Why reverse innovation will change the world

Global busi­ness strate­gist Vijay Govin­darajan said on Monday evening at North­eastern Uni­ver­sity that reverse inno­va­tion rep­re­sents one of the biggest oppor­tu­ni­ties for cor­po­rate growth in America over the next sev­eral decades.

“Reverse inno­va­tion will trans­form just about every industry, including energy, health­care, trans­porta­tion, housing, and con­sumer prod­ucts,” explained Govin­darajan, who coined the term in 2009 while working as a chief inno­va­tion con­sul­tant at Gen­eral Electric.

The term refers to the process by which com­pa­nies in emerging mar­kets pro­duce inex­pen­sive goods and ser­vices to meet the needs of the poor and then repackage them as cost-​​effective inno­va­tions for Western buyers. It has inspired Govindarajan’s epony­mous New York Times and Wall St. Journal best­seller and helped propel him to the third spot in the latest Thinkers50 list of the world’s most influ­en­tial busi­ness minds.Govin­darajan dis­cussed the global phe­nom­enon with hun­dreds of stu­dents, fac­ulty, and staff who filled Blackman Audi­to­rium Monday night for the fifth install­ment in the “Pro­files in Inno­va­tion” Pres­i­den­tial Speaker Series. Sev­eral hun­dred people who could not attend the event watched it live via Northeastern’s Face­book page.

Pres­i­dent Joseph E. Aoun hosted the pro­gram, which is designed to bring the world’s most cre­ative minds to campus for con­ver­sa­tions on inno­va­tion and entrepreneurship.

Over the course of his hour­long lec­ture, Govin­darajan gave three exam­ples of reverse inno­va­tion in the devel­oping world, all of which offer uni­versal access to world-​​class quality at an ultra-​​low cost: a $30 arti­fi­cial leg made of recy­cled plastic yogurt con­tainers by a doctor in Thai­land; a $500 elec­tro­car­dio­gram machine made by Gen­eral Elec­tric and sold in some 225 coun­tries; and $2,000 heart surgery at the Narayana Hru­day­alaya Hos­pital in Ban­ga­lore, a health clinic which has been called the “Henry Ford of heart surgery.”

But reverse inno­va­tion, a term Govin­darajan repeated at least half a dozen times, is about far more than reducing cost for the sake of poor con­sumers. “It is about pushing the per­for­mance par­a­digm and offering more for less,” he explained. “As coun­ter­in­tu­itive as it may seem, the quality demanded by poor people tends to be higher than the quality demanded by the rich.”

To prove his point he recalled the case of the cost-​​effective arti­fi­cial leg sold in Thai­land, where the chief occu­pa­tion is farming and sub­sis­tence depend on biking, climbing trees, and walking on wet sur­faces. “That means that you have to make an arti­fi­cial leg that is supe­rior in quality to the one we have for $20,000,” Govin­darajan explained.

Govin­darajan also dis­cussed his global ini­tia­tive to design a $300 house, which he first described last year in a blog post for the Har­vard Busi­ness Review. He framed housing as a human right, noting that “even spi­ders have homes,” and pro­fessed his goal of leading the effort to build a home that pre­vents the spread of cholera, malaria, and tuberculosis.

“This is a chal­lenge for busi­ness,” he explained. “Charity can not solve the prob­lems of the poor. There is not enough money in the world.”

And yet Govin­darajan is adamant that Amer­ican cor­po­ra­tions are ill pre­pared to trans­form their busi­nesses by taking advan­tage of some six bil­lion so-​​called non-​​consumers, saying they are “poorly posi­tioned to cap­ture this opportunity.”

President Joseph E. Aoun (left) greets business strategist Vijay Govindarajan on Monday night at the Profiles in Innovation Presidential Speaker Series.

He cited the failure of Kel­logg to take hold of India’s hot break­fast market. Instead of making a brand of corn flakes that remains crisp in hot milk, which Indians are fond of pouring over their cereal, they simply offered alter­na­tive fla­vors. “Amer­ican com­pa­nies are trying to unlock oppor­tu­ni­ties in emerging mar­kets using Amer­ican logic,” he said. “There­fore they mis­er­ably fail.”

Govin­darajan has also col­lab­o­rated with Ravi Rama­murti, Dis­tin­guished Pro­fessor of Inter­na­tional Busi­ness and Strategy at North­eastern, coau­thoring a sem­inal paper on reverse inno­va­tion that was selected by Germany’s Euro­pean Busi­ness School as the best article on inno­va­tion man­age­ment pub­lished in 2011.

Prior to Govindarajan’s lec­ture, audi­ence mem­bers were treated to a fun video spoofing the con­cept of reverse inno­va­tion and fea­turing Aoun. After his lec­ture, he fielded ques­tions posed by audi­ence mem­bers and social media users, one of whom asked him for advice on becoming a suc­cessful social entrepreneur.

“Keep your ambi­tion high,” Govin­darajan responded. “Humans rarely out­per­form their ambi­tion and rarely exceed expec­ta­tions. The real ques­tion you have to ask your­self is, ‘What is your ambition?'”

Aoun asked Govin­da­jaran why reverse inno­va­tion could not take root in a devel­oped nation like the U.S., which has a large con­tin­gent of non-​​consumers.

“There are about 40 mil­lion Amer­ican non con­sumers of health­care in the U.S.,” Govin­da­jaran explained, “but cor­po­ra­tions don’t allo­cate resources for small cus­tomer seg­ments. In India and China there are bil­lions of non-​​consumers, so there is a will­ing­ness to allo­cate resources.”