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.

Regards
madhu

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

15 comments:

Mohanakrishnan said...

Thanks Madhu for the post - I see that you have changed your writing style significantly in this :-)

On India's wireless story: Not just that we have skipped POTS. The Telcos seem to have developed a very low ARPU model (mostly prepaid) which others are emulating in areas like low cost prepaid broadband.

I read somewhere that India has skipped industrial revolution to move directly to information age. So I guess the book has a point - it is not necessary for the developing nations to linearly follow the developed ones.

Snehal said...

Dear Madhu

Thanks for sharing this review.

The recent and local cases of this could be Tata's Nano - although marketing disaster didn't allow promised yields. Telco's 1 paise/sec plans could also be another case. However each of these, regardless of degree of success, points to ability to position and market and that requires one to be resourceful.

I worked on a project for a US based start-up (~$100M in rev.) who chose to adept their product - originally designed for developed world and "feature engineered" for developing market. This contrasts to GE's approach of developing mobile medical device for emerging market from grounds up. I suppose the respective decision were driven by availability of resources.

We also launched at my last company two solutions at a particular price point (and then worked business/operational model around it) and saw reasonable success with it. But fundamental need here is to be able to price it right and that needs good marketing efforts (and money).

Finally I believe that innovations do happen in good numbers in low affordability regions. The reason world gets to see of more of US/developed world's innovations is that they gets more marketing / press. Lasting creativity (innovation is but a sub-category of it) in general needs resources and patronage. DRDO (though some might question this) and ISRO are recent examples of this.

Thanks
Snehal

Madhu Parthasarathy said...

Dear Snehal,
Thanks for your examples which I think are very germane.

As to ISRO and DRDO, certainly they have blazed some good trail for sure, but, I would not think they are "resource constraint" in any manner.

As to resourcefulness, I think we will learn more from Govt run schools and hospitals.

regards,
madhu

Satheesh Sadanand said...

Nice Commentary, Madhu."Reverse Innovation" by VG is one of my favourite books. In addition to explaining the new concept of innovating far from home, this book also serves as a guide to new product development in general (refer to chapters on Harman & John Deere) as well as the best practices for large companies incubating new teams.

P.Varadarajan (Varad) said...

An interesting example in the context of venturing into new frontiers for low income groups in developing countries is the biometric ATM for the financially excluded segments. When RBI started focusing on financial inclusion and wanted banks to serve the fringe segments, one of the concerns banks had was that people in this area may not be literate enough to understand ATM PINs and their sanctity. So what ensued was an effort to put in a biometric ATM in such locations to support these people. This meant cutting edge technology arrived at this level bypassing all the other segments. Just proves that cutting edge technology is not necessarily just to satiate the appeal of the target audience, but to ensure successful product delivery. Sure, this segment has not become profitable yet for banks, but volumes are increasing and .........

Varad

Madhu Parthasarathy said...

Varad-san:
Very good example.Thanks.
Could you please inform us one or two locations where such functional ATMs are installed?
I would be keen to visit.
regards
madhu

Unknown said...

I think the whole 'Reverse Innovation' doesn't sound convincing. It still shows the mind set that what is done for the 'high end' is innovation. Rather than say 'we have a constraint' and hence reverse innovation, you can always say 'this market has its own requirement' and then it becomes innovation !!! 'Reverse Innovation' seems to be a more fancy term for, 'hey you guys have no resources nor the buying power but we still did it for you'. I would say there is only innovation and nothing like 'Reverse Innovation'. There is no constraint, there is just requirement.

Once we get that mindset, that each market has its own requirements, then we will probably understand that an innovation in one market need not necessarily fit into another market. For a long time US auto manufacturers in the 80s were cribbing that Japanese did not buy US cars while Americans were buying Japanese cars. Well, the reason was simple. When Japan exported cars, it manufactured cars which were left hand drive cars for US. Whereas the US folks kept exporting left hand drive cars to Japan, which was a right hand drive country !!!

Srini Krishnan said...

Reverse Innovation like other similar books address the corporates in US to bring them upto speed on what is happening elsewhere. Successful innovations meet requirements within a given set of given resources. Apollo-13 is a classic example of such innovative thinking in crisis situation. 'Jugad Innovation' book I guess is listing a few Indian instances. Rashmi Bansal's 'I have a dream' also features many social entrepreneurs who have reversed assumptions like in the case of SELCO whether the poor will pay for Solar lights or in the case of Sulabh if the poor will pay for public convenience.
Miticool,Incubator for INR 5000 are many such instances. Pl see http://www.thenewconstructs.com/story_details.php?pageid=Mw==&sid=MjQ5
Mobile money in Africa is local needs driven. A decade ago mobile penetration was high in US. Peer-to-peer ( Paypal) transactions was made possible. Yet the 2 ideas were not connected. Even before smartphones , through WAP could have been done.
Reversing or testing new assumptions is always considered one of the ways to innovate. In that sense Reverse Innovation can't be considered a fresh idea but enlightening a few who base their innovation still on a single country's presumed needs. I believe Japanese cars when introduced in US market had the roof heights tailored to meet the tall Americans.Value engineering to meet what customer will pay , has been adopted as a discipline by Japanese for decades. Most of these innovations have been developed by people with skills technical or managerial. May be you have come across William Kamkwamba. Watch this
http://www.ted.com/talks/william_kamkwamba_on_building_a_windmill.html

Ramesh N Raghavan said...

Madhu, Thanks for the nice summary of the book and I should read it to understand the different examples they have listed. I am noticing another trend, which I cannot really say if it fits the "reverse innovation" as defined by the authors, but was still interesting. One of them is the recent trend in Desktop Operating systems which are now increasingly mimicking the user interface designs of popular mobile Operating systems. The most obvious one is the Metro style interface which is partly influenced by their mobile forays, and they are now standardizing it across platforms. Even in the Apple world, the latest versions of Apples's desktop OS like Mountain Lion increasingly give a feel and UI design elements (notification center for example) which are obviosly derived from their iOS designs. I recently saw an interesting outcome of this. There was a stall in the office where some Microsoft or their agent's representatives were displaying the Windows 8 with Metro UI. Very interestingly he highlighted to us that the OS can do "multi app", that is it can run multiple applications simultaneously :), which on the Windows world was truly possible from Windows 95 era at least. But it just showed how much the mobile phone experience had penetrated the general buying public, and one had to use it's feature to sell(or just highlight) a feature on a desktop system. I thought there was something reverse going on here. There was a time when we were trying to get desktop features on a smartphone, but now those same features in a transformed form are being sent to the desktops..
Another example I read about recently is again one of inspiration for the main stream networking world, coming from the Mobile/App world. There are a set of standards called OpenFlow networking, where the authors argue why one cannot allow "apps" to be run on crucial network devices like routers and switches to reconfigure networks on demand or as the needs change. They argue that mobile apps have evolved from a pure carrier controlled model to a open store model with enough robustness such that no single app brings down the phone, and it should be possible to do the same in the networking world as well. Again, it was interesting to see how these ideas are going in some sense a reverse direction, from a consumer device to a more sophisticated business/corporate use device.
Thanks again for the nice post..

Mohanakrishnan said...

NRR,
That is a very interesting observation. Not just Microsoft. Apple too have taken many features from iOS to OSX - like full screen apps.

My guess is that this is acknowledging a new type of users. Those who use the computer to browse, email and socially network. These users were probably there for a while, but they were probably silent and were not noticed. When devices like iPad became popular, it surprised many that this device can address such a sizeable part of computing needs. This in turn brought some focus on this hitherto ignored part of the demography.
Now, if such a majority of users make use of of only such a small subset of features, it makes sense to improve the experience of such users on traditional PCs as well. Hence features like full screen apps that make the interface cleaner and simpler.

This is a theory that I cooked up just now. Let me know what you think :-)

Ramesh N Raghavan said...

Mohan,

That is a good theory and I think there is a lot of merit in what you have observed. The tablets are to some extent cutting into the sales of notebooks (and have probably eliminated the Netbook category for good) as it filled the needs of this demography you have described quite well. Lot more intuitive and cleaner UI designs were quickly accepted by them and brought them online and helped them to connect. In fact the overall PC market(by volume) has almost stagnated after tablets(read iPad). I am not sure if power users and heavy multi-taskers will like the full screen interfaces as much on their desktops, but it sure will have fans. Also, at least Microsoft provides a way to switch back to the older style interface I think.

Coming to think of it, technically, full screen UIs where only one application owns the screen at a given point in time will probably make the windowing/graphics sub system much simpler :)

Mohanakrishnan said...

Now that I don't write code anymore, I realized that I don't have multiple windows displayed on my tiny laptop screen any more. In fact I prefer to see my applications (mail, browser, spreadsheets, presentation) full screen most of the time. Only pop ups and reminders typically appear in a window smaller than screen :-)

I still use multiple windows on my 20" computer screen at home, though!

Mukund Srinivasan said...

I think this page/review has now elicited as much interesting content in the comments, as the review itself! To me, that is as good an example of the "Reverse" mindset when it comes to "innovating". I remember reading an HBR article on how Kellogg's first wanted to revolutionize the 'breakfast' market in India, given the economic growth, and brought every one of their leading cereal brands into India. That miserably failing, they engaged a bunch of management grads in some grassroots surveys. The surprising finding for them was that the expectation from the consumers was the "Western" packaging but the contents needed to be the local staple demands. So, they started packaging local breakfast items under a different brand which had a better tie in to local demographics - lo and behold, their breakfast market share grew manifold. The lesson is that Innovation is as much about understanding grass root drivers as much as the need for optimization of current offerings.

Mukund Srinivasan said...

I think this page/review has now elicited as much interesting content in the comments, as the review itself! To me, that is as good an example of the "Reverse" mindset when it comes to "innovating". I remember reading an HBR article on how Kellogg's first wanted to revolutionize the 'breakfast' market in India, given the economic growth, and brought every one of their leading cereal brands into India. That miserably failing, they engaged a bunch of management grads in some grassroots surveys. The surprising finding for them was that the expectation from the consumers was the "Western" packaging but the contents needed to be the local staple demands. So, they started packaging local breakfast items under a different brand which had a better tie in to local demographics - lo and behold, their breakfast market share grew manifold. The lesson is that Innovation is as much about understanding grass root drivers as much as the need for optimization of current offerings.

Madhu Parthasarathy said...

Good rejoinder

http://blogs.hbr.org/2013/10/five-power-skills-for-discovering-radical-ideas/