The Value of Reverse Innovation

Some of you will be aware that renowned speaker and author Vijay Govindarajan is launching his latest book, simply entitled ‘Reverse Innovation’ in April this year.

The use of and adoption of reverse innovation has been a life long passion of VG and many of the world’s largest technology firms are now taking notice and investing in this concept. Just look at Tata Motors in India or GE entering the merging markets.

The principle of reverse innovation is that you take existing technology and products and re-examine how you might use these resources to enter into emerging markets. You will never be able to sell a $50,000 heart monitor system into India, even though it is used in just about every hospital around the western world…it simply is not possible. India has a GDP per capita far less than that of America and thus you either ignore that market, at your peril, or you innovate a new way to provide the solution. In this case, a portable heart monitor system was invented that only costs $500 and can be carried around the Indian countryside into rural areas where healthcare and hospitals are scarce.

My initial dilemma with this concept is that if you design and produce a device that costs $50,000 and reduce it down to $500 surely you will have to compromise on quality? If Tata can manufacture a $3,000 car are they suggesting that it will perform as well as a $30,000 BMW? Even if you strip out the luxury, how does a company ensure that the product’s ability to do its primary function is not questioned?

Using the example of an Indian hospital who can perform open heart surgery for $2,000 per time instead of $100,000 in the US, one could assume that the success rate would be compromised? VG explains that these types of surgery are measured on mortality rate and in this case, the Indian hospital has either better or similar rates to its counterparts in the US. So how does it work? His point is simply that they perform more procedures. If something in the US costs $1,000 and $100 in India, then India simply does that thing 10 times more. In principle I can agree with this idea, but are we suggesting that a surgeon can perform open heart surgery 50 times in the same space of time it takes an American doctor to do the same procedure? If Tata can produce and sell 100,000 $3,000 cars while an American automobile company manufactures and sells 10,000 at $30,000 then does that work and show that reverse innovation is possible?

In principle I think that reverse innovation is a concept that will grow as more organisations realise the potential of moving into emerging markets, but perhaps we need to be aware that this should not be at the detriment of quality and functionality. Another aspect of reverse innovation is that it is not just for emerging markets. Take the mobile heart monitor, GE now sell this in the US to ambulances and mobile doctors…it means that patients can get access to help much faster than having to wait until they get to the hospital. So reverse innovation has pushed companies down a route that they might not have originally examined and by default come up with a new product stream that compliments their already established market place.

Over the next few years, as the global economy continues to struggle, I think we are all going to have to look for new innovative ways to do things and it is those who adapt and acknowledge the need for investment and R&D who will be the success stories over the next decade and into the future.

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