Article summary with How GE is Disrupting Itself by Immelt, Govindarajan and Trimble - 2009

Glocalization is an approach where a company creates a great product in the home country and then distributes it on a global scale, with some adaptations to local conditions. Reverse innovation is the opposite of this, as then products developed for (usually) for markets in emerging economies are taken global.

How GE Is Disrupting

Glocalization is an approach where a company creates a great product in the home country and then distributes it on a global scale, with some adaptations to local conditions. Reverse innovation is the opposite of this, as then products developed for (usually) for markets in emerging economies are taken global.

GE feels the pressure to innovate, and whereas they earlier made us of the glocalization approach which forked fine, they now have to become very good at reverse engineering. They have to do this not only to expand beyond high-end segments in emerging giants countries, but also to preempt local firms in these countries from creating similar products and then disrupt GE in rich countries. Easier said: success in developing countries is a prerequisite for continued vitality in developed ones.

Glocalization and reverse innovation have to cooperate, which is easier said than done, as the two approaches are quite conflicting.

Almost all the people and resources dedicated to reverse innovation efforts must be based and managed in the local market, there the local growth teams need to have responsibility. When a product has become successful in the emerging market, they have to be taken global.

The glocalisation model became popular when opportunities in nowadays emerging markets were very limited. Therefore it was very normal for multinational producers to offer these markets modifications of products for developed countries. This approach also worked fine for GE, as it had increased their sales massively. Yet, at some point, a goal was set which aimed for accelerating organic growth at the company and to become less dependent on acquisitions. The realization that products had to be developed specifically for emerging markets led to GE executives to question two core tenets of glocalization:

• Assumption 1: Emerging economies will largely evolve in the same way that wealthy economies did.
• Assumption 2: Products that address developing countries’ special needs can’t be sold in developed countries because they’re not good enough to compete there.

Already before the financial crisis, the leaders of GE had been looking at emerging markets to help achieve their growth objectives, and they are now even counting more on these markets as growth in the developed world is slow, and much higher in emerging markets.

Moreover, GE embraces reverse innovation for defensive reasons, as when GE does not come up with innovations in poor countries, competitors from the developing world will. Reverse innovation is not optional, it’s like oxygen.

Glocalisation has defined international strategy for three decades, which explains why, as organizations follow strategy, glocalisation also has molded the way that multinationals are structured and run. This sometimes makes reverse innovation impossible. Venkatraman Raja experienced this, as when he proposed to develop, manufacture, and sell a simpler, easier-to-use, and substantially cheaper x-ray imaging product. Yet it was not approved, as his responsibilities did neither included general management nor product development. And it would prove even more difficult to sell the proposal internally.

Of course it is very difficult to change long-established structures, practices and attitudes, and the top leaders of the firm have to play a major role in this. The size of the opportunity has to be investigated firsthand, additionally to how it could be exploited and the teams running the corporation’s businesses also have to be encouraged to do the same.

The job of the CEO is to connect all the dots and then act as a catalyst. It’s to give initiatives special status and funding and personally monitor them on a monthly or quarterly basis. It is about pushing your enterprise to come up with the new organizational form that will allow product and business-model innovation to flourish in emerging markets.

GE developed a new form by learning from other companies’ experiences, as well as trying to find an internal group that somehow had managed to overcome the hurdles and achieve success. For GE this was the case with ultrasound machines. It became a very successful business in China, as a result of adjusting to the local needs, as well as an organizational anomaly in GE, which was the existence of multiple ultrasound business units. Three of them has little in common with the new business, as they focused mainly on premium products.

A fourth independent one was created, which evolved the local growth team (LGT) model, based on five principles:

1. Shift power to where the growth is.
2. Build new offerings from the ground up.
3. Build LGTs from the ground up, like new companies .
4. Customize objectives, targets ad metrics.
5. Have the LGT report to someone high in the organization.

GE now has quite a lot of LGT’s in China and India, and business is still growing fast, however, progress has been uneven and some businesses are doing better than others. There is still a long way to go, and GE is going to try and see if it can create new markets, and has to learn how to operate on a different axis. The biggest challenge will be changing the mind-set of managers who have spent their careers excelling at glocalisation.\