NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

I was recently referred to an article written by Niti Bhan entitled “Emerging Markets as a Source for Disruptive Innovation: 5 Case Studies.” I have my own blog, Disruptive Leadership, in which I frequently advocate the importance of embracing disruptive forces in product innovation and business model development.

I wrote a piece a year ago called “It happened first in emerging markets” in which I made a similar argument as Niti. In this article I used the example of SMS-based banking services, a phenomenon that started first in developing countries like Kenya, predicting that these service swould eventually make it into mature markets. (Mobile money is also one of my predictions for the top ICT4D trends for 2010.) Text-based bank services are still limited in mature markets, and may take a permanent back seat to full-service banking applications on smart phones (I have three banking applications on my iPhone).

This topic, the importance of emerging markets in driving disruptive innovation, isn’t new to Next Billion. In 2006, John Paul wrote the article Innovation Blowback, in which he reviewed a Mckinsey report “Innovation Blowback: Disruptive management practices from Asia.” He started by summarizing the concept of disruptive innovation as described in the Innovator’s Dilemma by Clayton Christensen, and concludes that Western companies who ignore the importance of emerging markets do so “at their own peril.”

Coming across this article recently gave me a bit of deja vu. When I started as General Manager of Intel’s Emerging Market Platform’s group in early 2005, there were three sources I was touting as “bibles” for those that joined my group: 1) Innovator’s Dilemma, 2) The Fortune at the Bottom of the Pyramid“, and 3) Innovation Blowback: Disruptive management practices from Asia. I even summarized these in a power point presentation that was used in developing the business plan for the group.

In Niti Bahn’s article, she also begins her argument by referencing Christensen’s Innovator’s Dilemma (something I’ve done many times as well). She correctly uses the netbook market as an example of a disruption that started first in emerging markets. Both Negroponte’s “One Laptop Per Child” and Intel’s Classmate PC were the first to tout the importance of stripped down, cheap laptops for school children at the BoP. But netbooks didn’t truly take off until Asus and Acer embraced the segment and found large demand in the developed world. Niti then goes on to list four other examples, including alternative power sources and “re-imagined” household appliances.

The rationale for why emerging markets are a source for disruptive innovations is simply because in order for a product or service to be successful, it has to be more affordable, easier to use, and offer more value then existing products on the market.

Using the netbook example, does it pass this litmus test? Netbooks are more affordable then notebooks. They typically have a simplified operating system or user interface that is easier to use. And they are providing something clearly of value to under-privileged students: access to a computer, the internet, and mobility.

I have found that many companies seem to focus more on affordability and less on ease-of-use or real value. Companies that embrace all three aspects find success. A source of many other great examples comes from the book “The Fortune at the Bottom of the Pyramid” by CK Pralahad, a piece of work so critical to business theories on the BoP that it was likely instrumental in the creation of Next Billion.

Wouldn’t it be great for those of us who are passionate about disruptive innovation and the BoP to have a book co-written by Clayton Christensen and CK Prahalad? If you know of one, let me know.

Until then, fill your appetite with an article on the BoP by Mr. Christensen titled The Great Leap: Driving Innovation from the Base of the Pyramid or a summary of Mr. Prahalad’s 12 Principles of Innovation for the Bottom of the Pyramid.