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INCLUSIVE INNOVATIONHarnessing Creativity to Enhance the Economic Opportunities and Welfare of the Poor

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INCLUSIVE INNOVATIONHarnessing Creativity to Enhance the Economic Opportunities

and Welfare of the Poor

2014

Carl Dahlman

Esperanza Lasagabaster

Kurt Larsen

Kathryn Hoffman

Inclusive innovation text 12-22-14.indd 1 12/22/14 11:52 AM

This paper was prepared by Carl Dahlman (Former World Bank Group (WBG) consultant and Head of Global Research, OECD Development Centre), Esperanza Lasagabaster (Practice Manager, Innovation and Entrepreneurship, Trade and Competitiveness Global Practice (GP), WBG, Kurt Larsen, Sr. Education Specialist, Education GP, WBG, and Kathryn Hoffman (WBG consultant). The team is grateful for the research assistance of Pukar Malla (WBG consultant). The team would like to thank Jean-Louis Racine, Sr. Private Sector Development Specialist, Trade and Competitiveness GP, WBG, and Paulo Correa, Lead Economist, Trade and Competitiveness GP, WBG, for valuable comments.


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TABLE OF CONTENTS

I. Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

II. Market and Government Failures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3Market Failures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Government Failures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

III. Emerging Patterns around Inclusive Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

IV. Public Policies for Inclusive Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15Broad Environment for Innovation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Innovation Infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Funding and Complementary Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Building Bridges across Institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

V. How Can Other Agents Contribute?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23Private Companies and Entrepreneurs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Universities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Government Laboratories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

NGOs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Foundations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

International and Bilateral Development Agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

VI. Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Annexes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35Annex I: Summary Analysis of 25 Inclusive Innovation Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

Annex II: Five Case Studies on Inclusive Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39


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I. INTRODUCTION

In recent decades, technological innovation has led to increased productivity, higher economic growth, and vastly improved living conditions around the globe, lifting millions out of poverty. Yet, access to the fruits of this rapid development has been uneven, with a large share of the world’s population not benefiting from these advances. Nearly 2.5 billion people live on less than US$2 a day (Table 1). More than 35 percent of the population do not have access to basic sanitation facilities and 22 percent do not have access to electricity (World Bank, 2013).

Clearly, innovation per se is not sufficient to improve living standards: it must be inclusive, meaning that it must be accessible and affordable to those at the BoP or help create better economic opportunities for them. Inclusive innovation refers to the “knowledge creation, acquisition, absorption and distribution efforts targeted directly at meeting the needs of the low-income or the base-of-the-pyramid (BoP) population”1 in order to improve their welfare and access to better economic opportunities.2, 3 Frequently, inclusive innovation involves broad partnerships of people and organizations from the public and private sectors, research centers, academia, foundations, non-governmental organizations, and bilateral and multilateral donors, each with its own comparative advantages and tools, to leverage different aspects of the innovative process and bring innovations to those who need them most.

The rationale for focusing on inclusive innovation is becoming ever more compelling. First, despite impressive technological advances and economic growth, more than 40 percent of the world’s population—2.5 billion people—still falls below the international poverty line (Table 1) and lacks access

to basic goods and services. Second, inequality has been increasing within many countries, becoming a source of instability. The fact that the effects of climate change disproportionately affect the most vulnerable populations could further exacerbate inequality.

Inclusive innovation is gaining momentum in some emerging markets, such as India and China, whose governments have made it a policy priority. Declaring 2010–2020 the “Decade of Innovation,” the Government of India created the National Innovation Council in 2011 to develop a framework for inclusive innovation and promote pertinent programs at the federal and state levels. China is also formulating a holistic strategy for promoting inclusive innovation.

Some examples of inclusive innovation have been extensively documented. The Green Revolution helped dramatically increase the productivity of small farmers in developing countries. More recently and on a smaller scale, Tsingua Solar has leveraged advanced research and development (R&D) to bring affordable solar energy solutions to the poor in China and a few other countries. Inclusive innovation does not always require new R&D; existing ideas and technologies can

1 Global Research Alliance. Cited at http://www.theglobal-researchalliance.org/What-we-do/Inclusive-Innovation.aspx Accessed on July 31, 2014.

2 Some groups supporting inclusive innovation use higher thresholds that the international poverty line of US$2 per day to define their target income group.

3 Handicap and location are often causes of exclusion, but are not always correlated with low income. They deserve explicit attention. Some of the instruments outlined in this note can be used to focus on the needs of those excluded due to handi-cap or location. See http://www.bidinnovacion.org/unmundo/iniciativa/.


2 Inclusive Innovation: Harnessing Creativity to Enhance the Economic Opportunities and Welfare of the Poor

be recombined in a novel way to make the innovations affordable, accessible, and applicable. For example, M-Pesa in Kenya has leveraged information and communications technology (ICT) to deliver financial services to the poor at affordable rates. Today, it has more than 15 million accounts, and variations of this model are in place in other developing countries. The Narayana Hrudayalaya hospital in India leverages efficient operations and economies of scale to provide world-quality cardiac surgery services at one-tenth of the price in the United States. These examples, however, are still far too few. Moreover, most inclusive innovations have not reached a large enough scale to make a significant impact.

Some governments in emerging markets have begun to implement policies designed to stimulate innovation that addresses the needs of the poor and excluded. Analyzing and sharing these experiences is important so that inclusive innovation can be promoted more efficiently and successful programs can be adopted by other countries. Inclusive innovation is also of interest to developed countries, where rising inequality and fiscal constraints generate pressure to deliver more with less (WEF, 2012). Local companies, especially in large emerging markets, are starting to develop goods and services for low-income groups—a new phenomenon

driven by the growing innovation capacity of those firms. At the same time, multinational companies (MNCs) are realizing that if they do not develop affordable products for these markets, they will be pre-empted by domestic firms, which will also begin to sell some of these products in their own home markets (Prahalad, 2005; Immelt, Govindarajan, and Trimble, 2009).

This paper provides a conceptual framework on inclusive innovation, with the aim of stimulating a discussion of how it can be promoted more broadly. It looks at the opportunities available to different countries, including small poor countries, and analyzes the role of the many and varied agents that comprise the inclusive innovation ecosystem. The structure of the paper is as follows. Section II presents some of the market and government failures with respect to inclusive innovation. Section III summarizes trends and key features of inclusive innovations based on an examination of a highly diverse set of case studies. Section IV draws out implications for governments seeking to promote the inclusive innovation agenda. Section V discusses implications for other key actors engaged in inclusive innovation—the private sector, universities, NGOs, foundations, and international and bilateral development institutions.

TABLE 1 Number of Poor and Poverty Rates at the International Poverty Lines of US$1.25 and US$2.00 Per Day—1981–2005

1981 1993 1999 2005 2008 2010

Below US$1.25/day (purchasing power parity)

Persons in world 1,938 1,910 1,743 1,389 1,289 1,215

As share of world population 51.2 41.0 34.1 25.1 22.4 20.6

Below US$2.00/day (purchasing power parity)

Persons in world 2,585 2,941 2,937 2,596 2,471 2,396

As share of world population 69.6 63.1 57.4 46.9 43.0 40.7

Source: http://www.iresearch.worldbank.org/PovcalNet/index.htm?1


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The gaps and bottlenecks in the promotion and broader dissemination of inclusive innovation can be explained by both market and government failures.

MARKET FAILURESThe literature on innovation points to numerous market failures that might lead to underperformance of innovation outcomes from a social welfare standpoint. This problem is more acute with respect to inclusive innovations because of the unique characteristics of this market segment.

First, the benefits of innovation are not fully appropriated by the innovator due to knowledge spillovers (Arrow, 1962). Protection of intellectual property rights (IPR) is also typically limited, although overly generous IPR protection could be detrimental to competition and innovation.

Second, the problem of information asymmetry in market transactions and other unique features of innovation projects can constrain the financing of innovation (Hall and Lerner, 2009). It is more difficult for financiers to assess the viability and profitability of investments in R&D since there is no perfect information on the technology and production possibility frontier and when the product or service has not yet been tested in the market. Hence, innovation projects are riskier than physical investment projects, with investors demanding a risk premium. In addition, investments in intangible assets cannot be used as collateral. All of these factors can lead to market failures. Socially beneficial innovation projects will not be undertaken because financing costs are too high.

Third, innovation depends on complementarity of assets such as access to human capital and specialized skills, technological infrastructure, and other forms of knowledge (Nelson, 1993). Shortcomings in these markets could hinder innovation. Interactions among some of these agents, such as universities, are not always market-mediated. In addition, knowledge has an important tacit component, making collaboration among various agents all the more important. Coordination problems, however, may prevent such collaborations and undermine innovation.

In the case of inclusive innovation, market failures are exacerbated by the poverty, low levels of schooling, and isolation of the target population. Although the marginal social utility of the innovative effort allocated to the needs of the poor is likely to be higher than that of many conventional innovations, innovators do not often explicitly focus on creating these goods and services because a sufficiently attractive market is not perceived to exist. For example, increasing the life expectancy of a person in a low-income developing country whose average life expectancy is 21 years less than that of a person in a high-income country (World Bank, 2012) by a year is likely to be easier than achieving a one-year increase in the life expectancy of a person in a high-income country. Yet, most medical innovation occurs in developed countries. Economic and social constraints prevent the poor from articulating their demands.

Potential suppliers have also faced difficulties in reaching this customer base. The low income of the target population exacerbates the perceived market risk and the barriers to financing. Besides financing

II. MARKET AND GOVERNMENT FAILURES



issues, Koh et al. (2012) point to additional delivery costs related to the need to invest in awareness building and education (e.g., the delivery of preventive health care) in order to make an impact. In addition, marketing and delivery channels to get goods and services to the poor, who are often in isolated rural areas or otherwise marginalized from the main market systems, are nonexistent or weak. The weak entrepreneurship and poor connectivity of grassroots innovators have also prevented the scaling up of innovations by this segment of providers. Koh et al. (2012) argue that new business models need to be pioneered to serve the BoP population. This could involve a long period of trial and error. The Grameem Bank experimented for ten years before it developed a business model, which was then quickly replicated by others. Solutions often involve collaborating with others who have existing market or social networks that can be used to deliver the good or service, or innovating in the delivery mechanism (Koh, et al., 2012; Jenkins and Iskikawa, 2010).

GOVERNMENT FAILURESGovernment failure can hamper inclusive innovations in three ways. First, they fail to provide basic public goods and services, such as health, education, and security, to low-income populations. The technology and

business models to provide many of these basic goods and services already exist, but governments do not always use them, whether due to lack of commitment or to capacity and budgetary constraints. Some low-income countries have done much better than others, suggesting that it is not just an issue of resources.

Second, governments are often not directing their own research centers and ministries to focus more on inclusive innovation despite evidence of high social returns. One solution is that governments could instruct public R&D laboratories and public universities to focus part of their R&D explicity on innovations that address the needs of the poor.

Third, governments do not always employ supply and demand-side innovation policies to encourage the private sector to undertake inclusive innovation.4 One solution is to integrate a focus on inclusive innovation into existing innovation policy instruments. Alternatively, to raise the visibility of inclusive innovation, governments may want to develop a special fund and provide fiscal and financial incentives for innovations that address the needs of the poor. The Indian government, for example, has announced plans for a US$1 billion Inclusive Innovation Fund. It is seeking co-financing from the private sector, donors, and foundations.

4 Almost two-thirds of all R&D in the world is done by firms. See Jaruzelski and Dehoff(2008).


5

A rich diversity of experiences of pro-poor innovations is emerging. These experiences share many common elements with other types of innovations but also present unique features, which are summarized below.

Nature of pro-poor innovation. Inclusive innovation uses both high and low technologies. Moreover, the core of the innovation often lies in the business, organizational, or delivery model. While in some cases the technology is new, in most cases, the innovation involves a recombination of existing technologies. Some examples are Dishtee, a distribution system for rural village stores in India, and the Narayana Hrudayalaya Hospital in India (see Annex 1). The latter combines business, organizational, and process innovations to provide high-quality, world-class cardiac surgery at less than one-tenth of the price prevailing in the United States, as well as telemedicine and insurance schemes for the rural poor (Box 1).

Many inclusive innovations leverage ICT. The rapidly evolving field of ICT has offered a unique opportunity to provide traditional services to the poor in new ways, scale them up, and reach remote populations at lower cost. M-Pesa in Kenya has become the most successful example of mobile phone technology supporting financial services. It now has more than 15 million accounts, and its business model has been replicated in other countries. Mobile technology is also being used to provide farmers with better access to market and climate information, link them to suppliers and exporters, and facilitate extension services. M-farm, also a Kenya-based business, uses ICT technology to streamline the supply chain and connect farmers to markets.5 In Sri Lanka, Dialog Intranet uses mobile technology to provide information on agricultural

commodity prices and provide a trading platform to connect farmers to buyers. New applications of mobile technology to health and education are emerging by the day (e.g., Text to Change, South Africa and ReMedi Kiosks, India).

Pro-poor innovations have emerged across all economic and social sectors. Annex 1 presents examples of inclusive innovation in agriculture (Jain irrigation), energy (Tsinghua Solar), education (Aakash Tablet and Anhaguera vocational training), finance (M-pesa), health (D-Rev, Path, Jaipur Foot, and Narayana Hrundayalana Heart Surgery), construction (Cemex Patrimonio Hoy), and retail sales (Drishtee retail supply network). It is possible to observe a wide range of innovations of different degrees of complexity within the same sector. For example, in the health sector, some innovations are simple, almost artisan in nature, such as the Jaipur foot in India. Innovations developed by Aravind Eye Care (Annex 1) or Narayana Hrundayalana Heart Surgery (India) involve complex service processes. Still others, such as the LifeSpring Hospital, a chain of small 25-bed hospitals in rural India, have made important organizational innovations that have improved access to health care. The Shenzhen Institute’s diagnostic bed, for about US$5,000, or GE’s hand-held and battery-operated electrocardiogram (ECG), are high-technology medical devices offered at a more affordable price.6

III. EMERGING PATTERNS AROUND INCLUSIVE INNOVATION

5 The latter covers auto components, Ayuveda traditional medi-cine, bamboo, brassware, furniture, and life sciences.

6 For more information on inclusive innovation efforts in China see the forthcoming study being produced by a joint team of the World Bank and the Chinese State Information Agency.



BOX 1. INCLUSIVE INNOVATION IN THE HEALTH SECTOR: ILLUSTRATIVE EXAMPLES

Narayana Hrudayalaya (NH) is a health care and hospital system in India that brings high-quality cardiovascular care at low cost. It was founded by Dr. Shetty in 2001. In its first five years of operation, it reached 30,000 patients and has been expanding ever since.

To provide affordable and high-quality care to all citizens, the business model emphasized (i) lean administrative costs; (ii) large procurement orders; (iii) intensive use of technology; (iv) research and development (e.g., to develop software for a new electrocardiogram machine); and (v) minimal admin-istrative work for doctors so that they can focus on performing surgery and providing care. A pricing structure based on cross-subsidization was created whereby high-quality care and premium hospital rooms attract wealthier patients, who subsidize the cost of caring for poorer patients. Price segmentation was complemented with two insurance schemes—Arogya Raksha (provided through the private sector) and Yeshaswini (a public-private partnership). The NH system has also used mobile vans and telemedicine to expand coverage to rural areas.

Narayana Hrudayalaya provides several key lessons in health care provision:

• Improving operational efficiency through organizational changes and use of technology can greatly lower the cost of complex services such as cardiac surgery, while delivering high-quality services.

• Serving those in extreme poverty requires not just producing high-quality, low-cost services, but also making an active effort to reach them.• Sustainable business models are critical to social enterprises. Price segmentation and the complementary insurance schemes were critical to

ensure that the poor were able to access the health services, while facilitating the sustainability of the NH system.

Jaipur Foot leverages technology to produce above-knee and below-knee prostheses at a very low cost of US$20–US$40 (compared with US$12,000 in the United States) while maintaining high quality.

Popularly known as the creators of Jaipur Foot, Bhagwan Mahaveer Viklang Sahayata Samiti (BMVSS) produces and distributes the greatest number of artificial limbs in the world. It is a non-profit organization based in India with a budget of US$3.5 million (2011), where about two-thirds of the funds come from donors (including private companies) and about one-third from the government. Products are distributed for free or at a minimal cost, depending on the ability to pay.

To provide prostheses at very low cost, the company sources locally and maintains a lean administrative structure. It also engages in research partnerships to reduce production costs and upgrade the quality of its products. It entered into collaborations with Stanford University and D-Rev to upgrade the Jaipur Knee, making it more flexible, and with the Indian Space Research Organization to decrease the manufacturing cost and the weight of the Jaipur Foot (from 850 grams to 350 grams).

The organization reaches its target consumers through hospital centers as well as mobile camps, which receive and house patients from rural areas who do not have access to a center. Patients and their families receive training on how to use and maintain the prostheses. The organization has reached more than 11 million people. It has expanded operations to Afghanistan, Bangladesh, the Dominican Republic, Honduras, Nepal, Pakistan, Somalia, and Sudan.

Several features of BMVSS model are worth highlighting:

• Along with product innovation, innovative BOP outreach processes are critical. Many farmers, for instance, may not be able to afford to take a day off to visit BMVSS, so outreach camps need to be held for them.

• Training technicians to fit the limbs and training patients to use and maintain them are critical in effectively using the innovation.• Partnerships with local government and NGOs have helped in the delivery and funding of its products.• Partnerships with research institutions have also been critical to upgrade the quality of its products.

PATH is a U.S.-based non-profit organization that supports the development and distribution of innovative, low-cost health solutions to people in develop-ing countries. It operates in more than 70 countries with annual revenues of US$238 million (2011), which come from foundations, private donations, governments, and multilateral agencies.

Its business model includes critical partnerships with the private sector to leverage its grants and donations into creating health solutions that can reach the most people. It has three types of partnerships:

• PATH transfers intellectual property that it has developed to a private sector company. • PATH contributes resources—such as funding or assistance with clinical studies—to support the development of a company’s product. • PATH supports field trials or advocacy programs that demonstrate the value of a product.

For each partnership, PATH and the partnering company have to agree on how to continue the supply of products, make the products affordable, and man-age the products’ intellectual property.

To keep its costs lean and deliver results, PATH has developed a systematic approach that focuses on needs assessment, partner identification, pilot programs, advocacy, and capacity building. The approach follows a number of steps (PATH, 2007):

(continued on next page)


III. Emerging Patterns around Inclusive Innovation 7

Geography of pro-poor innovations. Pro-poor innovations have sprung up around the globe, especially in developing countries. They may be sponsored by local agents, agents from developed countries, or global initiatives (Annex 1). The most transformative pro-poor innovations have generally been sponsored by global foundations, global NGOs, or multilateral or bilateral institutions, and have emerged in larger developing countries, such as India and China. These countries have the advantage of larger markets in which to scale up and recoup the innovative effort and are therefore more attractive to MNCs. For

example, GE’s electrocardiogram was initially targeted at the Indian market and Siemens Health Care in China. They also have greater innovation capabilities because they have a critical mass of researchers, large domestic firms, NGOs, and other agents.

The Governments of India and China are spearheading many pro-poor innovations. In addition to India’s US$1 billion Inclusive Innovation Fund to support efforts by government agencies, universities, firms, NGOs and grassroot innovators, it has incorporated a focus on inclusive innovation in a broader program to support 100

• PATH decides what products to develop based on needs assessment. If a product already exists, the organization helps bring it to other countries. If the product does not exist, the organization works to develop it, testing prototypes for functionality and ease of use.

• Meanwhile, it identifies partners—including NGOs, governments, or private companies—that could benefit from the project. PATH works to demonstrate the potential market for the product, often bringing the private sector’s leverage when the private sector would not normally be involved.

• PATH next introduces the product on a small scale to the target countries and monitors early adoption and performance.

Using strategic partnerships, the organization has successfully worked on multiple health issues affecting the poor, such as fortified nutrients, maternal health projects, low-cost syringes, and low-cost vaccine initiatives. In the case of the meningitis vaccine, PATH committed to developing it at a cost of less than US$1 per dose in order to facilitate a large uptake around the developing world. To achieve this goal, it formed international partnerships, including a collaboration with the Serum Institute of India, which resulted in technology transfer to a pharmaceutical company in an emerging market. The latter committed to producing the vaccine at 50 cents a dose. In the case of the syringes, PATH acquired the intellectual property behind an existing product and licensed it to others on the condition that they be supplied at low cost. PATH leverages intellectual property to have a positive impact.

D-Rev leverages partnerships to design, prototype, and scale up the delivery of innovative products and services, particularly in the health and agricultural sectors, at low cost and high quality.

Founded in 2007, D-Rev is a U.S.-based non-profit technology organization focused on improving the health and incomes of people living on less than US$4 per day. To leverage its funds effectively, the organization has created a standardized procedure to develop products and bring them to markets:

• First, using grants, it identifies opportunities to increase incomes or improve health.• Next, it designs products to meet those customer needs. • Then, by partnering with the private sector, it delivers the products to users by integrating them into the market, scaling up, and measuring the

impact.

It has several products and projects, ranging from low-cost phototherapy equipment that treats infant jaundice (which can cause brain damage) to partnering with BMVSS to improve the flexibility and quality of the Jaipur knee (see above). The phototherapy treatment sells at less than US$400 compared with US$3,500 to US$10,000 for similar devices.Some key lessons include:

• Partnering with private companies to manufacture and distribute products helps bridge the gap between design and commercialization. Originally, it had difficulty getting the products into the hands of potential users, but it learned to leverage the manufacturing capacity and distribution channels of private companies.

• The small profit that D-Rev makes from licensing its technology to private companies is helpful in sustaining its operations and not being bound by donor funding.

• Intermediaries like D-Rev can use financial incentives (e.g., lower royalty payments) for the private sector to deliver the product and services to the BoP, and not the higher-income groups, which are easier to reach.

• Product segmentation. With phototherapy, it has two products: Brilliance, targeted toward urban hospitals; and Comet, a more portable version targeted to rural clinics. By acknowledging that one solution does not fit the needs of both environments, it will be able to have a greater impact.

Source: Authors’ elaboration based on case studies in Annex 2.

BOX 1. INCLUSIVE INNOVATION IN THE HEALTH SECTOR: ILLUSTRATIVE EXAMPLES (continued)



telephony, and ABB with mini-hydro solutions). They are engaging in these markets with a profit-oriented perspective. While their products target low-income groups, they are not always targeted at those in extreme poverty. There are also increasing examples of smaller enterprises, including social enterprises, from both developed and developing economies (e.g., Aravind Eye Care and Narayana Hrudayalaya Hospital in India, and Life Staw water purifier from Vestergrad Frandsen in East Africa and Bangladesh). Their market reach has typically been much smaller.

Foundations, universities, and NGOs from developed markets (e.g., Path, D-Rev, and the Gates Foundation) as well as many from emerging markets are spurring inclusive innovation through prize competitions or by financing R&D. NGOs play a host of roles in the supply chain for pro-poor innovations, from R&D and product design (such as Path and D-Rev) to delivery, diffusion, and education. Universities have also contributed through R&D. Gassroots innovations have attracted a lot of attention, but fewer appear to have been successfully scaled up. One example is the psoriasis treatment developed by a traditional healer, which was scaled up by Lupin, a pharmecutical company, with grant support from the Indian government. In China, a hoggery owner is generating biogas power from pig waste.9

International development institutions are increasing their focus on pro-poor innovations through financing, coordination, and using their convening power to provide forums for the exchange of information and methodologies. A few large global public goods programs, such as the Green Revolution and the African River Blindness Eradication Program, have involved coordination at the global level. These initiatives

Industry Innovation Centers and seven Cluster Innovation Centers.7 In China, many public service programs in the past have sought to improve the livelihood of the poor and rural population by helping them meet basic needs (e.g., the barefoot doctors program, which brought ICT access to poor rural communities through advanced satellite networks, and the Spark program, initiated in 1986 to transfer technology from more advanced sectors to rural enterprises and farmers). The Government of China plans to intensify pro-poor innovation efforts over the next few years to reduce poverty, narrow the urban and rural gap, and foster affordable access to basic social services.8

Small poor countries face a double challenge with regard to pro-poor innovations. First, if developing innovation is costly, the market size over which to amortize these costs is small. Second, they are more likely to have weaker government capacity, limited research capacity, and fewer private companies with the capabilities needed to undertake innovation. They can benefit from pro-poor innovations developed elsewhere, which suggests that there is an important role for multilateral and bilateral institutions and NGOs to play in facilitating the exchange of experiences across countries and in helping to deploy successful ones in less-developed economies.

Who are the agents participating in pro-poor innovations? Compared to other innovations, pro-poor innovations involve a far more diverse group of agents. Multinational corporations, small and medium enterprises, governments, public research institutions, foundations, NGOs, social enterprises, and development institutions all play important roles. Contributions vary across agents, from policy setting, financing, and R&D to delivery and diffusion, including education of new and existing users.

Multinationals in emerging markets (e.g., Haier in China and Tata and Lupin in India) are becoming interested in tapping the large market of low-income consumers, and MNCs from developed economies are following in their footsteps (e.g., GE with medical devices, Siemens with health care, Nokia with mobile

7 The latter covers auto components, Ayuveda traditional medi-cine, bamboo, brassware, furniture, and life sciences.

8 For more information on inclusive innovation efforts in China see the forthcoming study being produced by a joint team of the World Bank and the Chinese State Information Agency.

9 For more information on inclusive innovation efforts in China, see the forthcoming study being produced by a joint team from the World Bank and the Chinese State Information Agency.



entailed the participation of governments in emerging markets, multilateral development institutions, global research groups, and NGOs (Annex 1).

Emerging business models. Business models underlying pro-poor innovations draw from models supporting other types of innovations. However, the challenging environments in which the products or services are delivered, the low and volatile income and educational characteristics of the target market, and the non-commercial motivations frequently underlying the innovation have required adaptations of these models or led to the emergence of new ones.

• Simplicity of use and ease of maintenance: The absence or low quality of basic infrastructure such as roads and electricity in the target market makes it costlier and more difficult to produce and deliver the product or service. Poor infrastructure together with lower educational and income levels of potential users require products and cost-optimized designs that are easy to use and maintain, safe, and that offer core functionality.

For example, D-Rev, a non-profit product development company, has developed a product that offers world-class treatment for newborns with jaundice symptoms and can function in the precarious conditions of rural health facilities in developing countries with scarce or interrupted access to electricity and staff with relatively modest professional training (Box 1 above).10 The product was first tested and introduced in India. Product design was carried out in close collaboration with partners in urban and rural hospitals and involved consultations with parents to ensure that the treatment would be acceptable to them.

Simplicity of use, while critically important, is not a substitute for education or awareness raising on the benefits and disadvantages of using a new product or service. The lack of appropriate education and training has contributed to the failure of many pro-poor innovations. Ramani et al. (2012) highlight several past failures in the diffusion of latrines within

poor communities in India due, to a large extent, to inadequate information.

• Recognizing gender and social norms: Inadequate understanding of the needs and cultural norms of the target population has often led to unsuccessful products. Social, cultural, and gender norms (e.g., constraints on women from making independent choices) may cause a product to be rejected or to have limited uptake. In Bangladesh, for example, a recent study showed that women’s uptake of improved cooking stoves is low because they lack the authority to make purchases even though they have stronger preferences for better stoves—especially health-saving ones. By contrast, the sharing of information on technology choices for cookstoves, which have substantial implications for both health and the environment, by respected community leaders influenced adoption of improved cookstoves in the country (Mobarak, et al., 2012).

• Frequent co-creation and collaboration with users: As discussed above, the failure to recognize users’ needs, social norms, educational levels, and difficult physical environments can contribute to the failure of pro-poor innovations. For all these reasons, organizations and firms supporting pro-poor innovations are increasingly engaged in “co-creation,” whereby potential users participate or collaborate in the design of the product/service (see D-Rev example above on treatment for babies with jaundice syndrome). This process puts the user ahead of the technology, helping to identify needs and constraints (whether social or infrastructure-based) and to define solutions that are relevant and acceptable to the potential user community.

10 D-rev is a non-profit development company whose mission is to improve the health and incomes of those living under US$4 per day. Key projects by D-Rev comprise inter alia (i) world-class jaundice treatment for newborns in rural hospitals; (ii) knee joints for developing-world amputees; (iii) an afford-able microscope for detecting malaria and tuberculosis in rural clinics; (iv) powering rural households with solar technologies; and (v) affordable methods for pasteurizing milk for East Africans (see www.d-rev.org).



While co-creation has demonstrated its value, public debates have often narrowed the definition of pro-poor innovations to those developed only with the user community or driven by it. This approach limits opportunities and fails to recognize other worthy pro-poor innovations where the engagement of the user community during the design phase might not have been as intense (e.g., the development of vaccines).

• Pricing and financing strategies: Understanding the financial and income constraints of users is crucial to ensure the sustainability of the product or service and reach the target market. Many low-income workers in developing countries are unemployed, self-employed, or employed in the informal sector, with incomes that are highly volatile. Mechanisms that have been used to tackle such constraints include pay-by-use, microleasing, microconsignment, microcredit, price segmentation, and hybrid financing models combining market- and donor-based approaches.

To overcome the problem of high upfront financial commitments, costs can be broken down into affordable units. Pay-by-use of services has been actively applied by mobile companies, and, in some cases, by water and energy providers. Other models have used microleasing and microconsignment to overcome the same constraint. As distint from microleasing, microconsignment shifts the risk from the microentrepreneur to the social enterprise; the former receives a product to sell or the inputs for a service from the latter at no upfront cost. This novel financing model has supported microentrepreneurs in rural areas in Guatemala and more recently in Ecuador. However, it ties up a lot of capital on behalf of the social enterprise, which implies that to reach scalability a more hybrid model will be necessary.11

Microcredit is frequently offered together with the product or service. In Mexico, CEMEX Patrimonio Hoy combines microfinance, distribution, and technical assistance services to support the self-help housing construction market for low income families.12 Other schemes match loan payments with

the intended user’s daily expenses on the product or daily income flow. In Nepal, for example, the Solar-Powered Tuki—a clean and affordable lantern compared to the more prevalent, dangerous, and expensive kerosene lanterns—was offered together with a loan which had payment schedules roughly equivalent to the intended user’s daily expense of kerosene for home lighting, facilitating its acceptance (Smith, 2010).

Price segmentation with cross-subsidized services is often used as a mechanism to achieve sustainability and reach the poor. Numerous examples exist in the health sector. The ambulance program operated by Ziquitza in India, the first private ambulance to provide services to all, charges different prices according to the patient’s ability to pay, which is defined by the type of hospital that a patient decides to go to.13 LifeSpring Hospitals, a chain of small hospitals offering affordable care to low-income families in India, and the Narayana Hrudayalaya Hospital (Box 1) also use tier pricing and cross-subsidies from higher- to lower-income groups.

Others have used hybrid financing models, combing a market-based approach with a donor-based approach. The Community Cleaning Services in Nigeria, for example, began operations as a market-based project but shifted to a hybrid model where some services are fully recovered (e.g., toilet cleaning services) and social services such as educational and awareness work are covered by a

11 Other models might support microconsignment only for first-time entrepreneurs (e.g., 100% during the first year with a declining trend thereafter) or to expand to new markets (Smith,2010).

12 Low-income families faced with no savings or access to credit could only purchase small amounts of building material at a time, with the construction of a single room lasting years. Lack of capacity led to many dwellings being of very low quality. CEMEX provides financing through a membership system based on small monthly fees, offers storage space, serves as a distributor of building materials (cementers and others), and provides counseling services (Annex 1).

13 Ziqitza Health Care Limited is the first private ambulance com-pany in India to provide services to all. http://www.acumen-fund.org/investment/ziqitza-health-care-limited.html.



third party (Box 2). The LifeStraw program, based in Kenya, has used a highly innovative financing model, distributing water filters to families free of charge and financing them through carbon credits (see Box 3). This model is relevant for other innovations that deal with energy savings, which could try to replicate such a financing mechanism.

• Partnerships critical to success: Partnerships are critical to the success of the product by bringing together the strengths and capabilities of different agents of the innovation ecosystem. Foundations and governments can contribute with funding, and governments can provide incentives to stimulate the supply and demand for inclusive innovations; NGOs, public research and technology centers, and universities can support R&D; enterprises can contribute with R&D, manufacturing, and distribution; and NGOs can also facilitate the diffusion of the product and provide training for potential users.

The NGO D-Rev, for example, has the capacity to engage in R&D programs to support health products and income opportunities for the poor but does not have the financing or capacity to manufacture and deliver them on a large scale (Box 1). As part of its business model, its products are licensed to manufacturers in emerging markets in order to better reach the targeted population. PATH raises funding and conducts R&D on health products and services, and often collaborates with local NGOs and other local agents to distribute the products (Box 1). Kickstart, a social enterprise based in Kenya that supports agricultural solutions, conducts market analysis, implements R&D, and contributes to the selling and marketing of the product. However, it partners with other enterprises to manufacture the product, sell it, and distribute it in other countries (Box 4).

Both small and large enterprises have partnered with financial institutions to help deliver and

BOX 2. COMMUNITY CLEANING SERVICES: INCLUSIVE INNOVATION THROUGH A HYBRID MARKET—AND DONOR—BASED APPROACH

The Kenya-based Community Cleaning Services (CCS), a social enterprise, seeks to improve youth employment and sanitation in Nairobi’s low-income neighborhoods through a microfranchise model. It follows a hybrid approach, combining elements of both market-based business and donor-funded NGOs.

CCS was developed in partnership with the transnational firm SC Johnson, NGOs working in Kenya, including Carolina for Kibera, and a team from Cornell University. The initiative went through three distinct phases of development. The pilot phase was exploratory and focused on gathering information. During the second phase, CCS narrowed its focus and determined its market offering. Finally, CCS transitioned into an independent, non-profit social enterprise.

The core business model of CCS is focused on service. It began by tapping young entrepreneurs who were well connected in their local slum community, many of whom already provided waste disposal services. These entrepreneurs formed microfranchise units, with CCS providing training, quality control, and access to cleaning supplies at bulk rates. While the microfranchise units quickly became individually profitable, the services offered by the core unit, CCS Central—in-cluding marketing and quality control—cost more than anticipated and rendered the unit unprofitable.

In response, the organization shifted its strategic focus. CCS began to partner with NGOs to provide skills in health marketing, sanitation maintenance, and income generation. Doing so meant not only that CCS could charge for effectively performing many of the functions which had been a major financial drain, but also that these NGO partnerships frequently created more opportunities for the CCS microfranchise units, which remained financially self-sufficient.

Key lessons from the CCS experience include:

• Diluting a market-based approach can sometimes, counterintuitively, improve profitability. While the initial goal was for CCS to serve as a fully self-sufficient, profitable business at the BoP, this model turned out to be unsustainable. Pairing the market-based franchise system with a donor-based strategy allowed CCS to become sustainable.

• Adaptability and an understanding of BoP priorities and concerns can be key to emerging from an unsuccessful pilot stage. For instance, income-constrained consumers needed to see results and tangible value for their money, while franchise operators required immediate cashflow in order to be able to participate. CCS addressed the issue of customer perception by expanding its marketing to focus on the health benefits of clean sanitation practices, so customers saw the service provided by CCS as more than just a luxury. To increase cashflow, the program allowed integration into existing local payment and debt systems.

• Managing the social enterprise more like a business improved profitability and participant quality.

Source: Thieme and DeKoszmovszky at http://factsreports.revues.org/1575



bilateral institutiones, local governments, and NGOs). Annexes 1 and 2 illustrate other examples of partnerships involving universities, governments, NGOs, grassroots innovators, and enterprises.

• Scalability remains a challenge undermining potential impact: A review of more than 100 cases of inclusive innovation conducted as background research for this paper revealed that most of the inventions did not get past the initial prototype stage. This is typical for innovations, but probably even more so for inclusive innovations, because the low income of the target market means that operating margins for commercial products are often very low. Many of those that made it to the market have not yet been scaled up. Of the 25 cases presented in Annex 1, only six have experienced massive scaling up (Green Revolution, Africa River Blindness, Grameen microfinance, M-Pesa mobile banking, Jain Drip Irrigation, and Haier household appliances).

A key question from the perspective of the macro impact of inclusive innovation is why more scaling

finance products. One of the biggest challenges of GE Healthcare with its high-quality, low-cost electrocardiogram machine was delivering it to a mass-volume market in India that would make it affordable. To this end, it partnered with the State Bank of India, which has an ample network of branches throughout the country and the resources to provide financing packages to clinics and doctors in rural areas. Collaborations with NGOs and local enterpreneurs helped overcome fragmented distribution channels in rural areas and facilitated the delivery of the product to the “last mile.” In other cases, NGOs have played an important role in the diffusion and adoption of the innovation by providing education and training. It is well known that lack of appropriate education and training have often contributed to the failure of many pro-poor innovations, such as the adoption and diffusion of latrines in India (Ramani et al., 2012).

Global public goods, such as the eradication of river blindness, have typically involved the participation of multiple agents (multilateral and

BOX 3. VESTERGAARD FRANDSEN: FINANCING CLEAN WATER THROUGH CARBON CREDITS

Forty years after its start as a textile manufacturer in the 1950s, Denmark-based Vestergaard Frandsen developed a humanitarian-based profit model, sell-ing malaria nets, water filters, and other goods to development agencies. In 2011, the company launched the Carbon for Water program in Kenya, using an innovative business model. In partnership with the government of Kenya, Vestergaard Frandsen would distribute free water filters to families to help them purify water and prevent diarrhea and other water-borne diseases. In turn, the owner no longer has to boil water, reducing greenhouse gases produced by burning. After registering in the voluntary carbon market, Vestergaard Frandsen turned this positive environmental effect into a model for funding the cost of the program (including R&D, manufacturing, distribution, and education of users). In one year, the company had distributed more than 850,000 filters to Kenyan families and was forming partnerships to replicate the program in other countries.

The company learned several lessons through the development and implementation of Carbon for Water:

• Carbon financing offers some promise for companies and organizations to fund development projects targeted at low-income consumers. However, given the volatility in the carbon market, it may be necessary to spread the risk of a carbon-financed project among a variety of actors or complement this with other funding sources.

• Research and development has helped the company continually improve its products and create software to monitor distribution and compliance. • Organizations must pair free products with repeated education and monitoring. Product users often do not take care to maintain products they

receive for free. By pairing the LifeStraw giveaway with repeated personal instruction, however, Vestergaard has so far been able to prevent this problem. The money it receives from carbon credits to fund the project allows the company to offset education costs. Furthermore, because its profits—through carbon credits—depend on its being able to prove that consumers are using the products, Vestergaard has an added incentive to ensure that they are using them.

• Implementation benefited from strong partnership with the government and local organizations. While Vestergaard Frandsen believes its model is replicable, it also believes that one of the reasons its program was successful in Kenya was its existing presence in the country and its strong relationship with local governments. The prospects for expansion to other countries rest on finding partners who have that kind of presence in the country.

Source: Authors.



up has not occurred. Why has the Jaipur foot not expanded more rapidly given the millions of amputees around the world who could benefit from it? Why are Selco Solar lamps and Tsinghua solar water heaters (Annex 1) not more widely distributed? Why have many inclusive innovations not been licensed? Innovations supported by MNCs, global NGOs, and foundations typically have greater scalability because of their global reach. Partnerships with organizations have also facilitated scaling up by combining their different strengths and capabilities, for example, by combining the R&D capacity of a public research center with the manufacturing capacity of an enterprise and the educational and distributional capacity of a local NGO. Many inclusive innovations could be easily replicated and exported to other countries, but this has not happened. It would seem that there is a need and an opportunity for massive dissemination of information and promotion of these innovations.

Do pro-poor innovations differ from other types of innovations? This review suggests that pro-poor innovations share many common features with other types of innovations but also present some distinctive characteristics. Target markets are primarily located in developing countries, which along with other factors is changing the global geography of innovation. The ecosystem supporting inclusive innovation is complex, with a broader set of agents participating in the process. Limited access to infrastructure and the lower level of schooling of primary users impose additional burdens on product or service design. Designs need to be simple to make products easy to use and maintain in difficult environments, and costs must be reduced to make them affordable. Co-creation with potential users can facilitate understanding of their needs, social norms, and other characteristics of the local environment. This process is likely to result in products and services with higher market acceptance and greater success. Pricing mechanisms have also been adapted to the realities and acute financial constraints of the target populations.

BOX 4. KICKSTART: HELPING BOOST INCOMES OF SMALL FARMERS IN AFRICA

Focused on boosting incomes of small farmers in Africa, Kickstart develops and sells pressurized pumps and other agricultural products to farmers. It is a non-profit that develops its products using the following criteria: (i) products must be income-generating and affordable to customers (e.g., costs can be recouped in six months); (ii) they must be energy-efficient, easy to install, able to be mass-produced, durable and small enough to be transported by foot, bike, or bus; and (iii) they must also be culturally acceptable in their target markets. Revenues from sales are reinvested in product development, impact evaluation, and marketing. While governments do not fund it directly, some purchase Kickstart pumps to distribute to farmers.

Kickstart follows a systematic process in the product cycle: (i) understand local needs; (ii) locally design solutions; (iii) develop a supply chain, where it outsources manufacturing and sells the final products to wholesalers, distributors, and retail shops; (iv) build the market through significant public out-reach; and (iv) measure and evaluate how the products have transformed the lives of the poor and helped them move out of poverty. While Kickstart began in Kenya, its products are now sold in Tanzania and Mali.

Several lessons from the Kickstart model have implications for future inclusive innovations:

• Creative marketing techniques. Earning customers’ trust is vital, especially when products represent large purchases for poor, rural farmers. Kickstart invested in marketing and adjusting its messages to the local context of its customers by creating music videos in Swahili with a local rap artist. In addition, it offered a one-year guarantee to help win customers’ trust.

• Customer focus. The organization reinvests revenue in R&D of new products, which are largely drawn from what customers in the field need. After the cooking oil press did not become a hit, the company actively engaged with farmers to understand their needs. The company has patented its designs and enforced its intellectual property rights. According to the company, these enforcements are not meant to stifle competition, but to keep lesser quality copies of its pumps from hurting its reputation and brand.

• Selling goods, not giving goods away. The organization chose to charge for its products to achieve sustainability. • Outsourcing manufacturing. The organization outsources manufacturing, avoiding overhead costs. It shifted manufacturing activities to China

to keep the price of its products accessible and maintain good quality levels. The company has maintained many of its high-value research, marketing and manufacturing activities and jobs within its key African markets.

Source: Authors (see Annex 2).


15

which are typically more narrowly focused on profit making, to governments and international development organizations, which are more focused on improving public welfare. Foundations and NGOs are increasingly engaged in the financing and provision of public goods. Social entrepreneurs constitute another important and growing group of agents, which can be differentiated from private firms because of their willingness to accept lower profits in return for achieving greater social impact (Koh, et al., 2010).

Each group of agents pursues different objectives, and its strengths and constraints for promoting inclusive innovations also differ. Hence, the most relevant public policy interventions will vary across agents. Public policy can help overcome coordination failures across different agents so they can build synergies and leverage each other’s strengths. Some of the experiences presented above, especially the cases of private firms such as Haier and GE, took place without any government support, while in others (e.g., river blindness and global challenges) governments and/or the international development community played a critical role. Most of these experiences involved collaborations across multiple agents. Table 3 provides a conceptual framework with the objectives, constraints, and potential role of the various agents and illustrates it with concrete examples.

Policy priorities will differ across countries according to needs and capabilities. In view of their often weak government capacity and smaller populations over which to amortize the costs of developing inclusive innovations, small poor countries, in particular, need to profit from what has been tested and implemented elsewhere. Government policies with respect to the broad economy, and those maintaining openness to

IV. PUBLIC POLICIES FOR INCLUSIVE INNOVATION

Inclusive innovation is a new area of public policy that can yield high social and economic returns. However, too few governments are actively engaged in supporting it. Inclusive innovation can have an impact on productivity by reducing the costs of pro-poor programs and by increasing economic returns to the poor in their own activities in agriculture, manufacturing, and services through improved health and more efficient use of productive factors. In addition, many of the innovations developed for low-income markets can help reduce the cost of providing health care in high-income economies. This suggests that there is scope for promoting more inclusive innovation efforts in advanced countries as well.

Promoting inclusive innovation will require a shift in emphasis on current and new policy instruments. It will likely require more resources and a redistribution of resources from some existing lower-impact general innovation programs. Many governments in emerging markets are involved in fostering inclusive innovations but, for the most part, these are not undertaken systematically or on a large scale. The strategies for inclusive innovation being developed in China and India suggest the intention of pursuing such public policies more systematically.

Public policies for inclusive innovation cannot be considered in isolation. They must take into account the entire innovation ecosystem, market failures affecting the development of inclusive innovations, and the roles played by different agents in the generation, transfer, and dissemination of innovations targeted at the poor and the excluded (Table 2).

As can be seen from the table, the agents involved in inclusive innovation are a continuum from private firms,



TABLE 2: Inclusive Innovation: Typical Market Failures and Possible Policy Solutions

FAILURE POSSIBLE SOLUTIONS EXAMPLE

Lack of information about size of potential market or market myopia.

Providing information about the size of the market to encourage the innovation

• Literature on BoP • Some of the companies in cases collected have discovered

this market on their own, (GE, Haier, Aravind Eye Care, NH Heart Surgery, etc.) but there is scope for stronger publicity and dissemination efforts on the potential of this underserved market

Public good or social welfare objective to which market does not respond

• Direct government provision• Provision by NGO• Provision by international consortia

In the last two cases, the government can play an important role in creating an enabling policy environ-ment for NGOs and international consortia

• Multiple government examples of delivering services, including health, education, and ICT to rural communities

• Jaipur foot and knee• Gates Foundation• Green Revolution• African eradication of river blindness (the last three

examples involved international coordination)

Public good where market can sometimes be created

Providing an incentive to innovate for this market such as

• Prizes: contests• Government procurement

• Gates Foundation Global Health Challenges and X-Prize Education and Development Challenges,

• Global Cycles from MIT’s D-Lab Competion• Aakash tablet computer sponsored by the Indian

Department of Education

Typical innovation market fail-ure that R&D is risky and fear that innovation may be copied or pirated by others

• Subsidize the R&D effort by the innovating agent• Strengthen IPR or develop other compensation

such as prizes or IPR buyout

• Several examples involve government grants or tax subsidies as well as financial assistance to help develop the innovation such as Lupin psoriasis

• Developing countries have been strengthening IPR. India has been experimenting with special IPR rights for grassroots and indigenous innovators

Typical capital market failure that banks do not lend to new innovators because they do not have track record or collateral

Early stage finance including:

• Grants to develop the innovation further to access venture capital and other types of finance

• Venture capital• Incentives and institutional mechanisms for local

finance institutions to lend to social enterprises

• India’s Inclusive Innovation Fund, which includes grants for public, university, grassroots innovators, and even private companies (e.g., Lupin), to futher develop the innovation

• National and international venture capital funding for promising innovations (e.g. Aaviskar, Omidyar)

Prohibitively high cost of getting inclusive innovative product or service to the poor

• Using existing market or civil society networks to get the product or service to the poor

• Innovating in the delivery of the good or service. • Leveraging ICT for delivery

• M-Pesa mobile banking service using cell phones, which partnered with other organizations to offer financial services

• Drishtee rural village store supply system• Grameen and other microfinance sytems• Anhanguera educational services in Brazil

Low income of the poor does not permit them to buy the good or service

• Innovating financial services for the poor• Partnering with existing financial interemediaries

targetting the poor• Blending market with donor finance• Innovating alternative way to finance

• Grameen Bank and many other microfinance programs• Jain drip irrigation and SELCO solar lamps work with rural

banks to finance purchases• Vestergraad Frandsen Life Straw uses carbon credit

mechanism to finance donation of water filters• Cemex’s Patrimonio Hoy has developed financing system for

low-income purchases of construction materials • Community Cleaning Services combining market with donor

finance

Low education of the poor is a constraint on their ability to select or use the innovation

Bundle training with the supply of the innovation either

• Directly or• Indirectly by collaborating with others who can

provide the training

• Drishtee supply and training for village kiosks in rural India• Jain drip irrigation

Weak enterpreneurship capabil-ity of the innovators. Business models are not adequately designed for financial sustain-ability and growth

• Business incubators in science parks for university or reserch lab innovators

• Build capacity of innovation intermediaries and networks to scale up their training services

• Shenzhen Karva Diagnostic Bed• Global Cycle Solutions from MITs D-Lab • Dasra, Innovation Alchemy, National Association of Social

Enterprises in India

Source: Authors.


IV. Public Policies for Inclusive Innovation 1717

TAB

LE 3

: Obj

ecti

ves,

Str

engt

hs a

nd C

onst

rain

ts in

Pro

mot

ing

Incl

usiv

e In

nova

tion

by

Dif

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gent

s and

Pos

sibl

e In

terv

enti

ons

PRIV

ATE

FIRM

S

SOCI

AL

ENTR

EPRE

NEUR

S (S

ES)

GRAS

SROO

TS

INNO

VATO

RS

UNIV

ERSI

TIES

AN

D RE

SEAR

CH

LABO

RATO

RIES

NGOS

FOUN

DATI

ONS

GOVE

RNM

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INTE

RNAT

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L DE

VELO

PMEN

T AG

ENCI

ES

Prim

ary

obje

ctiv

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akin

g a

profi

t Ac

hiev

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soci

al

impa

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mak

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smal

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Addr

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are

thos

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reat

-in

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know

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Advo

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ne

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Fund

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spec

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at

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thro

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as

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as s

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TAB

LE 3

: Obj

ecti

ves,

Str

engt

hs a

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rain

ts in

Pro

mot

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Incl

usiv

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tion

by

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Pos

sibl

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terv

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PRIV

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SOCI

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ENTR

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S (S

ES)

GRAS

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UNIV

ERSI

TIES

AN

D RE

SEAR

CH

LABO

RATO

RIES

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FOUN

DATI

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RNM

ENTS

INTE

RNAT

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L DE

VELO

PMEN

T AG

ENCI

ES

Exam

ples

• GE

Indi

a ha

nd-h

eld

elec

troca

rdio

gram

, Ch

ina

ultra

soun

d• T

ata

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car

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bank

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a an

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soria

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m

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brac

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by

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IT)

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a So

lar

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ngzh

-en

diag

nost

ic b

ed

from

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lth R

&D

cent

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(Chi

na)

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dray

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stru

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ts fr

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heal

th re

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ch

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na)

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mee

n m

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g• J

aipu

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t • P

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men

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tis

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ine

for

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o ph

arm

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NCs

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• Chi

na S

park

and

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rch

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ram

s• I

ndia

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nova

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• Aak

ash

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et

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pute

r (p

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rem

ent

from

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cons

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m to

im

prov

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real

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lds)

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international sources of innovation, are particularly important. They should develop strategies to adopt and adapt this knowledge to their specific needs through collaboration with multilateral and bilateral institutions, companies, foundations, NGOs, the diaspora, and neighboring emerging countries. Investments in basic infrastructure for technology extension could play an important role in helping low-income producers adopt and adapt existing technologies to enhance their productivity and income opportunities (e.g., EMBRAPA’s support for small agricultural producers in Brazil).

Effective technology extension schemes, however, will require minimum financing and skills development and an adequate governance mechanism, such as associations representing producers, to deliver quality services. Collaboration with NGOs and with more developed technology institutes around the globe could also prove to be valuable mechanisms for delivering services and technology transfer, respectively. Public procurement could also be used more effectively as an instrument to bring into the country innovative ways to deliver basic services that have been deployed elsewhere. These policies could benefit from greater dissemination of inclusive innovations and more knowledge exchange among countries by multilateral development institutions, other aid agencies, NGOs, and foundations.

Developing countries with more resources and capabilities have a wider range of opportunities to foster inclusive innovation. Larger countries have the advantage of larger populations and bigger markets in which to scale up and recoup the innovative effort and to develop a critical mass of researchers, firms, NGOs, and other agents. In developing countries with greater capabilities, governments can foster inclusive innovations through several types of actions: (i) enhancing the broad environment for innovation; (ii) strengthening the core innovation infrastructure and supporting skills; (iii) improving existing and redeploying new financing instruments for inclusive innovation, including public procurement and prizes; and (iv) strengthening incentives and coordination mechanisms among agents.

BROAD ENVIRONMENT FOR INNOVATIONGovernment policies designed to improve the broader environment for innovation are critically important. This is particularly true of policies to facilitate access to international sources of innovation. So much of the knowledge necessary for innovation is being developed outside the boundaries of any nation. Moreover, the dynamics of the interaction between domestic and international innovation agents and markets are the fundamental driver of innovation. Innovation in general is also critical to provide the basis for inclusive innovation. Most inclusive innovations are based on the recombination of existing technologies. Thus, a country should be open to all ways of tapping global knowledge, including an explicit focus on inclusive innovation. Growth policies can be more effective when there is a specific pro-poor focus, including a more explicit focus on inclusive innovation.

Effective policies to protect IPR are also important. Developing the most appropriate IPR policies for inclusive innovation remains a challenge because of the tradeoff between providing incentives for the innovative effort and aiming to maximize welfare by diffusing the innovation at the lowest possible cost. This is particularly important for innovations that are easy to copy, such as those by grassroots innovators, as well as many drugs and pharmaceutical products. One way to bridge this tradeoff is for governments or other agents or foundations to buy the patent rights and make the technology available to others. PATH, for example, bought the patent rights to a critical part of the process needed to develop the meningitis vaccine for African countries and gave it to the developing country company (the Indian Serum Institute) that committed to produce vaccines at 50 cents.

INNOVATION INFRASTRUCTURE In promoting inclusive innovation, as well as innovation more generally, it is necessary to have supporting innovation infrastructure. This includes research institutes, metrology, standards, testing and quality (MSTQ) institutions (Guasch, et al., 2007; Racine, 2011),



specialized consulting and management firms, a critical mass of technical human capital, information services, and venture capital firms. They can help not only in creating inclusive innovations using new technology or recombining existing technology and new forms of organization, but also in developing, scaling up, commercializing, and taking them to users. Technology institutes, in particular, can play an important role in adapting global technologies to local conditions and disseminating them to small producers. Besides helping to develop the innovation infrastructure, governments need to give explicit mandates and incentives to public and private agents in the innovation infrastructure to support inclusive innovation efforts.

FUNDING AND COMPLEMENTARY INSTRUMENTSA wide range of funding instruments and complementary instruments can be used to stimulate the supply of inclusive innovations, inter alia, financing for research and its subsequent commercialization as well as funding to adapt and deploy existing inclusive innovations in the local market. Mandating and providing the incentives for public research institutes is one such instrument. Other complementary instruments, such as grand challenges and public procurement (typically called demand-side policies), can finance or guarantee the market for a specific demand. Equally important to financing are bridge institutions (physical or virtual) that can facilitate mentoring and networking to help transform ideas and R&D into innovations in the market.

While inclusive innovation was traditionally not a priority when funding public research, some governments (particularly China and India) are starting to provide funding to spur applications-oriented research aimed at addressing the needs of the poor, particularly in the areas of health, education, and agriculture. More can be supported, however. In particular, more funding for public-private consortia could not only stimulate further relevant research but could also provide necessary links to the market in order to facilitate its future commercialization. In the

case of public research institutes, financing incentives can be complemented by specific mandates to engage more actively in the support of inclusive innovation. This, for example, was the case of the government lab that helped Lupin develop the psoriasis treatment. It was also the case of several of the Chinese examples of research labs and universities that developed medical devices and solar water heaters (see Annex I).

In addition, other financing (e.g., matching grants) could be made available to researchers and entrepreneurs to help commercialize existing research. Such financing could support the development of prototypes and pilot products up to a level ready for scaling up. Funding for research commercialization could be linked to other initiatives that facilitate networking and brokering services for intellectual property management (e.g., technology transfer offices) and/or mentoring for new entrepreneurs (incubators, venture accelerators, as well as virtual mentoring networks). An example of upstream funding of an inclusive innovation is DFID’s support for the development of what became M-Pesa. An example of facilitating networking is the Indian government’s support of the Honey Bee Network, which has catalogued hundreds of thousands grassroots innovations (Annex 1).

Governments can also develop programs to stimulate the adoption, adaptation, and commercialization of available global technologies by entrepreneurs if not yet available in the local market. This can be supported through matching grants or other financing instruments that reduce the initial risk to the entrepreneur and help create a demonstration effect for other entrepreneurs.

Demand-side policies—whereby governments or foundations signal a need and a potential market—also offer promise for stimulating inclusive innovation. Public procurement is particularly important because it creates a concrete market. While it has helped to spur innovation in high-income countries (e.g., public procurement in the military has been a critical source of leading technological innovations with subsequent commercial applications), it has been underutilized as a policy instrument to stimulate inclusive innovation



in emerging markets. This instrument is particularly attractive for larger countries, where governments can guarantee large-scale markets that will allow the developer to recoup the costs (e.g., the Aakash Tablet, which was procured by the Government of India to offer e-learning to students at the very affordable price of US$35 (see Box 5 and Annex 2).

In smaller countries, these policies are still applicable when the nature of the innovation is more incremental and therefore less costly. For example, they could use public procurement to adapt and bring to the local market inclusive innovations available elsewhere. Contests and grand challenges that invite solutions to solve specific inclusive innovation problems using crowdsourcing are another promising policy instrument. These instruments identify the need but do not necessarily guarantee the market. Complementary efforts in development, scale-up, production and

commercialization, and diffusion will be needed to get the innovation out to the users. Governments, multilateral and bilateral institutions, and large foundations such as the Gates Foundation are using such grand challenges to stimulate the creation of public good innovations aimed at the very poor (e.g., Grand Challenges for Development launched by USAID in partnership with foundations, other bilateral and multilateral agencies; Grand Challenges Canada;14 and the private X Prize Foundation, which is now also focusing on development challenges).

BOX 5. AAKASH TABLET: BRINGING LOW-COST COMPUTERS TO STUDENTS IN INDIA

The Aakash Tablet is a good example of how public procurement can help create a market for inclusive innovations and of the importance of setting clear procurement evaluation criteria to avoid disruptions in the process.

In 2010, the Indian government announced the development of the Aakash tablet to provide low-cost computers to the nation’s growing college student popu-lation. It assigned the Indian Institute of Technology (IIT) Rajasthan the task of producing the first 100,000 tablets at the US$35 price point. IIT Rajasthan followed an open bid process and selected the lowest bidder (DataWind) among all bids deemed eligible. In mid-2011, DataWind sent three batches of tablets for testing, all of which were rejected by IIT Rajasthan. Despite these disagreements, the Indian government unveiled the manufactured tablet at the scheduled launch in October 2011. The government also announced that there would be two versions of the tablet: (i) Aakash computers, subsidized by the government and distributed to students at US$35, and (ii) the Ubi Slate 7, commercially available at US$60. Continued testing of the Aakash tablets by stu-dents highlighted the need for several improvements, such as longer battery life and a faster processor. In November, the government and DataWind agreed that the remaining tablets of its 100,000 order would have such upgrades and IIT Rajasthan would send its specific testing criteria. However, the testing criteria included measures such as ability to withstand four inches of rain, which DataWind contended was not included in the original specifications.

While the effort was eventually successful, it was delayed a long time. Quad Electronics, DataWind’s consortium partner, had never manufactured a tablet before and was producing fewer than 700 tablets a day. DataWind opened new manufacturing facilities in India to raise its productivity and eventu-ally ended its agreement with Quad Electronics. Several financial and legal disputes also contributed to the delays. Quad Electronics and IIT Rajasthan claimed that DataWind owed them US$1.12 million and almost US$500 million, respectively. DataWind in turn claimed that the school owed it US$100,000 from a bid deposit. The Indian government maintained that production would continue and that Aakash 2 would be unveiled to the rest of the students in November 2012. The government and DataWind met that goal. The device was sold at US$21 for students of engineering colleges, with the government subsidizing the other half of the cost.

The case of the Aakash tablet provided several lessons:

• First, clear procurement evaluation criteria are necessary. Because of the unclear criteria in the initial public procurement, expectations were not met. Furthermore, the government chose a company that had never produced a tablet before, making timely and cost-efficient production difficult.

• Second, while procurement processes hampered the government from providing tablets to students at the price point it wanted, it did succeed in creating a market. Because DataWind proved it could make a tablet for under US$60, more tablet makers entered the market at this price point.

• Third, the government listened carefully to the feedback from consumers and endeavored to improve the design based on that feedback. Such public procurement of a consumer product, while it was delayed by several disputes, represents a first of its kind in India.

Source: Authors.

14 Grand Challenges Canada, launched in 2010, is based on the concept of integrated innovation, “the coordinated applica-tion of scientific/technological, social and business innovation to develop solutions to complex challenges, and to identify and overcome barriers to sustainably bring these solutions to scale.” See http://www.grandchallenges.ca/who-we-are/ (Accessed 1/25/2013).



Effective demand-side policies, however, require a lot of work to identify not only the needs of the poor, but also how to best address them. This requires in-depth analysis of technical as well as social and cultural aspects. The latter includes understanding how social or cultural dimensions may stimulate or hinder the use of the product or service. For this reason, NGOs, social entrepreneurs and firms involved in the design and development of goods and services for the very poor are increasingly involved in co-creation, whereby future beneficiaries participate in the design from its early stages and help shape the product.

Sustainability and opportunities for transferring technology to the local environment are other aspects to consider when developing demand-side policies for inclusive innovation. Hargreaves et al. (2011) compare two demand-side financing mechanisms that led to the development of lower-cost meningitis and pneumococcal vaccines with different sustainability and technology transfer implications. In the case of the meningitis vaccine, the Gates Foundation awarded a US$70 million grant to PATH (a large health NGO based in Seattle, WA) to develop the vaccine at a cost of less than US$1 per dose (Annex 2). This price was based on wide consultations that determined the maximum price that would be affordable to ensure a large uptake around the developing world. PATH formed international partnerships to develop the vaccine, including a collaboration with the Serum Institute of India, resulting in technology transfer to a pharmaceutical company in an emerging market.15 The latter committed to producing the vaccine at 50 cents a dose.

By contrast, the development of the pneumococcal vaccine, which followed an advanced market commitment (AMC) mechanism, did not generate as strong incentives to reduce vaccine costs and foster technology transfer to an emerging market. A consortium of governments and the Gates Foundation committed US$1.5 billion to incentivize companies to produce 30 million doses each year for 10 years at a price of US$3.50. The mechanism consisted of topping up the price by US$3.50 per dose for 20 percent of the doses until the US$1.5 billion fund was exhausted.

Pfizer and Glaxo Smith Kline signed AMC contracts. The vaccines have been deployed in several countries in the last two years. However, the incentives to produce a very low-cost vaccine were weaker. As a result, the process and the vaccines cost more. No technology transfer to an emerging market has occurred either. It is unlikely that governments in the poorest countries, where the vaccines are most needed, will be able to afford the US$3.50 per dose. The GAVI Alliance, which has been supporting the initial rollout, does not have the funds to continue to support the purchase.16

BUILDING BRIDGES ACROSS INSTITUTIONS Coordination among the different agents is very important because of the comparative advantages of the agents at different stages of the innovation cycle. Governments can help facilitate direct coordination efforts as well as foster coordination in the implementation of supply and demand-side policies. For example, supply-side policies such as grants and fiscal and financial incentives may be conditional on collaboration between firms, research institutes, and universities. Moreover, enhancing the productive activities of the poor in agriculture and other areas requires coordination among many agents in agricultural value chains, including private companies, NGOs, and specialized organizations (e.g., Jain Irrigation). The same is true in health. The PATH example of the development of the meningitis vaccine illustrates the importance of coordination and integration of the efforts of many agents to successfully develop the low-cost vaccine for poor African countries.

15 This partnership required the purchase of patent rights from the U. S. Food and Drug Administration to transfer a critical aspect of the technology to the Serum Institute of India.

16 The GAVI Alliance (formerly The Global Alliance for Vaccines and Immunization) is a public-private global health partner-ship that seeks to increase access to immunization in poor countries. The Alliance brings together emerging market and donor governments, the World Health Organization, UNICEF, the World Bank, the vaccine industry in both developed and emerging markets, research and technical agencies, civil society, the Bill & Melinda Gates Foundation and other private philanthropists.


23

PRIVATE COMPANIES AND ENTREPRENEURSThe cases presented in this paper show that private companies and entrepreneurs can be profitable by innovating and delivering products and services that serve low-income markets. This was the key point made by Prahalad in his book Fortune at the Bottom of the Pyramid. Some developed-country MNCs, such as General Electric, Procter and Gamble and Vodafone, as well as some developing-country MNCs, such as Haier and Tata, have discovered this and are actively pursuing these markets. However, many have not. This suggests that there is scope for wider dissemination of examples of private firms that have built profitable inclusive innovation business models.

Large domestic companies and MNCs have the organization and financial resources to develop inclusive innovations as well as to integrate small producers into their supply and distribution chains. They can be far more involved in this area, not as charity or corporate social responsibility, but as profitable and sustainable business models. The NGO Enterprise Solutions for Poverty supports the involvement of the private sector in inclusive innovation. Its activity has two prongs. One is to collaborate with local and multinational leaders to build and expand competitive inclusive business models. The other is to encourage emerging entrepreneurs to build networks of enterprises that leverage economies of scale by connecting to the sourcing and distribution systems of large companies (Barry, 2007).

UNIVERSITIESUniversities can be important sources of inclusive innovation in four ways. First, they can train future

entrepreneurs, scientists, and engineers with a focus on inclusive innovation. Second, they can engage in research that pursues the development of inclusive innovations. For example the Embrace Baby Incubator came from Stanford University (see Annex 1). Third, they can provide, research, consulting services, and technical assistance to inclusive innovators. For example, Stanford University researchers collaborated in the development of a special knee joint for the Jaipur Knee. Fourth, they can establish network institutions, such as technology parks and business accelerators, that can help transform prototypes into business applications or innovative government programs.

Students can respond to the challenge of developing goods and services that meet the needs of low income populations. For example, Global Cycle Solutions, which adapts bicyles for various farming tasks, was developed from a student project at MIT (Annex 1). More can be done to tap this latent resource. Programs should be structured such that students with winning projects are partnered with mentors and venture capital that can help them to start up new enterprises or partner with existing companies to get their innovations to the market.

GOVERNMENT LABORATORIES Government laboratories in developing as well as developed countries can do more to apply their scientific and technical knowledge to address the needs of the poor. There is a need to encourage staff to switch from more publications and patents to relevant goods and services. This requires in part an explicit orientaton in their charters to have this focus. At a more micro level, it also requires that recognition for this effort be built into the incentive and promotion

V. HOW CAN OTHER AGENTS CONTRIBUTE?



schemes of the researchers and staff. As for universities, it also requires linking them up with bridge institutions, businesses, and other agents that can help take innovations to the market.

NGOS NGOs are becoming important players in addressing public needs that traditionally had been met by governments. Their actions should be seen as complementary to the role of government. They can help identify areas that need attention as well as approaches that work. Examples are D-Rev and PATH. They can also serve as important partners in the delivery of inclusive innovation goods and services.

FOUNDATIONSFoundations have become an important source of funding for addressing health, education, and other needs of poor people in developing countries. Through innovative financial instruments such as challenge grants, they are stepping in to provide public goods that were formerly the domain of governments. Their grant support has not only resulted in new products and services for the poor but also in the pioneering of new business and organizational models, as outlined in the Monitor Report From Blueprint to Scale. Once these models are worked out and understood, they can then be replicated and scaled up by impact investors as well as regular for-profit investors. More systematic analyis of how challenge grants and grants for pioneering business and organizational models can be made more effective will be helpful in attracting more funding to these efforts and in further leveraging programs supporting the development and dissemination of inclusive innovation.

INTERNATIONAL AND BILATERAL DEVELOPMENT AGENCIESInternational and bilateral development institutions are well placed to promote the inclusive innovation agenda. The roles they can play range from advocacy, dissemination, and advisory services to funding of specific initiatives. They can also help organize and fund

major global public good inclusive innovation efforts. Five major areas where international and bilateral development agencies can intervene are provided below.

First, international and bilateral development organizations can play a strong advocacy role, promoting more explicit focus and investment on inclusive innovations by developed and developing country governments, NGOs, foundations, and private firms. They are well placed to assume this role because of their broad experience analyzing and addressing developing-country needs across a wide spectrum of sectors. They also have well-developed global dissemination programs.

Second, these organizations can create an information clearinghouse on existing inclusive innovations (products, services, and new business and organizational arrangements). Many of the existing examples of inclusive innovation that have reached millions of people are not well known, even though they may be applicable to millions or even billions more. The information clearinghouse could be an open and interactive virtual platform available to all interested parties. Once its basic information clearinghouse function is established, it could be expanded to provide a market exchange for inclusive innovation products and services.

Third, besides facilitating knowledge exchange, they can contribute with further policy analysis on effective models to generate, scale up, and disseminate inclusive innovations and provide policy advice and training to governments and other interested parties on how to design and implement programs to spur inclusive innovations. They can also provide funding at the country level to implement these programs and to create the necessary capacities (skills and infrastrucutre) to support inclusive innovations.

Fourth, international and bilateral organizations can identify large-scale needs of the BoP which have not been successfully addressed and actively promote their resolution at the global level. This can be implemented through global grand challenge funding mechanisms


V. How Can Other Agents Contribute? 25

(as done by the Gates Foundation, the X Prize Foundation, and the governments of Canada and the United States) or other advanced market commitments for the development of products and services that meet those needs. The experiences of developed countries with public procurement programs as well as of the foundations that are already doing this successfully would also prove useful.

Fifth, they can identify large global public good BoP needs that require cross-national and multi-agent participation and use their convening power as well their own financing and funding raised from donors

to create consortia to tackle these problems. There is much scope for international coordination given increased global interdependence and new global challenges such as climate change and global disease pandemics. The Consultative Group on International Agricultural Research (CGIAR) and the Africa River Blindness Eradication Program are examples of what can be achieved through international collaboration.The implementation of these programs would not have been possible without the convening power of global institutions and the cross-country and multi-agent coordination (including NGOs) that they facilitated.


27

The growing number of innovations aimed at the BoP is encouraging. Yet, millions remain deprived of access to basic goods and services. Developing countries with greater capabilities and larger markets seem to be benefiting more from the new trends, but many of these innovations have not reached lower-income countries. Even within the former, innovations by multinationals and large companies have been targeted at lower-income consumers, but rarely at those living on less than US$2 per day. The number of agents and institutions involved in developing and deploying inclusive innovations is expanding, which opens up new opportunities. Unfortunately, to date, many of these initiatives have only touched a fraction of those who could benefit from them. Scaling up remains a big challenge.

The diversity of inclusive innovations presented in this paper underscores the many steps of the innovation cycle. Research and development is not always necessary or sufficient. Much inclusive innovation is the result of recombining existing technologies, or the fundamental innovation lies in the new business or organizational model. This implies that more attention must be placed on entrepreneurship and the supporting business environment.

Where most innovation, particularly inclusive innovation, fails is in the steps between the prototype of the innovation and its further development, scale-up, and commercialization. Government policy needs to pay much more attention to how to support these subsequent steps. Lessons from successful and failed experiments alike highlight the importance of understanding the unique needs and the social and cultural contexts of the users. Co-creation and close consultation with users are emerging as good practices.

VI. CONCLUSIONS

In fostering inclusive innovation, governments need to consider that their policies will take place within the broader innovation ecosystem and to leverage the opportunities afforded by these agents. Countries will weaker capacity will likely benefit the most from partnerships with NGOs, social entrepreneurs, and other agents increasingly active in this field.

Although policy priorities will vary among countries, several key lessons for governments seeking to promote inclusive innovation are emerging.

First, facilitating access to international sources of innovation—through trade, joint ventures, technology transfer, linkages with the diaspora, and collaborations with knowledge centers abroad—is a priority for all. Much of the knowledge necessary for innovation is being developed outside the boundaries of any nation.

Second, it is necessary to further incentivize or support the private sector, as it is the main source of innovation in general and has the capacity to do a lot more inclusive innovation once it sees the business opportunities involved. Larger companies have the capacity to go from conception to production, scale-up, and commercialization around the world because they already have global systems in place.

Third, public procurement can be utilized more effectively to foster inclusive innovations, although, as was seen in the example of the Aakash tablet, care must be taken to structure these programs carefully.

Fourth, new instruments, such as grand challenges and prizes, show great promise. They are crowdsourcing mechanisms for stimulating inclusive innovation.



However, in order to move inclusive innovations beyond interesting prototypes, they have to be complemented by mechanisms to support scale-up, production, and mass commercialization.

Fifth, countries need to strengthen core innovation-supporting infrastructure and skills with a focus on priorities related to inclusive innovation (e.g., institutions providing technology extension services and R&D institutions focused on agriculture and basic health needs) and give them a strong mandate. Financing instruments can also be deployed more effectively to encourage more R&D aimed at improving the welfare of the very poor.

Sixth, many inclusive innovations require collaboration among different firms or between firms and public research laboratories. Many of the innovations produced by universities, public laboratories, or grassroots innovators remain at the prototype stage. Therefore, policy makers need to improve the

broader innovation ecosystem and encourage greater collaboration among agents with complementary comparative advantages.

Multilateral and bilateral development institutions and foundations can do more to promote the inclusive innovation agenda through advocacy, funding of initiatives at the country and global level, and promoting knowledge exchange among countries and innovation agents. Multilateral agencies are well placed to facilitate inclusive innovations that might greatly benefit from cooperation among multiple countries, such as the eradication of river blindness. An important gap exists in terms of dissemination of successful experiences. An alliance between multilaterals, NGOs, foundations, companies, and other partners should be formed to facilitate such dissemination and possible brokering and networking among different agents. A longer-term, more ambitious goal would be to raise funding to finance global public innovation activities to address the needs of the poor.


29

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35

ANNEXES



ANNEX 1: Summary Analysis of 25 Inclusive Innovation Cases

AGENT: WHO?; WHERE WAS IT STARTED? WHAT?; WHERE IS IT NOW? WHY?; HOW? LESSONS/SPECIAL INTERESTAgriculture1. International Consortium involving

Ford and Rockefeller Foundations and CGIAR U.S., Mexico, India, Philippines and other countries

Improved seed varieties and fertilizer led to increased agri-cultural productivity Mexico, South and East Asia

Global concern about famines; advanced genetic research involving interna-tional network of R&D labs, government agricultural extension systems, seed and fertilizer providers, marketing, and distribution

Example of major global public good R&D/innovation effort that was started by international NGOs, expanded to CGIAR, and involved ministries of agriculture, provin-cial governments, and grassroots organizations

2. Private Company Jain Irrigation Systems India

Micro irrigation systems including drip irrigation From India expanded to the Middle East, Europe, Central and South America, and U.S.

Commitment of company founder; works with farmer and large array of seed companies, fertilizer providers, agricul-tural finance, buyers, and distributors; provides training

Coordinaton and aggregation can help reap economies of scale and make very small farms profitable

Infrastructure and construction3. Private Company SELCO

IndiaSolar laterns for poor in Karnataka. Developed by U.S. educated Indian PhD turned entrepre-neur India

U.S trained engineer wanted to help rural communities; he developed solar lights, created distribution and maintenance systems, and convinced agricultrual banks to finance it

More than a 100,000 laterns installed in rural Karnataka. Started as NGO and turned into company. Illustrates power of providing complete package of services with training and finance

4. Private Company Bharati Air Tel India

Cell phone air time reputed to be cheapest in world India

Entrepreneur wanted to provide low cost cell phone service; outsourced inputs to MNCs

Illustration of business model in-novation that helped lowered cost

5. Private company CEMEX Patrimonio Hoy program Mexico

Construction of low-income housing supported by Mexico’s largest cement com-pany; expanded to other Latin American countries

Company wanted to provide social service on sutainable business model; developed warehouing, financing, ditri-bution system for self-help housing

Valuable collaboration between pri-vate firm and communities around a sustainable business model

Manufacturing6. Local Multinational Haier

ChinaHousehold appliances China & other developing countries

Originally a township and village enter-prise making products for low income rural market; acquired technological capability through joint ventures and R&D

Company became an MNC that competes with advanced products in developed markets. Renewed focus on the needs of BoP in developing countries

7. University R&D Tsinghua Solar China

Solar hot water heater China

University professor sets up company Successful example of innova-tion from university to large scale production

8. NGO Global Cycle Solutions Bicycle as power source for maize dehuskers and for other sources of power Tanzania

Developed at MIT D-Lab through prize competition; received angel funding to support production

Incentivized by prize; received angel capial to industrialize; and broadened product range to respond to needs of communities

9. Procurement by Indian Government using Datawind (UK) for design and software, and Indian companies for production

Aakash US$35 Tablet com-puter for schools in India

Ministry of Education launched procure-ment bid for low-cost tablet computer; contract won by UK firm Datawind (system) and Indian companies for production

Unclear procurement evalua-tion criteria delayed deployment. Illustration of the potential of government procurement when carefully managed

10. Private company Vestergraad Frandsen Denmark

Bednets in Africa; Lifestraw water filter Kenya

Company into bednets because of busi-ness opportunity; son of founder socially oriented to develop products for poor

Switched from private to exclusive focus on BoP; financing of product through use of carbon credits

11. Foreign multinational GE China/India

GE Medical equipment elec-trocardiogram in India, and ultrasound in China

Identified market need and feared do-mestic competition; used its strong R&D and engineering capacity to produce products for low income markets

GE Reverse Innovation disrupting itself by selling products developed for lower income developing market in developed country markets



Annexes 37


AGENT: WHO?; WHERE WAS IT STARTED? WHAT?; WHERE IS IT NOW? WHY?; HOW? LESSONS/SPECIAL INTEREST

12. Government research lab Shenzhen Institute of Advanced Technology China

Hospital diagonostic bed for US$5K produced by Shenzhen Kangva Co. China

Government health research institute focused on medical devices to meet China’s large health needs

Government research lab was able to industrialize through alliance with state enterprise

13. Government Labs Mindray National Research Center of Medical Analysis Equipment and Engineering China

Over 80 types of low cost medical equipment China

Chinese government drive to produce low cost medical equipment for health needs; used R&D capacity of public R&D system; many ICT based products

More than 1,100 patents; competi-tor respected by large foreign MNC like GE

14. Private local pharma company Lupin in collaboration with the Council for Scientific and Industrial Research (CSIR) India

Psoriasis treatment at frac-tion of developed country cost India

Company competed for prize using traditional medicine from Indian healer; collaborated with public R&D labs

Reverse pharmacology from tradi-tional medicine to private pharma with assistance from government lab

15. Local NGO BMVSS India

Jaipur artificial foot and artifi-cial knee India and other countries

Former government official sets up NGO, and develops artificial foot with help from artisan, and artificial knee with help from D-Rev and Stanford University

NGO supported by government taps local master craftsman for foot; foreign university and NGO for artificial knee

16. Emerging Country MNC Tata India

Tata Nano car for US$2500 with export potential

CEO wanted to provide low cost car for low income population; used large technological capability of company to achieve this

Large company with strong R&D capacity can develop product for low income population; innovations included distribution and financing tools

Services17. Foreign MNC M-Pesa Developed by

Safaricom (Vodafone UK) for KenyaCell phone based payment system, expanded to mobile banking Kenya, Tanzania, South Africa, Afghanistan and others

Started as system to deliver remittances to rural areas; used its cell phone ven-dors as intermediaries; and expanded functionallity of digital platform by bringing in partners

Recombination of existing tech-nologies adding functionality to cell phones; multiple partners for development and delivery

18. Government Bank Grameen Bank and Grameen Phone Bangladesh

Microfinance and cell phones. Started in Bangladesh and now present into several countries in Asia and Africa

U.S. trained economist develops system to provide credit to poor; experiments in villages; and receives government sup-port to set micro-finance institution

Started as NGO that turned into bank and expanded from Bangladesh to other countries

19. Education services Anhanguera Brazil

Educational services includ-ing vocational education leveraged by ICT Brazil

Started as training provider; expanded to provide secondary and tertiary education

Includes secondary and vocational education. Intense use of ICT

20. Domestic private company Aravind Eye care cataract surgery (Narayana Hrudayalaya Heart Surgery is a similar example) India

High quality eye surgery at 1/10 the price of developed countries

India

Desire to expand eye care/cataract surgery to low income groups; innovated business model based on economies of scale in pre-operative and surgery process, and sourcing inputs

Business process innovations which reduced costs. High capacity utilization of high cost equipment

21. Domestic NGO Drishtee India

Integrated service pack-age including retail, health, education, e-government India

IT engineer wanting to supply small retail vendors in rural Indian villages

Creative aggregation of physical and digital services to service rural communities

22. Foreign NGO Gates Foundation US

Various global heath chal-lenges Global

Humanitarian concern by private foundation of large MNC; crowdsourcing research on health needs

Several vaccines have been developed, including a vaccine for meningitis by PATH, a U.S. based NGO that helped tranfer technology to Indian phamaceutical firm

23. International Consortium Merck, FAO, WHO, UNDP, World Bank Africa

Eradication of river blindness Africa and some Latin American countries

Humanitarian concern; multi-year partnership involving public and private sectors, multilateral organizations, and local communities.

Excellent example of public good which required interational coop-eration of multiple partners over more than 15 years

(continued)





AGENT: WHO?; WHERE WAS IT STARTED? WHAT?; WHERE IS IT NOW? WHY?; HOW? LESSONS/SPECIAL INTERESTGovernment Innovations24. Poverty reduction program Progresa

MexicoConditional cash transfer program Mexico and subsequently adopted in other countries

Government objective of fighting poverty; cash transfer linked to educational attendance, nutrition and health of children

Innovative social program linking current poverty alleviation goals with investments in the future of children

25. ID card for delivery of government services Indian government unique identification card India

Program to give unique ID card to 1.2 billion Indians; po-tential for replication in other countries India

Use of advanced information technology including biometrics to provide unique identification of individuals

Potential to reduce costs of deliver-ing benefits to poor population and increase transparency.

Sources: This table draws on the case studies in Annex 2, as well as other sources of information including Govindarajan and Trimble (2009), Immelt et al (2010), Jenkins and Ishikawa (2010), Kumar and Puranam (2011), Prahalad and Mashelkar (2010), Utz (2010), and World Bank Vietnam Inclusive Innovation Project (2011).

(continued)


Annexes 39

ANNEX II

D-REV: STRATEGIC PARTNERSHIPS FOR THE BOTTOM OF THE PYRAMIDD-Rev, founded in 2007 by Paul Polak, is a U.S.-based, non-profit technology organization that aims to improve the health and incomes of people who live on less than four U.S. dollars a day. The organization has worked on several products, including low-cost phototherapy equipment to treat infant jaundice, and projects, such as developing a low-cost prosthetic knee for amputees in developing countries. Its model provides several lessons for organizations that strive to bring services to the bottom of the pyramid. By focusing on design that meets low-income needs and then partnering with the private sector for delivery, D-Rev has helped reach the more than four billion people who lack access to basic goods and services.

Business Design and ImplementationD-Rev is a non-profit technology incubator whose purpose is to improve the health and incomes of people who live on less than four U.S. dollars a day. The organization designs and delivers products to people in developing countries, including low-cost phototherapy for newborns and an affordable prosthetic knee for low-income amputees.

D-Rev began its operations after receiving unrestricted money from family foundations. It started with US$300,000 from family foundations including the San Francisco-based Mulago Foundation, which funds charities and philanthropies with high impact.

To leverage its funds effectively, the organization created a standardized procedure to develop products and bring them to market. First, using grants, it identifies opportunities to increase incomes or improve health. Next, it designs products to meet those customer needs. Then, by partnering with the private sector, it delivers the products to users by integrating them into the market, scaling up production, and measuring impact.

The organization has several partners, including BMVSS,17 the makers of the Jaipur foot prosthesis for

low-income citizens of India, the Bill and Melinda Gates Foundation, the Kellogg School of Management, and the Mulago Foundation. It has worked in Bangladesh, Botswana, Ecuador, Haiti, India, Iraq, Kenya, Nepal, Nigeria, Sri Lanka, Tanzania, and Uganda.

This process and these partnerships have generated products that address a variety of needs. These include the treatment of jaundice and the provision of artificial limbs.

JaundiceThe organization’s work with jaundice exemplifies its process of designing and delivering products by working with partners. The process was initiated when a D-Rev employee attending a medical conference was approached by someone wishing to address the problem of jaundice in developing countries, where it is the top reason for newborns to be admitted to hospitals.

• The opportunity: About 60 percent of newborns have some degree of jaundice. Without treatment, a severe case can cause brain damage or death, and most can be easily cured of jaundice with phototherapy-that is, by exposing them to blue light for a few days. Medical facilities in many developing countries lack sufficient phototherapy equipment or are unable to carry out required maintenance, such as replacement of bulbs. This is a particular problem given the time-sensitive nature of jaundice treatment.

• The product: After extensive conversations with medical providers, D-Rev developed Brilliance LEDs, which last sixteen to twenty-five times longer than normal light bulbs used in phototherapy and thus need to be replaced far less frequently.

• The partnership: The organization partnered with the Mulago Foundation, the National Collegiate Inventors and Innovators Alliance, and the Stanford School of medicine to fund and develop the product.

17 BMVSS stands for Bhagwan Mahaveer Viklang Sahayata Samiti, or limb- fitting organization,·Jaipur, India.



In 2010, D-Rev licensed Brilliance to Phoenix Medical Systems Ltd., based in Chennai, India, which is the largest manufacturer and distributor of neonatal care equipment in the country. Phoenix is licensed to manufacture and sell Brilliance throughout India and in other parts of the world. The two companies agreed to cap the price of Brilliance at US$400. Comparable devices cost US$3,500 to US$10,000.

The licensing agreement specifies that D-Rev receive fees and royalties for its technology. Royalties are lower if Phoenix sells the product to public hospitals instead of private hospitals, which gives the organization incentives to sell to entities that will have a higher impact on low-income individuals. In exchange, Phoenix has exclusive rights to manufacture and distribute Brilliance in India-where it also manages the product’s marketing- and non-exclusive rights outside of the country, in markets including Bangladesh and Pakistan. As of 2010, D Rev projected their partnership would impact two million newborns in five years.

Finally, the inability of many low-income citizens to reach urban hospitals has prompted D-Rev to develop a product intended for rural clinics. Comet will be more compact and suitable for environments with scarce electricity, such as rural settings.

Artificial LimbsSimilar to its production of Brilliance, D-Rev helped design the Jaipur Knee in collaboration with BMVSS, an Indian non-profit firm that develops low-cost prostheses for low-income individuals, and Stanford University.

• The opportunity: More than 80 percent of the world’s amputees cannot afford prosthetic limbs. BMVSS has developed low-cost prostheses and a distribution system in India to address this problem. While capable of producing on its own a low-cost foot-the popular Jaipur Foot—the firm needed assistance to develop a low-cost knee, which needs greater rotational abilities to be functional for the rural people who comprise the majority of low-income citizens in developing countries.

• The product: BMVSS approached Stanford University, which in turn enlisted D-Rev, for help with design and distribution. Together the team created a low-cost knee that uses an oil-filled nylon polymer to self-lubricate, giving it a wider rotation and keeping the production cost low.

• The partnership: D-Rev is looking to form partnerships with prosthesis providers in clinics worldwide with established distribution channels. Through the partnerships, clinics can get access to the knee’s design while still specializing in fitting patients. As BMVSS pilots the knee, D-Rev is preparing to go into mass production. In 2011, it partnered with Fundación Prótesis para la Vida, an organization based in Ecuador, to pilot the program there.

In addition to producing the prosthetic limbs, D-Rev is engaged in an initiative funded by the Bill and Melinda Gates Foundation called Access for Agriculture, which compares and contrasts the ability of existing communications technologies to provide information about products to farmers in isolated rural areas. The goal is to find market or social mechanisms that will promote market penetration and use of the devices. In tests conducted in Uganda and India, D-Rev has observed that farmers are most excited about applications based on smartphones, but the majority preferred only audio information in the many areas where radios are prevalent.

ResultsWith each of the aforementioned products, D-Rev generates a profit margin and aims for its product development operations to be financially self-sustaining. It anticipates that its products will pay for impact assessment and eventually also fund research and development.

According to the organization’s annual report, more than half of its 2012 budget of over US$880,000 came from foundations, and another 38 percent came from individuals. D-Rev spends more than 70 percent on program services, 14 percent on general and administrative tasks, and the balance on fundraising.


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To make a profit and become self-sustaining, D-Rev had to figure out a way to deliver its products to the masses. Like many organizations, it originally had difficulty getting products from the prototype stage into people’s hands. While able to use grants to design products that fit the needs of developing countries, it did not have the scope to distribute them widely. By partnering with the private sector for distribution, however, D-Rev has been able to license the technology to companies that already have manufacturing and sales and distribution channels-as well as the respect of governments and citizens- in target countries. According to CEO Donaldson, the organization’s standard due diligence practices in terms of capacity to meet product demand also help it select partners.

Lessons LearnedD-Rev provides several insights into the development and delivery of products in low-income countries.

First, by partnering with private companies to manufacture and distribute products, the organization has bridged the gap between prototype and commercialization that seems to stymie many similar organizations. Partnerships with private companies allow D-Rev’s products to enter already established sales and distribution channels. These companies likely also have relationships with the target countries’ governments and citizens, ensuring their marketing is culturally appropriate.

Additionally, by licensing the product to the private sector, D-Rev is able to gain a small profit margin.

Although the organization is a non-profit, profit margins help it sustain its product development, making it less dependent on grants. This gives D-Rev more flexibility in terms of the products it chooses to develop and frees up some expenditures that would normally be devoted to seeking out those grants.

Within its partnership structure, D-Rev has further created financial incentives to encourage practices that will improve delivery products to low-income

citizens. For example, the lower royalty Phoenix has to pay D-Rev if it sells the product to public instead of private hospitals makes it more likely to help the target population of low-income individuals.

Similarly, in another tactic to reach low-income individuals, D-Rev has segmented products when necessary. It has two phototherapy products, for instance-Brilliance, targeted toward urban hospitals, and Comet, a more portable version targeted toward rural clinics. Acknowledging that one solution would not fit the needs of both environments and proceeding to create two products enabled D-Rev to affect a larger proportion of low-income people.

Finally, D-Rev has shown that strengthening government capacity-in terms of enforcing the tender process and increasing transparency-is necessary to foster the necessary investment in its products, which may be discouraged if tendering procedures are not followed or the process is not transparent.

KICKSTART: AN INCLUSIVE INNOVATION BUSINESS MODEL FOR RURAL FARMERS Focused on boosting incomes of rural farmers in Africa, KickStart International develops, manufactures and sells irrigation pumps and other agriculture tools. By identifying a specific set of criteria to guide product development, charging for products, and using creative marketing techniques, the company has been able to sell more than 200,000 water pumps, helping farmers irrigate their land and move beyond subsistence farming to small-scale commercial agriculture.

IntroductionKickStart was founded after Martin Fisher, an engineer, and Nick Moon, a carpenter, met in 1985 while working on development programs in Kenya, which focused on building projects such as schoolhouses and dams. However, when visiting the development projects months or years later, they found these projects had deteriorated. They tried to identify the reasons why they were not sustainable.



First, they noted that communities did not have the resources to repair or replace a broken machine. They also noticed that people have a lot of time and labor to devote to income-generating endeavors. However, the devices they were building through the program were focused on saving time and labor, which did not necessarily help the citizens make money. Finally, they noted that giving away products for free was not a sustainable model.

Business Design and ImplementationFor these reasons, in 1991, Fisher and Moon founded ApproTec, which later became KickStart. They founded the company with some particular views.

First, they decided they wanted to work with the abilities and resources of the poor-particularly the entrepreneurial spirit they use to survive. They also wanted to focus on rural poverty, as more than 80 percent of the poor in Africa are small farmers. They also knew that they did not want to give products away for free. As they saw in their previous projects, people value goods and services they have to pay for more than those they obtain for free. And because the products Fisher and Moon planned to make were large purchases for poor citizens, people would not buy them without the intent to put them to full and productive use.

A non-profit based in Nairobi, Kenya, KickStart today develops and sells pressurized pumps and other agricultural products to famers in Africa. The pumps, the company’s best-selling products, help irrigate land, which increases farmers’ food production, transforms them from subsistence farming into small enterprises and consequently help pull them out of poverty.

KickStart develops its product range using the following criteria. First, the company only sells products that generate income and for which the customer will be able to recoup his costs in at most six months. The organization labels this the “farm time” theory: Just as it would be unacceptable for a farmer to plant crops and wait two years to see any returns, they equally

would expect to see a return on investment from a large capital purchase quickly.

Other criteria include affordability, energy-efficiency, ease of installation, able to be mass-produced, durable and small enough to be transported by foot, bike or bus. Finally, the products must also be culturally acceptable in their target markets.

Fisher and Moon initially focused on food processing technologies, such as creating cooking oil. They funded initial development through donors and private savings.

However, by talking with farmers on the ground, the two realized how much poor farmers depend on the rain for their livelihood. Therefore, tools that could relieve that dependency on rain could give farmers more control and lead to more stable incomes and potentially to higher production. Irrigation could help accomplish this by allowing them to produce year round and move into cash crops, leaving subsistence farming. Thus, the company began to focus on agriculture products. However, this required developing manufacturing capacity, as well as a distribution network that farmers in developing countries had access to—and trusted.

ProductsWith those criteria in mind, the company has built four products: the Super MoneyMaker, the MoneyMaker Hip Pump, the Stabilized Soil Block Press and the Cooking Oil Press.

1. In 1998, the organization launched the Super MoneyMaker, a two-cylinder, foot-operated pump that allows farmers to take water from river or wells and irrigate up to two acres of land. It drew water from up to 7 meters underground. It weighs 21 kilograms and sells for between US$35 and US$95. In 2012, Kickstart launched its updated pump—the MoneyMaker-which weighs 16 kilograms and can push water up 16 meters.

2. By using a hand pump instead of the original pump, the company created the MoneyMaker Hip


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Pump in 2006, allowing people to use their legs and body weight, as opposed to just their backs and shoulders, to pump water. The pump weights 4.5 kilograms, making it lighter and more portable than the Super MoneyMaker. It also can draw water from 7 meters below the ground, and can irrigate an acre. It costs US$70. Both MoneyMaker pumps allow farmers to grow and sell crops year round and permit more diversity of crops, leading farmers past subsistence farming into their own small enterprises. Such increased production and greater diversity creates more jobs and boosts their regions’ economy.

3. The Stabilized Soil Block Press allows four workers to produce up to 500 building blocks every day, allowing the sale of these blocks for construction. For every bag of cement, the workers can make 100 blocks.

4. The Cooking Oil Press, developed in 1993, manually extracts oil from several seeds, such as sesame and sunflower, helping its owner create and sell cooking oil.

The organization sells the products rather than providing them for free. People are more likely to maximize the use of products if they have paid for it, particularly if the cost represents a large investment for them.

Manufacturing and DistributionThe company began developing the MoneyMaker pump in the 1990s. Most research and development is done in Nairobi at the Technology Development Center, which houses project managers, engineers and designers, who design and develop the company’s products.

After identifying and developing the product, KickStart focuses on building a supply chain. The organization contracts factories to build the products, and then KickStart buys the manufactured products back from the factory, minimizing production costs for the organization. KickStart then sells the products via wholesalers, distributors and retail shops—all local business people and already know the local customers. Kickstart began selling the pumps in 1998, establishing sales in Kenya.

After having the products in retail shops and other venues, Kickstart moves to marketing. Because these products represent a large purchase for farmers, many of whom live on a very thin income, it is imperative to gain their trust that the product will help them and will work. The organization employs a variety of marketing methods. Audio campaigns have proved most successful, as has dispatching sales teams to talk to villagers about and demonstrate the products. It performs demos at farms and organizes competitions to generate excitement.

When a sale is made, each customer fills out a one-year guarantee form. The company then uses this data to perform follow-up monitoring and evaluation, to see what kind of an impact the product has had on the farmer’s family. The company selects a sample of purchasers, and they are visited within a month of purchase, eighteen months and then three years to measure the impact of the pump.

The company has patented its designs and enforced its intellectual property rights when needed. According to the company, these enforcements are not meant to stifle competition, but to keep lesser quality copies of its pumps from hurting their reputation and brand.

ResultsIn 2012, Kickstart had US$14.1 million in operating income. It received US$2.3 million in product sales and earned income, with the balance coming from donations from foundations, individuals and corporations.

The organization is focused on measuring results:

1. Number of products sold. As of the end of 2012, the company had sold 206,158 pumps, its main product line.

2. Number of people out of poverty. With those pumps sold, the company has created 134,000 microenterprises and helped move 670,000 people out of poverty. The organization defines a family as out of poverty if it has enough money to pay for its



where it could get cheaper materials, reducing the cost to manufacture the pumps. Manufacturing in China has allowed for more modem techniques as well, such as the use of injection molding and laser-welding technologies, and a more affordable product for its customers.

• Supply-chain technology. The supply chain management software to monitor account information and remotely manage supply chains helps lower costs. The transparency helps the company identify potential places to reduce costs, and the automation also frees time for KickStart managers to focus on other initiatives.

• Marketing techniques. At first, the company had to earn its customers’ trust. The products represented large purchases for poor, rural farmers, and they were hesitant to spend a large part of their income on products they never heard of. To combat this, the company coined its irrigation pump the “MoneyMaker” to convey to customers that the products would help them generate more income. They also give a one-year guarantee for products, helping win customers trust. Kickstart also uses tailored marketing for specific markets, such as music videos about the MoneyMaker pump in Swahili in Kenya or comic strips depicting farmers using the pump and benefitting.

Lessons LearnedSeveral lessons from KickStart’s model have implications for future inclusive innovation.

• Selling goods, not giving goods away. The company chose to charge for its products, as opposed to give them away for free to make their model sustainable.

• Customer focused. The organization, still operating as a non-profit, reinvests revenue into research and development of new products, which are largely drawn from what customers in the field need. After the cooking oil press was not a huge hit, the company talked with farmers with what they would really need. The answer—irrigation—ended up being the company’s bestseller.

basic needs such as food and clothing, can afford to send all of its children to school and has some money left over to invest in the future.

As one of their main concerns with traditional development programs was their lack of impact, Fisher and Moon wanted to ensure people were actually using the products and that the products were leading to their the intended benefit-income generation. However, it can be hard to track down customers after they purchased the products. Thus, the organization began using its guarantee forms to gather people’s information at the point of sale. Every 15th of the month, the company picks a random, statistically significant sample of people to interview. They visit the family and get a baseline measurement of family income, health and education. They then revisit the customer after 18 months and after 36 months. A two-person team of a man and a woman visit the customers, helping make sure the visits are culturally acceptable.

The company has posted increasingly successful results for a variety of reasons.

• Geographic expansion. In 2000, the company expanded into Tanzania, and four years later, it entered the market in Mali. While the markets are different, the programs have grown in each, proving the model replicable. The company has more than 200 sales representatives in major towns, transit points and trading centers spread across the three countries, and resellers have helped distribute the product to other countries, such as Uganda and Malawi.

• KickStart continues to expand its irrigation product line. Its sales and evaluation teams, who are in the field, routinely talk with the development team about what products or tools would best benefit farmers and other rural citizens.

• Shifting manufacturing. Six years ago, as steel costs began to rise, it became increasingly expensive to manufacture the pumps cheaply in Africa. The company also faced problems with quality control with local production. To control for cost and quality, the company started moving production to China,


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• Marketing. KickStart found creative ways to tailor its marketing for the specific culture, such as using a Masai rap artist make a music video in Swahili for marketing to Kenyans.

• Outsourcing manufacturing. To lower costs, KickStart outsources manufacturing avoiding the overhead costs of maintaining manufacturing facilities. When costs became too expensive in Africa, the company shifted manufacturing to China, allowing them to keep the price of its products accessible. The company has maintained many of its high-value research, marketing and management activities and jobs within its key African markets.

PATH: STRATEGIC PARTNERSHIPS AND PROCEDURES FOR HEALTHCARE INNOVATIONThe Program for Appropriate Technology in Health (PATH) is a Seattle-based, non-profit organization that supports the development and distribution of innovative, low-cost health solutions to people in developing countries. Having started with a US$92,000 grant from the Ford Foundation in the 1970s, PATH now operates in more than 70 countries. The organization has developed a unique, systematic approach to achieving its goals and employs strict measurement to maximize its outcomes. In 2011, PATH trained more than 91,000 people, and its projects benefited more than 74.5 million. Adherence to its goals has allowed PATH to keep administrative costs low and direct more than 85 percent of its expenditures to program services.

IntroductionThe Program for Appropriate Technology in Health (PATH) began with the efforts of three contraceptive health researchers from the United States. Gordon Duncan was a reproductive health expert, Rich Mahoney worked in contraceptive development, and Gordon Perkin was a physician working with human reproduction programs in Latin America. According to the organization, while working on a feasibility

study commissioned by the United Nations Population Fund to determine how to improve contraception in the developing world, the three researchers found that most of the many companies in developed countries that were researching and advancing contraceptive technologies were not bringing them to developing countries, so they decided to create their own organization to do so. Formed in the 1970s as the Program for the Introduction and Adaptation of Contraceptive Technologies, the organization aimed to ensure access to condoms, birth control pills, and other forms of pregnancy prevention to people around the world, received support from the Batelle Institute’s Population Center, where Duncan was an associate director, to set up facilities. The Ford Foundation, where Perkin and Mahoney worked, donated a US$92,000 grant. PATH was one of the first to link contraceptive users, makers and developers, according to the organization.

In 1979, the organization began its first international project, helping China modernize contraceptive factories as the country’s population grew. It also opened offices in the Philippines, Indonesia, and Thailand and started expanding its efforts to health care technologies other than contraception. Accordingly, the founders changed the name of the organization to the Program for Appropriate Technology in Health, or PATH.

Business Model and StrategyPATH began striking partnerships with the private sector to leverage its grants and donations into creating health solutions that would reach the most people. According to the organization, PATH has three types of partnerships.

• PATH transfers intellectual property that it had developed to a private sector company.

• PATH contributes resources-such as funding or assistance with clinical studies-to support the development of a company’s product.

• PATH supports field trials or advocacy programs that demonstrate the value of a product.



For each partnership, PATH and the partnering company have to agree on how to continue the supply of products, make the products affordable, and manage the products’ intellectual property (PATH 2009). To keep its costs lean and consistently deliver results, PATH developed a systematic approach to partnerships that focuses on needs assessment, partner identification, pilot programs, advocacy, and capacity building. The approach follows a number of steps (PATH 2007):

• PATH decides what products to develop based on needs assessment in different countries. If a product already exists on the market, the organization helps bring it to other countries. If the product does not exist, the organization works to develop it, testing prototypes for functionality and ease of use.

• Meanwhile, PATH identifies partners-including nongovernmental organizations (NGOs), governments, or private companies-that could benefit from the project and help PATH achieve its goal. PATH works to demonstrate the potential market for the product, often bringing the private sector’s leverage when the private sector would not normally be involved.

• PATH next introduces the product on a small scale to the target countries. Working with its partners and governments to identify “early adopters,’’ the organization monitors the entire system in which the product exists.

According to its 2012 Annual Report, PATH received 34.6 percent of its revenue from the U.S. government, 49.5 percent from foundations, and the balance from other NGOs, individual donors, or private companies. Because the foundations and other institutions from which most of the organization’s funding comes are often restricted as to where the money can be spent, in 2005 PATH started the Catalyst Fund, which receives donations from individuals.

PATH now employs more than 1,000 workers, with offices in more than 20 countries, including the Democratic Republic of Congo, Ethiopia, and Vietnam.

In sum, through its funding structure and systematic approach to projects, PATH has been able to leverage

its US$92,000 into a sustainable organization that works on a variety of public health issues. Some of these are described below.

SyringesOne of PATH’s activities is to supply an agreed-upon volume of medical services-or ensure the volume is sufficient-to meet demand in certain markets. In one case, the organization wanted to make syringes more accessible to developing countries, where reaching a medical facility for necessary injections is often difficult.

Merck had developed a syringe that could more easily be used in nonmedical settings but had opted to not produce the product With funding from the U.S. Agency for International Development (USAID), PATH bought the intellectual property from Merck and partnered with Becton, Dickinson and Company (BD), a supplier of medical devices. PATH licensed the intellectual property—labeled the Uniject-to BD (PATH 2009).

In exchange, BD supplied Uniject at a low cost to vaccine and pharmaceutical manufacturers in developing countries. The company also agreed to increase its manufacturing and distribution capacity to meet public demand and not to provide any producer with exclusive distribution rights without consulting PATH. It invested US$25 million to build a manufacturing facility in Singapore and US$10 million to launch the product. While BD did not have to pay royalties on the license, the contract also required it to give 500,000 free Unijects each year to PATH, which uses them for public health programs (PATH 2009).

Fortified NutrientsSimilarly, to make staples more nutritious to a wide group of beneficiaries, PATH struck a partnership with a private company to fortify food with nutrients. In the 1990s, Bon Dente International, a U.S.-based food company, invented Ultra-Rice, a process of growing grains with more micronutrients, such as iron, Vitamin A, and zinc, and then blending them with local rice, manufacturers to develop and distribute the product in developing countries. For example, the


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organization works with Swagat Food Products, which produces food for India and Nepal. As part of the food fortification projects in individual countries, PATH sets up pilot programs and identifies buyers for the rice (PATH 2009).

Newborn HealthIn 2005, PATH received a US$24.3 million, five-year grant from the Bill and Melinda Gates Foundation (BMGF) to improve the health of newborns. BMGF, a Seattle-based foundation that works with national and international partners to advance global health and education, donated more than US$80 million to PATH and Save the Children, another non-profit organization, for this purpose.

PATH used its share of the grant to launch the “Sure Start” initiative, which supports almost 20 maternal health projects in Uttar Pradesh and Maharashtra, India, through funding and technical expertise. According to PATH, the initiative supports training of community health workers’ to assist in childbirth and the first few weeks of a child’s life. This helps make childbirth safer and improves the safety of newborns at home. Other projects include developing community savings programs to cover emergency care.

Malaria Vaccine InitiativePATH also used a grant from BMGF to create its Malaria Vaccine Initiative (MVI). Developed in the late 1990s, MVI is meant to accelerate development of malaria vaccines and make them more available to the developing world. According to the Malaria Vaccine Initiative, projects include the following:

• Establishing private sector partnerships for the production of vaccines.

• Enforcing intellectual property to ensure a lack of enforcement does not hinder vaccine development.

• Financing malaria vaccines.

• Working with communities to ensure malaria vaccines reach those who need them. This includes two innovations:

• Development of a Malaria Vaccine Advocacy Fellowship. MVI selects fellows in African countries who work at the intersection of science and policy. Their roles include communicating advances and challenges related to malaria vaccine development to the public, engaging local media about malaria vaccines, and advocating for increased funding for vaccine research and development. The fellowship is funded by the ExxonMobil Foundation.

• Development of a Malaria Vaccine Decision-Making Framework to promote government preparation for a new vaccine at the national level. MVI, with the World Health Organization, has worked with governments to map data about vaccine uses, which has helped to gather information on such subjects as the burden of malaria, the potential impact of a vaccine, and financing options.

ResultsPATH is able to leverage foundations’ grants by keeping administrative costs low. In 2012, the organization had more than US$312 million in revenue, according to its annual report. Nearly half of its funds came from foundations, while just more than 30 percent came from the U.S. government, and 11.7 percent came from other governments, NGOs, and multilateral organizations; the balance came from individuals and corporations.

More than 85 percent of PATH’s expenditures are on program services, with close to 40 percent emerging and epidemic diseases, 28.8 percent spent on vaccines and more than 10 percent each on maternal health and health technologies. It spends approximately 13 percent on management and administrative costs and less than 1 percent each on bid proposals and fundraising, according to the organization.

To put funds to their best advantage, the organization identifies aggregate indicators that measure its performance. Some of these indicators include the following:



• Number of new or expanded regions where PATH works;

• Number of health workers trained;

• Number of beneficiaries served;

• Number of projects funded with the potential of reaching 10 million or more beneficiaries in five years; and

• Number and type of interventions piloted in developing countries with PATH support.

In 2011, the organization had close to 200 technologies and products in development, according to PATH. It was engaged in activities in 68 developing countries and had trained more than 91,000 people and benefited more than 74.5 million people through its projects, according to the organization.

Lessons LearnedPATH provides excellent lessons in creating a sustainable business model to develop innovation. These lessons are summarized as follows:

• Dependent on grants and donations, PATH strategically utilizes partnerships with the private sector, governments, and local NGOs to deliver results at a low cost. The diversity of actors allows PATH to leverage resources, achieve a wide outreach, and focus on ambitious projects that can have a very large impact. For example, PATH has been able to use the private sector to manufacture or distribute products by demonstrating the potential demand for them. Similarly, partnerships formed with governments help ensure the policy environment will be conducive to the broad adoption of products, helping the chances of a project’s success.

• Because continued funding depends on the success of its projects, PATH developed operating procedures for bringing products to market that include how to assess needs, create prototypes, and use partnerships strategically. Such standardized procedures have helped the organization consistently deliver positive project results and continually gain more funding.

• Utilizing a special fund gives the organization more flexibility in using donations.

• PATH’s clear measurement of results helps it understand impact and use resources more effectively.

• The organization leverages intellectual property to have a positive impact. For instance, after it purchased the intellectual property rights behind syringes, it licensed them to BD, on condition that BD supplies the syringes at a low cost to vaccine and pharmaceutical manufacturers in developing countries. The company also agreed to increase its manufacturing and distribution capacity to meet public demand.

BMVSS: MAKING LOW-COST PROSTHETICS A REALITY IN INDIAIndia has more than 10 million citizens suffering from limb disabilities or amputation, many of whom are rural and low income, without physical or financial access to prostheses. In response, an Indian government-university partnership developed a prosthetic knee that is cheaper to produce and lighter to wear. The new design, combined with a business model focused on accessing rural citizens and maximizing production efficiency, allowed the organization to scale manufacturing and distribution. Today the company, Bhagwan Mahaveer Viklang Sahayata Samiti (BMVSS), produces and distributes the highest number of artificial limbs in the world. The organization provides several lessons for providing services to low-income, rural citizens in developing countries. These include developing a business model to keep administrative costs-and thus service prices-low, providing mobile camps to provide access to patients who are financially or physically unable to travel to cities, and investing in consumer education so that patients use their prostheses correctly.

IntroductionDevendra Raj Mehta, a native of Rajasthan, India, attended the Sloan School of Management at the Massachusetts Institute of Technology. After


Annexes 49

graduation, he returned to India and joined the Indian Administrative Service in 1961. He held various public service positions throughout the following years, including chairman of the Securities and Exchange Board of India, which regulates India’s capital markets (World Bank Institute 2011).

In 1969, Mehta was in a car accident, crushing his leg. His doctors were able to save his leg; however, they had stories of the many poor patients, who, when in similar accidents, were unable to pay for similar procedures or for prosthesis, if necessary. India has a large population with lower-limb amputees, and, with 80 percent of them living in rural areas, many of them are unable to afford expensive procedures.

Meanwhile, Dr. P.K. Sethi, an orthopedic surgeon, had begun developing a low-weight, low-cost prostheses for citizens in India. Originally, limbs were made of laminated wood and rubber, with sockets also made of wood. Such design made the limbs heavy, and many bodies rejected them. Furthermore, they were expensive to create, attach and maintain, leaving few options for poorer citizens.

Sethi created a limb that used different types of rubber, along with wood, which helped make the foot lighter. The socket was made with aluminum, making it even lighter. However, lacking any funding or method for mass distribution, fewer than 100 limbs were distributed per year.

In 1975, following his accident and his new interest in helping India’s rural citizens have cheaper access to artificial limbs, Mehta set up BMVSS, to further design and then deliver the innovation. According to the organization, it received US$10,000 from various private foundations and companies, as well as the government, to distribute Jaipur limbs free of charge.

Business Design and ImplementationToday, BMVSS has grown into the world’s largest provider of prostheses. It remains a non-governmental

organization that specializes in providing prostheses for free to low-income citizens in India. The organization makes various products, including below-knee prosthesis and above-knee prosthesis, calipers and modified footwear for people with polio and other disabled persons, as well as hearing aids and special shoes for people suffering from leprosy. The organization also provides tricycles, wheelchairs and crutches.

The organization has two main products-the below-knee and above-knee prostheses. Each has been through several iterations to make them lower cost and lighter to wear (World Bank Institute 2011).

The Jaipur Foot, or the below-knee prosthesis, costs US$45, while an equivalent prosthesis in the US costs US$12,000. An average Jaipur Foot lasts about three years, eliminating the need to go somewhere for a replacement annually. It can be created in about three hours. It is also lightweight, and can weigh between 1.3 kilograms (kg) to 1.5 kg. The devices also feature a total contact socket, which provides better sensory feedback to the wearer and helps prevent edema at the lower end of the limb. The foot is waterproof, meaning villagers can walk in wet and muddy fields, and may be worn with or without shoes.

The Jaipur Knee, or the above-knee prosthesis, costs about US$20, while a comparable device in the U.S. can cost about US$10,000. It is made of a self- lubricating material with two clips in the knee joint to control friction, which helps prevent tearing and provides smooth movement while walking. Comparable replacements are made of titanium, which makes it both more expensive and heavier. The limb weighs 2.25 kg, one of the lightest available in India, and it takes about 6 hours to create.

BMVSS provides the limbs free or at minimal costs to its customers, depending on the level of need. Given that the organization aims to provide prosthesis at low cost, it has focused on constraining manufacturing and personnel expenses. For example, it sources materials for



the prostheses locally, lowering costs. The organization started its own training centers to train employees at low-cost given the shortage of workers with expertise in molding and fitting the prostheses (Macke 2003).

To reach its target consumers (low-income citizens) on a mass scale, the organization created a business model based on a hospital center and mobile camps for the surrounding area.

Hospital

• At its hospital center, BMVSS provides housing and food to patients and their families free of charge, which helps lower patients’ and their families’ travel costs. The organization also holds workshops and trainings to educate users on how to use and maintain its products.

• The organization typically has 70 technicians on hand at its center, allowing for one-on-one patient care. There is one supervisory technician and one full-time doctor. Other local doctors help out on a volunteer basis, also reducing costs.

• At the centers, the organization, through one-on-one employee-to-patient ratios, admits, treats and releases patients in 24 hours. While other organizations require several visits, BMVSS policy of treating patients within a day helps keep costs down (Macke 2003).

Mobile camps

• The organization now has about 50 mobile camps, which receive and house patients that do not live within access to a center.

• Patients at the camps are fed and clothed, and their limbs are fitted and readied on the spot.

• Camps are funded by local charity organizations or government entities. The host organization also funds educational workshops and trainings for amputees, helping them maintain their new prosthesis.

• The organizations sponsoring the camp pay for artisans and doctors to travel with the camp.

Employees travel with the necessary materials and equipment for fitting the foot, including the vacuum-forming machine. If the camp runs out of materials, the organization sources it locally (Macke 2003).

ResultsWith the new organizational and manufacturing structure, the group fit more than 10,500 limbs from 1975 to 1982. By March 2009, the organization’s total beneficiaries topped 10.9 million people.

In 2011, BMVSS had a budget of US$3.5 million, with 60 percent coming from donations, 30 percent from government funding. With lean administrative costs and other organizations sponsoring camps, BMVSS is able to devote more than 70 percent to purchasing materials and paying labor to treat amputees (World Bank Institute 2011).

To expand operations, BMVSS has helped organize centers in various other countries, including Afghanistan, Bangladesh, Dominican Republic, Honduras, Nepal, Pakistan, Somalia and Sudan. Camps have been held in other developing countries, such as parts of Asia, Africa and Latin America. Before opening a new location, the organization examines the number of amputees nearby who could benefit from prosthesis. Employees and technicians are assigned based on expected patient need.

In addition to increasing access for patients and lowering materials, personnel and equipment costs, several aspects have helped the organization achieve its success.

Technology partnerships. BMVSS emphasizes scientific and technical research through partnerships to further develop and upgrade its products. For example, sockets with aluminum have now been replaced with high quality polymers. The change helped lower manufacturing costs by 25 percent and increased manufacturing productivity from one limb per hour to eight limbs per hour. Other examples:


Annexes 51

• Mehta organized an agreement between Stanford University and BMVSS, leading to an upgrade of the Jaipur Knee, which used oil-filled nylon polymer to make it more flexible. In 2009, Time Magazine called it one of the 50 Best Inventions of the World (World Bank Institute 2011).

• BMVSS is working with the Indian Space Research Organization to use polyurethane technology to reduce the cost of creating the Jaipur foot. This also addressed the obstacle of weight-bringing the foot down from 850 grams to 350 grams (Macke 2003).

Other partnerships. BMVSS has partnered with or received funding from various Fortune 500 companies, such as Dow Chemical, and other local companies, such as Pinnacle Industries and Liberty Shoes Company. For example, Dow India, part of Dow Chemical, began partnering with BMVSS in 2005. Between the start of the partnership and 2009, it donated US$750,000, technical expertise and a fleet of mobile camps that come equipped with medical equipment for doctors to create and fit limbs on the spot. Furthermore, Dow has encouraged its employees to volunteer with the organization as camp facilitators (Dow 2009).

Lessons LearnedBy using training to lower operational and administrative costs and developing a camp system to help access rural citizens, BMVSS helped overcome several obstacles and provides several policy lessons.

• Strategic partnerships for funding and technology development. Strategic partnerships have allowed BMVSS to raise funding from government, private donors, and local organizations. Similarly, it partners with universities such as Stanford and other organizations such as D-Rev to perform research and development activities in order to continue improving the quality of its products and further reduce production costs. Finally, BMVSS camps, integral to its strategy, are funded by local organizations.

• Personnel development. By creating its own training center, BMVSS helped supply its own labor and keep costs down. To get patients in and out of

its center in one day, the organization needed many technicians to fit their prostheses, a labor intensive process. However, there were not many workers with this training. Thus, the organization opened training centers for its own workers.

• Lean materials costs. The organization was able to drastically cut its materials cost-and thus the price of the limbs-by sourcing locally, building its own equipment, and engaging in relevant R&D with other organizations.

• Customer access. BMVSS had to create a way to distribute their products at a low cost on a large scale. Mobile camps helped reach customers who were financially or physically unable to travel, while still keeping low overhead costs.

• Consumer education. The organization educates consumers on their use, making limbs more durable.

AAKASH TABLET: BRINGING LOW-COST COMPUTERS TO STUDENTS IN INDIAIn 2010 the Indian Government announced the development of the Aakash tablet to provide low-cost computers to the nation’s growing college student population. At a cost of US$35, the tablet would be the world’s cheapest computer, helping India improve Internet connectivity at its thousands of colleges. Three years later, the endeavor provides several lessons in government procurement. Unclear procurement criteria led to quality, financial, and legal disputes among various actors, including universities, suppliers, and the government. While the government eventually did deliver the low-cost, subsidized tablets to students starting in November 2012, they came one year late, following several iterations of the product.

IntroductionIn 2010 the Indian Government’s Minister of Human Resources Development Kapil Sibal announced that the government would subsidize development of an Android-based tablet for college students. According to government projections, the tablets would cost US$35 initially, eventually dropping down to US$20



and then US$10 (BBC 2010). The plan was to launch the tablets in 2011, with 100,000 tablets available for students that year and with the government subsidizing half the cost. Devices would be distributed to students through their respective academic institutions (Raina and Timmons 2011).

While India has one of the fastest growing mobile and digital markets in the world, the increases largely stem from wealthier parts of the population. The move to create a low-cost computer is part of the government’s objective to expand Internet connectivity to all students at India’s 18,000 colleges and 400 universities (Ramesh 2009).

The proposal was heralded as a way for India’s citizens to leapfrog existing, more expensive technology and to bridge the technology gap between India’s burgeoning workforce and that of more developed countries. The endeavor followed the One Laptop per Child Initiative launched by the Massachusetts Institute of Technology, which sought to develop US$100 laptops for children in developing countries (Yang 2012).

Business Design and StrategySibal’s Human Resource Development Ministry assigned the Indian Institute of Technology (IIT) Rajasthan to procure the first 100,000 tablets at the US$35 price point and gave it US$9.2 million in Government funds to set up a bidding process and test the tablets (Raina 2012). IIT Rajasthan followed an open bid process in which it evaluated all bids for eligibility based on the desired specifications and then selected the lowest bidder among the bids deemed eligible.

In early 2011 the UK-based firm DataWind won the request for proposal to begin production, with a bid of about US$4.3 million, according to The New York Times (Raina and Timmons 2012). DataWind, originally founded in Canada and now based in London, develops wireless devices. Prior to winn ing the Aakash bid, the company was best known for producing the PocketSurfer, a personal data assistant. DataWind outsourced manufacturing of the tablet to Quad Electronics, which is based in Secunderabad, India.

By August 2011 DataWind had sent 1,000 tablets for testing to IIT Rajasthan. IIT Rajasthan, which had not set up an official lab or criteria for testing, surveyed the tablets and rejected them. DataWind proposed using a third-party tester, Bureau Veritas Quality International (BVQI), but the school said the tester was not qualified. DataWind sent a second and third batch of 1,000 tablets, both of which were rejected by IIT Rajasthan (Raina 2012).

Despite these disagreements, the Indian Government unveiled the manufactured tablet at the scheduled launch in October 2011. The devices were branded as “Aakash,” which means “sky.” According to the Indian Government, the tablet ran on the Android 2.2 operating system, had a 7-inch touch screen, 256 MB RAM, and a three-hour battery life. It also featured USB ports, as well as the ability to display HD-quality video. The government also announced there would be two versions of the tablet:

• Aakash computers would be subsidized by the government and distributed to students. The government would buy the 100,000 computers at their US$50 cost and subsidize them for students, selling them at US$35. The commercially available tablet would sell for US$60, according to Reuters (Daniel 2011).

• The Ubi Slate 7, the other device, was the same tablet but for commercial sale.

Continued testing of the Aakash tablets by students highlighted the need for several improvements, such as longer battery life and a faster processor. In November 2011, the government and DataWind agreed that the remaining tablets of its 100,000 order would have such upgrades. The government would receive this upgraded tablet, which would become known as Ubi Slate 7+, for the same price as the original Aakash. According to the agreement, DataWind had until March 2012 to make the upgrades, and IIT Rajasthan would send its specific testing criteria (Raina 2012).

The testing criteria, however, included measures such as ability to withstand four inches of rain, which DataWind contended would raise the cost of the


Annexes 53

device to thousands of dollars. The testing criteria were not set up to meet specifications originally defined by the government, according to DataWind CEO Suneet Sing Tuli Radler. IIT Rajasthan tested the criteria based on U.S. MILSPECS 810, which the U.S. military uses for its devices, Tuli said in an interview (DataWind 2010). In February, 2012 the government transferred the project from IIT Rajasthan to IIT Bombay.

ResultsThe project’s success is measured by whether it delivered on its promise to provide students a low-cost laptop. While the effort was eventually successful, it underwent substantial delays.

After the tablet was unveiled in October 2011, almost 300,000 people preordered the upgraded, commercial version of the tablet, Ubi Slate 7+, before it began online sales in December. Taking into account both versions, DataWind had more than 1 million preorders by January 2012 (Raina 2012). The project was not able to meet this demand for the following reasons:

• Orders for the tablets quickly outpaced inventory supply. DataWind had only 30,000 tablets in its inventory when online sales went live. At the time Quad Electronics, which had not manufactured a tablet before, was producing fewer than 700 tablets a day. In January 2012, DataWind committed to opening the new manufacturing facilities in India, raising its production capacity to 12,000 tablets per day (Raina 2012).

• Several financial and legal disputes compIicated the processfurther. Quad Electronics and IIT Rajasthan claimed DataWind owed them US$1.12 million and almost US$500 million, respectively. DataWind in return claimed that the school owed it US$100,000

from a bid deposit. DataWind ended its agreement with Quad in 2012, further increasing delays of the tablet delivery (Raina 2012).

The Indian Government maintained that production, though delayed, would continue, and that Aakash 2 would be unveiled to the rest of the students in November 2012. The Government and DataWind met that goal, rolling out Aakash 2 in November 2012. The device cost US$21 for students of engineering colleges, with the government subsidizing the other half of the cost.

Lessons LearnedThe case of the Aakash tablet provided several valuable lessons in public procurement of goods and services for inclusive innovation:

• Clear procurement evaluation criteria. Because of the unclear criteria in the initial public procurement, delivery expectations were not met. Furthermore, the Government chose a company that had never produced a tablet before, making timely and cost-efficient production difficult.

• Market creation. While procurement processes hampered the Indian Government from providing tablets to students at the price point it wanted, it did succeed in creating a market. Because DataWind proved it could make a tablet for under US$60, more tablet makers entered the market at this price point.

• Incorporating customer feedback. The Indian Government listened carefully to the feedback from citizens and endeavored to improve the design based on that feedback. Such public procurement of a consumer product, while it was delayed by several disputes, represents a first of its kind in India.


INCLUSIVE INNOVATIONHarnessing Creativity to Enhance the Economic Opportunities and Welfare of the Poor

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