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.

• While highlighting GE Healthcare’s China experiment (compact ultrasound effort), you have propounded five critical principles behind local growth team (LGT) model? Can you highlight the criticality of LGT model in a successful reverse innovation paradigmandwhat are the five critical principles behind LGT model?
  The most important barrier in reverse innovation is the organizational barrier. In order to overcome this organizational challenge, multinationals must embrace a new management model; we call this Local Growth Teams. LGTs are based on several principles. First, LGTs must have localized resources and localized decision-making power. Second, LGTs must take a zero-based approach to innovation. Third, the LGTs will have to be connected to global technology and global resources in order to benefit from economies of scale. Fourth, the LGTs, even though they are small, should still report to a fairly senior executive. This is to make sure that the resources for the LGTs are protected. Fifth, the LGTs should be evaluated on a different performance scorecard. After all, innovation implies experimentation and experimentation obviously has unknown outcomes. Therefore, LGTs should be evaluated on their ability to learn not their ability tomeet the short-termfinancial targets.

• What kind of companies are best suited to pursue reverse innovation impeccably?
  Companies which are ideally suited for reverse innovation would be consumer products companies, like P&G, Unilever, and Nestle. Consumer companies obviously are most affected by the unique characteristics and income disparities in countries like India.

• What is the role of leadership in nurturing a futuristic and impending culture of reverse innovation, especially for MNCs from developed countries?
  Leadership has to play a critical role. CEOmust travel to emergingmarkets, see firsthand what is possible, and convince the organization about the potential of reverse innovation.

• What do you think are the challenges and precautions for MNCs seriously looking at reverse innovation as their next growth driver?
  The reverse innovation is as much a cultural transformation as it a strategic transformation. Therefore the biggest barrier would be the organizational barrier. In order to overcome this multinationals must develop leaders with a different orientation and global mindset. These leaders should be able to operate in multiple cultures with ease. Therefore, multinationals should practice things like job rotation, strategic EXPAT programs, locating the headquarters of certain businesses in emerging markets, recruiting emerging markets nationals, and appointing them to senior positions in companies. In order for reverse innovation to be successful, the CEO needs to play a role showing 100% commitment to this concept.

• A lot has been written about emerging giants from emerging economies – Haier, Lenovo, TCL, Alibaba.com etc., from China; Bharti, Tata Sons, Mahindra & Mahindra, TCS, Reliance, etc., from India, and many more companies from other emerging economies. What does the rise of these emerging giants mean for global business? Will they trigger off any geo-political war?
  There are a number of emerging market giants like Haier, Lenovo from China; and Tata, Mahindra & Mahindra from India. These companies are good for global competition, since they force American multinationals to take reverse innovation seriously.

• Many Chinese companies have been accused of succeeding by taking an existing technology and then tweaking it for a local audience – Tencent Holdings Ltd., Alibaba Group, Baidu.com, Baidu Encyclopedia, etc. What does this mean for MNCs operating and wishing to operate in China?
  In countries like India and China, reverse engineering and imitation will no longer do. Perhaps these countries grew in the past by producing produces at lower cost by exploiting their low cost labor. However going forward, these countries can prosper only by closing their innovation gap. Thus, reverse innovation would become extremely critical in order to createmarkets in countries like China and India.

• What kind of innovation – product, process, business model or organizational – do you think should emerging giants from emerging markets are capable of and should focus on?
  Giants from emerging markets should focus on all kinds of innovations; that would include product innovations, process innovations, distribution innovations, business model innovations, and platform innovations. Concepts like Tata motors $2000 car is a good example of innovation on many fronts. Clearly it is a new product, but it also has process innovations, but most importantly it is also a distribution innovation. After all the way Tata motors is going to distribute the automobile is to produce the automobile in modular form and send those kits to local entrepreneurs who will assemble the product and sell it. This is a very important commercial innovation.

• While writing an editorial page article, R Gopalakrishnan, Executive Director, Tata Sons – in Business Line, “Destiny Awaits Innovative India”, November 21, 2009 – said that, “... innovation requires 4 Cs: chaos, creativity, communication to generate ideas and channelization to convert theminto real products. India has the first three, but needs to strengthen the fourth.” What it takes to strengthen the fourth element of successful innovation breeding capability of India Inc.
  I completely agree that in order for innovations to happen, execution is the most critical. People too often confuse innovation with creativity. Innovation is not creativity, innovation is commercializing creativity. Thus the execution challenge is the biggest challenge. In fact, Thomas Edison put it very well, he said “Innovation is 1% inspiration and 99% perspiration”. Thomas Edison should know because he was the best innovator of all times. The 1% inspiration is the creativity part, the 99% perspiration is the execution part. Execution involves assembling the team, building the capabilities, setting the right performance scorecard, allocating resources etc. That is the key to success in innovation.

•  India has been a hotbed (especially during the last five years) for many successful social entrepreneurial innovations. Do you think that shall be the order of the day where many entrepreneurial clusters thrive?
  I believe that India can lead the world in social innovation. After all, India has so many social problems, like health, sanitation, education, energy, etc. Solving these social problems would require breakthrough innovations. India is ideally positioned in this area because India faces these problems more so than developed world. Therefore, India can actually lead the world in solving and coming up with sustainable solutions which can then apply in developed countries.