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How GE Is Disrupting Itself

General Electric developed low-cost electrocardiogram and ultrasound machines for rural markets in India and China. These products were so successful that GE began selling them in the US, pioneering new uses for such machines. This process of developing products in emerging markets and selling them globally is called "reverse innovation." While GE's traditional "glocalization" strategy of adapting products developed for rich countries worked in the past, the company must now also pursue reverse innovation to access growth in large emerging markets and prevent those markets' companies from disrupting GE. However, reverse innovation conflicts with glocalization, and GE must overcome this conflict to combine the two strategies for future success.

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Adithya Prabu
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145 views2 pages

How GE Is Disrupting Itself

General Electric developed low-cost electrocardiogram and ultrasound machines for rural markets in India and China. These products were so successful that GE began selling them in the US, pioneering new uses for such machines. This process of developing products in emerging markets and selling them globally is called "reverse innovation." While GE's traditional "glocalization" strategy of adapting products developed for rich countries worked in the past, the company must now also pursue reverse innovation to access growth in large emerging markets and prevent those markets' companies from disrupting GE. However, reverse innovation conflicts with glocalization, and GE must overcome this conflict to combine the two strategies for future success.

Uploaded by

Adithya Prabu
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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How GE Is Disrupting Itself

by Jeffrey R. Immelt, Vijay Govindarajan, and Chris Trimble

In May 2009, General Electric announced that over the next six years it would spend $3 billion to
create at least 100 health-care innovations that would substantially lower costs, increase access, and
improve quality. Two products it highlighted at the time—a $1,000 handheld electrocardiogram
device and a portable, PC-based ultrasound machine that sells for as little as $15,000—are
revolutionary, and not just because of their small size and low price. They’re also extraordinary
because they originally were developed for markets in emerging economies (the ECG device for
rural India and the ultrasound machine for rural China) and are now being sold in the United States,
where they’re pioneering new uses for such machines.

We call the process used to develop the two machines and take them global reverse innovation,
because it’s the opposite of the glocalization approach that many industrial-goods manufacturers
based in rich countries have employed for decades. With glocalization, companies develop great
products at home and then distribute them worldwide, with some adaptations to local conditions. It
allows multinationals to make the optimal trade-off between the global scale so crucial to
minimizing costs and the local customization required to maximize market share. Glocalization
worked fine in an era when rich countries accounted for the vast majority of the market and other
countries didn’t offer much opportunity. But those days are over—thanks to the rapid development
of populous countries like China and India and the slowing growth of wealthy nations.

GE badly needs innovations like the low-cost ECG and ultrasound machines, not only to expand
beyond high-end segments in places like China and India but also to preempt local companies in
those countries—the emerging giants—from creating similar products and then using them to
disrupt GE in rich countries. To put it bluntly: 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.

The problem is that there are deep conflicts between glocalization and reverse innovation. And the
company can’t simply replace the first with the second, because glocalization will continue to
dominate strategy for the foreseeable future. The two models need to do more than coexist; they
need to cooperate. This is a heck of a lot easier said than done since the centralized, product-focused
structures and practices that have made multinationals so successful at glocalization actually get in
the way of reverse innovation, which requires a decentralized, local-market focus.

Almost all the people and resources dedicated to reverse innovation efforts must be based and
managed in the local market. These local growth teams need to have P&L responsibility; the power
to decide which products to develop for their markets and how to make, sell, and service them; and
the right to draw from the company’s global resources. Once products have proven themselves in
emerging markets, they must be taken global, which may involve pioneering radically new
applications, establishing lower price points, and even using the innovations to cannibalize higher-
margin products in rich countries. All of those approaches are antithetical to the glocalization model.
This article aims to share what GE has learned in trying to overcome that conflict.

Why Reverse Innovation Is So Important


Glocalization is so dominant today because it has delivered. Largely because of glocalization, GE’s
revenues outside the United States soared from $4.8 billion, or 19% of total revenues, in 1980, to
$97 billion, or more than half of the total, in 2008.

The model came to prominence when opportunities in today’s emerging markets were pretty
limited—when their economies had yet to take off and their middle or low-end customer segments
didn’t exist. Therefore, it made sense for multinational manufacturers to simply offer them
modifications of products for developed countries. Initially, GE, like other multinationals, was
satisfied with the 15% to 20% growth rates its businesses enjoyed in developing countries, thanks to
glocalization.

Then in September 2001 one of the coauthors of this piece, Jeff Immelt, who had just become GE’s
CEO, set a goal: to greatly accelerate organic growth at the company and become less dependent on
acquisitions. This made people question many things that had been taken for granted, including the
glocalization strategy, which limited the company to skimming the top of emerging markets. A
rigorous analysis of GE’s health-care, power-generation, and power-distribution businesses showed
that if they took full advantage of opportunities that glocalization had ignored in heavily populated
places like China and India, they could grow two to three times faster there. But to do that, they’d
have to develop innovative new products that met the specific needs and budgets of customers in
those markets. That realization, in turn, led GE executives to question two core tenets of
glocalization:

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