Reverse Innovation in the Global Information Age
Key learnings from globally disruptive localised solutions
What is Reverse Innovation?
Vijay Govindarajan introduced the concept of reverse innovation in a 2009 article for the Harvard Business Review with Jeff Immelt entitled “How GE is Disrupting Itself”. At the time he was working for General Electric as their Chief Innovation Consultant and studying their healthcare business in India. There he discovered that a new approach to innovation was taking place: GE was seeking to create at least 100 healthcare innovations that would bring down costs, improve quality and increase access by building locally in India.
This was a very different approach to the glocalization strategies deployed by most modern multinationals over the past 60 years. Even Ebay, the disruptive business that sought dominance in China in 2002, got this wrong by assuming that what had been a successful business model up until that point was enough to win over the Chinese customer. Suffice to say Alibaba won that battle.
Historically, reverse innovation was understood to be the process whereby a product is created and adopted first in a traditionally less innovative market and then introduced globally. Traditionally, reverse innovations have been the exception rather than the rule, with most businesses opting for a glocalization strategy.
Some may argue its logical that innovations flow downhill from the ‘rich’ to the ‘poor’ economies, and that the wealthiest consumers from the wealthiest countries demand the most cutting-edge technologies. Therefore, over time the new technology costs should reduce to the point where they can be adopted in poorer markets. This is a dangerous assumption. This outdated notion of us and them is not fit for messaging today’s innovation flows. Globally disruptive businesses are emerging from all over the world, but more importantly they are deploying local solutions to solve local problems or fulfil local needs.
Necessity is the mother of invention, and as I will illustrate, the acute need in finding alternative solutions to shared problems across some geographic markets has created some particularly interesting business models.
While it’s true that reverse innovation has been an accurate and straightforward way of perceiving innovation trends in the past, I would argue that this framing is outdated in the broader context of the Information Age: a more useful question to ask is “Where is the greatest need?”
An Opportunity for Global Learning
Alternative credit scoring, on-demand finance and data crowdsourcing are three areas where I believe identifying the greatest customer need is fundamental to building and scaling a successful business.
The following businesses have successfully identified the greatest needs of their target customers and have used these customer pain points as a point of departure for their overall business strategies.
What learnings can we take from these innovative business from Southeast Asia, India and Latin America that could inform and potentially augment the strategies of our own domestic businesses?
Alternative Credit Scoring
When it comes to understanding a customer’s creditworthiness and risk profile, developing markets are where we have seen the greatest innovation. This is mainly due to the user need being more acute in these geographies, due to the lack of reliable traditional data sources and the sheer number of ‘thin file’ borrowers. Therefore, lenders have had to think creatively about how to build the risk profiles around their potential customers. In recent years a number of businesses have emerged to assist large lenders on filling this data gap.
Lenddo is one such leading business operating across Southeast Asia and Latin America. They collate alternative data sets such as mobile data, utility data, financial transaction data, social network data and clickstream data to better understand a potential customer’s credit risk profile, and then provide this aggregated information to traditional lending providers to help them make more informed credit decisions.
For their first four years of operation, Lenddo actively lent to borrowers and built up their credit book until pivoting to this data aggregation model and focussing on servicing incumbent lenders across their target geographies.
While this product need was originally more acute in emerging markets, the addressable market opportunity is now global, so their lengthy experience serving ‘thin file’ customers at scale will give them an advantage over European or American domestic players.
These alternative scoring products have relevant applications outside of their initial markets. Whilst there are data points available in markets like the UK from traditional sources such as financial transaction data and credit bureau’s that determine, to some degree, a person’s creditworthiness — leveraging alternative data would augment this decision-making process and give us a much more accurate reading.
Players such as FirstAccess, CredoLab and TrustingSocial, amongst others, are deploying similar models to optimise existing lenders abilities to lend meaningfully to those currently underserved.
These businesses understood that the greatest need in the market was not more lending providers but greater access to relevant alternative data to help the existing lenders price the credit risk.
Providing credit scores by leveraging alternative data sources is not something that is exclusive to markets such as Southeast Asia, Africa and Latin America. There are indeed solutions such as Zest Finance serving the US market, but leveraging alternative data sources to decipher credit worthiness is much more prevalent in markets with greater numbers of ‘thin file’ customers, so I would argue this experiential knowledge is worth extracting to help differentiate our domestic business propositions.
On-Demand Finance
The centre of gravity in the world of financial technology has arguably shifted eastwards. Shanghai, not Silicon Valley or London, is now in the driving seat when it comes to innovation. To date, the one major exception to this relentless innovation push has been CICO.
CICO or “cash-in,cash-out” is how money enters and exits a digital ecosystem. This is important mainly because this functionality allows offline (cash based) and online (digital) economies to interact effectively (something that has not been solved in many markets globally).
In Kenya, by comparison, this CICO function is facilitated via a network of mobile money agents. While in the US or Europe, this is handled by traditional brick and mortar banking infrastructure. However in Southeast Asia, Go-Jek is pursuing an agent centric model, allowing customers to cash in their money via any driver.
Go-Jek is an app-based transportation, delivery, lifestyle and payment service startup. Originally founded in Jakarta in 2010 as a motorcycle taxi service, Go-Jek soon included other services ranging from food and grocery delivery to cleaning and beauty treatment services.
This is a great example of a business that started by solving a local need for efficient, on-demand, low cost transport that could tackle Jakarta’s traffic jams, but went on to disrupt the whole local payment ecosystem.
Go-Jek are now also looking to build on to this by solving the cash-out functionality via their acquisition of Mapan, an Online to Offline (O2O) startup that provides a community-based savings and loan platform that counts over a million families across 100 cities in Indonesia as members.
It would become a network of drivers and merchant agents providing cash-in points to a wallet linked to a menu of O2O services plus the ability to reach last-mile customers and their spending data. Building curated digital financial services on top of that platform of users, drivers and agents, O2O services and data would be promising. In effect, Go-Jek will ultimately be providing an environment where customers can access a suite of financial products totally within their own ecosystem.
Born in Bogota and now operating at scale across Brazil, Argentina, Chile, Colombia, Mexico, Peru and Uruguay, Rappi is a similar business model although it has not reached the same maturity levels as Go-Jek with regards to financial services.
By understanding that accessibility was the greatest customer need, these upstarts first solved the last mile delivery problem and are now adding financial products to their offerings.
The optimal solution to the problem of access to financial services looks very different in Europe compared to Southeast Asia. While a model like Go-Jek might not be as successful in London as Jakarta due to differing customer needs, I still believe we could learn from these alternative approaches when looking for differentiators in the business models we build and invest in at home.
Data Crowdsourcing
SafetiPin is a crowdsourced application and online platform that provides safety information on public places. It was founded in India in 2013 and its basic functions include a safety scoring of public spaces, a GPS tracking function for users and a safe route planning option. The concept is simple: users share information by completing safety audits. SafetiPin then analyses and edits collected data and provides compact safety information for all users as well as for city planning.
There are nine parameters used to assess the security of public spaces: Lighting, visibility, openness, crowd, diversity of people, nearby public transport, availability of walkways, presence of security personnel and the associated feeling. By leveraging these nine parameters, an algorithm calculates a safety score for public spaces. Pins on the city map display the safety information and the safety score of each location. Ongoing audits of users ensure up-to-date data.
This crowdsourced data can in turn be fed into Google Maps. Google Maps shows alternative routes, including safety information, so that users can easily select the safest route. If the app is open, it immediately alerts the users when a location, rated as unsafe by others, is entered. The user can invite family and friends to track their location until the user reaches their destination.
Currently, SafetiPin is collecting data in 28 cities across ten countries, such as India, Indonesia, the Philippines, Colombia and Kenya and is available in five languages — English, Hindi, Spanish, Mandarin and Bahasa.
Many western cities face security challenges on public transport and in public spaces. An innovation like SafetiPin could offer inspiration for London, Berlin, Paris or any number of cities which have experienced safety threats:
a) Safety parameters and the algorithm are a great approach for an assessment of the quality of public spaces. It can help planners create urban places and public transportation in which people feel safer and more comfortable.
b) Data crowdsourcing is an easy and cost-effective way to provide safety information on urban spaces. It can serve as a feedback platform to draw attention to unsafe locations, as a data basis for city planning measures and as an option to measure the impact of previously conducted measures.
c) Moreover, the data can be used by companies like transport providers to improve the security at stations or within vehicles and thereby make their services more attractive to customers.
d) The idea of crowdsourcing data can also be extend to collect data on the quality of public transport or the accessibility of public spaces for the elderly or people with disabilities.
Watch Over Me based in Singapore and WhereIsMyTrasport operating out of Cape Town, are both similar businesses looking to crowdsource data to solve safety and mobility issues in developing markets. The application can inform the development of business models in more mature markets.
So here we have multiple examples of solutions built for local needs but now have the opportunity to solve similar pain points in a variety global markets.
What have we learnt?
By looking globally for solutions to shared problem spaces we have discovered unique and disruptive approaches to solving similar problems domestically.
Creditworthiness, democratising access to financial services and personal safety are all areas where more scalable solutions are required globally. It is clear that there are lessons to be learnt from all over the world, but that looking at places where the pain points are the greatest is a good starting point to uncovering novel solutions.
The role of the Foundry here at Anthemis is to identify opportunity spaces alongside high potential founders in dynamic markets, and invests human and financial capital.
If you are a founder, early stage business or a global institution who is interested in discussing these topics further please feel free to reach out.
Email: Archie@anthemis.com
LinkedIn: https://www.linkedin.com/in/archie-cochrane-59848234/
Twitter: @cochrane_archie
