Dr. Govindarajan, you are very influential in changing the prevalent image of innovation. You point out that spectacular innovations seldom spring from garages and dorm rooms. Where do they actually come from?
I think the biggest source of innovation is going to happen in poor countries. Historically multinationals innovated in rich countries like the US and sold those products in poor countries like India. And I have this new concept called "reverse innovation", the book will come out in April of this year. And "reverse innovation" is exactly reversing the process. So it is about innovating in poor countries and bringing those products into rich countries.
So you dissent to the conventional wisdom that innovations originate in rich countries and the resulting products are sold horizontally in other developed countries and then sent downhill to developing countries. Last month at Davos you had a session with 120 top managers and presented your new approach "reverse innovation" to them. Which advices did you give them?
I think this is probably be the biggest threat for multinationals for a German company like Siemens. A competitor is not a only a company like General Electric. A competitor is going to be someone they have not even hear of from China or India. So the biggest competitors to multinationals are not going to be other multinationals - there are going to be local players from poor countries.
In Germany we have a lot of Mittelstand companies who work in niches mostly in the B2B sector. Will they be challenged as well by reverse innovation?
I think this is going to affect all companies and actually small and medium sized companies in Germany. This is a great opportunity for them because innovation in poor countries does not require a lot of ressources. Therefore these small and medium sized companies need to focus on customers in poor countries and innovate for them and thereby they can reach huge benefits. I really believe this one of the answers for Europe. Europe is in a complete slump now. The way out for Europe and the European companies is to focus, to become curious about the problems of customers in poor countries.
Do you have examples of reverse innovation?
I think a good example would be General Electric in their health care business. GE innovated a 500 dollar ECG machine in India. An electrocardiogram machine in the US probably costs about a 10.000 dollars. Similarly they innovated a 15.000 dollar portable ultrasonic machine in China. The expensive ultrasonic machine in the US costs about 250.000 dollars. These are the kinds of radical innovations that originate in poor countries and have the potential to spread out in the health care sector all over the world.
Siemens for instance has made a strong commitment to poor countries. So reverse innovation is a very big theme for Siemens because they see a growing up opportunity in these poor countries clearly.
So what does that mean. Should for example the small and medium sized companies from rich countries collaborate with companies from emerging markets?
I think the key for small and medium sized companies is to find strategic partners - local companies in these poor countries. And for example German companies can bring certain capabilities and the companies from the local area they can bring in other capabilities. And using that they can really be ahead in the innovate process. This is a great opportunity for potential partners.
Let's talk about how to innovate within a company. Large-scale enterprises are associated with bureaucracy, inflexibility and distant management. The David and Goliath metaphor has become common sense in economy--the small entrepreneur, the underdog counters the giant and wins. Why is being large and established not excluding innovation?
I think small start up companies are nimble and fast. That is an advantage for innovation. But big companies have ressources. That is also an advantage for innovation. So each type of company has different advantages. The key then for a multinational like Siemens is to create a small start up in India or China which can draw up on the global capabilities. And that is exactly what they are trying to do in these countries. They have a good chart of winning.
One key dimension for you is to handle uncertainity across multiple functions. What are the tasks for managers when customers have not yet figured out what they want or when the processes and technologies are unproven?
I think uncertainity is a fundamental fact when we are innovating because innovation is about an experiment in the future. And future per definition is unknown and uncertain. Therefore what I can recommend is: try to develop high purposes about the future. And then try to conduct experiments to test high purposes. So high purposes testing is a way you can deal with uncertainity.
You differentiate strategic innovation from the classical innovation approach like continouous process improvement, process revolutions or product/service innovations. What are the differences?
I think strategic innovation is a business modell innovation. You are innovating the strategy by itself. And that's what causes the biggest problems. In poor countries you have to come up with an innovative strategy and that is why reverse innovation is so difficult. Whereas incremental process innovation can be done by your core business for reverse innovation you require a dedicated team in emerging markets.
In your book "The other side of innovation" you pointed out some paradoxes concerning innovation. Business organizations are build for efficiency and ongoing operations. Why, as you say, is it so hard combining a discipline of efficiency with a discipline of innovation?
I think if you take a company like Siemens they have so many core businesses in which they succeed which is what we call the performance engine. And the performance engine is focused on a discipline of efficiency. Whereas when they want to create break through products in a country like India. That's innovation which requires flexibility. That kind of innovation cannot happen inside your performance engine. That is why you need to build a dedicated team. In some sense this is really what we expend upon in the reverse innovation book where we explain how a company like Siemens can set up a dedicated team in India which can do these break through innovations.
Is it possible to transfer "reverse innovation" to the non-profit or public sector.
And do you have any examples about that?
Absolutely. This concept of "reverse innovation" applies to business organizations. It also applies to nonprofit organizations and the social sectors. Partners In Health is a great example. It is an NGO, an non-governmental organization which created an innovative way to treat HIV and AIDS patients in Rwanda. They are bringing those innovative methods to Boston Massachussetts and treating marginalized HIV and AIDS patients in Boston.
You can also see how this applies to even concepts like yoga. Yoga started in the ancient India. And yoga as an innovative idea has now spead all over the world including Europe and the US. Think about how many mediation centers and yoga classes are there.
Or think about the tango, the Argentinian dance. The tango as dance form started by the European emigrants in the late 19th century. These were poor European emigrants who emigrated to Buenos Aires. And they just wanted to have a good time. They created this tango dance. Initially is was looked down upon by the elite in Argentina because they thought is was vulgar and crude. But some people in Argentina found it interesting enough. They took it to Paris and refined the dance. It really took off in France and it became a global thrive. This is a great example of an innovation started by poor people and it has become a global brand. So this concept of reverse innovation can play a big role.
These were excellent examples, especially the last one which I like very much, because I am tanguero as well. Thank you very much for the interview, Dr. Govindarajan and I wish you great success with your new book.
Vijay Govindarajan is the Earl C. Daum 1924 Professor of International Business and the Founding Director of the Center for Global Leadership at Tuck School of Business/New Hampshire. He is ranked # 16 on the management thinkers list at www.managementdenker.de
Click here to have a review on VG's new book: www.innovationreverse.com