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?

Thursday, June 7, 2012


Why do change agents keep saying this?  

Isn't that like your financial advisor telling you that you will lose money in 70% of the investments they put you in!  How long would you stay with them?  

I know what we're trying to do, we're trying to create the "sense of urgency" to compel change.  But, isn't it about time we took more pride and professionalism in what we do?  Isn't it time we stopped saying this and got to the bottom of why most changes fail?

You can beat the odds
You want the answer?  Well here it is: most change fails because it's the wrong change!  The fact is that most large scale changes (particularly if there is a large cultural element) never have a chance.  As change agents we're often called in on some ego driven, aspirational change that won't work.

I know, I know - we go on to cover up our failures with the worn out excuses about: lack of leadership from the top, lack of resources, poor communication, and the catch-all of "employee resistance."  Is that true?  Likely not.  The truth is likely closer to the fact that we didn't accept the fundamental barrier to change so we didn't advise our client properly.  

What is the fundamental barrier?  It's the core DNA of a business that drives its implicit strategy.  It's the core values of the company.  These may be stated or unstated; good or bad; right or wrong.  They may have driven the business to success on the highest ground; they may have prevented the business from getting off the ground; or they may be driving the business into the ground.  They cause people to make decisions everyday without thinking.  In aggregate, they're "the way we do things around here" and they are the immune system designed to preserve the organization and defeat change that doesn't respect them.

So what are these DNA values?  There are three and in great companies one of the three will dominate.  Here they are:

  • Service to Customers.  This is embodied in Disney-World and Starbucks.  It drives a strategy of customer centricity.
  • Quality of Work.  We can think of Southwest Airlines and its strategy of operational efficiency which draws in its loyal customers.
  • Respect for Innovation.  These are organizations that are open to ideas - can we all say, Apple.
Of course these values can be thrown out of balance not by another value, but by something we value: profitable growth.  When profitable growth is the dominant strategy then values become distorted.  Chase Bank gives us a recent example of this.

So, you better understand this if you want to get out of the 70% club.  If you're working against the grain then people don't resist, they just go on doing what they've been programed to do.  

That's not to say that there isn't room for change to work against the grain.  It's quite logical to think that Starbucks might want to get a little more efficient (better quality of work) at order taking; however, it can't be at the expense of the relationship experience that customers expect.  Similarly, you don't want Starbucks baristas working the phones at the call center of your mobile service provider (well, you may want it, but you don't want to pay for it.)

The biggest problem is when financial growth (cost cutting and employee cutting) is the driver of change.  If this is the case then openly recognize it.  No amount of vision, executive commitment, and "what's in it for me" communication will ameliorate resistance.  This is Nike change, "just do it!"  Removing a band aid has a finite amount of pain - my advice is to rip it off rather than prolonging the pain.

I consulted to a company whose innovations made it an overnight success.  They wanted to scale up their manufacturing and after sales service to meet a growing demand.  After a week of consulting I advised them to outsource their manufacturing, sales, and service; and take on an "adjacent possible" strategy by using their cash to buy horizontal businesses that were driven by innovation.  

Ego and aspiration defeated my advice.  For years the company lost profit as it struggled to drive quality into its products and service into its relationships.  It was recently bought by its biggest competitor.

Hmmm.  Does that count in the 70%?