The Innovation Strategy Most Companies Miss

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1:03Vijay Govindarajan:I'm Alison Beard. And I'm Adi Ignatius, and this is the HBR IdeaCast.

1:14Vijay Govindarajan:Adi, today we're focusing on how to create products and services with widespread global appeal. But let me start with a question for you. If you wanted to make something that would be popular around the world, where would you start?

1:27Amos Winter:Well, I guess the obvious example is look for products and services that are successful in one market and try to adapt them to other ones.

1:33Vijay Govindarajan:Like Coca-Cola and different sizes and levels of sweetness, or Nike running shoes with lighter mesh, or a more basic iPhone? Yeah, I mean, they all seem to be doing pretty well. Yes, they are. But our guests today say that a lot of companies actually fail when they try to adapt goods in this way. And there might be more value in taking a different approach. Amos Winter, professor at MIT, and Vijay Govindarajan, professor at Dartmouth's Tuck School of Business, argue that there's an advantage to tackling international markets first, using innovation to solve the toughest problems most efficiently there, versus starting with offerings for wealthy markets and then watering them down.

2:10Vijay Govindarajan:Winter and Govindarajan, who goes by Vijay, are authors of the book Global by Design, How to Create Innovations that Scale, Travel, and Transform. Here's our conversation.

2:26Vijay Govindarajan:Why should leaders today take a global perspective on innovation from the very beginning?

2:32Amos Winter:I think you can look at it from a number of opportunity standpoints. One, business. The greatest economic growth in the world right now is in emerging markets. And so that, in addition to the large populations, creates amazing business opportunities. But I think the other opportunity is from a social perspective. All the most compelling issues facing humanity really present most compellingly in low-resource settings. You can make that positive humanitarian impact and make a viable business at the same time.

3:04Vijay Govindarajan:Yeah. Vijay, you and a few co-authors introduced the idea of reverse innovation about 15 years ago now, I think. How does this work build on that?

3:14Amos Winter:I would call it reverse innovation 2.0 because the reverse innovation that I pioneered 15 years ago, it was really looking at it from a business strategy point of view. When I accidentally met AMOS, I realized reverse innovation has actually two sides. There is a business strategy side, but then there is an engineering side. And I said, wouldn't it be nice to bring these two perspectives together? That's what led to global by design.

3:50Vijay Govindarajan:And you hear the phrase global by design. And the first thought or challenge that comes to my mind is that if you're trying to design for everyone, for the world, you're not really designing for anyone. So how do you address that worry?

4:07Amos Winter:Well, a big part of making globally attractive solutions is figuring out what core values are shared across many different markets. So I suspect people don't worry about iPhones selling everywhere or Coca-Cola selling everywhere. There's commonalities between different user groups that you can utilize. And then there's modifications to products that are relatively small that you can make so they best align with different markets to maybe change price point or change feature set. But that core value that's universally appreciated still persists between markets.

4:42Vijay Govindarajan:And do you think that companies still try to target primarily wealthy markets first and then are unsuccessful in adapting to less developed countries?

4:54Amos Winter:Yeah, very much so. Part of that is historical in that really all product design for the last 200 or so years has been focused on US European type markets. Part of that, That I think is still because of a bit of a stigma in that companies can look at poor countries and think like, oh, those are poor people. They can't afford to buy products, which isn't true at all. They're also consumers. But I would say more and more multinationals are realizing that the big economic gains in the world are happening in emerging markets. But even if you see that opportunity, actually realizing it is challenging because now you're designing for different population sets than we've historically designed for.

5:38Amos Winter:So if you're, say, an American engineer sitting in Wisconsin, how do you get into the mindset of a mother of five in India? Like that is a totally different demographic. And so a lot of this book also is about expanding the perspective of innovators so you can see these new opportunities and see the requirements they present. And so you can design effectively for them because you're better informed about the differences in the markets and what they demand for solutions. If you really look back, innovation always started in rich countries. And the reason is rich countries have resources and rich countries have consumers who can afford to buy those innovative products which are premium price.

6:22Amos Winter:The reason this is important is there is a dominant logic that develops inside the organization. So the biggest barrier to reverse innovation is not technology, is not that people don't understand emerging markets are important. It is the dominant logic. Companies are so entrenched in terms of the systems, the structures, the processes, the incentives, the capabilities. It is extremely difficult. It's like moving the Titanic 180 degrees. That is the real problem. It's a mindset issue. It's not a technology issue.

7:04Vijay Govindarajan:And so while there have been innovators in these emerging markets that have developed solutions for those markets, you'd like to see more cross-pollination?

7:15Amos Winter:Well, coming back to why this is reverse innovation 2.0 is that emerging markets present new challenges than what we've designed for in wealthy markets. And the situation I'm constantly in as an innovator, and I think many multinationals are facing in emerging markets, is that consumers there still demand a certain level of performance in the products that they buy. You know, nobody wants semi-clean water. Nobody wants a semi-functional toilet. Like, you know, there's baseline performance. But those consumers may not be able to afford to pay for the existing solutions at the price point that's already in wealthy markets.

7:54Amos Winter:And so you're faced with this conundrum of how do we provide that high performance at a low cost to engage emerging markets? And what's powerful about this and the reverse part of this is that if you can actively focus on emerging markets first and figure out that high-performance, low-cost solution, you end up creating something very valuable. Valuable enough to be adopted in emerging markets, but also valuable enough to potentially disrupt wealthy markets by providing just as good or better performance at a much lower price. And I would say there are three forces that are coming together. that.

8:31Amos Winter:That's why it's also applies to entrepreneurs. The three forces that are coming together is the rich country, the growth is slowed down. The second is in the emerging markets, there are smart companies which are innovating and they could potentially disrupt multinationals in their own home market. So the second threat these companies are facing is, hey, we cannot ignore emerging markets because those giants from emerging markets can come and disrupt us. And the third is affordability. Affordability crisis has hit even in a rich country like the U.S. People can't afford to buy healthcare. They can't afford to get good education.

9:14Amos Winter:They can't afford to buy grocery. So we need affordable solutions in the U.S. And where best to find them is in poor countries.

9:24Vijay Govindarajan:So let's dig into some practical advice. First, how do you recognize global by design opportunities?

9:33Amos Winter:We talk about in the book three merits that you really need to check yourself whether you're satisfying before you launch into a new initiative. The first of those is what we call problem merit. And that's a gut check on understanding, are you solving a problem that's going to impact ideally a large number of people in a meaningful way, and ideally with a business opportunity behind it. So if you're successful in making that impact, there's a viable business to scale and sustain the solution. And that problem merit identification goes beyond just saying, oh, people need clean water. It's really distilling what are the metrics of performance that must be satisfied for a successful solution.

10:16Amos Winter:So it may be volume of water or what contaminants you have to get out or the price point people are willing to pay. Then the second area of merit we have to evaluate is what we call innovation merit. And that's a gut check on is innovation actually required to solve this problem? Because there's many problems where you can just give money through philanthropy or maybe just adapt something in a slight way for it to work in a new market. So you have to convince yourself, does actually something new have to be created to solve this problem. And then the third area merit we talk about that you have to satisfy is what's called value merit.

10:54Amos Winter:And that's all about aligning value propositions. So one, people are going to support your work creating a solution. And two, people are going to support the dissemination of your solution, which typically means people are going to make money by using your product or at least derive value from it. And people are going to make money by producing and selling it. We represent it in a Venn diagram. When you look at that Venn diagram and you say, hey, I have a compelling problem, it needs innovation, and boy, if I'm successful, it's going to deliver a lot of value. That not only shows you you have a compelling opportunity in a resource-constrained market, but also that you likely have a reverse innovation that's going to deliver value globally because it creates high performance at low cost.

11:36Vijay Govindarajan:And if you've identified a problem that is large and could be tackled in any market where innovation is required and you might be able to create value, how do you then narrow it so that you can focus on something specific enough to design around?

11:52Amos Winter:There's a very important concept that we talk about called being a tempered dreamer, right? And that is all about recognizing your own limitations as an innovator and figuring out the niche where you can make the largest impact. And so I'll give you an example. The most inspiring professional meeting I've ever had in my life was with the mission director for Gaza and West Bank. I met him in Israel. And he said, look, we need solutions for farmers to grow better crops, to have water, to have energy. We need that now in order to prevent extremism, right? Because if people have these more promising livelihoods by being like a farmer, they're less likely to join a terrorist group.

12:35Amos Winter:And this resonated with me very powerfully from a patriotic standpoint. Like, I care about global stability and security in the U.S. I'm not a policymaker. But I do create irrigation technology, desalination technology, and I realize that I can play my part by creating those technologies to help global stability, even though I'm not a government employee. And so I think innovators have to figure out, like, what skills do they have? What resources do they have? What is tractable to realize in a reasonable amount of time in order to still be creative and ambitious, but narrow down, where can I make an impact?

13:16So Vijay, do you have an example from the corporate world where you've seen leaders or executives identify those three things that we're talking about, the problem merit, innovation merit, value merit, but then narrow

13:32Vijay Govindarajan:down the problem in a way that it's something they can tackle?

13:35Amos Winter:When I went to work for GE Healthcare, I was sent to India. And what we quickly realized was there was almost 60 % of Indians who did not have access to healthcare devices that we have in the US. So we found a very huge problem that can be solved, which is how do you give access to high quality medical imaging products to these 60 % of Indians. Then we said, that's like a boiling the ocean. That's so big. So we said, let us focus on one small segment within this, which is EKG, the electrocardiogram, because as it turns out, the bulk of the people who die in India die because of heart attack. So EKG is a very important thing that is missing.

14:27Amos Winter:So we said, how do we create an EKG machine which has got the features of the$20 ,000 EKG machine we have in the U.S., but at a price point Indians can afford, which is$400. So now we have come to a very specific problem, which requires innovation to close the gap. We went from big to something that we can actually solve.

14:56Vijay Govindarajan:So let's talk about that process of innovation. You talk about three parts, elucidating requirements, designing a solution, and then scaling locally and globally. But there are steps within these phases, so I want to pull them apart and sort of tackle each one at a time. When it comes to elucidating requirements, how should innovators work to understand all of the stakeholders' needs and goals. So Amos, in your example, it's those farmers in Gaza. VG, in your example, it's the doctors trying to do medical testing, heart testing in India.

15:36Amos Winter:So it's always valuable to map out who are all the stakeholders that are going to play a role in the dissemination of your eventual product and understand the power that they have on your success or failure. So you can usually just do that as a mental exercise and map it out like, oh, the government's going to subsidize this or there's a retailer who's going to do this. And once you map those out, nothing beats going to talk to them. If you can travel and go interact with them and talk with them and build rapport and understand their needs and desires and requirements, you get a much clearer insight about what value propositions are going to resonate with them and promote them to adopt your solution.

16:18Amos Winter:And the big thing about elucidating requirements is figuring out what problem are you actually trying to solve and intentionally putting yourself in a necessity as a mother of invention situation. We talk about this idea of primary and secondary requirements. So a lot of innovation is very much driven by primary requirements and a lot of academic research is driven by primary requirements as well. So you want to make the lighter or faster or more efficient gizmo. And a lot of that innovation work forgets that, well, if that gizmo is adopted, it has to be cheap enough and people have to like how it looks and it has to last long enough.

16:58Amos Winter:So if you intentionally, as you're elucidating requirements, try to form as comprehensive a set as possible of the primary and secondary, you put yourself in the best position for success and not missing some of those critical, but maybe hidden secondary requirements too late in the game? I think once we decided we wanted to create a value product, what we did was a small portion of our innovation team went and lived in rural India for two months. The mandate I gave the team was don't focus on the solution. Focus on the problem, independent of the solution. And when they lived there, they observed the villagers.

17:45Amos Winter:They talked to the villagers. They did deep ethnographic research and came out with four important requirements. One is affordability. The machine can't cost more than$400. That's all they could afford. Second, it has to be portable because there was no hospital, no imaging center in these places. You got to carry the device. Third, it has to work not out of house electricity because most of these villagers didn't have electricity. And fourth, it should be easy to repair because these villagers didn't have places where you could go repair them. Easy to operate and easy to repair. So they just came back with those requirements.

18:36Amos Winter:It is by actually living in rural India.

18:40Vijay Govindarajan:And how long do you spend on this elucidating requirements phase before moving on to actually prototyping and testing solutions? I think corporations want to move fast, but the same thing, do it right.