Why business models trump technology?
Karan Girotra, who is a professor at Insead in Fontainebleau, France and Serguei Netessine, who is the Timken Chaired Professor of Global Technology and Innovation at Insead writing in HBR about Drip Irrigation and why it did’nt catch on for a long time until a business model innovation:
The reason is a problem common to almost all new technology adoptions. The developer of the new technology has the best information on the performance of the technology and on the benefits it could deliver to the adopter. But the incentives of the adopter and the technology developer are typically not aligned: while the technology developer has all the incentive to sell as many units as possible, the adopter would only like to make investments with the highest rates of return.
To achieve this alignment and to reduce risks for the farmers, Netafim started providing a new offering, called IrriWise Crop Management System. IrriWise was an integrated proposition that included the system design, all the required hardware, installation and regular service of the system. Most importantly, farmers often did not have to buy the system. The system would be installed at Netafim’s expense (essentially costs would be reallocated to Netafim), but Netafim would get a further payment tied directly to the increase in crop yields.
With more skin in the crop-yields game, Netafim was now incentivized to modify service, adapt and maintain the equipment, to get the best possible outcome. Netafim went so far as to change into mission statement from “making the best drip irrigation equipment for customers” to “helping the world grow more with less”, an objective far more aligned with the objectives of its customers, the farmers. This allowed it to dramatically grow revenues, increasing its market share, all while making a life-changing impact on some of the most impoverished of the world’s citizens.