innovation strategies for the bop - tu/ealexandria.tue.nl/extra2/afstversl/tm/kroft_2010.pdf ·...

BSc. Industrial Engineering & Management Science - TUe 2008Student identity number - 0589327

In partial fulfillment of the requirements for the degree of

Master of Science

Innovation Management

Supervisors Eindhoven University of Technology: prof. dr. E.J Nijssendr. ing. J.J Berends

Supervisors Philips N.V.: M. DiddenR.M. Metzke

Eindhoven, November 2010

Innovation Strategies for the BoPNew Venture Development at Philips

byT. J. van der Kroft

TUE. Department of Industrial Engineering and Innovation SciencesSeries Master Thesis Innovation Management

Subject headings: BoP, Bottom of the Pyramid, Emerging Markets, Innovation Strategy, New Venture Development, New Venture Performance, Key Success Factors

Eindhoven University of Technology

AuthorBSc. T.J. van der Kroft

Mentorprof. dr. E.J. Nijssen

Second Assessordr. ir. J.J. Berends

KeywordsBoP strategy research

DateNovember, 2010

Department of Industrial Engineering and Innovation Science

Group of Innovation, Technology Entrepreneurship and MarketingDen Dolech 2, 5612 AZ EindhovenP.O. Box 513, 5600 MB EindhovenThe Netherlandshttp://w3.ieis.tue.nl/en/groups/item/

Where innovation starts

Department of Industrial Engineering andInnovation Science

Group of Innovation, TechnologyEntrepreneurship and MarketingDen Dolech 2, 5612 AZ EindhovenP.O. Box 513, 5600 MB EindhovenThe Netherlandshttp://w3.ieis.tue.nl/en/groups/item/

AuthorBASc. M.P.M.W. Verheesen

Mentordr.ir. I.M.M.J. Reymen

Second assessordr. ir. J.J. Berends

Keywords(F/L)OSS research

DateJune 7, 2010

Version1.9

How to buy something that is free?

Developing grounded design principles from theory andpractice, for the inclusion of free/libre open sourcesoftware in an organization’s tactical procurement ofsoftware.

CopyrightCC!

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! $\! BY:! M.P.M.W. Verheesen

Where Innovation starts

Innovation Strategies for the BoP

New Venture Development at Philips


http://w3.ieis.tue.nl/en/groups/item/

http://w3.ieis.tue.nl/en/groups/item/


I

Abstract

This master thesis generates new knowledge on innovation strategies for the BoP executed by multinational firms. It develops design principles that help multinational firms to (re) design their new venture development process for achieving positive new venture performance. In order to achieve these goals the following research questions were posed: what are the key success factors that drive new venture performance in the BoP, how does an innovation strategy influence the execution of the key success factors, how are these key success factors executed in the new venture development process. These research questions were answered by formulating a set of 6 design principles grounded in theory and practice. These principles form guidelines that can be used for sustainable venture development in the BoP. Developing these design principles also generated new knowledge on innovation strategies and how organizations incorporate these in their businesses.


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Management SummaryThe research in this thesis is on innovation strategies for the Bottom of the Pyramid markets (BoP) executed by multinational firms. The main research question is: what are the key success factors that drive the new venture performance in the BoP markets?

Background Information

The Bottom of the Pyramid marketsThe less developed regions of the world are often referred to as the bottom of the pyramid (BoP) markets. The characteristics of the BoP markets provide some challenge for organization aiming to create sustainable business. The ecological, technical and societal limitations in the BoP force organizations to be creative in achieving solutions (Prahalad & Hammond, 2002). Along with some similarities, there are many opportunities for organizations to move into the BoP markets.

Incentives for researchConsequently, organizations and academics entered the BoP to find out how innovation strategies can exploit the opportunities and leverage the differences. To deal with the particularities of the BoP markets, some organizations began to develop alternative innovation strategies for the BoP markets. Resulting in many researchers (Pitta et al. 2008; Rost & Ydren, 2006; Waeyenberg & Hens, 2008; Simanis & Hart, 2008) focusing on BoP strategies, which led to the discovery of specific key success factors. However, there is little known on how key success factors are executed in an innovation strategy and thereby drive the performance of a venture in the BoP. As one of the multinationals that entered the BoP, Philips is interested in finding out how to continue to approach the BoP markets in a sustainable way.

Innovation strategiesThe following table (next page) makes clear what the definition, characteristic, objective and examples are of two types of innovation strategies. These are backward & reverse innovations.


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Backward Innovation Reverse Innovation

Definition Pushing old & stripped down versions of existing products

Creating new products to innovate and create new business.

CharacteristicsStandardization, knowledge of consumer needs, local partners for distribution, marketing and sales.

Bottom-up co-development, deep knowledge on consumer needs, local partners for development, distribution, marketing and sales.

Examples Nike World Shoe, Low cost Mobile Phone, EyeGlasses

Tata Nano, GE Mac 800, Water Purifier

Organizational ObjectiveFirst mover advantage, quick profits, extending global business.

New business markets, long term sustainable business, expanding to global markets.

Table 2.3: Overview of Innovation Strategy Methods

Research GoalThe current research aims to explore how key success factors are executed in an innovation strategy of a new venture in the BoP. Consequently, this report contributes Philips to further develop their strategy for creating sustainable ventures in the BoP environment. The following research questions were set up to guide the research.

Research Questions:1. What are the key success factors that drive new venture performance in the BoP?2. How does an innovation strategy influence the effect of the key success factors on NVP? 3. How does influence of key success factors differ between phases in the new venture development process?

Research Method

This research answers the research questions by combining knowledge from theory and practice. Subsequently filling the gap in literature between innovation strategies and key success factors. Together these findings will be combined (Romme & Endeburg, 2006) to form a New Venture Development design for an innovation strategy in the BoP. This will be done by formulating design principles that provide guidelines to make the NVD process easier to be executed. The following figure (next page) shows the research method.


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Literature Review Case StudiesConceptual

FrameworkFindings from field research(Cross Case)

Combining the findings

PracticesDesign solutionResearch Findings from Literature

Figure 1.1: Research method as adopted from de Burg et al. (2008).

The research findings from literature were derived by performing a systematic literature review. The findings from the field research were extracted by the use of a multiple case study.

Research Findings

In total, six design principles were created by combining the results from the field research with the findings from the literature review. These six design principles are formulated in the CIMO logic. CIMO logic is a way to formulate and display design principles. The design principles from Romme & Endeburg (2006) are slightly adjusted to match the results. The mechanisms are considered differently. In this research, design principles have the goal to explain why (Mechanisms) acting in a particular way (an Intervention) in a certain environment (the Context) will cause a desired effect (the Outcome). In the following figures, the six design principles are shown.

Design principle 1C: In the context of a new venture in the BoP; I: An innovation strategy resembling the reverse innovation must be maintained by; M: (a) Co-developing products from the ground up, (b) Expanding the venture for global competitiveness; O: To achieve a positive new venture performance and a positive global competitive advantage.

Design principle 2C: In the context of a new venture development process for a venture in the BoP; I: A team must be established by;M: (a) Creating a small entrepreneurial focused team, (b) Having local based knowledge processes, (c) Having competent & serious team members; O: To achieve a positive new venture performance.


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Design principle 3C: In the context of phase 1 of the new venture development process for a venture in the BoP, I: (1) Consumer insights must be gained by;M: (a) Understanding consumer needs, (b) Understanding consumer wants, (c) Understanding consumer life; I: (2) Partnerships must be created by;M: (a) Creating multiple alternative partnerships, (b) Building trust based relationships, (c) Making use of partners which have excellence; O: To achieve a positive new venture performance.

Design principle 4C: In the context of phase 2 of the new venture development process for a venture in the BoP; I: Organizational focus must be maintained by;M: (a) Having open & clear organizational commitment to the BoP business, (b) Creating support & dedication from top management; O: To achieve a positive new venture performance.

Design principle 5C: In the context of phase 3 of the new venture development process for a venture in the BoP; I: Product finance must be handled by;M: (a) Creating affordable propositions, (b) Making use of micro finance systems; O: To achieve a positive new venture performance.

Design principle 6C: In the context of phase 4 of the new venture development process for a venture in the BoP; I: Market capabilities must be created by; M: (a) Leveraging the spread of the consumers, (b) Making use of governmental relations, (c) Mixing existing and new channels; O: To achieve a positive new venture performance.


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Implications

The first contribution is about the innovation strategy for a new venture in the BoP. The results make clear that a new venture experiences higher NVP when an innovation strategy, such as reverse innovation, is executed in full than when an innovation strategy is partly executed.The second contribution is about the key success factors that potentially increase the performance of a new venture. This research improves on the key success factors found in literature by refining them and adding a new key success factor. Refining the key success factors has resulted in the addition of mechanisms that form guidelines for how the key success factors should be executed in the new venture. The design principles show the key success factors as the interventions (I).The third contribution implicates that the key success factors can be implemented in the NVD process. Placing the key success factors in the NVD process potentially influences NVP. For the implementation part, the Bell Mason framework of an ideal venture (section 2.3) development was used. The design principles show which key success factors should be implemented in which NVD phase.

Limitations

The relevance of the above conclusions has to be taken with some shade of meaning and the results should be interpreted in terms of it’s limitations. First, the literature on innovation strategies, particularly the reverse innovation method is relatively new with few theoretical evidence to create a thorough understanding of the method’s characteristics. Thus, this research has a partly explorative nature, the other part is explanatory of nature in terms of key success factors.Second, the generalizability of this research is partly limited. Only eight cases were studied and all of them are on the vicinity of executing the reverse innovation method. No conclusions can be made about other innovation strategy methods. However, there are liable indications that this research can be generalized beyond these eight.A third limitation is the incorporation of the key success factors in the NVD process by use of the Bell Mason framework (Bell, 2004). This is the first time that a combination of key success factors is applied to a NVD process and it hasn’t been tested. It is not proven that the NVD process design functions correctly and that the mechanisms are precisely understood or placed correctly. This makes this research of slight exploratory nature and further research is necessary on this subject.


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PrefaceThis report is the result of my master thesis project, performed in partial fulfillment of the requirements for the degree of Master of Science in Innovation Management at the Eindhoven University of Technology.

This research started with an internship offering at Philips Corporate Sustainability Office. Philips wants to improve on their businesses in the bottom of the pyramids markets. During my Years at Eindhoven University of Technology I grew fond of strategy and innovations in consumer electronics. My experience with sustainability started to grow since I researched on sustainable procurement for my Bachelor. The combination of my interests and experience made it possible for me to do this research with confidence. Although, this research would not have existed in this form without the proper help from a select group of people. So, I would like to give my thanks to the following people.First of all, I’m greatly indebted to Ed Nijssen my mentor. His inspirational way of presenting the ‘Marketing & Innovation’ course had drawn me to him for mentorship of the master thesis project. He proved all the more worthy by stepping into this project with me, even though his field of expertise is in the international marketing area. His particular methods of writing and scientific advise helped me to clear my often cluttered thoughts. He was able to make sense into my writing skills and helped me to improve myself on writing a report that is not only of scientific nature by also provides managerial tools which helps Philips. I would also like to thank Hans Berends, my second mentor. His impeccable logical reasoning proved helpful in the last stadium of this thesis. He helped clear up some of the knots that I was dealing with from the beginning of this research. Then, my thanks goes to Robert Metzke, from Corporate Sustainability at Philips. I would like to thank him for our various insightful conversations that kept me from losing focus on our common goals. He provided most, if not all contacts for the field research and his excellent skill of funneling complex situations into simple drawings is very inspirational. I absolutely enjoyed working with Robert. I would also like to thank Mark Didden, from Corporate Sustainability at Philips. I owe him for the opportunity to provide my skills and efforts to help Philips improve on their strategic businesses. I enjoyed our conversations together and am thankful for the opportunities where I could spend time cooperating with the Corporate Sustainability team.Furthermore thanks go to: Helene Mancheron, Corinne Jeanmaire, Alok Jaine, Christiaan Kraaijenhagen, Pabla van Heck, KV Rao & Manon Schuurmans. These are the people that helped me by providing valuable information on the studied cases. They have been so willing to cooperate, especially with interviewing, without them this work would not have been possible at all.Finally I would like to say that this thesis was an insightful journey and made me realize al the more how important it is to communicate, work thoroughly efficient and have regular loops with all stakeholders to achieve a common goal.

Thomas van der KroftEindhoven, November 2010


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List of Figures1.3 Structure & Goals of Philips 5

1.4 Research Method & Outline 7

2.3 Bell-Mason framework of ideal NVD process 16

2.3 New Venture Development process phases 16

2.4 Conceptual Framework from the literature 22

4.1 New Venture Development in the BoP results framework 33

5.1 Design Principle 1 49

5.3 Design Principles 2-6 51


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List of Tables2.1 Backward Innovation Examples 11

2.2 Reverse Innovation Examples 13

2.3 Overview of Innovation Strategy Methods 15

2.4 Key dimensions of the Bell-Mason NVD process 17

2.5 Most supported key success factors in the BoP 18

3.1 Final case selection 25

3.2 Data Collection 27

3.3 Sensitizing concept - Key success factors 28

3.4 Example of coding process 30

4.1 Cross comparison of the studied cases 31

4.2 Incorporation of key success factors in NVD process 34

4.3 All phases incorporation 35

4.4 Phase 1: Concept incorporation 37

4.5 Phase 2: Seed incorporation 41

4.6 Phase 3: Product Development incorporation 43

4.7 Phase 4: Market Development incorporation 45


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Table of Content

Abstract II

Management Summary IV

Preface IX

1.0 - Introduction 2

1.1 - Background 2

1.2 - Research Questions 4

1.3 - Relevance for Philips 5

1.4 - Research Method & Outline 6

2.0 - Literature Review 8

2.1 - Innovation Strategies in the BoP 8

2.1.1 - Backward Innovation 10

2.1.2 - Reverse Innovation 12

2.2 - New Venture Development in the BoP 15

2.3 - Key Success Factors in the BoP 17

2.4 - Developing a Conceptual Framework 20

3.0 - Methodology of the field research 23

3.1 - Research Design 23

3.2 - Data Collection 25

3.3 - Operational Analysis 28

4.0 - Results 31

4.1 - Refining & Extending the Conceptual Framework 31

4.2 - New Venture Development in the BoP 34

4.2.1 - All Phases 35


4.2.2 - Phase 1: Concept 37

4.2.3 - Phase 2: Seed 41

4.2.4 - Phase 3: Product Development 43

4.2.5 - Phase 4: Market Development 45

5.0 - Discussion 48

5.1 - Innovation strategy 48

5.2 - Key Success Factors 49

5.3 - New Venture Development process 50

5.4 - Conclusion 52

6.0 - Limitations, Further Research & Managerial Implications 53

6.1 - Limitations 53

6.2 - Further Research 53

6.3 - Managerial Implications 54

A. - Glossary 55

B. - Literature List 56



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1.0 - Introduction1.1 - Background

The less developed regions of the world are often referred to as the bottom of the pyramid (BoP) markets. In this research we refer to consumers who earn between the $2 and $10 a day in BoP markets. The population of the developing regions in the world is projected to rise steadily, from about 5.3 billion in 2006 to 7.8 billion by mid-century (United Nations, 2009). The population of the more developed regions, currently estimated at slightly more than 1.2 billion, is anticipated to change little in the upcoming decades (United Nations, 2009). On top of that, the total world population has been growing from 2.5 billion to 6.9 billion since 1950 and is expected to grow even further towards 9.1 billion in 2050 (United Nations, 2009). Human presence on this planet has resulted in activity growth as well (NAS, 2010). Consequently, the future holds large environmental problems such as global warming (NAS, 2010). To mitigate these problems, many multinational organizations have acted to be more sustainable in their day to day business (DJSI, 2010). Recently, some organizations have taken sight at the BoP markets and recognized them as potential business markets which can help increase the world’s fortune.

Many opportunities for firms to move into the BoP markets exist. According to Prahalad & Hammond (2002), firms can achieve strategic competitive advantage by focusing on the BoP markets. This advantage can have several sources: new sources of income, achieving greater efficiency and achieving access to new sources of radical or disruptive innovation. The BoP markets are young and growing markets with a lot of unmet consumers to be reached, which makes entering in BoP markets potentially very lucrative. In the BoP, the situation is best suitable for disruptive innovations and provides opportunity for promoting sustainable development of these low income markets (Hart & Christensen, 2002). It has been demonstrated by examples of firms in telecommunications, consumer electronics and energy production that disruptive innovations addressing social and environmental challenges hold high potential for firm growth and market leadership (Hart & Christensen, 2002). At this time still, competitors face similar problems and opportunities; and they probably have similar resource bases (Ramhani & Mukheree, 2010). The market is still young and forming, which could potentially reward first movers with competitive advantage. This means, that the pressure of moving into the BoP increases with time. In line with literature on corporate responsibility, Martinez & Carbonell (2007) mention that companies can begin to redefine their potential by acknowledging its openness to caring about the society in a public way. They mention that the poor pay well, are trustfulness and buy products following the same guidelines as the developed markets. They also make cross-purchases and once they have grown in purchasing power, becoming fully integrated, they repay the effort by being loyal (Martinez & Carbonell, 2007). This is also supported by Micro Finance experiences, whom report very low default rates. When these consumers have grown in size, it is essential that they are familiar with the brands that have helped them during this period. Also, Prahalad (2004) calls multinationals from all around to consider entering the BoP markets for its large potential and ethical opportunities. He states, the potential for expanding the BoP market is just too great to ignore. It is simply good business


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strategy to be involved in large, untapped markets that offer new customers, cost-saving opportunities and access to radical innovation (Prahalad, 2004).

In short, the following reasons to do business in the BoP markets are:

• The BoP has a very large underserved market (growth potential)

• The competition is moving into the BoP (some with success)

• Corporate social responsibility

• Brand image

• Innovation potential

• Future consumers

However, the BoP market is a high cost serving market which prevents many organizations from succeeding financially. In contrast to achieving a strategic competitive advantage, a firm needs to be financially successful to stay sustainable. In the BoP markets there are several roadblocks, in summary the lack of infrastructure, both financially and physically (Logistics, communication etc), that prevents many multinationals from profiting in the short and long run after entering the markets. The market is geographically dispersed, the consumers are heterogeneous and their individual transactions usually represent a low amount of money. In addition, consumers at the BoP level are very price sensitive, which makes profitability a difficult goal to achieve (Pitta et al. 2008). Also, the BoP distinct environment makes entering very hard and much different from the developed markets. The ecological, technical and societal limitations in these markets force organizations to be creative in achieving solutions (Prahalad & Hammond, 2002). These particularities provide many challenges for multinationals to enter these markets. On top of that, traditional strategies, constructed in developed markets, have been unsuccessful in the BoP markets (Silverthorne, 2007; Arnould & Mohr, 2005; Prahalad, 2004; Karnani, 2007; Rost & Ydrén, 2006; Arnold & Quelch, 1998). While this may change over time as these markets develop, organizations at this time need to invest to overcome these challenges.

To deal with the particularities of the BoP markets, some organizations began to develop alternative innovation strategies for the BoP markets. Organizations and academics entered the BoP to find out how innovation strategies can exploit the opportunities and leverage the differences. Organizations such as GE, Nokia, Ford & Nike were amongst the first to enter the BoP for business opportunities. Strategies for the BoP quickly became innovation strategies, due to the differences with developed markets (Mahajan & Banga, 2006). Low purchasing power, for example, forced organization to either create innovations or innovate in their current artillery of products / services (Simanis & Hart, 2008; Mahajan & Banga, 2006; Prahalad, 2004). Consequently, two approaches can be distinguished:Some organizations clearly have a short term view on achieving success in the BoP. These organizations recognize the quick growth potential of these markets and to quickly capture this growth, downgrade their existing products or export completed products to offer them to the BoP market. Usually they will make their products cheaper to match the income level in these markets. Nokia and Ericsson, for example, create low


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cost cell phones by using their existing technology and resources and offer these to the BoP markets. Using the short term strategy view seems to create immediate but not sustainable success.Other organizations clearly have a long term view on achieving success in the BoP. These organizations recognize the benefits of being in this market for the long run and invest in the creation of new products specifically made for the BoP consumers. Lately, the latter group theorized that the BoP markets can contribute to the creation of new idea’s to increase product innovation for the more developed markets. Tata’s “Nano” car, for example, is a low cost car specifically developed from the ground up for BoP consumers. Tata is focused on adapting the Nano into Western markets in the future. The long term view seems to have a higher investment in the market and with it achieves sustainable success.

Many researchers (Pitta et al. 2008; Rost & Ydren, 2006; Waeyenberg & Hens, 2008; Simanis & Hart, 2008) have focused on innovation strategies, resulting in the discovery of specific key success factors. A firm that commits to an innovation strategy wants to achieve a competitive advantage and thereby increase the performance of its new ventures (Barney, 1991). Many researchers have found that certain key success factors drive the performance of such a new venture. Some of these key success factors can be general for any strategy; others are specific for the type of strategy that is chosen. Some of these factors can be leveraged directly from within the organization, whereas other factors are externally driven and need to be dealt with indirectly. It is necessary to establish which key success factors must be executed for a venture to increase its performance.

There is little known on how key success factors are executed in an innovation strategy and thereby drive the performance of a venture in the BoP. The BoP literature has focused extensively on innovation strategies for the BoP. There have been many case studies on ventures in the BoP, most of them explaining successful cases and very few on failures. A clear gap in the BoP literature is the distinction between innovation strategies and key success factors. This research would benefit from exploring how key success factors are executed in an innovation strategy and if or how these differ between innovation strategies. This study focuses on addressing this gap in literature.

1.2 - Research Questions

Current research aims to explore how key success factors are executed in an innovation strategy for the BoP. An organization that focuses on the BoP markets, creates new ventures to achieve a competitive advantage (Prahalad & Hammond, 2002). These new ventures have their individual performance indicators. The level of success or failure of a new venture is defined as ‘New Venture Performance’ (NVP) and can be measured on three levels according to the triple bottom line (Prahalad, 2004; Brown et al. 2006). These are on the ecological, economical & social levels. This research addresses the mentioned gap in literature in three parts. The first part explores ‘Key Success Factors’ that drive NVP in the BoP. The second part explores innovation strategies in the BoP that potentially influence the effect of these key success factors on NVP. The last part shows how these key success factors are incorporated in a new venture and will be defined as the ‘New


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Venture Development process’. Thus, to address the mentioned gap in literature, this research aims to answer the following research questions.

Research Questions:1. What are the key success factors that drive new venture performance in the BoP?2. How does an innovation strategy influence the effect of the key success factors on NVP? 3. How does influence of key success factors differ between phases in the new venture development process?

1.3 - Relevance for Philips

Royal Philips Electronics of the Netherlands, founded in 1891 in Eindhoven, is a diversified health and well-being company, focused on improving people’s lives through timely innovations. As a world leader in healthcare, lifestyle and lighting, Philips integrates technologies and design into people-centric solutions, based on fundamental customer insights and the brand promise of “sense and simplicity”. Headquartered in the Netherlands, Philips employs more than 116,000 employees in more than 60 countries worldwide. With sales of EUR 23 billion in 2009, the company is market leader in cardiac care, acute care and home healthcare, energy efficient lighting solutions and new lighting applications, as well as lifestyle products for personal well-being and pleasure with strong leadership positions in flat TV, male shaving and grooming, portable entertainment and oral healthcare. Figure 1.1 shows the structure and goals of Philips for the years 2010 to 2015.

Healthcare Lighting Consumer Lifestyle

EcoVision 5• Bring care to more than 500 million

people‣ Target: 500 million lives touched by 2015

• Improve energy efficiency of Philips products‣ Target: 50% improvement by 2015 (for the

average total product portfolio) compared to 2009

• Closing the materials loop‣ Target: Double global collection, recycling

amounts and recycled materials in products by 2015 compared to 2009.

Vision 2015• Expand its existing leadership;• Preferred brand in health and well-being;• Leading company in matters of

sustainability;• Making a positive difference in people’s

lives.

Sustainability

Figure 1.1: Structure & goals of Philips.


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As one of the multinationals that entered the BoP, Philips is interested in finding out how to approach the BoP markets in a sustainable manner. Philips has tried to enter the BoP market several times with several pilots, namely in African and Indian BoP markets.

Philips promotes sustainability by having a longstanding commitment to improve the quality of people’s lives. Philips clearly states in its sustainability report it wants to create sustainable solutions for health and well-being, also for the less fortunate people of the world (Sustainability report, 2007 / ’08 / ’09). With this, Philips positions itself in the second group of organizations; organizations that focus on the long term strategic competitive advantage in the BoP markets. Philips sees sustainability as an innovation driver and growth opportunity. Philips aims to provide new solutions that have a lower ecological footprint..

This research aims to contribute Philips to further develop their strategy for creating sustainable ventures in the BoP environment. The following steps have been taken:

• Determining the relationship between an innovation strategy and New Venture Performance;

• Determining how to approach the BoP markets and what factors drive NVP in the New Venture Development process;

• Developing a detailed design for New Venture Development in the BoP.

1.4 - Research Method & Outline

This research will answer the research questions by combining knowledge from theory and practice. Subsequently filling the gap in literature between innovation strategies and key success factors. A framework to achieve this is the research-design-development cycle by Burg, Romme, Gilsing and Reymen (2008). This research is based on this framework used by Burg et al. (2008) and it provides a science-based design perspective that links the scientific knowledge base to the pragmatic and creative work of practitioners (Burg et al., 2008). It consists of two paths (Romme & Endeburg, 2006). On the one hand, innovation strategies and key success factors in the BoP will be derived from the literature and combined to create a conceptual framework. On the other hand, key success factors and new venture performance from the field research will be derived. The research design will be a mixed design by refining & extending the findings from literature with the findings from the field research (Locke, 2007). The findings can be ‘used to create solutions that can subsequently be tried out in practice’ (Burge et al. 2008).

Together these findings will be combined (Romme & Endeburg, 2006) to form a New Venture Development design for an innovation strategy in the BoP. This will be done by forming design principles which are guidelines to make the NVD process easier to execute. Figure 1.1 shows the research method & outline.


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Figure 1.2: Research method & outline as adopted from de Burg et al. (2008).

All findings in this research can be found in chapters 2 and 4. The findings from literature can be found in section 2.4. The methodology of the field research can be found in chapter 3. The results from the field research can be found in section 4.1. The combination of these findings can be found in section 4.2. Chapter 5 contains a discussion of the results, showing the contributions of this research. Chapter 6 shows the limitations and further research suggestions.

Sections 2.1 - 2.3

Literature Review

Chapter 3 Case Studies

Section 2.4Conceptual Framework

Section 4.1Findings from field research(Cross Case)

Section 4.2Combining the

findings

PracticesDesign solutionResearch Findings from Literature

Chapter 5DiscussionConclusion

Chapter 6Limitations

Further Research


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2.0 - Literature ReviewThis chapter provides the literature background for this research by consulting the strategic management literature on BoP markets and the international management & marketing literature. This review has been an iterative and continuous effort throughout the research to provide a systematic background of the literature (Pawson et al. 2004). This chapter is structured as follows. First, we will explore innovation strategies in the BoP. In this part, we will dive deeper in how ventures are created in the BoP and which types of innovation strategies are utilized. Second, we will explore new venture development tools and frameworks to establish a standard for executing an innovation strategy in the BoP. Third, we will explore key success factors that drive the performance of a venture in the BoP. Many researchers (Pitta et al. 2008; Rost & Ydren, 2006; Waeyenberg & Hens, 2008; Simanis & Hart, 2008) have focused on venture cases in the BoP resulting in the discovery of specific key success factors. Finally, we will combine and conclude the research findings from literature to create a conceptual framework that explains the relations and factors that play a role in new venture development in the BoP.

Our search for literature was conducted as follows. We consulted several scientific search engines provided by the Eindhoven University of Technology library. The search engines included, ABI Inform, Google Scholar, Elsevier ScienceDirect, JSTOR and SAGE. In these search engines, the keywords: Bop, Bottom of the pyramid, base of the pyramid, strategy, Sustainability, Emerging markets, Market strategy, case studies; were iteratively mixed to get a full list of potential literature on strategy development in the BoP. Also, we have used internet based websites including: BaseofthePyramid.nl and Global Business Network. The first website is an introductory site that lists several popular articles, books and other links towards readings on BoP literature. For further deepening of the topic, we have searched for leads on references in the most appropriate articles. In addition, searches for known company names with affiliation to the BoP have been conducted to receive results on case study focused articles in the BoP. Our iterative search resulted in 51 articles, 5 information internet sources, 1 Key-Note presentation & 3 books on strategy in the BoP. We continue with the first section of our literature review.

2.1 - Innovation Strategies in the BoP

Although much has been written regarding the BoP, the literature is fragmented where it concerns innovation strategy and methods. The literature on sustainable business in the BoP increases dramatically after Prahalad’s (2004) ‘Fortune at the Bottom of the Pyramid’. During this time, the literature parts ways in exploring alternative strategies and methods.

Early studies focused on the proposition that multinationals should eradicate poverty by creating jobs and empower the poor. The poor should be seen as potential entrepreneurs whom can improve their economic situation by increasing their income level (George, 2009; Karnani et al. 2007). Organizations are then supposed to invest time and resources to guide and train these entrepreneurs so they can create their own economic wealth and grow out of poverty. By reaching out to the poor and creating jobs for them, companies


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develop a native capability and become indigenous to the markets they target (Silverthorne, 2007; Van den Waeyenberg & Hens, 2008; Hart, 2005). This view was seen as the only way to alleviate poverty and create profitability. Other literature focused on examining case studies of projects run by organizations in several BoP markets. In this part of the literature we noticed a large focus on providing products and services to the BoP consumers to enrich their quality of life. This would in turn provide opportunities for the BoP consumers to increase their productivity. However, most of these studies were the studies of successes; thereby the lack of failure descriptions in this part of the literature is noticeable.

In later literature the focus is on developing strategies for creating specific products and services for BoP consumers (Pitta et al. 2008). Multinational organizations began to develop alternative strategies for entering and creating business in the BoP (Prahalad & Hammond, 2002; Simanis & Hart, 2008). The case studies found in literature began to diverse. Alternative methods as part of these innovation strategies have emerged in the strategic management literature on the BoP, of which two have received the most attention (Simanis & Hart, 2008; Govinarajan, 2009; Immelt et al. 2009).One method, dubbed ‘Backward Innovation’, that organizations have is producing old models and stripped down products altered to sell in developing markets (Simanis & Hart. 2008). These products or services aimed at being available and affordable to people who were previously unable to afford them. Modification of products or the use of cheaper components, simpler or cheaper & smaller packaging, or eliminating product features enable products to be sold at lower prices, which will help to expand the market (Craig & Douglas, 2008). This method can be seen as pushing existing solutions to the less developed worlds in order to quickly capture the growth of these markets (Mahajan & Banga, 2005; Simanis & Hart, 2008).A second method, dubbed ‘Reverse Innovation’, concerns developing new products and services specifically targeted at the BoP consumers, which are then upgraded to also sell in developed markets (Immelt et al. 2009). It is found that organizations are able to create customized products with functionality and cost advantage for the poor without compromising safety and comfort (Van den Waeyenberg & Hens, 2008). Developing a product specifically in rural areas can be sold for low prices because of substantial demand potential (Craig & Douglas, 2008). London & Hart (2004) noticed that successful ventures in BoP markets possessed an additional capability that was based on valuing and facilitating the bottom-up co-invention, by a diversity of partners, of locally appropriate solutions. In turn, these solutions reaped developed capacity beyond the protective boundaries of the organization. This method can be seen as the bottom up creation of new solutions in the less developed worlds to match the environment of these markets (Govindarajan, 2009; Immelt et al. 2009).

Although a strategy of an organization has many aspects, including sourcing, distribution, marketing etc. we here focus on the innovation dimension of a firms’ strategy regarding the BoP. The recent attention in literature (Simanis & Hart, 2008; Immelt et al. 2009) makes the ‘method of innovation’ subject a fresh and interesting part of an innovation strategy in the BoP. The two highlighted methods potentially differ in achieving NVP, which is interesting to explore. Focusing on innovation strategies in the BoP will also give us a steady handle for exploring which key success factors influence its relationship with a NVP. The next


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part of this literature review will delve deeper in the two alternative methods to explain their definition, characteristics, objectives and show specific examples.

2.1.1 - Backward Innovation

“Backward innovation is a method of creating new products or services for serving new BoP markets by stripping down an existing product application or using cheaper technological solutions to match the specific needs” (Simanis & Hart, 2008). When using this method, organizations can build unprecedented economies of scale by selling products and services to markets all around the world. Innovation happens at home and the offerings are distributed everywhere (Govindarajan, 2009). According to Yip & Coundouriotis (1991), an advantage of this method is the reduced costs due to scale production. In addition, brand image of the organization increases by distributing throughout the world. The disadvantages are also mentioned by Dunning (1989) and Yip (1989, 1995). These are: an increase in management costs, reduced efficiency in de-central organizations, creation of unrealistic expectations in market size, dissatisfaction due to increased standardization in products, increased distance to customers, decrease in anticipation towards customer feedback and last, straightforward competition analysis.

The backward innovation method is characterized by pushing stripped down products onto new markets, particularly markets less developed than the firm’s home market, by use of existing methods and capabilities (Lorch, 2006). In the product development phase of backward innovation, we notice that R&D confines itself to stripping down existing technologies or products (Govindarajan, 2009). Usually, partners in the local environment are only used to understand the situation in which the BoP environment exists and to have a quick grasp on the customer needs. This way, the existing propositions can be adjusted to meet a certain local need and be sold at low prices. Requirements are low prices and basic product functionalities, which makes the production phase benefit from standardization. Consequently making it easier and cheaper to sell the propositions throughout the world including the developing markets. Outsourcing to local environments results in cost reduction and increases the standardization process (Hameri, Tunkelo 2009). The marketing phase of this method consisting of distribution, promotion and sales is usually outsourced to partners in the local environment. Ideally, the marketing attributes are left to the more knowledgeable local organizations with which the organization has contracts (Hameri, Tunkelo 2009).


10

In literature, there are several examples of the backward innovation method. Table 2.1 shows examples of the backward innovation method.

Product Organization Product development phase

Low cost mobile phone Nokia / Ericsson Stripping existing product

E-choupal ITC Using existing products

Refrigerator Hindustani Lever Limited Redesigning existing technology

Computer box with 4 terminals HP Redesigning existing products

Medicin Medicin organizations Using existing products

EyeGlasses VisionSpring Using existing products

Small sachets of shampoo Hindustani Lever Limited Redesigning existing technology

World Shoe Nike Stripping existing product

Table 2.1: Products or services that resemble the Backward Innovation methods and their respective organizations (CaseStudyInc, 2010; Prahalad, 2004)

Nokia is one of the companies that entered the BoP environment with a product that fits the description of backward innovation. Nokia used the technology of the mobile phone and redesigned it to fit the device for illiterate people in the BoP (GBN, 2003). Ericsson also went on this path. Ericsson developed a lower-cost cell phone (the MiniGSM) that can operate as a standalone device or as a networked data or voice system for up to 5000 users in a 35-kilometer radius (GBN, 2003; Cassel, 2007; CaseStudyInc, 2010;)ITC's E-Choupal is an example of backward innovation. ITC set up computers with Indian websites where information about the market for local farmers is presented. Before, farmers lack access to the market and are therefore caught in the vicious cycle of suboptimal use of farm inputs, higher cost of credit, and lower price realizations on produce, leading to insignificant disposable income for farmers and their families (Prahalad, 2004; Kamath, 2006; CaseStudyInc, 2010). Hundistani Lever Limited (HLL) created a cheaper, highly mobile and energy efficient refrigerator, to make ice-cream affordable for the poor in rural India. HLL achieved this by redesigning existing technology to fit the low income hurdle of the developing market consumers. This product became widely successful in India and might transcend to other markets (GBN, 2003).HP looked at the computing world in the developing markets and arrived at an interesting solution. HP used existing technology to deliver one computer box with four terminals in it; HP managed to sell 4 computers for the price of one with this adjusted product. For the developing world this was surely a disruptive innovation. However, for the developed world this product meant cannibalizing the computing markets. The projects status is unclear because of this dilemma. This project is a good example of the consequences of backward innovation on a global scale (GBN, 2003).

These examples show that organizations implementing the backward innovation method, resembling exporting, have a conservative approach towards entering new markets. Hence, the organization uses its core


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capabilities internationally the same way it has been doing domestically. When the characteristics of the foreign markets are similar to the domestic one, the use of standardization is more appropriate (Navarro, 2010; Ozsomer et al. 1990). Then, the firm can effectively exploit scale economies (Navarro, 2010). As international markets become more interlinked and integrated either regionally or globally, the development of standardization in terms of using core capabilities and similarities in resource use can result in the establishment of a superior competitive advantage globally (Domzal & Unger, 1987; Craig & Douglas, 2000; Gupta et al. 2008). Thus, the backward innovation method seems highly suitable for achieving global competitive advantage by using existing organizational capabilities.

Whenever an organization enters new markets, the backward innovation method seems to be the first path an organization pursues (Domzal & Unger, 1987; Mahajan & Banga, 2006; Simanis & Hart, 2008). The first western multinational organizations (GE, Nokia, Ford) moving in the BoP utilized the backward innovation method by offering old or altered versions of their existing products (Mahajan & Banga, 2005). The characterization of this method shows that entering new markets is firstly done by offering existing products and services to achieve a first mover advantage, thereby achieving economical success (Teplensky et al., 1993). In the beginning of the BoP businesses, a first mover advantage together with ease of standardization could have been the deciding factors for choosing the backward innovation method (Simanis & Hart, 2008). After realizing that this method wasn’t delivering the quick results that were expected, the innovation strategy was bound to change (Simanis & Hart, 2008). Later these organizations (GE, Nokia, Ford) began to move towards utilizing the ‘reverse innovation’ method. They moved towards fully adjusting their focus on developing new proposition fully catered to the consumers in the new markets. When developing these new propositions, innovations can be discovered which can be translated back to the developed markets for new businesses (Immelt et al. 2009). Here, it becomes interesting to compare how these two methods each have resulting performance when utilized in an innovation strategy for the BoP. The reverse innovation methods and its characteristics are further elaborated on in the next section.

2.1.2 - Reverse Innovation

“Reverse innovation is a method of developing products or services addressing the unique needs of a BoP community of the consumers / market which may ultimately result in a product which can be sold to a wider public / other markets throughout the world, including developed countries” (Govindarajan, 2009). Organizations using the reverse innovation method recognize the opportunities of developing innovations from the ground up in new markets. With this method organizations start with a zero-based consumer’s needs profile, rather than assuming they will only make alterations of the products or services they already have. Organizations complete the reverse innovation method by taking the innovations originally chartered for poor countries, adapting and scaling them for worldwide use (Govindarajan, 2009). Reverse innovation, by definition, involves the innovative firm in product markets that are not only new to it but often radically different from those it is used to serving (Brentani et al., 2010).


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The reverse innovation method is characterized by developing products in and for new, usually developing markets, by using new methods and capabilities with the objective to explore this innovation globally (Govindarajan, 2009). “Reverse innovation requires a decentralized, local market focus. Most if not all people and resources dedicated to reverse innovation efforts must be based and managed in the local market” (Govindarajan, 2009). In the product development phase of the reverse innovation method, the R&D consist of the bottom up co-creation of products in the local environment meant to be sold in developing markets consequently expanded to developed markets (Simanis & Hart, 2008). Included in the co-development can be the organization, consumers and partners in the local environment. This method focuses on the development of products to perfectly fit the consumer’s needs. The production phase of the reverse innovation method is usually locally operated and is ideally in co-operation with local organizations. It makes sense to assure against some of the risks of serving a new customer base by seeking the kind of external relationship with firms that have expertise in manufacturing for and selling to that final market (Brentani et al., 2010). The marketing phase of the reverse innovation method consisting of the distribution, promotion and sales is often in co-operation with local partners. Local development of marketing plans in co-operation with strategic partners improves the knowledge of the market characteristics and insights of the consumer needs (Immelt et al., 2009).

In literature, there are several examples of the reverse innovation method. Table 2.2 shows examples of the reverse innovation method.

Product Organization Product development phaseElectrocardiogram machine MAC 400 / MAC 800 GE

Ground up co-development & scaled back to western markets

OLCP (One laptop per Child) Joint development of multiple organizations


Water Purifier Philips, P&G, other organizations

Ground up co-development & scaled back to western marketsMobile banking platform Nokia Ground up co-development & scaled back to western markets

Tata Nano Tata


Ecopack, Microplants Danone


Honey based cough product P&G


Table 2.2: Examples of products that resemble the reverse innovation method with their respective organizations (CaseStudyInc 2010; Govindarajan, 2009; WBCSD, 2005).

GE is one of the companies that started using the reverse innovation method with their GE Healthcare’s Mac 400 electrocardiogram machine (Govindarajan, 2009). This device was developed for the Indian and Chinese rural community. A couple of years later GE improved the machine to the Mac 800 and introduced it into the USA. This example clearly described reverse innovation. The one laptop per child project (OLPC) is a prime example of reverse innovation. This project first reached the market in 2007 (Govindarajan, 2009; GBN, 2003) and had limited success in the BoP market for a mix of reasons. However, this innovation created the well familiar 'net-books' in the more developed world. This


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turned out to be highly successful. The OLPC project showed that BoP customers were satisfied with products which had well enough functionality and a low price. This turned out to be the same requirement for developed customers to be satisfied.Nokia also entered the reverse innovation phase by announcing a mobile banking platform in the BoP. This service provides consumers in small towns and rural area's the ability to get a range of livelihood and life-improving services on their mobile phones (Govindarajan, 2009).The Tata Nano is also an excellent case example for the reverse innovation category. This project was launched in 2007, after 5 years of development, and disrupted the BoP market by creating a low cost car for the common man. The revolutionary automobile was designed from the ground-up to make it the cheapest car ever produced with help of government subsidies and tax-breaks (Wayenberg & Hens, 2008). Hindustani Lever Limited (HLL) adjusted her business in India after a local entrepreneur snatched up market share. HLL realized that creating business from the ground up resulted in a vastly improved, more eco friendly product and more viable business results. HLL drastically reduced its water-to-oil ratio, decentralized production, and took advantage of a large labor pool and social network in rural markets, all of which slashed cost structure and thus enabled a lower price for the product (GBN, 2003; WBCSD, 2005).

These examples and recent studies (Wayenberg & Hens, 2008; Immelt et al. 2009; Mahajan & Banga, 2005) have shown that several multinational organizations (GE, Nokia, Ford, Philips, Tata, P&G) have started utilizing the reverse innovation method in the BoP markets. Organization that utilize this method must change its core capabilities to match the distinctive characteristics of the foreign market (Craig & Douglas, 2000; Domzal & Unger, 1987; Gupta et al. 2008). The organization’s ability to leverage its distinctive capabilities and intangible assets depends on its ability to establish mechanisms to facilitate organizational learning and the transfer of knowledge across markets becomes important for success (Hall, 1993; Prahalad & Hamel, 2003). Although its impact on export performance is not immediate, the export firms’ management should design marketing strategies adapted to the needs and preferences of the foreign markets (Navarro et al., 2010). Consequently, the reverse method seems to need maximum adaptation towards the characteristics of the foreign market due to the distinctive differences with the domestic country.

Table 2.2 (next page) shows an overview of innovation strategy methods comparing backward & reverse along key dimensions. In this table, backward innovation and reverse innovation with their respective, definition, characteristics, examples and objective are shown. This table provides a better understanding of the differences and comparisons of the two methods of innovation. The next section explores on the New Venture Development process to explain how new ventures are executed.


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Backward Innovation Reverse Innovation

Definition Pushing old & stripped down versions of existing products

Creating new products to innovate and create new business.

CharacteristicsStandardization, knowledge of consumer needs, local partners for distribution, marketing and sales.

Bottom-up co-development, deep knowledge on consumer needs, local partners for development, distribution, marketing and sales.

Examples Nike World Shoe, Low cost Mobile Phone, EyeGlasses

Tata Nano, GE Mac 800, Water Purifier

Organizational ObjectiveFirst mover advantage, quick profits, extending global business.

New business markets, long term sustainable business, expanding to global markets.

Table 2.2: Overview of Innovation Strategy methods

2.2 - New Venture Development in the BoP

Executing an innovation strategy requires use of an organization’s core capabilities and resources in a structural process (Barney, 1991, Pertusa-Ortega et al. 2010; Craig & Douglas, 2000). Organizations need to make structural changes to support the strategy of entering the BoP (Prahalad, 2004). When entering new markets like the BoP, most often an organization uses a “new venture development” tool to evaluate a project and make decisions. Common development tools for new markets are the “Bell Mason”, “Cooper Stage Gate” and “Strategic Assessment” frameworks (Mason & Heidi, 2003; Cooper, 1990; Porter, 1985). Where the Bell Mason diagnostic is different is that it provides a systematic, multidimensional graphical evaluation of a venture across twelve dimensions (Mason & Rohner, 2002). Mason & Rohner’s article has been cited by 28 other academic articles (Google Scholar, 2010) which suggests that this document is valid for considering adopting frameworks from within. Mason & Rohner (2002) quote: “On the basis of years of experience combined with the analysis of 600 companies, Bell and Mason jointly established a well-defined process for successful venture development”. For this research, the Bell Mason framework is chosen as the NVD process in BoP markets, due to its 25 year history of providing 1000 organizations solutions for building innovation and venturing programs (BellMasonGroup, 2010). Also, it provides a development framework specifically for venturing within an organization, whereas others focus on competitive advantage of the organization or product development. Figure 2.1 (next page) shows the Bell Mason framework as of today (BellMasonGroup, 2010).


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Figure 2.1: Bell-Mason framework of an ideal New Venture Development (Bell, 2004).

The twelve dimensions in the Bell-Mason framework are complemented by four phases that define the development of the new venture. Figure 2.1 shows twelve dimensions distributed along four phases. Each phase is a cumulative process of utilizing a set of dimensions. Resulting in the last phase utilizing all twelve dimensions. Mason & Rohner (2002) quote: “Their proven system, the Bell Mason diagnostic, is a tool for assessing the health of a growth enterprise at four well-defined stages of development”. Figure 2.2 shows the four stages of the NVD process according to the Bell Mason framework (BellMasonGroup, 2010).

Figure 2.2: New Venture Development process phases (Bell, 2004).

Each phase shows a cumulative process of utilizing a set of dimensions for the ideal way of new venture development. We will define a set of dimensions that are most important per phase as ‘key dimensions’ in the new venture development process. This helps to create a simpler and more effective overview of the NVD process in a venture. Noticeable is the dimension ‘CEO’ of a project, which is key in every phase. The CEO is the chief executive officer of the new venture development process according to Mason & Rohner (2003).

Bell MasonNew Venture Development process

Phase 1Concept Phase

Phase 2Seed Phase

Phase 3Product

Development

Phase 4Market

Development


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This dimension will be noted as the key dimension of each phase. Consequently, phase one shows, ‘business plan’, ‘cash’ and ‘technology’ as key dimensions. Phase two shows the same with ‘fundability’ in addition. Phase three shows all key dimensions mentioned before with ‘marketing’ and ‘product’ added to it. Last, phase four also contains all key dimensions previously mentioned plus all key dimensions still left unmentioned. Table 2.3 shows the cumulative key dimensions per phase in the Bell Mason framework (BellMasonGroup, 2010). Next, we continue this review with the key success factors in the BoP.

NVD PhasesAll

PhasesPhase 1:Concept

Phase 2:Seed

Phase 3:Product

Development

Phase 4:Market

Development

Bell Mason dimensions

Team


Delivery


Sales


Control


Board

Bell Mason dimensionsProductProduct

Bell Mason dimensionsMarketingMarketing


FundabilityFundabilityFundability


Business PlanBusiness PlanBusiness PlanBusiness Plan


TechnologyTechnologyTechnologyTechnology


CashCashCashCash


CEOCEOCEOCEOCEO

Table 2.3: Cumulative key dimensions in the Bell Mason framework of an NVD process (BellMasonGroup, 2010).

2.3 - Key Success Factors in the BoP

Literature on strategy concerning the BoP has expanded throughout time and resulted in a large number of case-study focused articles (i.e. Arnould & Mohr, 2005; Gabel, 2004; Wayenberg & Hens, 2008; Weiser, 2009). Adding to the literature in previous sections, our search has led to successful strategies in the BoP that have discovered key success factors which drive the performance of businesses in the BoP. From our accumulated library of literature, articles where selected on the criteria that they describe factors which explain success for business in the BoP. This deeper selection of literature resulted in 1 qualitative review of the BoP literature, 23 qualitative articles on factors for success based on case studies in the BoP, 2 books on strategy in the BoP and several interviews publicly available on the internet. Appendix D shows the list of literature on factors for successful strategy in the BoP.


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To achieve a combined view of the literature to establish the key success factors in the BoP, the literature list, see appendix B, has been analyzed by cross comparisons. The most important key success factors have been derived based on two selective criteria. The first criteria is based on the amount of researchers that have associated the same factors with success without referencing to each other. The second pertains review articles of the BoP literature. These are included due to their added qualitative value. The cutoff for a key success factor has been set on five articles that associate the same factor considering the above criteria. It was, however, interesting to note that there were no case studies on failures in the BoP. Rotating the table in appendix D combined with the above criteria shows us which factors are most supported in the literature. Table 2.3 shows the summation of these factors.

Key factor LiteratureLiterature

Understanding consumer needs

Waeyenberg & Hens (2008)Gabel (2004)Hart (2005)Arnould & Mohr (2005)Mahajan & Banga (2005)

Weiser (2009)Nielsen & Samia (2008)Bang & Joshi (2008)Wood et al (2008)Immelt et al. (2009)Sridharan & Viswanathan (2008)

Fit project price point to consumer income

Prahalad (2004)Immelt et al. (2009)Pitta et al. (2008)

Wood et al (2008)Rajagopal (2009)Waeyenberg & Hens (2008)Sridharan & Viswanathan (2008)

Make use of non-traditional local partnerships

Waeyenberg & Hens (2008)Rost & Ydren (2006)Gabel (2004)Shankar et al. (2008)Sridharan & Viswanathan (2008)

Altman et al. (2009)London & Hart (2004)Arnould & Mohr (2005)Weiser (2009)Pitta et al. (2008)Iyer et al. (2006)

Build capabilities to leverage market characteristics

Morgan et al. (2009)Anderson & Markidos (2007)Anderson & Billou (2007)Martinez & Carbonell (2007)Rost & Ydren (2006)Silverthorne (2007)Mahajan & Banga (2005)

Gabel (2004)Shankar et al. (2008)London & Hart (2004)Arnould & Mohr (2005)Weiser (2009)Nielsen & Samia (2008)Bang & Joshi (2008)Iyer et al. (2006)

Build world-class local management teams

Shankar et al. (2008)Altman et al. (2009)Immelt et al. (2009)

London & Hart (2004)Rajagopal (2009)Li & Scullion (2009)Sridharan & Viswanathan (2008)

Table 2.3: Most supported key success factors in the BoP

The five most supported key success factors that drive NVP are explained in the following paragraphs.First, many researchers (Wayenberg & Hens, 2008; Gabel, 2004; Arnould & Mohr, 2005; Weiser, 2009) have found that organizations need to understand the local consumers’ needs well to captivate important insights for the development of solutions. By gaining deep consumer insights, an organization can create more knowledge of the markets in which it operates. This results in an organization that is better able to fit its


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project propositions to the needs of the consumers in that market. When an organization fully understands the needs of the consumers in a developing market, it is more likely to create fitted solutions for this market, thereby increasing NVP (Wayenberg & Hens, 2008; Gabel, 2004; Arnould & Mohr, 2005; Weiser, 2009).

Second, creating affordable products or services, lowering distribution costs or using other innovative solutions to achieve a costs advantage can create NVP in the BoP markets (Immelt et al. 2009; Rajagopal, 2009; Pitta et al. 2008; Wood et al., 2008). When offering solutions to the BoP consumers, the products or services need to meet the income level of these individuals, due to their low income range. Offering community solutions in the BoP makes products or services able to be more expensive (Hart, 2005; Weiser, 2009). This gives us two scenarios for creating NVP. One, selling products or services for individuals, an organization needs to be able to meet low cost production levels to reach low price points for the BoP markets. Two, selling products or services for a community, an organization needs to be able to fit the price points that a community is able to spend upon. The more satisfaction the community or individual has with the product the greater the brand image of the organization, which may potentially increase NVP.

Third, the same researchers also agreed on the importance of nontraditional local partnerships to leverage the environmental challenges in the BoP markets (Arnould & Mohr, 2005; Shankar et al. 2008; Weiser, 2009; Gabel, 2004). When an organization creates nontraditional local partnerships or acquires local organizations, it can accelerate its access to the BoP markets (Rost & Ydren, 2006). Nontraditional partners refer to organizational institutes whom operate in circuits that would normally not be in the radar of the organization. Examples of these nontraditional organizations are: Academic networks, Nongovernmental organizations, Niche Financial services & floating initiatives (GBN, 2003). These local organizations as partners or business units are more able to penetrate BoP markets with their local knowledge and talent pools. This serves an organization better than trying to tackle the difficulties alone.

Fourth, many researchers conclude that organizations that rely on leveraging the strengths of the existing market environment outperform those that focus on overcoming weaknesses (London & Hart 2004; Martinez & Carbonell 2007; Nielsen & Samis 2008). In the BoP markets, the distribution and promotion of the projects is still very difficult due to the lack of physical and financial infrastructure (Prahalad, 2004). Geographically the consumers in the BoP areas are dispersed and the lack of electricity in many areas makes promotion difficult to achieve. When using these difficult environments to ones advantage, the rewards are high in terms of NVP (London & Hart, 2004).

Fifth, organizations which experience success, have focused on cultivating world-class local management teams that provide a competitive edge in product design, promotion and distribution (Shankar et al. 2008; Altman et al. 2009; London & Hart, 2004; Rajagopal, 2009). Being present in the BoP for an organization has many hurdles and opportunities in a short time. Being present with local management teams increases the flexibility in the development of projects. An environment as rapidly changing as the BoP environment forces short decision cycles and good knowledge management (Immelt et al. 2009). Thus, local management teams are essential for these irregular environments (Govindarajan, 2009).


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2.4 - Developing a Conceptual Framework

This section provides the development of a conceptual framework that shows the New Venture Development process in the BoP. This framework consists of three elements. First, key success factors derived from the literature drive the NVP in the BoP. Second, an innovation strategy influences the performance of these key success factors. Third, the New Venture Development process takes on the four phases adopted from the Bell-Mason framework (BellMasonGroup, 2010) and influences how the key success factors are executed in an innovation strategy.

First, we pose that certain key success factors drive the NVP which are executed in the new venture development process in the BoP. Our literature research (section 2.3) shows that five key success factors drive NVP in the BoP and are executed in the new venture development process (Pitta et al. 2008; Weiser, 2009; Simanis & Hart, 2008). First, understanding the consumer needs will give insights into first mover advantage or innovative solutions, depending on which method of innovation is utilized (Nielsen & Samia, 2008; Arnould & Mohr, 2005; Hart, 2005). Second, affordable product / service offerings are extremely important for these consumers, due to their unordinary low income and cash flow (Wood et al. 2008; Rajagopal, 2009; Wayenberg & Hens, 2008). Third, creating and utilizing nontraditional partnerships will help entering these markets and leveraging many roadblocks such as, marketing, distribution and sales (Gabel, 2004; Rost & Ydren, 2006; Shankar et al. 2008). Fourth, understanding market specific characteristics and leveraging these by building capabilities will improve on the efficiency of delivering the product offerings (Morgan et al., 2009; Anderson & Markidos, 2007 Martinez & Carbonell, 2007). Fifth and finally, creating and managing local world-class teams will ensure that business in these markets run efficiently (Altman et al., 2009; Immelt et al., 2009; London & Hart, 2004).

Second, according to the resources-based-view and contingency literature, an organization’s strategy has an influence on an organization’s competitive advantage and thereby the performance of a new venture (Porter, 1985; Penrose, 1959; Chamberlin, 1933; Wernerfelt, 1984; Barney, 1991, Pertusa-Ortega et al. 2010). Consequently, this path in literature shows that an organization is able to achieve NVP by how such an organization chooses to use its core capabilities in a market. According to our literature research (section 2.1.1), the international era made organizations want to extend their business onto new markets. In this process studies have shown that an organization focused on global success would try to leverage its core capabilities in new markets by segmenting them into similar market characteristics (Domzal & Unger, 1987; Craig & Douglas, 2000; Gupta et al. 2008). Accordingly, Craig & Douglas (2000) quote: “Organizational capabilities determine how such an organization competes in a marketplace where distinctive capabilities are the foundation of a firm’s position in the marketplace”. A firm initially entering international markets typically attempts to leverage its domestic positional advantage on the basis of its assets and distinctive capabilities (Mahajan & Banga, 2006; Domzal & Unger, 1987). Because these are defined in relation to customer needs and competitors in the domestic market, the challenge is to leverage these in different and diverse international markets (Craig & Douglas, 1996; Dunning, 1998; Gupta et al. 2008). Consequently, making use of organizational capabilities influences a new venture performance in the BoP. Then, the choice


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of an innovation strategy, as seen in section 2.2, influences which capabilities are used or adapted and moderates their effectiveness on NVP.

Third, creating new ventures in new markets requires organizations to leverage their core capabilities or develop new distinctive capabilities. Craig & Douglas (2000) define important issues which need to be considered in assessing whether the capabilities of an organization can be transferred to international markets to create NVP. One of such refers to the extent to which the new markets are characterized by distinctive consumer needs, competitors and market infrastructure and separated economic, political and cultural barriers. “These distinctive aspects may require the firm to tailor its position and adapt or develop distinctive capabilities to meet the specific local needs” (Craig & Douglas, 2000). The needs of the consumers in the BoP are very much different from international markets (Prahalad, 2004). Also, the infrastructural systems, physical as well as financial, are one of the many barriers in the BoP to withhold organizations from conducting business in these markets the same way as in developed markets (Pitta et al. 2008). This shows that the evolvement of organizational capabilities is essential for entering new markets with distinctive aspects. Discovering and adapting core capabilities is not an easy task (Prahalad & Hamel, 2003). Consequently, creating new ventures in the BoP markets requires leveraging the core capabilities of the organization. The Bell-Mason framework (section 2.2) can very well be used and adapted for corporate venturing (Mason & Heidi, 2002). This framework is about adoption and evolvement of organizational capabilities by a heuristic and rule-based approach developed from best practices (Mason & Heidi, 2002).

A conceptual framework can now be created that consists of the following elements. This framework is about new venture development within an organization aiming for sustainable business in the BoP markets. The key success factors should represent the core capabilities of an organization to achieve a positive NVP. Where, NVP consists of three measurement levels (Prahalad, 2004; Brown et al. 2006), economical success in terms of revenue and ecological & social success in terms of sustainability. Thus, in this environment we pose that key success factors (section 2.3) drive NVP. The choice of an innovation strategy, influences which key success factors are used or adapted (Domzal & Unger, 1987; Craig & Douglas, 2000; Gupta et al. 2008). Therefore, the effect of these key success factors is moderated by an innovation strategy. In this research we focus on the backward & reverse innovation strategies. Leveraging the key success factors to maximize their execution in the venture strategy is influenced by the development process of the new venture (Prahalad & Hamel, 2003; Mason & Heidi, 2002). Thus, the effect of the key success factors is also moderated by the New Venture Development process. The New Venture Development framework as adopted from Bell-Mason is the standard for this research. The conceptual framework is shown in figure 2.2 (next page).


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Figure 2.2: Conceptual framework - New Venture Development in the BoP

New

Ven

ture

Dev

elop

men

t in

the

BoP

New

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3.0 - Methodology of the field research3.1 - Research Design

The field research design consists of refining & extending the conceptual framework, which will be done by studying cases of projects in the BoP. Refining and extending the framework suggests creating theory with the grounded theory approach (Locke, 2001). Grounded theory could be used to extent previous theory and make it more dense by filling in what has been left out; that is by extending and refining the theoretical categories and relationships (Locke, 2001). To complete answering research question 2 and answer research questions 1, we need to explore cases that can be investigated as a real life situation (Yin, 1994). According to Yin (1994) case studies are well fit for doing explorative research, in which a few cases will be used for deeper investigation. Eisenhardt (1989) mentions a qualitative case study is appropriate to understand relationships between variables within an unknown context. A thorough understanding of the phenomenon is important when doing case studies (Yin, 1994). Therefore, understanding strategies in the BoP requires studying selected cases from Philips and other organizations. Also, George & Bennet (2005) state that “an unfamiliar context requires a detailed consideration of contextual factors, which is extremely difficult to do in statistical studies, but is common in case study”. Hence, to inductively identify causal paths and potential new variables, a multiple case study design is chosen to explore New Venture Development processes in the BoP. In addition, Aken et al. (2005) state that innovation management problems can very well be studied through specific innovation projects. A case is thus defined as a BoP project within an organization. Therefore, the unit of analysis in this research is on the project level. Aken et al. (2005) also indicate that the performance of each project is a good measurement for cross comparison. Thus, a multiple case study will be performed. Consequently answering the first research question will be done by cross comparison of a set of cases. To achieve this, chosen BoP projects will be categorized into successes or failures. Although it might be difficult to quantify success, it is possible to examine in what phase the project is after a specified amount of time and use that for cross comparison.

The selection procedure of a set of cases is based on two kinds of criteria. The first kind of criteria is to select a BoP focused case. This means that this research selects cases that meet the criteria of a BoP venture described by Prahalad & Hammond (2002) and Prahalad & Hart (2002) as: “A BoP venture is a revenue generating enterprise that either sells goods to, or sources products from, those at the bottom of the pyramid in a way that helps improve the standard of living of the poor”. The second kind of criteria is to select cases that have similar characteristics as the proposed method of innovation. According to Yin (1994), cases that will be selected need to reflect the characteristics & problems identified in the underlying theoretical propositions. Thus, groups of cases will be put in the following two categories: BoP projects which strip down or sell old products or services & BoP projects which co-develop new products or services from the ground up. The number of cases should ideally be based on theoretical grounds, however it may also be based on pragmatic grounds (Aken et al. 2005). This is only when the number of cases is relatively too small to determine categorization. This research left room for the selection of more cases once the selected cases have been executed. Qualitative methodologists frequently argue that the selection of new cases should be


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based on results of cases that have already been executed (Yin, 1994). New cases could be used to replicate findings of earlier cases.

Actively searching for cases has been done on the internet complemented by contacts of Philips, which resulted in a number of cases spanning different organizations. Searching the internet for “reverse innovation case study” results in various dedicated websites including CaseStudyInc. CaseStudyInc is chosen as the primary source, because it is dedicated to business management case studies and case study resources. This source provides examples and short descriptions of case examples in both the backward & reverse innovation method category. Following up on these cases by either, extensive research on internet or e-mailing contacts of the organization, made it possible to compare these cases with the characteristics of the corresponding method of innovation. Unfortunately, contacting organizations didn’t result in viable leads for data collection. Contacts provided by Philips have been very fruitful, in contrast to leads from the internet. The Senior Director of EcoVision program at the corporate sustainability office of Philips is a member of an extensive network of contacts within and outside of Philips. Appendix E shows the preliminary case selection of this research, which resulted in a set of cases involving the organizations: Philips, DSM, Tata & Nokia. E-mailing and calling DSM, Tata & Philips contacts resulted in cooperative interviews with candidates. Nokia didn’t respond to the e-mails and calls.

Due to limited time available and unavailability of many suitable cases, the final case selection exists of a total of eight cases: four within Philips and four in other organizations. In this set up, three organizations are cooperating in the case studies, Philips, DSM & Tata. These organizations were represented by, 5 Philips employees, 1 DSM employee and 1 Tata employee. To increase the number of cases, each contact was asked to report on 2 cases. When we initially studied all 8 cases, four cases seem to resemble the backward innovation method and the other four seem to resemble the reverse innovation method. The results will show whether this selection on innovation strategy was correct. Table 3.1 (next page) shows the final case selection of this research.


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Case Description Company Contact Method of innovation

Helio BoPRenewable energy solutions for the BoP consumers where electricity is scarce or non-existent.

PhilipsAlok, J. (Team member)Kraaijnhagen, C. (Team leader)Van Heck, P. (Team member)

Reverse Innovation

Woodstove

Health and lifestyle solution based on clean and toxic free cooking mechanism. Philips Mancheron, H (Team leader)

Van Heck, P. (Team member)Backward Innovation

SMILELighting solutions for BoP consumers where electricity is scarce or nonexistent

Philips Jeanmaire, C. (Team leader) Backward Innovation

Off-Grid LightingLighting solutions for BoP consumers where electricity is scarce or nonexistent

Philips Jeanmaire, C. (Team leader) Backward Innovation

Tata NanoFour-wheel transport solution for BoP consumers that currently use two-wheel transport.

Tata K.V. Rao (Manager BoP) Reverse Innovation

Tata ACE Transport solution for goods transport in rural area’s in the BoP markets. Tata K.V. Rao (Manager BoP) Backward

Innovation

Neev Animal FeedIncome increase solution by use of educational service with product offering

DSM Manon Schuurmans (Manager BoP)

Reverse Innovation

Neev Dairy Income increase solutions by use of nutritional products and services DSM Manon Schuurmans (Manager

BoP)Reverse Innovation

Table 3.1: Final case selection of the field research

3.2 - Data Collection

To get useful insights in BoP innovation strategies two data capturing methods have been used. The conceptual framework provided potentially suitable concepts which could be useful to guide the field research. Consequently, methodological insights are derived from the “grounded theory” approach (Aken et al. 2005). Grounded theorists, do not construct theory by testing hypothesis, but have theory slowly emerge by creating an interplay between data collection and analysis (Charmaz, 2003). Data collection is often started by using “sensitizing concepts”. Charmaz (2003) states that “these concepts give you initial ideas to pursue and sensitize you to ask particular kind of questions about your topic”. In this research, the key success factors are used as sensitizing concepts.

On the one hand, data capturing has been done by use of interviews. When conducting interviews, the preparation phase is very important. According to Yin (1994), the researcher prepares to be well skilled in asking deep interview questions and is a good listener. For preparation, the perspectives of the interviewees were analyzed and the interview questionnaire has been prepared and send to the interviewees a week in advance of the interview. At the start of the interview, the interviewee has been informed of the research and he or she has been made aware of the confidentiality of the research. Also, the interviewees have been informed to get feedback on the results. Interview questions have been asked to well informed members of the organizations of which the case study is chosen (See table 3.1 for their respective functions). Whenever a single case is studied, questions have been asked to specific interviewees of that single case. On the contrary, whenever multiple cases at the same organization will be studied, findings across multiple cases will be the


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focus (Yin, 1994). Whenever possible, we have tried to interview multiple stakeholders within each organization for each case to strengthen the results from each organization.

The interviews were constructed to be semi-structured. The interview questionnaire which is to be found in appendix F is semi-structured with two sets of questions about the NVD project. The first interview questions were about the characteristics, the focus and goals of the project. This was done to get direct and indirect feedback on how much a project resembles a method of innovation. Also, the answers of this set of questions were used to get insights into whether success is or can be achieved. The second set of questions were about the NVD steps in the project to establish what the do’s and don’ts are of conducting business in the BoP. This is to get information on what the learning points are to translate back to the key success factors in the BoP. Following Charmaz (2003), sensitizing concepts representing the key success factors were used to determine the subsequent questions. Last, the interviewees were asked to provide other BoP projects or contacts in the organization to increase the number of cases and interviewees. Towards the end of the interview, time was made available for additional information, a debriefing and questions could be asked from the interviewee’s perspective.

On the other hand, to obtain more information and understanding of the cases, data capturing has been done by use of documental & archival records. Unfortunately, not all cases could be consulted by different contacts. Thus, secondary sources and documents from the organizations have been consulted. These documents include: annual reports, incidental reports of projects and procedure presentations. The documents described the characteristics of the products / services and some documents provided information on the status and goals of the project itself. This increases construct validity by converging findings from different sources. An important advantage of documentation is that it may provide information that organization members have partly or completely forgotten (Aken et al. 2005). Whereas an important disadvantage is that there is no room for asking questions to obtain additional data or to clear things up (Aken et al. 2005).

In total, 7 interviews were conducted, 12 archival documents collected and 2 meetings were attended. Studying eight cases and conducting only seven interviews was due to the limited time constraint and the structure of the BoP business. Most BoP cases are small and have only one manager. Consequently, not many contacts were available for questioning. All interviews have been recorded and transcribed for data analysis. The recordings have been processed in a word processor within the first week of the interview date. The transcribed data of the interviews, except for the Tata cases, have been sent to the interviewees for evaluation. After receiving them back from the interviewees with feedback, they were processed into the qualitative data analysis software program. The archival documents of the Philips cases have been received from the Corporate Sustainability Office, the other documents are captured by searching on the internet for case studies of each case. In addition several ‘Off-grid Lighting: community solutions” meetings were attended. The goal of these meetings was to develop a portfolio of Off-grid Lighting products for the BoP. The attended meetings took place in the early stages of this project. Brainstorming on BoP success factors was the focus of these meetings. Table 3.2 (next page) shows the data collection per case.


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Case Archival Documents collection Alternative collection

Helio BoP New Sustainable Business at the BoP booklet, Philips 2007;

3 Interviews on Helio BoP, on lasting 30, another 45 and another 60 minutes; Held with program manager and two team members;

Woodstove Philips DAP, sustainable business initiative, 2004

Case Study on BoP businesses at Philips, Master Thesis, Hans Dahlkamp, 2008;

Woodstove PowerPoint Presentation for the World Bank Association, Philips 2009;

1 Interview on Woodstove, one lasted 45 and the other 60 minutes;

Smile SMILE Original business plan, Philips 2006

SMILE Market insights report, Philips 2005, 2006

SMILE Review meeting report, 2006

SMILE progress report, Philips 2007

SMILE Strategic plan update, Philips 2007

1 Interview on SMILE and Off-grid lighting cases, lasting 60 minutes; Held with the BoP program manager.

Off-grid Lighting

Case Study on BoP businesses at Philips, Master Thesis, Hans Dahlkamp, 2008;

Philips Lighting total program report, Philips 2007

Community Solutions in the BoP booklet, Philips 2010;

Off-Grid Lighting business cases booklet, 2009

In combination with above interview;

Off-grid Lighting Community Solutions Meetings, 2 times 1 hour;

Tata Nano Case study Tata Nano, University of Technology Nanyan 2010;

Case Study on Tata Nano in article of van den Waeyenberg & Hens (2008)

1 Interview on Tata’s cases lasting 45 minutes; Held with BoP business manager;

Tata ACE Case study Tata ACE, University of Technology Nanyan 2010

Same interview as above.

Neev Animal Feed

Case Study on BoP businesses at DSM, Master Thesis, Hans Dahlkamp, 2008;

1 Interview on DSM’s cases lasting 60 minutes; Held with the BoP program manager.

Neev Dairy Case Study on BoP businesses at DSM, Master Thesis, Hans Dahlkamp, 2008;

Same interview as above.

Table 3.2: Data collection


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3.3 - Operational Analysis

The process of analyzing the data was done in two parts, refining the sensitizing concepts and by use of open coding. The grounded theory approach is data-driven and is defined as a structured approach for the exploration of unfamiliar territory. This approach aims at the development of concepts and relationships between concepts (Aken et al. 2005). Refining the sensitizing concepts is done to strengthen the key success factors by analyzing the data. Open coding software, called “NVIVO” version 8, is used for exploring possible new factors. With open coding, new concepts and relationships will be developed. These concepts and relationships will extend the conceptual framework into a full framework that explains which factors are of influence and how these are related to the new venture performance in the BoP.

First, refining the sensitizing concepts consisted of a writeup of a summary by use of an analysis protocol, of which examples can be found in appendix G. The grounded theory approach gives importance to the early start of analyzing data while the research is still in progress (Charmaz, 2003). Hence, from the start of the interview, the data was analyzed to explore the sensitizing concepts, but also to discover the role of the organization in the project. For example, the first interviewees mentioned the importance of the organizational commitment from the top. Consequently, questions about the role of the top management were added and how the project was managed from the organization. Furthermore, the interview questionnaire was discussed with the Senior Director of EcoVision at Philips to discover leads to other relevant units of observation. For instance, questions were added about the role of the decision maker in the project and how the project is financed. This was to establish how the organization is involved in BoP projects and how this is regulated. As a result, it was necessary to hold the interviews with contacts who play important roles in the project’s process. During the interview part, the sensitizing concepts were refined and new concepts were explored. These concepts can be related to the key success factors shown in the following table:

Key success factors Sensitizing concepts

- Organizational Focus

Understanding consumer needs Consumer Insights

Fit project price point to consumer income Financing of the product

Make use of non-traditional partnerships Creating partnerships

Build local management teams The organizational team

Build capabilities to leverage market characteristics Understanding and overcoming the market characteristics

Table 3.3: Relating sensitizing concepts to the key success factors.


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A summary in the form of an analysis protocol, found in appendix G, has been made of each interview and consists of the important parts of the interview described in the refined concepts. These concepts refine the key success factors derived from the literature by broadening the concepts. Thereby, the key success factors are retained and extended with broader areas of insight. In the end, the interview part resulted in around 7 hours of interviewing with 7 different contacts (see table 3.2). All 7 interviews were digitally taped with a recorder. Subsequently, the recorded interviews were transcribed for analysis.

Second, the captured data from the interviews have been transcribed and coded by use of the NVIVO qualitative analysis software. The concepts described above are deliberately not used during the coding process. This could have obstructed the open attitude towards the data and neglected important information about the actual activities in the BoP projects of the organizations. Therefore, we started with an initial coding process (Charmaz, 2003). The objective of coding was to reduce the data by finding relationships between the activities in the NVD process and the results of the project. To achieve this, data was coded by looking for actions that have been taken, what the best practices were and what the learning points were in the view of the interviewees. This resulted in 310 quotations with 53 different codes. Then, second order coding was used to sort and synthesize large amounts of data by adopting frequently reappearing codes (Charmaz, 2003; Maitlis & Lawrence, 2007). Thus, the 53 first order codes were reduced to 16 second order codes that made the most analytical sense. This meant that, for example, a group of initial codes fit into another initial code or a new second order code was made to gather a group of first order codes (Mailtis & Lawrence, 2007). The 16 second order codes can be called ‘mechanisms’ according to Campbell (2005). Campbell (2005) explains mechanisms as: “the processes that account for causal relationships among variables. Mechanisms are the nuts, bolts, cogs, and wheels that link causes with effects”. The resulted mechanisms are related to each other in a way that they are interconnected and together determine NVP. The relations between the mechanisms play an important role in developing business in the BoP. Therefore, a theoretical coding process is necessary to explain these relationships between the mechanisms (Charmaz, 2003). This will be done by ordering the 16 factors on a higher aggregate dimension by use of the literature on strategy in the BoP (Maitlis & Lawrence, 2007). The resulting 6 aggregate dimensions may differ in name with the key success factors found in literature, because they resemble the data better. Appendix I shows the complete data coding process. Table 3.3 (next page) presents an example of the coding process.


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Quotations (310) First Order Code (53)

Second Order Code (16

Mechanisms)

Aggregate dimensions (6 Key Success Factors)

“It is starting, but it is not there yet. I could easily talk, but I think we need to be a bit more ambitious. So put the means to the table. We can always put high figures in terms of numbers of products to be sold.”

Be ambitious and act on business in the BoP

Have Open & Clear Organizational Commitment

Organizational Focus

“I think the key is that you need to realize that this business needs a fully different approach; you can’t say this is done by the existing organization. You need to really define the BoP as your strategy, to say, for example Nokia or DSM or Philips is a player for the BoP markets.”

Be ambitious and act on business in the BoP


Organizational Focus “You need to invest in the future, but obviously you also need to keep in mind that there are billions of these people who want to get used to your brand and want to continue with your brand. Therefore it is very important to get them into this market right now.” State

motivational efforts for the BoP



“I am not saying it is very profitable, it is soul satisfying and yet profitable. It need not be. Question is profits should not be only motivation for company. The day is that you owe it to society to improve live and it can incidentally be profitable too. Make them create profit and they take care of their own profitability.”

State motivational efforts for the BoP



Table 3.4: Example of the coding process, Organizational Focus.


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4.0 - Results

4.1 - Refining & Extending the Conceptual Framework

This chapter shows the results from the case studies and the data analysis of the interviews. The case studies can be found in appendix C and will serve as background for determining which case matches with either the backward innovation or reverse innovation method. These studies will also clarify which project has achieved success in both, economical, social & ecological terms or has potential of doing so. The data analysis from the interviews have been used in combination with the case studies to set up a framework of factors that explain the NVP of a BoP case.

Case study shows that none of the studied cases can be linked completely to the backward innovation method. This tells us that our earlier estimation of the innovation strategy method per case was too broad. The case studies (Appendix C) show that four cases fit the reverse innovation method; the other four cases match partly with both types of innovation strategy methods. A possible explanation is that all three organizations have moved towards implementing reverse innovation or something in between. It is very much possible that older projects conducted at these companies can be linked completely to backward innovation as literature shows a movement towards reverse innovation. Table 4.1 shows the cross comparisons in types of innovation strategy and NVP per case.

Cases Characteristics Objective Products PerformanceTriple Bottom

Line

Future (Global) Performance

Helio BoP Reverse InnovationReverse Innovation N.A. Potential Potential

Woodstove Reverse Reverse Backward Medium Potential

SMILE Mix Mix Mix Negative Aborted

Off-Grid Lighting

Mix Mix Mix Medium Potential

Nano Reverse InnovationReverse InnovationReverse Innovation Positive Potential

ACE Reverse InnovationReverse InnovationReverse Innovation Positive Potential

Neev Animal Feed

Reverse InnovationReverse InnovationReverse Innovation Positive Potential

Neev Dairy Reverse InnovationReverse InnovationReverse Innovation Positive Potential

Table 4.1: Cross comparisons of the studied cases.

This means that we cannot compare the two methods of innovation with each other, however we can see a difference in the level of utilization in the reverse innovation method. The results show a difference in NVP between the cases that fully utilize the reverse innovation method and the cases that partly utilize a method.


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This result matches our theory that organizations are moving from backward innovation towards reverse innovation. It seems that some projects are at the moment in between these methods and received medium to low NVP. There is one case that resembles the reverse innovation method, but is still in the early development phase to conclude full utilization. From the case studies we can conclude, that projects fully utilizing the reverse innovation method experience a higher NVP than the cases which are in between strategies.

Figure 4.1 (Next page) shows the framework of elements that explain the variance in a new venture’s performance in the BoP. First, six key success factors have been found in the data analysis with their respective mechanisms. the 16 mechanisms were ordered under the 6 aggregate dimensions. These are the key success factors where each has 2 or 3 mechanisms. These mechanisms explain how a key success factor must be utilized to achieve the NVP. The key success factors with their respective mechanisms can be found in the figure on the next page. Second, the variance in an innovation strategy moderates the relationship between key success factors and NVP by differencing in the use of the mechanisms. Third, the implementation of the key success factors in the New Venture Development process was derived by combining the data analysis with the Bell Mason framework (section 2.2). These three effects will be explained in the next sections of this report. Figure 4.1 shows the refined & extended framework previously developed in section 2.4.


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Figure 4.1: New Venture Development in the BoP.

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4.2 - New Venture Development in the BoP

The resulting key success factors in figure 4.1 will be explained by incorporating them in the NVD process and at the same time differentiating between innovation strategies. Most key success factors show similarities with the derived factors from literature. However, the names of the factors are different, due to better alignment with the mechanisms from the data coding process. The data analysis process (section 3.3) shows that all key success factors derived from literature have been kept and refined with appropriate mechanisms. An additional key success factor “Organizational Focus” has extended the conceptual framework.

To answer the Research Questions the next sections will each be structured into the following three steps.

Step I - Place of the key success factor in the NVD processFirst we will explain how the key success factors with their representative mechanisms are incorporated into the NVD process defined by Bell (2004) and Mason & Rohnr (2003).

Step II - Innovation Strategy variance in the key success factorSecond, each phase of the NVD process will be elaborated on by explaining the differences between the two groups of cases representing an innovation strategy. Herein, we further elaborate on the utilization of the key success factors by explaining the mechanisms differentiating per innovation strategy where necessary.

Incorporating the key success factors in the NVD process was done by combining the data analysis and the Bell Mason framework of an ideal venture. The key dimensions of the Bell Mason framework as explained in section 2.3 were used for this part. Then, the key success factors were linked to these key dimensions, to establish which factors are most appropriate in each phase of the Bell Mason Framework. Appendix H shows the process that links the key dimensions of Bell Mason with the key success factors. Table 4.1 (next page) shows the incorporation of the key success factors in the NVD process, thereby extending the Bell Mason (2003) framework for NVD in the BoP. We proceed with the mentioned steps following each NVD phase.

NVD Phases

All Phases

Phase 1:Concept

Phase 2:Seed

Phase 3:Product

Development

Phase 4:Market

Development

Key Success Factors

Market Capabilities

Key Success Factors

Product FinanceProduct Finance

Key Success Factors Organizational FocusOrganizational FocusOrganizational FocusKey Success Factors

PartnershipsPartnershipsPartnershipsPartnerships

Key Success Factors

Consumer InsightsConsumer InsightsConsumer InsightsConsumer Insights

Key Success Factors

TeamTeamTeamTeamTeam

Table 4.2: Incorporation of key success factors in NVD process, extending Bell Mason (2003) Framework.


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4.2.1 - All Phases

Step I - Place of the key success factor in the NVD process

NVD Process phases Bell Mason dimensions Key success Factor

All phases CEO Team

Table 4.3: Incorporation of key success factors in all phases.

The venture development team has an important role throughout each phase of the NVD process. As all interviewees laid extreme importance on the role of the team, it becomes clear that this factor is the foundation for the NVD process. This factor matches with the ‘CEO’ dimension of Bell Mason perfectly, which supports the placement of the factor in all phases. It is essential for the team to be hands-on with the market and have regular consumer loops and consumer feedback. The team also needs to really understand the value chain and when it comes to market development, the team needs to have a strong presence in the country of destination. The BoP business means working with many partners and it includes interacting with other cultures. It is also important that time is made available to get to understand each other in the team. Included in the project should be the protocol for each team member to understand the culture, how to make decisions, etc. These decisions become clear in the mechanisms: Create a small entrepreneurial focused team, Have local knowledge processes and Have competent & serious team members.

Step II - Innovation Strategy variance in the key success factor

Team Mechanism 1: Create small entrepreneurial focused teamIn the BoP, a market which is young and still developing, a start-up culture of the project team is essential. Herein, a trial and error approach has more effect than traditional project management tools. The process can be described as entrepreneurial activity within an organization. The organizational team needs to be flexible; there must be room made available to be able to move fast and make quick decisions. In other words, the team must get the opportunity to evolve into the entrepreneurial culture that start-up organizations are famous for. The environment is rapidly changing, which forces you to make many decisions fast. This is not possible if embedded in the existing organization. The following quotes sum up the processes of the team in the BoP:

“Think big, start small and move fast.”

Team Key Success FactorIn all cases, the ‘Team’ factor was seen as the same, meaning that there is little variation in the use of its mechanisms.


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“It is an entrepreneurial activity to do business in the BoP, that is what makes it so much fun.”

“Yes, you need to have a start up culture. You need be free to react and do it fast and be

professional.”

Team Mechanism 2: Have local based knowledge processesHaving local based knowledge processes is an essential part of team performance in the BoP. From the results of the interviews, it is clear the team must be based in the local environment for optimal understanding of the BoP processes. Local organization is essential for a business in the bottom of the pyramid, a market that is so different and widely spread. Hence, the project cannot be lead from the home country. The Off-grid lighting team, however, has mixed feelings on where the organizational team should be embedded. They contemplate being home embedded is hard, because the focus of traditional business is too short for the BoP. However, they believe that being home embedded provides a large availability of resources. It is very important that the team stays focused, knows what it is doing and understands the market at all times. In this organizational scheme, it is essential that the knowledge flows inside the team, from consumer to the team and from the team to the organization. It does not work if everything is designed and operated from the home country to eventually be brought to the country of destination.

“It’s more that the knowledge has to flow, one way or another. There has to be as much as

possible input from the consumer, one way or another. To organize it, it’s anyway better than if you would really design everything from here to then bring it on the Indian market. The chance

for success is really really low. So the ideal situation is to have a local team for every country you want to serve”

Team Mechanism 3: Have competent & serious team membersFrom the data of the interviews, it becomes clear that the organizational team must take the BoP business serious. This means that the organizational team must consist of talented members with a serious commitment to make this work. It is often heard that people who join the BoP team have a philanthropic approach without being able to recognize it as business potential as well. For this, the team needs to consists of the right people. It doesn’t matter where they come from as long as they work local and are serious about the business. The team would benefit from partly consisting of local people whom have great knowledge of the markets and its consumers. Hence, building world class local management teams is an essential part of BoP business. The team would also benefit if it consists of both alpha and beta employees. Herein, alpha employees are visionaries with a great sense of how projects could be successful whereas beta employees have a great sense of how to organize the structure and financials of the project. Therefore, it is important to find the perfect balance between competence locally and competence from the main organization. Without good competence from the main organization, it is hard to get the business to work. The following quotes implicitly point out how organizations today are viewing business in the BoP and why this mechanisms is important:

“What I see is a problem with many of what the multinationals are addressing in the BoP is that


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the people who join the BoP have a lot to lose career wise”.

“The BoP market is quick and you need to make decisions. Since it is a new space, if you get in

the existing organization you get a lot of discussions of what people all think, which is based on not a lot really. And if you are the only one or two that actually know what is happening, you are

calling against a lot of people who have very strong opinions. So there is a danger in that.”

4.2.2 - Phase 1: Concept


NVD Process phases Bell Mason dimensions Key success Factors

1: Concept Cash - Business Plan - Technology Consumer InsightsPartnerships

Table 4.4: Key success factors incorporation in concept phase of NVD process.

New Venture Development in the BoP starts with getting consumer insights. Knowing the consumers is the first thing to aime for in the NVD process according to the interviewees. Getting consumer insights in many different areas will improve the process of creating viable solutions for the BoP consumers. The business plan & use of technology is dependable of consumer insights according to the interviewees. Thus, a better NVP will be achieved when having better knowledge on consumer insights. These insights can be divided in three mechanisms: Understanding the needs of the consumers, Understanding the wants of the consumers and Understanding the life of the consumers. In step two we will differentiate between innovation strategies which of these mechanisms are of use. The next quote implies the consumer insights factor to be placed in phase one of the NVD process.

“So before going into detail. What happens in the BoP? Since you don’t know the customers, you

don’t even know the question.”

Also important for phase one is the ‘Partnerships’ factor, which suggests to start partnerships processes as early as in the beginning of the NVD process. A clear result of the interviews is that Western multinational organizations cannot do successful business in the BoP alone. Consequently, the interviewees laid importance on finding the ‘right’ partners. This meant for them to search thoroughly and as early as possible to avoid problems down the line in the NVD process. The next obvious questions in relation to partnerships are, how many, how and with whom? These questions are answered by the following mechanisms: Create multiple alternative partnerships, Build trust based relationships, Make use of partners which exhibit excellence. Again, step two will differentiate between innovation strategies to explain how these mechanisms are used. A particular quote will describe why it is important to start with the partnerships process early on in the NVD process.


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“The first thing we did is spend a year and a half to define whom the right partners would be….So not only people saying yes sure I will do your research project, but okay now we sign up for a research program and then we want to take it to a commercial level…..Now they all say, that was the only right thing because you hear from many other players in the field that they have a lot of problems with their partners and constantly change and then have to start from scratch again.”


Consumer Insights Mechanism 1 - Understand consumer needsThe first mechanism is about understanding the consumer needs in the BoP. The first thing organizations do is identifying the customers and establishing their latent needs. All interviewees mentioned that the consumers needs are the first thing they looked at before conducting business. The same problems arise when asked what the results were from searching for the latent needs. Then, the interviewees all mentioned that there is a misunderstanding about what we “westerners” think their needs are and what actually has to be addressed in these markets. At this point it becomes difficult for some organizations to adjust and dig deeper. When asked what the learning points are or what they should be doing right, they all gave importance to deeply understanding the real “needs” of the consumers.

“It is a risky proposition, the BoP, and you really have to make sure that you then really take into

account what are the needs and make the necessary adaptations.”

Consumer Insights Mechanism 2 - Understand consumer wantsThe interviews showed there is a huge difference between the needs of consumers in the BoP and the wants of these consumers. The cases that resemble the reverse innovation method have explicitly pointed out that the “wants” is actually where you should be looking for solutions for these consumers. These interviewees agreed that the “wants” are an important mechanism in achieving better results. In the data, often “wants” is exchangeable with, “desire” and “aspiration”, due to differences in wording. The other cases were more

Consumer Insights Key Success FactorThe innovation strategies showed differences in the utilization of mechanisms. The reverse innovation method shows importance to making use of all three mechanisms. Whereas cases positioned in between laid importance on only the ‘Understand Consumer Needs” mechanisms. This partly explains the lower NVP in these cases.

Partnerships Key Success FactorThe innovation strategies showed differences in this factor in the second mechanism. The mechanism ‘Building trust based relationships’ was only recognized in the reverse innovation method cases.


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focused on the needs, and only when asked on how they could improve the consumer insights they mentioned the ‘wants’. More importantly, after establishing the ‘wants’ it is essential to match these results with the ‘needs’ to have a sustainable and complete solution. The explanation of the difference between the needs and the wants is explained by one of the interviewees in the following story:

“A need is not essentially a desire for them. That is the first thing we need to understand. They may have a need of water purification; they may have a need of efficient cooking, because they

have a lot of smoke. But those are not things that can convert into desires. So what is a desire for them, I believe if you ask them, they will all talk about light, they will all talk about watching TV,

mobile phones, these kinds of things. Those are real desires. And then if you have resources, they would like to work hard to get those resources and then settle these desires.”

Consumer Insights Mechanism 3 - Understand consumer lifeThe key to getting the insights from these consumers to understand the needs and wants is to get close to the consumer. This means everything in the whole environment of the consumers should be thought of and tried. It starts at understanding everything this market has and doesn’t have, before getting the insights even. This also means redesigning the processes to match the ‘needs’ and ‘wants’ at multiple times repeatedly. Acting on these consumer insights means approaching them with products or services that showcase the solution to their needs and wants. Consumers in the BoP need to understand the functionality of the product to get the value it provides. BoP products should be understood on first sight. Hence, functional communication is very important, because consumers in the BoP are value sensitive. It is not just about the lowest price, they also want value for money. If they really want something, they will find a way to get it. Here again, the cases that resemble the reverse innovation method focused on the importance of this mechanism, whereas in the other cases this mechanism was absent. This may explain the difference in NVP, due to the reverse innovation cases being more able to create viable solutions that consumers are willing to consume. The following quote portrays the importance of the third mechanism:

“If you are going there, don’t go only to the consumer, but spend time in the whole market and understand where they go to do groceries, understand where they go to school, understand

where they get their health. You have to get the whole context, otherwise you miss. Because it is so far away from our reality and we have very pre-opinions. Make sure that you really

understand the context.”

Partnerships Mechanism 1: Create multiple alternative partnershipsCreating multiple alternative partnerships helps the organization with: capturing consumer insights, co-development, leveraging market characteristics, financing propositions and building organizational teams. All interviewees stress the importance of creating partnerships, but differ on how many relations should be set up and with whom. It is clear you do need multiple partnerships, but not too many in order to keep oversight. Philips points out that too much weight is put on nontraditional partnerships. These types of partners do play a role in the whole process, but there is much development happening in the traditional distribution & marketing and a lot of experience has been gained in the last five years. Also, the market is


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still evolving and much is happening in the partnership area. These traditional organizations are going to be part of more alternatives in the BoP as opposed to nontraditional organizations. This has also become clear in the rise of major micro finance institutions that have portrayed multiple roles in the New Venture Development processes. The following quote elaborates on the status of nontraditional partnerships and the importance of multiple alternative partnerships.

“I think that very often our company expects too much from their partners, especially from the NGO’s. The learning that we had was that we should work with NGO’s but should not expect too

much. And repeatedly we expect too much . The trick is also that we need various partnership, so it is really a multiple partnership. Private and public.

The data shows that small groups of partners are often preferred over having one large partner. This is advised by DSM and by the field team that works on the Off-grid lighting solutions in the BoP. A large partner will eventually deal with multiple smaller organizations whom in turn will not deal directly with the main organization. Whereas multiple smaller partners will be in direct contact with the main organization at most stages of the project. The following quotes explain the preferences for small partners.

“Well, our India team has chosen to work with small partners for some reason. We had in the mean time the recommendation to work with a bigger one. And the tricky thing is, we are here

and we are not supposed to tell them what to do.”

“Small Local partners. First of all, you would not find one that is catering to whole India. They

will all go to different partners to different partners to different partners.”

Partnerships Mechanism 2: Build trust based relationshipsThe second mechanism emphasizes the importance of how to build relationships with partners in the BoP. The reverse innovation cases show that partnerships must be taken seriously and need to be build on well founded grounds. The cases, which are in between strategies, don’t show trust based relations in their process. Although, when asked how things could be improved, the interviewees mentioned that searching for partners could be improved on this mechanism. According to DSM, the key here is to invest time upfront to choose the ‘right’ partner for the business plan at the beginning. That way much time can be saved later on when the project is in process. They also find it important to have a trustful relationship with the partners. In this relationship the balance of power is important. It is often found in the BoP markets that partners have more control because there are so many organizations trying to sell propositions. It is an important learning process that most partner institutions don’t act until they have sight of an offering from the main organization. Hence, it is very important to build professional relationships with BoP partners based on trust. This is to ensure that you become a preferred partner of these kinds of institutions. Then, they can ensure you that your propositions get to the consumers. The following quotes are examples of the second mechanism that explains how important building trust based relationships are in the BoP.

“Yes, well try to find your partner in real life. And then you have the difference in culture. Why


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should they suddenly trust you. Why would you have their best interest in mind. Who says you are not gone in 2 months because you don’t feel like it anymore.”

“Yes, it is really finding a match. I mean you have to find it. It is not someone who is raising money and than not reporting back what is happening. If it is a professional organization, are

they willing to work with companies or are they looking more to be an advocate and target companies?”

Partnerships Mechanism 3: Make use of partners which have excellenceThe third mechanism is about which partners match with the organization’s focus and goals. It is found that partners which have excellence in areas where the main organization is missing excellence are of great importance. Organizations are in need of leverage and scale, which is what you search for in partners. Hence, partners must have the scale and reach to be able to interact with the consumers, because the consumer doesn’t visit the regular distribution system. The key here is finding partners that are actively working in the field and have economies of scale. Partners must possess the ability to reach the consumers, act professional and must be able to work together with other organizations. You also need to look for partners that are moving forward in a sustainable way. You can’t succeed without partners, even without MFI’s. These institutions often also act as your distribution and promotion partners by bringing your offerings to the consumers while financing them. Partners must also have a known image at the communities where the consumers live. The partner organizations must be recognizable and valued by the consumers and by NGO’s, whom already interact with consumers on a large scale.

“Then, what we found important is that they would have a certain reach. How many animals can they cater to or how many farmers can they cater to? How is that infrastructure around it. How

are they seen and valued by the communities, especially the NGO’s image.”

“A partner needs to have the reach, as simple as that. The ability to reach out and to be able to

make it affordable. Because if your product is 10 cents and the costs of distribution is 5 cents, you’re dead. You need various people who can distribute it at 10 cents lower than others.”

4.2.3 - Phase 2: Seed



2: Seed Fundability Organizational Focus

Table 4.5: Key success factors incorporation in seed phase of NVD process.

The interviews show that organizational focus is an important factor for a BoP venture to achieve a positive NVP. Four in five reverse innovation cases showed that this factor guides the NVD process forward from the


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moment the business case is set up. The other reverse innovation case is on hold in this phase of the NVD process. The interviewees of this case reported that this factor is necessary for further progress of the project. In the in between strategies cases, extreme importance of this factor is mentioned when asked for improvement possibilities in future projects. The ‘Organizational Focus’ factor is therefore of extreme importance to the NVD process and is placed in the second phase. The dimension ‘Fundability’ of the Bell Mason framework only partly explains the importance of this factor. This becomes clear when the following two mechanisms, Have open & clear commitment, Create support & dedication from top management, are explained in step III.


Organizational Focus Mechanism 1 - Have open & clear organizational commitmentThe reverse innovation case studies have shown that open & clear organizational commitment to the BoP markets is essential for positive NVP. The interviewees all stress the importance of tackling the BoP as an organization and not as a division. Hence, the organization must have a complete strategy overview for the BoP, which exhibits continuous commitment to innovation and the creation of new products. There is a clear mismatch between what is running at traditional business and what is needed for the BoP. That is why it is important to have open and clear commitment from the organization. Only then can an organization achieve a NVP by implementing the reverse innovation method in its businesses. The following quotes explain the first mechanism.

“It also proves that it pays to really approach it as a company and not approach it as a

division.”

“One simple answer, to really define BoP as your strategy, to say, for example Nokia or DSM or

Philips is a player for the BoP market.”

“It is the continuous development of ideas, which should be part of the whole organization”

Organizational Focus Mechanism 2 - Create support & dedication from top managementThe interviews have also shown that a new venture can be executed with success by support & dedication from the top management of the organization. The interviews show that support & dedication from top management is of great importance to do business in the BoP. DSM points out that the BoP approach has to go both bottom up and top down. Herein, the bottom up approach refers to the development of innovative

Organizational Focus Key Success FactorThe two groups cases differ here completely. The reverse innovation method cases utilized this factor with all of its mechanisms. In the other cases this factor was absent. However, when asked what should be improved in the NVD process, the interviewees indicated that this factor was of extreme importance. Thus, this factor explains a great part of the variance in NVP in the two different groups of cases.


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solutions from the field. The top down approach refers to the support that is needed from the top management of the organization. Consequently, it is important to approach the BoP as a company, not as a division. Then, start from bottom up by developing ideas with a clean slate. When you approach this from the view of the whole organization you have the advantage of achieving synergy between businesses. In a way that for a single division is impossible to do. This makes support from the top all the more important. You also need the resources and dedication from the top to be able to take the risks, which is essential in a BoP environment. According to Tata, the whole organization needs be at the same level of innovative thinking and as dedicated to the new businesses. In one case it was made clear that the project manager needs to be in the influenceable levels of the organization, so that many decisions can be made on a daily basis without reporting back to divisions. The following quotes stress the importance of the second mechanism.

“That is why again the support of the board to say: “this is very important and I only need the best to do that”. And that is very very important.”

“Then obviously you need to invest and also there should be management attention towards it to make it a success.”

“The team, the room that you get, needs to be flexible. It needs room to be flexible, small fast. If we see on the ground, Oh this is changing other way than we thought, Okay now we are going to

do it in a different way. Have the room to change.”

4.2.4 - Phase 3: Product Development



3: Product Development Product - Marketing Product Finance

Table 4.6: Key success factors incorporation in product development phase of NVD process.

Product Finance means the way a business propositions is presented and sold to the consumers in the BoP. This key success factor is utilized during the product development phase of the NVD process. Here, Bell Mason dimensions: ‘Product’ & ‘Marketing’ clearly align with the key success factor. The target market in the BoP, as it has been stated for years are the people who earn between the $2 to $10 a day, some even below that range. The interviewees give importance to knowing how to make the propositions that conform to this criteria. For example, in one of the studied cases, it was said that a project failed to become successful due to over specifying the product, even though the team knew this was one of the key success factors in the BoP. The following mechanisms emphasize the financing key factor in the BoP: Create affordable propositions, Make use of MFI systems.


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“On paper and even in reality, the process, again I was not there, but what I could read, I think the process was really good. But somehow we still managed to over specify the product and over

specifying is not a crime as long as you are affordable and we were not affordable anymore and that is when the problem came.”


Product Finance Mechanism 1: Create AffordabilityThe consumers in the BoP have low income, which means that propositions must be affordable to be able to sell. However, this all depends on the kind of business model that is presented, according to the reverse innovation cases. Whenever a consumer is presented, for example, with the option to increase its income or activities, he will be more incentive to buy the product or service. This shows us that the BoP has more value for business models than for mass product offerings. Although, when the business model is determined, the offering must still be affordable and acceptable to the consumer. The ‘in between strategies’ cases, confine the affordability mechanism only to products or services and haven’t explored business cases yet. However, this is changing at the moment, because the Off-grid lighting case is exploring community solutions for affordable business case reasons. The following quotes explain the importance of the affordability mechanism.

“The value price equation is something which you need to get right; otherwise you will never get

a chance to sell your offering in volumes to these consumers.”

“For this next billion segment you need to ensure that the product that goes to them is at a price that is affordable to them.”

“Yes, it depends on the business model. That is the whole BoP, it is just business modeling.”

“It is not exactly a price point it is not base marketing. It is basically. Private offering at a Price which is acceptable. Packaging smaller and smaller for a profit offering which is designed to

meet the purchasing habit of the consumer.”

Product Finance Mechanism 2: Make use of MFI systemsHowever, when the proposition offering cannot match the affordability criteria, the next step is to look for financing. That is when Micro financing institutions (MFI) come in place. These institutions are enablers to

Product Finance Key Success FactorThe innovation strategy differs on the first mechanism. In the reverse innovation method cases, the importance of affordability is also explored on business cases instead of only on the products or services. In the other cases, the affordability mechanism focuses almost exclusively on the products or services. There is no clear evidence that this difference explains the variance in NVP.


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fulfill the ‘wants’ of the consumer. Micro finance institutions help to generate demand for the many BoP products. Depending on the business model, MFI as partners are essential for business in the BoP. The following quotes explain the use of MFI systems for Product Finance.

“The people could not always afford it, so we had to go with the micro financing. Then, you would need the micro financing partnership. So, that opens up a lot of insights about, not only

the product itself, but the way to market as well, the way to communicate.”

“MicroFinance, is on the other end of the spectrum. One is bringing product to the market to full

fill desires. Out of certain basic needs. Micro finance is an enabler of such for you to utilize to full fill those desires.”

“However Micro finance can help enterprise to generate of the consumer substances for them to consumer and thereby generate demand for many BoP products.”

4.2.5 - Phase 4: Market Development



4: Market Development Sales - Team - Board - Control - Delivery Market Capabilities

Table 4.7: Key success factors incorporation in market development phase of NVD process.

‘Market capabilities’ is the key success factor that is placed in the market development phase of the NVD process. This is the part where a venture has evolved for scale up purposes. The Bell Mason framework puts in the remaining dimensions for this phase. Some of these dimensions are already incorporated in our NVD process, which is for the better according to the data. The dimensions: ‘Sales’, ‘Control’ and ‘Delivery’ do match with this key success factor. This factor explains the importance of understanding the BoP environment and leveraging possible hurdles for the progress to scale up. It involves many roadblocks including bad infrastructure, corrupt organizations, spread of the people, etc. The following mechanisms explain the most noticeable roadblocks and how these can be leveraged: Leverage the dispersion of the BoP consumers, Make use of governmental relations, Leverage existing and new channels.


Market Capabilities Key Success FactorThis key success factor experiences no variance between the two groups of cases. This is easily understandable, due to both groups of innovation strategy cases need to deal with the same BoP environment.


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Market Capabilities Mechanism 1: Leverage the spread of the BoP consumersOne noticeable hurdle mentioned in the interviews is that the consumers are much dispersed from one another. This makes doing business in large volumes a complexity which is hard to resolve. A second hurdle in the BoP markets is that consumers have low income streams of which they are depended. According to most interviewees, especially to DSM, the latter problem is viewed as the underutilization of income streams. These two major problems bring forth many possible solutions for creating more value for these consumers. One way of leveraging the spread of consumers is by bringing awareness towards them. Educating the consumers seems to be a very effective method of leveraging the problem of non awareness. It is found, for example, that by educating the children of a village by use of training markets was very effective in bringing awareness. The children usually have their mothers with them which creates incentive for two generations to educate themselves. In the end, this roadblock remains large and must be leveraged with either innovative business solutions or help from others. The following quotes describe the problematics of the spread of the BoP consumers.

“Then you have the point of delivery, how do you reach those community villages or individuals,

that is also quite tricky.”

“Reaching the BoP markets is not an easy task. Because they are very dispersed usually. And

you need a strong distribution capability and distribution network. To be able to reach those customers to offer your product for acceptable price or manner.”

Market Capabilities Mechanism 2: Make use of governmental relationsAnother noticeable hurdle in the BoP markets is the government that directly affects the BoP business environment, which has alternative results. The governments in the BoP markets play just as much an important role as the partners do. According to Philips, the Indian government seemed to know much about consumer insights and was very far in educating the consumers with some sustainable solutions for these consumers. However, according to DSM, much money, still seems to be paid under the table in these environments and it is very important that the image of your organization stays intact while operating in these markets. Hence, it is essential that the organization understands these markets to make the optimal decision regarding dealing with governmental relations. The following quotes represent the mixed results from the interviews regarding governmental relations.

“Especially in these upcoming economies, there is still a lot of money paid under the table. Getting stuff imported. You have to be very very careful that you don’t destroy the image of your

own company in order to help others. And then get stabbed in the back half way.”

“The only thing that I could add are also the government plays an important role. The

government in these countries play an important role as partners.”

“It also involves to certain extend working together with the government.”


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Market Capabilities Mechanism 3: Leverage existing and new channelsMost interviewees seem to agree that it is very important to really understand every aspect in the BoP market. In one case it was found that even local colleagues didn’t have as much knowledge of the BoP markets as the consumers themselves did. These colleagues are often third generation people whom have forgotten how the situation in the BoP really is. In the BoP, ideally you need to mix creating and using existing channels to overcome the environmental roadblocks in the BoP. On top of that, everything in the process of doing business should be checked on how it reacts to the BoP environment. In one case, for example, it was found that the product needed to be adjusted due to inoperable infrastructure. It turned out that the logistic schedule was significantly longer in the BoP than in Western areas. This made the product vulnerable to perish sooner and needed to be adjusted because of that. Ultimately, it is a mix and match of both creating your own and using existing channels of distribution and marketing. The following quotes show the importance of leveraging existing and new channels in the BoP.

“Keep the supply chain short and also if you create a product or proposition or service that you are close to your first markets. You have to plant some roots, which is also very hard to do from

here.”

“You see, somewhere there is the concept of advertising and distribution. You don’t have any

data, but many multinationals in various businesses have some distribution networks and channels established. If you look at something like this, you need either existing channels or

create new channels. It is a mix and match of both. Writing the new channels, find current channels of which you can climb. This all should fit your company.”


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5.0 - DiscussionThis master thesis had one goal, determining how to create sustainable business in the BoP. In order to achieve this goal the following research questions were posed: What are the key success factors that drive new venture performance in the BoP? How does an innovation strategy influence the execution of the key success factors? How are these key success factors executed in the new venture development process? These research questions were answered by developing a NVD design grounded in theory and practice. This design incorporates mechanisms that can be used to create and develop a new venture in the BoP. Developing this NVD process also generated new knowledge of the relationship between innovation strategies and key success factors in the BoP.

Three contributions are explained further in the next three sections followed by a conclusion section. The first contribution of this research is the insight that the level of implementation of the reverse innovation method has potential consequences for NVP. The case studies show that cases which resemble the reverse innovation strategy completely had higher NVP than cases which resembled parts of this strategy and parts of the backward innovation strategy. The second contribution are the key success factors and their respective mechanisms that can be used to create an environment that potentially increases the performance of a New Venture. The third contribution is the implementation of the key success factors in the new venture development process. This is shown by defining 5 design principles that state in which phase the key success factors are ideally placed in the NVD process.

5.1 - Innovation strategy

The first contribution is about the innovation strategy for a new venture in the BoP. The results make clear that a new venture experiences higher NVP when an innovation strategy, such as reverse innovation, is executed in full than when an innovation strategy is partly executed. Unfortunately, no conclusions can be drawn on the influence that backward innovation has on NVP, due to the lack of backward innovation specific cases in the field research. One case groups executed the reverse innovation method completely, the other resembled parts of the reverse innovation method and parts of the backward innovation method. It may be possible that the organizations, which were considered to be involved in those cases were changing from one method to the other at the time. However, no evidence could be captured to prove this. Following Romme & Endeburg (2006), the next design principle can be defined which incorporates the importance of following the reverse innovation strategy completely. The design principles from Romme & Endeburg (2006) are slightly adjusted to match the results. The mechanisms are considered differently. In this research, design principles have the goal to explain why (Mechanisms) acting in a particular way (an Intervention) in a certain environment (the Context) will cause a desired effect (the Outcome). Figure 5.1 (next page) shows the first design principle.


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Design principle 1C: In the context of a new venture in the BoP; I: An innovation strategy resembling the reverse innovation must be maintained by; M: (a) Co-developing products from the ground up, (b) Expanding the venture for global competitiveness; O: To achieve a positive new venture performance and a positive global competitive advantage.

Figure 5.1: Design Principle 1.

5.2 - Key Success Factors

The second contribution is about the key success factors that potentially increase the performance of a new venture. This research improves on the key success factors found in literature by refining them and adding a new key success factor. Refining the key success factors has resulted in the addition of mechanisms that form guidelines for how the key success factors should be executed in the new venture. The following paragraphs explain the key success factors and their respective mechanisms.

The ‘Organizational Focus’ key success factor is explained in two mechanisms that urge an organization to have total commitment to the BoP and provide dedicated resources by top management. The commitment of the organization shows itself in the open statement of doing business in the BoP and by being clear in the objectives and processes that the organization takes. The cases show that BoP business needs to be integrated into the organization instead of a business sector or other part of the organization. The top management creates support & dedication by providing resources such as time, people and money. The belief that BoP business creates profits & welfare evolves in the acknowledgement of creating entrepreneurial teams that gain the room to move freely and the resources to move dedicatedly forward. In this set up, the BoP manager needs to be influenceable enough for daily activity without slowing down or stopping the business. Mason & Heidi (2002) refer to the VBO, which is the Venture Business Officer, whom fulfills the role of BoP manager. Without this commitment, the new venture development process struggles on without a clear ownership and fails to reach the long term commitment to the organization and the BoP consumers. The ‘Team’ key success factor is the driving force of the NVD process and is explained in three mechanisms: creating a small entrepreneurial focused team, make use of local based knowledge processes and make use of competent & serious members. The entrepreneurial spirit of the team is essential for the uncertain and quickly changing environment of BoP business. This means high importance for the team to be locally situated and have regular knowledge processes to stay up to date with the highly fluctuating information in the BoP. For this type of business, the team must exist of competent members that take BoP business seriously with a dedicated focus on delivering on the commitment of the organization.The ‘Partnerships’ factor is of vital essence, because an organization entering the BoP is incapable of handling the newly created businesses alone. This factor has three mechanisms which suggest the team to create multiple alternative partnership relationships based on trust with organizations that can prove to provide excellence. Creating trust based relationships proved to be useful in the long run, according to the


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cases with higher positive NVP. The research also shows that the BoP environment regarding partners is changing from using nontraditional only to creating alternative partnerships. Many traditional multinationals have entered the BoP which provide services useful to firms wanting to do business in the BoP in the future. The ‘Consumer Insights’ key success factor is of vital essence to create innovation and provide consumers in the BoP with solutions that are needed as well as wanted. For organizations to create valuable solutions in the BoP, the team must have high understanding of the ‘Needs’, ‘Wants’ & ‘Life’ of the consumers. These three elements stand for the three mechanisms of the consumer insights factors.The ‘Product Finance’ key success factor is vital in the basic sense by urging propositions to be affordable, either by low cost productions, innovative business cases or by creating MFI systems. The BoP has value for affordable products & services, due to low income streams of the consumer, but there maybe a higher value for affordable business cases. The case studies show that the BoP has very high value opportunities for providing solutions that increase the income streams of the consumers. Whenever a business case provides such solutions and stays true to the affordability criteria it provides better new venture performance.The ‘Market Capabilities’ key success factor describes the guidelines for how to leverage BoP specific market characteristics that hinder organizations. This factor has three mechanisms that are focused on leveraging the spread of the consumer, making use of governmental relations and combining the use of existing and new channels. The biggest roadblocks in the BoP are the spread of the consumers, unstable governments and the lack of infrastructure. It is of vital essence that these elements are leveraged for sustainable business. Leveraging the spread of the consumers is dealt with by creating awareness through education at the moment. Governmental relations has mixed results, on the one hand making use of these relations increases access to consumers, on the other it means avoiding harmful image reputation decrease. On the lack of infrastructure, the results state that a mix and match between new and existing channels must be formed to provide the best of both worlds in terms of distribution, sales and marketing.This study can conclude that all key success factors with their respective mechanisms are of vital essence to successfully achieve a positive NVP in the BoP.

5.3 - New Venture Development process

The results implicate that the key success factors can be implemented in the NVD process. Placing the key success factors in the NVD process potentially influences NVP. For the implementation part, the Bell Mason framework of an ideal venture (section 2.3) development was used. The results show the selection of key success factors placed in each phase of the NVD process. According to Romme & Endeburg (2006), combining the results from the literature with the results from the field study makes it possible to formulate design principles. These principles form guidelines that make the NVD process easier to be executed. The following design principles show the implementation of the key success factors in the new venture development process. Herein, there is no distinction between the two groups of cases, due to the reverse innovation cases achieving better NVP. This means, that design principles for the other group of cases are less useful and recommendation will only consist of fully utilizing the reverse innovation strategy. Figures 5.2-6 (next page) shows the last five design principles of this research.


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Design principle 2C: In the context of a new venture development process for a venture in the BoP; I: A team must be established by;M: (a) Creating a small entrepreneurial focused team, (b) Having local based knowledge processes, (c) Having competent & serious team members; O: To achieve a positive new venture performance.

Design principle 3C: In the context of phase 1 of the new venture development process for a venture in the BoP, I: (1) Consumer insights must be gained by;M: (a) Understanding consumer needs, (b) Understanding consumer wants, (c) Understanding consumer life; I: (2) Partnerships must be created by;M: (a) Creating multiple alternative partnerships, (b) Building trust based relationships, (c) Making use of partners which have excellence; O: To achieve a positive new venture performance.

Design principle 4C: In the context of phase 2 of the new venture development process for a venture in the BoP; I: Organizational focus must be maintained by;M: (a) Having open & clear organizational commitment to the BoP business, (b) Creating support & dedication from top management; O: To achieve a positive new venture performance.

Design principle 5C: In the context of phase 3 of the new venture development process for a venture in the BoP; I: Product finance must be handled by;M: (a) Creating affordable propositions, (b) Making use of micro finance systems; O: To achieve a positive new venture performance.


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Design principle 6C: In the context of phase 4 of the new venture development process for a venture in the BoP; I: Market capabilities must be created by; M: (a) Leveraging the spread of the consumers, (b) Making use of governmental relations, (c) Mixing existing and new channels; O: To achieve a positive new venture performance.

Figure 5.2-6: Design Principles 2-6.

5.4 - Conclusion

This master thesis report has shown a systematic approach to combining the knowledge from existing literature and from real life practice implementations of ventures in the BoP. Although few researchers question profitable business in the BoP (Ireland, 2008; Landrum, 2007; Warnholz, 2007), this research shows that BoP business can certainly be profitable while at the same time provide ecological and social solutions. The result is that the derived key success factors with all their respective mechanisms are vital for achieving a positive NVP in the BoP. Also, an innovation strategy has an influence on the way the mechanisms are executed and provides better NVP when an innovation strategy is fully executed. On top of that, how these key success factors with their mechanisms are used in the new venture development process influences the NVP as well. The placement of the key success factors in the NVD process is established by use of the Bell Mason framework. Furthermore, the cases which resemble both characteristics of the backward and reverse innovation strategy lacked the ‘Organizational Focus’ key success factors. These cases experienced lower NVP and a high portion of this variance is believed to be explained by the absence of this key success factors. The following quote from Hamel & Prahalad (1989) explains how an organization should approach entrepreneurial business and may shine light on the effect of ‘Organizational Focus’ on NVP in the BoP.

“If your aspirations are not greater than your resources, you’re not an entrepreneur. For large companies to be entrepreneurial, they have to create aspirations greater than their resources.

You can call it “strategy as stretch” or “strategic intent” (Hamel & Prahalad,1989).


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6.0 - Limitations, Further Research & Managerial Implications

6.1 - Limitations

The relevance of the above conclusions has to be taken with some shade of meaning and the results should be interpreted in terms of its limitations. First, the literature on innovation strategies, particularly the reverse innovation method is relatively new with few theoretical evidence to create a thorough understanding of the method’s characteristics. Thus, this research has a partly explorative nature, the other part is explanatory of nature in terms of key success factors.Second, the generalizability of this research is partly limited. Only eight cases were studied and all of them were on the vicinity of executing the reverse innovation method. No conclusions can be drawn from other innovation strategy methods. However, there are liable indications that this research can be generalized beyond these eight. The key success factors are perfectly generalizably, due to using the existing literature as a framework for refining & extending. Many existing descriptions of cases in literature (Wayenberg & Hens, 2008; Hammond & Prahalad, 2002; Mahajan & Banga, 2006; Simanis & Hart, 2008) and news articles (CaseStudyInc, 2010; Strategy+Business, 2010) do provide generalizability indictions for reverse innovation ventures. Although, these cases do not describe them as ‘reverse innovation’ they are greatly matching the characteristics of the method. Combined with the factors and mechanisms mentioned in these sources make this research able to be applied broader to a great extend. Another argument for generalizability is the possibility of organizations moving from the backward innovation method towards the reverse method (Simanis & Hart, 2008; Domzal & Unger, 1986; Douglas & Craig, 1996). It can be said that the backward innovation method shows quick results in some cases, but its failing in the long term is inevitable (Simanis & Hart, 2008). This makes organizations move towards an alternative method also inevitable and may likely be the reverse innovation method. This, again, shows that part of this research can potentially be applied beyond the studied cases.A third limitation is the incorporation of the key success factors in the NVD process by use of the Bell Mason framework (Bell, 2004). This is the first time that a combination of key success factors is applied to a NVD process and it hasn’t been tested. It is not proven that the NVD process design functions correctly and that the mechanisms are precisely understood or placed correctly. This makes this research of slight exploratory nature and further research is necessary on this subject.

6.2 - Further Research

Seven areas of research are suggested to be investigated further based on the results of this research. The first one is testing the incorporation of the key success factors in the NVD process of the Bell Mason framework. Future research should investigate if the key success factors are incorporated correctly in the field of practice. It should confirm if the mechanisms are working the way they are understood and presented


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in this thesis. Executing this kind of research would complete the design as presented in the beginning of this report (Romme & Endeburg, 2006). The second is investigating the difference in NVP between the use of innovation strategies. The difference between innovation strategies, particularly between the reverse and backward innovation methods should be investigated. It was the initial objective of investigating innovation strategies and should still be possible to achieve. Research should be done on how these strategies differ in influencing NVP and how the key success factors are to be executed differently. It would also be important to investigate this between other innovation strategies besides the backward innovation method. Third, the relations between the key success factors should be investigated in empirical detail. This suggestion for further research is about relationships between the key success factors and their mechanisms. Investigating by doing empirical research should potentially show with what effect these factors influence each other. The fourth suggestion for future research should focus on quantitative test to prove the outcome of this research in a more rigid approach. Fifth, the impact of industry type or product type has been ignored and should be researched to explain differences in these attributes. Sixth, choosing an innovation strategy is on the organizational level and should be investigated how this is done to establish a better understanding of its influence on NVP. Finally, the cases which resemble the reverse innovation strategy show signs of exploring the possibilities of expanding the business to developed markets. This is a major part of the characteristics & objective of the reverse innovation method. There has been no actual expansion yet, which gives importance to researching whether these cases achieve a positive performance in developed markets in the future. This would prove the positive global competitive advantage as explained in the international marketing literature for the reverse innovation method.

6.3 - Managerial Implications

This research helps multinationals to further improve their strategy for the bottom of the pyramid markets. The developed design principles help multinational organizations to make choices for creating and developing new ventures in these markets. This research advices multinationals to fully utilize the reverse innovation strategy from the start of creating new ventures for the BoP. An organization which finds itself in between innovation strategies results in lower new venture performance compared to organizations that fully utilize an innovation strategy. It is of vital essence that the multinational organization experiences serious and dedicated commitment to the BoP business in the entire organization. An important part in the new venture development process is the organizational team, responsible for the new venture. Serious and competent members must be based in a small & entrepreneurial focused team. Together the developed key success factors with their respective mechanisms must be utilized in the NVD process accordingly to achieve the ideal new venture development in the BoP. Overall, this research provides guidelines for a new venture development in the BoP and must be interpreted in terms of its limitations.


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A. - GlossaryBackward Innovation - Backward innovation is a strategy of creating new products or services for serving new BoP markets by stripping down an existing product application or using cheaper technological solutions to match the specific needs (Simanis & Hart, 2008).

BoP - Bottom of the Pyramid: the markets in less developed sections of the world where potential customers live with an income range between $2 to $10 a day.

Core Capabilities - is a cluster of extraordinary abilities or related ‘excellences that a firm acquires from its founders, after consistent striving over the years, and which cannot be easily imitated. Core capabilities are what give a firm one or more competitive advantages, in creating and delivering value to its customers in its chosen field. Also called, core competencies or distinctive competencies (BusinessDictionary, 2010).

Innovation Strategy - The process of how an organization innovates to create sustainable ventures.

Key Success Factor - A factor that drives NVP incorporated in the NVD process.

NGO - Non Governmental Organization: organizations, usually found in less developed sections of the world, that act on improving the environment of the less developed people.

NVD - The process of how an innovation strategy is executed incorporated in a number of phases.

NVP - The level of success or failure of a new venture measured on three levels according to the triple bottom line (Prahalad, 2004; Brown et al. 2006).

Reverse Innovation - Reverse innovation is a strategy of developing products or services addressing the unique needs of a BoP community of the consumers/market which may ultimately result in a product which can be sold to a wider public/other markets throughout the world, including developed countries (Govindarajan, 2009).


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