The Innovation Sandbox

The Innovation Sandbox
C.K. Prahalad
Strategy+Business, Autumn 2006

Many people believe that to innovate successfully, companies have to break free of the constraints that determine what is possible. However, as C.K. Prahalad explains in “The Innovation Sandbox,” in the Autumn 2006 Strategy+Business, breakthrough innovations actually happen when companies start by setting limits.

Prahalad is Distinguished University Professor of Corporate Strategy at the University of Michigan.  He is the author of The Fortune at the Bottom of the Pyramid and co-author of Competing for the Future.

As he explains, the low-income markets of India provide a perfect proving ground for innovators who set constraints and then think creatively within those limits.

For example, in Bangalore, the cost of a Western-style hotel room is typically $250 to $300 per night.  But the indiOne hotel charges $20.  The indiOne is modern; every room includes an attached bathroom, an LCD television, a wireless broadband connection, a small refrigerator, a coffeemaker, and a work area.  Despite the low price, the hotel is very profitable.  Its gross margins were 65 percent in 2005, compared with 30 to 40 percent for typical luxury hotels.

Not far away, a large multi-national corporation is testing prototypes of a multiple-fuel stove for the rural poor.  The potential consumers of this stove typically use cow dung or sticks and grass for cooking fuels.  These fuels are inefficient, and the smoke from indoor fires can be harmful.

With the new stove, a housewife can switch from twigs to natural gas instantly, depending on her budget and priorities — for example, whether she is cooking dinner for her family or making tea for an unexpected guest.  The cost of the stove is less than $20.  If it succeeds in India, it will be rolled out across multiple markets, with potentially immense impact on the quality of life of people throughout the developing world.

Innovations like these are not just technological or market breakthroughs.  They change people’s lives.  The hotel, by facilitating travel for many more businesspeople, could greatly expand commerce in India.  The stove could improve the lives of millions of people.

The process for designing both of these breakthrough innovations started with the identification of the following four conditions:

1.       The innovation must result in a product or service of world-class quality.

2.      The innovation m...