation: Epochal changes in the nature of innovation process. Persistent innovation

o Known, but peripheral types came to the fore

o New, earlier unknown types of innovation have emergedo Crowdsourcing – massification and networking in

innovation o Reverse innovation: innovation flow from the developing

countries uphill to the developed world

o Common features of crowdsourcing and reverse innovation

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Rank Country Score Value

1 Switzerland 64.8 1.00

2 United Kingdom 62.4 0.99

3 Sweden 62.3 0.994 Finland 60.7 0.98

5 Netherlands 60.6 0.97

6United States of America

60.1 0.96

7 Singapore 59.2 0.968 Denmark 57.5 0.95

9 Luxembourg 56.9 0.94

10 Hong Kong (China) 56.8 0.94

GLOBAL INNOVATION INDEX – RANKING (2014)

Source: https://www.globalinnovationindex.org/

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Changing nature of innovation in the 21st century

o Innovation: the only crucial factor of long-term competitiveness (World Bank, OECD, and many other studies)

o European innovation paradox

o The Lisbon Strategy (2000). The aim to make the EU “the most competitive and dynamic knowledge-based economy in the world.”

o It was not really successful. Even the EU- authorities consider the first decade of the 21th century a “lost decade” from innovation point of view

European paradox

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o ‘„Europe is in the midst of an innovation crisis, that threatens the very way of life that Europeans have become accustomed to.”

(European Young Innovators Forum, Larry Moffett, 2014)

o Victor Hwang’s analogy of the „innovation rainforest”. „A complex system of supports and alliances have emerged in Silicone Valley organically over time and the system cannot easily be mimiced.”

o European Paradox, i.e. „the conjecture that EU countries play a

leading global role in terms of top-level scientific output, but lag behind in the ability of converting this strength into wealth-generating innovations” (Giovanni Dosi, Patrick Llerena, Mauro Sylos Labini, 2005)

Characteristics of Innovative, Entrepreneurial Culture

• Positive attitude toward change

• Decentralized decision making

• Complexity

• Informal structure

• Interconnectedness

• Organizational slack

• System openness

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Barefooted innovations: the spread of innovative spirit throughout society

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o Capital intensive (High R&D costs) versus barefooted innovation (Low or no R&D).

(Szabó-Kocsis, 2003)

o Many do not consider these forms of innovation as innovation. Still, we need to recognize them as such, since they embody new combinations of production factors. (Here, we are not only considering the traditional factors of production, but also knowledge and human capital).

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Tata SwachWater for health Tata Swach silver-based water purifiers were introduced in the Indian market in 2009, with a vision of reducing the impact of water-borne diseases, by providing safe drinking water to the masses. Using advanced silver nano-technology, Tata Swach became one of the most affordable, point-of-use water purification solutions and continued to expand its presence in Indian households. The non-electric Tata Swach water purifier meets the USEPA guidelines for bacteria and virus removal to provide safe drinking water to consumers without using any harmful chemicals.                               

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TATA Swach

For its consumer-friendly design and innovative technology, Tata Swach has received many national and international accolades, like WSJ Asian Innovation Awards-Hong Kong, ICIS Best product Innovation Award-UK, 'Gold' - IDSA Design of the Decade Awards USA, IF Product Design Award, Germany and Product of the Year-India.Now, with the Tata Swach portfolio expansion into the electric purification range, the brand now caters to the entire spectrum of water-related concerns of consumers, including high TDS, high turbidity and microbial contamination.With ‘silver action inside’, Tata Swach purifiers provide safe drinking water adhering to international guidelines and longer purifier life. Tata Swach is the complete water purification solution for every home-maker which helps her accomplish her mission of providing safe drinking water to her loved ones.

From the jugaad to the „buhera”Cognate terms

o Frugal innovation

o Grassroots Innovation

o Jugaad innovation

o Bricolage (buhera)

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Grassroots innovation

“Grassroots innovation”: not just innovation for the bottom of the pyramid but innovation by the bottom of the pyramid…

For example, beeping

(or flashing) that allows a message

to be communicated without the call

being completed. Street vendors use

this to receive free “I want to buy now” messages from known customers.

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Frugal innovation

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Frugal innovation is the ability to generate considerably more business and social value while significantly reducing the use of scarce resources. It’s about solving—and even transcending—the paradox of “doing more with less”.

Frugality can be seenas a characteristic of the output—a product or application that is not just low-cost but also low-demand in terms of other resource requirements, including electricity, telecommunicationsinfrastructure, and human skills.

Jugaad innovation

o „Jugaad is a colloquial Hindi word that roughly translates as ‘‘an innovative fix; an improvised solution born from ingenuity and cleverness.’’

o Jugaad is, quite simply, a unique way of thinking and acting in response to challenges; it is the gutsy art of spotting opportunities in the most adverse circumstances and resourcefully improvising solutions using simple means.

o Jugaad is about doing more with less.” (Radjou, N. Prabhu, J. Ahuja, S. , 2012 ) 13

Some authors use the word jugaad as synonyms for frugal, some underline the difference between the two. Frugal is a simplification of the multies products, whilst in case of jugaad the product is produced from the “Bottom of the Pyramid”, made by simple people.

Bricolage (buhera)

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Baker and Nelson's (2005) definition of bricolage (making do, use of resources at hand, and resource combinations applied to new problems and opportunities

Te bricolage concept has a theoretical overlap with improvisation. However, they do not represent the same construct, because time is a critical factor in the definition of improvisation - the degree to which design and execution converge

The bricolage goes back to Claude Lévi-Strauss, who characterizes "bricolage” as the infinite, improvisational recombination of the different items, given at hand in the primitive societies. 

Buhera: An example

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A Hungarian entrepreneur has built a successful business from discarded goods deemed as trash. A brilliantly simple idea served as the basis of the success. It turned out that one of the large home-improvement chain stores cannot do anything with the defective products returned within 72 hours from purchase. They simply discarded them, since even transportation of these meant a cost to them. However, the entrepreneur recognized a possible business in that. The products were fixed, when it was possible, and they began to sell them in a small rented outlet. They were selling all kinds of goods, from sunshades to boilers and sanitary products. They collected the products from the home-improvement stores and rented a truck, they opened the packages to see what can be done with the products. …The news of the Damaged Goods Store spread quickly. Customers have confirmed that there is a demand for such products.

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Networked innovation as the most important kind of crowdsourcing

“The act of a company or institution taking a [creative] function once performed by employees [or contractual partners] and outsourcing it to an undefined (and generally large) network of people in the form of an open call” (Jeff Howe, 2006)

It makes for companies and other organizations possible to expand their talent pool for the entire globe, and in parallel with that to get better and more detailed picture of what customers want.

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Model of crowdsourcing in innovation

Crowdsourcingplatforms

Help in formulating tasks

Collect answers Formulate &submit task

Search for solution

Provide answers to the problems

Select, combineand refine solutions

Face a problem Companies

Requesters Companies/individuals

Individuals/ teams

Test, cheating

detection

Solution providers

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InnoCentiveo Problem-solving marketplace spun off

from Eli Lilly, o 250,000 registered “solvers” from 200

countries (!) competing for more than $35 million in prizes

o Currently in its third round of venture capital funding, InnoCentive has a “Challenge Driven Innovation” platform that uses a network of millions of problem solvers

o Cloud-based technology, to transform the economics of innovation and R&D.

o Prize competitions to solve major enterprise problems from the outside.

(Source: Aron, 2012)

Further exampleso NineSigma, TexScout,

Yet2.com, Hypios, One Billion Minds, Amazon

o Mechanical Turks (internet marketplace for computer programmers; Wolfgang von Kempelen)

o Battle of Concepts, Brainrack (special sites for students)

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Mutations of crowdsourcingo Problem solving (Mechanical Turks, NineSigma)o Information/Knowledge sharing „Citizen science”

(Noisetube, Cornell University birdwatch program, Wikipedia)

o Voting (objective evaluation, opinion, ranking)o Crowdsourcing workers select the preferred

variation from a number of choices. The version that the majority selected is considered to be correct or can be chosen. The law of great numbers

o Crowdfunding (Funding startups, Obama first campaign)o There are 548 crowdfunding platforms in

development.  (crowdsourcing org [2013])

o Other field of application (Science, social field, politics) 

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Crowdsourcing statistics

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Reverse innovation

o „…any innovation that is adopted first in the developing world. Surprisingly often, these innovations defy gravity and flow uphill to the rich world. ”

(Govidarajan, 2012)

o Innovation is not born out of an engineering idea, or from the autonomic development of R&D, but from the answers provided to the problems of the potential buyers

o Low-cost, easy to use types of simple solutions come to the fore

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Handheld ultrasound scanner (China)o 1980s, GE had been trying to sell ultrasound scanners in

China, but 90 percent of hospitals couldn’t afford them. o The company decided to create an independent local

team in China to develop a scanner just for the Chinese market. The team came up with a handheld scanner - 15 percent of the cost of the company’s previous low-end ultrasound device.

o Lower performance was outweighed by the portability, ease of use, and low price for rural hospitals.

o Today GE sells the portable scanners in the U.S. and other developed countries for use in ambulances and operating rooms (Source: McLure, 2012)

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Reverse Innovation: M-pesa/Kenyao In 2007, as a result of a student software development project,

telecom giant, Safaricom  developed a mobile phone based payment and money transfer service, the so called M-Pesa

o The service allows users to deposit money into an account

stored on their cell phones, to transfer money by SMS  to other users

o Until now this type of payments were to the online environment in the developed world. And they require either a credit card, bank or PayPal account.

o Mid-2012, there were 19.5 million m-money users in Kenya (83% of the adult population), transferring nearly US$8 billion per year (24% of the Kenyan GDP)

o TheGuardian: Kenya sets world first with money transfers by mobile. In the U. K. Pigin system 5 years later

Intelligent knife

o The tool matched the vaporized tissue removed during surgery to entries in the reference database and, within 3 seconds, could report whether or not the tissue was cancerous.

o It helps the surgeons to take out as little healthy tissue as possible, but to ensure that they remove all of the cancer.

o July 31, 2014 U.S.-based Waters Corporation acquired the technology--called Rapid Evaporative Ionization Mass--the Hungarian start-up firm MediMass Ltd. 

The iKnife was invented by Zoltán Takáts, PhD, who previously worked at the Semmelweis University in Budapest. He formed MediMass Ltd. to fund its development.

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Common features of barefooted inovation, crowdsourcing and reverse innovation

o Determining role of world wide web (in most cases), geographic place has no real importance

o Drawing in marginal actors, „democratizing the process”

o Active role of consumers/users

o Channeling of ideas from remote areas, combining achievements from different fields

o Decreasing the cost of innovation

o Lower risk of originally „high-risk” innovation process

Leg prostheses: Thailand

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The majority of amputees in Thailand are farmers living in remote rural areas, and unable to access prosthetic services. They have to create their own homemade prosthetic limbs using bamboo for a shaft, wood, plastic pipe, metal pieces, leather and/or any materials available locally. Dr. Therdchai Jivacate, using his own resources, conducted experiments using only locally available materials in order to make low cost, durable, prostheses. For example, he found that recycled yogurt bottles made of polystyrene, were easily dissolved in a acetone. From this he could make a strong, cheap and light weight socket, using cotton bandage as a flamework. The result was a simple prosthetic device with a tenfold cost reduction. Dr. Therdchai Jivacate thus @an to provide free leg prostheses to poor patients, made in both the main workshop at the Faculty of Medicine, and in a mobile unit which traveled to rural areas around the country. To prove his point he recalled the case of the cost- effective arti fi cial leg sold in Thai land, where the chief occu pa tion is farming and sub sis tence depends on biking, climbing trees, and walking on wet sur faces. “That means that you have to make an arti fi cial leg that is supe rior in quality to the one we have for $20,000.”

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New types of innovations compared to the traditional innovation model of industrial capitalism

The characteristics of innovation

Traditional model

Crowdsourcing/reverse innovation

The main agents

Vertically integrated corporations

Innovation networks: Increasing importanceof marginal agents

The typicalplace of birthof inventions

“Closed” research labs Internet (open

innovation)

The geographicstructure

Highly concentrated in the world’s economic centers

Decentralized, spreadsto the less developedcountries

The main driving forces ofinnovation

Profit Social goals and human

motivations of innovators also gain larger weight (glory, self-realization,etc.)

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Conclusionso Crowdsourcing and reverse innovation did not pop up by

chance at about the same time

o The ongoing “Great Transformation” of the economic system – from industrial capitalism to information economy stands behind both new forms

o The fundamental features of the Great Transformation o the dematerialization/virtualization of goods o transformation of vertically integrated corporations into

global networks o sweeping changes in the relationship between the

buyers and sellers all are reflected in the new types of innovation