Profile: Tuck School of Business Professor Vijay Govindarajan Preaches Reverse Innovation

For decades, in a rural village in India, a robed man spent his afternoons under a large banyan tree imparting knowledge to young untouchables. Successful former pupils returned to the village to throw themselves at his feet in gratitude.

Half a century later, in an affluent American town, an impeccably suited man stood under the fluorescence and prestige of Tuck Hall on the Dartmouth College campus, imparting knowledge to higher education’s elites. While the students in Tuck School of Business professor Vijay Govindarajan’s summer Business Bridge Program stopped short of throwing themselves at his feet, they did flock to the front of the classroom after his lecture to express gratitude and garner his autograph on their copies of the best-selling author’s latest book, The Three-Box Solution.

When Tagore Thatha wasn’t under the banyan tree and his young grandson Govindarajan wasn’t in school — or diligently walking the miles to or from it — they were often together, teacher and pupil, investing further in Govindarajan’s academic and moral education. The investment continues to bear fruit through Govindarajan’s intellect and inspired pursuit of a broader life purpose. His students, the readers of his many publications, and the many Fortune 500 firms for whom he’s consulted, devour these fruits.

A Concept Is Born

“Much of his focus is on helping large organizations serve the historically underserved by matching the world’s poorest communities with products that they can afford,” former Tuck student Michael Mirandi, now a consultant with the Boston-based management consulting firm Bain & Co., said in an email interview. “Because of this approach, his reach is as wide as any in the world of management.”

The focus to which Mirandi referred is the concept of “reverse innovation.”

During 2008 and 2009, amid the Great Recession, Govindarajan took a hiatus from Tuck to serve as General Electric’s first professor in residence and chief innovation consultant. Faced with zero growth in U.S. markets, GE’s Chief Executive Officer Jeffrey Immelt, a 1978 Dartmouth graduate, sent Govindarajan (known as “VG,” his last name is pronounced go-vin-da-RAH-jin), to India and China to explore the growth potential there. Govindarajan’s discoveries led to the concept of reverse innovation — which soon would be cited by Harvard Business Review as one of the “Great Moments in Management” in the last century.

Hearing Govindarajan illustrate examples of reverse innovation (which also is the title of his 2012 book with Tuck colleague Chris Trimble), it’s easy to wonder if Harvard Business Review didn’t understate the concept’s significance.

Take, for example, the following innovations: a $30 high-performing prosthetic leg for Thailand’s amputees, human and elephant alike; a battery-operated electrocardiograph machine lighter than a can of soda and durable and simple enough to be used in India’s most remote villages; and a $3,000 open-heart surgery yielding outcomes equal to those of the same surgery that costs $150,000 in U.S. hospitals.

“Reverse innovation will revolutionize every industry in the world while transforming lives,” Govindarajan, 66, told a recent Bridge class, a summer business immersion program for top liberal arts and science students. “It represents the single greatest innovation opportunity.”

Defined as any innovation adopted first in the developing world, reverse innovation is simple but unconventional.

Traditionally, companies innovate in the developed world, creating products geared and priced for wealthy Western consumers. However, as Govindarajan discovered while conducting the research for GE in India and China, there exists an enormous population so poor it can’t possibly consume Western products, despite an often-desperate need for them. These are the world’s non-consumers, a population poised to benefit from and contribute to reverse innovation’s impact trifecta: innovations availed to those who need them most, opportunity to tap the immense pool of (former) non-consumers, and ultralow cost innovations trickling up to the industrialized world, creating new applications and market opportunities.

The story of the $30 prosthetic leg, relayed by Govindarajan to his spellbound students, illustrates the impact.

At $20,000, the average prosthetic leg in the United States costs about $20,000 more than the average amputee in Thailand can afford. This titanium limb, for all its substance and expense, is persnickety, wanting smooth surfaces, dry conditions and relatively gentle use. Such conditions are improbable for Thailand’s working class, most of whom work bent over in wet agricultural fields or pedaling load-bearing bicycles.

Even the best and brightest American innovators can’t innovate well for an unknown population half a world away that demands higher, nuanced performance for a fraction the cost. However, Therdchai Jivacate, a Northwestern University-trained orthopedic surgeon and resident of Thailand, knows well the challenges facing his country’s amputees.

Intercepting plastic yogurt containers bound for the waste stream, Jivacate created a $30 prosthetic leg that is at once lighter and more durable than the average American prosthetic. In a country unable to tolerate the costly inefficiencies of American medicine, many born of the insurance industry and medical devices lobby, Jivacate seeks every efficiency. Rather than employing expensive, highly trained technicians to fit patients with the prosthetics, he employs amputees for whom the intricacies are understood and the work is especially meaningful. As a result, thousands of amputees, including a 2-year-old elephant that otherwise would have been euthanized, have been successfully fitted with $30 prosthetic legs.

As with GE’s innovated-in-India electrocardiograph machine now bouncing around the back of U.S. ambulances, and the $3,000 open-heart surgeries now being performed on Americans on nearby Grand Cayman Island, it’s expected Jivacate’s $30 prosthetic leg will, as Govindarajan energetically expounded, “defy gravity, traveling upward to transform lives in rich countries.”

“Why wouldn’t a rich man want a poor man’s product if it’s cheap, world-class health care for all?” he asked.

Govindarajan’s work has been with large Western multinationals. Though he’s not aware of any Upper Valley companies engaged in reverse innovation, he insists it presents a tremendous opportunity for small entrepreneurs given the low cost of innovating in poor countries — provided they have the humility to be curious about challenges facing non-consumers. Critical, too, is a willingness to travel to and innovate in developing countries, or to establish a strong partnership with an in-country team.

Profit With Purpose

Throughout his lively presentation on reverse innovation, Govindarajan stressed the need to shift the price-performance paradigm, encouraging students to think in terms of value for many, not value for money. He was careful to clarify that reverse innovation is not charity — a problem-solving model he sees as flawed and self-limiting.

“If you don’t make a profit, you cannot achieve your purpose,” Govindarajan said. “We must break the dichotomy between noble purpose and making money.”

Dr. Devi Shetty, former physician to Mother Teresa and innovator of the $3,000 open-heart surgery — which he provides for free to the one-third of patients who are unable to pay — has proven the dichotomy false.

By applying manufacturing concepts to health care, Govindarajan explained, “Dr. Shetty is mass-producing heart surgery.” He’s using equipment 50 times more frequently than we do in the U.S. Not unlike an assembly line, each step of the surgery is performed by someone trained to do that task alone, be it prepping the patient or stitching up the incision, allowing surgeons to specialize and perform four surgeries a day, compared with the average U.S. surgeon’s load of nine a month.

Outcomes don’t suffer, Govindarajan said. Practice makes perfect and, in this case, profit: Shetty’s is the single most profitable cardiac hospital in the world.

Having detailed the extensive and relatively simple cost-cutting measures of Shetty’s operation and operations, Govindarajan perfectly punctuated his appeal for radical efficiencies in innovation with a final story that delighted his audience of 20-somethings.

India recently launched a satellite mission to Mars — the fourth and poorest country to do so. India’s successful mission cost $75 million. The U.S.’s successful mission cost $2 billion.

“We must ask ourselves” why the U.S. movie Gravity — about a space mission — “cost more than India’s actual mission,” Govindarajan told the class.

The students’ laughter was quick and sheepish.

Use of poignant case studies and keen humor account, in part, for Govindarajan’s exceptional appeal as a teacher and speaker.

“He’s one of the best teachers I’ve seen,” said Paul Danos, Tuck’s dean emeritus, who has known Govindarajan for 21 years.

But it seems to be his evident and applied ethical standards — reverse innovated in India and adopted by the West’s upper echelons of education and business — that make Govindarajan “a special kind of intellectual leader … a wonderful combination of insight and persona that works to inspire people,” according to Danos.

“I’m not a professor,” Govindarajan insisted. “I’m in the impact business.”

‘The Three-Box Solution’

Reverse innovation is couched in Box 3 of the three-box solution, Govindarajan’s broader and widely adopted framework for management and innovation. Though he’s only recently published a book by its name, the framework has guided his thinking and coaching since 1980, when he sketched it on the back of an envelope.

The book is “like the Star Wars prequel,” Govindarajan joked during an interview following his Bridge presentation. “I’m going back to where it all began.”

For Govindarajan, it began in a poor family in a poor village in India. His prospects for an elite, advanced education were slim. But, after being awarded the President’s Gold Medal for obtaining first rank on India’s national Chartered Accountancy Exam, he was awarded a scholarship to Harvard Business School by the Ford Foundation. In return for the Foundation’s support, Govindarajan happily agreed to return to India for two years following his education.

Near the end of that two-year term, however, he was offered a faculty position at Harvard Business School. Recognizing it as the momentous opportunity it was, Govindarajan sought relief from the final week of his contract in order to begin his faculty position at the appointed time. The Ford Foundation wouldn’t budge, warning Govindarajan that if he broke the contract he would be responsible for the full sum of his scholarship — a fortune for Govindarajan. Harvard was equally inflexible: Govindarajan would teach on day one or not at all.

The teaching position paid just $22,000, a fraction of the debt he’d incur in breaking his contract. Nevertheless, he took the plunge.

Govindarajan recounted the situation with a laugh. “When I explained to my dad that I’d be leaving my prestigious job in India and breaking my contract, he said, ‘Did you really go to a good business school? Did they teach you to make decisions like this?’ ”

Arriving on Harvard’s campus deeply in debt, Govindarajan asked the dean if he might help him find consulting work. One week later, moments before his first meeting with the CEO of aeronautics giant B.F. Goodrich, Govindarajan sat alone and nervous in his new office. Desperate for something useful to offer, he sketched a three-box framework for management and innovation.

B.F. Goodrich loved it, and Govindarajan never looked back.

Though he has developed the framework more fully over the years, “simplicity is its virtue,” he said.

Boxes 1, 2 and 3 of the framework represent the present, past and future, respectively. To be successful, Govindarajan said, a company must tend to each box simultaneously, optimizing the current business, divesting past ideas and practices that are no longer relevant, and converting breakthrough ideas into new products (herein lies reverse innovation).

The challenge is that each box requires a different mindset and some degree of separation from the others.

Even small Upper Valley businesses should invest in a Box 3 team, Govindarajan said. “One person trying to do it all is a recipe for disaster.”

Using Dropbox, an electronic file hosting service, as an example, Govindarajan warned of the success trap.

The company’s initial innovation — its Box 3 — was brilliant but easily copied, as is often the case with software innovations.

“The Amazons and Apples won’t let you enjoy your success for long,” Govindarajan said. “The empire will strike back.”

While Dropbox was busy reveling in its success, its Box 3 became its Box 1. Without a next Box 3 at the ready, the company’s valuation fell.

“You have to invest ahead of revenues,” Govindarajan said.

Govindarajan sees the roots of the three-box framework in the Hindu mythology he internalized in his youth. According to the Hindu faith, there exists a continuous cycle of preservation (Box 1), destruction (Box 2), and creation (Box 3).

“I took something that was 5,000 years old and repackaged it in my own way for organizations,” Govindarajan said.

Three Boxes

The three-box framework is so simple and useful that Govindarajan recommends applying it broadly, even personally.

In fact, he actively applies many of the lessons he learned from his grandfather and the Hindu spirituality of his youth.

“My parents taught me you have to separate who you are from what you have,” he said. “If you can do that, you’ll be a happy person.”

For Govindarajan, happiness is a decision he makes every morning before rolling out of bed in his Hanover home — a decision with personal, as well as professional, implications.

“Think about a time you were unhappy: how miserable you were, how you sucked the energy out of the whole team. Have you ever made a good decision when you were angry?” he asked. “But when you are happy, you have high energy and see only what is possible in life. The causality goes from happiness to money, not money to happiness.”

Not unrelated in theme or spiritual origin is the notion of life as a journey toward a goal and the notion’s metaphor of two horses: one you can control and one you cannot, pulling your carriage toward that goal.

A paradox of life, Govindarajan said, is that in moments of adversity, humans tend to focus on the horse they cannot control and begin shifting blame onto others.

He offered the following vignette:

Your boss calls you in and says you’re not meeting your performance goals. You immediately focus on the rogue horse, blaming first Obama, then China. But you can’t possibly control that horse. You can’t take action, you’re unhappy, low energy and skeptical. You’ve lost the game. But if you focus on the horse you can control, you’re liberated and able to see possibilities. If you attribute the failure to yourself, maybe you can do something about it. Maybe the rogue horse falls in line and you reach your destination, or maybe it doesn’t. Either way, it’s the best you can do.

Inspired by his grandfather’s example, Govindarajan’s purpose in life is to positively influence the broader world through education.

And though their physical, political and cultural environments could hardly differ more, their work is nonetheless the same — a family business, so to speak.

Author: Rebecca Perkins Hanissian

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