GE’s Reverse Innovation
Posted October 27th 2010
Jeff Immelt and Vijay Govindarajan have introduced an interesting concept they’ve termed ‘Reverse Innovation.’ http://www.gereports.com/reverse-innovation-how-ge-is-disrupting-itself/ In brief, Immelt and Govindarajan define Reverse Innovation as innovations that are developed in and for less developed countries and then are adopted by the rich world. This is a reversal of historical patterns, where the more developed economies were usually the innovators and disseminators of technology.
They illustrate their concept with a portable ultrasound technology that GE developed in China and later adopted in the US. The Chinese market emphasized low cost, portability and ease of use while the US market focused exclusively on performance and features. This change in priorities resulted in an innovative product that would not have evolved in locations without the same constraints.
Different markets have different constraints. In China, lower incomes, poorer infrastructure and fewer trained professionals created a new set of priorities for GE’s ultrasound product. However, it seems the demarcation between rich and poor countries may not be the most appropriate dividing line for the Reverse Innovation concept (even though these sorts of opportunities are probably greater in the developing world). Rather, we suggest the dividing line should be between markets with extreme constraints and low constraints. Innovations that evolve within extreme constraints are likely to prove useful elsewhere.
Sometimes extreme constraints exist in richer and not poorer countries. For instance, building a new paper mill or oil refinery in the US is nearly impossible while it is encouraged in countries hungry for development. As a result, old facilities with high labor costs in the US are forced to compete with new facilities with low labor costs in poorer countries. The cost of modernizing old facilities can be very expensive, disruptive and often times impractical. These are extreme constraints that would not inform the development of technologies aimed for new facilities.
One of our technologies illustrates that Immelt’s and Govindarajan’s concept would be strengthened if defined with our dividing line. Just like all of our technologies, the Wireless Battery Monitor (WBM) was developed to help modernize existing facilities at very low cost and without disrupting operations. It was designed to retrofit legacy Uninterruptable Power Supplies (UPS), since newer UPSs already have built-in health monitoring capabilities. Even though the WBM was developed in the US to meet the needs of older facilities locally, one of our biggest markets has turned out to be newer facilities in the Philippines. Due to frequent power outages, these facilities are heavily dependent on their UPS systems and ensuring good health and reliability are critical for our clients.
Perhaps Reverse Innovation is as simple as the old idiom, necessity is the mother of invention. Differing needs in various markets will result in different priorities and innovations. Predicting which direction the innovations will flow requires a finer understanding of the constraints experienced in each market.
David K. Roberts