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?

70% of CHANGES FAIL!

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%?

Democratizing Innovation

Everyone, Everywhere

What's all this talk about Innovation?


Everywhere I look people are talking about innovation.  It's like they just found their lost puppy.


I guess it helps when people like Steve Jobs and Eric Schmidt say that innovation is the best way to save a company's future - but what are we talking about when we're talking about innovation.

The word "innovation" has been democratized (or high-jacked, depending on your point of view) like its cousin "strategy."  Both words are now devoid of meaning.  We use them to mean anything we want to when we want to sound like we have something important to say.

Innovation is now an all inclusive management term that is cut into three levels.  The first two levels have been around for a long time.  It is the third that is taking hold within organizations.

Level I is the Game Changer.  This has always been with us.  It's generally an elite activity carried out by some smart people who are usually not part of the establishment.  They see discontinuities in the world, match them with an emerging (often unarticulated) customer need and come up with something that no one has ever thought of.  Think of a young Bill Gates, Michael Dell or the current Mark Zuckerberg.

Level II are the Market Changers.  These innovations happen within existing companies.  Often they are developed by product experts.  Their innovations extend a product or create a new business model for a new product.  Some companies, like P & G are renown for their ability to constantly renew their businesses even in the face of short term shareholder demands.  Others, like Nokia and Kodak, lost this talent.

Level III are the Work Changers.  This is the new comer.  This is the movement toward mass innovation - that is, the democratization of innovation.  The concept here is: "ideas from everyone, everywhere."  Innovation has become synonymous with "idea."  The flood gates have opened to: employee engagement, continuous improvement, quality circles, team management, brainstorming, or any derivative of "change management."

This is a positive movement that will increase the effectiveness of organizations.  Innovation gives us one more lever to open them up.  One more way to move them away from tradition "command and control" management.  I favor any lever that makes organization life more personally satisfying.

The downside of innovation democratization is being felt by the practitioners of "strategic innovation" - those who have lived and prospered at Levels I and II.  The lives of these professional are in transition.  Their expertise is being commoditized.

Innovation professionals need to rethink their value proposition.  They have to confirm their focus: is it outside the organization or inside?  These practitioners will be tempted with the sirens call of mass appeal; but does that compromise their unique value.

The choice is theirs.  It's time to innovate!

Kim Jong-un. All for Un; Un for none

I'm leaving Seoul in a few days to go back home.  It's the first time in two years when I can say that I'm glad to leave.

I've been working with a client here; helping them use innovation to become more competitive.  I like the country and I love the people, but they have a crazy neighbor.

The Rocket's Red Glare

Since I've been here there has been a "North Korean incident" every few months.  The current escalations led the US Defense Secretary to say that this peninsula is only an inch away from serious violence at all times.

The most recent incident rings of the worst jingoism.  A few weeks ago the North had a failed launch of a missile.  It has received its fair share of criticism and ridicule from around the world - and specifically from South Korea.

In retaliation the North has railed that it will rain down special actions on the South that will "reduce the rat-like groups and the bases for provocations in three to four minutes."  I have no idea what this means, but it does sound ominous.

In an interview last week the US Secretary of State said that she hoped the new North Korean president, Kim Jong-un, would change paths in the North and build himself into a great leader for his people by bringing his country into a new era.  I hope she's right.

Through all this I marvel at my Korean friends.  They are impervious to the crazy threats and actions from the North.  They go about their lives with Confucius stoicism - or is that fatalism.

Shooting

I had a strange experience a few nights ago. My wife and I were out to dinner with several other couples. We were seated in a glassed-in outdoor patio. We were near the end of the evening when we heard a series of "pops". We were all pretty casual until my wife looked out the window and screamed for everyone to get on the floor.

As the news reports flowed out, we came to understand that a middle aged man was waiting in the parking lot for his estranged wife and her girl friend to leave the restaurant. As the women got in their SUV the man fired several shots at them and then turned the gun on himself. A tragedy for everyone.

Putting the suicide and shootings aside I had several reactions to the incident.

First, it's weird how you can be part of an event, but really not be part of it. We were definitely part of the aftermath but we had nothing to do with the incident other than being in extreme danger without knowing it. Yes, we heard the shots but to this day no one knows how many. I thought it was five, others claim four or six; and everyone has different recollections of the cadence. One astute colleague even asserted that the gun must have been a nine millimeter because he recognized the sound. Good for him because that wasn't a sound I ever heard in a hollywood movie. The sound was definitely just like the pop-gun I had as a kid.

Then there was the strange non-reaction to the shots. What was it? Was it a car back-fire? Maybe it was firecrackers? Could have been gun shots? The amazing thing is that we tended to discount what it really was. It's like we didn't want to be embarrassed by over-reacting until my wife told everyone to get down. Even then most of us didn't hide and one women jokingly hid behind a wall. It's no wonder that when we hear of a shooting in a school cafeteria that a dozen students get hit. They simply can't assimilate what's going on.

My final thought is about the aggrandized gun culture in the US (I'm a naturalized US citizen). People here love their guns and their Second amendment rights. I have no problem with people owning guns for what I see as legitimate purposes - like hunting or taking kids to enjoy the outdoors. But the easy access to guns in the US is ridiculous. Any one can get a gun - increasing the probability of bad things happening.

After the shooting one of my colleagues said; "that's it. I'm getting my concealed gun license." Yep, that's true. In Texas you can be licensed to conceal your heat. The thought is that in a situation like we encountered that some brave citizen will unpack their heat and blow the shooter away. It happens everyday in the movies. But in reality it would be chaos. First, we all had a stunned reaction to what was going on; and second, if someone pulled their gun they would just be a target for another law abiding citizen. In the moment it would be impossible to separate the white hats from the black hats. In all likely hood a lot of people would end up as collateral damage.

So, we were in real danger on Saturday night. The gunman could have unloaded his gun into the restaurant before taking himself out. But is the danger over? I don't think so. We're all at risk as long as people think that the answer to their problems comes from a gun barrel.

Kodak's Moment

Kodak declared bankruptcy last week. Can we please let her go gracefully!

I get tired of the presumptuous analyses that assumes that mis-management caused the decline of this beloved icon. The fact is that death is natural, even for corporate icons. There is no reason to believe that Kodak could ever get out of its own way on its slow decline to death.

Kodak lived for over 130 years. At its peak it employed 140,000 people around the world and sold up to 75% of the film and 85% of the camera's in the US. That's what shareholders call success. Those are high margin products. Those are big numbers.

Let's not be naive. Kodak saw digital when it arrived on the horizon, but why would the big gorilla enter such a low margin market, particularly when all of its people, processes, and technology were aligned to dominate the personal photography market that it created.

And what if it has gone digital? What if it built the world's best digital camera? Where would it be today? It would be dying at the hands of the smartphone with it's roots in software engineering, not photography.

If Kodak made a mistake maybe it was the mistake of "hubris." Maybe it was the mistake of holding on too long. Maybe it was the mistake of staying on life support with strategies such as "printing." Maybe it should have broken into parts that could be sold for value. Maybe it could have returned more than last week's $1/per share to it's owners.

But Kodak had a "helluva" run. It made money for its investors; it provided good work to thousands of employees; and it gave its customers, like me, memories that are captured forever in our family albums (which I am quickly digitizing).

Bob Hope would agree: "thanks for the memories."

http://www.CustomerDrivenChange.com

Social Media's non-Communications

When did I become a luddite? I don't know the exact day but it was sometime during December 2011. Let me explain.

My business depends on my network. I have a platinum list of clients and I pride myself in staying in touch with them. They provide me with work so I treat them with care and respect.

I don't flood my clients with a weekly mass email message. I craft personal notes with some value added information that I think will be of interest to them. Yes, this is inefficient. It takes a lot of time but I believe that it pays off.

I went through such a cycle last month. Usually about 60%+ of my clients return a quick note. I use this as an opportunity to enhance the relationship.

However, over the past year I have noticed a decline in their rate of response, and last month it was terrible. Likely less than 20%. What's going on? Sure, people are flooded with messages and become immune to what they don't want to see. They choose what to look at. But are they looking at what I send?

Well, I've tested this with some of my contacts and they assure me that they saw my message. So why didn't they write back? I have an untested theory. For the moment I'm blaming social media sites like Facebook, Twitter, and LinkedIn.

Here's my theory. I think we're becoming a total pull society when it comes to communicating - even with friends and relatives. We can be fully informed of the activities of others without having the obligation of "interaction." If I want to know what my son is doing I check his Facebook page or read his tweets or texts. There's no need for me to call and get into an unpredictable interaction. I get the information I want and I don't even need to leave my fingerprints. He knows that I'll pull whatever information I want. End of transaction.

I think that this one-sided communication of social media is infecting business. I think we've morphed into a new understanding of business relationships. It's becoming "alright" to consume business information, even from friends, without feeling obliged to respond. You have pulled the information you want and the assumption is there is no expectation for a response.

I don't think I like this new world. I'm going to smash a loom.