"Reverse innovation begins not with inventing, but with forgetting. You must let go of what you’ve learned, what you’ve seen, and what has brought you your greatest successes. You must let go of the dominant logic that has served you well in rich countries. If you want to use today’s science and technology to address unmet needs in the developing world, then you must start with humility and curiosity."
In Reverse Innovation, Vijay Govindarajan and Chris Trimble argue that global corporations can no longer rely purely on exporting downgraded rich world products to remain competitive in the developing world. To capture the hearts and wallets of the masses in developing countries, corporations must employ reverse innovation. Reverse innovation calls for companies to create products from scratch, using new market insights to inform product development and marketing. Govindarajan and Trimble specifically suggest these areas of focus to reverse innovate:
- Strategy – Shift the company’s strategy to focus on emerging-market innovations created from scratch and don’t ignore smaller competitors serving what may be perceived as niche needs.
- Global Organization – Shift people, power, and money to emerging markets with distinct accountability standards to account for start-up and growth.
- Project Organization – Organize cross-functional, in-country local growth teams (LGTs) that can leverage the resources of the broader organization.
Simply importing developed world products with fewer features into emerging markets prevents companies from creating products that meet the practical needs of consumers. Failure to reverse innovate can be catastrophic for global companies as they scramble to catch up to smaller players that find ways to deliver lower cost, quality products that meet the unique needs of emerging markets.
The Big Idea
Throw out the old
"By the time [incumbents] realize that they’ve missed a giant shift in their industry – one that originated in the developing world – they are years behind in skill, experience, and industrial capacity."
Reverse innovation demands that we shed long-held assumptions about what future growth at global corporations will look like. In the past, it was acceptable for corporations to focus on rich world countries or the wealthy in emerging markets for growth and believe that developing nations’ infrastructure will progress in the same way as rich first world countries. However, companies are learning that people in developing countries have vastly different needs for the same tasks, such as farming or personal computing, and that these countries can leapfrog technologies given their infrastructure is in infancy. To fully adopt reverse innovation, corporations have to move away from the archaic thinking that growth will happen when developing countries get richer to realizing that failure to meet the current needs of those countries will have serious ramifications in the future as other companies compete in those markets. Embracing this attitude is critical to all reverse innovation efforts.
Conduct calculated experiments
"To accelerate learning, it pays to rank the most critical unknowns: assumptions that, if wrong, could prove fatal to the strategy. Then, test these as quickly and inexpensively as possible."
While LGTs have access to global resources of their parent corporation, these resources are limited, and product launches are time sensitive. To ensure successful completion, teams should use disciplined experiments to test hypotheses and build confidence along the way rather than designing products to completion only to find consumers dissatisfied with the end result or design failures of critical components.
When Illinois-based, farm equipment supplier, Deere & Company entered India, it had 20 percent brand recognition by tractor purchasers and a 2 percent market share. With India being the world’s second-ranking agricultural producer in the world and largest consumer of tractors, selling a product that met local needs posed significant upside for Deere. Upon discovering the unique needs of Indian farmers, Deere began developing critical components, like the front axle, using parallel processing in anticipation of potential failures. When the Deere in-house team’s efforts did not materialize, the company had two competing suppliers’ options as alternatives. Had the company not charged multiple teams with axle design, the in-house team’s failure would have caused a six month set back.
Bring reverse innovations home
"When a reverse innovation hits the mainstream, it becomes a powerful force – one that holds tremendous opportunities for those with their eyes open and terrifying risks for incumbents with their eyes shut."
Just as exporting rich world products to developing countries has been a successful strategy for many companies, the benefits of reverse innovation can be multiplied by importing developing world innovations back home. Bringing low-cost, quality products to developed nations can open new markets that have been underserved or were once thought to be too niche to serve profitably. While fears of cannibalization are warranted, reverse innovation isn’t all bad; in fact, it has helped companies like GE Healthcare grow while serving the health needs of local communities.
When GE Healthcare began offering high-end electrocardiogram (ECG) machines in India, its results were underwhelming. Pivoting to a reverse innovation strategy, GE developed the MAC400, a portable ECG machine that met the needs of Indian providers – low cost to patients, easy to use and maintain, and reliant on battery power. These features enabled Indian doctors to offer affordable care in remote areas with spotty electricity. When the MAC 400 finally launched, it was an incredible success. Using the insights from this product’s development, GE made the device available in Europe where the company found it perfectly met the needs of private practice physicians who could not afford the high-end system. Instead of cannibalizing sales, MAC 400’s introduction in Europe created new market opportunities.
Reverse Innovation is loaded with case studies from global corporations across industries that have successfully employed reverse innovation to win significant market share abroad. Many tried importing rich world products and failed, and this book charts the path each company took to build recognition and customer loyalty in new, emerging countries. These corporations’ attempts are testaments to the value they place on customers of all income levels. What reverse innovations have you started or seen across the globe?