The pride on Ashish Shah's face is unmistakable as he opens a white carton lying on the conference room table. General Manager for GE Healthcare's Technology Organization in India, he pulls out a contraption - slightly bigger than a landline phone, but a lot less complicated with far fewer buttons. This is the world's first ultra-portable electrocardiogram (ECG) machine.
The MAC 400, as it is called, has a lot riding on it for GE India. Two years ago, Shah and his team tried to figure out the average Indian customer's propensity to pay for an ECG. "That was the wake-up call for a company like ours - the answer was only $1," says Shah. Then they looked at the same question from another angle: What can the person providing the service afford to pay for the device? The answer: $700. This, when the average price point of ECG machines in the market was $2,000.
By then Shah had figured this much. The earlier approach of getting global products, defeaturing them and putting them out into the local market wouldn't work. So with his team, he decided to start from scratch and build a product for Indian conditions. "For instance, villages don't have power. So the device had to be battery operated and take at least 100 ECGs once charged." It had to be lightweight and fit into a backpack. The user interface had to be simple. Taking costs out was the other challenge. The printer accounts for a big portion of the cost of an ECG machine. So the proprietary printer in the machine was replaced with what you find in buses to print tickets. Fifteen months down the line and investments of half a million dollars later, the MAC 400 was born.
The product was a hit globally. It sold close to 5,000 units in 50-plus countries across the world, including some in Europe - only 20 per cent were sold in India. In China demand was so high, GE decided to manufacture it there. As we go to press, a newer version of the MAC 400 is ready to hit the market at a price point close to half that of its predecessor.
The success caught the attention of GE's top brass. For the first time, GE's annual report devoted two pages in the document to a single product. CEO Jeff Immelt teamed up with Vijay Govindarajan of Tuck School of Business at Dartmouth College and Chief Innovation Consultant at GE to write an article in the Harvard Business Review on how multinationals can use emerging markets for "reverse innovation". Instead of making products in the developed world and adapting them for developing countries, create products in developing countries and take them to the developed world.
Gunning for the India Opportunity
GE's intent to grow healthcare R&D in India was apparent in 2006, when Joe Hogan, then CEO of GE Healthcare, called Shah in the US. He wanted Shah to relocate to India and head the Healthcare Technology Organization. Shah was keen but apprehensive. But Hogan's brief was compelling: Develop engineering talent, develop R&D infrastructure and understand the specific needs of the India market. He bit the bait and is glad for it.
His team has grown from 600 engineers in 2006 to 1,200. The MAC 400 aside, this centre has created 12 products - like a digital X-Ray, a surgical table and a baby warmer. "I'm confident many game-changing initiatives that will come from GE Healthcare tomorrow are being developed in Bangalore today," says President and CEO of GE Healthcare, John Dineen. The changes happening in GE Healthcare point to a larger change sweeping across the company in India.
GE has been present in India for over a century now. But for most part, it was no better than an outpost barring stray successes. In January 2008, the top 600 leaders at GE converged at Boca Raton in Florida for their Global Leadership meeting. One full day out of this one-and-a-half day session was spent on conceptualising GE as an emerging market tiger.
"They were clearly thinking of shifting the gravity to where growth is - focussing on resource-rich and people-rich countries," says Govindarajan. "GE has clearly realised that there is a big gap between what we have traditionally got out of this market vis-a-vis what we could potentially get out of this market," says President and CEO GE Healthcare India, V Raja.
The focus on India, in a sense, is also pre-emptive. Says Govindarajan, "If GE doesn't solve India's problems, local companies will." Adds Raja, "We see MNCs and local companies scaling the kind of revenues they get here and we think, ‘Why we can't be an L&T, a Bharti-Airtel, or a Nokia?' That's clearly dawned on us."
So in line with what was discussed at the Boca Raton meeting, a slew of new initiatives were rolled out and GE India finally found its place in the sun. The focus on healthcare R&D in India was one. Reporting relationships across all businesses were streamlined. Take Raja for instance, who earlier reported to someone in France who in turn reported to Joe Hogan. Raja now reports directly to Dineen, Hogan's successor.
"We will treat India the same way as we treat any other business in the company," says Managing Director John F Welch Technology Centre (JFWTC) - GE's multidisciplinary R&D facility in Bangalore - Guillermo Wille. "This is a big difference for us. Previously, countries were never treated like a business, a P&L." The idea is that the India team in different businesses will define what products they want and the technology team here will develop those products.
But the biggest change yet is still in the process of being rolled out. About a month ago, GE announced that President and CEO for GE Capital in Asia, John Flannery, will now head India. At GE this is significant because for the first time in its history, GE will have someone of the rank of senior vice-president heading India.
The Task on Hand
Now, Flannery has quite a task on his hands because for all these years, GE India always fell short of everybody's expectations. Theoretically, here is an MNC that has virtually everything in its portfolio a growing economy like India needs - be it consumer appliances, building infrastructure, or financial services. But GE's India revenues across all businesses add up to approximately $2.9 billion. To put this figure into perspective, contrast it with, say, a Nokia which came to India in 1995: The company's 2008 revenues in India stood at approximately $4.7 billion. So how did things come to such a pass?
It started out on a strong footing in the nineties by getting into joint ventures with some good partners - Godrej for appliances, HDFC for consumer finance, BHEL for power equipment and SBI for credit cards. But barring the JVs with BHEL and Wipro for healthcare services, its joint venture strategy hasn't really worked well in India.
Take the appliance business for instance. GE has conceded ground in India to the Korean assault led by Samsung and LG. "Godrej was a strong partner but you cannot tell Godrej how to do business in India," explains a former GE executive who was with the company until 2005. Not just that, GE's product portfolio had a mature market skew, he explains. Cases in point? Indians didn't want the large refrigerators GE was globally strong in.
For that matter, take the credit card business. When GE tied up with SBI, India didn't have a credit bureau yet. That meant there was no credit history companies could rely on to issue cards. SBI suggested they tap into the thousands of savings accounts it managed to vet a customer's track record. "GE just wouldn't accept the idea. They insisted on not just getting the information from a credit bureau, but that SBI stand as a guarantor for all the cards issued. You don't ask for such guarantees in the US, then why ask for it in India," recalls a former GE hand who steered that business for a while.
Internally as well, executives at GE India found it an exasperating experience to get the headquarters' buy-in for any proposal. "They just couldn't understand that in India, the pay back time is longer," says yet another former GE executive who now heads a European MNC.
The other mistake, old timers at GE say, was the company's propensity to send in mid-level executives from other markets to head the India business. GE watchers say this market is far more complex than anything else these executives have handled. To that extent, you need more, not less leadership bandwidth to grow the market here. But to say that GE never realised India's importance would be wrong. Chairman and CEO of GE from 1981 to 2001, Jack Welch, knew it and he pushed for and established JFWTC for instance. But as one GE watcher puts it, he had to literally "arm-twist" everyone else in the organisation to take India seriously.
Which is why, Flannery's appointment comes as a breath of fresh air. "If he sees an opportunity, he will cut the crap and get things done," says a former colleague.
The lack of focus over the years has had a telling effect on GE India and it is up to Flannery to clean the mess. Described by colleagues as a man "of few words", Flannery comes to India with a good track record of integrating across organisations. When he took over at GE Capital Asia, the business was organised in 27 distinct silos. Flannery was responsible for integrating them and bringing them down to four distinct units, no mean feat by any measure.
There are other challenges as well that will require a "mindset shift", says Govindrajan. For a headquarter-driven MNC like GE, used to working in a certain way, things like reverse innovation and evolving an Indian way to do business will obviously face resistance at the headquarters. It means decentralisation of powers and delegation of authority, which may have some opponents at the headquarters.
The hope though is that with Immelt backing the plan completely, it will go through eventually. This finds reflection in the fact that the emphasis on quarter-on-quarter numbers is no longer on India. "There is a realisation at the top that people working in emerging markets need to have an explore-and-learn approach. They have to be profitable but not every month. They can spend money, adjust and fine tune their business model and then make money," says Govindrajan.
Add to this the fact that GE India's journey is happening in an altogether different world. This isn't the nineties when GE was the behemoth that commanded awe. Everybody from Google to Nokia and Samung to Tata are setting new benchmarks. "To be honest, the company is embracing reverse innovation for defensive reasons. If GE doesn't come up with innovations in poor countries and take them global, new competitors from the developing world - like Suzlon and Haier… will," admits Immelt candidly in a recent paper he authored.
Challenges before Flannery
Leadership bandwidth: This is Flannery's first stint in India. Many of his business heads are NRIs, relatively new on the job. Deep understanding of India will be critical Product-need mismatch: GE's product portfolio has a mature market skew, especially in the energy sector, and they are expensive too. GE will have to work extra hard to grow that business.
Managing the ecosystem: With government as one of the key customers, an understanding of its inner workings and how to work the system will hold key for any significant scale-up.
HQ's mindset issue: Reverse innovation and giving India the priority by empowering India heads will require a mindset shift at the GE headquarters which will not be easy."I See More Opportunity Than Challenge"
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