Wednesday, May 13, 2009

The Innovation Sandbox

by C.K. Prahalad

To create an impossibly low-cost, high-quality new business model, start by cultivating constraints

A key leadership role is establishing Decision Criteria that direct decision making for project resourcing. When disseminated broadly, they set the discussions across the organization and enable transparent, rapid decision making. As a powerful example, Professor Prahalad developed a set of Decision Criteria for offerings for the middle to lower levels of the human pyramid in emerging markets. They are simple in nature but very powerful in their direction and hold for any offering for this market segment:

1. “The innovation must result in a product or service
of world-class quality.
2. The innovation must achieve a significant price reduction — at least 90 percent off the cost of a comparable product or service in the West.
3. The innovation must be scalable: It must be able to be produced, marketed, and used in many locales and circumstances.
4. The innovation must be affordable at the bottom of the economic pyramid, reaching people with the lowest levels of income in any given society. “

By definition, Decision Criteria set boundaries that form the structure for what Prahalad calls the innovation “sandbox”….

““because it involves fairly complex, free-form exploration and even playful experimentation (the sand, with its flowing, shifting boundaries) within extremely fixed specified constraints (the walls, straight and rigid, that box in the sand). The value of this approach is keenly felt at the bottom-of-the-pyramid market, but any industry, in any locale, can generate similar breakthroughs by creating a similar context for itself”

What I love about the metaphor is that it counters the belief that process and specifically the Decision Criteria stifles innovation. From his example, it is clear these criteria do not stifle innovation --"the sand, with its flowing shifting boundaries"--but channel it --"the walls, straight and rigid, that box in the sand".

No comments: