A great way to start this learning log is to discuss how innovation practice is being disrupted by the emergence of new markets in Asia and other developing regions of the world. Truly disruptive innovation has always been based on finding new uses and new markets for new products rather than developing better and better delivery of existing products to existing customers (read Clayton Christensen for a detailed introduction to disruptive innovation). As emerging markets develop, they present huge new markets for products, but with consumers whose needs can be very different from those in existing developed markets. That is, they present a huge opportunity for disruptive innovation.
Consider the car market as an example. In developed markets, cars have been constantly innovated to provide additional safety, improved performance, smaller environmental impact and many other additional features (sound systems, ergonomic displays and controls, storage capacity, comfort levels etc). For the majority of Indian consumers these are a luxury, and their needs are much more specific: an affordable and waterproof transporter which can help them navigate Mumbai and Delhi’s chaotic traffic to get from A to B. Many of the features of mainstream cars built by Ford, Toyota, GM and other companies, are unaffordable luxuries in India and go way beyond their key needs. Tata, in developing the Tata Nano for the Indian market, have stripped away many of the car accessories considered basic in developed markets, and focused on delivering their target consumers’ key needs at a price they can afford. They have also completely reinvented the production and distribution model for cars in the process. They will be taking this innovation to more developed markets soon, reversing the standard model of innovation in this and other industries.
The term “reverse innovation” was coined by GE and is discussed by Vijay Govindarajan in many articles and interviews (most notably in the Harvard Business Review). This is exactly the process of taking innovations designed for the needs of consumers in emerging markets and bringing them to consumers in developed markets. This completely reverses the more typical model of innovation in recent times (sometimes called glocalisation), where large multinational companies develop innovations for developed markets and then adapt them for other markets, sometimes by taking away features and costs. Increasingly, companies like GE are innovating for developing markets and then taking these innovations and rolling them out in developed markets (after adaptation and scaling). Many such innovations are disruptive, focusing on lower cost solutions or consumers not currently served by existing products.
Digital photography is a good example of a disruptive innovation, where early digital solutions (especially those in mobile phones) had inferior quality to existing solutions (eg lower picture quality), but with greater convenience and ability to share with others, which are key drivers for consumers (especially those who do not desire high end cameras and high quality images). Similarly, Nokia have focused increasingly on developing functionality and applications for African consumers, which are now being rolled out in the US. The challenges of the US healthcare system in delivering healthcare with greater accessibility and lower costs are exactly the challenges of developing markets! One of GE’s earlier examples of reverse innovation were portable electrocardiograph machines developed for China and other emerging markets, selling for 20% of the price of a standard machine, which have now found huge new markets in the US and elsewhere because of brand new applications driven by their portability and cost.
So we live in exciting times, where many new products in developing markets, will originate in innovations designed for the emerging markets of China, India and many others.
The Innovator’s Dilemma: Where New Technologies Cause Great Firms to Fail by Clayton Christensen (1997)
How GE Is Disrupting Itself by Jeffrey R Immelt, Vijay Govindarajan and Chris Trimble (Harvard Business Review, October 2009)