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 / Winter 2012 / Issue 69(originally published by Booz & Company)


Best Business Books 2012: Innovation

The Wide Lens falls short in two areas. The first is the missing perspective of smaller companies within complex innovation ecosystems that will rarely get the opportunity to play the leadership role; the lessons that these companies will glean must come mainly through inference. The second is the lack of detailed guidance for mapping and aligning the innovation ecosystem within a company. Adner includes a short section on this topic at the end of Part I, but my experience suggests that the internal pitfalls of context warrant much more attention.

These minor shortcomings aside, it is clear that innovation ecosystems have broad implications across society. In healthcare, in particular, the frequently conflicting interests of regulatory agencies, insurers, doctors, and hospitals prevent the adoption of potentially lifesaving innovations. Adner offers up electronic health records (EHRs) as a case in point. A key component in streamlining and improving the quality and cost of healthcare, EHRs should have become commonplace years ago in the United States. But they didn’t — mainly because of the investment necessary to get them off the ground. They are only now starting to gain momentum because they are promoted by new incentives from the federal government.

Energy presents another area in which the benefits to ecosystem incumbents are not yet compelling enough to drive large-scale change. Although most books analyze innovations with 20/20 hindsight, Adner’s in-depth analysis of the still-nascent electric car industry and his willingness to offer ideas for kick-starting it are praiseworthy. Policymakers should take note.

Innovation Transplanted

In Reverse Innovation: Create Far from Home, Win Everywhere, Vijay Govindarajan and Chris Trimble make a compelling argument for companies to not just widen their lens, but shift it to a completely different context — that of developing economies. Companies are well aware of the opportunities in emerging markets, but they’ve also learned that what works in Chicago and Boston doesn’t always work in Shanghai and Bangalore.

This has led some executives to the erroneous conclusion that they should wait to enter emerging markets until these markets are more mature and ready for their companies’ offerings. But Govindarajan and Trimble, who, like Adner, teach at the Tuck School of Business, warn that this mind-set will cause many companies to miss valuable opportunities for growth. They may also run the even bigger risk of being leapfrogged in their home markets by innovations originating from the very markets they are ignoring.

The keystone of the authors’ thesis is that developing nations will be the genesis of innovation in the decades to come, and not because of the lower cost of labor. “The primary competitor is not the horse you’ve been racing against for years,” they caution readers, “it’s the horse you may never have heard of before.” They cite a growing list of companies based in emerging markets — Embraer in Brazil, Cemex in Mexico, and Mahindra & Mahindra in India, to name a few — that are rapidly making inroads in the developed world.

Fortunately, Govindarajan and Trimble don’t dwell too long on doomsday scenarios. Instead, they outline a pragmatic process that can enable companies in developed nations to capture the benefits of “reverse innovation” — that is, innovation that is developed first in an emerging economy, and then flows “uphill” to more mature markets.

The authors begin by describing five “needs gaps” that harbor opportunities for innovation within emerging markets: performance, infrastructure, sustainability, regulatory issues, and cultural preferences. For example, customers in emerging markets are often willing to sacrifice performance for affordability. A company can thus capture a compelling opportunity if it can offer a product with 50 percent lower performance at 15 percent of the current price of its products designed for developed markets. However, this cannot be accomplished by simply slimming down the existing product; it requires a clean-slate innovation effort.

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