Rethinking Innovation: Are You Really Thinking Outside the Box?

Things were a lot easier to explain 10 or 20 years ago. Technology innovation was just a matter of focusing on developed markets, and its development involved huge amounts of money that only such markets possessed. Eventually, that technology would trickle down to developing markets, but this process (when it happened) was extremely costly and time consuming (typically taking years or even decades).

In general, it was assumed that technology innovation and creative resources were meant to reside in developed economies only; but not anymore. Innovation can take place anytime, anywhere, and it can happen in developed or emerging markets at the same pace. Most importantly, creativity is no longer the exclusive domain of developed markets, and it certainly is not related at all to the ability to pour millions or billions of dollars into a project to make it happen.

Whether we like it or not, the world is fundamentally changing. We may not know about it because it's not on CNN or the BBC, but there's plenty of creative talent developing in emerging markets. This means that "thinking outside the box" in terms of product development is more complicated than ever before.

Here's my take on what Communications Service Providers (CSPs) need to have in mind as they push forward with their strategies, no matter where in the world that might be.

First, creativity can develop even when massive budgets towards technology innovation are not available. Take the example of a producer from Uruguay who uploaded a short film to YouTube last November and received an offer of $30 million to make a Hollywood film. The short film (Panic Attack) featured giant robots invading and destroying Uruguay's capital (Montevideo) and was developed at a cost of only $300.

Second, the rule of thumb that technology is first adopted in developed markets and and then trickles down to emerging economies is no longer valid. Take the example of Saudi Arabia, Bahrain and the UAE, all of which are pioneering Long Term Evolution (LTE) and have outpaced Western Europe in early adoption (Pyramid Research projected LTE adoption to reach 11.1 percent of all subscriptions by 2014, which surpasses its forecast of a 7.7 percent LTE adoption rate in Western Europe).

Third, iPads are cool devices, but how many of its features have a good use, and what's the point of launching more and more products when the applications and content that should run on them are still not fully developed or functional? In contrast, mastering innovation today is more about usage and less about state-of-the art technology or how cool a product may be. Take the example of "a cell phone that makes phone calls — and does little else; a portable refrigerator the size of a small cooler; a car that sells for about US$2,200 (100,000 rupees). These are some of the results of 'frugal engineering,' a powerful and ultimately essential approach to developing products and services in emerging markets" ("The Importance of Frugal Engineering," Vikas Sehgal, Kevin Dehoff and Ganesh Panneer, May 25, 2010, Strategy + Business).

None of these products are considered real technology innovations in developed markets. Why not?

Sehgal, Dehoff and Panneer introduce a very interesting concept in their article, stating that frugal engineering seeks to avoid needless costs in order to address the billions of consumers at the bottom of the pyramid who are quickly moving out of poverty in emerging markets. "Although the purchasing power of any of these new consumers as an individual is only a fraction of a consumer's purchasing power in mature markets, in aggregate they represent a market nearly as large as that of the developed world."

But very few companies realize how demanding emerging-market customers can be. "They require a different set of product features and functions than their developed-world counterparts, but still insist on high quality. Global companies, therefore, must change the way they think about product design and engineering. Simply selling the cheapest products on hand or reusing technologies from higher-priced products will not cut costs enough and is unlikely to result in the kind of products these new customers will buy."

That gets me to point number four. In today's environment, innovation is not merely about offering state-of-the-art product and features, but it's about how a company can effectively incorporate new products while adapting its corporate culture and practices in order to effectively minimize or control nonessential costs. Otherwise, any product strategy (and offering) will be short-lived. In other words, technology innovations developed or adopted at a high cost is too big of a price to pay these days.

Take the example of AT&T and its unlimited data plan for the iPhone as an attempt to capture a particular market segment. AT&T recently announced that it is lowering the cost of entry-level plans, but is moving to a model of charging users based on the amount of Internet surfing they do and email traffic they generate on their iPhones. "Pay more if you use more" is the new motto. But in the long term, how feasible is the smartphone business when networks are not ready to support the increasing levels of data at a subsidized price?

This brings me to my fifth point. Product innovation is about giving value to a customer, and this is independent from how advanced the technology may be. In general, I reckon this concept may be tough to digest for many of my readers in developed markets, who typically tie the concept of progress to up-to-the-minute technology innovations. In general, in developed markets the effort by (CSPs) is placed on enabling the most up-to-date technology and devices, rather than focusing on what customers really want and can use – even when it doesn't involve the latest gadget – until the organization is ready to fully support the massive offering of such state-of-the-art inventions.

In their article, Sehgal, Dehoff and Panneer bring to our attention a good example: the Nokia 1100 cell phone. "Experience has shown that when low-income people in just about any country begin to enjoy a bit of economic prosperity, one of their first purchases is a cell phone. Many new cell phone customers in emerging markets are agricultural workers who spend their days outdoors. When Nokia developers watched field-workers using mobile phones in India, they noticed that the intense humidity made the phones slick and hard to hold or dial. So the phone was built with a nonslip silicone coating on its keypad and sides. The handset was also designed to resist damage from dust that is common in arid climates and some factory environments. The phones are otherwise basic: They can send and receive phone calls and text messages. The screens are monochrome. Because the phones lack fancy software, the power draw is smaller, so they can operate longer between charges. The only real extra is a tiny, energy-efficient flashlight that's proven popular in areas where power blackouts are common — in other words, in most rural villages and many emerging-market cities. At a price of $15 to $20, the Nokia 1100 is the best-selling cell phone ever."

It's not an iPhone, but the Nokia 1100 is a great innovation.

So that's a lesson that developed markets can learn from emerging economies. CSPs will be increasingly pressured to offer products at significantly lower prices that create the traffic that their network infrastructure can support and manage. And that involves a new way of thinking in terms of product and technology innovation. In short, whether we are in a developed or emerging market, new innovation should be about offering what customers want right here, right now. What matters is what customers want. After all, the customer is king.

By Monica Zlotogorski, Editor of TM Forum's Inside Latin America and Vice Chair of TM Forum's Latin America Advisory Board