GE’s “Reverse Innovation” … no, it doesn’t mean going retro.

TakeAway: For decades, GE has sold modified Western products to emerging markets. Now, to preempt the emerging giants, it’s trying the reverse.

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From WSJ:” GE CEO Touts ‘Reverse Innovation’ Model”, Sept 22, 2009 

To better compete in emerging markets and elsewhere, General Electric is is changing its method of innovation and developing products in low-cost countries, such as China and India, then distributing them worldwide.

Two products – a $1,000 handheld electrocardiogram device and a portable, personal-computer-based ultrasound machine that sells for about $15,000 – are examples of GE’s “reverse innovation.”

They were originally developed for markets in emerging countries and are now being sold in the U.S., a contrast from the past when GE and many other industrial companies created products in the U.S., then adapted them for global sales.

The new business model allows the company to expand into emerging countries and keep firms there from creating similar products, then expanding sales to the U.S.

“Success in developing countries is a prerequisite for continued vitality in developed ones.”

For reverse innovation to work, product developers must be based and managed in the local market, and when the products are sold globally, they may need to be sold at lower prices even if they cannibalize higher-margin products in rich countries.

GE now has more than a dozen “local growth teams” in China and India.

Full article:
http://online.wsj.com/article/SB125364544835231531.html?ru=yahoo&mod=yahoo_hs

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From the HBS article:

Two myths must be shattered:

Myth #1: Emerging economies will largely evolve in the same way that wealthy economies did.

The reality is, developing countries aren’t following the same path and could actually jump ahead of developed countries because of their greater willingness to adopt breakthrough innovations.

With far smaller per capita incomes, developing countries are more than happy with high-tech solutions that deliver decent performance at an ultralow cost—a 50% solution at a 15% price.

Myth #2: Products that address developing countries’ special needs can’t be sold in developed countries because they’re not good enough to compete there.

The reality here is, these products can create brand new markets in the developed world — by establishing dramatically lower price points or pioneering new applications.  And, technology often can be improved until it satisfies more demanding customers.

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Local Growth Team (LGT) model,  is based on five critical principles.

1. Shift power to where the growth is.
Without autonomy, the LGTs will become pawns of the global business and won’t be able to focus on the problems of customers in emerging markets. Specifically, they need the power to develop their own strategies, organizations, and products.

2. Build new offerings from the ground up.
Given the tremendous gulfs between rich countries and poor ones in income, infrastructure, and sustainability needs, reverse innovation must be zero-based. These wide differences cannot be spanned by adapting global products.

3. Build LGTs from the ground up, like new companies.
Zero-based innovation doesn’t happen without zero-based organizational design. GE’s organizational “software”— its hiring practices, reporting structures, titles, job descriptions, norms for working relationships, and power balances between functions—all evolved to support glocalization. LGTs need to rewrite the software.

4. Customize objectives, targets, and metrics.
Innovation endeavors are, by nature, uncertain. It’s more important to learn quickly by efficiently testing assumptions than to hit
the numbers. So the relevant metrics and standards for LGTs—the ones that resolve the critical unknowns—are rarely the same as
those used by the established businesses.  The new business model emphasized training, offered online guides, designed simpler
products, created built-in presets for certain tasks, and tracked customer satisfaction to gauge success.

5. Have the LGT report to someone high in the organization.
LGTs cannot thrive without strong support from the top. The executive overseeing the LGT has three critical roles: mediating conflicts between the team and
the global business, connecting the team to resources such as global R&D centers, and helping take the innovations that the team develops into rich countries. Only a senior executive in the global business unit, or even its leader, can accomplish all of that.

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