Constraints- Not always bad news for innovation

The second article co-authored with Dr. N.G. Kannan in a business column on "Innovation Dilemmas", as published in "Indian Management" October 2015 Issue - Pages 60-63

"Constraints- Not always bad news for innovation"

One of the key points made by RBI Governor, Dr. Raghuram Rajan during his 2015 C.K. Prahald lecture is that Jugaad or working around difficulties and constraints is an Indian way of coping with a difficult business environment. He emphatically stated that as a country we need to  change the environment for the better by building the necessary institutions and creating a new path of sustainable growth ,instead of addressing issues on a piecemeal basis through Jugaad. It is commendable that leaders of the Indian economy are thinking along these lines and Indian businesses can benefit tremendously from such initiatives. This, however, raises a few key questions for organizations such as: are constraints are bad for innovation? Where do organizations experience constraints and how can these be overcome?

Management theorists have been divided for long on whether or not the availability of excess resources or lack of resource constraints is conducive to innovation[1]. One set of scholars feel that free availability of resources allows for experimentation without fear of repercussions or the additional stress of needing to deliver results on experimental projects. This in turn enhances innovation. Others suggest that excess resources results in inefficiency because managers are likely to experiment with their pet projects without considering, if it actually adds value their organization. However, more recently, there has been plenty of emerging research, which suggests that constraints are actually conducive to innovation.

In the context of India, constraints mainly stem from endemic infrastructural issues. These include lack of reliable power supply, irrigation, drinking water, usable roads, health care and telecommunication. While these pose major nightmares for organizations these also provide several opportunities for innovation. For example, Mitticool; a eco-friendly refrigerator that does not need electricity or artificial energy to store products was conceived under conditions of constraints and scarcity[2]. Mansukh Prajapati, a potter by profession in rural Gujrat created this product with locally available supplies such as clay and without extensive investments in R&D. Mitticool leverages the natural cooling properties of clay. While the most inexpensive regular refrigerators cost around Rs.15000, Mitticool sells for Rs.2500. The Mitticool brand name has been leveraged to sell other similar products that use natural properties of clay such as Mitticool filter, waterbottle and frying pan. Similarly, NextDrop, an innovative start-up founded by Anu Sridharan, addresses the water shortages faced by urban India in the twin cities of Hubli- Dharwad by introducing a new process. In these cities, ironically, most people have regular access to cell phones but irregular access to water. They get water once every 3-5 days for about four hours a day. NextDrop’s solution was to enlist the help of the local government to design a mobile phone system that helps connect the valvemen with the engineers and customers. Valvemen measure water levels and NextDrop calls the valvemen to get information on the levels every hour. They then send the information to the engineers who decide which areas get the water, at what times and how much depending on supply. They then let the valvemen know who in turn text customers to let them know when the water will be released. NextDrop charges Rs.10 per month per customer. While Mitticool, and NextDrop are examples of start-ups that were created due to constraints, existing large organizations also leverage the power of constraints to innovate.

For example, Indian Oil Corporation, India’s premier oil company with a turnover of approximately US $74 billion in 2014, was one of the first organizations to pioneer Kisan Seva Kendra, (KSK) an award-winning retail outlet model to cater to the needs of rural customers and the infrastructural constraints faced by them. As dominant players in rural markets KSKs ride on the rapid growth of upcoming second and third tier roads in the rural areas. This turned out to be a master strategy of the organization, to tap the high potential rural markets and help Kisans (farmers) obtain fuel locally in the rural areas without traveling long distances. These outlets were initially designed at a minimal investment cost of Rs 5 lacs per outlet, (as compared to Rs 30 to 40 lacs of regular retail outlets). Moreover KSKs were aimed at operating as a single window service center to render agricultural assistance for cultivation, such as financial loans from banks, helping farmers obtain seeds, pesticides, and farm equipment from different agencies. Now Indian Oil operates around 6200 KSKs throughout India in addition to nearly 24400 regular retail outlets (KSKs is approximately 25% of the total retail outlets operated by the organizations)[i].

The above examples suggest that innovation under constraints can be a Jugaad innovation that includes huddling a few pieces together to create a valuable product or it can be a systematic capability that is developed in an organization by leveraging the power of constraints.

So where do constraints emerge from?  Existing research on constraints suggests that constraints on innovation can be thought of from three different perspectives[3]. These include constraints on material resources including money, technology, people, and materials needed to launch the innovation. The second perspective is constraints on time availability to launch to innovation. The third perspective is to constraints stemming from lack of affluent customers. Given these three constraints the solutions to address these three constraints also differ. For addressing constraints due to lack of resources practitioners need to employ bricolage[4] or material ingenuity[5]: the creative re-imagination of resources under situations of constraints. The example of Mitticool where clay was used for building a refrigerator instead of a pot is an example of material ingenuity. What are some resources in your organization that can be repositioned to meet new opportunities?

To address time constraints the second dimension of constraints, managers have to think of improvisation. Improvisation is seen as a response to an unexpected event under time pressures, where planning and execution overlap. For example the company Oragnon was conducting clinical trials for an antihistamine when a secretary noticed that volunteers were unexpectedly cheerful. When the company’s product Tolvon failed as an allergy fighter, the company was able to turn it around as a potent treatment for depression[6].  In the long list of Parle food products, a Parle product titled "Parle Musst Stix" failed in the market. The product failed because there was no product differentiation and, it was perceived as an imitation of Pepsi’s co owned Kurkure. More over the product name "Musst" was detracting. However Parle re-launched this product successfully under the name FullToss. Thus when the initial positioning failed improvisation helped Parle succeed.

When organizations are faced with constraints in the form of consumers who cannot pay premium prices, the solution lies in designing products and services that offer acceptable features for lower prices. The whole slew of products based on frugal innovation targeted towards the base of the pyramid customers stem from the opportunities offered by customers who cannot afford to pay the exorbitant prices charged by multinational companies. These include products such as ultrasound products sold by General Electric (GE) in China for $15000 as compared to the original price of ultrasound at $100,000.[ii] These also include services such as open heart surgery offered by Narayana Health or eye care surgery by Aravind hospitals for low prices or for free for need based customers. The creative business models of these organizations enable them to offer services to individual as well as institutional consumers who cannot pay premium prices for these products and services.

Thus the three types of constraints faced by managers need three different types of solutions. Organizations in developed countries are traditionally used to R&D budgets and streamlined processes for innovation. Now they are trying to master the learning curve and the nuances of how to innovate for emerging markets, which by definition translates into how to innovate under the constraints explained above. Indian organizations and innovators on the other hand have a long standing history of innovating under constraints. The hindi word “Jugaad” has found its way into the innovation lexicon in the developed world, due to our long standing history of being able to do more with less. In some sense India’s core competence is to do more with less. One way to enhance innovation in your organization is to start thinking systematically about what are the constraints in your organization? What are the possible opportunities that emerge from these constraints? How can you leverage constraints to enhance innovation? When should you use material ingenuity and bricolage, improvisation and frugal innovation practices? The answers lie in finding out what constraints matter most to your organization.

Dr. Rangapriya (Priya) Kannan-Narasimhan teaches Strategic Management and New Product Development at the University of San Diego. She has a PhD in Management from UCLA’s Anderson School of Management.

Dr N G Kannan has over 40 years of experience in the industry. He is a retired Director (Marketing) of Indian Oil Corporation Ltd, MD of IBP Ltd, and also retired as Chairman of Lubrizol India ltd, Indian Oil Mauritius Ltd. & Indian Oil Petronas Ltd. 

(We shall cover more on innovation-related issues in our forthcoming issues. If you have a question on innovation, send it to us along with your title and company name to [email protected]. We will also credit you for the questions when we respond to it in our article.)

[1] Nohria , N. & Gulati, R. (1996), Is slack good or bad for innovation, The Academy of Management Journal, 39(5), 1245-1264

[2] Radjou, N., Prabhu, J., & Ahuja, S. (2012). Jugaad innovation: Think frugal, be flexible, generate breakthrough growth. John Wiley & Sons.

[3] Pina e Cunha, M. Rego, A., Oliveira, P., Rosado, P., & Habib, N. (2014). Product Innovation in Resource‐Poor Environments: Three Research Streams. Journal of Product Innovation Management, 31(2), 202-210.

[4] Baker, T., & Nelson, R. E. (2005). Creating something from nothing: Resource construction through entrepreneurial bricolage. Administrative science quarterly,50(3), 329-366.

[5] Kannan-Narasimhan, R. P. (2014). Organizational ingenuity in nascent innovations: Gaining resources and legitimacy through unconventional actions.Organization Studies, 35(4), 483-509.

[6] Day, G. S., and P. Shoemaker. 2008. Are you a “vigilant leader”? MIT SloanManagement Review Spring: 43–51.

[i] Indian Oil Annual Report 2014-2015

[ii] Immelt, J. R., Govindarajan, V., & Trimble, C. (2009). How GE is disrupting itself. Harvard Business Review, 87(10), 56-65.