GE is changing the way it develops products, according to a Tuesday article in the Harvard Business Review co-authored by CEO Jeff Immelt.
Traditionally, GE has developed high-end products such as healthcare scanners in the U.S. and adapted them for emerging markets such as India and China. In the article, Mr. Immelt and two co-authors say this approach "won't suffice as growth slows in rich nations" because consumers in poorer nations require different products at a lower price. Instead, GE must develop products inside emerging countries that it can sell in wealthier countries. The authors call this approach "reverse innovation."
The Journal's Paul Glader talked with article co-author Vijay Govindarajan, a professor at Dartmouth's Tuck School of Business and chief innovation consultant to General Electric, about the strategy. Here are edited excerpts.
Q: So this is the business equivalent of "when hunting tigers, think like a tiger?"
Related
* GE CEO Touts 'Reverse Innovation' Model
A: Absolutely. [U.S. companies] need to look for opportunities everywhere in the process of rebuilding America. We need to look for sources of growth in external markets. It's not so much growth in emerging markets. It's how those innovations come and help growth in the U.S.
Q: How does this reverse innovation practice prevent competitors from watching and copying your innovations on a product? If they see your low-cost product come out in their own country, couldn't they copy and compete with that product even sooner?
A: No. not at all.... A local company in China may notice GE has innovated in the portable ultrasound area. It lacks three things. 1) It does not have GE's technology. 2) It doesn't have GE's brand or distribution. 3) Someone would be innovative enough to find a solution if GE did not. Somebody will come up with a solution at a much different price point. ... Multinationals need to pre-empt emerging market competitors. Companies like Procter & Gamble will continue to face traditional competitors like Unilever. But the biggest threat for U.S. multinationals is not existing competitors. It is going to be emerging market competitors.
Q: You give two examples of this practice in healthcare products. But how widespread is this practice? How much more widespread will it get?
A: The whole reverse innovation is a phenomenon that has started just in the last five years. Is it widespread? The answer would be no. If it has the potential to be widespread? The answer is yes.
Q: Have you seen other western companies doing this? What are some examples?
A: The companies that are more tuned into this phenomenon are consumer product companies. Procter & Gamble. Nokia. IBM. Consumer products companies are more in touch with the end consumer. They see the end consumer in China and India are so different. If you take your $25,000 model car and adapt it in India, you'll get 10% [of the auto market share] in India. That's it. In India, Tata Motors launched a $2,000 car. It is a great example of local innovation that could come into the U.S. in the future.
Q: Should automakers like Ford and GM take a cue from this idea?
A: Without a question. Companies, historically, focus on the consumers of automobiles. Instead, they should be focusing on the non-consumers of automobiles and how do they convert them to becoming consumers. The Tata project is focused not on customers driving automobiles. They are focusing on selling to people who are now driving motorcycles and four-wheelers.
Q: What are the limits of this theory? Will it work, for example, with high quality products like aircraft engines and nuclear power plants and health care scanners that depend on top notch technology and price?
A: I don't believe it applies across all products and industries. Aircraft engines perhaps are more of a global business that we need to design in the U.S. But it applies to a lot of areas we are not yet focused on. In healthcare, what is going to happen is there will be lower price points established in China and India. Those products will improve to a point where they will take share away from premium products.
Q: Is this a sign of healthcare reform and an admission that healthcare products have been overpriced? So smart players will leave the high margin product and go for mass appeal?
A: Without a question. Obama – what he is pushing is cost, quality and access. These are the three things that are the cornerstone of healthcare reform. A lot of people don't have access to healthcare. These are exactly the three anchors where you will build your business in China and India. The other priority of this country is energy. Alternate energy – solar, batteries and wind or biomass – there will be leadership gains in markets like China and India.
Q: Doesn't it run counter to Mr. Immelt and GE's earlier stated idea of restoring American manufacturing to days of splendor?
A: No. Not at all. The point we are making is not outsourcing. What we are saying is the customer base in China or India is different. You have to capture innovations in China and India. Those innovations will come back to the U.S. Those innovations will create more jobs in the U.S. for manufacturing.
Q: Any predictions of where GE will use this idea in their portfolio?
A: This is a cultural transformation in GE. This takes some time. The power comes when the entire company does this. Inside GE, we want to replicate this process. That is what is next for me.
Source : WSJ, 23/09/09
Traditionally, GE has developed high-end products such as healthcare scanners in the U.S. and adapted them for emerging markets such as India and China. In the article, Mr. Immelt and two co-authors say this approach "won't suffice as growth slows in rich nations" because consumers in poorer nations require different products at a lower price. Instead, GE must develop products inside emerging countries that it can sell in wealthier countries. The authors call this approach "reverse innovation."
The Journal's Paul Glader talked with article co-author Vijay Govindarajan, a professor at Dartmouth's Tuck School of Business and chief innovation consultant to General Electric, about the strategy. Here are edited excerpts.
Q: So this is the business equivalent of "when hunting tigers, think like a tiger?"
Related
* GE CEO Touts 'Reverse Innovation' Model
A: Absolutely. [U.S. companies] need to look for opportunities everywhere in the process of rebuilding America. We need to look for sources of growth in external markets. It's not so much growth in emerging markets. It's how those innovations come and help growth in the U.S.
Q: How does this reverse innovation practice prevent competitors from watching and copying your innovations on a product? If they see your low-cost product come out in their own country, couldn't they copy and compete with that product even sooner?
A: No. not at all.... A local company in China may notice GE has innovated in the portable ultrasound area. It lacks three things. 1) It does not have GE's technology. 2) It doesn't have GE's brand or distribution. 3) Someone would be innovative enough to find a solution if GE did not. Somebody will come up with a solution at a much different price point. ... Multinationals need to pre-empt emerging market competitors. Companies like Procter & Gamble will continue to face traditional competitors like Unilever. But the biggest threat for U.S. multinationals is not existing competitors. It is going to be emerging market competitors.
Q: You give two examples of this practice in healthcare products. But how widespread is this practice? How much more widespread will it get?
A: The whole reverse innovation is a phenomenon that has started just in the last five years. Is it widespread? The answer would be no. If it has the potential to be widespread? The answer is yes.
Q: Have you seen other western companies doing this? What are some examples?
A: The companies that are more tuned into this phenomenon are consumer product companies. Procter & Gamble. Nokia. IBM. Consumer products companies are more in touch with the end consumer. They see the end consumer in China and India are so different. If you take your $25,000 model car and adapt it in India, you'll get 10% [of the auto market share] in India. That's it. In India, Tata Motors launched a $2,000 car. It is a great example of local innovation that could come into the U.S. in the future.
Q: Should automakers like Ford and GM take a cue from this idea?
A: Without a question. Companies, historically, focus on the consumers of automobiles. Instead, they should be focusing on the non-consumers of automobiles and how do they convert them to becoming consumers. The Tata project is focused not on customers driving automobiles. They are focusing on selling to people who are now driving motorcycles and four-wheelers.
Q: What are the limits of this theory? Will it work, for example, with high quality products like aircraft engines and nuclear power plants and health care scanners that depend on top notch technology and price?
A: I don't believe it applies across all products and industries. Aircraft engines perhaps are more of a global business that we need to design in the U.S. But it applies to a lot of areas we are not yet focused on. In healthcare, what is going to happen is there will be lower price points established in China and India. Those products will improve to a point where they will take share away from premium products.
Q: Is this a sign of healthcare reform and an admission that healthcare products have been overpriced? So smart players will leave the high margin product and go for mass appeal?
A: Without a question. Obama – what he is pushing is cost, quality and access. These are the three things that are the cornerstone of healthcare reform. A lot of people don't have access to healthcare. These are exactly the three anchors where you will build your business in China and India. The other priority of this country is energy. Alternate energy – solar, batteries and wind or biomass – there will be leadership gains in markets like China and India.
Q: Doesn't it run counter to Mr. Immelt and GE's earlier stated idea of restoring American manufacturing to days of splendor?
A: No. Not at all. The point we are making is not outsourcing. What we are saying is the customer base in China or India is different. You have to capture innovations in China and India. Those innovations will come back to the U.S. Those innovations will create more jobs in the U.S. for manufacturing.
Q: Any predictions of where GE will use this idea in their portfolio?
A: This is a cultural transformation in GE. This takes some time. The power comes when the entire company does this. Inside GE, we want to replicate this process. That is what is next for me.
Source : WSJ, 23/09/09
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