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Looking for Innovation in Unlikely Places

Soon after I wrote “Innovation Experiments in a Boom & Bust Environment” in this space, I came across a video on The Economist’s Website, which got me thinking about “Frugal Innovation” — or reverse innovation.

As Vijay Govindarajan, international business professor and the founding director of Tuck’s Center for Global Leadership at Dartmouth College, so aptly puts it, the concept breaks with traditional innovation strategies — whereby products are designed in rich countries and sold to poorer ones — and shifts the design and problem-solving effort to poorer, developing regions. These new products or solutions, typically more affordable than their counterparts launched in the mature Western markets, are then exported into richer countries, where they could serve lower-cost segments of an established market.

Govindarajan uses {complink 8019|General Electric Co.} to demonstrate his point. GE previously developed a $350,000 ultrasound machine, which it tried to sell in China. Besides the fact that many rural regions don’t even have hospitals, within the areas that do, only 10 percent of Chinese hospitals could afford the machine. By coming at the problem from another angle — examining how GE could meet the price-sensitive demand and get equipment out in the field where it was most needed — the company’s team in China developed a $15,000 portable device to fit the local market’s need. The low-cost devices are now being sold in the US market where, interestingly, they are influencing the company’s overall business model, Govindarajan notes. (Additional information on GE’s initiative can be found here.)

The high-tech industry has already seen a rash of stripped-down products, like cellphones and laptops, enter the scene with the specific purpose of growing market share in emerging regions. The trend is not likely to slow down. We’re seeing ultralow-cost vehicles, and maybe one day soon we’ll even see a $300 house. The world is filled with untapped potentials.

Still, there are a few unspoken variables lying below the surface of all these innovative ideas: supply chain flexibility, agility, and adaptability. How quickly companies can continually adjust their supply chains to simultaneously meet local and global demand with an even wider assortment of SKUs and devices will be a critical part of any ultralow-cost sales and marketing strategy. How companies will truly manage all this is anyone’s guess.

I wonder, though, if there’s the seedling of an idea already taking root somewhere in China, India, Brazil, Russia, or in another unlikely place on the planet. As I said earlier, there’s potential everywhere.

9 comments on “Looking for Innovation in Unlikely Places

  1. Parser
    November 12, 2010

    It is an interesting point about GE market aim. Maybe it was just misjudged market research. Tektronix for example has very low-end scopes made in China and for Chinese market, which are selling here as well. It is all to market research and sometimes expensive equipment is not for the price of it. To achieve all specs with sensitivity, accuracy and with low positive-false diagnosis the equipment will be expensive, but maybe not for large market.

  2. saranyatil
    November 13, 2010

    Presently world is moving towards globalisation, especially GE is plunging into health care equipments their strategies initially was not that great, but now they are developing different levels and the prices are getting fixed accordingly . yeah i agree in few days prices of houses may become so low by using nano materials.

  3. DataCrunch
    November 13, 2010

    I recommend everyone read this 2007 The Wall Street Journal article entitled: A Little Laptop With Big Ambitions, How a Computer for the Poor Got Stomped by Tech Giants.  I think you will find it very enlightening.

    The point being is that innovations like these may initially not come from the giants, such as GE, Intel, etc., but in the end will be driven by them, possibly by brute force.  This is more about survivability.  There are many start-up companies or smaller competitors that are working on providing lower cost solutions that could disrupt certain industries.  If they were to gain a strong foothold in developing nations, then they may most likely become the next titan by sheer volume.  The tech giants see this as a potential threat and in some cases provide a “stripped down” version of their more expensive solutions at a loss to buy their way into the market and drive away any potential upstarts that could threaten their dominance.

    In the article mentioned above, the giant is Intel who saw a threat of an upstart aggressively looking to penetrate the developing nations with very low cost computers.  Intel, who traditionally doesn’t even build computers, but chips, built a low cost computer to ensure that they will remain relevant in these markets.  Microsoft provided the OS for these low cost machines for the same reason.           

    There are more “have nots” than “haves” in the world and those that can market and build their brands to the “have nots” may be the winners in this game.

    I would venture to guess that GE is buying the market from competitive threats for other innovative smaller companies as well as from other giants, like Siemens.  In the end the consumer wins, I guess. 

     

     

     

  4. Hardcore
    November 13, 2010

    Hi Dave,

    I have been following this for a number of years and suspect that it is not as 'clear cut' as it is made out to be.

    There are too many players in the OLPC, who look at this is the wrong way, manufacturing a similar product  for under $100 is not that difficult, that is: IF you are  less familiar with Academia and more familiar with  asian mass production.

    There were all sorts of 'issues' related to in-house squabbling about the software, how and what it should run and how open the hardware should be, none of which was down to the likes of intel or other major suppliers(this was occurring long before Microsoft got involved), but rather the personalities of the people involved in the OLPC camp.

    I have the feeling that the project is still looked at from the wrong direction. Rather than trying to educate the children, there should have been a far broader outlook, specifically related to teaching  the adults/older children repair and SMT techniques (this really is possible, having seen some fantastic results with 3 people and a toaster oven in China)

    There are far more threatening projects to Intel than the OLPC, but I think we will see many of the arguments becoming moot as the pad computers start to take off, particularly as we can now pick one up in China running at 1.2GHZ with a couple of GB of memory 8 inch screen, wifi/usb & expansion connector (running linux & android)……. all for about  $30us

     

     

  5. SP
    November 14, 2010

    I liked the example of ultrasound machine. So true that innovation can happen anywhere, you just need the will and the requirement. But making a house in $300.. i think its too far from reality.

  6. elctrnx_lyf
    November 15, 2010

    Its proven and many big healthcare equipment manufacturers have to understand the requirements which are different in the emerging nations. They should bring in local people to understand what exactly market need in specific country. But there is always a competetion from the local players mainly in terms of product cost. If global companies can bring out low cost products with a superior quality they can beat out the local players.

  7. bolaji ojo
    November 15, 2010

    The example given here by Jennifer makes one wonder how much less we could be paying for some of the high-tech equipment we currently use if manufacturers did more to reduce cost. However, there's a cost to society of driving down prices lower and lower. Companies are in business to make profit and if sales volume don't make up for lower prices, you can guess labor costs will be impacted too. Will the West accept China's labor compensation?

  8. Ms. Daisy
    November 16, 2010

    Thank you for touching on the labor cost. Jennifers article described the typical model that China has used over the years to gain grounds. How do you explain the shift in price from $350K to $15K other than cost, design that makes sense to the end users, and of course China's ingenuity to make small profits from single sources but make a greater profit from the sale of large numbers of the same item.

  9. t.alex
    December 3, 2010

    The story reminds me of Tata Nano the 2000USD car. Tata designs and manufactures the car to target at the middle class in India. It turns out that this car also captures another market segment – the rich people!

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