Disrupting General Electric: Changing its Mindset Through Reverse Innovation
Updated January 6, 2014
Some months back I wrote a post called INNOVATE, Or Die! Why Results-based Visionary Leadership is America’s Solution. I’m connecting this to a fascinating article in the Harvard Business Review, How GE is Disrupting Itself.
The thrust of the piece, co-written by CEO Jeffrey Immelt and two academics, is that GE could be destroyed if it doesn’t master what they call “reverse innovation.” Globalization and the rapid rise of India, China, Brazil and other emerging economies are turning upside down how business is done, and specifically how companies approach innovation.
A couple of years ago GE publicly stated that it would spend $3 billion to create 100 innovations in health-care. The aim was to lower costs, improve public access and raise quality. What was of noteworthy interest was that GE plans to focus on rural India and China. Immelt and his co-authors call their process “reverse innovation,” the antithesis of what they refer to as the traditional “glocalization” approach used for decades by industrialized countries. In short, reverse innovation involves how emerging economies take their new products global, which may include new, radical approaches to solving problems.
For Immelt and Co., “glocalization” means how Western companies created products for their domestic markets and then later adapted them for foreign markets.
Note: I don’t have a problem with Immelt’s concept of reverse innovation and the implications of globalization, but I do object to how he and his co-authors have twisted the term “Gloco” to fit their article. Gloco, a term that has been in use for many decades and attributed to Scots town planner and social activist Patrick Geddes, is aimed at thinking first of the planet and then acting locally (in one’s community). In a business setting, the term has been adapted by a variety of multinationals to refer to how to adapt their corporate strategies to local environments.
Now that I have that off my chest, let’s continue.
“Glocalization” as Immelt calls it, worked fine before emerging competitors became major players in the global economy. However, as he states in the HBR piece: “If GE’s businesses are to survive and prosper in the next decade. They must become as adept at reverse innovation as they are at glocalization. Success in developing countries is a prerequisite for continued vitality in developed ones.”
There is, however, a tension between glocalization and reverse innovation. They see the former as being the dominate strategy for the “foreseeable future.” But in reality the two approaches, or models, need to work together in a complementary way instead of competing.
The authors explain that glocalization has been the dominant approach since it has “delivered.” GE’s revenues skyrocketed as a consequence. However, that occurred when emerging economies were at the early stages and they had very limited middles classes from which to spur to consumer spending. But that was then; this is now.
Let’s look at an example of reverse innovation presented by Immelt and Co.
In the 1990s, General Electric manufactured ultrasound devices in the U.S. and Japan for the Chinese market. An ultrasound typically cost over $100,000 (2002 dollars, US), and it was the imaging centers in more advanced hospitals who were the customers. The uses included cardiology and obstetrics.
However, these expensive machines had poor sales. In 2002, people in China developed an inexpensive, portable ultrasound that used a laptop computer. The cost? A mere $30,000-40,000. The ultrasound machines were used in rural clinics in China, and in the U.S. they were deployed on ambulances.
By 2007 the cost of an ultrasound had plummeted to $15,000. Jump ahead just one year and these portable devices had global revenues of $278 million, up from $4 million in 2002. In 2009, portable ultrasounds cost between $15,000 and $100,000, in contrast to conventional machines which cost between $100,000 and $350,000.
Immelt talks about the critical important role that a CEO plays in serving as a catalyst for change, and to ensure that those in the organization see the big picture. When it comes to reverse innovation, executive leaders must work to advance their organization to new organization structures that will enable product innovation.
Watch this short video of Jeffrey Immelt in which he discusses innovation in healthcare.
And if you have time, this 20 minute video where Immelt and two other business leaders talk about the future of the American corporation.
For me, as a long-time practicing student of leadership, there are very significant implications for global corporate leadership. For example, when you’re dealing with multinationals operating in disparate cultures spanning the globe, the concept and practice of shared (distributed) leadership becomes a cornerstone to an organization’s eventual success. A top-down approach that doesn’t respect geographic, cultural and market uniqueness will implode upon itself.
By sharing his story, Jeffrey Immelt presents a paradigm shift in how to identify, secure and serve new markets. This is perhaps the most important and contemporary role of executive leaders in the 21st Century. Those who “get it” and who align and lead their people forward will reap the greatest benefits.
The world becomes more competitive, every day.
– Jeffrey Immelt
Click here to download my complimentary e-book Workforce of the Future: Building Change Adaptability, 2nd Edition.
Visit my e-Books, Resources and Services pages.