I read an interesting article on reverse innovation on the Harvard Business Review (HBR) website, and this led to an October 2009 article from the magazine itself, and that led me to worry that little ol’ Ireland could very easily get left behind in the innovation stakes.
The blog piece by Vijay Govindarajan, professor of international business at the Tuck School of Business in Dartmouth, N.H., tells of how Bharti Airtel Ltd., India’s largest telecom operator, decided to “strategically outsource its core functions.” It sounds a bit mad, but Bharti Airtel:
Chose Ericsson, Nokia, and Siemens … to build up and manage its telecom network. It chose IBM to build and manage the IT network.
This was done to leverage stronger technological capabilities that existed elsewhere, and because the telco felt its core capabilities were not technical but understanding its customers and building its brand. Govindarajan held that up as an example of reverse innovation (RI) — a term he coined along with Prof. Chris Trimble and General Electric CEO Jeffrey Immelt in the HBR article. RI is basically a process where breakthroughs are likely to be seen and used in the developing world first before they spread to the industrialised world. Essentially it’s the opposite of what typically happens.
The article highlighted two recent product introductions from GE Healthcare: a $1,000 handheld electrocardiogram and a $15,000 portable, PC-based ultrasound machine. The latter cost less than 15% of the company’s high-end ultrasounds. Both were developed in India for use in rural India and China. However, they were being introduced to the States as part of a $3 billion plan by GE to “substantially lower costs, increase access, and improve quality.” They were developed in India primarily to head off local competition by matching competitors’ products with comparably priced equipment.
Elsewhere, the article spoke of the huge and growing populations in those countries and the sustainability problems they face. So, instead of tackling environmental issues in a trendy or hand-wringing manner, they are urgently seeking solutions. As a result, India and China are “likely to tackle many environmental issues years or even decades before the developed world.”
So where does all this leave Ireland? Weren’t we going to fix the world with windmills, wavebobs and the like? I doubt it. I also doubt that we can become some kind of international R&D centre. The principle reason is that we do not have the manufacturing base. R&D may get farmed out to us in little bits and pieces. But it really belongs in two places: At corporate HQ because it is sexy and the head honchos want to take credit for breakthroughs, or close to manufacturing where researchers can quickly make prototypes and resolve production issues before they go live.
Another reason to move research close to manufacturing can be found for the same reason (NY Times) the factories went first: lower costs. There is more to competitiveness than wages alone, but can the Republic with a population of 4.5 million compete with this:
Xi’an … has 47 universities and other institutions of higher learning, churning out engineers with master’s degrees who can be hired for $730 a month.
As Michael O’Duffy asked at his innovation workshop recently, the Irish are considered creative, but can we do anything with it? Having read the HBR article, the challenge is a lot stiffer than I previously thought. We cannot compete on manufacturing costs. Why should we do any better on R&D costs? It’s a pessimistic view, so I will gladly stand corrected.