This interview provides more information on the topics discussed in our report Innovating for the next three billion: the rise of the global middle class — and how to capitalize on it.
Prof. Vijay Govindarajan is the Earl C. Daum 1924 Professor of International Business and the Founding Director of Tuck's Center for Global Leadership. Writing in Harvard Business Review with Jeff Immelt, CEO of GE and Chris Trimble, he coined the term “reverse innovation” to refer to ideas that originate in rapid-growth economies but find new markets in developed ones. In 2010, he launched a challenge for innovators to design a US$300 house. Here, he talks about the importance of understanding the customer problem.
Why are traditional approaches to market research inappropriate when it comes to innovation in rapid-growth markets?
The first question companies need to consider before they get to the prototype or design stage is to understand the customer problem. Most companies don't know how to do this because they use the traditional approach to market research that is based around the use of focus groups. This traditional market research can help you to improve and innovate your existing product, but it is not the way to understand customer problems when it comes to frugal innovation. Focus groups are fine for understanding whether customers like existing products but they do not help you to fulfill unmet needs. In essence, you're getting customer hindsight rather than customer foresight.
How are you applying this approach in your own innovation project, the US$300 house?
We have teams in Haiti and India that are trying to understand the problems that a bottom-of-the-pyramid inhabitant faces today. We are not starting with a house in our minds; we are just trying to understand the daily lives of these people. We want to understand the customer problem. In order to do this, you have to observe and live with them. Only then can you truly understand the problems they face and tease out the solutions with them.
For example, one of the things that our researchers have found by speaking directly with the people is that you need to have ventilation in houses to reduce the risk of tuberculosis, which is an airborne disease. So when we are going to design a house, we want to provide better sunlight and better ventilation. Similarly, cholera is a waterborne disease, so we are thinking about how we can incorporate portable water and cleaner toilet facilities to reduce the incidence of cholera. Malaria is carried by mosquitoes, so we will think about any exposed area in that US$300 house that should have mosquito nets. That is what I mean by understanding the customer problem.
What do you see as relative advantages for local and multinational companies when it comes to innovating in rapid-growth markets?
Local companies understand the local customer better because the culture is part in their blood. Local companies also tend to have better relationships with governments, banks and other strategic partners. That too is a huge advantage because you need partnerships to innovate. What a multinational has is global resources and global capabilities. Therefore, the key point for multinationals is to deploy those global capabilities but also begin to understand the local customers the way a local company does. If you can combine those two capabilities, you can win again against local competitors.
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