Vijay Govindarajan on Reverse Innovation
Why would a rich man want a poor man's product
Vijay's example is simple. If a normal western EKG machine weighs 250 pounds, needs electricity to work, needs an expert to operate and costs 25 000 euros. How many Indians have the luxury of getting EKG scans in the rural parts of India where there is none of the things needed for the machine?
The answer is of course very few. Are there still heart related health issues in the rural parts of India where a EKG machine would be of great help. The answer is of course yes. How did we innovate ourselves out of this problem?
With this. This is a portable EKG system that is easy to use and the cost of a single scans price drops to a mere 2 cents. Something every Indian can afford if experiencing chest pain. And the biggest beauty is that this is still profitable and most importantly (you won't believe this but) the quality is as good as that of an "western" model. To answer the question of the title we'll dive in to the next paragraphs.
Reversing is not about lowering quality
This is one of the biggest ideas of the speech. The way do most of our decisions are actually based on a lot of other factors than common sense.
All businesses aren't evil. They pay taxes (at least the good ones) and make the world go around on many many levels. A businesses goal is to make profit. Some argue why, but Jack Welch gave a great insight (not really an insight. More of a common sense approach, but what can you do when you're not as smart as you think): "Our social responsibility strategy is to win! Because that makes it possible to have be socially responsible." It's true due to the fact that a bankrupt company has very little to share.
The challenge that this profit-to-be-made approach does not lend it's hand most of the time to the best possible answer in innovation. Another example of reverse innovation is in the form of an artifial leg designed by a thailandish M.D.
Why are the western/first world artificial proesthethics made of hard to come by materials that are so costly? The problem is the amount of resources given to different professionals today. Resources are not bad per se. But the problem lies with the unconstrained resources. Let's say you're perfecting a car design. How long would you design the perfect car it if you would have no constrains of time or money?
Now think for a while how fast and cheap could you design a working and good-enough car if your life depended on it?
What do you really have to do for your product?
The real cost of you designing a car is not limited of course to only the designing process. A big amount of all products cost comes from non-production costs associated with business. Administrative costs, taxes and marketing play a big role in the cost of any product. Have you ever studied where non-branded and cheaper products come from. Especially in Finland there is a trend of big chains creating their own lines of everyday items such as groceries and clothing "brands". The idea is simple. Get the stuff out of the same factory that makes their branded and marketed bacon and just pack it and sell it cheaper due to the fact of cutting the need and cost of marketing in the process.
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| Same meat - Costly Price |
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| Same meat - Cheap Price |
Why did chicken take over this post? Because there are numerous costs with most products that can actually be "outsourced" to the users or the people in general. A great way to market a proesthetic limb is to have people actually use it. This beats every other form of marketing when you are actually making profit and gaining marketing potential at the same time.
Cost of use vs. Cost of product
The closing argument of reversing innovation is the everlong argument between the cost of use versus the cost of product.
Do we count the right way?
Having a 25 000 € EKG machine standing unused for 90% of the time. Most of the time with a multi million MRI machine. Just because they are too costly to use. Why is it a costly to use these machines? Because a "smart" MBA has calculated that the "cost" of the device is 25 000 euros divided by the times it's been used in it's life time. Instead of counting the cost by the cost of use if it would be used as much as possible.
This same thing applies to a lot of things. For example in Finland the public transportation in most of Finland is costly because of this ill-adviced equation. Of course you have to be profitable with a business but the most parts of Finland it's actually cheaper to drive your own car from city to city than to take the train. And at the same time trains are running half of the time empty due to the small amount of people who see to get their moneys worth by taking the train.
I would love to get the data from VR on how much more fuel consumption does a single passenger add. If someone knows please let me know.
The example that Vijay used for the use of cost vs. use of product is this: http://www.youtube.com/watch?v=Pvz2JGI-L6Q (Sorry for not being able to embed it. Blogger bugs)
Most of the time as you can see. It's not about product innovation. It's about process innovation.
Ideas that sprung into my mind from the presentation and while blogging
What are good materials to recycle and to what products?
What could I or my company "outsource" to the customers and/or supply chain?
How could I get into a reverse innovation mode from "just" innovating?
Once again thanks for reading this far and comments are highly appreciated!
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