Emerging markets are characterized by high volatility. Economic circumstances are constantly changing. Growth rates are often in double digits, and the competitive landscape is often shifting. New laws and regulations are constantly being put into place, and policy is constantly evolving. So jugaad innovators need to experiment as they go along and be willing to try multiple options, rather than adopting one approach at the start and sticking to it thereafter. Unlike their counterparts in Silicon Valley, jugaad innovators do not attempt to work everything out in advance or rely on a business plan to determine the mid- to long-term roadmap for their new ventures. Instead, they improvise their next course of action as circumstances change, and they do so from within a framework of deep knowledge and passion. Their approach is in fact more akin to a jazz band than to an orchestra: everything is improvised, fluid, and dynamic. As such, their strategies are organic and emergent rather than predetermined. Jugaad innovators’ flexible thinking—their ability to improvise—serves them especially well when confronted with adversity.
Given their propensity for improvisation, jugaad innovators don’t rely on forecasting tools like scenario planning, as many companies do, to assess future risks. They believe in Murphy’s Law—anything that can go wrong will go wrong—so what’s the point of anticipating every single obstacle that might appear down the road? Jugaad innovators don’t have a Plan B, let alone a Plan C. Rather, when confronted with an unexpected hindrance, they rely on their innate ability to improvise an effective solution to overcome it, given the circumstances at that time.
A good example is that of Tata Motors, the maker of the Rs 1 lakh Nano car. The Nano was the brainchild of Ratan Tata, chairman of the Tata Group (Tata Motors’ parent company), who conceived it as an affordable, comfortable, and safe alternative to the perilous two wheelers that often carry entire families on Indian roads. In 2006, Tata Motors announced that the Nano would be manufactured in Singur, West Bengal, an east-Indian state. The factory was to be built on land acquired from farmers by the state government in a bid to boost local industry. Tata Motors intended to roll out its first Nanos from the Singur plant in late October 2008.
In 2007, however, local farmers began protesting against the acquisition of land for the factory. The dispute rapidly escalated into a political issue — and caught Tata Motors off guard. As the protests intensified through 2008, Ravi Kant, then managing director of Tata Motors (and later its non-executive vice chairman) made a bold decision. He set aside his firm’s prior manufacturing plans and swiftly shifted the production of the Nano to Sanand, in the investor-friendly state of Gujarat, on the other side of the country. He didn’t hire a management consultant to advise him on the move; he just trusted his instinct that this was the right thing to do, given the circumstances. In just fourteen months (compared to the expected twenty-eight months for the Singur plant), Tata Motors built a new factory in Sanand, Gujarat. The new factory began production of Nanos in June 2010.
One year later, Ravi Kant and his team had to demonstrate the ability to adapt to rapidly changing circumstances yet again: the Nanos weren’t selling as well as expected. Monthly sales had fallen well below the optimistic forecast of twenty thousand units. Rather than being disappointed by the Nano’s lackluster performance, Tata Motors’ leadership used this early market feedback to improvise a plan to shore up sales. Ratan Tata originally envisioned a distributed supply chain model whereby Tata Motors would dispatch flat packs to local entrepreneurs across the country, who would do the final assembly of Nanos close to customers — thus creating gainful employment in local communities. With flagging sales, however, this original vision had to be revised: Tata Motors’ executives went back to the drawing board and quickly revamped Nano’s logistics network to a more straightforward one, which involved manufacture and assembly at one site in Gujarat, and distribution through a traditional dealer network throughout the country. But again Tata Motors hit a snag: rural customers — such as farmers — were not venturing into Tata Motors’ showrooms in small towns. Among other things, they felt intimidated by dealers dressed in suits and ties.
This setback led Tata Motors’ management to redesign their rural showrooms to make them more informal-for example by staffing them with casually attired salesmen who could pitch the Nano to Indian farmers over a cup of chai. Tata Motors also launched a nationwide TV campaign and began offering consumer financing at highly attractive rates to lure frugal Indian consumers. By constantly adapting and refining its business model—and implementing changes within weeks, not months—Tata Motors invigorated sales of the Nano, which, although still lower than expected, are gradually beginning to pick up. Indeed, it is very likely that the future success of the car will depend on more such quick adaptation and flexible thinking by the managers of Tata Motors.
Jugaad innovators experiment with multiple ways to reach a goal
Unpredictability is the norm in emerging markets. Because of diversity and rapid change, it is hard to predict how consumers will respond to new products and services-and how new business strategies will perform in, say, rural markets. Jugaad innovators may have a single-minded vision of where they want to get to, but they must be willing to try different paths to get there. Specifically, they must be willing to keep experimenting in order to attain their goals—and they must be flexible enough to quickly switch from one path to another along the way.
Dr Mohan, for instance, experimented with a number of different ways to frugally yet effectively engage rural communities both as consumers (patients) and employees. When he first sent his expensive technicians from his city hospital to work in remote villages, he found that these technicians—although highly competent—would soon leave, wanting to return to city life. Learning this, he developed a training curriculum in his city hospital to impart to young men and women from villages the basic skills they need as healthcare workers. After about three months, these newly trained healthcare professionals would return to their rural homes, where they were more likely to want to remain. This in turn helped reduce costs and turnover in Dr Mohan’s model. Dr Mohan had a similar experience with his attempts to work with non-traditional partners to develop a cost-effective tele-medicine platform. Although he initially contemplated partnering with more typical—and expensive—technology providers, Dr Mohan eventually linked up with ISRO, which provides his roaming tele-medicine van with a free satellite uplink to his clinic in the city of Chennai.
Jugaad innovators act with speed and agility
In emerging markets, new threats and opportunities can emerge from out of the blue. This forces jugaad innovators to not only think but also act flexibly. By demonstrating agility, jugaad innovators can deal with unanticipated challenges faster and seize unexpected opportunities—such as changing customer needs—more swiftly than their competitors. Zhang Ruimin is one such jugaad innovator who thinks and acts quickly.
Zhang, is the CEO of Haier, a Chinese consumer goods company that is making appliance makers like GE and Whirlpool nervous. Under Zhang’s leadership, Haier has, in the space of a decade, made huge inroads into North American and European markets by selling quality appliances at lower prices than those of Western suppliers like Whirlpool and GE. Armed with its ‘value for money’ strategy, Haier is disrupting the consumer goods market not only in mainstream segments like air-conditioners and washing machines, but also in niche segments like wine coolers. For instance, Haier launched a $704 (Rs 35,200) wine cooler that is less than half the cost of industry leader La Sommelière’s product. Within two years of this launch, Haier has grown the market by a whopping 10,000 percent and now controls 60 percent of the US market by value. By leveraging its value for money strategy, Haier has also rapidly established a strong presence in the Indian home appliances market, where it commands 8 percent of market share. In coming years, Haier aims to grow its Indian market share to at least 10 percent and achieve Rs 4,500 crore in revenue and become one of the top five brands in India by 2014.
What makes Haier so innovative is not just its cool products, but also its flexible organizational structure. Zhang believes that in the internet era, appliance makers like Haier need to shift from mass production to mass customization—and start thinking and acting nimbly, as Facebook and Google do. As Zhang explains: ‘The focus on promoting your cost or price advantage has shifted to a focus on service differentiation, mostly centring on customer experience.’
To sense and respond to his retail customers’ needs faster than rivals can, Zhang came up with a jugaad innovation: he radically redesigned Haier’s organization, which currently employs over fifty thousand people worldwide. Specifically, he replaced Haier’s organizational pyramid with a loosely coupled network of more than four thousand self-managed, cross-functional units (including R&D, supply chain, sales, and marketing) that interact directly with customers and autonomously make decisions. Each unit operates as an independent profit centre and is evaluated as such. Zhang refers to this organizational innovation—which empowers autonomous units of frontline workers to sense and respond to consumer demand—as ‘making a big company small’— that is, allowing a big company like Haier to maintain the unique flexibility of a small start-up. To make this bottom up, customer-centric organizational structure work, Zhang shifted the role of managers from being commanders and supervisors into being supporters and providers who ensure that the independent units have the resources they need to meet customer demand as promptly as possible. He doesn’t want managers to be in charge, as they aren’t directly in touch with customers.
Haier’s organizational agility enables it to react swiftly to rapidly changing—or unexpected—customer needs, and to innovate faster, better, and cheaper than its rivals. For instance, in China, any call placed to Haier’s national customer service centre is answered within three rings and a technician is dispatched to your house within three hours—even on Sundays. A few years back, one such call came from a farmer in a remote village in Sichuan province who complained about the constantly clogged drainpipe in his washing machine. The Haier technician who went to investigate found that that the farmer was using the machine to wash the mud off his freshly harvested potatoes; it was this mud that was causing the clogging. ‘Most companies would react by saying “This machine is not designed for this purpose”,’ explains Philip Carmichael, Haier’s president, Asia-Pacific, ‘but Haier’s approach was to say, “This guy (farmer) isn’t the only one who’s tried to wash potatoes. Is there a way to adapt this product to this requirement? Maybe we can make a machine that actually washes potatoes and clothes”.’
Haier’s flexible thinking was spot on: it turns out that crores of farmers across China routinely use their washing machines to clean their vegetables. Sensing a big market opportunity, Haier’s cross-functional teams quickly acted on their intuition by developing a washing machine with larger pipes that could also handle vegetables. The product was a big hit among farmers. But Haier’s creative teams didn’t stop there. They also invented a washing machine that can peel potatoes and even designed a model for herders in Inner Mongolia and the Tibetan Plateau to help churn yak milk into butter! These inventions eventually inspired Haier to introduce, in 2009, a washing machine able to wash clothes without detergent. That groundbreaking innovation helped propel Haier to the number one position in the laundry equipment market not only in China, but also around the world.
Jugaad innovators—such as Haier’s employees—are highly adaptable. They are capable of thinking on their feet and acting with great agility. Being nimble-minded and nimble-footed serves them well in the context of emerging markets which are characterized by extreme unpredictability. Corporate leaders confronted with increasing volatility and uncertainty in their own business environment must also learn to think and act flexibly—but, as we discuss next, that’s easier said than done.
Jugaad Innovation: A Frugal and Flexible Approach to innovation for the 21st Century by Navi Radjou, Jaideep Prabhu and Simone Ahuja published by Random House
PUBLISHER: Random House
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