Climbing Up the Ladder: The Disruptive Way!

A pertinent question that reverberates in the boardrooms of all companies is how can we penetrate markets with strong existing players and still grow appreciably? Disruptive innovation is a significant tool to achieve such growth. Disruptive innovations are successfully implemented processes, technologies, products, services or business models that allow organizations to radically change conventional competitive rules, therefore bringing paradigm shift in the demands and needs of existing markets and the way the business is done. Creating disruptive innovation is very different from sustaining innovation to the extent that it is often felt these capabilities are conflicting in nature, and managing both these within a single organizational boundary may not be possible. The resources at the disposal of an organization are indeed a constraint, and this creates a challenge for an organization to maintain a delicate balance between sustaining and disruptive innovations. Disruptive innovations are not sophisticated, high-end product with state-of-the-art technology that will appeal to the new adopters rather they are those which did not appeal to well-established market leaders because they serve a less-profitable consumer demographic. We will examine it with few illustrations: i) Amul Dairy Amul was formed in 1946, a dairy co-operative in India. It is a brand name managed by an apex cooperative organization, Gujarat Co-operative Milk Marketing Federation Ltd (GCMMF). The business model followed by it was unique in the sense that it provided 'value for money' products to its consumers, while protecting the interests of the milk-producing farmers who were its suppliers as well as its owners. Amul grew from strength to strength thanks to the inspired leadership of Dr Verghese Kurien, who was entrusted the task of running the dairy from 1950. In 1965, the then prime minister Lal bhadur Shastri set up the National Dairy Development Board to replicate the success of the Amul model under the chairmanship of Dr Kurien. Its business model has established itself as a uniquely appropriate model for rural development. Amul has spurred the White Revolution of India, which has made India the largest producer of milk and milk products in the world. Amul is the largest food brand in India and world's largest pouched milk brand with an annual turnover of USD 2.2 billion in 201011. Currently Unions making up

GCMMF have 3.1 million producer members with milk collection average of 9.10 million liters per day. ii) The Cheaper Mobile Phone The Nokia 1100, a simple GSM mobile phone demonstrates disruptive innovation. Over 250 million have been sold since its launch in 2003, making it the best selling handset in the world today. It was targeted towards Bottom of Pyramid (BOP) market, consumers who do not require advanced features beyond making calls like SMSs, camera, internet, songs, alarm clock, and reminders among others. But the reach and influence of this device has gone further and deeper than imagined when the product was first launched. In India, the model was released around the time Reliance Communication announced a major price discount on cellular calls, initiating the wireless revolution. Operators are battling for the elusive fortune by dropping prices to unprecedented levels. In the meantime, Kenya's Safaricom launched M-PESA in 2003. M-PESA quickly acquired a significant market share for cash transfers, and grew staggeringly, capturing 6.5 million subscribers by May 2009 with 2 million daily transactions in Kenya alone. As of November 2011 M-PESA has over 14 million subscriber and well over 28,000 agents across the country. It is a branchless banking service, designed to enable users to complete basic banking transactions without the need to visit a bank branch through a mobile phone. In its own way, it's disrupting financial and banking services. ii) Tata Nano Tata Nano, the INR 1 lakh car launched by Tata Motors in 2009, is considered to be the revolution in the global car market. Affordability was at the nucleus of its design, development and business

model. The company was prepared to accept lower gross margins and aimed at selling the Nano in
large volumes, essentially to the BOP market of first-time car buyers. According to figures released by Tata Motors in April 2009, 203,000 people had placed orders for a Nano before its launch. The Indian rating agency CRISIL predicted that the car would expand the Indian car market by 65 percent. All these factors qualify this strategy of Tata Motors as one of disruptive innovation.

Tata Motors had to re-engineer the process of designing, manufacturing and distributing a car to meet this new segment. It also redefined the supplier strategy employed by opting to outsource a huge portion of the cars parts and to engage lesser number of vendors to reduce the effect of transaction costs. The Nano encapsulates the dream of millions of Indians groping for a shot at
urban prosperity. With this approach, Tata Motors has been able to unfold a strategy that brings

a car to the BOP market that would have otherwise been remained a luxurious product for the high and the middle income earners only.
Conclusion It is pretty evident from above illustrations that disruptive innovations and BOP markets have few strategic fits and a disruptive innovation can be initiated targeting these markets. The expertise acquired by them can be replicated in mainstream markets. On the contrary, existing capabilities of companies focused on the Top of the Pyramid (TOP) do not transfer easily to the BOP.