Reverse Innovation

Aruna Naik

BUS 527

Reverse innovation

Global Innovation

Reverse Innovation History• Term introduced by Dartmouth professors Vijay

Govindarajan and Chris Trimble and GE's Jeffrey R. Immelt

• “Reverse innovation will transform just about every industry, including energy, healthcare, transportation, housing, and consumer products,” Govindarajan, who coined the term in 2009 while working as a chief innovation consultant at General Electric

• Goods developed as inexpensive models to meet the needs of developing nations, such as battery-operated medical instruments in countries with limited infrastructure, are then repackaged as low-cost innovative goods for Western buyers

Why Reverse Innovation• Globalization efforts by removing expensive features

from their established product• Attempt to sell these de-featured products in the

developing world• Not very competitive approach• Targets only the most affluent segments • Reverse innovation: Products which are created and

tested in local markets, and, if successful, then upgraded for sale and delivery in the developed world

• Accelerating growth of EMs (2/3rd of World’s GDP)• They are the non customers international organizations

could access• Products tailored to their needs could form a platform for

new global products• Global organizations have to develop new structures

and a mindset to capture those markets

Contd…

Importance of Reverse Innovation for MNEs• Presence in future markets

– avoids emergence of new competitors– understand the market and visibility (collaboration)

• Implementation of a new corporation mentality (fast time to market)– acquisition of human capital– new innovation strategy

• Governments provide funds

• http://www.youtube.com/watch?v=ztna1lt_LZE

Recently locus of innovation is changing

1. Roland Berger Global Topic 8 Billion report

• Emerging countries no longer just borrow innovation from the developed countries

• Instances of reverse innovation appears to be rare but it might change in the future

• Key drivers: rise of emerging countries and flattening world

Service Ecosystems

• Service Ecosystems literally translates, testing services the economical way

• Developing and servicing in the western countries involves a lot of capital

• India and Philippines are occasionally termed as the Outer hubs for IT services

• BPO’s, Call Centres are the perfect example for service ecosystems.

Average cost per day for 100 employees at a BPO ($)

Classic Example of Reverse innovation• Tata Nano, a low budget car

introduced in India, costing $2,000 is all set to launch it’s new version in the European markets

• The car will be modified according to the taste and preference of the users in Europe and will be sold at a higher price, thus backing the ‘Leapfrog Strategy’

Example II

• Electro-cardio machine in US costs anything around $3,500-4,000. Doctors in India invented a much portable and cheaper version of the machine which costs only $500

• This machine is now sold in 90 countries

• GE has struck an intriguing balance in the case of healthcare in India.  By creating lower-cost end-user solutions, they’ve actually been able to create an entirely new market, primed for expansion globally

Limitations of Reverse Innovation

• Per-capita incomes are so low in the developing world, conditions are ripe for innovations that offer decent quality at an ultralow price — that is, a 50% solution at a 5% price

• Most of the infrastructure (energy, transportation, telecom, and so forth) in the developing world has yet to be built

• Many developing nations are confronted with environmental constraints far sooner in their path of economic development than rich nations were

The Challenge

•  It requires a company to overcome its dominant logic, the institutionalized thinking that guides its actions

• Throwing out old organizational structures to create new ones from scratch

• Revamping product-development and manufacturing methods

• Reorienting the sales force

How to implement Reverse Innovation• Decision-making

– Localized in emerging market

• The local organization– Connected to global technology

• Experiment-and learn approach

• Outsource and collaboration

Conclusion