Wednesday, August 1, 2012

Reverse Innovation

Reverse Innovation:  Create far from Home, Win everywhere.
Authors:  Vijay Govindarajan and Chris Trimble.

Let us say you ask an engineering team to build a bridge that would handle a normal load of say, 1000 vehicles an hour each weighing two tons for city A. After the design is done, you want to reuse the design for city B. Based on city B's requirements, if you enhance your requirements to handle the heavy duty traffic both in terms of tonnage and traffic, most of the structural assumptions used in original design would no longer be valid. Very likely, it would have to start everything from ground zero – simply, the structure is not suited for an upgrade but needs full revamp.  Hence, engineers would rather prefer to design the bridge to sustain the target load from the outset rather than start with a rooftop bridge and enhance it to support the railroad level traffic. Nevertheless, innovation’s history, specially in business, has been mostly focused on high affordability regions and then it migrates to medium and low affordability regions by systematically “de-featuring” the product or service as the case may be.

Conceptually, I felt reverse innovation is antithesis of the aforementioned design principle.  It betokens an approach where innovation would originate from low affordability regions and systematically migrates to high affordability regions.  Prof Vijay Govindarajan (VG) and Chris Trimble talk about this concept in a detailed fashion with copious number of compelling case studies some of which read like a novel. Case studies are from Logitech, EMC, Harman, GE, Pepsi, P&G, Deere and host of such well known corporations.

Per authors, there are 5 levels of thinking.
Level-1: Only the rich world matters. Poor regions are too small a market to worry about.
Level-2: In poor regions, there is an opportunity only at the top of the pyramid.
Level-3: For emerging markets, we would customize our current offerings to match differing needs
Level-4: Emerging markets’ needs are vastly different. We have to design things from the scratch.
Level-5: Stakes are global and not local.

They also talk about 5 gaps that get closed over time. (1) Performance (2) Infrastructure (3) Sustainability (4) Regulatory (5) Preference
This categorization provides a robust conceptual framework to build the narration.  Rest of the book is replete with case studies followed by couple of appendixes that would neatly serve as a tool kit to try our ideas. 
In short, if you export – you lose. If you innovate – you win.

The main idea is this:  Decide the market price that you would sell at and work backwards towards the desirable cost structure. Counter intuitive, it may seem, but it puts a set of market verified constraints and hence if they are met, usually it turns out well and becomes a blockbuster at times. It means, being resourceful matters more than access to copious set of resources. The stress is on “Frugal, Functional and good enough quality” as opposed to “Cutting edge, features rich, new and fancy applications”. To support this point, I cannot resist telling a story (not in the book).

One of the high growth corporations opened its first European branch in the heart of London. While the location was great, the road had lot of pubs. Hence, in the nights, people after drinking started throwing up in front of the office as they passed by. It became a routine practice to start most mornings  with a major clean up. Obviously, this nuisance would have to be fixed. The chief administrative person raised this topic in every meeting possible but cost of implementing a fix, like fixing a camera(s), monitoring that area and informing police proved very expensive and couldn’t be taken up. Finally, a shoe string budget was given to him to fix it. Instead of complaining about that budget, he tried an interesting experiment. He put a conspicuous camera and a big warning board that people who defile that place could be potentially prosecuted. The Camera, however, was powered but not connected anywhere to monitor! Yet, it served the purpose of bringing down misdemeanor to a near-zero level - a clear case of frugal and functional.

One of the major assumptions the authors debunk is that poor regions would follow the same trajectory as rich regions. Invariably, it is not so.They skip certain steps. For example, direct investment in mobile infrastructure rather than in old telephone networks (POTS) now. Table 3-1 in chapter 3, comprehensively summarizes the dominant logic and reverse innovation strategies. It is very easy to intuitively feel that the authors have it correct. But,our mental models and other orientation are so diametrically opposite, it would take a while to put it in practice.

Celebrated German mathematician Carl Gustav Jacobi once remarked that, “man muss immer umkehren” which translates to “Invert, always invert.” Jacobi believed that the solution for many difficult and intractable problems in mathematics could be found if the problems were expressed in the inverse. Prof VG and team are giving us the Jocobian version for innovation and it is evident from the emerging case studies, we will benefit phenomenally through such inversion.

Thanks for reading this far.


PS: Please feel free to share your reverse innovation stories in your comments