This piece was co-authored by Christimara Garcia, a volunteer at the Christensen Institute and founder of Catalyze Innovations Initiative, a Brazilian market-creating innovation action tank.
In our journey researching market-creating innovations, we usually come across situations where simply developing a product or service is not enough to solve the customer’s needs. In fact, in The Prosperity Paradox: How Innovation Can Lift Nations Out of Poverty, my co-authors and I describe how market-creating innovations are more than a product or service. They’re a system.
For instance, a company that provides online educational programs in a context where its intended customers don’t have access to reliable Internet service will not succeed.
As a result, and especially in growth economies, investing in operations that aren’t seen as core to an organization’s business is often necessary when creating new markets. That’s because, in most cases, the underlying business infrastructure isn’t there; thus, market-creating organizations have no choice but to fill in the gaps themselves.
For example, Babban Gona, a Nigerian social enterprise that helps farmers increase their productivity by building farmer cooperatives, had to integrate education and training into their business model. In the context of Nigeria where the education system is lacking, organizations like Babban Gona must invest heavily to develop their staff. Founder and managing director, Kola Masha, shared, “[One] challenge we’ve faced has been training and upskilling employees in preparation for scale, which we’ve addressed by proactively putting into place two training programs aimed at enhancing the skills of our employees across all levels of the organization.”
Masha’s decision to invest in training and upskilling might seem unnecessary in some parts of the world where staff are well-trained by the education system. However, to grow and scale a market-creating organization, especially in most growth economies, such investments are the norm.
Similarly, multinational companies and investors looking to create new markets find themselves integrating critical, yet unreliable, components of their businesses in order to successfully deliver affordable products and services.
Consider Comcast’s Internet Essentials program. Since 2011, the initiative has provided low-cost, high-speed internet to low-income households across the United States. In 10 years, Internet Essentials has not only connected more than 10 million Americans to the Internet, but it has also worked to connect people to many of the opportunities the Internet has to offer—from education and job skills training to healthcare resources and entertainment.
In essence, asking the question ”Why do people hire the Internet?” has given the program an opportunity to add value directly to people’s lives. As the United States’ most extensive Internet adoption program, they can empower their customers and enrich many communities with this transformational technology.
Modularity Theory explains why organizations often have to invest in activities that aren’t seemingly core to their business.
Understanding interdependence and modularity
Modularity Theory is a helpful framework that managers can use to understand which activities in their business model should be done internally and which should be outsourced to a supplier or partner.
The theory explains that businesses (even entire industries) have architectures that dictate how various components in the value chain should fit together. We call the place where any two components of the value chain connect, an interface. Interfaces can either be interdependent or modular.
Interdependent interfaces are often unique and are optimized for functionality and reliability. These are typically developed in-house by the same organization. In contrast, modular interfaces are standardized and optimized for functionality and speed. In most cases, these are outsourced.
According to the theory, a product’s architecture should employ an interdependent interface when two components don’t fit together predictably and a modular interface when two pieces fit together seamlessly.
In the case of Babban Gona, the organization had an unpredictable interface with the education of its staff and, as a result, it needed to wrap its arms around that interface and invest in education. By doing so, Babban Gona could more easily control the quality of its staff as the organization sought to scale its operation.
No organization’s business model is entirely modular or interdependent; it’s usually a mix of both. But for organizations looking to invest in market-creating innovations, especially in growth markets, integrating across unreliable and unpredictable interfaces is the norm.
Although modularity standardizes how components fit together and can be more easily scaled, it’s important to note that modularity is only possible after predictability is achieved.
Before venturing into market-creation anywhere, but especially in growth economies, entrepreneurs should be aware that they might need to execute activities that aren’t seemingly core to their businesses.
In growth markets, you might find that you’re less defined by your industry and more by the critical component in your business model that’s hard to provide predictably.
