Orbit Change Conversations

We have looked at several bottom-of-the-pyramid examples from the IT industry so far. Airtel vs. Verizon was about breakthrough business models. X0-1 vs. Classmate laptops was about breakthrough product architectures. TI’s LoCosto cellphone chipsets was about a breakthrough process model. eChoupal and the failed GramaTeller ATM was about creating a new market structure. Today’s example is from healthcare and is about building a new value chain.

[The next few sections in italics have been assembled from C.K Prahalad’s recent article, The Innovation Sandbox, in Strategy & Business. C.K Prahalad is the father of the bottom-of-the-pyramid movement. I strongly encourage you to read this article in its entirety. It requires a free registration.]

Cardiac care for bottom-of-the-pyramid
Narayana Hrudayalaya cardiac care center, located in Bangalore, is one of the world’s largest providers of heart surgery and other forms of cardiac care, including care for children. A private corporation, it was founded in 2001. Only three years later, in 2004, the company performed 7,500 cardiac surgeries and treated 60,000 outpatients, including almost 2,000 telemedicine patients who received consultation and treatment at remote sites, accessing specialists through satellite- and Internet-based telecommunications links.

NH performs 23 cardiac surgeries per day; a large urban hospital elsewhere could perform a maximum of four or five. The combination of specialization and volume allows NH to train its doctors and nurses to become experts in a very short time.

NH makes no distinction among the quality of service delivered to different patients. Everyone is charged a fixed rate per surgery of $1,500 — one-thirtieth the $45,000 that a typical U.S. hospital might charge, and one-third of the $4,500 that a top-line hospital in India would charge. Even so, many patients cannot afford this surgery; thus, with the help of the ICICI Bank Ltd. (India’s second-largest private bank) and the state government of Karnataka, NH designed a health insurance plan for the poor, selling it to entire villages at one time, at a cost of 20 cents per person per month. More than 2 million subscribers belong to the scheme.

Specialization allows NH, for example, to purchase only medical equipment related to cardiac care, and to use that equipment around the clock — typically in three shifts. Off-peak use is further encouraged by incentive; the hospital charges patients less if they come in for tests during odd hours.

NH buys digital X-ray machines that store images in computer files; the extra cost is justified by the eliminated costs of X-ray film, storage of old images, and transport of images to remote locations. NH also recruited a local manufacturer to produce its own sutures customized for each doctor at $90 each, compared with mass-produced imported sutures at $200.

Surgical skills, in particular, are improved by frequency of encounters. No surgeon can keep pace with all the subspecialties in the field. Therefore, by disaggregating the medical process, a medical institution can make far better use of its higher-credentialed physicians. Dr. Devi Prasad Shetty, chairman of NH (and a well-respected surgeon), explains the logic this way: “The task of heart operations has been broken into many tasks. Each is managed by a group of professionals. One of my colleagues conducts most Dor procedures — a complex left ventricular remodeling procedure that is done by only a few experts all over the world. Since he has completed more than 250 of these, we all refer patients for this procedure to him. Similarly, everyone refers patients who need the Ross procedure to me, since I have conducted more than 150 of them with zero mortality. Because we deal so frequently with so-called rare procedures, it is not difficult to standardize them and consistently get good results.”

Meanwhile, NH recruits women with high school educations and trains them as echocardiographers; they produce excellent results because they do nothing but read images, as many as 200 per day. In most facilities, as Dr. Shetty notes, “Echocardiogram tests on children are conducted by senior pediatric cardiologists. However, there are very few pediatric cardiologists in India, and they are required for other tasks: interventions and managing children before and after the surgery. So we created a parallel team of echo-technicians, nongraduates to whom we give extensive training. They work from morning till evening every day, with a lot of passion, because this occupation has given them a new status in society. Of course, senior doctors supervise their work. But because they are so specialized and attentive, it is not uncommon for us to detect an abnormality of the heart during an echocardiogram conducted by a technician, when it was missed in other institutions by cardiologists.”

It’s important to note that the facility and its parent company, Narayana Hrudayalaya (NH), are profitable.

The healthcare innovators
And NH’s cardiac care is far from the only profitable health-care innovation emerging from India. The most famous example (documented at length in my book The Fortune at the Bottom of the Pyramid) is the “Jaipur Foot,” a prosthetic foot made from rubber, intended for below-the-knee amputees, such as people injured by accidents and land mines. The JF (as it is universally called) costs about $30, a fraction of the $8,000 to $10,000 cost of a similar Western prosthesis; if a patient damages, loses, or outgrows it, he or she can simply get a new one. Since 1975, the JF has been distributed by a nonprofit, nondenominational organization called the Bhagwan Mahaveer Viklang Sahayata Samiti (BMVSS), which fits about 16,000 patients per year, with trained paramedics as the primary patient contact. BMVSS also ships artificial feet, calipers, and other aids to thousands of patients worldwide — more than 50,000 in 2004. BMVSS does not charge for its prosthetics and service; it survives on donations from satisfied patients and from philanthropists.

Another example is the Aravind Eye Care system, the world’s largest provider of cataract surgery. This company, founded in 1976, performed 240,000 surgeries in 2004 and treated 1.6 million outpatients. The founder, Dr. G. Venkataswamy, has said that his goal is to “wipe out needless blindness.” Thus, Aravind treats more than 60 percent of its patients free — and continues to operate profitably.

All three health-care innovators, NH, BMVSS, and Aravind, have been around long enough to give us confidence that these innovative health-care efforts represent sustainable businesses.

Building a new value chain
Because they meet complex needs with specialized organizations, breakthrough innovators tend to discover that they cannot operate alone. They need to form alliances with a group of interrelated organizations — in effect, creating an ecosystem for breakthrough innovations. The ability to develop these relationships… represents an important competitive advantage.

India is not like Silicon Valley today, where infrastructure and relationships, including those with nearby universities, are already in place, and a new company plugs into them. Here, they must be created from scratch. For example, only after it became clear that patients could not afford the $1,500 price tag for surgery did NH conceive of low-cost insurance; and only then did the company approach the ICICI Bank. By playing the role of a core node in a larger network, NH provided both an intellectual influence and a venue (the “sandbox”) in which others could take part. NH dictates the standards, controls the way people engage with its system, and maintains privileged access for itself. But it does not own or control all the participating organizations, nor does it need to.

Back to the software industry
We have now looked at a range of BOP examples from many industries. The next article in this series will tie it all back to the emergent opportunity in the enterprise software space. Meanwhile send me your thoughts about the relevance or applicability of these BOP ideas to the enterprise software industry.

Previous articles in this series:
Anatomy of New Growth in India
Another Reason to Not Ignore Emerging Markets
Can’t Escape In-Market Incubation Any Longer
Likely Lessons of OLPC
Taking Inspiration from ULCC
Thinking Beyond Product and Company Architecture

Later article in this series:
Call to Action

[Growth Anatomy Series Roundup is here]

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