C O V E R S T O R Y INNOVATION & SUSTAINABILITY

REVERSE INNOVATION — ENABLERS & OPPORTUNITIES Reverse innovation is a phenomenon under which products are first developed considering the needs of emerging economies, matured in home locations and thereafter rolled out to developed economies as trickle-up innovation. Reverse innovation can also be considered as lean innovation due to compulsions of low budget, short development time and short product life cycle.

Traditional R oute

Alternative R oute

AUTHORS

D R NAVE E N G AUTAM is Managing Director at Hella India Automotive Pvt Ltd in Gurgaon (India)

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During the last three decades, localisation of global designs (glocalisation) has been successful and it has delivered excellent results. H owever, as the epicentre of the global growth is shifting from developed to emerging economies, this approach cannot further deliver the expected results. Therefore, the next wave of global growth and product portfolio management will be based on reverse innovation. There are deep conflicts between glocalisation and reverse innovation; any

company cannot easily replace the first with the second, because glocalisation will continue to dominate traditional strategy for the foreseeable future. The two models need not only co-exist, but also need to collaborate. These requirements of co-existence with idiosyncrasies impose severe challenges in implementation. Since the centralised, product-focused structures and practices have made multinationals so successful at glocalisation, they are actually getting in the way of w w w .a u t o t e c h r e v i e w .c o m

reverse innovation. This requires a decentralised, local-market focus structure. H owever, some of the successful example within and outside of the auto industry will continue to motivate and ensure faith in reverse innovation. “ In May 2009, General Electric announced that over the next six years it would spend $ 3 bn to create at least 100 healthcare innovations that would substantially lower costs, increase access, and improve quality. Two products it highlighted at the time — a $ 1,000 handheld electrocardiogram device and a portable, PC-based ultrasound machine that sells for as little as $ 15,000 — are revolutionary, and not just because of their small size and low price. They’re also extraordinary because they originally were developed for markets in emerging economies (the ECG device for rural India and the ultrasound machine for rural China) and are now being sold in the United States, where they’re pioneering new uses for such machines.” – as noted in an article titled “ H ow GE Is Disrupting Itself” by the H arvard Business Review.

phase (as the past learning creates hindrance in new ways of thinking). The traditional innovation, development and sustainability cycle needs to be relearned as new technology or new customer requirements are in general not the driving force for reverse innovation. As shown in ➊, the traditional innovation cycle, innovation interfaces with development that creates a globally acceptable and sustainable solution is not suitable for reverse innovation. The major difference comes from the “ innovative development” interface, which triggers innovations during the development and lands through innovation into sustainability via the “ sustainable innovation” phase. The sustainability of innovation in this context primarily comes from low development budget and affordability (low target cost) of the market. The success of reverse innovation and its sustainability is primarily driven by the market acceptability at the right price point.

E NAB L E RS O F RE V E RS E INNO VAT IO NS

Even though autonomy is advocated for reverse innovation teams in emerging economies, access to the existing technology and valuable knowledge resources at the parent company is very important for the success of reverse innovation. This access is an additional lever towards further cutting down the cost and risk during innovative development. This is the most challenging part of facilitation and therefore, needs close monitoring from the top and commitment at the middle and working levels.

A. AUTONOMY AND CLE AR PROFIT AND LOSS RESPONSIBILIT Y OF LOCAL INNOVATION TE AMS:

Almost all of the people and resources dedicated to reverse innovation efforts must be based and managed in the local market. These local growth teams need to have P& L responsibilities and the power to decide, which products to develop for their markets and how to make, sell, and service them. Once products have proven themselves in emerging markets, they must be taken global, which may involve pioneering radically new applications, establishing lower price points, and even using the innovations to cannibalise higher-margin products in developed countries. B. UNLE ARNING OF THE INNOVATION APPROACH FROM MATURE MARK ETS:

Teams in emerging economies involved in reverse innovation need to unlearn some of the traditional approaches of design and manufacturing. These approaches might have been inherited from their headquarters during the glocalisation a u to te c h re v ie w

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C. ABILIT Y TO LEVER AGE ON TECHNOLOGY AND RESOURCES AVAIL ABLE AT THE PARENT COMPANY:

O P P O RT UNIT IE S O F RE V E RS E INNO VAT IO N A. ROBUST DESIGN REQUIREMENTS CONSIDERING ABUSIVE ENVIRONMENT – HORN AS AN E XAMPLE:

Some products need to experience the most abusive functional requirements in the emerging market, such as the horn. The uses of horn in mature economies are much different compared to how it is used in developing economies. In most of the developed countries, horns are rarely used on the roads and are considered as a

Vo lu m e 2 | Is su e 1

Sustainability

Sustainable development

Development

Sustainable innovation

Innovative development

Glocalisation

Innovaon

Reverse innovation

➊ Innovation cycle, the alternative approach for glocalisation and reverse innovation

safety device to be used in emergency conditions only. Therefore, the life expectancy in terms of the number of cycles is certainly low. H owever, in developing countries (especially in south-east Asia), horns are used very differently. These are considered as devices to show presence on the road or claim the space from the visible part of the road as belligerent tradition. Furthermore, the device creates an appeal towards vehicle size, power and the stoutness perception. Customers on the roads try to mimic the sound of horn to create a feeling of more valuable vehicle by upgrading their horns. Therefore, much more stringent design and value addition is required in the innovation and during the development of horns in emerging economies. H ella has successfully matured the tough horn variants in the domestic market and now these mature designs are being rolled out in mature economies. B. TOUGH TARGET PRICING DUE TO AFFORDABILIT Y – VEHICLE ELECTRONICS:

The innovative development of products in emerging markets needs to be built on cost-intensive optimisation, using right cost architecture and competitive developmental cost structure. The low volumes force standardisation, however, using modularisation required flexibility can be offered. Low volumes also demand low development cost, therefore, requires innovative ways to optimise developmental costs. Several automotive electronic suppliers have attempted this approach and H ella has demonstrated (in the Body

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C O V E R S T O R Y INNOVATION & SUSTAINABILITY

Electronics domain) that it can be accomplished. Using several designs and manufacturing levers, such as the right level of automation during testing and manufacturing, module-based reuse rather than full design adaptation can offer flexibility across platforms and variants. Furthermore, after developing and rolling out the ‘common man’s’ car in India, Tata Motors is now planning to sell an upgraded version of the Tata Nano (Nano Europa) in western markets. This is possible only as the entire product creation mindset during Nano innovation was governed with the affordability of target customer group. C. LE APFROG IN THE TECHNOLOGY:

Emerging economies experience lack of infrastructure, which is taken for granted in developed economies for any product launch. As a result, the same product based on proven technology from mature economies cannot be rolled out. Therefore, sometimes a technological leapfrog is required to overcome the infrastructural constraints. Electric vehicles in China and

mobile phones in India are very good examples of this success. H owever, the success is yet to be qualified as reverse innovation as these products have not yet found their way back into developed economies.

C O NC L US IO N

Reverse innovation can be reworded or reconfigured for context specific applicability; however, as it is the demand of the current time and the destiny of the future, it can neither be retarded nor be stopped. Ignoring reverse innovation can cost many companies, especially today’s world class multinationals, greater loss than a missed opportunity abroad. It can inflict pain or even a severe damage in their own well-established home market.

104-108, [3] Jeffrey R. Immelt, Vijay Govindarajan, and Chris Trimble, How GE Is Disrupting Itself, Harvard Business Review, Oct 2009, pp 56–65 [4] Vijay Govindarajan, Jeffrey Immelt, Chris Trimble, How GE Is Disrupting Itself, Harvard Business Review, October 2009, 87(10), pp. 56–65 [5] Vijay Govindarajan, Chris Trimble, The CEO’s Role in Business Model Reinvention, Harvard Business Review, January 2011 [6] Vikas Khanvelka, Reverse Innovation: Trend, strategy and advantages it brings to India, Business Standard, Sept 28, 2011. [7] Debdatta Bandyopadhyay, Reverse Innovation and the Role of a Strategist, Management, January 2012, pp 1081-1086, [8] Atul Wad, Sustainability and Innovation in Developing Countries, Engineering for the Developing World Seminar Series, Jan 8, 2008.

RE FE RE NC E S

[1] FVijay Govindarajan, Chris Trimble, Reverse Innovation: Create Far From Home, Win Everywhere, Harvard Business Review Press, 2012. [2] Vijay Govindarajan, Reverse Innovation Playbook, Harvard Business Review, April 2012, pp

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