„A Passion for Ideas: The Nexus of Creative Innovation“ was the book title in 2001 of the former Siemens CEO Heinrich von Pierer and Bolko von Oetinger, Senior VP at Boston Consulting Group. There are many ways to bring new ideas to the world, and one of it is reverse innovation.
New routes vs. traditional ways
Reverse innovations are innovations which were initially developed for the emerging markets before they found its way back to the western world. These terms became popular by Vijay Govindarajan and Chris Trimble of Dartmouth University together with Jeffrey Immelt (CEO of GE). The principle question to be answered is, how to generate radical new solutions without taking too many entrepreneurial risks.
At the same time, many global players do have to enter and grow in the emerging markets. The common way is based on known experiences of their home markets and the principles launching products there. But this resulted in the problem that most of these products either were too expansive or too complex as they were developed for a different market environment. Later on, products were simplified by reducing functions in order to match with market environment. These solutions were very often developed by the existing R&D departments. Something really new has rarely been created that way; additionally, many times the realization was too slow, and the results still too expensive for the market environment.
In the country – for the country
It is very difficult to take a holistic approach at developing a new product being thousand miles away and not knowing the real market situation. The solution could only be: restart locally with local teams. Immelt prioritized very clearly: “Don’t even (…) talk (…) about your growth plans in the U.S. You’ve got to triple the size of your Indian business in the next three years. You’ve got to put more resources, more people, and more products in there, so you’re deep in that market and not just skimming the very top. Let’s figure out how to do it.“ On the one hand, target is to win local market shares with local products which fit to the local needs best; on the other hand, emerging markets offer effective conditions to develop really new solutions – often solution that are by far simpler and cheaper.
The motto must be: “Shift power to where the growth is”. This enables the Local Growth Teams (LGT) to develop not primarily the next generation products, but to create brand new solutions. Important is that these R&D departments should be staffed mainly with local people. Short-term expats should not be involved to avoid a copy of the existing structures. Apart from that, even the search for innovations needs underlying conditions. For example, the process should not end up as brand new playground starting everywhere from zero. Parameters must be defined with a high sensitivity and intuition. They need to be wide enough to allow a growing and prospering culture. The pure existing of these LTGs could create fear in the existing organization. To avoid the “not invented here syndrome” it is essential to let the LTG report directly to the CTO level.
Positive examples of the “locals for the world”
The theory is that products, developed in emerging markets, could reenter the home markets and help to gain market shares there as well. But not only in theory as these positive examples show:
- Nestlé developed fat reduced noodles for rural areas in Pakistan and India. This product was also launched in Australia and New Zealand as healthy alternative to normal noodles.
- GE developed in 2008 a carry on ultrasonic device for doctors in India and China. This device includes the newest technology but weights less than 3 kg, which is half of the smallest existing version. Based on that success GE was able to offer in the following year an ultrasonic device in the US for less than $ 2.500 or 80 % lower than comparable products.
Reverse innovation works! It is a challenging way to go, but offers huge opportunities.