When companies become global, for the most part they start and grow operations in various parts of the globe, at times driven by the desire to sell more and expand in these emerging/new markets, and also to take advantage of the lower cost of labor.
Innovation is truly global and is not intended to innovate in location ‘A’ (mostly applies to the US) and expect to succeed by exporting to the rest of the world. In doing so, multinationals miss the opportunity to benefit from the innovation capacity of their global workforce, and hugely miss their growth targets by the ‘innovation-export-mentality’, and not developing geo-specific new products and offerings, to meet the need of different geographies.
Many companies struggle with their global capacity and really frustrates me to see so many missed opportunities, as this is strategic error, and not a necessary error. This is a problem which we can solve. Often, people mistakenly think the reason for failure is cost and an unwillingness to spend money. The fact is, the failure to grow in emerging markets, is mainly due to the fact that we don’t fully understand and innovate for emerging markets. Rather, we push on the innovation-export-mentality.
This past year, across the world, I have found Apple defy this paradox, with enormous growth in all emerging markets. One of the reasons for why Apple is successful are thousands of geo-specific and relevant apps, and the platform supports that. The hardware (iPad, iPhone) is the same and marketed the same way, but the apps are highly adapted to the needs of the emerging markets.
Other cool fact: When we stop the innovation-export-mentality, most multinationals will find that they have the local talent across the world to help them innovate for these markets! We just need to recognize the global talent , collaborate together, and innovate globally and locally.
The book Reverse Innovation shares similar thoughts, so I am including the summary below.
Reverse Innovation (2012): by Vijay Govindarajan and Chris Trimble
Addressing large multinational corporations in the innovation field, the authors argue that in order to capture growth opportunities in developing countries, multinationals must innovate for emerging markets, rather than simply exporting rich world products to them. After laying out their argument for reverse innovation, they explain in detail the steps needed to implement it in practice.
What is “reverse innovation”?
- Any innovation that originates in the developing world.
– Traditionally, innovations have been adopted first in rich countries and then later flowed downstream to developing countries.
- However, due to rapid advances in technology and the unique conditions in poor countries, solutions that worked for rich countries won’t necessarily work for the developing world.
Why is reverse innovation critical?
- There are vast differences between the needs of rich world customers and emerging market customers.
– These needs gaps include performance, infrastructure, sustainability, regulation and preferences. For instance, poor consumers need decent performance (say, 50% of the top-tier offering) at ultra-low cost (15% of the standard price). They neither need nor can afford a 70% solution for 70% price.
- Because of these differences as well as technological progress, it is no longer enough to follow the old path of “glocalization.” Glocalization posits that the work of innovation is already complete, and that companies can simply take a top-tier product developed for rich customers and remove some features, make minor modifications and reduce the price point.
- For most multinationals, glocalization is the dominant strategy. But this “dumb down” approach fails to meet the real needs of customers in the developing world.
- As a result, multinationals miss out on massive growth opportunities, as poor customers demanding innovative solutions turn to more agile local competitors to meet their needs at a realistic price.
- Eventually, multinationals may lose even more ground if and when these local innovators bring their innovations upstream to the rich world (as trends close the needs gaps between countries).
How to carry out reverse innovation: Lessons from the “Reverse Innovation Playbook”
Revise global strategy:
1) Replace old-solution exporting with clean-slate innovating
2) Realize opportunities to adapt emerging-market innovations for marginalized markets in rich countries and potentially mainstream markets in the developed world.
3) Be aware of emerging innovators who are rapidly gaining ground in the developing world and may one day pose a threat closer to home.
Change organizational mindset:
4) Channel people, power and money to areas of growth (the developing world).
5) Break down outdated orthodoxies and foster a reverse innovation mindset in executive leadership (through long-term expatriate assignments, etc.).
6) Acknowledge that developing nations require their own unique business scorecards, P&L responsibility and growth measures.
Adapt project organization:
7) Create local growth teams to tackle reverse innovation opportunities, functioning like brand-new companies and developing clean-slate needs assessments and solutions.
8 ) Partner closely with local growth teams so that they can take advantage of global company resources.
9) Treat reverse innovation efforts as disciplined experiments, with an emphasis on learning critical unknowns.
A case study of reverse innovation in action: GE Healthcare in India
- The problem:
A dominant manufacturer of medical-imaging and diagnostic technologies, GE Healthcare found that their high-end, expensive electrocardiogram (ECG) machines were grossly underselling in India – a country where cardiac disease was a major social issue. (Ubiquitous in the hospitals of rich countries, the ECG is the most commonly used cardiac test in the developed world). However, the cost, weight, and power requirements of the $3,000 high-end model proved prohibitive. It was an unaffordable and impractical option for the vast majority of Indian patients and clinics, who had far less money, reliable power, transportation, and medical experts than their Western counterparts. As a result, the $3,000 ECG model was capturing only a fraction of the Indian market share compared to local competitors.
The solution: lessons from the Reverse Innovation Playbook:
- Lesson 1: GE decided to innovate from scratch. They eventually developed a portable, inexpensive ECG machine designed specifically to address the needs and constraints of Indian consumers.
– Lesson 2: GE expanded the market for portable ECG machines around the world, reaching new underserved customers in rich and poor countries. In doing so, they attained a huge advantage over emerging competitors.
- Lesson 7: To pursue this innovation opportunity, GE created a fully empowered local growth team (based in India) which built the new product from the ground up.
– Lesson 9: Rather than holding the project to strict outcome-based measures of success, GE superiors focused on reviewing how much learning the project was generating and reducing risks.
In sum, developing nations are not just like we were 50 or more years ago, and they’re not going to follow the same path of development that we did. Technology has rendered our historical progression archaic, and emerging market customers have vastly different needs and circumstances than our own. Multinationals that sit back and wait for developing nations to “catch up” to rich ones and demand rich world products are going to be left empty-handed, as local innovators offer the groundbreaking solutions that these consumers really demand. The next big threat is going to come not from the rich multinational rival we already know of, but from an unknown company – whose name we probably can’t even pronounce – gaining ground several oceans away.
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Linda Bernardi is a Technology Strategist, Investor, and Founder & CEO at StraTerra Partners, The Bernardi Leadership Institute and a Strategic Advisor at Cloudant Inc. She is also the Author of Provoke, Why the Global Culture of Disruption is the Only Hope for Innovation. Learn more here about Linda’s work on disrupting large enterprise analytics.