Wednesday, April 13, 2016

Reverse Innovation at GE

Large R&D budgets are not always key to creating Blue Oceans. Creating better or more powerful products is not always the answer because consumer demand may not keep up at the same pace [1]. GE has developed a strategy to implement what it calls “reverse innovation”, where goods are developed in developing countries and introduced to developed countries. Its innovative concentration is not towards incremental generations of existing products, but rather the creation of new products to meet new market needs.

Both Jack Welch and Jeff Immelt identified globalization as an important element in GE’s growth strategy. In particular they saw market potential in China and India [2]. The traditional “glocalization” model is to develop products in developed countries, and then introduce them in developing markets. The product might be “localized” to an extent, but it is essentially the same product. For example, we studied how Pepsi introduced their beverages with Chinese herbs in China. GE is doing things the other way around. It develops new products in developing countries and introduces them back to developed countries.

This method could potentially serve two sets of unserved consumers. When GE developed a low cost, portable ultrasound in China, it was able to cater to low-cost medical needs in countries like China and India. When the same product was introduced in the United States, it was used in temporary medical facilities after natural disasters. By developing products in developing countries and not just exporting existing products there, GE is able to create products that consumers in developed nations do not know they need yet. Furthermore, there is an entire market for low-cost medical facilities that if often ignored in the United States. This is the essence of a disruptive technology. The need for the product must be anticipated before the mainstream consumer realizes that they need it [3].

Reverse innovation sounds simple in principle, but it required GE to rethink its organizational structures. Traditional glocalization calls for strong centralized resources and centralized power. Products leave the hub and are dropped at the spokes. Reverse innovation does not fit this model. GE introduced an organizational form called “local growth team”. It has local growth teams in various developing countries. Local growth teams have their own development, marketing, manufacturing, sales, and distribution teams. It is important that these resources are local because it is how GE truly understands the domain they are working with. The local growth teams are connected to one of GE’s global technology centers. Using local resources and support from global technology centers, local growth teams are able to experiment, take risks and iron out uncertainty. Decentralization allows them to bypass some of the boundaries that large corporations have on innovation [4].

Reverse innovation is one of GE’s strategies for creating Blue Oceans and finding disruptive technologies. Local growth groups in developing countries create products that penetrate new markets, and the same products are used in new ways in developed countries. By decentralizing local growth groups, they are able to embody some of the start-up culture required to innovate rapidly.

[1] Kim, Mauborgne. "Blue Ocean Strategy" Harvard Business Review (2004)
[2] Bartlett. "GE’s Growth Strategy: The Immelt Initiative" Harvard Business Review (2006)
[3] Sarah Green.  “How GE Does Reverse Innovation”, Harvard Business Review (2009).

[4] Christensen. “Innovator’s Dilemma: Introduction: Why Good Companies Fail to Thrive in Fast-Moving Industries”. Harvard Business School Press (1997)

No comments:

Post a Comment

Note: Only a member of this blog may post a comment.