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DISRUPTIVE INNOVATION INNOSIGHT VENTURES BASIC NEEDS EMERGING PRICE

HOW SERVICES FIRMS IN INDIA ARE USING DISRUPTIVE INNOVATION

How services rms in India are using disruptive innovation
Malvika Chandan
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First Published: Thu, Feb 03 2011. 10 06 PM IST Share

Updated: Thu, Feb 03 2011. 10 06 PM IST

New Delhi: In 1995, a Harvard Business

School professor named Clayton
Christensen first wrote about what he
termed disruptive innovation: A process
by which a product or service takes root
initially in simple applications at the
bottom of a market and relentlessly
moves up the market, eventually
Village Laundry Services Chamak, the wash-dry-iron-deliver start-
displacing established competitors.
up, is Innosight Ventures rst incubation in India with an
investment of $1.5 million in 2007
Also See | The 10 Commandments
(PDF)

The quest by manufacturing companies to reach out to poor customers by

persistently dropping prices is a well-known story. It is now the turn of service
companies to walk down the same path. Over the past five years, a clutch of
entrepreneurial companies has emerged in India to challenge existing business
assumptions and offer quality services at low pricesdelivering healthy newborn
babies in hygienic hospitals; employing deaf adults to deliver packages; washing,
drying and ironing clothes and linen; transporting the sick and injured to private
or government hospitals in ambulances.

In order to win over consumers to such

Village Laundry Services
services
Chamak, offered by such enterprises,
the wash-dry-iron-
setting
deliver start-up,the price platform becomes the
is Innosight
Ventures first incubation in India
most important task. If price is to be the
with an investment of $1.5 million
basis of competitionas it so frequently
in 2007
is in emerging marketsfirst establish
the competitive price and create a rough
cost structure. Then work backwards to
determine what processes and resources
are needed to meet the price
requirement. Careful observation of
customer needs will allow you to offer unique value tailored to the local market,
even at low prices, wrote Matthew J. Eyring, president of Innosight, a consulting
firm started by Christensen, in a Financial Times blog in January.

This is what was done at LifeSpring Hospitals Pvt. Ltd, which tries to bridge
the yawning gap between the substandard maternity services offered by
underfunded public hospitals on the one hand and expensive ones available in
private hospitals on the other.

Anant Kumar, chief executive officer of the Hyderabad-headquartered company,

was working at Hindustan Latex Family Planning and Promotion Trust, selling
condoms and pills to stop unplanned pregnancies, when he came face to face with
the crumbling government infrastructure where the supposedly free maternity
services could be accessed only after paying bribes to security guards and nurses.

Kumar had the business model of low-cost airlines in mind when he sought help
from audit and consulting firm KPMG to offer low-cost and high-quality maternity
services. The nine LifeSpring Hospitals in Andhra Pradesh charge Rs4,000 for a

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9/25/2017 How services firms in India are using disruptive innovation - Livemint

normal delivery, compared with the Rs6,000 charged by small nursing homes and
Rs30,000 by large corporate hospital chains, he says.

Acumen Fund, which invests in businesses that focus on their social impact, has
invested $1.9 million (around Rs8 crore today) for a 50% stake in LifeSpring
Hospitals. Funding from Acumen and 50% ownership by HLL Lifecare Ltd
(formerly Hindustan Latex) has helped the firm grow from its opening in 2005 to
nine hospitals today.

There are other more independent ventures such as Dhruv Lakras Mirakle
Couriers, which he quit Merrill Lynch to start and run in Mumbai in late 2008.
Lakra employs 63 deaf adults and two able-bodied professionals (the reverse ratio
for such employees is prevalent in a typical Indian company). Lakra says he has
steered clear of investors because he did not want the fact of having to give
commercial returns make him lose sight of his main objective, which was to help
the six million deaf people in India.

Lakra is managing a cash break-even, self-funded venture, started with Rs10,000,

which is still to turn profitable. Christensen has ascribed this problem of too much
capital in an interview he gave to Newsweek on 18 August 2010, saying: The
more capital, the longer a company can go without testing its fundamental
assumptions.

Dedicated funds such as Acumen Fund do accept a lower return over a longer
period of investment. Robert Katz, portfolio associate at Acumen Fund, says: They
(LifeSpring Hospitals) showed they could apply tools of business to high quality,
low-cost maternal care for which there is a huge need. It is true that we push out
the projections from time to time, but that is to ensure we have the desired unit
economics such as revenues from each hospital in place before replicating the
model.

In the meantime, LifeSprings first hospital at Moula-ali in the Malkajgiri locality

of Hyderabad has captured 48% of the baby delivery market in FY10 or 1,300
deliveries, according to Kumar.

Innosight Ventures, which funds firms venturing into disruptive innovation,

was here in India when the Tata Nanoundoubtedly a disruptive innovationwas
being showcased, and was amazed at the potential that such companies had in
India and also the rest of Asia.

Speaking on disruptive innovation, Scott D. Anthony, managing director of

Innosight Ventures and a student of Christensen, says that services companies are
more likely to develop compelling offerings as they have no choice, but to
innovate the business model. He compares this with the trap that product-based
companies often encounter, assuming that winning in emerging markets is all
about trying to meet lower price points without asking whether the target
consumer will consider the resulting product any good.

Village Laundry Service Pvt. Ltd (VLS), the full-service wash-dry-iron-deliver

start-up that is much cheaper than boutique laundry services and more hygienic
than the roadside dhobi services, is Innosight Ventures first incubation in India,
done in 2007 with an initial investment of $1.5 million.

While VLS Chamak, Mirakle Couriers and Pronto Franchising Pvt. Ltd, or Mr.
Pronto, (a Chennai-based shoe repair chain) do not explicitly target the working
poor, they all employ workers from this population who, in turn, can act as
spokespersons to the community they represent. In India, a common problem for
firms targeting the working poor is the suspicion of the target consumer. Kumar of
LifeSpring Hospitals says that his patients although exploited by the government
hospitals are suspicious of the LifeSpring Hospitals offering because simply put
they think it is too good to be true.

In the case of 1298, an ambulance service founded in 2005 and funded by Acumen
Fund, it was simply raising awareness that calling for an ambulance with medical
equipment and paramedic support is better than rushing unaided to the hospital.

These problems, though, are not a deal-breaker. Applying disruptive innovation

seems to be a no-brainer in an emerging market such as India, where its enormous

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9/25/2017 How services firms in India are using disruptive innovation - Livemint

middle class and working poor population deserve an improved quality in and
access to basic amenities. Innosight Ventures Anthony points out that even large
organizations are adopting the disruptive innovation model such as Procter and
Gamble Co., whose low-cost razor Guard was launched in India this past October
as a substitute for hundreds of millions of Indians who use double-edged razors.
Disruptive innovation is going to influence companies large and small, global and
local, and going by his comments sitting on haunches is not an option.

Many of the most powerful Indian companies grew by disrupting higher-cost

Western competitorsInfosys is a great example of this. Western companies are
fighting back on those companies home turf. Consider General Electrics well
publicized reverse innovation efforts, where it develops new medical devices that
are attuned to the needs of lower-income customers in emerging markets.
Wouldnt it be a twist if the emerging giants lost the battle on their own turf? If
they dont frame their domestic markets in the right way, they just might, he adds.

malvika.c@livemint.com

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First Published: Thu, Feb 03 2011. 10 06 PM IST Share

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