Sunday, November 27, 2011

Reverse Innovation: A Blue Ocean Technique?

I recently ran across the notion of reverse innovation—the practice of creating low-cost products or solutions tailored to developing countries and then repackaging them for use in more developed countries. An example of a product developed through reverse innovation is GE’s low-cost, portable ultrasound machine, developed for use in rural India and China, which costs $15,000. In contrast, the typical ultrasound sold to US hospitals is a behemoth that costs between $100,000 and $350,000.1 The process of reverse innovation allows companies to penetrate developing markets that were formerly off-limits. In the process, these often low-cost innovations often return to the more developed countries—and carve out yet another market space that didn’t exist previously.

I initially thought that reverse innovation sounded similar to Kim and Mauborgne’s “blue ocean strategy,” as described in week #5’s readings. After all, blue ocean strategies arise by creating uncontested market space, capturing entirely new demand, and “doing business where there is no competitor”—in essence, making the competition irrelevant (4).3 Doesn’t this description apply cleanly to reverse innovations, as well? Taking the ultrasound example, GE has created uncontested market space, captured the demand for high-tech equipment at low cost in rural India and China, and made the competition irrelevant by innovating where there was no competitor.

However, after conducting more research, it seems that many companies are jumping on the reverse innovation bandwagon. Here are just a few of the reverse innovations that are well underway:

  • 1. In 2009, Hewlett-Packard began to translate web-applications for mobile phones in Asia and Africa to more developed markets.2
  • 2. Nestle has started to rebrand its Maggi-brand dried noodles—previously created to be a low-cost, low-fat meal created for rural Pakistan and India—as a rising health food in Australia and New Zealand.2
  • 3. Phillips Electronics is exploring the applicability of low-cost, solar-powered lighting, originally designed for Ghana, to developed countries. 2

Does this rise in interest in—and practice of—reverse innovation mean that this form of innovation no longer represents a blue ocean strategy? At what point does a blue ocean strategy become part of the mainstream? Furthermore, at what point do those mainstream business practices become part of the red ocean, where demand is static and companies compete in the same market?


Week #5 Blog

References

1. Crainer, Stuart. The Dawn of Reverse Innovation, Forbes’ India. Published April 16, 2010.

2. Jana, Reena. Innovation Trickles in a New Direction. Bloomberg Businessweek. Published March 11, 2009.

3. Kim, W. Chain and Mauborgne, Renee. Blue Ocean Strategy. Harvard Business Review. October 2004.

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