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Disruptive Innovation and Social Enterprise

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In his seminal 1997 book The Innovator's Dilemma, the Rhodes Scholar and Harvard business school professor Clayton Christensen coined the term "disruptive technology" to describe the process by which a product or service introduced at the bottom of a market could, through increased affordability, convenience, or ease of use, turn that market on its head, creating a new value network with a new population of consumers, and eventually catapult to the top.

As Christensen pointed out, some of the world's most established corporate giants -- Sears, Kodak, Xerox, and IBM, among other household names -- had fallen victim to low-cost products often inferior in quality to their own, proving that start-ups, no matter how small or unheard of, had the potential to topple leading brands. In doing so, he argued, they could fundamentally shift the economics for everything from steel to software.

In part through our Global Social Benefit Incubator (GSBI), we've learned that social enterprises, including many of the dozens we've worked with over the past decade, are capable of doing the same -- that their innovative and affordable products and services, designed to meet the needs of the poor in some of the world's most underserved communities, can also benefit developed countries by disrupting markets in the manner of the mobile phone or the ink-jet printer.

So investors, take note: opportunities abound in parts of the world you might never have thought to look -- places like Tamil Nadu, India, where the Aravind Eye Care System, a non-profit purveyor of high-quality, low-cost cataract surgery and spectacles, has been treating India's visually impaired for more than 35 years. Founded in 1976 by the late Govindappa Venkatswamy, or "Dr. V" as he is commonly known, Aravind has grown from one hospital to a network of nine, with more than 4,000 beds and 40 primary eye centers.

An ophthalmologist from a small rural village, Dr. V set out to bring the same efficient, high-volume approach to eye care in India that McDonald's had achieved in selling hamburgers and fries. And his success is now legend: over the past three decades, Aravind doctors and technicians have performed a staggering 4 million surgeries and attended to some 32 million patients, the majority of them at low or no cost.

To date, approximately 270 eye hospitals in India and abroad have adopted the Aravind model, which, with its assembly-line like system of preparing patients for surgery, its tiered pricing, whereby those patients who can afford to pay subsidize care for those who can't, and its narrow clinical focus, has helped make the award-winning organization the single largest provider of opthalmological services worldwide.

Also critical to that success was a potentially disruptive innovation of Aravind's own: the $2 Intra-Ocular Lens (IOL) manufactured by its on-site subsidiary, Aurolab. With the help of the American social entrepreneur David Green, Aravind adapted technology originally sourced from the U.S. to produce lenses at just a fraction of the $150 a piece it had been paying to import them, allowing the organization to drastically reduce one of its largest fixed costs.

Green, a recipient of the MacArthur "genius" award, is now working to replicate the Aravind model in San Francisco, while the for-profit social enterprise SalaUno, a member of this year's GSBI cohort, is attempting a similar strategy in Mexico, where an estimated 50 percent of blindness can be averted by surgery. As at Aravind, low-cost, high-quality cataract surgery forms the backbone of the SalaUno business model, and the organization believes that by operating at high volume and focusing exclusively on ophthalmology it can help bend the cost curve of health care in meaningful ways.

"The challenge that we face -- making health care affordable and conveniently accessible to most people -- is not unique to health care," Christensen wrote in his 2008 book the The Innovator's Prescription, where he proposes an approach to reform based on the principles of disruption. "Almost every industry began with services and products that were so complicated and expensive to provide that only people with a lot of skill and a lot of money could participate."

Health care, he argues, is no different. Yet while today's industry "screams for disruption," business model innovation has been stagnant for several decades, as "regulations and reimbursement systems trap in high-cost venues much care that could be provided in lower cost, more convenient business models." The solution -- the key to disrupting America's ailing, inefficient system--he says, is to move the "simplest procedures now performed in expensive hospitals to outpatient clinics, retail clinics, and patients' homes."

Aravind and SalaUno are among the dozens of social enterprises doing just that in the developing world. And though their model of care may not be profitable in the U.S. or U.K., their specialized, high volume approach may well inform the innovations of tomorrow that put today's biggest, most profitable providers out of business for good. And not just in the health care industry.