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How GE is disrupting itself

For decades GE has followed the strategy of selling modied western products to

emerging markets but now as the situation changes it is trying to do the reverse.

his article talks about how GE is changing its strategy of glocali!ation to reverse

innovation tapping the emerging markets.

About GE

homas "lva Edison# the inventor of electric lamp# established the Edison General

Electric company in $%&'# bringing all its businesses together. (ust after ) years it

merged with the homas*Houston company to form the General Electric +ompany.

Several of Edison,s early business o-erings are still part of GE today# including

lighting# transportation# industrial products# power transmission# and medical

euipment. GE is known for its innovative designs and initiatives in various sectors.

/ne hundred years after it began# GE e0tended its reach into new markets# online andaround the world. 1n $&& GE generated over 2) billion in electronic sales alone. 1ndia#

home of many of the world,s brightest technologists# provided the site for a new GE

Global 3esearch +enter. 4ecause of these e-orts# the world of medicine saw radical

changes thanks to new GE technologies in imaging and diagnostics. GE also started

establishing various technology centers at places like +hina. 1nnovation at GE e0tended

from advances in the detection and diagnosis of cancer to work on the 1nternational

Space Station.

Glocalization to Reverse Innovation

Glocali!ation is nothing but the practices adopted by large multinationals of rstdeveloping a product at home and then distribute it worldwide# with certain adaptation

in order to suit the local conditions. 1t helps companies to achieve a tradeo- between

minimi!ing their cost and local customi!ation to capture greater market share.

Glocali!ation worked well for some years as there was a huge market available with a

very less competition. 4ut now as local giants emerge# and with the high rate of

development of technology in countries like 1ndia and +hina# the scene seems to

reverse. So companies like GE are looking at 3everse 1nnovation for the rescue.

3everse 1nnovation is a new strategy in which large multinationals produce innovative

products in the emerging based on their needs# generally cheaper than those accepted

in the rich nations# and eventually selling these products or nding their applications in

the rich nations. GE badly needs innovations like the low cost E+G and ultra sound

machines# not only to tap the high end segments in the markets of 1ndia and +hina but

also to preempt the local emerging giants from producing the same products and then

using them to disrupt GE in rich countries. 1f GE doesn5t master the reverse innovation

emerging local companies can destroy it.

4ut the problem in adopting reverse innovation is that many of the core elements which

led to the success of glocali!ation are not at all compatible with reverse innovation

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infact they are in con6ict with each other. hese strategies need not only co e0ist with

each other# they should cooperate with each other.

What led the shift?

GE achieved great growth rate by adopting glocali!ation from $&7 ie 28.% bn in $&%' to

2&9bn or more than half its revenue by )''%. 4ut glocali!ation focused only on the rich

sections and never focused on the mass population of the emerging markets.

Glocali!ation was based on two assumptions which proved to be wrong.

$. Emerging economies will largely evolve the same way as developed economies did:

4ut the reality is that developing countries are growing far more faster and in some

cases they have actually ;umped ahead of developed countries. Emerging markets are

becoming centres of innovation in elds like low cost health care devices# carbon

seuestration# solar and wind power etc.

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?ltrasound imaging was used in imaging centers in high tech hospitals# which is

comparatively cheaper as compared to + or M3 scan. GE developed various 3@A

centers as well as it entered into various ;oint ventures to compete in all the three

segments namely obstetrics# cardiology# and general radiology.

4y )'''# GE established solid market positions in rich nations of the world but the

picture was di-erent in developing countries which lacked proper infrastructure and

their priorities were di-erent. For rich nations performance matters the most after

features but in a nation like china price was of utmost importance after portability. So in

)'') GE launched its portable ultrasound imaging device combined with a laptop

device. 1t was sold at as low as 2>'''' which further reduced to 2$='''. Si0 years after

the launch it was a part of the global product line with revenue of 2)9%mn and a growth

rate of =' to B'7.

4ut this product development was a result of an anomaly in organi!ational model led by

/mar 1shrak who was heading the business in china. He initiated a fourth segment since

the other three was focusing on the premium products# what is called as local growth

team CDG model which was based on the ve critical principles.

$. Shift power where the growth is:

1shrak noticed that autonomy is very important for the success of DGs# without which it

will become pawns of global business. 1t was necessary to focus on the specic needs of

customers in the emerging markets. herefore DGs were given the power to make their

own strategies# organi!ations and products which will directly focus the needs of the

customers.

). 4uild new o-ering from the ground up:

his principle basically e0plains the di-erence between the concept of adaptationwidely used in glocali!ation and the !ero based reverse innovation. Since there is a

great di-erence in the rich nations and the poor ones in terms of income levels#

infrastructure and sustainability needs it is suggested that reverse innovation should be

!ero based i.e. products should be made from the scratch rather than making few

changes in the global products.

For e0ample the compact ultrasound was built from scratch although it drew its

architecture from the 3@A e-ort made by a product development unit in 1srael# but for

most other GE it was not acceptable as it could not come close to the performance

standards of GE healthcare. 4ut 1shrak saw the opportunity of launching such a product

in the +hinese market. he product was made compact by changing the internal muscleof the unit by converting most of its hardware into software operated subsystems.

>. 4uild DGs from ground up like new companies:

1n order to bolster !ero based innovation# it5s a necessity to have a !ero based

organi!ation. he GE organi!ational model i.e. its hiring practices# reporting structures#

;ob descriptions# titles# norms for working relationships and power balances between

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functions were all designed based on glocali!ation. For DGs to be a success this had to

be changed.

Hence they constructed a business unit that managed a complete value chain: product

development# sourcing# manufacturing# marketing sales# and services. "lso by recruiting

locally they got all the e0pertise needed including engineers and low power

consumption and a commerciali!ation team.

"lso in order to reduce costs incurred by premium products like using direct sales force

they decided to for dealers and do away with direct sales forces. his also ensured that

the product was widely available by their dealer network. hey also decided to use their

local service and replacement centers instead of relying on the GE5s global customer

care service.

8. +ustomi!e ob;ectives# targets and metrics:

1nnovation endeavors are by nature uncertain. here are a lot of unknowns# for which

assumptions are used. 1t5s better to test these assumptions and learn uickly then to gofor hitting numbers. So the metrics used by DGs are di-erent in di-erent cases.

For e0ample the ultrasound DG knew that doctors in rural china were less aware about

ultrasound as compared to the doctors in the cities. 4ut the tem did not have any clue

about the awareness of the technology and its acceptability and its uses. So they

studied the reactions of the doctors in those parts and came to the conclusion that ease

of use specically the primary care screening was of the utmost importance. his led to

the development of guiding materials and training# simpler keyboards and pre loaded

commands.

"lso 1shrak was careful in deciding the performance criteria from one DG to another.

here was also some aberrations from the GE global standards. Dike since the labor costin china is low and service needs were high# he preferred allocating a larger sta- for

service.

=. Have the DGs to report to higher authority in the organi!ation:

1t is very much essential for a DG to have support from the top in order to thrive. he

ma;or roles of the senior e0ecutive would be to mediate con6icts between the local

teams and the global team# allocating and connecting resources to various DGs

including the 3@A e-orts and helping in taking the innovations to a broader scale i.e.

the rich nations.

So all the small DGs used to directly report to 1shrak. He made sure that the DGs have

the sucient resources including the human resource and made sure that they have

enough e0pertise before they deliver. ?nder his leadership the number of engineers

grew from $> to 9'. Finally 1shrak also played a crucial role in marketing the ultrasound

device to the global market by identifying di-erent applications of it in the developed

markets.

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"ll these e-orts of reverse innovation are still in e0perimentation phase# although the

multinationals do understand the importance of protecting and nurturing the local

e-orts in product development# very less work has been done till date. /ne of the

crucial step that GE proposed to take is providing a separate