Wednesday, November 9, 2011

Innovate from the Bottom of the Pyramid and Innovate from Within?

In the McKinsey Quarterly article “Clouds, big data, and smart assets: Ten tech-enabled business trends to watch” the authors highlight innovating from the bottom of the pyramid as trend 9.  The trend is that companies are increasingly depending on emerging markets and using these emerging markets as innovation hubs in a trend they call, “innovating from the bottom of the pyramid”.  The article states:
“To respond, global players must plug into the local networks of entrepreneurs, fast-growing businesses… some global companies, such as GE, are locating research centers in these cauldrons of creativity. Others such as Phillips and SAP are now investing in local companies to nurture new, innovative products for export that complement their core businesses”.
I think this is true, emerging markets are spurring innovation. I think one point the article does not mention which is interesting to explore is the way some companies are innovating from the bottom of the pyramid and innovating from within their companies, rather than outsourcing or investing in local, smaller businesses for their innovation. Companies like Ideo, LivingSocial and Google (as well as others) are dependent on internal talent and employees for these innovations rather than investing elsewhere.
LivingSocial has an initiative they call “Living Social Champions” which allows employees to submit ideas to a review board. This committee then reviews each of the ideas, picks which ones they like and ask the employee to come and present it in front of the Board.  Several of LivingSocial’s “products” have been developed this. Way.  Similarly, IDEO is a global design consultancy, which “ [they] envision new companies and brands and design the products, services, spaces, and interactive experiences that bring them to life”.   They rely on their employees and it is part of their mission and strategy to innovate.  
Google similarly hires individuals for their creativity and talent and innovative ideas and look instead to outsource HR and operations.  Google’s jobs page states,” Our consistency comes from our Googlers – smart, amazing people who foster an environment of collaboration and fun”.  Google hires people who they believe will breed innovation from the bottom of the pyramid and then structure their company to allow them to flourish.    LivingSocial is similar, both of these companies do this by applying a more flat hierarchical structure which gives everyone a chance to be creative and contribute ideas.  Both LivingSocial and Google work to have the feel of a small company, which helps breed more creativity.  This compares to a GE or a Phillips, more established corporations whose models do not necessarily allow for this type of creativity and innovation to come from the bottom of the pyramid and come from within.  It begs the question as to what influence a company’s model has on the way they innovate.  Companies like Google, Ideo and LivingSocial developed business models and strategy with this trend in mind, and provided a way for this trend to succeed within their organization.  Companies who are trying to incorporate this trend may need to look to outsourcing and investment in local companies.  I wonder if there is a way for a GE or a Phillips to adjust their model to allow the innovation to rise from the bottom and the pyramid and from within.

Bughin, Jacques, Michael Chui and James Manyuika.  "Clouds, big data and smart assets: Ten tech-enabled trends to watch". McKinsey Quartlery 2010.
*I also spoke with employees of both LivingSocial and Google who wish to remain anoynmous.

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