Master in International Trade Business

Madrid
Barcelona
Valencia
Strategic management
www.esic.edu

Sevilla
Zaragoza
Málaga
Galicia
Pamplona
Bilbao
Granada
D. Fernando Flores Bas AA: 2019-2020
 Jugaad innovation

● Jugaad
– Is a colloquial Hindi word meaning “an innovative fix; an improvise solution born from ingenuity and cleverness”

● Jugaad innovation definition

– Is a unique way of thinking and acting in response to challenges; it is the gutsy art of detecting opportunities in
the most adverse circumstances and resourcefully improvising solutions using simple means

● Jugaad in other countries

– Brazil – “Gambiarra”
– China – “Zizhu Chuangxin”
– Kenya – “Jua Kali”
– France – “Système D”

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Jugaad innovation

● Mitticool

https://www.youtube.com/watch?time_continue=131&v=xDFsIe6bTYs

● Embrace Innovation
https://www.youtube.com/watch?v=-PyY94ssSww

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Jugaad innovation
How the West lost its jugaad

Managing innovation like any other business activity; creating dedicated

R&D departments and standardising the processes of taking ideas to market

● The structured approach is too expensive and resource consuming

– “More (inventions) with more (resources)”
– Pharma industry; the sector where the bigger is better. Big Pharma´s spending in R&D is around $45 billion
– U.S. automobile industry expenditure in R&D near $20 billion

● The structured approach lacks flexibility

– With such R&D budgets firms became risk averse in innovating
– A heavy structured process full of tools and practices to reduce uncertainty

● The structured approach is elitist and insular

– Large R&D labs employing hundreds of top scientists and engineers
– A belief that “knowledge is power” and therefore becoming an elitist activity

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Jugaad innovation
How the West lost its jugaad

Today the reality is….

● Money cannot buy innovation

– There is a weak correlation between R&D expenditure and inventions

● Invention is in essence a messy and chaotic process

– You cannot put a six sigma process behind inventions and say… I am planning to work next Wednesday in two
new ideas…

● The old belief that only a few smart scientist or engineers could invent new things is over
– In a consumer driven economy is more important to commercialise technology, skills that scientist and engineers
might not have
– Innovation is not an invention; is converting a new idea into a consumer satisfaction. Otherwise is not innovation
– The power has shifted from the professional class to the masses

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The six principles of jugaad innovation

Six practices of highly effective innovators in complex settings like emerging economies

1. Seek opportunity in adversity

2. Do more with less

3. Think and act flexibly

4. Keep it simple

5. Include the margin

6. Follow your heart

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 The six principles of jugaad innovation
1. Seek opportunitie in adversity
Jugaad entrepreneurs perceive constrains as an invitation to innovate; they transforms adversity into
opportunities adapting to changing circumstances by improvising solutions along the way

● Enrique Gómez Junco founder of Optima Energía (Mexico)

https://www.youtube.com/watch?v=7m3i75ePGVw

● Tulsi Tanti founder of Zuzlon Energy (India)

https://www.youtube.com/watch?v=RT4UUApbWw4

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The six principles of jugaad innovation
2. Do more with less
Jugaad practitioners work with what they have helping firms in emerging markets
to optimise the use of scarce financial and natural resources while delivering high
value to a greater number of customers. Scarcity is the mother of invention

● Safaricom (M-PESA) (Kenya)

https://www.youtube.com/watch?v=zQo4VoLyHe0

https://www.youtube.com/watch?v=i0dBWaen3aQ

● Hapinoy (Philippines)
https://www.weforum.org/agenda/2015/12/everyone-a-microentrepreneur/

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 The six principles of jugaad innovation
3. Think and act flexibly

An attempt to negotiate street traffic in India is the best way to explain how instinctively you
have to think and act flexibly; jugaad innovators adapt to survive and accept unpredictability

● Harish Hande, founder and CEO of SELCO (India)

https://www.youtube.com/watch?v=HGTO2Nm5lng

https://www.youtube.com/watch?v=ZaacsKYTg5E&pbjreload=10

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 The six principles of jugaad innovation
4. Keep it simple

Jugaad innovators are at the forefront of a low – tech revolutions devoted to finding “good enough”
solutions; offer products that are easy to use and maintain and solve customers´ fundamental needs

● Illac Díaz, inventor of SLB (Philipinnes)

https://www.youtube.com/watch?v=cQCHvO2H0_0

https://www.youtube.com/watch?v=z02ngSto-sk

● Ushahidi, a platform in response to cataclysmic events (Kenya)

https://www.youtube.com/watch?v=EhT3co2qNAA

https://vimeo.com/255812747

https://vimeo.com/209485585

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The six principles of jugaad innovation
5. Include the margin

One of the most relevant principle. Jugaad entrepreneurs intentionally looks

after marginal, underserved customers and pull them into the mainstream

● Dr. Liu Jiren, Chairman of Neusoft (China)

http://fortune.com/2018/03/20/neusoft-china-healthcare/
https://www.youtube.com/watch?v=NiDiiym6BHc

https://www.forbes.com/global/2006/0724/034.html#34aeaff5acfa

https://www.suse.com/media/success-story/neusoft_wuhan.pdf

● Rana Kapoor, founder and CEO of YES BANK

https://www.ibef.org/download/banking_story_06.pdf
https://www.yesbank.in/pdf/yesbankstory

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 The six principles of jugaad innovation
6. Follow your heart

Jugaad entrepreneurs do not rely on focus groups or formal market research to decide
what products to make. They follow their hearts; use intuition, empathy and passion

● Diane Geng and Sara Lam cofounders of Rural China Education Foundation (RCEF)
https://inspirationalwomenseries.org/2017/09/12/inspirational-woman-interview-diane-geng/
https://www.youtube.com/watch?time_continue=264&v=s5eC45_PiJU

https://www.youtube.com/watch?v=LV6bpdmzEkc

● Kishore Biyani, founder of Big Bazaar (India)

https://www.youtube.com/watch?v=v2LoK-m9j7s
https://www.thenational.ae/business/the-making-of-india-s-retail-king-1.519687

https://www.youtube.com/watch?v=P00Q4opJ-0A

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Integrating jugaad into your organisation

● Jugaad is not a panacea to be applied to all innovation problems in all situations

● Jugaad is not a substitute for the traditional structured approaches used in Western
economies; is a useful complement

“Company cultures are like country cultures. Never try to

change one. Try, instead, to work with what you´ve got”

Peter Drucker

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When jugaad work best?
Jugaad innovation delivers the most relevant benefits when it is practiced in
complex and volatile environments with some characteristics

● Rapid changes
‒ Short product lifecycle, changes in demographics patterns, competition is heating or coming from
everywhere, government policies and regulations are constantly changing

● Widespread resource scarcity

‒ Limited capital, access to natural resources is constrained; i.e., water, oil, etc.

● Frugal and diverse customers

‒ Cost-conscious customers seeking affordable products and want/needs them to be tailored to their particular
needs; i.e., consumer products, healthcare products

● Industry immaturity
‒ Emerging sectors where industry standards are not established; i.e., clean tech, biotech

● Exploding interconnectivity
‒ Industries undergoing a technology revolution and where social media tools and cell phones are making
collaboration easier and communication cheaper; i.e., unbanked people

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When jugaad work best?
Jugaad innovation delivers the most relevant benefits when it is practiced in
complex and volatile environments with some characteristics

● These extreme conditions have been more extended in emerging markets

‒ India, China, Brazil rather than Europe or United States

● How should companies with an stablished structured approach to innovation can deal
with jugaad innovation?
‒ Abandon the structured approach or integrate jugaad approach into it?
‒ If the latter, how should both approaches be integrated?

The answer is not the hammer (traditional innovation

approach) versus the screwdriver (jugaad innovation
approach) but the hammer and the screwdriver....

....and when to use each approach

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When jugaad work best?
Benefits of the hammer – traditional innovation approach

● Volume oriented economies of scale

‒ Large R&D departments and supply chain resources enable companies to scale up new products and distribute
them to homogeneous markets

● Infusion of hard capital

‒ Favours “big risk, big rewards” R&D projects undertaken by firms with huge resources
‒ Potentially this could lead to disruptive technology or ground-breaking products

● Efficiency
‒ Six Sigma can help firms execute innovation projects more efficiently within an stable environment

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When jugaad work best?
Benefits of the screwdriver – jugaad innovation approach

● Value oriented economies of scope

‒ As populations grow more diverse and markets become more fragmented, jugaad enables firms to tailor solutions to
specific needs of multiple customer segments

● Infusion of soft capital

‒ Incorporating employees into jugaad practices favours motivation and passion thus helping to retain valuable people
‒ Involving customers/consumers will foster better relationships and loyalty

● Flexibility
‒ Managers need to think how to overcome unexpected challenges
‒ Jugaad mindset can help in developing robust solutions in a tough environment with limited resources and
constrains

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Getting started with jugaad
Jugaad is like a booster, expanding the abilities of a firm to cope with volatility and do more
with less in constrained environments. Firms need to give themselves the freedom to swing to
both approaches and manage the creative tension between jugaad and structured approach

● Prioritise the jugaad principles you need to put in place

‒ Not all principles are of equal importance to all organisations
‒ P&G; “do more with less” for its consumers or the H.R. departments could implement “follow your heart”
principle in its firms like for instance Google is doing

● For each principle you choose to follow target first the quick wins
‒ Handle them in manageable stages
‒ Siemens, Philips or GM´s

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 Classes outline

1. The concept of strategy

INDEX
2. Managing strategy tools

3. Analysis of competitive advantage

4. Digitalisation; a key part of the strategy

5. Strategy formulation

6. New values in strategic innovation

7. Strategy implementation

8. Organisation structure alignment

9. Board of directors role within the strategy

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Managing strategic tools
Initial assessment

T
H
E Environment analysis
● Annual objectives
P ● Policies
R
O
Strategy formulation ● Resource allocation
C ● Organisation chart
E ● Performance and rewards
S Strategy implementation
S

Monitoring and results

evaluation Tools
● Annual budget
● Leadership
● Salary and incentives policies
● Motivation programmes
● Projects methodology

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Cione

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Strategic plan
components
● Vision, mission and values

● Industry analysis

● Key success factors

● SWOT analysis

● Business model canvas

● Strategic map

● Strategic objectives

● Projects

● Profit and loss statement

● Key performance indicators

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 Methodology
process

Environment
analysis Trends
Vision, Business (internal and (industry, Strategic
mission model external) and economics, options
and values analysis industry cultural..) evaluation
asessment

Financial Business
plan and Strategic Strategic Strategic model
resources projects initiatives objectives assessment
and change

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External analysis
status of the industry

● Market saturation; ten thousand optical stores

● Low level of investment in the renovation and modernisation of the stores

● Pricing pressure and decrease of margins in the whole value chain

● Uniformity in the product and services offering; no real differentiation

● Lack of specific positioning

● Well informed consumers and very demanding in their requirements

● Product accessible through multiple channels; opticians stores, pharma stores, department stores,
hypermarkets, fashion stores, sport stores, internet, etc.

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External analysis
Industry trends

● Fewer number of stores

– Ratios will be closer to the rest of the European markets

● Market concentration (forward integration and manufacturers concentration)

● Polarised offering to consumers

– Pricing on one extreme and service (visual health) on the other

● Incorporation of technology into the stores demanded by new consumers

– Additional equipment, new ways of interaction with consumers (in the store and outside the store),
communication, internet sites, personalisation, etc.

● Science progress
– Surgery and other potential medical breakthroughs might be a serious threaten

● Additional training requirements in management

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Strategic objectives
In four years

● Market share of 15% in Spain

– 1.200 associates in Spain

– 240 customers ( non associate independent opticians)

● Market share of 7% in Portugal

– 150 customers in Portugal

● Penetration of 4 product lines per associate

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Scope
Customers and product range

● Our customers (associates and members of the cooperative) are optician stores of
medium and small size to which we offer products and services:

– Own label products and exclusive distribution agreements with an excellent quality/price
relationship

– Complementary value added services to help opticians to improve the sales of their stores
and enhance their management and marketing capabilities

– Commercial conditions with different manufacturers thus guaranteeing their prices and
discounts to counterbalance the power of major multinationals

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Scope
Competitive advantage
Criteria • Competitors (*) • Cione

Quality/price relationship

Product range
Ample offer of products and services
Speed of service
with a high quality/price relationship to
Commercial relationships
a close network of opticians (members
Commercial conditions of a cooperative) and based in

Marketing services commercial relationships of trust,

empathy, almost personal and with a
Assessment
remarkable customer driven orientation
Customer service

Associate training

Selling tools (clinical devices)

Other services (workshop,
central invoicing, finance
services portal, etc.)
Low Medium High

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Business model To be…
Key partners Key activities Value proposition Customer relationship Customer segments

OWN LABEL PRODUCT AND

CUSTOMER NEGOTIATION
EXCLUSIVE DISTRIBUTION PROXIMITY
OWN LABEL FOCUS WITH PERSONAL
AGREEMENTS CLOSENESS
MANUFACTURERS TRADEMARKS SUPPLIERS RELATIONSHIP
(FRAMES, OPHTALMIC AND TRUST INDEPENDIENT
AND LICENSORS “OWNERS”
ASSOCIATE IMS LENSES, CONTACTOLOGY, OPTICIANS
DISTRIBUTION PRODUCT AND POST-
ADVANCE
SERVICE AUDIOLOGY, (ASSOCIATES)
AGREEMENETS MONITORING SALES
IQMS
DEVELOPMENT SYSTEM FOR SERVICE ACCESSORIES AND OTHER (SPAIN)
SUPPLERS
SERVICE EXCELENCE, PRODUCTS)
CONCEPT OF
INFORMATION EMPATHY
INTERNATIONAL DATAMINING AND SHAREHOLDER
FREQUENCY IN AND
ORGANISATION
BSC
MANUFACTURERS ALLIANCE SALES AND ASSOCIATE
RELATIONSHIP EXPERIENCE
(TOP “2” OF PROMOTION AUDILOGY
AND WORKING OTHER SERVICES
ACTIVITIES
EACH CATEGORY) ENVIRONMENT INDEPENDENT
COMMERCIAL CONDITIONS,
PRODUCTIVITY TOOLS, STORES

WORKSHOP, TRAINING, (SPAIN)

CENTRAL INVOICING AND

EQUIPMENT,
Key resources PAYMENTS, MARKETING
Channels
TRAINING, TECHNOLOG
Y SUPPLIERS PRODUCTS, FINANCING, ETC.
MARKETING,
COMMUNICATIO AND PEOPLE,
ECOMMERCE ORGANISATIO WEBSITE
N AND MARKET (SHOPPING INDEPENDIENT
SERVICES N AND SKILSS
RESEARCH PORTAL OPTICIANS
WAREHOUSING COMMERCAL
SUPPLIERS AND
TECHNOLOGY (CLIENTS)
AND LOGISTIC SALES INTRANET)
ASSOCIATE (PORTUGAL)
KNOW-HOW
MANAGEMENT ATTRIBUTES FORCE
INFRASTRUCTURE
AND TECHNOLOGY SUPPORT SERVICE
EXCELENCE, BEST TELE
OPERATIVENESS ASSESSMENT,
QUALITY/PRICE MARKETING
(SOFT + HARD) MANAGEMENT AND
RATIO, PRODUCT MEDIA AND
COMMERCIAL
AND SERVICES OTHER
TOOLS, CIONE
CREDIT- PERSONALISATION COMMUNICATION
UNIVERSITY,
WORTHINESS AND MEANS
IMAGE AND MARKETING,
RELATIONSHIPS
ECOMMERCE, ETC. SUPPLIERS
WITH BANKS REPUTATION

Cost structure Revenue streams

ASSOCIATES
DEPRETIATION MARKETING MARKETING AND
OF ASSESTS SERVICES AND COMMUNICATION ADDITIONAL
PEOPLE RELATED COSTS COSTS PURCHASING
(TECHNOLOGY SALES OF MANAGEMENT MARKETING SUPPLIERS
RELATED PROMOTIONAL BROOKERAGE
PURCHASIN AND OTHER) PRODUCTS FEES TO SERVICES FEES CONTRIBUTIONS
COST AND ACTIVITIES AND SERVICES WITH
G COST AND ASSOCIATES
EXPENSES SALES DISCOUNTS FREIGHT SUPPLIERS
SERVICES
EXPENSES

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Value map
Where is the change?

TODAY TOMORROW

PIONEER
VALUE PROPOSITION Future
offering of
products
and services

MIGRATIORS

Current
SETTLERS

offering of
products and
services

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Value map
Where is the change?

TODAY TOMORROW

PIONEER
VALUE PROPOSITION
Assessment
Excellence
Personalisation
Training

MIGRATIORS
eCommerce

Current
SETTLERS

offering of
products and
services

31
Strategic projects

● IMQS and assessment to associates

● Service excellence and personalisation

● Associate network

● Product lines penetration

● Sales of frames (exclusive distribution) to clients (non associates)

● Sales of marketing services to independent associates

● Audiology business model for associates

● Cione University

● eCommerce

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From the business canvas model
to individual objectives

Business
canvas model

Strategy and
business plan

Strategic
objectives

Strategic
projects

KPI´s and
organisation
objectives

33
From the business canvas model
KPI´s

Own label product sales per employee (000´s €)

193
190

186

181

173

2015 2016 2017 2018 2019

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Managing strategic tools
Initial assessment

T
H
E Environment analysis

P ● Compare performance with

R
Strategy formulation
standards defined
O
C ● Evaluate project process
E
S Strategy implementation
S

Monitoring and results

evaluation
Tools
• Project reviews
• Profit & loss / KPI´s
• Steering committee
• Performance evaluation with
directors and project leaders

35
Managing the implementation plan

1. Establish a formal planning process…… but using the opportunistic plan when
appropriate

2. Invest time and effort for a satisfactory planning

3. Avoid the dangers of the planning process

36
Managing the implementation plan
1. Establish a formal planning process…… but using the opportunistic plan when
appropriate

● Determine objectives
– Profitability: sales and profit
– Quality: service level
– Marketing: market growth and market share
– Innovation: patents or sales of new products

● Establish an action plan and a calendar

– Pro–activity: define and review the plan frequently
– Congruence: fitted to the organisation characteristics and the external environment
– Synergies: integration of efforts from the organisation of the business units

● Define an incentive plan (compensation plan)

– Short and long term

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Managing the implementation plan
2. Invest time and effort for a satisfactory planning
● Management commitment from different organisation levels
● Combine qualitative and quantitative methods
● Flexible, in order to be adaptive to changes
● Avoid excess of planning – paralysis for the analysis
● Focused on the main areas and activities

3. Avoid the dangers of the planning process

● Lack of or insufficient evaluation of the future market conditions
● Planning is perceived as a closed activity within the organisation
● Extensive bureaucracy
● Inflexible adherence – inflexible to objectives and processes
● Inconsistent budgeting activities
● Lack of resources (financial and human)
● Promote “hyerarquical relationships”

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 Managing strategy; management styles
Characteristics Strategic planning Financial control

• Strategy formulated at business level

Strategy • Business and corporate jointly formulate strategy
• Corporate HQ largely reactive, offering little
formulation • HQ coordinates strategies of businesses
coordination

Controlling • Primarily strategic goals with medium to long term • Financial budgets set annual targets with monthly
performance horizon and quarterly monitoring

• Linkages among businesses

• Business unit autonomy supports initiative,
Advantages • Innovation responsiveness, efficiency and development of
business leaders
• Long term competitive position

• Loss of divisional autonomy and initiative
Disadvantages • Conducive to unitary strategy view
• Tendency to persist with failing strategy
• Short – term focus discourages innovation and
long term development
• Limited sharing of resources and capabilities
among businesses

• Highly diversified companies with low relatedness

• Companies with few closely related businesses
among businesses
Style suited to • Works best in highly competitive, technology –
• Work best in mature, low – tech sectors, where
intense sectors where investment projects are
investment projects are relatively small and short
large and long term
term

Based on M. Goold and A. Campbell; Strategies and styles (Oxford: Blackwell Publishing, 1987)

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Managing strategy; trends
New environment of business…

● Turbulence and unpredictability

– Black swans events

● Competition
– Sluggish economic growth

● Technology
– The potential to undermine established positions of competitive advantages

● Social pressure and the crisis of capitalism

– Sluggish economic growth

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Managing strategy; trends
Requires new directions in strategic thinking….

1. Reorienting corporate objectives

– Focus in strategic factors that drive profits: operational efficiency, customer satisfaction, innovation and new
product development

2. Seeking more complex sources of competitive advantage

– Development of multiple layers of competitive advantage: cost efficiency, differentiation, responsiveness and
global learning

3. Managing options
– During turbulent times, growth options, abandonment and flexibility options become important sources of
value. Exploration of different options on corporate finance, industry analysis, potential of internal
resources/capabilities, etc.

4. Understanding strategic fit

– Strategy must fit with the business environment, firm´s resources and capabilities, organisational design,
management systems, complexity, etc.

5. Redesigning organisation
– Organisational conditions conducting to innovation
– Making organisations informal, self – organising and permeable

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Managing strategy; some recommendations
● Strategy direction; innovation and customer responsiveness with operational efficiencies

● Strategy formulation; ample participation of middle management

● Structure; matrix organisation with hierarchical reporting; flat organisation; project teams;
additional focus on informal style of relationships

● Controls; combination of short (annual budget) and long term (strategic plan)

● Incentives; individual targets with a combination of financial and non financial objectives.
Compensation plan for the whole organisation

● Communication; vertical (for reporting and delegation process) but promoting strong participation
and involvement in strategic projects of people from different parts of the organisation. Strategic
project groups responsible for the execution of the projects with a leader for each project

● Leadership; strategic leader, combining clear strategic direction with considerable

decentralisation of decision making

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Thank you very much
for your attention
Madrid • Barcelona • Valencia • Sevilla • Zaragoza • Málaga • Vigo • A Coruña • Navarra • Bilbao • Granada