In an important Harvard Business Review
article - How GE is Disrupting Itself,
by GE's Jeff Immelt
and Dartmouth professors Vijay Govindarajan
and Chris Trimble
, we are introduced to the idea of reverse innovation
- an innovation likely to be created or adopted first in the developing world and then marketed worldwide.
The article also shows that reverse innovation presents an "organizational challenge for incumbent multinationals headquartered in the rich world," as Govindarajan
explains it, and also presents an organizational model for overcoming that challenge.
A great set of ideas--especially if you are the CEO of a global company rich in resources for innovation!
But what do we learn about the rest of us innovators--those who see important problems solvable with identifiable technologies?
The innovation literature predicts that big companies acquire their most critical innovations--from individuals, academicians, "skunk works"--essentially from "islands" of innovation
. Let's look at how to extend this model of how to manage the development of island-based innovation.
Then these insulated innovations gain help from the "mainland"--resources of all sorts--without which they would grow slowly or not at all.
The gist of the HBR article is that the flow can then be reversed to the developed world--the mainland. To do so, it makes two fundamental assumptions--assumptions that, unfortunately, do not hold true for the majority of us. And these are, first, you have islands of talent available in your company
, and second, these islands have access to a mainland rich in resources.
The non-GE world, therefore needs a new business model to help these islands of innovation create and develop solutions to pressing problems.
What if we were to combine reverse innovation as described in the article with Henry Chesbrough
's concept of open innovation
? A quick reminder on what it is:
Open innovation is a paradigm that assumes that firms can and should use external ideas as well as internal ideas, and internal and external paths to market, as the firms look to advance their technology". The boundaries between a firm and its environment have become more permeable; innovations can easily transfer inward and outward. The central idea behind open innovation is that in a world of widely distributed knowledge, companies cannot afford to rely entirely on their own research, but should instead buy or license processes or inventions (e.g. patents) from other companies. In addition, internal inventions not being used in a firm's business should be taken outside the company (e.g., through licensing, joint ventures, spin-offs). Procter and Gamble
's now famous "conversion" to their open innovation model
shows us that large multinationals can use the innovations produced by the "islands" (individuals and small companies) and turned into massive revenue streams for the "mainland."
So why can't a company like GE follow down this path with "open reverse innovation
" - inviting small companies in India and China to submit their products, services and ideas to be evaluated by GE for global distribution. Of course, the open model would require an environment of trust
- but what better way to create goodwill in new markets than to be seen as a development partner in the China, India, and resource-starved Africa? A.G. Lafley
sits on GE's board; surely he could help them get started.Question:
does GE have the culture
to embrace open reverse innovation?
Over 20 years ago I was called in by Bill Stavropoulos
, now the retired Chairman, to meet with the top polymer managers at Dow Chemical. He asked the following: "How should Dow change the way it manages to build Dow businesses in new areas like high performance plastics?"
The edited answer is smoother after so many years, but it is the same answer I gave all those years ago:
Large organizations like Dow must struggle to become more open systems,
not closed systems, if they wish to innovate for the outside world. Staff spend too much time working with people inside the system, not embracing the ideas of outside people.
And large companies worry too much about keeping their knowledge
secret: conversely, they do too little interacting with outsiders,
including their target customers, or ivory tower types, or just plain
dreamers. Company culture is an obstacle to success.
Another business model, if needed, is where solutions become the focus of "open collaboratives
,"-- new entities that can acquire and make available the same or similar kinds of resources available within GE to the island-based problem solvers. Companies with a strategic interest in solving a problem or a class of problems (including GE) can participate by funneling resources (money, labs, information, smart people, etc.) through the collaborative; by participating in direction; and by contact with analysis and expertise. Information from a collaborative world would logically lead to new entities which make problem-solving investment, but also could be individually exploited by strategic players.
In other words, islands without mainland support can come together to form "virtual mainland", thereby, exponentially increasing their problem-solving capabilities. Again, the model is applicable in both East and West.Sidenote: although the venture capital model is one alternative to what VG and Jeff describe--it is clearly focused on developed markets and making profits for the financial (i.e. not strategic) investors. All VC collaboration is mostly through balance sheets, not among experts or teams. So VCs are inherently not designed to meet the same needs.
Here are a couple of examples of possible "collaboratives" we have been working to create. Village Empowerment:
The 3 billion or so people of the developing world who are not part of the modern economy need us innovators to create practical ways that villages can have enough food, electric power
, clean water, education, and sources of cash income. Most of all the villages need to create elements of a good life without having to emigrate. Trying to solve the urban problems because of increased influx of rural population is more of a symptomatic treatment. It doesn't address the root cause. Better would be to take the jobs to the villages and remove the basic need for villagers to move out. Currently, here are many technologies working in individual silos aimed at solving some of these problems. They need to come together in a holistic way, which we believe needs a collaborative effort. Once developed, this set of tools will find applications back here on the mainland.Climate Change:
Another example is that the whole world needs better ways to stop global warming. Adding carbon taxes provides the necessary drive--but who or what solves the problem? There are numerous approaches to "fixing" carbon which need intensive development and the solution is really many solutions. A collaborative effort to fix carbon in many ways is a natural for creating and developing as many island-based solutions as possible. And every company (or government) with a carbon problem or a possible carbon solution should be part of the one (or more) such collaboratives, hoping to get the problem solved
well for all our good.Compressed Natural Gas
(CNG): CNG can be the bridge to a clean, secure vehicular fuel future. The elements of this system are on various islands. First, new technology to find and produce economical natural gas in many places seems likely to result from the North American "shale gas" revolution: CNG will be available and relatively cheap for several decades. Second, adapting both large and small internal combustion engines to operate on CNG is proven and important already in India, Argentina, Thailand: about 8 million vehicles out of the world's billion or so vehicles have been modified to run on CNG. Clean air was an important driving force.
Innovative ideas exist for more efficient on board storage of CNG, replacing today's Rube Goldberg storage systems, and modifying the existing fleet saves years of development. CNG filling stations are a known technology ... and other innovations such as interchangable storage tanks are suggested by the battery venture, Better Place
. What makes CNG look most interesting as a possible collaboration? There are many strategic players who would benefit from a rapid adoption of CNG as transport fuel: gas producers; progressive auto manufacturers; fuel retailing chains; oil-less countries; megaretailers; and even Al Gore!
Even GE is too small for solving these gigantic problems. But we bet that somewhere, someone on some island may have the answer...or at least part of the answer. And a collaborative can help find those who have the other part.
Again, there is historical precedent for these collaboratives. The WWII Manahattan Project
comes to mind - why can't we bring the best and brightest together in peace time?
Is war our best motivator?
Surely we can do better - as individuals, companies, societies, and yes, nations.
Here's to open reverse innovation