Monday, June 25, 2012

Reverse Innovation - New Twist on an Old Strategy

What's innovative in innovation?  What's new under the sun?

Well it seems that "reverse innovation" is new, at least HBR calls it one of the 10 best ideas of the decade.  I'm not going to disagree with the HBR.  I'm a big fan of the writings of Vijay Govindarajan and Chris Trimble who are credited with the concept.  In fact I'm a professional colleague of Chirs and we have talked about reverse innovation.

On the other hand I've spent more than two years working on innovation assignments in Southeast Asia, most particularly in Korea.  This gives me cause to think about reverse innovation from a unique perspective.

Let's take a look at some of the basics of reverse innovation, as I know them:

  1. Westerners take western products, like a $350,000 ultrasound, to emerging markets and set an audacious goal of innovating a machine with similar functions for $15,000.
  2. The new product, in this case the ultrasound, is aimed at the needs of the people in the emerging market.  Sure, the new machine isn't "all tricked up" but it does its basic job for a mass market. 
  3. As the product is used and improved it can be converted to western standards and aimed back at western markets.
Voila, a win-win.  The ultrasound improves the social condition of those in emerging markets and it comes back to the west at a considerably reduced price that helps control rising health care costs.  You can't complain about that.

But, there's more to reverse innovation.  Here are a few things that I see:

  1. China and India:  The concept seems to be targeted at the two huge emerging markets of China and India.  (Maybe Brazil, but Brazil seems to have past the point of being an emerging market).  Reverse innovation applies in big markets where you can have viable business models built on low costs for large populations.  China and India meet this criterion.  
  2. Reverse Engineering:  Reverse innovation is a new play on an old strategy; that of "faster, better, cheaper" - we call it "reverse engineering."  Japan and Korean are successful practitioners.  They use reverse engineering to fuel export strategies aimed at the west because neither country has a population large enough and wealthy enough to sustain demand for new products - no matter how they are priced.
  3. Dependence: Reverse innovation is dependent on the west.  Unlike Japan and Korea who lead their own innovation transformations; reverse innovation is led from outside the emerging markets.  
  4. Second Tier Innovation:  Reverse innovation, like reverse engineering, is a second tier mode of innovation.  It's improvement, not origination.  We are not finding the next Facebook or reinventing the music industry through the i-pod.
So yes, I think that reverse innovation is a great way to upgrade the emerging societies of China and India.  This work will also remind innovators in the west that one of the fiercest conditions for break through innovations is lack of resources.  Take Skype for example, it has been around for 10 years but lack of investment meant a poor quality product.  However, in developing countries poor quality VoIP has been better than no communication at all.  As Skype quality improved so did its acceptance in western markets.

My biggest question about reverse innovation is the dependence factor.  Will we transfer knowledge to emerging markets so they can innovate on their own and innovate in game changing white space?  Or will the west choose to guard its role as originators of big ideas?

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