Reverse Innovation

Vijay Govindarajan is a Professor of International Business at the Tuck School of Business. He also writes a column for Fast Company along with colleague Christ Timble who teaches strategic innovation. Govindarajan had famously launched a challenge to designers around the world to design a $300 house to empower the poor. You can see some fascinating designs <click here> and read more about the design here.Traditionally innovation came from the developed countries. The belief was that the rest of the world would evolve along the same continuum and reach where the developed economies were a few years back. That mindset led many multinationals to create watered down versions of their products for the third world. Reverse innovation means that much of this innovation is coming from the developing world and is being exported to the West. A reverse innovation, very simply, is any innovation likely to be adopted first in the developing world. Increasingly we see companies developing products in countries like China and India and then distribute them globally.Govindrajan and Timble's book Reverse Innovation is based on three insights that Indra Nooyi has summarized in her foreword:1. Appreciate the differences of people across geographies2. The markets want to have their culture, values and tastes reflected back in the products they choose to consume.3. People across the world some common desires despite their differences.Traditionally, the "good-better-best" concept meant that while best product performed at 100% performance level. The good product performed at 80% performance level but cost only 80% of the best product. The innovation opportunity for a company lies in creating a product that costs 15% of the price of the best but delivers the essential half of the product performance. Nokia did this when they designed a phone that had a torch built in and one that could be used in the villages of rural India because they kept the cost affordable and introduced Hindi texting through software changes - not hardware changes.Eighty five percent of the world's almost six billion people live in poor countries whose combined GDP is roughly $35 trillion. That would make up half the GDP of the world. To market to this $35bn market, we have to keep in mind that one person with $10 to spend will need different products than ten people who are spending a dollar each.CavinKare made its shampoo (brandname Chik) available in a one rupee sachet since 1989. Ten years later they tried to dig deeper into the rural market by introducing a 4ml shampoo sachet for half a rupee. ($1=INR 55)Today every major shampoo manufacturer sells shampoo in sachets that See my post on Sachet Success.Godrej has produced Chotukool. At Rs3500/- (approx $65), this possibly is the cheapest refrigerator in the world. In the rural areas where electricity supply is erratic, the ChotuKool thus runs off a 12-volt DC supply, mutated from the mains AC feed by a laptop-style converter that has been amped up by Godrej; during power-cuts, the fridge can be kept alive on an inverter or a battery.Every sector is ripe for this kind of innovation. The cost of open heart surgery in US is roughly at $20,000 per head. Their mortality rate (within 90 days of the surgery) is at an average of 1.9%. At Narayan Hrudayalaya in Bangalore, Dr Devi Shetty does the same open heart surgery at one tenth the cost of US (approx $2000), has a mortality rate of 1.4% and his hospital runs at a profit margin that is higher than the average US hospital. How did he do this? He took concepts from another industry - in this case automobiles - such as standardization, labor specialization and the assembly line made famous by Ford and applied them to hospitals. The higher volumes of surgeries performed by his hospital gives the surgeons more practice. Their skills improve and it improves faster. Devi Shetty has now built a 2000 bed hospital in Cayman islands that will provide open heart surgery at half the cost to the uninsured poor in US.McGraw-Hill & Wipro have partnered on product called mConnect. The low cost education service for residents of rural India is delivered over mobile devices. For millions of India's youth, who are fervent cell-phone users (more than 5 hours a day on an average), this high tech approach to skills training, English language instruction and prep work for univ entrance exams is a great example of reverse innovation.With case studies from P&G, PepsiCo, Mahindra, GE, Harman Kardon etc, the book makes a compelling case for the companies to leverage the model that these companies have used to innovate. The book suggests that the mind set needed for such innovations lies in understanding the lives of the consumers and creating products from scratch rather than to tinker and dilute existing products of the developed countries. The first 70 odd pages of the book provide the idea and then there are eight chapters of case studies. Once you get the idea, the case studies tend to get a bit monotonous.Maybe there is an opportunity to create a 70 page paperback book that could be created from this book that could be sold for a dollar (Rs 50/- )for the Indian market instead of the list price of $30. Any takers for this model of reverse innovation? On a serious note, I recommend the book. It is not only good to know how six billion people are changing the world one sachet at a time.