Disruptive Innovation - Making it happen in Organizations



Authors: Sanjib Dutta, Anil Kumar Kartham
Senior Faculty Member, Faculty Associate
ICMR (IBS Center for Management Research).

Many revolutionary products and services are born out of disruptive innovation. In this article the authors explain what is meant by disruptive innovation, factors that affect disruptive innovation, and the organizational capabilities required for disruptive innovation to happen.

The 'Grameen' family of enterprises in Bangladesh is credited with many innovations. One such innovation was the 'Grameen Bank.' In late 1970s, Grameen Bank of Bangladesh pioneered the concept of microcredit. This innovative way of lending benefited the people in rural areas of Bangladesh immensely. Another innovation of the Grameen group was Grameen Telecom, a firm which provided information and communication technology to rural Bangladesh.

More than three billion people in the world do not have access to reliable telecommunications services. The reason is the high cost of installing wire-line infrastructure from urban to rural areas. In the case of Bangladesh, the average per capita income is $286 per year. With such a low per capita income the existing business models for telecom service are not feasible. Thus, the need for a disruptive business model.1 Grameen Telecom aimed to provide wireless telephone services to poor people residing in the rural areas of Bangladesh. At first, nobody believed that this was a viable project.

Critics pointed to the fact that only the richest city residents in Bangladesh used their own mobile phones. But Grameen Telecom followed in the steps of the Grameen Bank's microcredit model to come up with an innovative approach. It lent up to $175 to women in rural villages (later they came to be known as the "wireless women of Grameen"). A majority of them were independent, small-time entrepreneurs. The loan amount included the cost of a mobile phone, and the woman-entrepreneur was also given a solar recharge unit, and the training needed to use and service equipment. After being trained, these women sold the phone service to other villagers. The villagers were charged on a per-call basis at an affordable price.

The pilot project included 950 villages, and yielded promising results. The income of the 'wireless women' increased on average by $ 300 per year. And they spent this additional income to fund their children's education, and their family's health care. The additional income and their ability to provide this service also improved the social status of these women considerably.

This innovative service was a boon to users as well. Now they could cut down on expensive and time-consuming travel, to secure information such as crop prices, and on their use of the unreliable postal system to place orders with distributors. The total savings amounted to 10% of their household monthly income. The service yielded environmental benefits also. It reduced the use of vehicles for travel, and the construction necessary for wire-line infrastructure.

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1] Hart, Stuart L., Christensen, Clayton M., The Great Leap, MIT Sloan Management Review, Fall 2002, Vol. 44, Issue 1.