Reverse Innovation Reloaded..!!

The role of emerging markets

In fact, the needs and opportunities in the developing world are so different from those in the developed world that the very first requirements for reverse innovation success are humility and curiosity. One must let go of what he has learned, what he has seen, and what has brought him the greatest successes. In fact, it is best to assume that one have just landed on Mars.

Developing countries will become R&D labs for breakthrough innovations in diverse fields as housing, transportation, energy, health care, entertainment, telecommunications, financial services, clean water and many more.

Reverse innovation has the potential to transform wealth in the world. Growth in developed countries has slowed down. Much of the growth is now in developing countries. The 2008 financial crisis and the more recent debt crisis [in Europe] have only exacerbated this situation. As such, we are likely to see the center of gravity for innovation shifting from rich to poor countries.

How would Reverse Innovation benefit India?

Primarily Reverse Innovation would lead to further boom in industrialization. As more and more multinationals adopt and opt to produce and/or invent new products in India for local as well as western markets, the Indian economy would witness an increase in FDIs and also the indigenous multinationals would instinctively raise their investments to build advanced R&D facilities that would inspire cutting edge innovation and engineering. It also means the engineers would experience higher employment opportunities, and the consumer market would profit from better products developed to cater to their needs at reasonable prices.

Besides OEMs, Reverse Innovation would also lead to the overall development of the entire eco-system comprising of Tier I and II suppliers, technology vendors, educational institutions which support, fortify and facilitate this unprecedented growth through concurrent engineering, providing smart and agile engineering and production solutions to complex challenges, and development of resources.

Implications of reverse innovation for developed countries

If Western multinationals do not innovate for customers in developing countries, they not only stand to lose growth in these countries, the implications are far worse. Emerging giants will do the innovation and bring those innovations into rich countries and disrupt multinationals. We are already seeing strong local players such as Tata, Mahindra, Haier, Lenovo, Goldwind, Suzlon, Cemex and Embraer. The list will increase, no doubt. The biggest competitors for multinationals are local companies from emerging markets.

For multinational corporations, reverse innovation is not a "nice to have" boost to revenue growth rates. It will power the future -- not just in emerging markets, but everywhere. Many tremendous rich-world business opportunities will arise first in emerging markets. To compete, global corporations must be just as nimble innovating abroad as they are at home. The future is far from home.

Way forward..!!

The emerging economies have the world’s highest projected economic growth rates by a wide margin. The possibility of missing out on such growth should be more than enough to compel many of today’s multinationals to tackle the challenge of reverse innovation. And, again, the full implications of standing aside while others tackle the reverse innovation challenge are even more consequential. Failure abroad can lead to failure at home.

Innovation is expensive and risky. As such, it is hardly surprising that many established global companies discount the need to innovate when competing in emerging markets. How can it make sense to spend heavily on an innovation for a market in which customers have so little money?

Because in an ever lengthening list of industries, it is the only way to win.

Reverse Innovation

Introduction – What is reverse innovation?

Historically, multi-national companies innovated in west (developed countries) and sold those products in east (developing countries).  Reverse Innovation is doing exactly the opposite.  It is about innovating in east and bringing those products to west. Reverse Innovation is the strategy of innovating in emerging (or developing) markets and then distributing/marketing these innovations in developed markets. Reverse innovation has two parts; one is that companies got to innovate in east and then bring those innovations into west.

Who is doing what?

Many companies are developing products in emerging countries like China and India and then distributing them globally. One has to look at innovation paradigms in companies like GE, P&G, Nestle, Pepsico, Tata Motors, Godrej, etc. these companies have shed the conventional way of innovating in the west and have really generated dramatic growth by means of reverse innovation that has created huge market not only in the east but also in the west.

GE – GE MAC 800: GE’s innovation on the GE MAC 400 to build a portable low-cost ECG machine to cater to the rural population who cannot afford expensive health care was launched as an improved version a year later in 2009, in U.S. as MAC 800.

P&G – Vicks Honey Cough – Honey-based cold remedy: P&G’s (Vicks Honey Cough) honey-based cold remedy developed in Mexico found success in European and the United States market.

Nestle – Low-cost, low-fat dried noodles: Nestle’s Maggi brand – Low-cost, low-fat dried noodles developed for rural India and Pakistan found a market in Australia and New Zealand as a healthy and budget-friendly alternative.

Pepsico – Kurkure and Aliva: Pepsi is planning to give developed markets (particularly West Asia) a taste of its salted snack Kurkure (and also another snack Aliva). The product enjoys huge success in India and has become a Rs. 700 crore brand within a decade of its launch. The success is attributed to product innovation and a good marketing strategy. E.g. Made from corn, rice and gram flour, zero per cent trans fats and no cholesterol, Rs-3 small packs for pushing sales in the lower-tier towns.

Tata Motors – Tata Nano: While companies like Ford set up its global automobile platform in India and catered to the niche premium segments in India, Tata introduced the Tata Nano for the price conscious consumer in India in 2009. Tata plans to launch Tata Nano in Europe and U.S. subsequently.

Godrej – Chotukool Refrigerator: In 2010, Godrej Group’s appliances division, Godrej & Boyce Manufacturing Co Ltd test-marketed a low-cost (dubbed the world’s lowest-priced model at Rs. 3,250) refrigerator targeted mainly at rural areas and poor customers in India. The product runs without a compressor on a battery and cooling chips. The company wants to use a community-led distribution model (as an alternative channel of distribution) to push for product growth.

Key Drivers

The fundamental driver of reverse innovation is the income gap that exists between emerging markets and the developed countries. The per capita income of India, for instance, is about US$3,000, whereas it is about $50,000 in the U.S. There is no way to design a product for the American mass market and then simply adapt it and hope to capture middle India. You need to innovate for India, not simply export to India. Buyers in east demand solutions on an entirely different price-performance curve. They demand new, high-tech solutions that deliver ultra-low costs and "good enough" quality.

to be continued...

Project Economy

Introduction

There was a time when employees used to work in the organization to be better known and recognized by the top management. Today, some top employees have never stepped foot in corporate headquarters, and the executives who manage them would not recognize them if they passed on the street.

Welcome to the strange new world of project-based work, where independent professionals coalesce around a design challenge or product launch and disband once the work is done.

Project work is not new: A classic example of would be movie industry where in people from diverse fields come together, work on a project, deliver it and the value add is significant. Perhaps the only time everyone meets together is at the premier of the movie. Another example is a case of Indian Premiere League (IPL).

Employees today look at the career path as something they own. They are mobile in their careers, and want education and mentoring. They look to spend certain period of time in a place and move on. In the bigger picture, employees do not have the same loyalty towards employers as did workers of their parents' generation.

What is Project Economy?

“Project Economy” refers to usually temporary, extraordinarily collaborative and often global processes of value creation. In a narrower sense is equivalent to cooperative value creation in organizationally and legally independent temporary projects. For many companies this type of cooperation is in many cases the most efficient way of doing business today. This is because product life cycles have shortened further; the breadth and depth of the knowledge necessary for developing and marketing successful products have increased rapidly; successful products are increasingly the result of convergence between differing fields of technology and knowledge; and many companies and research institutes are even more strongly specialized than they were in early 2000s.

Consequently these companies collaborate ever more frequently on joint projects – delegate specialized employees or parts of their organization to these projects, invest capital or put their knowledge and networks at their disposal. In this way, companies can respond flexibly to the considerably higher demands on knowledge and rapidity in the global markets while sharing the costs and risks. This is often – but by no means always – their key to success.

Open innovation processes is likely to help in conquering newer markets – The competition for cutting-edge technology and knowledge-intensive services in the market is increasing. Today collaborative innovation, intelligent sharing, exchanging of knowledge and intellectual property have become critical factors for success. A project economy approach to work is likely to prove efficient especially in the early, innovative and thus particularly knowledge-intensive phases of value creation.

Drivers of Project Economy

• Aging – With a significant proportion of global population aging and reaching their retirement age there is an increasing pressure on individuals to ensure their social security,. As such a longer work life is required.
• Growing networking in business – The shrinking of the world due to the internet, affordable global travel and predominance of world media has made the world smaller. Transnational companies are increasingly gaining importance in this scenario with their services across borders, more international coordination and deregulation of market at the national level
• Globalization – From a global standpoint the world is becoming flatter. Open sourcing and growing services offshoring are driving companies towards cooperation leading to competition for brains globally.
• Opening of work and society – Process virtualization in business has given individuals more flexible career paths & time management. This has significantly changed their lifestyle and family structures.
• Specialization of sources of knowledge – Fast expanding knowledge base requires specialization and necessary breadth of knowledge for successful products via cooperation
• Accelerated creation of knowledge – Rising knowledge content in successful products and diversification of costs & risks

In the Project Economy…

• Cutting-edge technologies and innovative services are likely to prosper – Exchange of information in communities of practice will translate into project ideas; spin-offs of universities and companies are the avant-garde of the project economy
• Legal consulting will become integral to value-creation – Safeguarding contributions and the distribution of profits is crucial
• Brands are likely to become even more important – Short-lived projects sell under licenses of established brands, trusted provider in the internet economy
• Much will be demanded of employees – Frequently changing co-workers, locations and tasks; volatile demands on professional skills

Towards Project Economy - Implications for companies

§ Quickly responding to consumers’ preferences – Innovations will become more demand-driven, especially in an ageing society and self-reliant consumers (in a buyers’ market) will voice their preferences and wishes more clearly

§ Open the internal innovation process – Consumers should become an integral part of the innovation process, particularly in services; companies outsourcing parts of their innovation process & encouraging individuals to participate i.e. involve client to keep him

§ More tailor-made goods and services – Flexible production structures, lower barriers to entry and encourage dissatisfied consumers to become producers, which in turn will change their role as consumers

§ High work-intensity fosters demand for ‘convenience services’ – More personal & family tasks will be outsourced. A flexible and innovative project economy based service sector will provide the opportunities (family shopper) and offer the less skilled a chance

§ Ageing society will boost the third sector – Not everyone will be able to afford the services provided by the market, neighborhood-networks and non-profit organizations will become important alternative providers, especially for services

§ Financial services for workers in the project economy – The project economy would mean frequent changes between periods of employment, periods of in-between projects and periods of learning & training and banks will have to offer products to compensate for the resulting unsteady income flow

Scenarios

• Flexible co-regulation clears the way to new markets – Specialized companies hit these markets via project co-operations (on the basis of traditional value creation)
• Flexible regulation and an active society would pave the way to new markets – Corporations stick with familiar structures/markets, little co-operation, if so only with ‘old acquaintances’
• Regulation is inflexible, does not keep up with economic dynamics (or is governed by concerted lobbying) – Entrepreneurial initiative is a risky adventure here. Still, it is plentiful and mostly put into action in co-operation
• Inflexible, obsolete regulation and struggle for competence among the political parties are blocking entrepreneurial initiative and social engagement – Few corporate co-operations, a lot of protection of vested interests

Road Ahead…

The advantages of a project-based workforce are clear and compelling: an ability to adapt quickly to changing competitive circumstances without an obsolete business unit's drag on productivity, performance and profits. Large, bureaucratic companies as we have known them will cease to exist. They will be replaced by smaller, more fluid versions of their former selves, staffed by professional nomads who migrate to wherever the employment market promises the greatest personal and financial return.

The onus now is on employers. If they can begin to think like the new generation of employees, they will discover that there are far more imaginative ways for the work to get done.