When Vijay Govindarajan joined General Electric as its chief innovation officer two years ago, he says, he took it up more as a student. As he prepares to return to the Tuck School of Business at Dartmouth College as the Earl C Daum 1924 Professor of International Business, he has given an insight into the results of his experience in the form of his concept of reverse innovation in ?How GE Disrupts Itself? (co-authored with Jeffrey Immelt and Chris Trimble), which was published by the Harvard Business Review in its October issue. Reverse innovation, explains Govindarajan, is about innovating in emerging markets and then bringing the products to developed countries. The concept hinges on three points: It is vital for MNCs to win in emerging markets, they need to change the organisational architecture for this purpose, and they need to come up with breakthrough innovations. He spoke about the concept and its implications in the post-downturn phase in an email interview with FE?s Rajiv Tikoo. Excerpts:
How did the concept of reverse innovation come about?
In the Harvard Business Review article on ?How GE is Disrupting Itself?, we have introduced a new concept called Reverse Innovation. Historically, multinationals innovated in their home markets and distributed those products in developing countries. Reverse innovation is about doing exactly the opposite. Under reverse innovation, you innovate in emerging markets and then bring those products to developed countries. When I joined GE as a professor in residence and chief innovation consultant, in January 2008, it almost coincided with the start of the great recession. One of the important changes that has been brought about by the financial crisis is that the growth has shifted from developed countries to developing countries. The world has been fundamentally reset since 2008 and emerging markets represent the next frontier of growth for American multinationals. Hence, the importance of the reverse innovation concept.
What is your take home from the GE experience? How according to you does it build on your 3-box strategic framework for innovation and execution?
The GE experience has been extraordinary for me. How many faculty members get an opportunity to have a front row seat to see a real company make real decisions in real time, especially during these extraordinary times in the past 24 months? I went into GE with my earlier body of research around the three boxes. And the 3-box framework essentially says that companies need to balance their activities across these three boxes. Box 1 is about managing the present, Box 2 is about selectively forgetting the past, and Box 3 is about creating the future. Working with companies I find they get too preoccupied with Box 1 and ignore Box 2 and Box 3. While Box 1 is important, Box 2 and Box 3 are what strategy is all about. Box 1 is about competition for the present, and Box 2 and Box 3 are about competition for the future. Since both competition for the present and competition for the future are important for organisations, strategy is really about how do you create the future while managing the present. How do you shape the evolution of the future while you?re implementing projects here and now? Reverse innovation is a Box 2 and Box 3 idea because emerging markets represents tomorrow?s customers and tomorrow?s competitors. Therefore, my work on reverse innovation in GE really builds upon my earlier work on the 3 boxes.
How is reverse innovation different from what IBM?s Sam Palmisano called a globally integrated enterprise? Or, for that matter, smart outsourcing or version X.0 of the bottom-of-the-pyramid concept?
IBM?s globally integrated enterprise and the notion of the bottom-of-the-pyramid are related concepts. Reverse innovation is a broader notion than these two. Reverse innovation is clearly not outsourcing. Reverse innovation is about innovating in emerging markets. Reverse innovation is also not just the bottom -of-the-pyramid. Take, for instance, Tata Motor?s $2,000 people?s car. This is clearly a case of fundamental innovation in emerging markets. But the $2,000 car is not targeted at the bottom-of-the- pyramid; it is more targeted at the middle -of-the- pyramid. The basic notion of reverse innovation is to take a market back view and start with the problems of consumers in India and then try and solve those problems. In that sense, reverse innovation is a novel concept.
Reverse innovation seems to be about MNCs pursuing a disruptive model to succeed in their own countries. How does it apply to large Indian companies?
Reverse innovation would apply to a number of products and a number of industries. Clearly, there are some industries like semiconductor where you could probably compete with global products. But in most consumer product industries, and in most other industrial goods, reverse innovation concept would be very important. Local companies in India have a tremendous opportunity to benefit from reverse innovation. Local companies like the Tatas, Mahindra and Mahindra and Reliance understand India and the problems of the Indian consumer. If they can innovate for the Indian consumer, they will be able to launch business models with which they can build global dominance. I, therefore, see Indian companies have tremendous opportunities in becoming globally competitive players in the next 10-15 years.
Moving from glocalisation model to reverse innovation calls for changing the organisational architecture. How should organisations manage the change? In fact, does it not call for changing the whole ecosystem?
The biggest hurdle in reverse innovation is the organisation. Multinationals are organised to innovate in the US and send those products to other countries. Reverse innovation calls for a decentralised organisational structure. We use the words ?local growth teams? (LGTs)to talk about the organisation that is needed for reverse innovation. The LGT will have three characteristics. First, they will have local resources and local decision making power in areas like product development, marketing, sourcing, manufacturing, selling and distribution. Second, the LGT will be connected to global technology so that they can borrow the global resources of the multinational. Third, the LGT will be evaluated on an entirely different score card since they are pursuing innovations. Innovations by definition are experiments, and experiments have unknown and uncertain outcomes. Therefore, I can say that the performance scorecard for LGT has to be fundamentally different.
What will be the impact of the slowdown on reverse innovation? Will it lead to corporate unrest as protectionism surges in developed countries due to the slowdown?
In fact, the global recession and the slowdown make reverse innovation even more critical. Reverse innovation was important even before the recession. What the recession has done is to reset the world. And one of the ways it has reset the world is that growth has slowed down in developed countries and emerging economies continue to grow. Therefore, for American multinationals reverse innovation is not just optional, it is oxygen.
