#348      29 min 38 sec
Innovation with purpose: Organizations creating and delivering social value

Innovation and entrepreneurship researcher Prof Gerry George looks at how organizations are able to leverage constraints to bring creative approaches to lifting and developing social wellbeing. Presented by Elisabeth Lopez.

"We forget that innovation allows us to adapt. Instead we think innovation is the goal in itself.  It's quite the opposite." -- Prof Gerry George




Prof Gerry George
Prof Gerry George

Gerry George is Dean and Professor of Innovation and Entrepreneurship at Lee Kong Chian School of Business at Singapore Management University.

He is Editor of the Academy of Management Journal, the flagship empirical journal in the field of management. He also serves as the International Dean of BML Munjal University, an innovative new university near New Delhi. 

Previously, he was a faculty member at London Business School, and Deputy Dean of the Business School at Imperial College London, where he was Director of the Rajiv Gandhi Centre. He was Academic Director of the London Stock Exchange Elite Program, which supports ambitious private companies through their next stage of growth. His work investigates business models, organisational design, and its implications for innovation and entrepreneurship.

He has served as a non-executive director of India Infrastructure Finance Company (UK), which  provides financing for capital equipment in large Indian infrastructure projects such as power generation, urban mass transit, and ports. 

His latest book (with Adam Bock) introduces a narrative approach on how entrepreneurs conceive and change business models to make an implausible idea into a viable growth opportunity, Models of Opportunity: How Entrepreneurs Design Firms to Achieve the Unexpected, (Cambridge University Press, 2012).

Credits

Host: Elisabeth Lopez
Producer: Eric van Bemmel
Audio Engineer: Gavin Nebauer
Voiceover: Louise Bennet
Series Creators: Kelvin Param & Eric van Bemmel

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VOICEOVER

This is Up Close, the research talk show from the University of Melbourne, Australia.


ELISABETH LOPEZ


I'm Elisabeth Lopez.  Thanks for joining us.  In the pages of the world's financial media companies are constantly being urged to behave like small start-ups, to innovate or die.  Certainly companies thought too big to fail have done just that after passing up the chance to develop new technologies. 
Kodak for example, long the dominant player in the pre-digital photography space invented the first digital camera in 1975 yet it failed to exploit it for fear of cannibalising its film business.  Failure to innovate has left Kodak a shadow of its former self.

For our next guest the mantra innovate or die takes on a stark meaning.  In some of the world's poorest places life, let alone a measure of prosperity, can depend on bringing groups like business, government and communities together and bringing out the best each has to offer.

Professor Gerry George has studied how innovation and entrepreneurship have been brought to bear on problems like HIV transmission, sanitation and bringing electricity to remote communities.  He is both a scholar and practitioner of innovation and entrepreneurship with a special interest in what he calls inclusive growth.

Gerry George is a former faculty member at Imperial College London where he was Director of the Rajiv Ghandi Centre which links Indian firms with academic researchers. He is now Dean of the Lee Kong Chian School of Business at Singapore Management University and he is in Melbourne to deliver a lecture on the Adaptive Innovative Organisation for the University of Melbourne's Centre for Workplace Leadership.

Gerry George welcome to Up Close.


GERRY GEORGE

Thank you very much. It's great to be here.  That introduction makes me sound bigger than life, but I'll take whatever you give me.


ELISABETH LOPEZ

Well it seems everybody has an opinion on what innovation is and arguably the term is incredibly overused.  You've studied or helped companies succeed in some of the world's wealthiest places and also some of the world's most marginalised impoverished places that governments seem to have forgotten about.

What does innovation mean to you?


GERRY GEORGE   

Innovation really is about doing something new.  It does not necessarily mean new to the world it means new to context.  But that newness is about creating social value.  If I do something new that improves the wellbeing of people around me or society at large that to me is useful innovation.


ELISABETH LOPEZ

So if you read the world's business media, Forbes for instance, that sort of thing, there's a lot of focus on process innovation, incremental innovation, all that sort of stuff, but you seem to be widening that definition to take on some pretty intractable global problems.


GERRY GEORGE

Correct.  What I'd like to say is social problems are not necessarily intractable.  I think they are all tractable it's whether we put in the effort to make it so.

So how do we think of organisations in different stripes and varieties contributing to solving big grand challenges or social problems?  Businesses have become a lot more self-centred, more about creating products that are quick sells and picking up user based consumers and so forth at the expense of thinking 10 years out or 15, 20 years out how do we actually create a better society, how do we build bridges from now into the future to make sure that society as a whole is better off?


ELISABETH LOPEZ

There was a pretty lively debate on this earlier this year in the Harvard Business Review where a bunch of students, they crowd sourced the article basically which was authored by Clayton Christensen and he talked about the capitalists’ dilemma where firms were awash with cash but not necessarily investing in innovation.  There was also a discussion of the fact that the focus on quarterly results as opposed to say the 10 year long view, which you prefer, was really militating against innovation.


GERRY GEORGE

Right.  I don't want to come across as being very socialist, which I'm not.  The way I would think about this is that businesses are investing in projects that get immediate returns.  They are not necessarily thinking about strategic options in a window that is much wider.  So if you think of businesses making investments that make themselves resilient to change, making societies resilient and how do you invest more strategically so that you would see business as part of a social fabric rather than businesses extracting value from that social fabric?


ELISABETH LOPEZ

So do we just need to change the metrics or is there a more fundamental change that needs to take place?


GERRY GEORGE

The metrics is a proxy, but the whole ethos behind how we think of organisations needs to change. I wrote an editorial October 2014 with Cardinal Vincent Nichols.


ELISABETH LOPEZ

This was for the Academy of Management Journal which you've just become editor of.


GERRY GEORGE

Correct.  So in that editorial we talk about organisations with purpose, with the idea that organisations exist not by themselves but by being part of society.  So it also means that organisations have to create social value other than financial value.

What does that mean?  It means how do you increase wellbeing for members of a community?  How do you leave money on the table?  Our current business model is not about leaving money on the table; it's about extracting as much as possible from that.  So it requires a fundamental rethink of how organisations can be better players in society.


ELISABETH LOPEZ

Are there firms that do this better than others?


GERRY GEORGE

Certainly.  They tend to be firms that are embedded in these communities themselves; that start from communities and then grow bigger.  The one that I work with closely is a company called Tata in India and their model is that we have to contribute to community before we think of profitability and extracting as much value as possible.  So I think it can be done together.  The question is whether we really have the will, the genetic makeup, the culture to emphasise social value rather than just short-term financial value.


ELISABETH LOPEZ

Tata is a really interesting example because it is such a big conglomerate.  Is it still an innovative company despite its size?  Is it still able to respond to need where it's identified?


GERRY GEORGE

I would certainly say so.  I think innovation as a word has become overused and you can also over-invest in innovation.  So when we think about innovation we shouldn't be thinking about just new products and new ideas and everything new.  We should be thinking about how do we take whatever one or two new ideas and then get that to the market to actually make the market better.
So Tata's have done quite a good job of doing that.  They say from 'salt to steel'.  They have built a great market, a great trust consumer brand because of their ability to create social value.


ELISABETH LOPEZ

Some of the innovations that Tata has been responsible for are things like a software program to teach people to read in 40 hours, which seems to indicate still an acute focus on really getting to know its market.  You went into these issues in a recent editorial for AMJ where you talked about the importance of design thinking.  I'm sure most people are familiar with the fact that Apple's success for instance has been propelled by the look and the feel of its product, but design thinking actually takes the idea of design a lot further than just the outward appearance of the product.


GERRY GEORGE

Correct.  If you think design is about just making things look pretty, I think we've come a far way from that.  Let me give you a couple of examples.  For me design is about framing a problem and trying to find what the user really needs even if he or she has not voiced it that way.  This can be in terms of a product or it can be in terms of how something is organised, like a process. 

In a completely different context I am looking at the prevention of mother to child transmission of HIV and here you have to give the mother a tablet which is a few cents at the time of birth so that the child does not get HIV, or it significantly reduces the chances that the child would get HIV.
But still if you look at that system, maybe somewhere between 12 and 20 per cent of HIV infected mothers actually get the tablet.  So we have a goal that every mother should have access to that tablet.  We have a system however that doesn't allow that tablet to get through to the mother at the time of delivery.


ELISABETH LOPEZ

This was a project that was being done by Imperial College?


GERRY GEORGE

Correct, with UNAIDS, the Global Fund and WHO.  The idea was how do we redesign the system itself so that the mother would receive the tablet at the right time?  That has huge implications for what we would say 'a child is born free'.


ELISABETH LOPEZ

So suddenly service delivery and process become a matter of life and death.


GERRY GEORGE

Correct.  So here you take design thinking, the way you would think of problems, user needs, and then apply it to how you would redesign an entire service.  That involves working with public and private actors to deliver that service.  So that would mean your local village healthcare clinic along with the district hospital along with the government and so forth.  So you have got the whole chain that you have to think through.


ELISABETH LOPEZ

What sort of barriers did you find to women being able to take this one-off tablet after the birth of their child?


GERRY GEORGE

There were some surprising issues.  One is we know that HIV is stigmatised in different parts of the world, but what we didn't realise is that the healthcare workers themselves had different approaches to how they would address this.  So we had to go through healthcare worker training, we had to figure out incentives for healthcare workers.  We had to redesign the entire system in terms of information provision.  You had to collect information on where the mother was, because usually mothers in India would go from their husband's house to the parents' house to have their baby, but that would mean that the system would lose track of them.  So we had to design a system that allowed people to track, saying that this mother moved from here to there and that coordination had to happen.
So we had to redesign the process.  We had to think of the individuals within it.  We had to think of how healthcare workers could manage their own identity and difficulty of working with what we call dirty work, where this work is stigmatised so how do you help them overcome such stigma?


ELISABETH LOPEZ

I'm struck by what you said earlier about how a lot of this process involves finding information or even preferences that people or potential customers themselves might not necessarily be able to articulate or be aware of.  So it sounds like it takes quite a high degree of intuition and skill, interpretive skill.


GERRY GEORGE

I'm not sure whether it is about intuitive skill.  For me to understand that the process fails I had to sit in different village healthcare clinics along with pregnant mothers to find out how long it took for me to be seen.  Clearly I wasn't pregnant, but imagine if I was pregnant and I had to wait eight hours by the time I would see a doctor and then get a tablet. Most mothers left.


ELISABETH LOPEZ

I have chores to do.  I have water to get.


GERRY GEORGE

Exactly, so we've created systems around the world that are based on the individual providing the
service rather than the user or the consumer, who is the mother.  So if we had design thinking or we had to redesign the system we would say what would the mother need first and then redesign the healthcare system around it so that the mother who has HIV has the tablet at the right time and we would get that tablet to the person easily and without what we call lost follow-up.


ELISABETH LOPEZ

I'm Elisabeth Lopez and on Up Close we're talking with innovation and entrepreneurship researcher Professor Gerry George of Singapore's Lee Kong Chian School of Business.

One of the areas you focus on in your research and in your public speaking is the importance of constraints in innovation.  What is so attractive about a constrained environment?


GERRY GEORGE

It makes us innovative. It makes us think about removing those constraints in clever ways.  Let me give you some examples.  When we talk about rural electrification, five per cent of rural East Africa actually have access to electricity.  You could say let the governments and aid agencies put more money in and set up electricity in these different villages.  But that's not the solution.  Many NGOs that have worked to provide electricity find out that these rural electrifications model fail because the community doesn't take it up.

So what we had to find out in a project, what we call Energy for Development when I was at Imperial, along with Southampton, was to say how do we create a system where the community itself takes ownership of a project?  Given the constraints of the community how do you then help set something up which is viable over the longer term?


ELISABETH LOPEZ

Especially where foreign firms might be involved in this sort of provision, is this an easy concept for outsiders to those communities to grasp?  I mean in developed economies we've had electricity for a long time and we just kind of tend to take what we're given, so why is community acceptance so important when it comes to accessing a basic service that many people round the world take for granted?


GERRY GEORGE

We tend to impose our own norms on these communities; our own value systems onto these communities and that kind of projection is not very helpful.  When you go to these villages everybody has the aspiration, what I'd call social aspiration, to do better.  The question is how can we help them do their own thing to become better rather than us doing things for them and these communities rejecting it?

So when we think of this model we created in this electrification project a cooperative where members of the community came together, they fixed their own prices, we helped them to figure out what is the financial model? If you give them the tools these communities are able to build it for themselves.  For the lack of a better word you would say 'empowering communities is better than doing it for communities'.


ELISABETH LOPEZ

What sort of problems emerged when communities weren't empowered in this way?


GERRY GEORGE

There is a lot of free-riding.  Whenever you give something free to somebody the value of that tends to be downplayed, even if it's something like access to electricity.  When we gave solar lamps for free, people didn't take care of it.  When we charged them very nominal amounts they cared a lot more about it than when you gave it free.

So for us it was about creating the right incentive structure, the right approach to solving community problems where you ask community members themselves to rethink.  So we expanded from electricity to saving water.  We built a water tank and then they'd be able to save water for a dry season.  Then you expand to a small chicken coop.  When we started in that village there were five or six what you'd call corner shop type of businesses.  Now there are over 30.  So you've got a self-reinforcing sort of model where you would say people start becoming more optimistic, they take risks.

You should remember that these communities are prone to what I call 'massive natural disasters'.  It could be HIV.  It could also be things like civil conflict.  It could also be natural calamities like drought and so forth.  So how do you make them take initiative when they know that there is huge risk and uncertainty?


ELISABETH LOPEZ

I suppose that a certain fatalism sets in.


GERRY GEORGE

Correct, so in the community that we went to they had not had rains for five years.  So if that is the case then how do you start instilling what I call optimism within a community?  Electricity provides that optimism. It allows them to, for example access the web.  It allows them to pump water.  It allows them to have lights on, watch TV.  So one of the biggest accomplishments, one of the store fellows was saying was that they watched the Manchester United and Chelsea football game and for them that's a huge bonus - just thinking about it from a community which had nothing to coming together to watch a football game.


ELISABETH LOPEZ

You saw this phenomenon very clearly in Indian slums which you've written about - that access to basic services breeds aspiration.


GERRY GEORGE

Correct. I'm a strong believer that innovation is about lifting social wellbeing or developing wellbeing.  So in the slums project what we found was that if you provided basic services like water, energy and sanitation; that shifted individual aspiration to education, health and creating more wealth actually by creating property.  So now you will see these shifts from basic needs to more higher order needs.

It was particularly salient for women.  What we found that women have now shifted their aspiration from just maintaining life to educating the girl child.  So we saw a huge change over a five year period, after provision of basic services, that girl children were more educated, that there was a 60 per cent chance that they would go to school and they would improve their own lot.


ELISABETH LOPEZ

These presumably are communities, for whatever reason governments and business have just forgotten about or consider unprofitable to be investing time and resources in.  Who is making these sorts of investments and what sort of criteria do they have to satisfy?  Are we talking about projects where shareholder value for instance is not a consideration at all or is there an uneasy relationship between social aims and getting a financial return?


GERRY GEORGE

I think there is a combination of both.  You do have companies investing heavily in making sure that the communities are better.  Some call it corporate social responsibility, but I think if these companies have it in their DNA that they are part of that community they tend to invest to make these communities better and I think that's a great thing.

Governments are the ones that take on the first responsibility for making things happen and there is no solution to that.  They have to step up to take it up.


ELISABETH LOPEZ

You're listening to Up Close.  I'm Elisabeth Lopez and our guest is Professor Gerry George, Dean and Professor of Innovation and Entrepreneurship at Singapore's Lee Kong Chian School of Business.
Gerry in your book with Adam Bock on entrepreneurship you talk about what it is that enables entrepreneurs to transform extremely unlikely ideas into something plausible.  What did you find?


GERRY GEORGE

When we think of ideas we think of ideas that are very practical and one step further from where we are.  So if I went to an investor and asked these questions they would say, ah you know this is incremental and so forth.  But if you had a radical idea that would be transformative, again there you would have a problem because investors wouldn't see the link between how would you go from here to there?


ELISABETH LOPEZ

Investors want something different but not too different?


GERRY GEORGE

Correct.  So what I started writing was how do entrepreneurs create this narrative of taking from one step to the other but a huge leap?  So about 15, 20 years ago you had the discovery of embryonic stem cells - this concept of cells that can become any part of your body, and you needed to start a company to take it from here's a research concept that seems to work, but the end result is I could transform human life.  It was too big for people to think about.  So you had to craft a narrative around how do I take some idea which is really worth pushing over a 15, 20 period and how do you build a company that would last for that?

So I started interviewing, along with my colleague Adam Bock, who was a PhD student and now he's a faculty member at Edinburgh - how do you build companies that have massive aspiration; the ability to change the world, the ability to think of something entirely different and come up with that and stick with it? 

We found that there were a few elements that were critical - (1) this element of design.  How do you design not just the product or interface but also the organisation for a long view?  How do you think of resources as a way of not just meeting your immediate future but about how do you make these resources last over 15 years?  How do you think about getting more and more resources before you get a product out to the market?  How do you build resources that are not just about over the next five years and an exit, but about 15 years, 10 years and so on?

The third bit is about crafting that narrative to bring people along, to give that hope and inspiration, to say you know I don't think I'm going to make it right now but over the next 10 years we'll be able to do that.

If you think of big companies like Amazon and eBay and so forth, they did not start making profits for about 15, 20 years, but building these companies requires that effort.  How do you build for what I call implausible opportunities, things that people would normally say, yeah, no, that's not workable, but how do you take these ideas and then build companies around it?


ELISABETH LOPEZ

I'm thinking of your example of stem cells to create human organs, no one would have foreseen how the innovation of 3D printing might dovetail with that and the idea that some day we might be printing out organs.  We already are, but they're not necessarily useable.

Low cost innovation is something that is very dear to your heart and the applications of that are clearly obvious in places of extreme poverty.  What about in developed economies, why is low cost innovation possibly important?


GERRY GEORGE

I'm going to call it value innovation, because everybody thinks low cost, being cheap is actually being cheap, it's not right.  The truth is what we have done in innovation is we have put more and more resources after a problem simply because we can afford to do it.  But what that drives is it changes the business model and a price point upwards for ourselves.

So what I tell companies is you have to start thinking about creating solutions which may have maybe 80 per cent of the functionality but at 20 per cent of the cost.  So if you had constraints for yourself about building a product that solves a particular major problem but at 20 per cent of the cost, how do you redesign yourself?  Right now what we do is let me build a company and then say oh let me go after a particular product or a market.  I said don't do that.  Instead start a company from scratch, go after a problem with the idea that you have to solve that user need but at a radically lower cost.

Here are some examples.  Nestle when it started thinking about all these different products said it really doesn't have a product for the lower end of the market, so then it started working on what are the different ways of organising it?  Nestle  created this popularly positioned product for that base of the pyramid market, but instead of taking its existing infrastructure and trying to address that problem, it said how about community level solutions that allow us to keep the cost lower, a better quality product, give more value to the communities in which they are embedded and then create a market from that.

So to address innovation at the low end, what I call the value end, it means you have to invest resources but the value that you get out of it is significantly higher.


ELISABETH LOPEZ

I've heard it said that wherever a product is really only the province of wealthy people there is a fantastic market opportunity there.


GERRY GEORGE

Again it goes back to our earlier conversation of what is the role of business?  If it's only about financial returns then I define a market based on where can I get the most money out of it?  But if I define it based on social value then I'm saying you know there are different ways of how I would say that I get value out of this, and creating social value is part of that, my remit.

So the Nestle project for example, there are 190,000 milk farmers in the Punjab region between India and Pakistan.  Their biggest challenge was to say how do milk farmers get enough returns that they don't sort of cheat by adding melamine into the milk so that it makes the milk look whiter or have a higher protein content?


ELISABETH LOPEZ

Which of course was a phenomena that triggered a huge food safety scandal in China several years ago.


GERRY GEORGE

Correct.  So by reorganising, by pushing down the production facilities into these communities what they are able to do is they reconfigure the entire supply chain that works and embeds it into the community by giving farmers more incentives and creating greater value within that community itself.
The upside of that is that they get better milk, they are able to now build a cooperative around that so they stabilise the supply chain and then they are better off for it.


ELISABETH LOPEZ

It's a far cry from the sort of reputational issues that have marred the image of companies like Nestle in the past, so it sounds like large companies are getting smarter about this sort of thing.  Are they becoming a bit more aware of how to handle disparities in information and power when they're dealing with small stakeholders like farmers?


GERRY GEORGE

That's a huge problem.  So if you are sitting in - whether it's Switzerland or whether it is in Chicago in the US or Melbourne in Australia - you're very distant from your market itself who is your end consumer.  But part of that flexibility of organisations is to say how can I be close to my consumer, close to the market that I'm going after and organise myself in a way that allows me to do it?

That's part of the adaptivity of organisations; that you need to have organisations or businesses that are more adaptive, more closer to their market if they really want to be committing to a particular community.


ELISABETH LOPEZ

Maybe this is stretching it a bit, but you do seem to be moving away from the use of the term innovation to talk more about adaptation.  Is this not a little backward looking?


GERRY GEORGE

Not at all.  We forget that innovation allows us to adapt.  Instead we think innovation is the goal in itself.  It's quite the opposite.  The reason organisations innovate is that they can adapt.  Now the term innovation has become so overused that everybody talk about oh let me innovate, how innovative are you, we've got business model innovation, organisational innovation and innovation on everything.  You know it's an in term if a government comes up and says we are an innovative government.  So you stop at that point and then say why are we really innovative? 

We innovate because we want to have our organisation adapt and if we rethink the organisation as an adaptive organisation then we think of innovation as a tool to get us there.  But innovation is not just about the product or a service.  It's about how can I be closer to the community, so it's about adapting organisational design.  How can I react more nimbly to events that are happening?  How can I be more resilient?  That involves cultural change.  It involves an organisation looking at itself and then saying do I have the right structures?  Do I have the right people?  Do I have the right processes?  We tend to forget that adaptation is about people and structure and about what we do rather than just about R&D and new products.

So when we talk about innovation it's not just about having ideas.  You have mentioned Kodak earlier in this conversation and Kodak is an example where there have been several innovations but they have not been able to commercialise on it.

So how do we build the capability of not just having ideas but acting on it and then making it successful is what makes companies adaptive.


ELISABETH LOPEZ

Professor Gerry George thanks very much for joining us on Up Close.


GERRY GEORGE

It's wonderful to be here.  Thank you very much.


ELISABETH LOPEZ

We've been talking about innovation, adaptation and entrepreneurship with Gerry George, Dean of Singapore's Lee Kong Chian School of Business.

You will find more details of his publications on the Up Close website together with a full transcript of this and all our other programs.

Up Close is a production of the University of Melbourne Australia created by Eric van Bemmel and Kelvin Param.  This episode was recorded on 9 July 2015.  Produced by Eric van Bemmel with audio engineering by Gavin Nebauer.

I'm Elisabeth Lopez, thanks for listening and I hope you can join us again soon.


VOICEOVER

You've been listening to Up Close.  For more information visit upclose.unimelb.edu.au.  You can also find us on Twitter and Facebook.  Copyright 2015 The University of Melbourne.


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