The key to making reverse innovation work is to reinvent the organisational architecture. GE’s innovation of the portable ultrasound in China is a case in point. The Chinese engineers opened up a new market in rural China with a breakthrough new business model where they were able to write sophisticated ultrasound software on everyday laptop computers. This is in sharp contrast to the premium, performance-rich, bulky ultrasounds sold in the US. The portable ultrasound has already created growth opportunities for GE in the US and other developed countries. This is a good example of reverse innovation. This was possible because GE created a local growth team (LGT) in China.
The LGT operated with 3 important principles. First, LGT is a separate profit and loss with localised resources in the areas of product development, supply chain, manufacturing, marketing, sales and distribution.
Second, LGT operated with an “experiment and learn” approach. Innovation involves uncertainty. The key challenge therefore is to test assumptions to develop more knowledge about variables which are uncertain. GE scaled up the portable ultrasound business after conducting many low-cost experiments and learning from them.
Third, the LGT is independent but is not isolated. LGT was able to leverage GE’s enormous global resources and global technology capabilities.
Reverse innovation appears to go against the current global strategy of glocalisation, where products developed in a company’s main market are introduced across the world. What problems do you see glocal companies facing when they go the reverse innovation way?
To succeed in glocalisation, multinationals must organise around global product P&Ls where power and resources are managed at the centre. While such a structure has tremendous advantages, that structure does not promote reverse innovation. Take the case of V Raja, the head of GE healthcare in India. In 2005, under glocalisation, Raja’s role was to distribute global products in India. Put yourself in the shoes of Raja who is a representative of any head of a business in India in any multinational company which is organised to excel at glocalisation. It would be extremely difficult for reverse innovation to happen because the decision-making power rests with executives in the developed world. Global product leaders would have difficulty in understanding customer problems in rural India and their priorities would be targeted at meeting the needs of the rich-world customers.
For reverse innovation to happen, local growth teams are required. Resources located in emerging markets should match the opportunity gap in those markets. GE has reorganised its healthcare business where Raja now reports to John Dineen, the CEO of GE Healthcare. India now has a seat at the corporate table!
Do you see the worldwide recession playing a key role in making or breaking the reverse innovation strategy?
Reverse innovation was important even before the global meltdown. The global financial crisis has only made the case for reverse innovation that much stronger. There is likely to be slow growth in the developed world and more robust growth in emerging markets. The growth gap between the rich and poor countries has now become more like a growth chasm. Ten years ago, multinationals talked about their global strategy in terms of their strategy for the US, Europe, Japan, and the rest of the world. Going forward, multinationals must talk about their global strategy in terms of their strategy for the BRIC countries, Middle East, Africa, and the rest of the world. The “rest of the world” will include the US, Europe, and Japan!
It’s said that as organisations become bigger, they become less innovative. Would you agree with this?
Having studied a large number of companies, I have come to the conclusion that companies suffer from three traps that prevent them from commercialising the next big idea. The first is the “physical trap” where companies are unwilling to obsolete investments in their current physical infrastructure. Blockbuster found it difficult to respond to Netflix precisely because of their existing infrastructure. The second is the “psychological trap,” which is all about leadership mindset. Kodak came up with the digital camera concept in the early 80s.
However, the mindset of managers running the three-inch film business prevented them from seeing and seizing the enormous opportunity in the digital space. The third is the “strategic trap’, which is myopic thinking. Railroads are a case in point. They only thought of other railroad companies as their competitors. And the rest is history, as they say! Reverse innovation will require multinationals to overcome these three traps. GE has taken the lead in showing the way.
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