innovate or adapt - hbr singapore sessions report

8/6/2019 Innovate or Adapt - HBR Singapore Sessions Report

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INNOVATEOR ADAPT?

The Challenge: Should new products be developedin-market or adapted to market? What can companies doto ensure that innovation equates to better business?

In collaboration with Harvard Business Review Analytic Services



“Innovation is shiting rom adaptation toin-market development with a ocus on

opportunity, aordability, and sustainability.”

A C T L O C A L

A C T G L O B A L

THINK GLOBAL THINK LOCAL

oldparadigm

newparadigm

Fundamental

Shift in Global

Innovation

New Measures o World EconomiesThe new measure is Purchasing Power Parity,

based on GDP.

1 U.S. $ 18.0 trillion

2 China $ 17.0 trillion

3 India $ 6.0 trillion

4 Japan $ 5.0 trillion

5 Germany $ 3.4 trillion

6 Russia $ 2.9 trillion

7 Brazil $ 2.8 trillion

8 U.K. $ 2.7 trillion

9 France $ 2.6 trillion

10 Italy $ 2.0 trillion

Source: International Monetary Fund (IMF)



///// HISTORICALLY, companies have relied on local

adaptation strategy to deliver their products in a way that

deals with dierences in culture, geopolitical distance, and

regulation. Some replicated the business model that worked

in their native nations, and later had to make adjustments

or new purchasing power and general economic

development in the new markets.

For instance, the unit price is oten prohibitive in emerging

markets i the innovation was primarily developed or

advanced economies. When Warner Lambert initially ailed

to market Chiclets in India, they ound that the unit price o

Chiclets (with eight pieces in a pack) was too prohibitive. They

successully reintroduced Chiclets by repackaging them in a

smaller pack o two pieces o gum and reducing the unit price.

This has also been the case or many other companies.

But all o this is changing with the rise o emerging markets,

especially China and India. Innovation is shiting rom

adaptation to in-market development with a ocus on

opportunity, aordability, and sustainability. Both o these

countries are destined to become the largest consumermarkets in the world with the rise o brand-conscious

middle class consumers. Most o these customers are

rst-time buyers o automobiles, appliances, credit cards,

and prepared oods. The largest markets or cell phones,

or example, are China and India. China has more than

700 million cell phone users and India has just surpassed

500 million users and is adding more than 15 million new

subscribers each month, most o them in rural India.

Similarly, the largest and most protable market or Avon

Products is Brazil, where nearly one million agents sell

cosmetics to both metro and remote rural populations.

Converting unbranded and unorganized markets into

branded organized markets is key to uture innovationand business success. In many ways, this is exactly what

Walmart did in rural America and what Ford Motor Company

did with the Model T. America has been a pioneer nation in

converting non-users into users.

Clearly, these large emerging markets such as China,

India, Brazil, Russia, Turkey, and Indonesia will necessitate

more in-market, low-cost innovations that make emerging

products more aordable and accessible.

But companies also are moving to in-market innovation

because o the low-cost innovation in emerging markets.Since the cost o innovation there is at least ten to ty times

cheaper than in advanced countries, it is much cheaper to

ail. Another actor behind in-market product development

is the emergence o a global mindset. Increasingly,

many emerging economies are demonstrating signicant

capability to innovate with scarce resources and poor

inrastructure. Brazil has led the world in ethanol; China

leads the world in solar energy.

The innovation ever in emerging markets is prevalent

in such basic industries as education, health care, and

deense. The scientic community in advanced economies

now recognizes the capabilities o scientists in emerging

markets. This is one reason why the chairman o GE, Jerey

Immelt, is investing in what he calls “reverse innovation.”In order to compete against emerging multinationals rom

emerging economies, General Electric has decided to

innovate in China and India and develop products there

that may be suitable or neglected markets in America.

What we are talking about, then, is a paradigm shit,

rom merely taking global products and making a ew

adaptations or local markets to actually starting with local

innovation to create new global products.

In-market development also helps urther the usion o

dierent disciplines, cultures, and processes o innovation.

This means usion o biological and physical sciences, as

well as usion o electronics into everything to make them

smart. It also means blending global talent to work togetherin virtual teams. This usion will make the debate whether to

innovate in-market or adapt to local needs moot.

DR. JAGDISH SHETH

Charles H. Kellstadt Chair o Marketing,Goizueta Business School at Emory University

Jag Sheth has worked with companies around the world to understand the uniqueopportunities and challenges in bringing new products to emerging markets. He is the

author o Chindia Rising: How China and India Will Beneft Your Business.



With its Asia-Pacifc headquarters located in Singapore (also

global business headquarters or the SK-II brand), P&G

has recently broken ground on a research and development

Innovation Center or Beauty, Grooming and Corporate

R&D which will be completed in 2013. On the innovation

ront, P&G has also entered into a master collaboration

research agreement with Singapore’s Agency or Science,

Technology and Research. These strategic plans support

P&G’s manuacturing activities in Singapore—its frst and

only perume plant in Asia, and a plant that manuactures

PUR water purifer sachets or disaster relie.

///// AT PROCTER & GAMBLE, our growth strategy is to “touch

and improve more consumers’ lives, in more parts o the

world…more completely.”

The business strategy centers on the idea o improving

more consumers’ lives by innovating and expanding

vertically, up and down value tiers. We improve lives in

more parts o the world by innovating and expanding

geographically into new white spaces where we have

not been competing. We improve lives more completely

by innovating to improve existing products, creating or

entering adjacent categories, and driving regimen use that

broadens our product portolios.

Innovation is the way we ulll our company’s purpose

and meet our growth goals. It starts with a thorough

understanding o the consumer. With products reaching

over our billion consumers in about 180 countries, we must

be laser-ocused on the consumer’s articulation o needs

and denition o value.

To support this ocus—and to decide whether to develop

new products or a market or adapt existing products—

we consider three principles: 1) Dene the target consumer;

2) Design or this consumer; and 3) Execute or this

consumer.

This approach is well illustrated with the recent launch

o the Gillette Guard shaving system in India. As the rst

Gillette product designed specically or men in markets

like India, Gillette Guard is one o the most signicant

product launches in Gillette’s history.

When dening the target consumer, we learned that nearly

one billion men were shaving using technology invented

by King C. Gillette more than 100 years ago—double-

edge razors—because there was no better, aordable

alternative. So we looked at every element o our innovation

process, rom consumer understanding to design to

manuacturing, to create a product or these men while

managing costs to meet their aordability criteria in a

sustainable business model.

We designed or this consumer by spending thousands ohours with men in India to better understand their shaving

needs. They participated in interviews, in-home visits,

“shopalongs,” and test shaves to shape and ne-tune the

razor’s perormance. We learned they value saety, ease

o use, and aordability above all else. We discovered

they need a razor to help manage longer hair because

they don’t shave every day. They place high importance

on easy-rinsing technology, as many do not have running

water in their homes. We also saw unique gripping patterns

by Indian men when shaving that needed to be addressed,

because many men are holding mirrors as they shave.

We designed the new razor by leveraging these insights to

develop Gillette Guard rom scratch, ltering every design

and technology element through the eyes o the consumers

and what they valued most. The result is what we believe is

a breakthrough shaving system designed to provide a sae,

high-quality shave at an aordable price. The dramatically

simplied product design uses 80 percent ewer parts

than the two-blade razor, which led to a streamlined and

lower-cost manuacturing process. We launched the

product through print, digital, broadcast, store, and public

relations—including live demos with Indian celebrities.

Gillette Guard is o to a great start and we’re condent that

this consumer-inspired innovation will improve even more

lives in India and beyond. This is why P&G strategically

disperses R&D resources across regions and close to—i

not in—the markets we serve. This is critical to understandspecic consumers and markets, have partnerships with

and access to local innovation partners, and leverage the

local talent base. Recent innovation center expansions

completed in Beijing and now being built in Singapore

are evidence o this commitment—as are our rened and

ocused innovation centers in India, Japan, and over twenty

other sites around the world.

BRUCE BROWN

Chie Technology Oicer, Procter & Gamble

Bruce Brown oversees the company’s innovation program, its 8,700-person globalR&D organization, and its nearly $2 billion annual investment in R&D. He also oversees

P&G’s Corporate Innovation Fund and FutureWorks organization or the creation o newbusiness opportunities and capabilities.



In 2008, Cisco launched the inaugural Enabling Platorm

Innovation Center (EPIC@SG) in Singapore with the

support o the Inocomm Development Authority o

Singapore (IDA). EPIC@SG is a signifcant milestone in

Cisco’s global strategy to bring innovation centers closer

to where it sees new business models and new world

services emerging. Equipped with state-o-the-art acilities,

this technology center is designed to help retail service

providers build and deliver.

///// IMAGINE A WORLD in which a child can attend school or

just $1 per month and where a visit to a doctor costs less

than a candy bar rom a vending machine. Fantasy, right?

Not to Cisco. We are working to make accessible education

and aordable health care a reality or literally billions o

people.

So how did Cisco, the world leader in techie communica-

tions gear, position itsel to make such a contribution on a

global stage? The answer has a lot to do with how we see

the world—where we develop innovation, in particular.

For much o our 25-year history, Cisco developed products

in Silicon Valley and then adapted them to local marketsworldwide. The model provided a signicant return on our

engineering investments and made us one o the most

valuable companies in the world. As Cisco expanded into

new customer segments and geographies, however, the

model started to show its limits. It did not always produce

the best solutions or given challenges. In the consumer

market, our innovations were overly complicated; in

emerging markets, they were too expensive.

We’ve done many things to reduce the gap between our

capabilities and our customers’ needs, but one o the most

benecial was to adjust our product development model.

While we continue to develop platorm products at our

headquarters in Caliornia, we now leverage the insights

and ingenuity o local talent in China, India, Norway, Israel,the U.K., and elsewhere.

When it comes to adapting innovations to a market or

developing them in a market, we no longer make a alse

trade-o. Instead, we have committed to doing both. This

decision is helping Cisco create technologies that tackle

some o the world’s most pressing challenges.

Take our eort to combat problems caused by global

urbanization. Today more people live in urban areas than

in the countryside or the rst time in history. In ve

years, the population o cities is expected to swell by an

additional 500 million people. The need to sustainably

manage social, economic, and environmental resources

has never been greater.

To help in this eort, Cisco developed a amily o video,

collaboration, and communications solutions that make city

lie more manageable. Need to visit a doctor? In a CiscoSmart+Connected Community (S+CC) you will be able to

see a doctor online at your convenience or just $1. You will

also be able to send your child to school or pennies a day

and renew your driver’s license without leaving your home,

all because o local and global data networks that virtually

eliminate the barriers o time and space.

Cisco S+CC solutions also provide tools or increasing

services and improving public saety. With video cameras

installed all along roadways, transportation ocials can

monitor not just crime but also trac congestion, and

even remotely update digital signs to redirect trac in

emergencies.

Like a growing number o Cisco innovations, our S+CCsolutions are a blend o adapted-to and developed-in

market solutions. While the underlying architecture is

being designed in Silicon Valley, the vertical applications

are being developed in India, home to our Globalization

Center. Cisco chose India or this work because our 6,000

engineers there have a unique appreciation o how serious

global urbanization has become. Their country is home to

eleven o the world’s astest-growing cities. In Bangalore,

1,000 new cars are put on the street every year. Clearly

these engineers have a passion or technology that can

transorm lives in a single generation.

When they are done, our Indian engineers take the best

o what they produce and then apply it to the work o their

Cisco colleagues around the world. What starts as anin-market idea in one place oten becomes an adapted-to

market innovation in another. Doing both creates a multiplier

eect or our company and is the platorm or taking on

some o lie’s biggest challenges. Great ideas can come

rom anywhere. I you can apply them everywhere, you can

change the world.

INDER SIDHU

Senior Vice President, Strategy and Planning,Worldwide Operations, Cisco

Inder Sidhu is a member o the company’s operating committee and has co-led Cisco’s

Emerging Countries Council and its Enterprise Business Council. He is also the author

o Doing Both: How Cisco Captures Today’s Profts and Drives Tomorrow’s Growth.



///// IT HAS NEVER been more important to target new

markets. Continued economic pressure means today’s

markets are unlikely to be the source o blockbuster

growth. Competitive advantage in established markets is

increasingly looking like a transitory notion.

And companies increasingly recognize that reaching new

markets requires developing products and services that areattuned to local needs. Despite this understanding, many

companies still struggle to get traction in new markets.

What explains the disconnect?

At least one explanation is that companies are limiting

in-market development to the eatures and unctions o the

products they sell and the services they oer. That’s a great

start, but companies need to go urther. They have to adapt

their very business models.

Never orget that “innovation” goes well beyond the eatures

and unctions o your oering. Look, or example, at the

our most successul technology companies o the past

decade—Apple, Google, Netfix, and Amazon.com. What

made all these companies successul was a businessmodel that disrupted their respective markets.

That’s not to say that companies always need to ollow

dierent business models to win in new markets.

Sometimes, in act, leveraging your current business model

is the exact way to win in a new market.

But i you are wondering how to determine whether

substantial rewiring is required or a product, ask a simple

question. “Am I targeting the same type o customer in the

new market as I serve in my existing market?”

I you sell to businesses and you hope to target consumers,

i you sell to upper-income consumers and you hope

to target the middle o the economic pyramid, or i you

sell to specialist doctors and you need to sell to general

practitioners, the odds that you need to innovate rom the

ground up are high.

It won’t always be clear where you sit on the adapt vs. de

novo development spectrum rom day one. That places a

big premium on structured experimentation—thoughtully

running experiments to address critical unknowns beore

making big investments. Getting this question right isn’t

easy. But sustaining real competitive advantage means

thinking dierently and acting dierently.All companies will need to think about their processes,

their locations, and the wide set o global challenges

acing them. During a recent ceremony celebrating the

groundbreaking o Procter & Gamble’s new Innovation

Center in Singapore, Bruce Brown, the CTO o P&G, and

other executives began to describe the uture. Brown noted

three specic challenges:

First, the general challenge o growth. P&G is about an $80

billion company. It typically shoots or 4 to 6 percent organic

growth every year. Historically, 80 percent o its growth

comes rom innovation. Run the numbers and you’re looking

at close to $4 billion in growth, every year. As a point o

comparison, Hasbro—an 87-year-old company—hasannual revenues o $4 billion. So P&G has to create a new

Hasbro, every year. This is a challenge when realizing some

o that potential requires smartly rethinking core systems

and structures.

Second, Brown highlighted how P&G has to deal with the

act that 50 percent o its R&D scientists will reach retirement

age in the next ew years. While that presents a clear

challenge—retaining the awesome accumulated knowledge

o these scientists—it also creates an opportunity to make

sure that R&D talent is balanced with global opportunities.

Third, P&G has to deal with sustainability issues around

the globe. It has publicly announced goals to reduce

its dependence on petroleum and to increase its useo recycled and renewable materials. He noted how

Singapore’s Agency or Science, Technology and Research

(A*STAR) has told P&G that sustainability is “no longer a

program, it is part o how we do our work.”

SCOTT ANTHONY

Managing Director, Innosight Ventures

Scott Anthony leads the Asian operations o Innosight, a strategic innovation consulting

and investment company with oces in Boston, Singapore, and India. He is the author

o the orthcoming book Cracking Innovation’s Black Box.



“Never orget that innovation goes

well beyond the eatures and unctionso your oering.”

Brown’s remarks set o a ascinating back-and-orth

among the panel about some o the general challenges

acing companies in Asia and globally. The wide-ranging

discussion included these ideas or thinking about the

uture development o products and services in emerging

nations like China and India:

For and amongst consumers. Bruce Brown used thisphrase to describe how P&G will achieve its stated goal o

serving ve billion consumers by the year 2015 (an increase

o 800 million rom today). Brown described how localizing

research activities is a key component o that strategy.

The Red Dot. A*STAR Managing Director Low Teck Seng

used that phrase to describe how Singapore appears on a

map. He described how the country’s small size allowed it

to be more nimble, reminding the audience that sometimes

constraints can oster innovation.

Florence. P&G R&D VP or Asia Maurizio Marchesini noted

similarities between Singapore and Florence during the

Italian Renaissance, with ree-fowing ideas and disciplines

colliding. He noted that solving tough problems requiresthis kind o interdisciplinary co-location where people work

together in new ways.

Simplifying technology and new business models.

Those are the two ingredients Shamik Dasgupta, the

regional head o Medtronic’s Cardiac Rhythm Management

business unit, described as vital or driving disruptive

growth in markets like India and China.

Nonconsumption. National University o Singapore

Proessor C.C. Hang used that term to answer the question

o where there are the greatest opportunities or disruptive

growth in Asia. He noted how there were more than 20

million electric bikes sold in China in 2010, many o them to

women or other nontraditional vehicle purchasers.

As common as possible, as different as needed.

That’s how Deb Henretta, the head o P&G’s Asia business,

described how she thought about approaching Asian

markets. She pointed out some o the real dierences

between consumers in dierent markets. For example,

“beauty” means air skin to many Asian consumers and

tanned skin to many U.S. consumers. But using scale where

appropriate can help companies like P&G realize its ull

global potential.

Nonobvious disruptions. Marchesini described how

P&G sells a product under the Downy brand that provides

long-lasting scent benets to clothes, using microcapsules.

In markets like the Philippines, this technology allows P&Gto bring scent benets to consumers who can’t aord

higher-end perumes.

Reframe. Henretta noted how important reraming was

to manage many o the challenges inherent in mastering

innovation in today’s economy. She emphasized the

importance o having on-the-ground research and deep

cultural understanding. To be successul, she said, “You

have to make sure your workorce refects the consumers

you are going to serve.”

jobs-to-bedone

businessmodel

newmarket

currentmarket

How to

determine

the t



Singapore: The Innovation GatewayIn a recent survey, the World Bank ranked Singaporeas the world’s easiest place to do business. This rankingrefects Singapore’s ongoing commitment to create the best

environment to help companies leverage talent and innova-tion to bring new products and services to the global market.

Singapore is a leading provider o services such as interna-tional banking, trade nance, maritime nance, insurance,treasury operations, and asset and wealth management

within the region. It is the ourth-largest oreign exchangetrading centre in the world.

Companies based in Singapore can tap the diverse capitalmarkets and cutting-edge nancial services rom more than500 local and oreign nancial institutions. In addition, there

are over 8,000 companies oering proessional services,including audit, accounting, and management consulting;

market research, advertising, and public relations; humancapital services; and legal services.

Singapore is ast emerging as an optimal destination or the

centralization o services, or “shared services.” Centralizingactivities such as IT, nance, and logistics oers benets

such as lower operating costs, consistent service levels,and enhanced productivity.

Rapid business innovation requires world-class R&D acili-ties and expertise. The Agency or Science, Technology andResearch (A*STAR) has created 12 research centers dedi-

cated to a multitude o technological disciplines; Singaporeattracts a world-class community o researchers and spe-

cialists rom the U.S., Europe, and the Asia-Pacic region.In the past decade, Singapore has successully grown itsR&D base, drawn top scientic and creative talent, and

nurtured R&D collaborations between the public sector andprivate enterprise.

Today, Singapore holds global leadership positions in areaso manuacturing such as electronics and petrochemicals.Thus Singapore has become an attractive base or complex

manuacturing activities, in tandem with its move toward amore knowledge-centric and research-based economy.

This emphasis on innovation and capital-intensive activi-ties and a globalised workorce has made Singapore theplace where Chinese and Indian companies can interna-

tionalize, where American and European companies maketheir entries into Asia, and where views on the uture o thisdynamic and ast-evolving region can be orged.

Companies with international headquarters in Singaporebenet rom an international network o over 50 compre-

hensive Double Taxation Avoidance Agreements. Andcompanies can always rely on protection o their ideas andinnovations through Singapore’s rigorous enorcement o its

strong intellectual property laws.

The global trends o urbanization, aging, and rising afu-

ence are creating demand or new products and services—solutions that Singapore itsel needs. Working together

with partners rom both the private and public sectors,companies can tap into Singapore as a “living laboratory”to collaboratively conceptualize, co-create, and test new

solutions in Asia and globally.

For example, the collaboration between PUB—Singapore’s

national water agency—and Toray Industries, Inc., is oneo the rst ruits o this initiative. The collaboration will seethe two parties working to develop water-treatment-related

technologies and products that will help in coping withthe anticipated global water shortage. In addition, ChangiGeneral Hospital has partnered with Intel to test-bed the

Mobile Clinical Assistant, a lightweight mobile device thatprovides inormation on patients’ conditions and test results

to caregivers who are on the move.

The Singapore Economic Development Board is shaping its

economic development strategies to distinguish Singaporeby attracting high-value-added investments in manuac-turing, services, and R&D. The SEDB will build on these

strengths, adding new capabilities as a home or business,innovation, and talent.

This report was created rom a roundtable that is part o an ongoing series o “Singapore Sessions” created in collaboration with

the Singapore Economic Development Board. By bringing experts in diverse felds to the table, the Singapore Sessions explore

the diverse solutions possible or any given challenge and oer unique insights into how we might answer some o tomorrow’s

challenges today.

Singapore Sessions is a trademark o the Singapore Economic Development Board. To join the conversation, visit

SingaporeSessions.com/ProductInnovation.

To explore other sessions, visit SingaporeSessions.com.



in collaboration with Harvard Business Review Analytic Services

INNOVATE OR ADAPT?

To join this conversation,

visit SingaporeSessions.com/ProductInnovation.

To join the conversation or to explore other sessions,

visit SingaporeSessions.com.

innovate or adapt - hbr singapore sessions report

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