Reverse Innovation

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Reverse Innovation

  1. 1. Reverse InnovationFebruary 2010 Sunnyvale Beijing Bangalore Hyderabad Pune GurgaonThis report is solely for the use of Zinnov client and Zinnov personnel. No part of it may be circulated,quoted, or reproduced for distribution outside the client organization without prior written approval fromZinnov
  2. 2. MNCs are slowly shifting their focus from developed to emerging markets but Indian R&D subsidiaries are still not their primary agents for innovation MNC Focus Make products for Make products for Make products for local Make products for local global developed global markets. Localize markets. Innovate at market needs and adapt markets. for emerging markets home and near to worldwide needs. Innovate at home, innovate at home, and emerging markets. Innovate near the local distribute everywhere develop near emerging Develop near local market. markets markets. Global GLocal Local Reverse Support mature and Lead localization Incubate products and ? declining products for support related services aimed at local developed markets enhancements customers R&D Subsidiary Play None Low Medium High Very HighSource: Harvard Business Review Article by Jeffrey Immelt, Vijay Govindrajan, and Chris Trimble, Zinnov Analysis R&D Globalization Council 1
  3. 3. India centers follow a multitude of models to tap new product and technologyinnovations3 1 • MNCs have set up venture capitalist • Dedicated teams responsible for arms that fund companies with innovation and productization of products/services that fit their own ideas, i.e., teams of technical portfolio. architects and a few innovative engineers. • Companies also tie up with VC firms / carry out independent research to • Part time resources – Top level talent help them fund and then acquire the of different teams brought together right kind of startups. to work on innovative ideas and product prototypes. Partnership University 2 • There are different collaboration models between industries and universities to help foster innovation. The most commonly followed models are consulting and sponsored research. R&D Globalization Council 2
  4. 4. There are three popular innovation models that MNC subsidiaries should embrace Innovation Models in Globalization PREM • Top 3 CSAT for India COE 83% • Partner operations managed Managed • Q1-’09 End Utilization 84% (Estimated) Reverse Innovation Innovation • Very high TCE / CSAT LocalServices Disruptive Innovation • To tap opportunities in • Every personConsulting • Current utilization 60% that take root in simple is a consumer who • Products Concept shapes his own experience Sales enablement with CSD hasthe bottom of the • emerging markets and pioneer application at resulted in multiple value segments in wealthy • Market Development Task which large-scale RFP’s market • Transitioned local partner headcount involves converting consumers’ countries • These products relentlessly • Focus on developing products unorganized markets to efficient move up market and eventually in countries like China and India private sector displaces more established and then distributing them • BOP will force breakthrough competitors globally. innovations • Simple products that are innovated and developed for emerging segments/markets Similarity • Access to a whole new customer base, initially unavailable due to high cost of product or low need • Global scalability possible with the right kind of resource allocation Low cost of Innovation Access to huge customer Keeps new entrants at bay Benefit base; platform for future 3
  5. 5. But the success of these models necessitates a mindset change at HQ and an organizational change at the Global levelThe executive overseeing the LGT has 3 critical Without autonomy, the LGTs won’t be able roles: mediating conflicts between the team to focus on the problems of customers in and the global business, connecting the team 1 emerging markets. Specifically, they need the to resources such as global R&D centers, and power to develop their own strategies, helping take the innovations that the team organizations ,and products develops into rich countries. Only top managers have access to experiment withpeople transfers, organizational structures, and Have local growth processes to see what works teams report to Shift power to someone high in where the growth 5 the organization is 2 Innovation, by nature, is uncertain. It’s more important to learn quickly Given the tremendous gulf between Customize Build new by efficiently testing assumptions than rich countries and poor ones in income, Objectives, Targets offerings from the to hit the numbers. Relevant metrics infrastructure, and sustainability needs, and Metrics ground up and standards for LGTs—the ones that reverse innovation must be zero-based. resolve the critical unknowns—are These wide differences cannot be rarely the same as those used by the spanned by adapting global products. established businesses. Build Local Growth teams from the ground 4 up – Like new companies 3 Zero-based innovation needs zero-based organizational design. Hiring practices, reporting structures, titles, job descriptions, norms for working relationships, and power balances between functions—all should be evolved to support glocalization .Source: Harvard Business Review Article by Jeffrey Immelt, Vijay Govindrajan, and Chris Trimble R&D Globalization Council 4
  6. 6. GE is one such Global company which has introduced this change GE’s Senior Management Team Discussion Structure: Global R&D Teams Global R&D Teams • GE has adopted a new organization model to help foster innovation in Local Growth Teams emerging locations • This new reverse innovation model has local growth teams, LGTs, who have autonomy in the entire value chain i.e. Development, Sourcing, Manufacturing, Sales and Marketing of a region • These teams report directly to global Development/Marketing/P&L etc senior management and also have access to existing company R&D and technical resources from across the globe Idea 8…. Idea 2 Idea 3 Idea 5 Idea 6 Idea 7 Idea 4 Idea 1 Ideas Objective: • The objective is to create low cost products that can be made available to Low Cost and viable product for people the masses and not the classes alone at the low income group in India Success Stories: • GE successfully launched Electrocardiograms at a nominal price of USD 1000 which is being used in rural Heated Bassinets Electrocardiograms clinics and hospitals meant to serve the bottom of the pyramid • In India, GE has also launched a heated bassinet which is meant for women in villages who have young children Reverse innovation - Products launched for the local market and taken to the global marketSource: Harvard Business Review Article by Jeffrey Immelt, Vijay Govindrajan, and Chris Trimble R&D Globalization Council 5
  7. 7. India, expected to emerge as the fifth largest consumer market in the world by 2025, is the ideal market to experiment with local and reverse innovations Total Household Consumption Consumption of Major Consumer Products 80% (percentage) 1,600 1,491 70% 17% 20% 19% 1,400 60% 2% 5% 3% 6% 1,200 1,044 50% 7% 6% 9% 1,000 40% 9% 13% 731USD billion 800 30% 42% 600 511 20% 34% 25% 362 400 10% 0% 3% 3% 3% 200 2005 2015 2025 0 Household Products Food,Beverages and Tobacco 2005 2010 2015 2020 2025 Healthcare Education Communication Transportation GDP Growth 2008-09 United France Germany Russia Kingdom United States India China Ukraine 10% 5% 0% -5% Customers are here -10% χ χ χ χ χ √ √ √ R&D Globalization Council 6
  8. 8. Thank You69 "Prathiba Complex", 4th A 575 N. Pastoria Ave 21, Waterway Ave,Cross, Koramangala Ind. Layout, Suite J Suite 3005th Block, Koramangala Sunnyvale The WoodlandsBangalore – 560095 CA – 94085 TX – 77380Phone: +91-80-41127925/6 Phone: +1-408-716-8432 Phone: +1-281-362-2773

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