It’s Time to Shift the Paradigm for Innovation


If I asked you to tell me the one factor most people use to determine the value of a product or service, what would it be?

If you live in a developed country, your answer is almost definitely cost. The more expensive something is, the better it is, is the mentality that drove sales and innovation in the 20th century.

The world has changed, but the thinking has not. 5.5 billion people live in developing nations – the lion’s share of the world’s consumer base – but companies are still creating and pricing products for the customers that they know, while ignoring the issues closest to those they don’t.

Clearly, if businesses want to succeed in these emerging markets, the paradigm of innovation needs to shift. To do so, says esteemed professor Vijay Govindarajan (known as VG), they must embrace the concept of Reverse Innovation.

The concept is simple: instead of creating a product for one person who has $1000 to spend, create one for 1000 people who have $1 to spend.

It makes total sense, even if we understand why companies haven’t embraced it already. Nobody, rich nor poor, would prefer what the poor person can afford over what the rich person has. It’s counter-intuitive to our notions about value and quality.

VG believes if businesses can get beyond such preconceptions, reverse innovation will become “the most significant growth opportunity for American corporations going forward”.

He points to the example of how General Electric developed a portable ECG machine – the MAC India – for doctors in rural India. The traditional machine costs $50,000, is quite large, and needs electric power. Not only can 90% of Indian hospitals not afford that, but most urban areas in India don’t even have hospitals to pay the bill!

The MAC India weighs about 300gms, fits in a backpack, and runs on batteries. More importantly, it only costs $500.

This is what VG calls The 10% Solution.

To succeed in developing countries, businesses must find a way to make the same product for 10% of the price. That might seem illogical until you consider the consumer base (MAC India now sells in 150 nations) is 10x that of the traditional market.

Those that fail to find a 10% solution are doomed to be disrupted in the years to come, when reverse innovation results in products that appeal internationally.

Consider India’s NH Hospital, who developed an open heart surgery procedure that costs 5% of an American equivalent, while also boasting a lower mortality rate.

In 2014, they opened a 104-bed hospital in the Cayman Islands – a 1.5 hour flight from Miami.

And so it begins.

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