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CEMEX
Innovation in Housing for the Poor
AGENDA
CEMEX: Innovation in housing for the poor CEMEX discussion as course summary Solving the big problems
IS GLOBALIZATION GOOD FOR THE POOR?
Management expert C. K. Prahalad
(Deceased April 16, 2010)
CONDITIONS FOR SERVING THE POOR
Move from focus on high gross margins to Return on Capital Employed (ROCE), achieving capital efficiency
Very low capital needs, focused distribution and technology investments, very large volumes at low margins
Prerequisite = TRUST, MNE’s and BOP Consumers have traditionally not trusted each other.
Innovation Imperative: BoP markets are hot-beds of commercial and technological experimentation
CEMEX AND PATRIMONIO HOY“Much more than a home”
Innovation in Housing for the Poor
HOW DOES CEMEX SERVE THE POOR?(ANDERSON AND BILLOU, PRAHALAD)
Affordability Credit Savings and Payment plans
Acceptability Build trust Distribute or store Modularize construction
Availability Deliver when needed Community networks
Awareness promoters
CEMEX AS COURSE REVIEW
I. The Innovation
II. Innovation Process
III. The Organization
IV. The Market Space
V. The Environment
VI. Performance
I. The Innovation:Patrimonio Hoy
Patrimonio Hoy, “savings/property today”, enabling very poor people to pay for services and building materials to upgrade their homes.
Does it fit the definition of innovation? Action – design, invention, development… Outcome – product, process, system … Purpose – customer and company value
TYPE OF INNOVATION
Radical or disruptive? Replace existing products, services, or processes.
Incremental? Improvements of an existing product or process design.
FORMAL VERSUS INFORMALATTRIBUTES FORMAL SEGMENT INFORMAL SEGMENT
Sales Higher revenue per customer
Low revenue per customer
Payments Financing generally not required
Financing is important
Demand Depends on economy More or less steady
Price sensitivity Driven by bargaining power Convenience-driven (credit, delivery, etc)
Brand equity Recognized and trusted Should build trust to deliver as promised
Growth Slow Very high potential
Customer location Usually located in places of easy access
Mostly located in remote areas
Relationships Stops at the distributor level Requires close ties with end customers
WHAT IS INNOVATIVE? Doblin’s Typology
Category Type Description of type Patrimony Hoy Example
Finance 1Business model
How you make money Small sales, incremental payments, fee for service, contract based on project not sales order, volume-based discounts
Non-traditional consumers (women and very-poor)
2Networks and alliances
How you join forces with other companies for mutual benefit
Relationships with community, suppliers and distributors
Process 3Enabling process
How you support the company's core processes and workers
Program design: cells, enrollment, socios, promoters
Credit payment cycle
4Core processes
How you create and add value to your offerings
Separate organization (Patrimony Hoy), Modularization of materials, materials distribution and delivery (storage option)
Offering 5Product performance
How you design your core offerings
Cement is the same
Offer other raw materials
6Product system
How you link and/or provide a platform for multiple products.
Consultants
Networks
Supplier sell to Cemex
Distributors exclusive contract
7Service
How you provide value to customers and consumers beyond and around your products
Credit access, technical advice, architect visits, storage, customer service
Delivery 8Channel
How you get your offerings to market
Community outreach
Distributors and storage options
9Brand
How you communicate your offerings
Word of mouth
Promoters
Socios
10Customer experience
How your customers feel when they interact with your company and its offerings
Pride of ownership
Build social capital
Build Trust
II. Innovation Process
Sources of Ideas
III. THE ORGANIZATION
Innovation Strategy? Complete solutions provider at low cost Creating competitive advantage through
Continued innovation High level of commitment to customer service and satisfaction Proven post merger integration expertise Digital evolution: efficient production, distribution, and delivery
processes through sophisticated information systems Ability to identify high-growth market opportunities in developing
economies
Innovation Value Chain
Idea generation: Market research conducted by management and consulting team Tested in Guadalajara 3 month study raised challenges of financing, lack of expertise and
storage
Conversion Design Patrimony Hoy Develop credit system Design and negotiate supply and distribution systems
Diffusion Teams in selected communities
Is there a culture of innovation?
Heavy investment in IT to boost productivity and efficiency
Strategic focus on innovation Intense Motivation Skills and Competence Supportive Infrastructure
Resources contributed to market testing Leadership committed through strategy Formal processes implemented
IV.THE MARKET SPACERED OR BLUE OCEAN STRATEGY? Promoters: build social capital, earn money Socios and Partners: access to credit, good quality
product, shorter construction time, technical support, skilled labor, excellent service, storage space, accelerated payment options, reduce construction cost, training options, build social capital
Suppliers: steady demand, consistent revenue stream, zero-risk debt collection
Distributors: steady demand
V. THE ENVIRONMENT
National Culture: Why does this work in Mexico? Patriarchy, relationship oriented, pre-existing
saving behavior through tandas, role of women in entrepreneurship and saving, poor housing
What are the values & beliefs that support Patrimonio Hoy?
ECONOMIC CONDITIONS
Economic volatility, distrust 1990’s move to open market Increased competition
INDUSTRY CONDITIONS
Not a lot of innovation or change in concrete Drop in formal market sales Informal market potential of do-it-
yourself’ers
VI. Measuring ROInn©
Against objectives Financial Metrics Non Financial Metrics
1. Does it meet the objectives? Generate business that represents competitive
advantages Represent an accessible option for poor families looking
for a better quality life through households by offering good-quality cement and raw material at reasonable and frozen-prices
Offer access to credit not available to poor otherwise Position CEMEX as a responsible corporate citizen that
is committed to society Build social capital
AGAINST OBJECTIVES
FINANCIAL METRICS
2. Does it add value, now and in the future? New market Increased revenue
3. Does it pay for itself? Positive cash flow
NON TANGIBLE BENEFITS
4. Does it lead to competitive advantage? New channel for selling cement and materials Other innovations such as Construmex Consumer commitment Enhanced supplier/distributor relations Employee pride and commitment
SOLVING THE BIG PROBLEMS
Based on HBR’s list of audacious ideas for solving the world’s problems (Shiller et al), what does it take to successfully conceive and implement innovations that solve big messy problems?
Poverty and affordable housing is a big messy problem..
What does it take to solve big messy problems? A real problem A viable solution A champion/leader Network of committed partners A plan for reducing risk and maximizing
information (learning) …
Resources: money, people/competencies, space, materials, access to information, technology
A value model/business plan Marketing Reviews & committed problem solvers Complex thinking, diverse capabilities