While on the topic of innovation, recently I read a book by C. K. Prahalad - The New Age of Innovation - which has it’s core a pair of nerdy equations: N=1, R=G.
The N=1 stands for service customization (i.e. each customer is unique) and the R=G stands for utilization of geographically spread resources. Skimming through the book, I suspect it has been commissioned by the Indian outsourcing industry, but this post is not about that perspective.
This post is about service customization.
Right at the beginning of the book, Prahalad presents the following outlandish idea:
Consider an alternative in which the manufactures do not sell tires by charge for services. They contract with fleet owners to charge per mile of usage. The pricing contract will be based on the type of use, influenced by general factors such as the type of loads (for example, heavy loads), typical route structures (for example, through cities or across long distances), and individual characteristics of fleet owners, such as the training of drivers and therefore the quality of driving, the maintenance of correct tire pressure, and the quality of servicing, such as tire rotation. The tire as a product still exists and is at the core of the business. However the revenue is based on tire usage, not on a one time tire sale.
The retail business shifts from a transaction base (selling a tire) to an ongoing relationship (continuous and ongoing measurements of usage and ability to provide feedback on better usage specific to a user) with the consumer.
In spite of Prahalad stating that Goodyear and Bridgestone are experimenting with the above idea, my first reaction was “Nah! Does not make sense.”
Until I saw what Anu Solar is upto in Bangalore:
i-HOT is a revolutionary Metered Water Heating Service that offers you a gamut of advantages. To begin with, when you opt for the connection, you pay only for the hot water you use. Nothing more, nothing less. What’s more, you get hot water any time, any day. Add to it, you can be assured of peace of mind as you will not be required to spend any time, money or effort maintaining it. Also, you could save up to 75% on your water heating costs. And, you get all of this by just paying a nominal refundable security deposit.
- i-HOT Water Heating Service, Anu Solar
Seems to me, it makes perfect sense!
What do you think?
1 response so far ↓
Karthik Vijayakumar // January 21, 2009 at 9:18 am
“Pay as you use” model does perfectly make sense to me. While the “green” factor is becoming an imperative for businesses and households worldwide, there is this element of “How do I leverage the green challenge to deliver value?”.
For example, in the United States (esp in the west coast/state of CA), the Energy space is highly getting into this model – “Pay charges based on when and how I consume power/energy”.
In India, there are companies/customers who have already started exploring this – “I don’t want to pay you for your solution upfront. Rather, I will pay you a “percentage” for every product that ships out of my company.
In some cases this is possible, in some this is tough (esp due to technology and business process limitations). One key technological challenge so far has been the ability to do “continuous monitoring” of real-time distributed feeds on diverse IT and industry standards.
Let’s hope to see more innovations (and evolving business models) in this space in the years to come!