By: Jeffrey Phillips
Though not a new concept, “reverse innovation” is hardly straight-forward in practice. Govindarajan and Trimble’s showcasing of successful projects, Fortune 500-type best practice and essential theory in the field endeavors to lay down a modus operandi, yet one which lacks a lasting echo. In this review Jeffrey Phillips argues that despite its good intentions, the book seems to cater only to multinationals, ignoring the needs of small/mid-sized players whose drive is high, yet resources low. Reverse innovation requires a different mind-set, workflow and altogether pace for socially and economically consistent results to emerge.
Reverse Innovation, the new book from Govindarajan and Trimble, provides insight into what could be an important opportunity: building innovation capabilities in developing countries, and in some cases transferring the innovation “uphill”, back to the developed world. It’s evident that there are far more consumers in developing markets than in developed market, and innovation is necessary to deliver products in both the developing and developed world. While this idea is potentially powerful, Reverse Innovation doesn’t offer much insight that is unique, new or different from many innovation books or articles written about the concept of reverse innovation. Since many of the case studies are about Fortune 500 companies, the book seems targeted to a small collection of multinational CEOs who should already be aware of much the book has to offer. This audience should be aware of the importance of innovation, of the need to understand local needs and conditions and develop products for and in local markets. Reverse Innovation struggles to deliver a powerful message because the information it delivers is correct, but not new or different.
While nominally about reverse innovation – which the authors define as any innovation that is adopted first in the developing world, many of the recommendations the authors make about innovation in the developing world apply equally to innovation in the developed world. Even in the advanced western societies there is never enough money, never enough time, never enough commitment for innovation. As an example, the authors describe a failed attempt to innovate X-ray equipment in India. The challenges they list:
- Generating senior level interest
- Making the case quickly
- Overcoming bias against small opportunities
- Building broad support
- Dealing with the budgeting system
are familiar to innovators in every company, in every region. One could argue that they are amplified in developing markets, but these aren’t challenges that innovation teams should be surprised to encounter.
The authors suggest that Reverse Innovation has two primary objectives: first, to help you grasp the theory underlying reverse innovation and second, to provide you with practical guidance on how to execute reverse innovation initiatives. The theory, quite frankly, isn’t that hard to grasp: many needs in developing countries aren’t adequately solved by products and services designed in the west. Innovation should happen in the local region, where needs, expectations, infrastructure, budgets and other factors are very different than they are in the west. If executives weren’t aware of this fact, then perhaps they are in the wrong line of work.
The path not taken
The predominance of motorcycles in India isn’t an instance of trailing the developed world, but of taking a different path based on available resources and infrastructure constraints.
The authors clearly know a lot about the trials and tribulations of innovation – regardless of the location or company. They rightly identify a significant number of innovation barriers, which, arguably, exist in every region or geography. They also rightly identify the simple minded thinking that developing countries will rapidly acquire products and services developed for the first world, if only those products are less expensive or have slightly fewer features. Clearly, the demands and needs in Bombay for many products and services are different than they are in New York. The authors note that the Indian consumer is much more accustomed to motorcycles than cars. This isn’t an instance of trailing the developed world, but of taking a different path based on available resources and infrastructure constraints.
The authors present a model that seeks to describe western thinking about products and services. This model starts with the most basic thinking – that the “rich” world is the only one that matters and developing countries and markets can be safely ignored. The model proceeds through different levels of increasing awareness and involvement with developing markets, culminating in “level five” thinking: the realization that stakes are global, not local. This certainly is not news for most large corporations operating in the developed world, but may open the eyes of mid-sized and smaller organizations.
Reverse Innovation recommendations
The “practical guidance” on how to execute reverse innovation seems a bit overwrought as well. To address the challenges of western thinking and local innovation opportunities, the authors recommend a solution they call the LGT (local growth team) which is basically a skunkworks to create new products based on local needs. The LGT is supposed to be fully autonomous and act as “a full business unit with a complete value chain, including product development, supply chain, manufacturing, marketing, sales and servicing.” Yet even in the case studies the authors present it’s not clear this advice was followed. This suggestion is the equivalent of building an entirely new, and completely parallel business unit to existing capabilities. If the culture and thinking is such a pervasive barrier, why not simply create a new subsidiary to address the challenge? The authors even go on to note that LGTs will “probably require new competencies. Often these will be skill sets your company has never before needed.” If the existing teams and people aren’t capable of innovation, perhaps the existing teams and structures need to be completely rethought.
The concept of reverse innovation – product innovations in local countries which can flow “uphill” to the developed world – brings me to another point. Companies that wish to engage in “reverse innovation” have to be large enough and have enough global presence to enter developing markets, understand local needs and discover how to innovate in those local markets. This reverse innovation isn’t cheap, since it involves understanding local customs, needs, markets, channels and infrastructure on the ground, which can vary from country to country. I think it would be difficult for many mid-sized and smaller firms to innovate on this basis, from a cost perspective and from the ability to balance priorities and portfolios. Indeed all of the examples from the case studies are based on large multinational corporations. How do small and mid-sized firms take advantage of these concepts?
Capitalize on local competencies
What the authors could have suggested, but didn’t, are in-country innovation co-operatives which could partner with firms that lack the size to investigate local needs. One could imagine local ethnographic and product development firms in each developing country partnering with mid-sized and entrepreneurial firms in the west to deliver insights, market needs, local product development capabilities and delivery channels which would offer quick, low-cost access to emerging markets. This solution would serve two masters – it allows western firms to extend their intellectual property and enter new, growing markets while local firms, with a better understanding of local needs, customs and channels, could alter designs and build solutions to deliver to local customers.
Two other concerns with Reverse Innovation
The Nano has struggled not because it doesn’t meet needs of an underserved population, but because that underserved population has aspirations to own a more robust, more expensive car.
I have three other concerns with Reverse Innovation. First, the authors miss the concept of aspirations in the developing world. The Nano is an excellent example. While the Nano offers viable transportation, it is well-recognized as the least expensive car in the market, which ignores one key attribute product developers may overlook – aspirations. The Nano has struggled not because it doesn’t meet needs of an underserved population, but because that underserved population has aspirations to own a more robust, more expensive car. Reverse Innovation was written in late 2011, so the authors had to know that the Nano has not yet been a market success.
Second, the concept of Reverse Innovation isn’t especially new. For example, an article in the New York Times in 2008 described the failure of western designed medical devices like infant incubators in African countries. The incubators were designed in the west and required western infrastructure – power, cooling, maintenance. Teams from several non-profits reinvented the incubator from locally available parts that could be easily maintained. The heating element was based on a car headlight, with other cannibalized parts from a range of automotive technologies. These local innovations proved easier to build, easier to maintain and much more rugged than products designed and engineered in the west.
Third, while the authors titled the book Reverse Innovation, Create Far from Home, Win Everywhere, the only examples they provide of reverse innovation take place in India and China. Certainly these two countries are excellent locations for reverse innovation, but they don’t define “everywhere”. Can the idea of reverse innovation be applied elsewhere? Absolutely. Why then no examples from Brazil, for example, or Vietnam, or Nigeria?
Reverse Innovation is difficult to review, because it gets a lot about innovation right, but does so with relatively obvious observations that are applicable anywhere.
In summation, Reverse Innovation is difficult to review, because it gets a lot about innovation right, but does so with relatively obvious observations that are applicable anywhere. Clearly many western firms have myopia about product requirements and needs in developing countries and can learn by exploring customer needs and understanding the channels, infrastructure and support needs in these countries to innovate products that are more relevant. The authors don’t offer ideas or solutions for small and mid-sized companies that may want to take advantage of reverse innovation. Further, they don’t make recommendations about how small and mid-sized firms in developing countries can use their innovation insights to penetrate developed markets with new innovations. It’s as if the only audience for this book is multinational CEOs interested in creating local market innovations that they control and bringing those innovations back to developed markets.
By Jeffrey Phillips