The Innovation Strategy Most Companies Miss

ALISON BEARD: I’m Alison Beard.

ADI IGNATIUS: And I’m Adi Ignatius, and this is the HBR IdeaCast.

ALISON BEARD: Adi, today we’re focusing on how to create products and services with widespread global appeal. But let me start with a question for you. If you wanted to make something that would be popular around the world, where would you start?

ADI IGNATIUS: Well, I guess the obvious example is look for products and services that are successful in one market and try to adapt them to other ones.

ALISON BEARD: Like Coca-Cola and different sizes and levels of sweetness or Nike running shoes with lighter mesh or a more basic iPhone?

ADI IGNATIUS: Yeah, I mean they all seem to be doing pretty well.

ALISON BEARD: Yes, they are. But our guests today say that a lot of companies actually fail when they try to adapt goods in this way, and there might be more value in taking a different approach. Amos Winter, professor at MIT, and Vijay Govindarajan, professor at Dartmouth’s Tuck School of Business, argue that there’s an advantage to tackling international markets first, using innovation to solve the toughest problems most efficiently there, versus starting with offerings for wealthy markets and then watering them down.

Winter and Govindarajan, who goes by Vijay, are authors of the book Global by Design: How to Create Innovations That Scale, Travel, and Transform. Here’s our conversation

ALISON BEARD: Why should leaders today take a global perspective on innovation from the very beginning?

AMOS WINTER: Well, I think you can look at it from a number of opportunity standpoints. One, business. The greatest economic growth in the world right now is in emerging markets. And so that, in addition to the large populations, creates amazing business opportunities. But I think the other opportunity is from a social perspective. All the most compelling issues facing humanity really present most compellingly in low resource settings; you can make that positive humanitarian impact and make a viable business at the same time.

ALISON BEARD: Yeah. VG, you and a few coauthors introduced the idea of reverse innovation about 15 years ago now, I think. How does this work build on that?

VIJAY GOVINDARAJAN: I would call it reverse innovation 2.0, because the reverse innovation that I pioneered 15 years ago, it was really looking at it from a business strategy point of view. When I accidentally met Amos, I realized reverse innovation has actually two sides. There is a business strategy side, but then there is an engineering side. And I said, wouldn’t it be nice to bring these two perspectives together? That’s what led to global by design.

ALISON BEARD: And you hear the phrase global by design. And the first thought or challenge that comes to my mind is that if you’re trying to design for everyone, for the world, you’re not really designing for anyone. So, how do you address that worry?

AMOS WINTER: Well, a big part of making globally attractive solutions is figuring out what core values are shared across many different markets. So, I suspect people don’t worry about iPhones selling everywhere or Coca-Cola selling everywhere. There’s commonalities between different user groups that you can utilize. And then there’s modifications to products that are relatively small that you can make so they best align with different markets to maybe change price point or change feature set. But that core value that’s universally appreciated still persists between markets.

ALISON BEARD: And do you think that companies still try to target primarily wealthy markets first and then are unsuccessful in adapting to less developed countries?

AMOS WINTER: Yeah, very much so. Part of that is historical in that really all product design for the last 200 or so years has been focused on U.S.-European type markets. Part of that I think is still because of a bit of a stigma in that companies can look at poor countries and think like, “Oh, those are poor people. They can’t afford to buy products,” which isn’t true at all. They’re also consumers. But I would say more and more multinationals are realizing that the big economic gains in the world are happening in emerging markets. But even if you see that opportunity, actually realizing it is challenging because now you’re designing for different population sets than we’ve historically designed for.

So, if you’re say an American engineer sitting in Wisconsin, how do you get into the mindset of a mother of five in India? That’s a totally different demographic. And so, a lot of this book also is about expanding the perspective of innovators so you can see these new opportunities and see the requirements they present. And so, you can design effectively for them because you’re better informed about the differences in the markets and what they demand for solutions.

VIJAY GOVINDARAJAN: If you really look back, innovation always started in rich countries and the reason is rich countries have resources and rich countries have consumers who can afford to buy those innovative products which are premium priced. The reason this is important is there is a dominant logic that develops inside the organization. So, the biggest barrier to reverse innovation is not technology. It’s not that people don’t understand emerging markets are important. It is the dominant logic. Companies are so entrenched in terms of the systems, the structures, the processes, the incentives, the capabilities. It is extremely difficult. It’s like moving the Titanic 180 degrees. That is the real problem. It’s a mindset issue. It’s not a technology issue.

ALISON BEARD: And so, while there have been innovators in these emerging markets that have developed solutions for those markets, you’d like to see more cross-pollination?

AMOS WINTER: Well, coming back to why this is reverse innovation 2.0 is that emerging markets present new challenges than what we’ve designed for in wealthy markets. And the situation I’m constantly in as an innovator, and I think many multinationals are facing in emerging markets, is that consumers there still demand a certain level of performance in the products that they buy. Nobody wants semi-clean water, nobody wants a semi-functional toilet. There’s baseline performance. But those consumers may not be able to afford to pay for the existing solutions at the price point that’s already in wealthy markets.

And so, you’re faced with this conundrum of how do we provide that high performance at a low cost to engage emerging markets? And what’s powerful about this in the reverse part of this is that if you can actively focus on emerging markets first and figure out that high performance, low cost solution, you end up creating something very valuable. Valuable enough to be adopted in emerging markets, but also valuable enough to potentially disrupt wealthy markets by providing just as good or better performance at a much lower price.

VIJAY GOVINDARAJAN: And I would say there are three forces that are coming together. That’s why it’s also a place for entrepreneurs. The three forces that are coming together is the rich country, the growth has slowed down. The second is in the emerging markets, as you rightly said, there are smart companies which are innovating and they could potentially disrupt multinationals in their own home market. So, the second threat these companies are facing is, hey, we cannot ignore emerging markets because those giants from emerging markets can come and disrupt us.

And the third is affordability. Affordability crisis has hit even in a rich country like the U.S. People can’t afford to buy healthcare. They can’t afford to get good education. They can’t afford to buy grocery. So, we need affordable solutions in the U.S. And where best to find them is in poor countries.

ALISON BEARD: So, let’s dig into some practical advice. First, how do you recognize global by design opportunities?

AMOS WINTER: So, we talk about in the book three merits that you really need to check yourself whether you’re satisfying before you launch into a new initiative. And so, the first of those is what we call problem merit. And that’s a gut check on understanding, are you solving a problem that’s going to impact ideally a large number of people in a meaningful way? And ideally with a business opportunity behind it. So, if you’re successful in making that impact, there’s a viable business to scale and sustain a solution. And that problem merit identification goes beyond just saying, “Oh, people need clean water.” It’s really distilling what are the metrics of performance that must be satisfied for a successful solution.

So, it may be volume of water or what contaminants you have to get out or the price point people are willing to pay. Then the second area of merit we have to evaluate is what we call innovation merit. And that’s a gut check on is innovation actually required to solve this problem? Because there’s many problems where you can just give money through philanthropy or maybe just adapt something in a slight way for it to work in a new market. So, you have to convince yourself, does actually something new have to be created to solve this problem? And then the third area of merit we talk about that you have to satisfy is what’s called value merit. And that’s all about aligning value propositions.

So, one, people are going to support your work, creating a solution. And two, people are going to support the dissemination of your solution, which typically means people are going to make money by using your product or at least derive value from it and people are going to make money by producing and selling it. We represent it in a Venn diagram. When you look at that Venn diagram and you say, “Hey, I have a compelling problem. It needs innovation. And boy, if I’m successful, it’s going to deliver a lot of value.” That not only shows you have a compelling opportunity in a resource constrained market, but also that you likely have a reverse innovation that’s going to deliver value globally because it creates high performance at low cost.

ALISON BEARD: And if you’ve identified a problem that is large and could be tackled in any market where innovation is required and you might be able to create value, how do you then narrow it so that you can focus on something specific enough to design around?

AMOS WINTER: There’s a very important concept that we talk about called being a tempered dreamer. And that is all about recognizing your own limitations as an innovator and figuring out the niche where you can make the largest impact. And so, I’ll give you an example. The most inspiring professional meeting I’ve ever had in my life was with a mission director for Gaza and West Bank. I met him in Israel and he said, “Look, we need solutions for farmers to grow better crops, to have water, to have energy. We need that now in order to prevent extremism.” Because if people have these more promising livelihoods by being like a farmer, they’re less likely to join a terrorist group.

And this resonated with me very powerfully from a patriotic standpoint. I care about global stability and insecurity in the U.S. I’m not a policymaker, but I do create irrigation technology, desalination technology. And I realized that I can play my part by creating those technologies to help global stability, even though I’m not a government employee. And so, I think innovators have to figure out what skills do they have, what resources do they have, what is tractable to realize in a reasonable amount of time in order to still be creative and ambitious, but narrow down where can I make an impact?

ALISON BEARD: VG, do you have an example from the corporate world where you’ve seen leaders or executives identify those three things that we’re talking about, the problem merit, innovation, merit, value merit, but then narrow down the problem in a way that it’s something they can tackle?

VIJAY GOVINDARAJAN: When I went to work for GE Healthcare, I was sent to India. And what we quickly realized was there was almost 60% of Indians who did not have access to healthcare devices that we have in the U.S.

So, we found a very huge problem that can be solved, which is how do you give access to high quality medical imaging products to these 60% of Indians? Then we said, “That’s like boiling the washer. That’s so big.” So, we said, “Let us focus on one small s egment within this, which is EKG, the electrocardiogram,” because as it turns out, the bulk of the people who die in India, they’re because of heart attack. So, EKG is a very important thing that is missing.

So, we said, how do we create an EKG machine which has got the features of the $20,000 EKG machine we have in the US, but at a price point Indians can afford, which is $400. So, now we have come to a very specific problem which requires innovation to close the gap. We went from big to something that we can actually solve.

ALISON BEARD: So, let’s talk about that process of innovation. You talk about three parts, elucidating requirements, designing a solution, and then scaling locally and globally. But there are steps within these phases, so I want to pull them apart and sort of tackle each one at a time. When it comes to elucidating requirements, how should innovators work to understand all of the stakeholders’ needs and goals? So, Amos, in your example, it’s those farmers in Gaza. Vijay, in your example, it’s the doctors trying to do medical testing, heart testing in India.

AMOS WINTER: So, it’s always valuable to map out who are all the stakeholders that are going to play a role in the dissemination of your eventual product and understand the power that they have on your success or failure. So, you can usually just do that as a mental exercise and map it out like, oh, the government’s going to subsidize this or there’s a retailer who’s going to do this. And once you map those out, nothing beats going to talk to them. If you can travel and go interact with them and talk with them and build rapport and understand their needs and desires and requirements, you get a much clear insight about what value propositions are going to resonate with them and promote them to adopt your solution.

And the big thing about elucidating requirements is figuring out what problem are you actually trying to solve and intentionally putting yourself in a necessity as a mother of invention situation. We talk about this idea of primary and secondary requirements. So, a lot of innovation is very much driven by primary requirements and a lot of academic research is driven by primary requirements as well. So, you want to make the lighter or faster or more efficient gizmo.

And a lot of that innovation work forgets that, well, if the gizmo is adopted, it has to be cheap enough and people have to like how it looks and it has to last long enough. So, if you intentionally, as you’re elucidating requirements, try to form as comprehensive a set as possible of the primary and secondary, you put yourself in the best position for success and not missing some of those critical, but maybe hidden secondary requirements too late in the game.

VIJAY GOVINDARAJAN: I think once we decided we wanted to create a value product, what we did was a small portion of our innovation team went and lived in rural India for two months. The mandate I gave the team was don’t focus on the solution. Focus on the problem. Independent of the solution. And when they lived there, they observed the villagers. They talked to the villagers. They did deep ethnographic research and came out with four important requirements. One is affordability. The machine can’t cost more than $400. That’s all they could afford.

Second, it has to be portable because there was no hospital, no imaging center in these places. You got to carry the device. Third, it has to work not out of house electricity because most of these villagers didn’t have electricity. And fourth, it should be easy to repair because these villagers didn’t have places where you could go repair them, easy to operate and easy to repair. So, they just came back with those requirements. It is by actually living in rural India.

ALISON BEARD: And how long do you spend on this elucidating requirements phase before moving on to actually prototyping and testing solutions?

VIJAY GOVINDARAJAN: I think corporations want to move fast, but the same time, do it right. Fast and fail is no good. So, I think this EKG project took us 18 months from beginning to end until we came up with the solution, which was hugely commercially successful. So, the design requirements took us three months. But as Amos said, it’s not a black and white, it’s about we got to get this right because this is the foundation on which everything relies. So, get the requirements right.

ALISON BEARD: Okay. So, now to that design phase, could one of you just briefly walk me through an effective structured design process?

AMOS WINTER: Yeah. So, your very general design process is first understand the problem you’re trying to solve and generate a list of requirements, then generate multiple ideas for viable solutions. People tend to kind of lock themselves into favorite ideas oftentimes and just think of one really cool one. If you think of a cool idea, force yourself to take a step back and say, “What are some other ways I could solve this?” Then you have to evaluate those ideas and down select to what the most compelling concept is. Then you go into a detailed design phase where usually a concept has multiple parts to it.

So, if you’re designing a consumer product, there may be the product, there may be the packaging, there may be marketing. And so, you work out all of those different parts and then you integrate them together into a fully integrated final solution. And so, a lot of times you want to take a mock-up or it might be kind of a kludgy prototype, but it actually works correctly. Take that back to stakeholders. Get a gut check. Is it working before you really polish a product? So, you want to do some testing to know you’re on the right track and then go into a deeper validation where you may do a field pilot or a randomized control trial before you actually go to market.

ALISON BEARD: How is AI helping with all of this?

AMOS WINTER: I think it’s an incredibly powerful tool in terms of aggregating a lot of information really quickly. I’m finding it amazing as a designer so I can get a whole background on a field of work very, very quickly and understand the lay of the land. What AI is not equipped well-to-do right now is directly solve the type of problems we’re talking about in this book. Because one, a lot of these problems deal with information that’s not formally recorded. And so, you’re dealing with people’s emotions and also math and physics and economics, and you have to integrate those together in an interesting way.

Second is I work in physical technologies and AI still has a lot of knowledge gaps around the physical world in nuances around weather or friction or all these little things that we as people perceive. AI doesn’t have the feel of touch and insight in the same way as people do. And then the third is that so much of the work I do personally and that we talk about in this book depends on building rapport and talking face-to-face with stakeholders. And so, when you get to know stakeholders, that can influence how you actually design things because you get insights in how they’re thinking. That relationship building is still so important in the type of design that I do in design for really global products.

ALISON BEARD: We’ve been talking a lot about products, but does this global by design process work for services, business models, internal practices as well?

AMOS WINTER: Good design is good design no matter the field. So, one example we put in the book is about how McDonald’s figured out how to make hamburgers really quickly and cheaply. And so, before they designed a building and installed the kitchen, they mocked up the layout of the building on a tennis court. And they got a bunch of high school kids who would be their future employees to act out all the actions of filling drinks and flipping burgers. And they were able to figure out the flow of the process without any physical infrastructure. And the same goes with policy. You need to figure out your design requirements before you implement a policy. So, that’s something we really try to bring out is that the principals in the book are relevant across fields.

ALISON BEARD: Let’s now talk about scaling. How has the fact that you’ve followed this global by design process made it more likely that you will be successful in adapting your initial product to deliver around the world? Is the idea that if you follow these steps, that shift to scaling locally and globally will be inherently easier?

AMOS WINTER: I think it comes down to reducing uncertainty and actively always trying to put yourself in that necessity is the mother of invention situation. Too much innovation is a game of playing darts blindfolded. And I think academia is guilty of this, is that you throw a lot of darts, you hit some bullseyes. But if you take that time and care and effort to aim, you may not hit a bullseye, but you’re much more likely to hit it. And so, that time and care and effort goes into the define your requirements. If you know what problem you’re trying to solve, you’re more likely to solve it.

Designing a solution, well, if you go through a diligent process to create something you’re confident in, rather than just conjuring something willy-nilly, it’s more likely to be successful. And if you test it with actual people who would adopt it, then you get good feedback. Going both local and globally, there’s some strategy you can really identify to understand what features are going to be demanded in different markets. What is the core value that translates across markets? How do I correctly segment my products so I’m not cannibalizing? So, that’s foresight, which again is aiming those darts so you don’t fall into an unknown that’s a trap that ends up killing your product.

ALISON BEARD: VG, what’s the biggest challenge that you see companies run into when they try to scale?

VIJAY GOVINDARAJAN: I think the biggest and the most problematic ones for multinationals is they’re afraid these high performance, low cost solutions will disrupt their premium priced products in the US. Because if you’re going to bring a $400 ECG machine into the US where you are currently selling $20,000 ECG machine, if the $400 start replacing the $20,000, your profit margin disappears. So, this is the biggest worry companies have. The way to overcome this is not to see this as substituting the $20,000 ECG machine, but it is about transforming the whole industry. And you will continue to have market for $20,000 ECG machine. Maybe the market may decline slightly, but the overall industry will expand phenomenally because of this. So, you have to think of this as transforming the space as compared to one-to-one substitution. This is the biggest mindset issue.

ALISON BEARD: Yeah. More generally, how should leaders find the most innovative people in their companies to tackle these kinds of projects?

AMOS WINTER: I think it comes down to equipping people and giving them the opportunities to think about problems from their own vantage point and creating a culture of asking about that and valuing their input. Because a forklift operator in a warehouse is going to really understand the problems of moving stuff around a warehouse. So, if you create a culture of saying, “Hey Joe, what’s causing you a lot of time and agony? Or do you have an insight of how we could speed things up?” That person’s going to give a lot of great feedback. And so, I see this happen a lot actually in companies around the world in that they try to isolate innovation to a certain group of people.

And what can be most toxic is if the innovation has to come top down because you’ll get the business leaders who are amazing, wonderful, smart people, but they’re lacking a lot of context and perspective about problems like on the ground or on the shop floor. So, if you can bring together those perspectives, it makes you much more powerful as an innovator. And I say this in every class I teach too. The most powerful tool a designer has is perspective.

ALISON BEARD: How do you do this at an under-resourced company?

VIJAY GOVINDARAJAN: I say resources are the biggest impediment to global by design because then you have resources. You substitute resources for thinking. So, you throw money at the problem. In fact, I would say to the CEOs that I work with, give your innovation team less resources.

When you give people less money, they actually do out of the box thinking. I would also say it is always very good to put in the innovation team at least a few people. Of course, you want domain experts and so on and so forth, at least a few people who are mavericks. And my definition of mavericks, they satisfy two criteria. One, they always talk about crazy things. Second, they’re an organizational nightmare to manage. Put them on the team because they are more likely to come up with totally out of the box ideas.

ALISON BEARD: What would you two like executives to go out and do today, this week, to start thinking in a more global by design way?

AMOS WINTER: You know what I love, Alison, is I meet companies all the time that have a sense of opportunity. They see that there’s new markets they could grow into, often emerging markets. They want to do it. And many of these companies want to make a positive social impact too, and they’re just unsure of how to approach that opportunity. So, I guess the advice to executives is I would say dream big about where your business can grow and how you can really harness the collective purchasing power of these massive, rapidly growing markets around the world. And I think maybe the humanitarian side of me would say too, can you do it while making a positive impact in the world? And my answer would be, yeah, absolutely.

ALISON BEARD: You’re anticipating my last question, which is in what areas of business or society do you most want to see this thinking applied? You talk about wicked problems and the fact that we have a lot of them. So, what’s your ambition for where we should all be looking?

VIJAY GOVINDARAJAN: I say there are three sectors which are absolutely craving for the ideas that we have in the book. Education, healthcare, and energy. These are three foundational sectors on which economies get built, and we need affordable, high quality solutions in all the three.

ALISON BEARD: All right, listeners, get started. Amos, Vijay, thank you so much for talking with me today. I’ve learned a lot.

AMOS WINTER: Thank you, Alison.

VIJAY GOVINDARAJAN: Thank you so much.

ALISON BEARD: That’s MIT professor Amos Winter and Dartmouth Tuck Professor Vijay Govindarajan. They’re co-authors of the book, Global by Design: How to Create Innovations That Scale, Travel, and Transform. Vijay also has a LinkedIn weekly column on innovation.

Next week, Adi will dig into how to build a sustainable long-term career in today’s uncertain world. If you found this episode helpful, please share it with a colleague and be sure to subscribe and rate IdeaCast in Apple Podcasts, Spotify, or wherever you listen.

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Thanks to our team, senior producer Mary Dooe, and senior production editor, Kristin Murphy Romano. And thanks to you for listening to the HBR IdeaCast. We’ll be back with a new episode on Tuesday. I’m Alison Beard.