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How GE is disrupting itself

For decades GE has followed the strategy of selling modified western products to
emerging markets but now as the situation changes it is trying to do the reverse.
This article talks about how GE is changing its strategy of glocalization to reverse
innovation tapping the emerging markets.
About GE
Thomas Alva Edison, the inventor of electric lamp, established the Edison General
Electric company in 1890, bringing all its businesses together. Just after 2 years it
merged with the Thomas-Houston company to form the General Electric Company.
Several of Edison's early business offerings are still part of GE today, including
lighting, transportation, industrial products, power transmission, and medical
equipment. GE is known for its innovative designs and initiatives in various sectors.
One hundred years after it began, GE extended its reach into new markets, online and
around the world. In 1999, GE generated over $2 billion in electronic sales alone. India,
home of many of the world's brightest technologists, provided the site for a new GE
Global Research Center. Because of these efforts, 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 China. Innovation at GE extended
from advances in the detection and diagnosis of cancer to work on the International
Space Station.
Glocalization to Reverse Innovation
Glocalization is nothing but the practices adopted by large multinationals of first
developing a product at home and then distribute it worldwide, with certain adaptation
in order to suit the local conditions. It helps companies to achieve a tradeoff between
minimizing their cost and local customization to capture greater market share.
Glocalization worked well for some years as there was a huge market available with a
very less competition. But now as local giants emerge, and with the high rate of
development of technology in countries like India and China, the scene seems to
reverse. So companies like GE are looking at Reverse Innovation for the rescue.
Reverse Innovation 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 finding their applications in
the rich nations. GE badly needs innovations like the low cost ECG and ultra sound
machines, not only to tap the high end segments in the markets of India and China but
also to preempt the local emerging giants from producing the same products and then
using them to disrupt GE in rich countries. If GE doesnt master the reverse innovation
emerging local companies can destroy it.
But the problem in adopting reverse innovation is that many of the core elements which
led to the success of glocalization are not at all compatible with reverse innovation

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infact they are in conflict with each other. These strategies need not only co exist with
each other, they should cooperate with each other.

What led the shift?

GE achieved great growth rate by adopting glocalization from 19% ie $4.8 bn in 1980 to
$97bn or more than half its revenue by 2008. But glocalization focused only on the rich
sections and never focused on the mass population of the emerging markets.
Glocalization was based on two assumptions which proved to be wrong.
1. Emerging economies will largely evolve the same way as developed economies did:
But the reality is that developing countries are growing far more faster and in some
cases they have actually jumped ahead of developed countries. Emerging markets are
becoming centres of innovation in fields like low cost health care devices, carbon
sequestration, solar and wind power etc.
2. Products that address developing countries special needs cant be sold in developed
nations:
But the reality is these products can create brand new markets in the developed nations
by achieving lower price points or by pioneering new applications. Also the technology
can be improved until all customers are satisfied. For example GE used an aircraft
engine which it got when GE acquired Czech aerospace for $20mn and it spend an
additional $25mn to further develop the engines technology.
Shifting the centre of gravity
Glocalization has ruled for more than 3 decades for many multinationals. It is not only a
small strategy but it has become the way in which multinationals work. Obviously
changing long established structures, practices, and attitudes is not an easy task and
the top management has a very crucial role to play in ensuring the change is effective.
For example when the CEO of GE is in India or China he spends a lot of time with locals
to assess the new developments, competitors, their price points, new trends etc. so the
job of any CEO is to connect all the dots and then act as a catalyst. Its to give initiatives
a special status and funding as well as personal monitoring for at least some predefined
amount of time. Also they need to motivate and push the enterprise to come up with
the new organizational form that will allow product and business model innovation to
flourish in emerging markets.
A Homegrown model
To develop the new organizational model, GE did two things. First is to learn from other
companies operations and second was to develop their own internal model. One of the
best examples of reverse innovation is that of the ultrasound unit in GE healthcare.

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Ultrasound imaging was used in imaging centers in high tech hospitals, which is
comparatively cheaper as compared to CT or MR scan. GE developed various R&D
centers as well as it entered into various joint ventures to compete in all the three
segments namely obstetrics, cardiology, and general radiology.
By 2000, GE established solid market positions in rich nations of the world but the
picture was different in developing countries which lacked proper infrastructure and
their priorities were different. For rich nations performance matters the most after
features but in a nation like china price was of utmost importance after portability. So in
2002 GE launched its portable ultrasound imaging device combined with a laptop
device. It was sold at as low as $30000 which further reduced to $15000. Six years after
the launch it was a part of the global product line with revenue of $278mn and a growth
rate of 50 to 60%.
But this product development was a result of an anomaly in organizational model led by
Omar Ishrak 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 (LGT) model which was based on the five critical principles.
1. Shift power where the growth is:
Ishrak noticed that autonomy is very important for the success of LGTs, without which it
will become pawns of global business. It was necessary to focus on the specific needs of
customers in the emerging markets. Therefore LGTs were given the power to make their
own strategies, organizations and products which will directly focus the needs of the
customers.
2. Build new offering from the ground up:
This principle basically explains the difference between the concept of adaptation
widely used in glocalization and the zero based reverse innovation. Since there is a
great difference 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
zero based i.e. products should be made from the scratch rather than making few
changes in the global products.
For example the compact ultrasound was built from scratch although it drew its
architecture from the R&D effort made by a product development unit in Israel, but for
most other GE it was not acceptable as it could not come close to the performance
standards of GE healthcare. But Ishrak saw the opportunity of launching such a product
in the Chinese market. The product was made compact by changing the internal muscle
of the unit by converting most of its hardware into software operated subsystems.
3. Build LGTs from ground up like new companies:
In order to bolster zero based innovation, its a necessity to have a zero based
organization. The GE organizational model i.e. its hiring practices, reporting structures,
job descriptions, titles, norms for working relationships and power balances between

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functions were all designed based on glocalization. For LGTs 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. Also by recruiting
locally they got all the expertise needed including engineers and low power
consumption and a commercialization team.
Also 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. This also ensured that
the product was widely available by their dealer network. They also decided to use their
local service and replacement centers instead of relying on the GEs global customer
care service.
4. Customize objectives, targets and metrics:
Innovation endeavors are by nature uncertain. There are a lot of unknowns, for which
assumptions are used. Its better to test these assumptions and learn quickly then to go
for hitting numbers. So the metrics used by LGTs are different in different cases.
For example the ultrasound LGT knew that doctors in rural china were less aware about
ultrasound as compared to the doctors in the cities. But 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 specifically the primary care screening was of the utmost importance. This led to
the development of guiding materials and training, simpler keyboards and pre loaded
commands.
Also Ishrak was careful in deciding the performance criteria from one LGT to another.
There was also some aberrations from the GE global standards. Like since the labor cost
in china is low and service needs were high, he preferred allocating a larger staff for
service.
5. Have the LGTs to report to higher authority in the organization:
It is very much essential for a LGT to have support from the top in order to thrive. The
major roles of the senior executive would be to mediate conflicts between the local
teams and the global team, allocating and connecting resources to various LGTs
including the R&D efforts and helping in taking the innovations to a broader scale i.e.
the rich nations.
So all the small LGTs used to directly report to Ishrak. He made sure that the LGTs have
the sufficient resources including the human resource and made sure that they have
enough expertise before they deliver. Under his leadership the number of engineers
grew from 13 to 70. Finally Ishrak also played a crucial role in marketing the ultrasound
device to the global market by identifying different applications of it in the developed
markets.

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All these efforts of reverse innovation are still in experimentation phase, although the
multinationals do understand the importance of protecting and nurturing the local
efforts in product development, very less work has been done till date. One of the
crucial step that GE proposed to take is providing a separate P&L for the all the Indian
businesses. It will give a lot of freedom to the GEs workforce in India. But it was very
difficult for GE to come up and take such a difficult step as it is matrix based
organization where product comes first and then the country. But they are going ahead
and taking this chance in which they are facing the problem of changing the mindset of
the managers who are accustomed to GEs glocalization. But such steps are now
inevitable for GE to survive the competition they will be facing in the coming decades

References:
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http://www.ge.com/about-us/history/2001-2004
http://www.ge.com/about-us/history/thomas-edison