Business World

‘Nano Is A Venture Into The White Space’

Mark Johnson explains the concept of 'white space', the need for systemic changes in business models for sustained growth and why companies should focus on innovation to stay ahead.

Stories of starry eyed young entrepreneurs who made it big and founded business empires have been narrated many a times with their success formulae deconstructed for purposes of inspiration. However, analysing the dilemmas of corporations trying to break out of their successful venture and explore new business areas require due attention as well. This is Mark W. Johnson’s forte. Johnson is the Chairman of Innosight, a strategic innovation consulting firm based in the US, Singapore and India. He concentrates his wide and versatile expertise on corporations to help them harness the potential that exist in untapped markets and areas within and create profitable business ideas in his latest book Seizing The White Space (Harvard Business Press). In an interview with BW Online’s Alokita Datta, the author talks about the need for systemic changes in business models for sustained growth, how and why companies should focus on innovation to stay ahead and the route for establishing an environment of successful entrepreneurship in India.

You define ‘white space’ as the unchartered territory within a company’s business model. Could you be more explicit? Is the concept of the white space relative; one company’s core business is another firm’s white space?
I think most business people will talk about white space as unchartered territory; a market that is untapped and where competition doesn’t really exist. So I wanted to talk about this concept as an area of opportunity for a company but in the terms that it is used in the book, it is meant to be about those opportunities that require a fundamental change in the way business is conducted either in terms of how profits are made, how the organisation combines together in terms of resources and profit management. It is not just an area of untapped opportunities in general because of the market(s) but because the company that wants to go after this change has to fundamentally change its business model if it wants to seize on the opportunity. 

You rightly pointed out that one company’s white space could very well be another firm’s core business area. So when Proctor & Gamble launches into the mop category and creates what was known as the Swiffer, a consumer house mop, for them it wasn’t white space because they already had a consumer business model. So even though it was an untapped opportunity to bring very interesting concepts to an old category and it was tremendous growth for them, it wasn’t white space. But it would be white space for any of the current mop companies trying to do so because they would have to go from becoming a durable to consumable kind of company. I wanted to talk about white space and business model change together because so often companies say that they have to stick to what they do in their core business, which really means what they know how to do in terms of making money, it is already established and it could be very dangerous to go beyond what you have known for so long in terms of business practices.

There are two kinds of white spaces, ones that exist within an industry and others that exist beyond it. How differently does a company capitalise on either/both?
The white space within; where a certain market or industry already exists, is really the story about commoditisation; the fact that most markets will ultimately become commodities if you give them long enough at least within product categories. The example that I use in the book is the clearest and is that of Dell Computers which came in a very unique way into the computer industry providing convenience and customisation for your computer the way you wanted it and have it delivered to your doorstep in 48 hours. That allowed a whole new value proposition to go into the computer industry. But what has been happening with PCs especially desktops is that they are becoming commodities, they don’t need to be customised and you don’t need to modify anything about them. So if you really wanted to seize the white space within the computer industry Dell, or other computer companies would have to fundamentally change their business models to a truly low cost kind of business and that’s been the trouble for Dell. It has been a business that set up to deliver on a convenience approach. 

Tata Nano (PTI)The white space beyond would entail going into a whole new market. In India I use the example of Hindustan Unilever and their concept of the Shakti Amma or strength mothers in the villages of India who were tapped as entrepreneurs because now all of a sudden there was a business model change within Hindustan Unilever where they were able to create access to a whole group of people in the country who hitherto did not have access to consumer products. Even the firms don’t have access to these markets and their current business models cannot reach them. You need to come up with a new business system just as Ratan Tata had to come up with a new business system to create a Rs 1 Lakh car.

So you consider the Nano, a white space innovation by Tata Motors even though it is well within the domain of four-wheelers in the automobile industry in India?
I think the Nano, is a venture into the white space because what Tato Motors had to do was not only make a low cost car but they have had to change the entire sourcing system to get more economic benefits from suppliers and I don’t know if it has already been implemented as yet but the plan I believe is to have a very unique distribution system where entrepreneurs in different cities and townships will not only sell the car but also assemble it. When you put all that together as well as the fact that the Tata’s will be making money on a much smaller margin now but hope to make it in much larger volume maybe even export the Nano to markets outside India . That is when you are talking about business model change more so than just an idea.

Are factors such as competition, the risks involved and the potential damage that could be caused to existing business responsible for companies not venturing into the white space?
The reason is that there hasn’t been a good frame how to reconstruct a business system particularly from a design perspective. Without understanding what underlies an existing business system in terms of how it is constructed at the core; not a business plan in terms of marketing charts and financial reports, there has to be an interconnected system which says, these are the fundamentals of what creates value for the company. What happens is that anything that intuitively appears that we have to do something different, if you don’t understand how to really dissect what you do in the first place and you don’t have a good understanding of how to navigate into the unknown, then it is going to be scary by definition. Then also the track record is not very good for companies trying to explore new areas as well. That’s one issue of not having a clear roadmap to go into the unknown.

The other aspect is that large companies don’t really give the proper business rhythm, patience for these kinds of efforts. Because they are a large company there are certain levels of demand for growth and so based on that level of growth requirement, there is a certain impatience because of which they don’t give the incubating time required for converting the blue print of a business plan to any new system. It is more a matter of how much to invest rather than should a company invest or not in my view. This isn’t about shifting strategy to a new area; for instance, most companies that are in the technology side of some kind have an R&D department on an ongoing basis, so why not introduce R&D not just for technology but also for business and marketing, following the same idea.

Which are the companies that have, in your opinion, successfully managed core business growth as well as timely innovation?
Very few actually! If I were to speak about American companies and the ones that even come remotely close I’m not sure if their being professionally managed as they are more likely to be managed from a visionary point of view, would include Steve Jobs in Apple. I think he has done more than one thing and Jeff Bezos of Amazon has achieved multiple business model innovation, even at the peril of Wall Street and others saying why you are entering the Web services market when you are doing well with books. The closest firm to have achieved innovation, from a professionally managed perspective would be IBM. The company has come a long way from hardware to services making all the changes that were necessary to do that.

What should be the focus and the strategies employed for expanding business in untapped areas. For instance Amazon has recently come to India….
This is an interesting topic especially if you think about US companies coming to India and China. What I think has happened in the past is that because this is a big issue going on the United States, is that US companies will take their existing business models and say; Okay we’re going to India so we need to change is the packaging as the culture is different and we’ll hire some people from India to be part of the team. Yet Americans will still have the dominant US model imparted upon the opportunities that exist in the new market which is not enough. Jeffery Immelt of GE wrote an article about reverse innovation, which talks about it conceptually and I have tried to discuss the ‘how’ of it in my book. We need to start with the jobs that people in the villages of India need to get done as a source point and build up from thereon ; how are we going to reach them , what will be the payment terms and what combination of product and service will we have to combine to be successful here.

Big Bazaar (BW Pic By Hemant Mishra)Once you understand the right product-service combination, the right access and the right payment which of course India has been fabulous with micro financing The question then arises whether a company can tweak the existing model or would they need to develop something new altogether. It is difficult for companies in the West or global multinational companies to really understand about India or China and for that they really have to reverse engineer. Maybe the exception could be a web 2.0 business where probably standard rules apply. The key word is system; it is really about systematic thinking whether in terms of design and development and not just product. The other great example that comes to mind in the Indian context is the Aravind Eye Hospital which has been tremendously successful. It is not just a hospital; it is a laboratory and the low cost elements and they way they derive volume to get to lower costs. This is an entire system. Which is why Aravind Eye Hospital couldn’t just go to the US and Mayo Clinic can’t just establish them in India. What Aravind Eye hospital has done are very unique things that you just cannot replicate.

In retail, Kishore Biyani of Future Group has been successful to a large extent in creating a chain of hypermarkets, the Big Bazaar stores based largely on the business model that Wal-Mart has followed. What are the odds of success in adopting a previously successful model?
That is a fair point and if you were to look at discount retailing in general, it wasn’t just one company that came out a discount retailing business model. In the US you ended up with K Mart and Wal-Mart and many others. So it is a good point that there are certain general archetypes of business models that can lend themselves easily to be adapted by others. Even the high end movie theatre concept really works on this account. But then in India to be successful you need to exist in both urban and rural markets.

Given your expertise in the area, what kinds of business models are expected to be successful in India? Also, is the success of a business model more dependent on the industry?
It is dependent on industry to a large extent but I also feel that business models that enable individuals to have access to products and services that formally they didn’t have access to because either because it was too expensive, wealth being the bottom of the pyramid, but also things like skill. Sometimes people are shut out because they don’t have the training or the skill set. So it is hard to say what those business models look like per se but I think there are a few things that can be observed. What is noticeable with Aravind Eye Hospital and the Narayana Hrudayalaya by Dr Devi Shetty is that they follow models which are low cost, low margin, high velocity and systemic approach which comes from thinking holistically. I think naturally in the emerging markets, this model will be dominant form and a big part of economic development. That is the way to bring people up to a level of consumption pattern and the only way to make people consume is by making it affordable and the only way a manufacture organiser will be able to do that is by getting the benefits of scale.

How should we go about the task of creating a culture of innovation in India to try and encourage entrepreneurs to execute new ideas and also move beyond socio-political limitations? Experts bring up infrastructural backwardness and lack of market sophistication into the argument…
One of the things that we at Innosight believe, whether we are talking to a small organisation or a large corporation or a country in fact, is that Innovation needs to be built into a common language. Your definition of innovation is different from mine so it is a loaded term and I have some strong views about what it is and what it isn’t. But apart from that developing a language about innovation is very important. Innovation should be looked at from a corporation lens that it really isn’t about the inventions or the good ideas but how they are shaped into good viable businesses that lead to commercialisation which leads to growth. To the extent that the country provides schemes and subsidies and incentives not only to discover and invent but also incubate and develop entrepreneurs who have the opportunity to build growth businesses as well as access to critical things like capital and financing. That is probably the greatest lever to build innovation.

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