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The Reverse Innovation Revolution

2012 November 21
m-pesa (1)

Revolutions are funny things.  They succeed in large part because nobody is paying attention.  The world appears stable, even comfortable and then out of nowhere someone sees a need, attracts a following and change comes, seemingly out of nowhere.

The seeds of major events are usually sown in small places.  From the American Revolution to World War I, personal computers to the Web, the spark tends to come from the edge, rather than from the center.

There’s something like that brewing now.  Over 2 billion people are connected to the Web and there are nearly 6 billion mobile subscriptions.  As information technology reaches increasingly remote areas of the world, new markets are being created and multinational companies are finding that the lessons learned far away can lead to profits at home.

A Personal Story

On an early trip back from Poland in the late 90’s, I was recounting a funny story about the frustration of paying my bills at the post office.  For me, it was just one of many annoyances I experienced when dealing with the remnants of the post-communist infrastructure.

A family friend, who had built a successful business handling medical payments, somewhat unhelpfully suggested that I simply pay with a check.  “There are no checks,” I replied and laughed when I saw his eyes widen at the realization that his business model would have no relevance in an emerging market.

Today, checks are still rarely, if ever, used in Poland.  There is little need for them. Online banking quickly took over and people pay their bills electronically.  Adoption, perhaps not surprisingly, went much more rapidly than in more developed markets.  If you are creating a new banking system in the age of the Web, you don’t need checks.

That’s the potential of reverse innovation.  Markets without 20th century technologies are ripe for the kind of 21st century innovations that lead to lower cost, high performance products that can be deployed worldwide.

Greenfield Consumers

When I first got to Poland there were few consumer products available, so companies rushed to get in and build market share for their brands .  There were great profits to be had selling products developed in the West to millions of people entering the middle class who were eager to join the consumer culture.

These days, however, things are going the other way.  Major multinationals are finding that products developed in emerging markets are demonstrating that they can become global brands.

Unilever developed it’s Pureit water filtration system for India, but thinks that it can market it much more widely.  Gillette plans to bring home the low cost razors they developed in poor countries and Wal-Mart’s aggressive convenience store strategy is a direct result of adapting to the needs of poorer markets.

Wherever you look, some of the hottest things going on at global companies are originating in out of the way places.

Medical Miracles on a Shoestring

There is no greater economic issue than the rising cost of health care.  Even the planet’s richest economies are struggling to deliver competent medicine at a reasonable price.  In America, with millions uninsured, the digital divide is being overshadowed by the health care divide.

The situation in developing countries is, of course demonstrably worse, where billions of people live on just a few dollars a day and many are located in remote areas far from the nearest hospital.  Having lived in emerging markets and travelled to others that were desperately impoverished, I can tell you that high tech medicine is one thing that such places certainly do not evoke.

However, some global giants have found profitable opportunities in some of the most unlikely places.  GE has developed and a portable ECG machine that costs a few hundred dollars rather than thousands.  Medtronic innovated their business model and found that they can profitably bring cardiac care to rural India with their Healthy Heart initiative.

It goes without saying that the cost efficiencies developed for the poorest markets in the world are also much needed at home, where the need to rein in health care costs is dire.

Mobile Payments and Banking

On tech blogs, nothing’s hotter than mobile payment solutions like Square, Paypal and Google Wallet. Sounds great.  When does it happen?  Not for another 10 years, Wired magazine predicts.  A combination of privacy concerns and inertia are slowing adoption. After all, our physical wallets work just fine, thank you very much.

However, in Africa, where banking facilities are few and far between, payments are a serious problem.  Most people don’t have bank accounts and many are migrant workers who earn money in urban areas and need to send money back to their families who live in small villages.

Vodafone has bridged the gap with m-Pesa, a mobile payment service that achieved 250,000 subscribers in its first year and is now the leading financial services company in Kenya.  They are now rolling the service out to other countries like Afghanistan and Tanzania.

M-Pesa has been the subject of a number of research papers and case studies, so you can be sure that at least some of what’s being learned in the planet’s forgotten lands will be applied to the developed world as mobile wallets gain traction.

How the Other Half Innovates

In an earlier post, I told the story of Ramanujan, a desperately poor man from rural India who, by chance, was discovered by G.H. Hardy and became one of history’s greatest mathematicians.

At the end of the improbable tale I asked, “how many have we lost?”  It’s impossible to say with certainty, but it’s a fair bet that poverty squanders much of the world’s most precious talent .

While companies like Google and Facebook like to brag about the Hacker Way, in poor countries hacking is as natural as breathing.  It is, in fact, a necessity.  When you live in a society that doesn’t fill your needs, you find a way to fill them yourself and you learn to do it in a low cost way.

So, perhaps it is not surprising that even high tech companies like GE, Nathan Myhrvoid’s Terrapower and networking giant Cisco have begun to develop specifically for emerging markets in order to create disruptive innovations for their most competitive markets in rich countries.

As rising living standards and mobile communications bring the brain power of billions of previously inaccessible brains, we all win.  Those huddled masses are more than just hungry mouths, they represent the next big wave of innovation.

- Greg

8 Responses leave one →
  1. November 21, 2012

    Greg – so true. Developing countries don’t just hack, they leapfrog advances. Like your “cheque” friend they’re not encumbered or wedded to any particular tech or solution. They don’t have to “forget” their reliance on ATM’s by jumping straight to mobile-enabled micro-payments. As is often the case, legacy systems/processes/infrastructure hobbled rate of adoption – and high levels of customer apathy. Those hungry (often literally) for change are always the one’s pushing. Love the fact that my continent (Africa) may actually be leading the way in next generation mobile utilization in innovative ways. More power to them.
    Hilton Barbour´s last blog post ..Is Innovation a Siren’s call for your company?

    [Reply]

    Greg Reply:

    Not just mobile though. Check out the Terrapower link. Africa will most likely be the place where the next generation of nuclear power comes to fruition.

    - Greg

    [Reply]

    Hilton Barbour Reply:

    Ironically solar, wind and water would seem more obvious solutions. Just glad that Tech is allowing the continent’s teeming masses to get ahead – despite the very obvious governmental issues many african countries face.
    Hilton Barbour´s last blog post ..Is Innovation a Siren’s call for your company?

    [Reply]

    Greg Reply:

    I think the advantage of “backyard nukes” is that they are self contained, so don’t require maintenance and also don’t require the clearing of much land, which is a plus in remote areas.

    Anyway, we’ll see…

  2. November 21, 2012

    Great post. You might also find these related perspectives interesting.

    “Challenging Mindsets: From Reverse Innovation to Innovation Blowback” http://bit.ly/10czyDx

    and also

    “Innovation blowback: Disruptive management practices from Asia” http://bit.ly/TbOZWV

    [Reply]

    Greg Reply:

    Very cool. Just tweeted it:-) Thanks for the tip!

    - Greg

    [Reply]

  3. November 25, 2012

    Greg,

    This reminds me a little of how Western Pharma companies are looking ever harder at things “off the beaten track” – remedies and cures used in primitive cultures and the chemicals found in jungle plants. Ironically – a the same time we have deforestation removing this “Jungle Wealth” – possibly a parallel of this could be the way we risk losing the unique perspectives of the “rising billion” as they become part of global culture.

    [Reply]

    Greg Reply:

    Martin

    That’s a very interesting point. There are some similarities, but I do think that reverse innovation is fundamentally different. Companies are finding that the additional constraints in poorer countries and lack of legacy technologies useful in creating new innovations, where the pharmaceutical research was more focused on rediscovering old knowledge.

    - Greg

    [Reply]

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