After famed American inventor and entrepreneur Thomas Edison invented the practical incandescent light bulb, he realized that the invention alone would not be enough to bring light to millions of homes. For that to happen, he needed to develop the underlying infrastructure on which the light bulb would run. This “infrastructure” included electric generators, substations, transmission lines, and a company to sell this new invention. Without these additional components, Edison’s light bulb might have remained a nice but niche invention. Edison’s experience is not an anomaly.
From Henry Ford’s Model T automobile to Akio Morita’s Sony portable recorder, history is rife with examples of innovations that never would have reached the majority of people in society had the entrepreneurs not developed the supporting infrastructure. For example, when Ford decided to develop his car for the average American, he had to build everything from gas stations and steel mills to paint factories and freight lines. In addition, when Morita wanted to serve the average Japanese with an affordable portable recorder, he not only built a dedicated sales, distribution, and retail component, but also developed after-sale support for his new customers.
Edison’s light bulb, Ford’s Model T car, and Morita’s portable recorder are all examples of market-creating innovations. These innovations transform complicated and expensive products into simple and affordable ones so that many more people in society can afford them. One of the key reasons market-creating innovations are so powerful is that they are more than just a product or a service. They are an entire system that often pulls in new resources, infrastructure, and regulations; and they create a sizable number of new jobs. Consider the impact of Japanese automaker, Toyota.
With revenues of more than $275 billion annually and approximately 360,000 employees, Toyota is one of the largest automakers in the world. Few, however, would have predicted such a meteoric rise when the humble automaker was founded in 1937. At a time when Japanese streets were teeming with close to half a million horse- and ox-drawn vehicles, then-president of Toyota, Jiichiro Toyoda, decided that Toyota should make economical vehicles that are “practical for the peoples of East Asia.” To do this, Toyoda knew his company had to build more than just a car; it would need to develop the underlying infrastructure that would make the car affordable for millions of Japanese consumers.
As a result, in addition to car manufacturing, the company built a robust sales, distribution, training, and servicing industry. For example, it invested heavily in the Chubu Nippon Drivers’ School in Nagoya and spent as much as 40% of the company’s capital on the school. The Chubu Nippon Drivers’ School became a model for other driving schools in Japan and promoted motorization which also helped Toyota sell more vehicles.
As Toyota sold more vehicles, the company needed more employees to make, market, distribute, sell, and service its cars. This growing demand for more staff, and the underlying infrastructure to support them, led to the creation of Toyota City. In 1962, the ratio of job openings to job applications in Toyota City rose from seven applicants for every two openings to one applicant for every seven openings. As the company hired more people, Toyota invested in education for its staff by building a Toyota trade school for training “middle-rank skilled shop employees.”
Beyond the jobs Toyota created, it also “pulled in” new institutions into Japan. In the book, Japan’s Motorcycle Wars, Jeffrey Alexander notes that as more and more vehicles found themselves on Japanese roads, “[there became] a pressing need for coherent government policies on road traffic, vehicle and driver licensing, and the policing of the streets.” In essence, it was the proliferation of affordable vehicles that necessitated the creation and enforcement of Japan’s road safety laws and system. Today, Toyota is a global powerhouse and a symbol of Japanese pride and innovation worldwide.
From global heavyweights to modern-day pioneers
Despite their often humble appearance, market-creating innovations are so much more than simple products and services more people in society can afford. The truth is, these innovations serve as a catalyst for building and sustaining a nation’s infrastructure and corresponding institutions.
In Africa, we’ve seen this happen with the mobile telecommunications boom over the past two decades as a market-creating innovation pulled in new companies, regulations, and infrastructure. Today, companies such as mPharma and Lifestores, each democratizing access to affordable medications, are also market-creating innovations with the potential to scale into billion-dollar companies that boost employment rates and pull in new infrastructure. By cultivating a culture of market-creating innovations, leaders in today’s emerging economies can develop the foundation necessary to create shared prosperity for all.
That’s why the MIT Legatum Center for Development and Entrepreneurship and the Clayton Christensen Institute have collaborated to develop the Market-Creating Innovation (MCI) Bootcamp. With an initial focus on Africa, the MCI Bootcamp is a series of intensive sessions designed to introduce early-stage entrepreneurs to core innovation concepts and frameworks that help them build market-creating innovations.
Prosperity is possible in Africa, but the paradigm of fighting poverty must change. By empowering Africa’s innovators with the right tools, frameworks, and resources to enable them more successfully develop market-creating innovations, the MCI Bootcamp seeks to play a leading role in Africa’s transformation. Join us.
To learn more, visit: legatum.mit.edu/mci/