Reverse Innovation Lessons for Developed Economies

Reverse innovation stories in emerging markets highlight the untapped potential of innovating operating and business practices in developed markets.

The more I read about “reverse innovation” and the opportunity this creative method of rethinking products and services has opened up for the developed world, the more I see how important operating and business processes are. What’s interesting is that in the telecom industry the best examples (and the most successful ones) are coming out of emerging economies. This shouldn’t be a surprise as innovation in the emerging world has been an outcome of the prevailing business pressures that left little option but to change conventional thinking.

We have all seen that most of the subscriber growth in the developing world has come from bottom-of-the pyramid consumers that generate marginal ARPUs (average revenue per user). It’s no wonder then that in most instances, innovation in the emerging market has been in the form of new business models that profitably target these consumers with low disposable incomes and stimulate the usage of basic and value-added telecommunication services.

This kind of innovation started by changing very basic paradigms. Companies redefined core values and questioned competitive drivers. We also saw operators such as Bharti moving away from physically owning the entire front-and-back-end infrastrcuture to outsourcing many non-core activities in an attempt to turn capital expenditures into operational costs and manage cash flow better. They started with Network Sharing in order to optimize on-network op-ex and cap-ex costs (often driven by the need to extend coverage into remote areas). They then added Network Outsourcing and later IT Outsourcing to bring down fixed costs and improve performance. These moves have also helped Bharti divert internal resources into customer management and business evolution.

These innovations are not just focussed on operations. There are many examples around advanced business practices as well. Dynamic pricing has been introduced in South Africa by the African telecommunications company MTN (the plan is called MTN Zone). It uses realtime network loading to offer time-limited discounts on voice and sms in specific geographical areas. This has increased usage minutes, stabilized pre-paid ARPU, and helped to smooth traffic profile for higher network efficiency. Concepts like sachet-pricing, which has been introduced in a few markets including Africa, India, and Latin America, enable customers to purchase data access in small increments (1-hour, 1-day, 3-days, etc), thereby providing a flexible alternative to the standard flat or usage-based pricing models. Another high-profile example is the One Network launch from Zain that allows customers to roam across 16 markets using their home SIM card at local call rates.

And there are many more such examples.

What is probably not commonly known is that most emerging market mobile operators have been able to record EBIDTA margins that are, on average, higher than the margins in developed economies—proof that there is value in taking a different approach to backend requirements.

With the developed world now faced with similar challenges on costs and margins, there is a case for learning from the innovation in emerging markets and building on it further to target the untapped potential of innovation in both operating and business practices.

Illustration by Remy Labesque / frog design

Leave a Reply

Your email address will not be published. Required fields are marked *