Chapter Two

Principle One

Seek Opportunity in Adversity

It has done me good to be somewhat parched by the heat and drenched by the rain of life.

—Henry Wadsworth Longfellow

In the late 1980s, Tulsi Tanti moved to Surat, in the Indian state of Gujarat, to set up a textile unit. Like other entrepreneurs in India, Tanti found himself faced with infrastructural bottlenecks. The biggest of these was the power supply. Expensive and unpredictable, power proved a major barrier to growth. His profit margins were only around 5 percent, while energy accounted for a staggering 40 to 50 percent of total operating costs.

Instead of giving in to this problem, Tanti focused on finding a solution to it. He began to experiment with various types of boilers. He looked at different kinds of power generators. He tried out different combinations of boilers and generators. And then he realized that all these were, in one way or another, dependent on fuel, gas, or oil. So he thought, “Why not find a solution that doesn't require fuel?” This launched him on a search for an alternative source of power that was both reliable and sustainable.

In 1990, he invested in two wind turbines to supply electricity to his textile unit. It soon became clear that this was the solution he had been looking for. Now he had a power supply that was literally harnessed from thin air. After the initial investment in the turbines was recovered, his operating costs would be low and predictable. The “fuel” came at no cost. And there was plenty of it.

With time, Tanti began to see the wider implications of his solution. Wind had the potential to power more than just Indian textile factories. It could meet the global demand for a steady supply of affordable energy: 44 percent of 1.2 billion Indians live outside the electricity grid, and worldwide more than 1,400 million people lack access to electricity.¹ Tanti saw this huge challenge as a vast untapped opportunity. So he set out to capture this opportunity by creating Suzlon Energy in 1995.

“As an entrepreneur,” says Tanti, “I firmly believe that at the heart of every challenge lies an opportunity. Entrepreneurs are a league of people who are able to turn obstacles into profitable solutions.”² This statement pretty much captures the essence of the resilient mindset that drives jugaad innovation.

Today Suzlon is the world's fifth largest wind energy solution provider. The company employs more than thirteen thousand people and provides a full spectrum of wind power solutions in over thirty countries on six continents. In the space of two decades, Tanti has gone from being dependent on an erratic and expensive supply of energy to creating—through innovation—a plentiful supply of it for millions worldwide.

Reflecting on this astounding growth, Tanti says: “The journey called Suzlon, embarked upon sixteen years ago, was my solution to an obstacle. The beginnings were humble, and the odds were against me, but my dreams were big. And when dreams are pursued with conviction and fortitude, they not only become a reality, they are a force that guides you and shapes your life and those of the people around you.”

Jugaad innovators like Tulsi Tanti are adept at taking on the arduous challenges that emerging markets pose and reframing them as opportunities to learn, innovate, and grow. These innovators respond to even the most adverse circumstances by demonstrating resilience, ingenuity, and an aptitude for risk. Seeking opportunity in adversity is often the first and most critical of the six principles that jugaad innovators have to apply. After all, jugaad innovators face adversity from the very beginning of their innovation journeys; if they are unable to apply the principle of seeking opportunity in adversity at the outset, they will be unlikely to move on to discover and apply the other five principles of jugaad.

A resilient jugaad mindset can also enable Western executives to systematically turn adversity into an opportunity for innovation and growth. In this chapter, we show how Western organizations can unlearn practices that worked in a bygone era of relative predictability and find new ways to succeed in a future of adversity and constant change. But first we explore why and how jugaad entrepreneurs seek opportunity in adversity.

A Harsh Environment Nurtures Resilience

Entrepreneurs and managers in emerging economies face adversity at every turn. Take India as a case in point. Even starting a business there is a daunting task. Doing so takes an average of 165 days (compared to 9 in the United States). Securing the necessary licenses to construct a simple warehouse is complex, time consuming, and costly, involving 34 procedures over 227 days and costing 1,631 percent of the country's per-capita income.³ Running a business is even harder. Property rights are often unclear or hard to ascertain, so acquiring land is fraught with difficulties. Labor laws are restrictive or complex or both, and can be a minefield to navigate. Due to India's federal structure, there are currently 47 national laws and 157 state regulations that directly affect India's labor market.⁴ Hiring and firing of workers presents its own challenges. New taxes may be instituted and applied at any time.

On top of all this bureaucracy, political upheavals are a fact of life. A local government with a policy favoring business may fall overnight and be replaced by another that favors agriculture over industry. Land that was granted to a company to set up a factory may be confiscated and returned to the original owners or fall under litigation. Court cases are expensive and drag on for years, often with no clear resolution in sight.

But perhaps there is no greater challenge to starting a business in India than its poor infrastructure. Jugaad entrepreneurs in India—as in other emerging markets like China, Africa, and Brazil—do not have access to many of the basic things that are taken for granted in the West. Roads can be poor, heavily congested, or nonexistent (40 percent of India's villages do not have access to all-weather roads).⁵ Education and training systems are patchy, so skilled personnel are hard to come by. Health care services are scant, and workers who get sick may stay out of work for long periods.⁶

Emerging markets like India also face acute shortages of resources: natural, human, and financial. It can be hard to raise capital. Banks are typically conservative, and venture capital and angel investor networks are underdeveloped. As a result, jugaad innovators cannot afford to invest in capital-intensive equipment. Jugaad innovators also typically serve a market that is economically deprived: 80 percent of Indians live on less than $2 a day; 26 percent of Brazilians live below the poverty line; 230 million African households are unbanked—that is, they do not have a bank account; and nearly 40 percent of rural Chinese can't afford basic medical treatment.⁷, ⁸, ⁹ (The extent of scarcity in emerging markets is so dire that how innovators respond to it constitutes the second principle of jugaad—do more with less—which we discuss in Chapter Three.)

Trying to operate in such a harsh environment could drain the energies of even the toughest business person. Yet jugaad innovators are unfazed by the reality that surrounds them. Indeed, it is this very harshness that gives them their particularly resilient mindset. Extreme external circumstances seem to heighten their internal resolve to succeed. As with Tulsi Tanti, rather than becoming passive victims of current circumstances, jugaad innovators are driven to take charge of events and steer them in a direction of their own choosing. For them, adversity exists largely in the mind.

Dr. Thomas Müller, a psychologist who specializes in crisis management, observes that in a crisis some people simply attempt to go back to how things were before. In the process, they make compromises for the sake of security. Others, however, withstand the pressure and ask themselves, “If I go one step further, what's the opportunity to be exploited?”¹⁰ Jugaad entrepreneurs belong to this second category. When confronted with adversity, they don't retrench but embrace the difficulties and learn from the experience.

Armed with resilience, perseverance, and a willingness to learn, jugaad innovators strive to respond to the harsh world they face and find opportunities for growth and expansion in it. In doing so, they are able to create a better world, not just for themselves but also for their communities.

Reframing the Half-Empty Glass as Half Full

Jugaad innovators find opportunity in adversity in three ways: reframing challenges as opportunities for growth, making constraints work for them, and constantly adapting to a changing environment by improvising solutions to challenges they face along the way. In this section, we examine each of these strategies and look at specific examples of each.

The first and perhaps most important strategy of jugaad innovators is reframing—that is, changing the lens through which they perceive the situation they face. Jugaad innovators perceive and interpret the world differently from the rest of us.¹¹ Their ability to reframe means they are likely to see the glass half full even when everyone else sees it as half empty. Indeed, one may think of jugaad innovators as modern-day alchemists who mentally transform adversity into opportunity.

An example of such an alchemist is O.P. Bhatt, former chairman of the State Bank of India (SBI), India's largest and oldest bank, with more than two hundred thousand employees and twenty thousand branches across India. O.P. Bhatt was appointed its chairman in 2006. A lifelong banker, he was deeply aware of the immense creative potential of SBI's large employee base and was eager to find ways to unleash it. But he also knew that his hands were tied in many ways. The SBI is partially owned by the Government of India, which in turn is run by risk-averse bureaucrats who vet every hiring and firing decision. (In fact, it's virtually impossible to fire anyone once he or she gets a job in a government-owned Indian enterprise.) As Dr. Prasad Kaipa, a CEO coach who has advised Bhatt, points out: “It was clear to Bhatt from the start that he could neither ‘get the right people on the bus nor get the wrong people off the bus.’ It was also obvious to him that he lacked the resources to financially motivate his managers to take risks and drive innovative projects (Bhatt himself was paid less than US$1,000 a month).”¹²

These challenges, though significant, did not faze Bhatt. Instead, he used a jugaad approach to ignite the genius within SBI. First, he drew on his superior communication skills to rekindle his employees' feelings of pride about SBI, a bank with a distinguished two-hundred-year-old history. Then, through an in-house training program called Parivarthan (Sanskrit for “transformation”), he instilled a new sense of commitment into SBI staff across all levels and departments. In time, the program began to bear fruit: SBI employees felt more empowered, demonstrated greater creativity, and took customer service to new heights. Across the country, employees began to devise bold and ingenious solutions to problems they had always faced but had never felt the desire or had the support to address. For example, in the city of Hyderabad, within five months Mr. Sivakumar, the local head of SBI operations, launched an SMS-based customer complaint unit of four people to deal with seven thousand complaints—thus building a loyal customer base receptive to the bank's future marketing and promotional initiatives.¹³

By reframing a seemingly adverse situation as an opportunity, Bhatt unleashed the creative genius in his employees. And the payoff was huge. In four years, SBI increased its market share from 16.5 percent to 19 percent, doubling its stock price and boosting customer satisfaction—and all this in a mature and highly competitive market. In this period SBI also won many international awards for its stellar performance.

As Bhatt's story shows, jugaad innovators don't find opportunity in spite of adversity; for them, adversity often is the opportunity. They perceive constraints not as a debilitating deterrent but as a creative stimulus. Indeed, their creative juices begin to flow when they are confronted with a seemingly insurmountable challenge.

The second way jugaad innovators find opportunity in adversity is by making constraints work for them rather than against them. In Chapter One we introduced Kanak Das, a jugaad innovator who hails from Morigaon, a village in the northeast Indian state of Assam. Like many Indians, Das rides a bicycle to work. And, as in many parts of India, the roads he travels on are full of potholes and bumps. These not only gave him back problems but also slowed him down considerably. Das knew there was little or nothing he could do to improve the quality of these roads. So instead he posed a quintessentially jugaad question: “What if I can actually find a way to make my bike run faster on these cratered roads?” That question inspired him to retrofit his bicycle so that every time the front wheel hits a bump, a shock absorber compresses and releases energy to the rear wheel. By converting the energy in the shock absorber into a propulsive force, his bicycle can run faster on bumpy roads.

“Making the bumps work for you” is how Professor Anil Gupta of the Indian Institute of Management in Ahmedabad refers to Das's ingenious solution. Gupta is a passionate advocate of grassroots innovations in India. He notes, “You have hybrid cars today that generate energy from brakes, but not from shock absorbers: it is a whole new concept that Kanak Das has pioneered.”¹⁴ The National Innovation Foundation, where Gupta serves as executive vice-chairperson, has helped patent Das's invention. Who knows where this might lead? In the not-too-distant future, cyclists all over the world may benefit from Kanak Das's jugaad innovation. Already, engineering students at MIT are using Das's invention as inspiration for how to convert the energy generated by shock absorbers in automobiles into acceleration.¹⁵

The third way that jugaad innovators seek opportunity in adversity is by being quick to act in response to the opportunities they see. Not only did Kanak Das and O.P. Bhatt think differently in response to adversity, but they also acted quickly to adapt their models and strategies to the challenges in their environments. Jugaad innovators aren't attached to old business models and will let go of past successes if conditions require this. This ability to constantly adapt and reinvent themselves—with a crystal clear focus on the future—is key to jugaad innovators' long-term survival.

An example of such adaptability is Enrique Gómez Junco, a Mexican engineer turned jugaad entrepreneur.¹⁶ In the late 1980s, Junco was driven by a vision to create a sustainable energy business. In 1988 he set up a company called Celsol to sell thermosolar panels to Mexican businesses, especially hotels. But he found it hard to crack this market: it was highly regulated, subsidized, and dominated by monopolies, and he had trouble finding capital to finance Celsol. Rather than give up on his vision, Junco shut down Celsol and launched a new venture—Optima Energía—in 2000. Optima's initial plan was to sell energy technologies to building owners and facility managers to help them use electricity more efficiently and save on energy costs. These energy-saving technologies would also provide an environmental benefit, as commercial buildings account for 7 percent of man-made carbon dioxide emissions worldwide. But again he failed. Optima's value proposition didn't impress facility managers much, because it required them to make a large up-front investment that would not yield significant returns in the short term.

This new setback shifted Junco's perspective once again. He realized that as an engineer he had fallen in love with technology for its own sake, and in the process had forgotten about his customers. His customers, he realized, didn't care how good his technology was: what they wanted was to save money. Immediately he knew that he had to shift his positioning again: from being a high-risk, niche technology vendor to being a low-risk, end-to-end business solution provider.

Armed with this insight, in 2004 Junco went back to the drawing board and reinvented his company's value proposition. Rather than merely selling a technology, Optima began offering an integrated solution to risk-averse commercial building operators. Specifically, Optima would sign a performance-based contract with a client to implement an energy efficiency project that could potentially save the client up to 50 percent in energy costs. The client would not have to invest a dime, however. Instead, Optima would directly finance the installation of the relevant technology in partnership with leading financial institutions, including the World Bank's International Finance Corporation.¹⁷ The client would then use the initial savings in energy costs generated by the project to pay back Optima's capital investment over a ten-year period. All additional savings would then be split between Optima and the client. Optima has been especially successful in selling this value proposition to major hotels—in particular, the energy-hungry resorts located along the coastline of the Gulf of Mexico.

After reinventing his business model twice, Junco finally realized his vision of saving clients' energy costs while protecting the environment.¹⁸ Since its founding, Optima has consulted with more than 120 different clients and implemented its turnkey solutions in more than fifty facilities. The firm has saved its customers $100 million, 16 million cubic meters of water, 230 million kilowatts of electricity, 41 million liters of natural gas, and 14 million liters of diesel. Junco is now planning to take his integrated solution into other sectors—especially manufacturing and public services (such as municipalities), where the market for energy saving is an estimated $7 billion in Mexico alone.¹⁹ Optima began its life as a clean technology provider but has evolved into a successful financial services provider that happens to be in the energy sector. Junco's adaptability allowed him to overcome adversity. For his unrelenting efforts to drive greener construction and provide clean energy in Mexico, Junco was selected by the World Economic Forum as one of the 100 Global Leaders for Tomorrow; he also received the Wharton Infosys Business Transformation Award in 2006.²⁰

Jugaad entrepreneurs like Junco approach innovation—indeed, approach life in general—as a potentially never-ending experiment. Trial and error is an important part of the process; individual failures and successes are merely way stations on a longer journey. As such, jugaad allows innovators like Junco to adapt, evolve, and continuously reinvent their ideas over time.

To sum up: jugaad innovators are experts at reframing challenges as opportunities, making constraints work for them, and adapting to changing circumstances by improvising solutions along the way. Jugaad innovators develop these strategies in response to the sometimes extreme forms of adversity they face in the business environment in emerging markets. But what relevance do these strategies have for Western firms, given the very different nature of the business environment in developed economies? We now explore how adversity is increasingly an important factor in the Western business environment and the implications of this for Western business leaders.

Buckle Up, Western Firms: Major Adversity Ahead

It would be easy to assume that jugaad innovators' reframing of adversity and adaptation to a constantly changing environment is not relevant to innovators, entrepreneurs, and business people in the West. After all, the West is prosperous. Western firms and their leaders don't have to struggle in a constantly turbulent political and economic environment or worry about poor infrastructure and scarce resources. Compared to emerging economies, the West is relatively stable. Or has been, until now. Ominous signs indicate that the West is poised to experience a sustained period of turbulence and painful change in the years to come. Let's look at the major sources of adversity that Western companies now face:

• A worsening macro-economic situation. The already anemic U.S. and European economies may soon become comatose as demand fails to pick up in spite of umpteen stimulus packages. The International Monetary Fund (IMF) predicted that the U.S. economy will grow by just 1.8 percent in 2012 and expects the Euro-zone economy to limp along at 1.1 percent.²¹ This poor growth will place severe constraints on the capital that companies will have access to in the years to come. In general, the poor macro-economic climate will force Western firms, large and small, to find new ways to put scarce capital to better use in the coming decade.
• An avalanche of new regulations to come. In addition to health care and financial services, other industries—from automotive to food to energy—are likely to face a host of new regulations from legislators in the years to come. For instance, the U.S. carmakers reluctantly agreed to an Obama administration plan to push for stringent federal fuel economy standards that would double efficiency targets to fifty-four miles per gallon by 2025.²² These stringent regulations will place further constraints on businesses—forcing them, in the coming decade, to radically change their current practices and even their business models to meet new regulatory requirements.
• Tectonic shifts in demographics. European firms have to contend with a rapidly aging workforce. For instance, Germany will lose five million workers—or 12 percent of its total workforce—over the next fifteen years due to retirement.²³ And U.S. firms have to contend with the growing diversity of their multigenerational, multi-ethnic workers and consumers. This will put pressure on employee recruitment and retention and make it hard for Western firms to meet the diverse needs of a heterogeneous customer base.
• The social computing revolution. The explosive growth of social media networks such as Facebook and Twitter—which enable improvised and informal grassroots interactions among hundreds of millions of users worldwide—is challenging the corporate orthodoxy embodied in hierarchal communication, linear planning methods, and insular approaches to innovation.
• The accelerating scarcity of natural resources. Natural resources such as oil and water that have hitherto been cheap and plentiful in the West will become scarcer in the years to come. According to a report by Ceres, sectors such as agriculture, food and beverage, hi-tech, and pharmaceuticals could be severely affected by water shortfalls. For instance, a water-related shutdown at a semiconductor factory operated by Intel or Texas Instruments could cost them $100–$200 million in missed revenues during a quarter. This grim outlook led Nestlé chairman Peter Brabeck-Letmathe to comment: “I am convinced that … we will run out of water long before we run out of fuel.” This increasing scarcity will force companies to find sustainable methods to generate more energy or food using less of these increasingly expensive resources.²⁴
• Unforgiving competition from emerging markets. Western firms are facing stiff competition in North American and European markets from low-cost rivals in emerging economies. For example, Chinese consumer product companies HTC and Haier are giving Nokia and Whirlpool a run for their money by introducing feature-rich cellphones and kitchen appliances at low prices that greatly appeal to cost-conscious Western consumers.

All these challenges are generating constraints within the environment in which Western firms operate. These constraints could paralyze Western leaders and cripple their decision-making processes, but they could also galvanize Western leaders into innovating for growth. For the latter to be the case, Western leaders must learn to reframe the adversity they face not as a debilitating challenge (or “risk,” as management consultants call it) but rather a unique opportunity to innovate and grow—just as Tulsi Tanti, O.P. Bhatt, and other jugaad innovators have done.

But doing so is more challenging than it looks. Faced with harsh challenges like those just mentioned, Western firms tend to gravitate toward adopting one of four responses to adverse situations. They fail to notice adversity or simply ignore it, they try to tackle it head-on, they address it with old frames of reference, or they think too small or incrementally in response to adversity. But all of these responses are counterproductive in today's business environment. Here's why:

• Failing to notice—or ignoring—adversity until it's too late. Western CEOs often fail to read the writing on the wall, because of complacence, inertia, or overconfidence. Gary Hamel, author of The Future of Management, notes that many Western executives don't pay sufficient attention to the early warning signs of big shifts in demographics, technology, and regulation—thus missing out on a great opportunity to proactively innovate their business models to take advantage of these shifts.²⁵ Instead, corporate leaders generally react to problems only after things have gotten out of control and their companies are up against the wall. For instance, right after the September 11, 2001, terrorist attacks, when the U.S. economy plunged into the red, U.S. carmakers failed to recognize a structural shift in American consumers' behaviors. Consumers were looking not just for cheaper cars—which GM and Ford offered with tons of rebates and 0-percent financing—but for better cars that were fuel-efficient and eco-friendly. Consequently, U.S. automakers failed to invest early in innovation to make energy-efficient cars—losing out to forward-thinking German and Japanese rivals.
• Tackling adversity head-on, rather than seeking to leverage it. When faced with the possibility of harsh constraints, Western CEOs often attempt to neutralize them rather than find a way to use them to their advantage. For instance, when facing regulatory constraints, many CEOs choose to oppose such constraints and lobby to have them repealed or delayed. We see this with large pharmaceutical companies that face shrinking drug development pipelines and a patent cliff, competition from emerging markets' generics manufacturers, and a U.S. government keen to reduce health care costs. Many of these firms have chosen to lobby to keep their business model intact, extend patents, and keep foreign competition out rather than respond innovatively to these challenges—for instance, by fundamentally rethinking and changing their business models.
• Addressing new problems with old frames of reference. Successful executives often resemble generals fighting an earlier war. They fight new battles using strategies that may have achieved victory in the past but are toothless in the present changed conditions. For instance, consumer goods companies continue to rely on traditional mass-marketing strategies like TV advertising, even though it is clear that consumers want to engage brands in a two-way dialogue using social media tools such as Facebook and Twitter.²⁶
• Thinking small when facing big challenges. According to Adam Richardson, author of Innovation X and creative director at frog, a global design and innovation consultancy, most executives play it safe when confronted with extreme conditions.²⁷ Thus, in response to hypercompetition or rapid technological or market change, they are more likely to come up with incremental innovations and “me too” products, rather than reach for the big untapped “white spaces” in the market that are up for grabs. For example, Borders recognized the Internet's potential early on but failed to take adequate advantage of it; its e-commerce initiatives were tepid at best. In fact, when the Borders.com site was launched in 1998, it allowed readers to only check the availability of books but not to actually purchase them. Eventually Amazon established its dominance, and Borders folded in 2011.

Tempting as it may be to dismiss adversity as an emerging markets problem alone, there is increasing evidence that adversity is moving westward. But even if Western firms and leaders recognize this fact, they may fail to deal with it effectively, for the reasons just discussed. If Western firms and leaders want to avoid the pitfalls of these four counterproductive responses to adversity—and wish to truly turn challenges into opportunities—they would be wise to learn a thing or two from the resilient mindset of jugaad innovators such as Tulsi Tanti, O.P. Bhatt, Kanak Das, and Enrique Gómez Junco. We now turn to a discussion of how they might do so.

Learning to Capitalize on Adversity

Western leaders can systematically turn adversity into an opportunity to innovate and grow by adopting the resilient mindset of jugaad innovators and their coping strategies.

Recognize That the Glass Is Always Half-Full

Western leaders can learn from jugaad innovators how to turn adversity on its head and get it to work in their favor. The key to doing so is being able to reframe challenges as opportunities and use constraints as a spur to innovate. But one cannot reframe (that is, see that the glass is actually half-full) while one operates in a state of fear. Fear only clouds one's perspective and inhibits one's reactions. Rather, when facing crises and challenges, leaders must cultivate a sense of equanimity and demonstrate what Justin Menkes, author of Better Under Pressure, calls “realistic optimism.”²⁸

Menkes, who works for the executive search firm Spencer Stuart, studied more than two hundred candidates for the CEO position and interviewed over sixty current and retired CEOs in his research. He found that a key attribute that enables leaders to achieve their potential (and that of their organizations) is “realistic optimism”; that is, the ability to clearly recognize the risks that threaten survival and yet remain confident that the company will prevail. In other words, at the first sight of a dark cloud, successful CEOs don't pull out the umbrella but strive instead to identify the silver lining around the cloud—just as jugaad innovators do.

For instance, many Fortune 500 CEOs feel threatened by the explosive growth of social media (as of this writing, over 250 million Tweets are sent each day and Facebook has more than 800 million members), especially after witnessing the damage done by Wikileaks. They fret about how social media tools, when placed in the wrong hands, can be used to spread false rumors, damage brands, and ruin corporate and personal reputations within hours. In contrast, as early as the year 2000, well before Twitter and Facebook saw the light of day, Procter & Gamble's top management identified the tremendous potential of social networking tools. They wholeheartedly embraced these tools as a new social engagement platform on which to build and sustain a meaningful dialogue with consumers in the digital economy of the twenty-first century. In the past, when developing new products, Procter & Gamble's R&D teams used to rely on expensive, time-consuming focus groups and physical prototyping to test their new ideas. Now they use social media tools like Affinnova to test dozens of new product ideas with hundreds of customers voting online on their favorite features. Thanks to this real-time collaboration with customers, Procter & Gamble can swiftly weed out unprofitable product ideas early on and dedicate R&D resources to developing product concepts that customers like the most.²⁹ Likewise, Procter & Gamble has turned the viral marketing power of social networks to its advantage—by converting satisfied customers into “word of mouth marketers” of the firm's brands in cyberspace. For example, the company has built Vocalpoint—an online community of more than six hundred thousand socially engaged mothers it can tap for early feedback on new promotional campaigns before launching them nationally—helping to get each marketing message right the very first time. Vocalpoint members also generate positive buzz on social networks for Procter & Gamble's upcoming products.³⁰ Thanks to this reframing of social media and their business value, Procter & Gamble has not only boosted customer loyalty but has also established new industry-leading practices in social engagement—well ahead of its rivals. The firm has even packaged its social marketing skills to create Tremor, a software service sold to other companies such as Kellogg, Sears, and MasterCard seeking to harness the power of word-of-mouth marketing to boost their own brands.³¹

Realize Extreme Conditions Are Fertile Soil for Extreme Innovation

Taking a cue from jugaad innovators, Western corporate leaders should view extreme conditions—such as massive technology shifts, draconian regulations, or competitive threats that come out of the blue—as an opportunity to develop radical innovations that disrupt industries and shape whole new markets. Marc Benioff, chairman and CEO of salesforce.com, is one such Western innovator. In 1999, Benioff founded salesforce.com in his San Francisco apartment with a bold vision: he wanted to make the business software—which enterprises use to manage their customer interactions—affordable and accessible to more companies. He envisioned using the Internet as a platform to deliver business software to corporations as a service, rather than as a product—as it had been so far. The idea was that firms would subscribe to software applications hosted by salesforce.com on a “pay-as-you-go” basis and access them using just a web browser rather than having them installed on employees' PCs—thus avoiding the expensive license fees and maintenance costs charged by large software vendors like Oracle, Siebel, and SAP.

Yet in 2001, just as salesforce.com was about to take off, the dot-com bubble burst and the stock market plummeted. Large corporations perceived Benioff as yet another dot-com entrepreneur peddling snake oil and refused to buy into his vision of Software as a Service (SaaS). Benioff and his startup were ridiculed by large competitors who questioned the security and scalability of the SaaS model. In April 2001, Tom Siebel, CEO and founder of Siebel, a large business software vendor, predicted that salesforce.com would be out of business by 2002.³²

But Benioff persisted in the face of all this adversity. He saw a silver lining in the dark economic cloud that engulfed corporate America in the early 2000s. He realized that his cost-conscious potential customers—small to large firms—were confronted with their own challenges. In particular: (1) they were struggling to extract more value from their software investments without breaking the bank, and (2) they wanted their existing software solutions to quickly adapt to rapidly evolving business needs. Unfortunately, firms were stuck with software applications that were too expensive to maintain and not flexible enough—and they had trouble conceptualizing what an alternative solution might be.

Sensing an opportunity, Benioff started evangelizing to potential customers the merits of the SaaS model—rather than touting salesforce.com's capabilities. He passionately articulated the value of SaaS, not only to frugal technology buyers but also to flexibility-seeking C-level executives. For instance, he explained to corporate leaders how—with the explosion of mobile devices—the SaaS model could enable their employees to access their business applications anywhere, anytime—something that could not be done with the traditional, centralized software delivery model. Benioff also tirelessly promoted the SaaS model to the press, analyst firms, and other influential tech industry figures. Eventually, large businesses warmed to SaaS and began to buy into Benioff's vision—and into salesforce.com. Thanks to Benioff's persistent evangelizing of SaaS, a groundswell movement was ignited in the tech sector. As more software developers recognized the benefits of the SaaS model, they started building more solutions using the model—spawning a whole new software ecosystem that made the model self-sustainable.³³

Salesforce.com was comfortably positioned to lead this SaaS movement—and it did. Salesforce.com's subscriber base grew by 1,500 percent in the following seven years, and it currently serves more than 100,000 customers.³⁴ Averaging an annual revenue growth of 36 percent in recent years, salesforce.com expects to reach a $3 billion annual revenue run rate during its fiscal year 2013.³⁵ Benioff has set for salesforce.com a “$10 billion vision,” which he believes “consists of customer success.”³⁶

The SaaS movement that Benioff initiated has since evolved and is now known as “cloud computing” (an appropriate name, considering it was born out of Benioff's ability to see a silver lining in every dark cloud). The cloud computing market, which was worth $40 billion in 2010, is predicted to balloon to $241 billion by 2020.³⁷ All the major software vendors who initially ridiculed salesforce.com's business model have since jumped onto the cloud computing bandwagon—and those who didn't have disappeared (salesforce.com's archrival Siebel was bought by Oracle in 2005).

Benioff believes that extreme conditions can generate groundbreaking innovation: “salesforce.com is a living example of how resilient entrepreneurs—and corporations—can transcend the extreme difficulties they face and turn them into opportunities for success.”³⁸

Build Psychological Capital to Boost Confident Resilience

Leaders cannot build a resilient organization without a resilient workforce. Fred Luthans, professor of organizational behavior at the University of Nebraska-Lincoln, puts it this way: “The true value of a company is no longer its tangible assets or even its technological processes: it lies in its human capital and underlying psychological capital—neither of which is open to imitation. Anyone can buy technology or obtain money from financial markets; but we cannot buy motivation, engagement, confidence, resiliency, hope, optimism.”³⁹

It's not enough for business leaders to be optimistic, resilient, and adaptable. They also need to empower employees at every level to think and act like jugaad innovators—by embracing ambiguity, tolerating risks, and being willing to learn from challenges rather than trying to wish them away. Franck Riboud is one such leader, keen to boost his firm's psychological capital. Riboud is the CEO of Danone—a French multinational that is one of the world's largest suppliers of dairy products and bottled waters (its dairy products are branded as Dannon in the United States). Riboud believes that his ninety-two-year-old company is confronted with two major challenges: (1) consumers worldwide are clamoring for healthy, nutritious food items that are affordable and sustainably produced; and (2) the biggest business opportunities in coming decades will come from emerging markets—such as Mexico, Indonesia, China, Russia, and Brazil—where Danone needs to innovate, and adopt, new business models to effectively capture the exploding growth opportunities. These two challenges are making the business environment in which Danone operates highly complex, simultaneously creating more constraints while opening new opportunities. As Riboud explains: “Our future hinges on our ability to explore and invent new business models and new types of business corporations.”⁴⁰

To navigate this complex environment, Riboud recognizes that Danone needs a more adaptable workforce with a resilient mindset. To succeed in a “multipolar” world characterized by multiple centers of growth, Riboud is gradually transforming Danone—a very traditional French firm with most decision-making power and R&D activity concentrated in Europe—into a polycentric organization with a decentralized decision-making structure and a globally distributed R&D network.⁴¹ Such a polycentric structure will empower frontline managers worldwide—especially in fast-growing emerging markets like China and Brazil—to address local challenges and opportunities by improvising robust solutions just as jugaad innovators do—all the while sharing innovative ideas and best practices through peer-to-peer knowledge networks.⁴², ⁴³ Unlike other multinationals that compel employees worldwide to do things the right way (using rigid and highly standardized processes), Riboud is motivating its global workforce to do the right thing (by embodying the companywide values of openness, enthusiasm, and humanism).⁴⁴ By decentralizing decision making and R&D operations—all the while enabling collaboration and knowledge sharing among regional units and maintaining high standards of social and environmental sustainability—Danone has been able to increase its organizational flexibility and successfully expand in emerging economies, which account for 60 percent of Danone's future growth.⁴⁵

This, however, is only half the story. Riboud's real objective in creating a polycentric, multipolar organizational structure is to initiate a veritable revolution of the mind within Danone's leadership team. As Western economies enter an age of scarcity and complexity, Riboud wants to cultivate in his Western managers a whole new way of thinking and acting under constraints—a resilient mindset that is prevalent in emerging markets like Brazil and China. In particular, Riboud wants Danone's senior managers in the West to innovate frugally and flexibly under severe resource constraints—by learning from jugaad innovators in emerging markets who know how to turn adversity into an opportunity to innovate. Riboud explains: “Until recently we assumed that the richest countries would be the main source of innovation. As I see it, it's the countries with strong growth that should inspire us.”⁴⁶ For instance, building a micro dairy product factory in Bangladesh requires the same amount of capital that one needs to buy a house in France—a fact that inspired Danone's Western leaders to adopt radically new solutions to reduce operating costs in big traditional plants without compromising quality. Riboud believes that by adopting a flexible mindset, Danone's Western leaders can not only reduce manufacturing costs but also dramatically improve product design, marketing, and distribution across the company.

In recent years, despite challenging market conditions, Danone has posted financial results that have exceeded targets: with sales up nearly 7 percent in 2010, the firm is among the best performers in the food industry worldwide. Riboud is convinced that Danone has found the right business model to succeed in today's complex global economy. More important, Riboud believes that Danone's unique culture, which emphasizes pragmatism, adaptability, and local decisions—what he calls being “quick on your feet”—is a huge advantage in adverse circumstances. Interestingly, one of the six big “emerging markets” that Danone is targeting is … the United States. Unlike other Western CEOs who complain about the moribund U.S. economy, Riboud sees huge opportunities for his yogurt products in the United States, where per-capita yogurt consumption is still low compared to European markets.⁴⁷

Approach Big Challenges with a Growth Mindset

According to Carol Dweck, professor of psychology at Stanford University, most leaders operate with one of two mindsets: a fixed mindset or a growth mindset. Leaders with a fixed mindset believe their qualities—and others'—are carved in stone, compelling them to stick to tried and tested solutions to challenges. In contrast, leaders with a growth mindset believe that their basic qualities can be nurtured and improved through efforts. Jugaad innovators are endowed with a growth mindset: they confidently focus on building the future, rather than clinging to the safety of the past.

We believe that as the business environment becomes increasingly complex and adversarial, it is vital that corporate leaders cultivate a growth mindset. This is critical because when leaders face adversity with a fixed mindset, their minds are clouded by fear or pride, they tend to innovate incrementally, and their efforts yield limited results. A growth mindset instead helps leaders approach even big challenges with optimism and curiosity—enabling them to generate breakthrough innovation that delivers more sustainable results in the long term. Specifically, those with a growth mindset are willing to let go of old business models and embrace new ones to maintain long-term success.

IBM is one company that has been successful in cultivating a growth mindset among its leaders. IBM celebrated its one hundredth anniversary in June 2011. The company has survived two world wars, the Great Depression, the 1970s oil crisis, the dot-com boom and bust, and even the current global economic recession. Over the past century, the firm's leaders have used a growth mindset to proactively disrupt the company many times over, completely reinventing its business model again and again. Thus IBM has gone from selling tabulators to typewriters to mainframes to networked PCs to software and services—effectively riding one technology wave after another.⁴⁸ Compare this with HP, IBM's rival in Silicon Valley, whose leaders seem to have waited too long to reinvent the firm's seventy-year-old business model. With stock prices plummeting and a leadership crisis under way, HP's top management seriously considered selling its PC business in late 2011 but finally decided to retain it.⁴⁹ The leadership of IBM has been more proactive; in the early 2000s, they recognized that although the company had invented the PC, its PC business was rapidly being commoditized by the emerging Internet-based computing model. In 2004, IBM's former CEO Sam Palmisano make the radical decision to sell its PC business—freeing resources so the company could move up the tech industry value chain.⁵⁰ Here is how Palmisano explains his decision: “In 1981 the PC was an innovation. Twenty years later it had lost much of its differentiation. It was time to move on—to the future. This enterprise (IBM) has always moved to the future. Continual forward movement is, in fact, inherent in IBM's value proposition, our business model. The frontier of what is truly innovative keeps moving … and that compels us not to sit still.”⁵¹

Tap the Power of Networks to Tackle Big Market Threats

Rather than deal with adversity by relying exclusively on internal resources, corporate leaders can benefit from working with customers, partners, and even competitors to cocreate innovative solutions. Take Pfizer: CEO Ian Read is breaking out of the Big Pharma R&D mold and trying to think and act like a nimble jugaad innovator. Rather than depending exclusively on internal R&D for innovation, under Reed's leadership, Pfizer is multiplying R&D alliances with external partners. In some ways, Pfizer has no choice, as it faces a double whammy: its drug development pipeline is drying up even as it faces growing pressure in the United States and Europe to rein in skyrocketing health care spending. Seeing the writing on the wall, Read cut 24 percent of Pfizer's own R&D spending—an act deemed sacrilegious by Wall Street analysts—and is shifting the resulting savings into new partnerships with academic labs and nimble biotech firms worldwide.⁵² For instance, the firm recently struck a licensing deal with Biocon, the Indian bio-pharma company, to market the latter's diabetes treatment products in both emerging and developed markets.⁵³

To sum up: Western companies and their leaders can find opportunity in adversity in a number of ways, including

• Recognizing that the glass is always half-full
• Realizing extreme conditions are fertile soil for extreme innovation
• Building psychological capital to boost resilience
• Approaching big challenges with a growth mindset
• Tapping the power of networks to tackle big market threats

Although many individual leaders and their companies have employed one or more of these coping strategies, few firms and their leaders have employed many—if not all—of these strategies consistently over time. An exception is 3M; under several legendary leaders over 110 years the company has applied many of these robust strategies to turn adversity to its advantage and continually stimulate growth. We turn to a detailed case study of 3M with a view to understanding how the company and its leaders were able to seek and find opportunity in adversity in a sustained way over a long period of time.

How 3M's Jugaad Spirit Bucked The Recession

Founded in 1902, 3M has come to epitomize American ingenuity. Over the course of a century, its prolific inventors have churned out breakthrough products that have become part of Americana: Scotch® Tape, Scotchgard™ Protector for Fabric & Upholstery, Thinsulate™ Insulation, and Post-it Notes. 3M's jugaad innovators like Art Fry—who invented the Post-it Note—have produced scores of useful products that have made life easier for millions of consumers across the globe.⁵⁴

What makes 3M so innovative can be summed up in two numbers: 30 percent and 15 percent. Both figures are deemed sacrosanct by 3M's management and employees. Decades ago, recognizing that its consumer products face rapid obsolescence, 3M set itself the goal of generating 30 percent of its total revenues from new products it had introduced in the preceding five years. This bold goal—known within 3M as the New Product Vitality Index (NPVI)—helped create an innovate-or-die culture that sustains a constant sense of urgency among 3M designers and engineers who continually develop hundreds of new products each year (3M currently boasts a portfolio of seventy-five thousand products). Interestingly, some of 3M's most successful products to date were invented by its engineers in their “spare time.” Indeed, way back in 1948, long before the idea was popularized by Silicon Valley firms like Google, 3M launched the 15-percent program—a radical initiative that allows 3M employees to use 15 percent of their paid work time to pursue their dream projects—especially left-field jugaad innovations.⁵⁵ The 15-percent program's objective was to loosen up the corporate culture and make it nimble and risk-tolerant—allowing 3M employees to swiftly sense and respond to new market opportunities in a dynamic bottom-up fashion. 3M's management has been totally supportive of many maverick innovations that have come out of this 15-percent program—whether they succeed commercially (like Post-it Products) or not.

After proving its mettle as an exceptional corporate innovator for nearly a century, 3M experienced declining performance in the late 1990s. The nimble Midwestern manufacturer had become too big, complacent, and risk-averse—resting on its laurels rather than creatively shaping the future. Its stock price took a hit, and its sales and profits began to decline. When faced with such adversity, corporate leaders can demonstrate either a fixed mindset, by playing it safe and seeking incremental change, or a growth mindset, by seeking opportunity in adversity and turning it to the company's advantage. In 3M's case, a leader with a growth mindset would have deepened 3M's existing commitment to jugaad thinking and innovation and used it to fashion a more radical response to adversity.

In 2001, 3M hired Jim McNerney as CEO to revive 3M's fortunes. McNerney, who had previously worked at GE (he had been a frontrunner to replace Jack Welch), brought in management discipline and streamlined the bloated firm's cost structure by implementing Six Sigma management techniques. This significantly boosted 3M's profitability: its operating margins shot up from 17 percent in 2001 to 23 percent in 2005. The highly structured Six Sigma processes—which emphasize predictability and sameness—worked wonders in 3M's factories by making production systems more cost-efficient. Initially, it seemed as if this structured approach to reviving 3M's fortune was working. But the same structured approach had the opposite effect when McNerney applied it in 3M's R&D labs to standardize and systematize the innovation process and make it faster and cost-effective. Six Sigma arguably choked 3M's free-flowing jugaad creativity. In the process, Six Sigma failed to tap into the psychological capital of 3M's innovators, whose ingenuity and resilience to adversity had been built up over several decades. Rather than dreaming big and producing breakthrough products, 3M's engineers became risk-averse and played it safe—by generating incremental innovations that met Six Sigma performance goals. 3M's management began to frown on disruptive ideas proposed by its jugaad innovators. As a result, 3M's sales revenues and reputation as a cutting-edge innovator began to flag. By 2005, 3M's share of revenues derived from new products had gone from its traditional 30 percent to only 21 percent. Its ranking in Boston Consulting Group's Most Innovative companies list gradually slipped as well, from number one in 2004 to number seven in 2007.⁵⁶ It felt as if 3M's jugaad spirit had waned.

Faced with the adversity of declining revenue and brand reputation, George Buckley, who had replaced McNerney as CEO in 2005, focused on reviving 3M's risk-tolerant jugaad culture. In particular, Buckley began rolling back Six Sigma initiatives—and reinstituted the 15-percent program, giving 3M engineers more flexibility and freedom to pursue radical ideas without fear of retribution. Buckley acknowledges: “Perhaps one of the mistakes that we made as a company—it's one of the dangers of Six Sigma—is that when you value sameness more than you value creativity, I think you potentially undermine the heart and soul of a company like 3M.”⁵⁷

Buckley had to move fast, as several of 3M's products were becoming outmoded or increasingly commoditized. It was facing growing competition from agile competitors in all its major product segments. But 3M was facing an even bigger challenge: rapidly shifting customer preferences. In today's digital environment, consumers value aesthetics as much as function in the products they buy—as demonstrated by the huge success of the well-designed iPhone. This new reality made 3M's leadership realize that while the company was great at engineering products, it had to get better at designing them in an appealing fashion.

Sensing an opportunity in this situation of adversity, 3M decided to broaden its traditional jugaad mindset to include not only great technical performance but also great design. To drive that transformation, 3M hired Mauro Porcini as head of global strategic design. The flamboyant and passionate thirty-seven-year-old Italian, who reports directly to the head of R&D for 3M's Consumer & Office Business, runs a large team that is attempting to make both 3M's existing and new products more visually appealing without sacrificing their technical performance.⁵⁸

We met Mauro at his sleek new office at 3M's headquarters in Saint Paul, Minnesota. The crisp white walls and décor and the curved fuchsia-colored path paving the way to Mauro's office offered a creative oasis that stood in stark contrast to the claustrophobic brown cubicles in the rest of the building. Porcini, whose stylish sartorial esthetic also stood out, explained to us the challenge 3M is now facing and how his team is helping address it:⁵⁹

Porcini points to Apple as a company in love with its customers: by marrying superior design with excellent engineering, Apple keeps surprising—and thrilling—customers with each new product it launches. “Companies like Apple and Target have proven that good design can help capture not only bigger market share but also customer mindshare and ‘heart share.’ 3M's new challenge is to find ways to increase our customer ‘heart-share’ by using superior design to differentiate our products in a crowded market.”⁶⁰

Porcini's team of jugaad designers are given carte blanche to rejuvenate 3M's signature office and consumer products by giving them a bold, sexy look. For instance, they gave a facelift to 3M's fifty-year-old transparent Scotch Tape Dispenser by creating a high-heel tape dispenser. Porcini himself redesigned an existing multimedia projector by making it sleeker, and “something consumers want to touch”: it was an instant hit. Some award-winning products that Porcini helped develop at 3M include the MPro150 Pocket Projector, the Scotch Pop-Up Tape Dispenser with precut strips, and the Scotch Pet Hair Remover. Porcini's designers are now actively involved in new R&D projects from the very beginning—thus influencing both business and technical decisions associated with new product development. Porcini quips: “3M used to be known as a company of ‘maverick engineers.’ Now we also want to be famous for housing ‘maverick designers.’ ”⁶¹

Crushed by the Six Sigma juggernaut in the early 2000s, 3M reignited its jugaad spirit by giving its employees more creative freedom and by integrating left-brain functional excellence with a right-brain design sensibility. These efforts have paid off handsomely. They have helped rebuild the psychological capital of 3M's innovators, which, in turn has given 3M resilience in the face of subsequent adversity. Although 3M's sales revenues fell during the recessionary year of 2009, they have bounced back since, increasing 15 percent to $26.7 billion in 2010 (one of the highest growth rates ever achieved in 3M's hundred-plus-year history). In 2010, 3M posted a record operating profit of $5.9 billion, with margins of 22.2 percent. By 2010, 3M was once again generating 30 percent of its revenues from new products—and that percentage may even reach the mid-30s in 2012. 3M now launches about 1,200 new products a year. George Buckley notes with satisfaction: “Even in the worst economic times in memory, we released over one thousand new products.”⁶² 3M seems to have found a sticky growth formula fit for the postindustrial economy—as evidenced by a 2011 survey conducted by Booz & Company with global executives, who ranked 3M as the third most innovative firm in the world—right after Apple and Google.⁶³

Conclusion

In an increasingly complex business environment that throws all kinds of challenges at companies, demonstrating resilience in the face of adversity and turning it to one's advantage is a new competence that business leaders must urgently develop.

Although it is difficult to adopt as many different strategies designed to turn adversity into opportunity as 3M did, it is certainly not impossible. As 3M and the various other Western companies featured here prove, strong leadership is key to getting these resilient strategies to work.

But seeking opportunity in adversity is only the first of the many jugaad principles that Western leaders—and their organizations—can apply to succeed in a unpredictable and fast-moving global economy. Of all the forms of adversity that emerging economies and Western firms face, none is as severe or threatening to survival and growth as scarcity. How jugaad innovators respond to scarcity by “doing more with less”—and what Western leaders can learn from this frugal principle—is the subject of our next chapter.