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Utilizing constraints to identify opportunities
for innovation
Atanu Chaudhuri
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Agenda
External constraints affecting companies andcustomers
Challenges in managing constraints
Constraints as sources of innovation
Capabilities and competencies required for
constraint driven innovation
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Indian examples of (potential) disruptive
innovation.. Lets hear from you
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http://www.cosmosignite.com/#
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Deloitte Touche Tohmatsu 2008. All rights reserved.
Constraints on companies Constraints oncustomers
Power Shortage
Delay
in
production
Revenue Loss
Low Asset
Efficiency
High cost of
Transportation
and power
High
Cost of Goods
Sold
Low Operating
Margin
Difficulty in
managing
suppliers
Low Operating
Margin
High
Selling, general
Administrative
expenses
Shortage of talent
Missed
Business
Opportunities
Revenue Loss
Low Asset
Efficiency
Non-availability
of products
at desired price-
value point
Lack of access to
product/service
Shareholder value
Stagnation in
revenue growth
Stagnation in
revenue growth
High delivery
cost
Revenue Loss Revenue Loss
Low Asset
Efficiency
External constraints affecting companies and customers
How can companies facing multiple external constraints remain competitive?
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Deloitte Touche Tohmatsu 2008. All rights reserved.
Challenges in managing constraints
Global corporations with well-developed innovation capabilities over
decades find it difficult to adjust to resource constrained environment
and the price-performance expectations of customers in emerging
markets (Christensen, 1997, Govindrajan and Trimble, 2009 and Hang
et.al., 2010)
Companies tend to believe that they face trade-offs as they face these
constraints
Only organizations operating near the performance frontier should
expect trade-offs between efficiency and responsiveness
Chart, diagram & table timesaver6
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Deloitte Touche Tohmatsu 2008. All rights reserved.
Constraints assourcesof innovation
The companies that operate away from the frontier level have the
potential to improve both efficiency and responsiveness
The companies that operate at or close to optimal performance levels
can strive to shift the frontier
Careful analysis constraints reveal that the constraints provide
opportunities for innovation
Such constraint driven innovation will require unique approaches and
processes
Limited understanding of how companies can systematically identify
opportunities for such innovation and convert those into successful
products and services
Chart, diagram & table timesaver7
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Deloitte Touche Tohmatsu 2008. All rights reserved.
Innovate to achieve higher levelsof efficiency andresponsiveness
CustomerResponsiveness
Cost EfficiencyLow High
High Getting on the
frontierorshifting it
is an iterativeprocess
Low
Lower efficiency and
responsiveness
Improved efficiencyand responsiveness
InnovationPath
Improved cost efficiency
at the expense of
responsiveness
Improved
responsiveness at theexpense of efficiency
A
B
The constraints in the external business environment provide enough
opportunities for innovation
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Deloitte Touche Tohmatsu 2008. All rights reserved.
Innovating toovercome constraints: a four- pronged approach
Company Customers
Constraints binding
CompetitiveDiffe
rentiationthrough
Products
Process
Design newprocesses
Create newproducts
and services
Create newservice
delivery models
Collaborate withstakeholders
A
B
Getting
from A to B
Innovations
Innovating using the constraints assources: afour- pronged approach
Have companies developed specific capabilities and competencieswhich
allow them to innovate and remain competitive against all odds?
Tata Gold
Plus
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Deloitte Touche Tohmatsu 2008. All rights reserved.
Reduce power consumption by process innovation
Trends in thermal-specific energy consumption
in the iron and steel sector
Develop a systematic process for energy and water management, from choice of equipment
and day-to-day monitoring to regular training for building awareness among employees
Make energy management part of biggerorganizationwide initiatives
India's GDP is growing at a healthy rate despite peak shortage in powersupplyremaining atsame levels
0
2
4
6
8
10
12
14
2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006
% of peak shortage in power
supply% GDPgrowth ( at constant
1999-2000 prices)
Source: Centre for Monitoring Indian Economy (CMIE) Business Beacon database for GDP
Annual Report -2006-2007 for Ministry of Power, Government of India for peak power shortage
GDPGrowth Rate and Peak Power Shortage
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Deloitte Touche Tohmatsu 2008. All rights reserved.
Collaborate to develop new products
Collaborate with suppliers
Collaborate with educational institutions/stakeholders to attract and groom
talent
Mahindra and MahindraMahindras Scorpio ensured virtually 100 percent supplier involvement from concept to reality
Design and engineering ofsystemswas done by suppliers aswas testing, validation and
materialsselection
Establish relationshipswith educational institutions and be involved in designing courses
Develop customized training programme for employees by collaborating with world-class
institutions
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Deloitte Touche Tohmatsu 2008. All rights reserved.
Exploit bottlenecks to create new products and markets
Bottlenecks can be looked at as opportunities to createinnovative products and business models
Can only bigger companies plan for such product innovation?
Tata Motors: Tata Ace, Indias first mini truck to transport goods speedily, conveniently,and in a cost-effective manner while providing comfort, style, and easy maintenance
Honeywell: sensor to measure water content in soil, intelligent thermostat
Du Pont: customized protective envelope for sending rakhis
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Telecom service providers in India need to install sensitive electronic telecom equipment
every 1020 kilometers, but they were constrained by inadequate and fluctuating power
outside the metropolitan areas.
In 2003, Acme, a five-man engineering consultancy firm, developed a power interface unit
(PIU) that worked on an electronic chip, unlike traditional voltage stabilizers that ran onmotors.
Acmes innovative product helped improve power correction, which resulted in power
savings of 20 percent.
Airtel instantly adopted the technology. Currently Acmes PIUs are installed at about 50,000
base stations of various telecom companies.
Acme uses a service-driven business model charging for power used and the costs of
running the sites instead of products. Thus, by recognizing the power constraint faced by
customers as an opportunity, Acme was able to come out with a simple, innovative product
that met customer needs at a lower cost.
It launched the "Green Shelter", which is a complete package to fit various environment and
temperature parameters at telecom sites, avoiding the running of backup systems like diesel
generators
Manoj Upadhyay, founder of the US$500 million AcmeTele Power considers India aland of problems and therefore a land of business opportunities.
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Deloitte Touche Tohmatsu 2008. All rights reserved.
Exploit constraints to develop newservice delivery models
The developed world model of locating supermarkets and
hypermarkets at the city periphery will not work in India Rural India is not uniformly poor there are islands of prosperity
within it
Rural Indians shop more like Americans do they are ready to travellong distances to buy goods in bulk provided the goods are availableat their price-performance preference
There are opportunities to create unique service delivery models andopen up new markets
Hindustan Unilever: door-to-door delivery of goods by rural women and local people onbicycles_ Project Shakti
Cisco: delivering emergency services
Tata GoldPlus
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Highly fragmented rural jewellery market catered mostly by local jewellery
shops, who have long relationships with generations of customers
This gives them a clear understanding of customer needs, and allowing them to
differentiate customers based on their credit needs, paying capacity, and
preference for a particular design
They neither give any assurance of genuine 22-carat gold nor can they offer a
wide selection of designs.
The Tata group realized the immense opportunity of tapping into the rural and
semi-urban segments and providing them pure gold jewellery in designs of
their choice thus was born the Tata GoldPlus brand, separate from the
established Tanishq brand- using a franchisee model in semi-urban and rural
areas.
Tata GoldPlus stores participated in local festivals in South India, collecteddata of marriages from local priests, and were able to win many customers
away from local jewellers.
The brands key differentiation is a unique service delivery model that
addresses local needs, has a much bigger scale than local shops can manage,
and is still cost effective. 15
The GoldPlus jewellery
comes with the assurance
of purest 22-karat (916)
and 18-karat (750) gold
and premium
craftsmanship.
Every GoldPlus product is
endorsed by a certificate
that states the purity of
the gold and the quality
of diamonds used in the
article.
The gold is purchased in
the form of bars that arecertified by Reserve Bank
of India (RBI).
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How will you decide it is time for your organization to
work on constraint driven innovation ?
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Deloitte Touche Tohmatsu 2008. All rights reserved.
Distinction between capabilities andcompetencies
Co
mpetitive capabilities
reflect the organizations actual competitive strengthsrelative to its primary competitors in target markets
Competencies
are a set of higher-order proficiencies that a company has developed, giving it a
long-lasting source of competitive advantage
are difficult to acquire or replicate and can give companies the edge in
attracting new customers and in building loyalty.
We have identified six such capabilities and competencies which can be broadly
classified as follows:
Motivators for innovation
Opportunity identification Delivering on innovation
Chart, diagram & table timesaver17
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Capabilities/
Competencies
Classification
Recognizing that external constraints can
create competitive advantage
Competency Motivators for innovation
Bringing strategic direction to constraint
driven innovation in emerging markets
Competency Motivators for innovation
Analyzing the work the customers aretrying to achieve
Capability Opportunity identification
Understanding and analyzing customer
constraints
Competency Opportunity identification
Evaluating global market potential for
innovation
Capability Opportunity identification
Choosing the right set of metrics to
identify opportunities and track innovation
Competency Opportunity identification
Choosing appropriate collaboration
partners
Competency Delivering on innovation
Creating organizational enablers to
support constraint driven innovation
Competency Delivering on innovation
Capabilities and competencies required forsuccessful constraint
driven innovation
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Recognizing that external constraints can
create competitive advantage
Competitive advantage can be sustained if the capabilities creatingthe advantage are supported by resources that cannot be easily
duplicated
Competitive advantage of manufacturing firms result from
proprietary processes and equipment, driven by external and
internal learning Companies lacking advantage of size, experience, established
position and proprietary technology could compete using operations
based advantages
Firms in emerging markets can capitalize on institutional voids in
product and factor markets and alleviate those voids
Lack of key physical resources can provide impetus to firms to acquire unique resources
and competencies to compete in a constrained environment
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Bringing strategic direction to constraint
driven innovation
Global organizations need to provide requisite autonomy to local businesses
Adequately staff the organization
Recognize local talent
Chief Innovation Officer who can drive innovation in constrainedenvironment as in emerging markets
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Analyzing the work the customers are
trying to achieve
Companies should develop competencies to understand thepurpose of use of products and services by customers
Focused interactions to elicit information about exact task
which the non-consumers need to get done and the
willingness to pay
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n ers an ng an ana yz ng cus omer
constraints
Customers in emerging markets face constraints Due to high prices of products and services
Non-availability or inaccessibility of products and services
Inconvenience in using or accessing products or services
Understand the reasons why current non-consumers do not find any
existing product useful Are they over-served?
Existing products in markets do not address the work they are trying to
get done
Lack of access
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http://business.in.com/article/cross-border/finger-on-the-pulse-at-
last/7812/1
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Customer Constraints identified by
Godrej
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Here comes Godrej Chotukool
chotuKool, a top-loading, compact and portable cooling
solution does not have a compressor. It weighs only 7.8
kgs and runs on a cooling chip along with a fan similar
to those used to cool computers.
It consumes only 55 Watt power and runs on dual
power supply (230V AC & 12V DC). Given the power
shortage in the countryside, it can operate on battery
as well and it uses high-end insulation to stay cool for
hours without power. The operational cost ofchotuKool is low as it consumes half the power
consumed by regular refrigerators.
It is a classic case of co-creation. Godrej DI team
worked closely with potential consumers to get insights
on their needs, desired solutions and barriers to
consumption. The opportunity was shaped up by
choosing relevant technology, testing variousprototypes, validating market potential and developing
business models.
To canvass, demonstrate and take this innovative
product to villages, Godrej is developing a social
entrepreneurship channel, joining hands with NGOs,
self-help groups and micro-finance institutions.
http://www.chotukool.in/SocialImpact
/journey.html#
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Evaluating global market potential for
constraint driven innovation
Innovations developed in response to constraints in emerging markets mayhave potential for application in global markets
Though triggered by local constraints, companies should explore if the
solution has the potential for adoption in global markets or even change
global practices
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Choosing the right set of metrics to
identify opportunities and track
constraint driven innovation
Existing metrics do not simultaneously capture how the company is
performing on efficiency and responsiveness
With separate metrics for efficiency and responsiveness companies cannot
determine how an innovative product or service can address the constraints
faced by the company and its customers
Need to identify tailored metrics to identify opportunities for constraint driven
innovation
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Choosing the right set of metrics to identify
opportunities and track constraint driven innovation
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Choosing appropriate collaborationpartners
Companies need to create a map of all capabilities required to develop,market and service the products and identify gaps
Why collaboration may be required? Pushing the frontiers across multiple scientific disciplines to develop innovative products
Getting local market insights
Ensuring access to talent
Getting access to potential customers
Companies need to broaden their networks to access ideas from multiple
sources
Success might depend on the ability to build a network of partners and
collaborators
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Creating organizational enablers tosupport constraint driven innovation
Encouraging employees to proactively look for constraints faced by
customers and non-customers
Creating an innovation portal to share ideas
Innovation tournaments focused on addressing company and customerconstraints (Terwiesch and Ulrich, 2009)
Involving finance personnel during the selection and development of ideas
Finance should work as a business partner
Evaluation of innovative products and services originating from emerging markets should be
made independent of the conventional business plan and product review process
(Christensen and Raynor, 2003)
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