'Reverse Innovation': GE Makes India a Lab for Global MarketsPublished: May 20, 2010 in India Knowledge@Wharton
During a recent visit to India, John Dineen, president and CEO of GE Healthcare, presented a dual-slice computed tomography imaging system called HiSpeed Dual, which he described as a "giant leap." It was the first CT system that the health care arm of U.S. conglomerate General Electric had made in India, and the first high-end CT imaging system that anyone had made in the country. "Our dream is to make more such systems in India for Indian customers," Dineen said.
GE Healthcare had previously imported the system for Indian customers. By manufacturing it in Bangalore, GE Healthcare can cut the price by 10%, reduce an 8- to 10-week waiting period, and boost sales. But this isn't about increasing market share, Dineen says. "It is about creating new markets. Over time, this product will morph and get more specialized for the unique needs and characteristics of this market. The innovations from here could lead to an entirely new line of products which in turn could create whole new market opportunities for us."
Dineen's thinking encapsulates a strategy for all of GE's businesses in India. GE Healthcare started selling its products in India in the 1960s. In 1990, the company created a joint venture with Azim Premji's Wipro Group and, over the next few years, set up manufacturing plants in India. GE Healthcare began offering its feature-rich and high-priced CT, magnetic resonance imaging, X-ray, ultrasound and patient-monitoring systems to Indian customers. It tried to reduce cost by removing features, and it made some products locally. Now, however, the focus has turned to products made specifically for Indian customers.
Ashish Shah moved from the United States in 2006 to head GE's technology organization in India as general manager, global technology. "Our engineering and marketing teams now interact closely with the customers here to understand their requirements," says Shah, a 13-year GE veteran. "We look at their work flow, their environmental limitations, their profitability issues and other factors and we then price, design and manufacture the products accordingly."
Despite GE's long presence here, India accounts for less than 2% of GE Healthcare's US$17 billion in revenue, which some say is well below its potential given India's population and health care needs. This mattered less while business in the United States and Europe, which account for the bulk of GE Healthcare's revenue, was going strong. But growth there has slowed recently, while India has been on the upswing. So GE leadership sought to maximize India's potential. "We realized that the biggest impediment was that we were selling what we were making [rather than] making what the customers here needed," says V. Raja, president and CEO of GE Healthcare-South Asia. "It was clear that if we had to grow here we had to shift gears and align our products to the needs of the customers."
India's importance to GE is magnified because three of the country's key health care industry needs -- accessibility, quality and low cost -- are similarly important in other emerging markets. Officials believe that success in India can translate elsewhere -- even to the United States, where the health care issue predominates.
Vijay Govindarajan, professor of international business at the Tuck School of Business at Dartmouth College, who spent the last two years as a GE professor in residence and chief innovation consultant, calls the company's strategy "reverse innovation". "Historically, innovations have always happened in rich countries," he points out, "But in the future, innovations will have to take place in countries like India and China, because this is where the bulk of the customers are. The needs are more pressing here and the sheer volumes will justify the investments that will be required for developing the appropriate products."
GE has made significant investment in its infrastructure in India over the last two years. The engineers in its healthcare business who had been scattered across the country are now housed in a new facility within the 50-acre John F. Welch Technology Centre in Bangalore, one of GE's largest integrated multidisciplinary research and development centers. The 50,000 square feet devoted to the technology team is one of GE Healthcare's biggest laboratories, and the only one that houses all GE Healthcare products. It's not a sales and marketing demo room, Shah emphasizes: "It is an engineering lab for our engineers to work hands-on."
In the last four years, Shah's team has grown from 600 workers to 1,100, making it GE Healthcare's second-largest pool of engineers. Shah expects that within two years it could overtake the 1,500-person team based in Milwaukee, GE's largest in the health care division. More importantly, he says, his engineers have steadily moved from doing product piece work to developing their own technology. Shah expects the number of his engineers working on products for Indian customers to increase from 10% to 25% in the next three years. "Currently, six India products are in the project stage. Our target is that over the next three years we will come out with an India product in each of our [more than 30] product categories."
A New Organizational Focus
GE has prepared for this India focus with organizational changes. In January 2009, India was made a separate GE Healthcare geographical division, with Raja reporting directly to Dineen. In its early days, GE's India health care business had been part of Asia Growth Markets, whose leader reported to the head of the Europe division, and who in turn reported to the U.S.-based global health care leader. While GE Healthcare had operated in India as many different legal entities, Raja has in the last few months consolidated all but one -- GE-BEL, a joint venture with Bharat Electronics -- under the Wipro-GE Healthcare umbrella. The move is expected to accelerate growth through more effective management and resource utilization.
In October 2009, GE made the significant move of consolidating its India businesses under an executive of the rank as high as senior vice president. John Flannery, who was president and CEO of GE Capital in Asia, became president and CEO of GE India. Flannery reports to vice chairman John Krenicki Jr., who reports to GE's chairman and CEO, Jeffrey Immelt. This gives India increased visibility within GE. In a news release, Immelt said, "We will treat GE India just as we would any other GE business with its own growth strategy, leadership development and budgeting processes."
S. Raghunath, professor of corporate strategy and policy at the Indian Institute of Management, Bangalore, has tracked GE Healthcare since its inception here and sees the moves as significant. "Due credit must be given to GE headquarters for recognizing and acknowledging what can come out of India." GE, Raghunath notes, has an incredible passion for creating and winning in new markets, and "these organizational changes show that it is willing to change its internal systems and processes to create value wherever it sees it happening." Govindarajan, the Dartmouth professor, says the moves provide an immediate sense of GE's commitment to India. "This is not a change in terms of just organizational structure," he says. "It is a cultural change and a huge shift in mind-set."
Dineen expects "many of the game-changing innovations and products of GE Healthcare in the future to come from Bangalore." The first, which was rolled out two years ago, is GE's Mac 400, an ultra-portable electrocardiogram (ECG) machine. The device was fully conceptualized, designed, sourced and manufactured in India according to the requirements of local customers. With the Indian market in mind, the MAC 400 is priced at one-third that of imported ECG systems of similar quality. To deal with power outages in many parts of India and an acute shortage of health care professionals, the MAC 400 is battery-operated and intended to be easy to use. Customers in the health care field wanted the machine to be portable so they could reach more patients; hence, it is lightweight. To ensure easy serviceability (especially in remote areas) and to lower costs, it comes with commercially available components instead of customized and proprietary parts.
Addressing customers' wishes, Shah's team recently introduced the variant of the ECG machine called the MAC i ("i" stands for India) at half the price of the MAC 400. By incorporating the Marquette 12SL analysis program, which is standard in GE's premium ECG devices, GE has allayed any quality concerns. The MAC 400 and the Mac i incorporate the analysis program that is standard in GE's more high-end ECG devices and include built-in software that interprets the ECG in English like any pathological test, a feature that previously was available only in GE's very high-end ECG machines.
Health Care Game-Changers
GE sees the MAC 400 and the MAC i as potential game-changers. A quick look at health care in India shows why. Heart disease is the number one killer globally, and 60% of cases are from India. ECG testing is the first step in early detection. While testing can be performed by anyone with the right technical training, interpreting results can only be done by a cardiologist. Although 75% of India's population lives in rural areas, 80% of India's health care providers are clustered in urban centers; for a large part of the population, first-level screening is expensive when it is accessible at all. With the MAC 400 and the MAC i, GE made it possible to move ECG testing from the cardiologist's domain to that of a general physician anywhere in the country. The company believes the devices create a new marketing opportunity.
GE Healthcare has sold 7,500 MAC 400s. Of these, 2,000 have been sold in India. Even as it rolls out the Mac i, Shah's team is working on the machine's next variant. Other products that GE Healthcare has developed over the last few years for the Indian market include baby warmers and X-ray and ultrasound systems. Dr. Devi Shetty, a Bangalore-based cardiac surgeon and founder of the Narayana Hrudayalaya Institute of Cardiac Sciences has been a GE Healthcare customer for many years, and believes GE is on the right track. "The mass market in health care is yet to evolve," he says, "and having the foresight to move in this direction will make GE emerge as the undisputed leader in this area. Products like the MAC 400 and MAC i, for instance, can definitely change the rules of the game."
GE Healthcare isn't the only company on trying to focus on underserved areas. In 2008, Philips India, a unit of the Dutch multinational Royal Philips Electronics, acquired India-based companies Alpha X-Ray Technologies and Meditronics. With these acquisitions, Philips expanded its health care business to cater to the mass market segment for cardiovascular and general X-ray systems. Says Anjan Bose, vice president and business head of health care at Philips India, "Traditionally, we have been in the top and the middle of the pyramid, but with the whole model of health care delivery changing, we want to be present across the different value segments not only in India but in other markets too."
Susnato Sen, practice head for infrastructure, at the management consulting firm Tata Strategic Management, says it is inevitable that medical equipment providers -- including Indian companies such as BPL HealthCare and Larsen & Toubro, and multinational such as GE, Philips and Siemens -- will begin to focus on developing products for all segments of the market. India's health care industry is undergoing a sea change, Sen notes, and medical facilities are covering more of the population across all income levels. Each facility has unique medical equipment needs based on their business model and target population. "While some hospitals prefer to procure best-in-class, feature-rich equipment, many more hospitals now prefer procuring low-priced equipment [with] features [that are] sufficient to meet the requirements of most of the medical cases they encounter, as long as they don't compromise on quality."
Meanwhile, GE Healthcare faces the challenge of distribution and service. The company has 150 dealers in India, but its traditional model won't suffice in reaching out to remote areas with low-cost products. Numbers alone won't be enough; experts say the distributor network's quality is also vital. Raja notes that options include possible partnerships with pharmaceutical companies. "It is an evolutionary process and we are still working it out," he says. "What's important," GE Healthcare CEO Dineen adds, "is that we will do whatever it takes to succeed in this market."
If Dineen and his India team succeed, they say their effort will not only transform GE's global health care business; it can play a role in transforming health care globally. As Govindarajan says, "The game has just started and the full impact of this is going to be felt over the next couple of decades."