Business Case Studies, Executive Interviews, Vijay Govindarajan on Reverse Innovation

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Executive Interviews:Interview with Vijay Govindarajan on Reverse Innovation
January 2010 - By Dr. Nagendra V Chowdary

Vijay Govindarajan
Professor of International Business and the Founding Director of the Center for Global Leadership at the Tuck School of Business at Dartmouth College.

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  • Can you give us the background for this path breaking idea; what prompted GE to embark upon this journey of reinvigorating and disrupting itself?
    We introduced the concept of reverse innovation in our HBR article, “How GE is Disrupting Itself” (Oct 2009). Historically, American multinationals innovated in the US and sent those products to emerging markets. Reverse innovation is doing the exact opposite. Going forward, multinationals must innovate in emerging markets and bring those products into developed markets. This is what we mean by reverse innovation. There are two important reasons as to why GE has put reverse innovation as a major strategic priority. First, growth in developed countries is slowing down as a result of global economic recession, while growth in emerging markets is robust. Reverse innovation will allow GE and other multinationals to capture growth in developing countries. Second, if GE did not capture the opportunity in emerging markets, a local competitor would. Then that local competitor will introduce the product in the US and thereby undermine the competitive advantage of American multinationals.

  • At a very personal level, what motivates you to come up with succeeding successful innovative ideas? Are you an argumentative thinker, questioning status quo all the time ? How important is your previous path breaking idea for your next innovation-centric pursuit? Was there any time in your long drawn and distinguished career where you had to work seriously to negate your earlier ideas?
    My career goal has been to help companies achieve efficiency and innovation simultaneously. This is what has guided my research agenda for the last 30 years. In the first phase, I examined how amulti business firm can implement different strategies like build, hold, harvest inside the firm. In the second phase, I examined how a global firm can implement differentiated strategies across its subsidiaries. Right now I am integrating my prior research to examine issues at the intersection of three areas – emerging markets, innovation and execution.

  • How does reverse innovation enable GE to disrupting itself?
    Let me illustrate how GE is pursuing reverse innovation by taking the portable ultrasound example. In China GE introduced a portable ultrasound to cater to the needs of rural customers. In rural areas there are no hospitals. Therefore, you cannot ask the patient to go to the hospital, rather the hospital has to come to the patient. That is why a portable machine is critical. And because rural customers cannot afford to pay high fees, the ultrasound machine has to be of low cost. This low cost portable machine is creating new applications for GE in the US. For instance, think of an accident on a highway, it is nearly impossible to bring a large size ultrasound machine in an ambulance on the highway. However, a portable ultrasound machine is ideal for this application. Similarly, in a hospital setting, there are areas where space is constrained. For instance, in an emergency room there are many doctors and surgeons and equipment, and therefore the portable ultrasound machine is ideal for use in emergency room where space is limited. Thus, GE has been able to open up new markets and grow sales revenue in the US based on an innovation from China.

  •  What is reverse innovation and what are the organizational contours of this practice? How should reverse innovation efforts be organized?
    As I said before, reverse innovation is the opposite of the global strategies that multinationals have used so far. In the past, American multinational typically expanded their operations expanded their operations into Europe and Japan. Since the customers in Europe and Japan were similar to the customers in the US, products that satisfy the needs of the American consumer could actually satisfy the needs of the bulk of the consumers in Europe and Japan. What has happened in the last 5 years is the emergence of mega markets in countries like China and Inda. Majority of the customers in India and China are fundamentally different than the customers in the US. Therefore, US innovations can only satisfy 10% of the customer base in the countries like China and India. That is why reverse innovation is needed. Reverse innovation is about zero-based innovation to satisfy the customer problems in poor countries. Multinational can then bring those innovations from developing countries into developed countries. This is the whole idea behind reverse innovation.

  • Why do you say that the days of glocalization are over and reverse innovation isn’t optional... It’s oxygen. Does it mean that the developing countries never get to see the products/services developed in developed countries?
    While reverse innovation is critical, glocalization will continue to be important going forward. Multinationals must innovate both in their home markets as well as in emerging markets. Thus the developing countries will continue to see the cutting edge technologies and cutting edge innovations from the West coming into their markets. While sustaining that, multinationals must also innovate from the ground up in emerging markets.

  • You have observed that, “Success in developing countries is a prerequisite for continued vitality in developed ones.” Does this statement apply to all kinds of companies – from manufacturing to service sector – or only select companies fromselect industries?
    In my opinion, most of the industries will be ripe for reverse innovation. This concept will apply to manufacturing companies, as well as service companies. Therefore, it is possible to do reverse innovation in products, in processes, as well as service innovations. I would also add that reverse innovation is possible in areas like go-to-market strategy or business model innovations. Thus, success in developing countries is a prerequisite for continued vitality in developed ones for almost all multinationals.

  •  It is generally argued that innovation is about creating a product, a service or model that is difficult to replicate and is more than just a clever idea. Would reverse innovation not lead to reverse engineering ultimately denying the long-term benefits to the MNCs opting for reverse innovation?
    It is important for multinationals to recognize that reverse innovation is not a one-time activity. Take the case of the portable ultrasound machine that GE innovated in China. There have been multiple generations of the machine that GE has introduced since the first portable ultrasound machine appeared in 2002. Thus, a multinational cannot just innovate once, but continuously update and improve the product over time. This is one way multinationals can prevent local competitors from imitating their products.

  • You have mentioned that GE executives questioned two tenets of glocalization the realization of which led them to chart disruptive innovation.What are these two tenets of glocalization? Is it correct to characterize GE’s reverse innovation as process innovation or organizational innovation?
    The two important assumptions behind glocalization need to be questioned in the light of the tremendous opportunities in countries like India. The first like India. The first assumption is that emerging markets will develop in the same way that developed markets achieved progress in the last 100 years. This assumption is fatally flawed. India will not develop in the next 100 years similar to the way US has developed in the last 100 years. The second assumption is that the products that satisfy the needs of local consumers in developing markets are inferior and therefore cannot satisfy needs in developed markets. This assumption is also fatally flawed because the problem of the consumers in developing countries will be solved using 20th century technology. Therefore, those products are technologically sophisticated yet at a much lower price point. Thus, those products would have ready applicability in developed countries.

  • If glocalization and reverse innovation have to co-exist, what kind of new competencies, capabilities and organizational models have to be developed and nurtured? What would be the CSFs?
    The most important need for companies to do reverse innovation is to build local capabilities. This would imply not only locating resources, but also building human capabilities in countries like India. This is perhaps one of the biggest challenges for American multinationals.

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