I am sometimes asked what is the next big trend in innovation management. Given a number of recent discussions and observations, I would now bet high stakes that "Reverse Innovation" will be the idea that will shape our understanding of innovation management a lot in the next years.
The term reverse innovation, in short, describes how innovations made in the so-called developing countries can often lay the foundations for product innovations in the "developed" world. More often than not, these are relatively cheap yet efficient new concepts which can seriously callenge products on an existing "western" market — they often are a source of disruptive innovation.
Developing countries are catching up on the knowledge- and technology gap and with that comes an increased chance for major innovations to be born in these countries. And this is where open innovation thinking comes into play:
- First, we know from lead user research that lead users often develop novel innovations under extreme conditions. Developing countries often provide these extreme conditions (budget, but also climate or working conditions) — hence leading to a high incentive to innovate in a functional novel way.
- Second, a core idea of OI is to get input from unobvious others — this is where broadcast search helps a lot. And developing countries offer a great potential for "unobvious" sources of ideas.
- Third, when established companies develop a product for a new market that demands a "good enough" solution that only costs 10% of the comparable established "western" product, they are often forced to look into very new fields and approaches — input that often only can be acquired by looking beyond the firm's borders.
Hence, for established companies, reverse innovation offers both a source often "open" thinking and input for the own innovation process, and at the same time demands new approaches and networks.
If you want to learn more about reverse innovation, there is one book to read:
Prof. Vijay Govindarajan ( Tuck School of Business ) is the leading scholar researching this field. Together with his collegue Chris Trimble he has recently published his new book about the topic which I read in my recent summer vacation.
The book is an easy read: In part one, Govindarajan and Trimble describe in rather brief form how major companies are beginning to realize that the popular concept of glocalization is not necessarily the best approch to conquer new markets. They describe the flaws on the concept and why reverse innovation promisses better results in many cases.
Glocalization refers to the business concept often associated with the saying "Think Global, Act Local", in practice realized by taking an already existing product and adapting it to new target markets. If the target market is part of the developing world, these adaptions are usually severe downgrades.
Govindarajan/Trimble explain that these downgraded products are in fact often not what the target market needs – or even wants. Each market requires products fitting it's specific needs and given resources. And that is something that can often no be achieved by just stripping product features to allow a cheapter retail price.
The authors show how reverse innovation can help to overcome this barrier. By inventing locally, right at the target market, instead of at home, far away from the conditions and actual customers, companies can be enabled to develop the exactly right product for the market – not a stripped down version of an existing good.
While reverse innovation is the more risky, more pricy alternative at first glance, and many internal and external obstacles have to be overcome, the described advantages are remarkable: Not only can a company better tackle local markets in the developing world. Products invented abroad have a high potential of being cheaper, offent radically innovative and can potentially be engineered to become suitable alternatives for existing products on the companie's home market as well. The innovations made abroad come back home: Reverse innovation.
Part two of the book has eight business cases in which the conecpt is applied and explained why it is advantageous over other approaches. These include companies like Logitech, P&G, EMC, Deere, Harman, GE Healthcare and PepsiCo.
So, in conclsuion, a very interesting concept, and important idea, and a good read!