1. Reverse Innovation
February 2010
Sunnyvale Beijing Bangalore Hyderabad Pune Gurgaon
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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 High
Source: Harvard Business Review Article by Jeffrey Immelt, Vijay Govindrajan, and Chris Trimble, Zinnov Analysis R&D Globalization Council
1

3. India centers follow a multitude of models to tap new product and technology
innovations
3 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. 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. But the success of these models necessitates a mindset change at HQ and an
organizational change at the Global level
The 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 with
people 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. 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 market
Source: Harvard Business Review Article by Jeffrey Immelt, Vijay Govindrajan, and Chris Trimble R&D Globalization Council 5

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%
731
USD 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. Thank You
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