Why Reverse Innovation Is Important
By Rob Wright, Chief Editor, Life Science Leader
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By Rob Wright
Vijay Govindarajan, recently sent me a copy of his book, Reverse Innovation. I have to admit, I am a raving fan. Probably because the last two articles I wrote for Life Science Leader’s June 2012 issue focused on innovation. I began reading Reverse Innovation prior to attending Interphex 2012. During discussions with people like Richard Smith, son of FedEx (NYSE: FDX) founder Fred Smith, Catarina Flyborg, general manager with GE (NYSE: GE), and John LaMattina, senior partner with Puretech Ventures and Forbes blogger, I found myself mentioning examples of innovation from this book, as well as the ones I uncovered during a recent interview on the topic.
Innovation in pharma remains a hot topic. Combine this with the continually increasing role the emerging markets play in the pharma and biopharma space, and you understand why Reverse Innovation is a must read for life sciences executives. Let me share some insight regarding the five gaps the book describes — the performance gap, the infrastructure gap, the sustainability gap, the regulatory gap, and the preference gap and why these are important to consider when entering emerging markets.
The Performance Gap
Innovation is often associated with product enhancements and new features which improve performance. For example, automobiles manufactured in developed countries typically have computers which improve performance and safety. Buyers in the developing world can neither demand nor afford the high levels of performance in products to which rich countries are accustomed. This does not mean they don’t need innovation or innovative products. It means they need products with innovative features tailored to their needs. Typically, companies use the “good-better-best” product lineup. The good product offers 80% performance at an 80% price, better 90/90, and best 100/100. The easy thing to do when attempting to address the needs in emerging markets is water down the product to the “fair” level of 70% performance at 70% price. Developing nations are most eager for breakthrough new technology that delivers decent performance at an ultralow cost – a 50% solution at a 15% price. Impossible you say. Nokia (NYSE: NOK) managed to capture 60% market share in India by reimagining the cell phone. The company produced only a few basic models and utilized software, not hardware, to customize, such as adding Hindi-language text messaging. Nokia created an offering that met real needs at realistic prices.
The Infrastructure Gap
Rich-world countries have an extensive infrastructure in place, while the developing world doesn’t. These can be physical, such as roads, telecommunications networks, power plants, and airports; social, such as schools, universities, and hospitals; and institutional, such as banks, courts, and stock markets. It is natural to see these as being a powerful asset for product development. However, a lack of infrastructure can be an advantage when it comes to innovation. Difficult constraints such as unreliable electric power can inspire creative workarounds that sometimes lead in unexpected directions. This was the case for GE Healthcare in India. A lack of healthcare infrastructure inspired GE to develop a breakthrough technology for portable electrocardiogram machines — the MAC 400 — which extended the lifesaving power of a traditional ECG to a mainly poor population of 700 million in rural India. Thanks to creating a product specific to the market (portable, battery powered, user friendly) the cost to a patient for receiving an ECG test ranges from 45 rupees to 90 rupees ($1 to $2). Although the product was designed for the unique circumstances and needs of India, it quickly found a market in the developing world and is now sold in more than 60 countries, both rich and poor.
Other Gaps
Some of the other gaps discussed in Reverse Innovation include the sustainability gap, the regulatory gap, and the preference gap. Regarding sustainability, if 5.8 billion of the world’s poor consume and produce goods in ways that are environmentally unsound, the results would be catastrophic. “Green” solutions are a necessity, not a luxury, for emerging market sustainability. A regulatory gap exists between developing and developed countries. Fewer regulations may result in less friction and faster progress toward innovation. For example, Diagnostics For All, a Boston area start-up, developed a paper-based diagnostic test with embedded chemicals which react with blood, urine, saliva, or sweat. It is a quick, simple, and inexpensive alternative to expensive diagnostic machines which require expert interpretation. Despite the attractiveness of such a solution for the developed world, Diagnostics For All chose to commercialize in the developing world so as to sidestep the painstaking FDA approval process. Finally, there is the preference gap. For example, in China, many people use their computer mouse as a remote control device for viewing television-type programming, and thus, their preference for features can be quite different than those in other countries. So, if you want to innovate in the emerging markets, you need to look for the gaps, and perhaps Reverse Innovation can help you to understand how.