Create in India, win everywhere

Professor Vijay Govindarajan; Business Standard, January 6, 2014

For nearly half a century, academic research in global business strategy has maintained the view that innovation occurs mainly in the so-called 'rich-world' countries, later making its way to 'poor' countries as exports or through foreign direct investment. This concept, known as 'product life-cycle theory,'first appeared in a 1966 study by Harvard economist Ray Vernon.

But that, as they say, was then. Today, the locus of innovation in the global economy is shifting. Many multinationals are moving away from the traditional model of 'glocalisation,' where they develop products in their wealthy developed nation and distribute them worldwide, in favour of a model in which they do just the reverse: create products for developing nations first and then market them to developed nations. For companies with Indian roots, opportunities abound to develop frugal innovations at home which can then disrupt Western multinationals in their home markets.

Professor Vijay Govindarajan teaches in the special 2-day "Strategic Innovation & Leadership" program January 16-17, 2014 with renowned executive coach Marshall Goldsmith.

I first used the term 'reverse innovation' to describe this phenomenon in a 2009 Harvard Business Review article I co-wrote with Jeffrey Immelt, CEO of General Electric, and my Tuck School of Business colleague Chris Trimble. In the paper, we highlighted GE's success developing a compact ultrasound machine for China's poorly funded, low-tech hospitals and rural clinics. Unlike GE's high-end, high-priced models aimed at markets in developed countries, these machines were low-cost, portable, and simple to use. They have since been adopted in other parts of the world, including the United States, where they form a lucrative product line for the company.

Another example of reverse innovation in action can be found at Procter and Gamble, where the company has taken deliberate and successful steps to cater to the specific needs of Indian consumers with its Gillette brand of razors. First, the company sent a team to India to do ethnographic research, observing customers and conducting shop-alongs and home visits. P&G then leveraged insights from this research to develop perhaps the most significant departure ever from its product development: the Gillette Guard, which uses 80 per cent fewer parts, a plastic housing, and a single blade for 'good-enough' shave performance.

P&G has yet to complete the reverse innovation cycle and adapt this technology for developed markets, but if it does it could preempt any potential disruptors and help secure another century of market dominance for Gillette.

While the above instances are examples of companies reversing the innovation process for physical products, there are other service-oriented innovations happening in India that leaders in developed markets should take note of. Many of these can be found in India's health care system, where many services are delivered at a fraction of what they cost elsewhere.

One such area has to do with the way health systems are organised. The airline industry introduced us to the 'hub and spoke' model, but it has the potential to create great savings in medicine as well. For example, the largest cancer hospital in Asia has a main hub in Bangalore and 17 spokes throughout India. The spokes handle basic treatment and have less expensive equipment and more general physicians. The hubs have specialists and the most expensive equipment for more complicated cases. Importantly, the hub and spokes are technologically connected. A radiologist sitting in the hub can read the scans from spoke hospitals. Developed countries, which tend to have too many hubs and too few spokes, would be well served by following India's lead and dramatically cut costs without adversely affecting outcomes.

Whether health care, technology, or consumer-packaged goods, the message is clear: Companies invested in India must continue to innovate for India. By doing so, they will also be innovating for the world. The way forward for India is through innovation. Are you up for the challenge?

For more innovation resources from VG, click here.