benefit. Suggestions for so doing have focused on business model innovation ... BUSINESS and technology are bothregarded as new spurs to economic ...
An Empirical Investigation of Innovation and Community Development through Information and Communication Technology Michael Gordon, Vijay Dakshinamoorthy, Li Wang, and Allen Hammond
Abstract- Recently, discussion has begun to consider serving the base of the economic pyramid for business and societal benefit. Suggestions for so doing have focused on business model innovation, improving internal capabilities, promoting stronger governance, and providing leapfrog technologies (such as ICT) to promote effective change. We consider the questions of what types of innovation are occurring when businesses and other organizations enter the base of the pyramid and what types of social, economic, and consumer benefits they bring to local communities. We base our findings on an analysis of more than 1,000 cases describing base of the pyramid activities.
Index Terms- Developing Nations, Information Technology, Social Factors, Technological Innovations
projects occur around the world and cover a variety of activities and sectors. Gordon et al [8] gives a careful statistical depiction of these projects. Paul et al [9] gives a descriptive overview of the cases within the repository, describing them according to the various activities that they represent. What has been lacking is a more complete and careful understanding of the types of innovations that are taking place at the base of the pyramid and the types of benefits they are providing to local communities. This paper helps explore those issues, providing both new insights and indications of profitable areas for future research. II. BACKGROUND
I. INTRODUCTION
BUSINESS and technology are both regarded as new spurs to economic development among the very poor. Prahalad and Hart [1] and Prahalad and Hammond [2] coined the phrase "bottom (or base) of the pyramid" to describe the concentration of people living on less than a dollar a day. They also indicated the kinds of business benefits to companies that serve them, as well as the local benefits to the communities that they serve. Hammond and others [3] have championed the role of technology in development as another tool by which the poor in the developing world can be brought closer to the economic mainstream. Economic arguments suggesting the benefits of ICT for development have been made [4] in addition to broader based arguments touting the advantages for businesses seeking opportunity to enter new markets and serve the poor [5][6]. The World Resource Institute's Digital Dividend project has collected over 1,000 examples of organizations that are deploying information and communications technology at the base of the pyramid (www.digitaldividend.org). These Manuscript received December 21, 2005. Michael Gordon is a professor at the Stephen Ross School of Business, University of Michigan, Ann Arbor, MI 48109 USA (e-mail:
Vijay Dakshinamoorthy is a PhD student at the Stephen Ross School of Business, University of Michigan, Ann Arbor, MI 48109 USA (phone: 734647-7667; e-mail: vdakhinabuc). Li Wang is a PhD student at the Stephen Ross School of Business, University of Michigan, Ann Arbor, MI 48109 USA. (E-mail: Allen Hammond is Vice President of Special Projects and Innovation at the World Resources Institute, Washington D.C., USA (e-mail: all i o).
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A. Data Analysis The original digital dividend case base consisted of over 1,000 case capsules collected over the last five years. Each case contained a short abstract plus some meta-data describing the case's location, activity type, sponsorship, sector, etc. We sought to extend these descriptions by identifying for each case the type of innovation that it embraced and the types of benefit it produced. Specifically, for each case we sought to indicate whether the primary type of innovation it embodied was technology-focused or business-focused (see Table 1). (It is important to remember, however, that even descriptions that were coded as "business innovations" had a strong ICT component.) We also sought to indicate the types of benefits that flowed to local communities where the innovation was occurring (see Table 2). To ensure reliable descriptions of innovations and benefits, two individuals, who read the original abstracts provided in the digital dividend cases as well as pertinent information obtained from cases' underlying websites coded each case separately. A third individual compared the two encodings and made a final determination about how to code the case if there were any discrepancies. The coding for each case allowed a single highest-level "primary innovation" (technological or business innovation) with supporting detail (see Table 1) and up to two local benefits with supporting detail (see Table 2). The taxonomy was developed in conversation with two research centers emphasizing the base of the pyramid, each contributing its theoretical and practical
insights.
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TABLE I FIRST 3 LEVELS OF CODING FOR INNOVATION
TABLE III DISTRIBUTION OF BENEFITS BY INNOVATION TYPE
Local Benefits Consumer Economic Social
Technological Innovations Re-purposed Western technology Extended communication / improved information
Innovation 317 131 343
Business Innovation 236 266 288
Casual inspection of this table suggests that when an innovation is business-focused, it produces more economic benefits to local citizens (in the form of more or better jobs, better opportunities for local businesses, or a greater share of the economic value brought about). Several logistical regressions confirmed this observation. We regressed "economic local benefits" on the binary variable "technological innovation." Business innovations (i.e., nontechnological) had more impact than technological innovations in producing economic benefits (p < .001). When local citizens' economic benefits were examined at the next level of detail (the most detailed level shown in Table 2), the same results held: business innovations had greater impact in producing new jobs, new types of jobs, local business ownership, new business skills, access to capital and markets, and greater share of value extraction. Each of these was statistically significant with the exception of reliable access to capital. Thus while technology-driven innovation is approximately equivalent to business innovation (brought about through ICT) in attracting capital, all other forms of local economic benefits favor innovation in which ICT is employed in the service of business innovation. This is consistent with the perceived wisdom that technology is effective for business and economic value creation when it is used in the service of enabling the underlying operations of organizations. The magnitude of the difference in technological vs. business innovation was greatest in promoting job creation, new forms of employment, and access to new markets. Local citizens also receive differential social impact from ICT innovations depending on whether they are primarily technology-focused or business-focused. We logistically regressed "social local benefits" on the binary variable "technological innovation." Technological innovations had more impact than business innovations in producing social benefits (p < .001). However, a finer-grained analysis showed that all social benefits were not affected similarly. Improved healthcare was brought about to a much larger degree by technology-focused innovations than by business innovations (p < .001). Since nearly 80% of all technological innovations were directed at extending communication and information access, these results show the critical role of information in improving healthcare among the poor. In contrast to healthcare, business-focused ICT innovations produced greater impact in promoting the empowerment of women (p < .001). Technology innovations had a greater impact on improving education and preserving culture, but neither of these effects was statistically significant. Overall, consumer benefits to local citizens are also more effectively enhanced by technological (as compared to business) innovations (p < .001). Consumer benefits are those that improve local citizens' consumption options. Technology innovations had comparatively more impact than business
Business Innovations
Value Chain Innovation Supply chain Manufacturing Distribution Novel marketing Organizational Innovations Managerial leverage New types of social contracts Product / Service Innovations Sizing /"sachets" Language / literacy New product features Slimmed down feature set New product category
III. RESULTS AND ANALYSIS
A. Innovations and Local Benefits The number of cases with a primarily technological benefit (521) and a primarily business benefit (527) was nearly TABLE II FIRST 3 LEVELS OF CODING FOR LOCAL BENEFITS
Benefits to Local Citizens Consumer benefits New product / service viable to provide Improved fulfillment Better prices Expanded choices Economic benefits Job creation New types ofjobs created Local business ownership Acquisition of business skills Reliable access to capital Access to new markets Greater share of value extraction Social benefits Cultural preservation Empowerment of women Improved healthcare Improved education
identical. We compared these two types of innovations against any local benefits that they produced. The distribution of both technological and business innovations is shown in Table 3.
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innovations in making it possible and practical to provide new products or services (p < .05) and providing interactions with customers that were more convenient, more pleasant, or more respectful (p < .001). However, business innovations were more effective than technology innovations at reducing prices to consumers (p < .01). This suggests that business innovations are key to changing underlying economics, even as technology innovations are instrumental in making them possible in the first place. B. Characteristics ofTechnology The original encoding in the digital dividends database listed one or more activity types for each case. These activities included a mix of both what may be deemed "enablers" (such as providing rural telephony) and "effects" (such as computer training, agriculture, or empowering the disabled). We sought to understand the enablers in relationship with the benefits they produced. Table 4 (end of paper) shows how these enablers were distributed with respect to both technologyfocused and business-focused innovations. Separately, we performed logistic regressions to see the effect of each enabler on technological innovation. Satellite, handheld, and radio were strongly associated with technological innovation (p < .001, .01, .01 respectively). Enabling hardware and software were both associated with technological innovation at a statistically significant level as well (p < .05). Though no other coefficients were significant, each was in the "expected direction" of favoring technology over business innovation, except for mobile phones, whose negative coefficient meant this technology was more closely associated with business innovation than technology innovation (p < .10). It is difficult to interpret this last result. Ubiquity does not account for it, since radios (with a high level of penetration in the developing world) [10] have not led to business innovation whereas mobile phones (becoming ubiquitous as well) have. Neither does portability (handheld and mobile phones are equally portable). As a hypothesis, technological enablers that provide users with access to the information that they desire, when they desire it, may best support business innovation. Mobile phones, telecenters (which provide voice and internet connectivity), and rural telephony - the technologies most consistently used for business innovation- each provide users with instantaneous access to a wide variety of information and thus may be best positioned to support business innovations. The technology enablers can also be examined to see the types of local benefits that each provides (see Table 5 at the end of the paper). We were interested in knowing whether there were patterns between the enablers and the local benefits they provide. An overall chi-squared test rejected the null hypothesis that the distribution of rows and columns is statistically independent (p < .01). In other words, there are patterns in the overall data between enablers and local benefits. When columns were compared, the distribution of local benefits for telecenters was different than for any other enabler except radio. Telecenters and radio, in fact, are the only enablers for which the number of instances of social benefits exceeds the numbers of both consumer and economic benefits. (For every other type of ISBN: 1-4244-0485-1
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enabler, consumer benefits were the largest category.) Recall that social benefits include improved healthcare and education, cultural preservation, and the empowerment of women. Of all the enablers, telecenters and radio may be the most community-based. Radio, by its very nature as a broadcast medium, provides common information to a community. Likewise, telecenters often serve as information portals, thus again unifying a community on the basis of information. The community nature of telecenters and radio may explain why these technologies are most effective in promoting social benefits. IV. CONCLUSIONS AND SUMMARY This paper examined over 1,000 cases drawn from the base of the pyramid to begin to understand the types of innovations that they embodied and the benefits they provided to local communities. In an attempt to gain a full statistical picture of what is happening at the base of the pyramid with respect to information and communication technology, we have encountered a sampling bias: items included in the database we examined were likely entered as illustrating some level of success. Efforts that had failed entirely most likely escaped
the attention of the researchers who constructed the database. Thus the results we have shown can all be thought of as being drawn from a pool of (at least limited) success stories. In this important context, we have indicated what is happening on the ground in terms of innovation, social and economic benefits. Our results show that economic benefits such as job creation are more often produced when the innovation focuses on changing an organization's value chain, its internal organization, or the products or services it provides. In contrast, social benefits (such as improved healthcare or improved education) are more often produced from technology focused innovations, though the empowerment of women is better served from business-focused innovation. Consumer innovations provide a mixed picture as well, with better prices being the result of business innovation but technology innovations making the provision of certain goods and services possible at all and, in other cases, providing them in ways that are much more sensitive to local citizens' needs for respectful treatment. The technologies that are the backbone of many innovations were examined as well. Mobile phones were the only technology playing a more prominent role in business innovation than technology innovation, though telecenters and rural telephony each were involved in approximately half technology innovations, and half business innovations. We have left unexamined here the role of innovation in providing benefits to the companies or organizations (NGO or governmental agency) that support them. That is the topic of another paper [11], which, together with the current paper, shed light on the innovations ICT is producing at the base of the pyramid and the benefits that flow from them. APPENDIX
Table IV - Joint distribution of enabling technology and innovation types Table V - Joint distribution of enablers and local benefits May 25-26, 2006 ICTD 2006
ACKNOWLEDGMENT
The authors would like to acknowledge the support of Jim Walsh in this research study. We would also like to thank Kurt Beyerchen and Aaron Dombrowski for their help in data analysis. [1] [2] [3] [4]
[5]
[6]
[7] [8]
[9]
[10]
[11]
REFERENCES C. K. Prahalad and S. L. Hart, "The fortune at the bottom of the pyramid," Strategy + Business, vol. 26, pp. 55-67, 2000. C. K. Prahalad and A. Hammond, "Serving the world's poor profitably," Harvard Business Review, pp. 4-11, 2002. A. Hammond, E. Jenkins, W. Kramer, and J. Paul, "Innovation And The Social Enterprise: Creating Development Value At The Village Level," World Resources Institute, 2003, pp. 32. K. Eggleston, R. Jensen, and R. Zeckhauser, "Information and Communication Technologies, Markets, and Economic Development," in The Global Information Technology Report 2001-2002: Readinessfor the Networked World, G. K. e. al., Ed.: Oxford University Press, 2002. A. Hammond and E. Jenkins, "Bottom-Up, Digitally-Enabled Development: A Vision," in iMP Magazine, 2001. J. Gage, "Some Thoughts on How ICTs Could Really Change the World," in The Global Information Technology Report 2001-2002: Readinessfor the Networked World, G. K. e. al., Ed.: Oxford University Press, 2002. Digital Dividend project website M. Gordon, L. Wang, and A. Hammond, "Exploring the Base of the Pyramid: An Empirical Study of Cases from the Field," Unpublished, 2005. J. Paul, R. Katz, and S. Gallagher, "Lessons from the field: An overview of the current uses of Information And Communication Technologies for development," World Resources Institute, Washington D.C. November 2004. G. Kirkman, C. A. Osorio, and J. D. Sachs, "The Networked Readiness Index: Measuring the Preparedness ofNations for the Networked World," in The Global Information Technology Report 2001-2002: Readinessfor the Networked World, G. Kirkman, Ed.: Oxford University Press, 2002. M. Gordon, V. Dakshinamoorthy, L. Wang, and A. Hammond, "Understanding benefits and innovations at the base of the pyramid (tentative)," Unpublished, 2005.
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TABLE IV JOINT DISTRIBUTION OF ENABLING TECHNOLOGY AND INNOVATION TYPES
Enablers
Innovation Technological Business Total
General 21 12 33
Hardware
Software 45 25 70
41 22 63
Handheld 18 3 21
Mobile Phone
Smart card
Telecenter
Radio
130 125 255
25 8 33
13 6 19
4 11 15
Rural
Telephony
Satellite 50 8 58
22 20 42
TABLE V JOINT DISTRIBUTION OF ENABLERS AND LOCAL BENEFITS
Enablers
Local Benefit
General
Consumer Economic Social
24 8 12
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Hardware 51 14 23
Software 54 20 31
Handheld 18 4 14
Mobile Phone 13 5 1
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Smart card 14 8 11
Tele-
Radio
139 91 165
21 7 24
center
Rural
Satellite
34 11 15
38 17 35
Telephony
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