Incremental verses Dramatic Innovation, Oct 2011 column final (2ab)

Incremental verses Dramatic Innovation: Which is the better path in China?

渐进式和颠覆式创新：哪一个在中国更适用？

Amir Gal-Or, October 2011 Column

In my travels I have noticed that many Chinese companies are experiencing an internal conflict: on the one hand, there is pressure to have an innovative capability

which can support long lasting sustainable growth and brand building; on the other hand, there is a natural tendency and culture to implement a cost effective program that will produce a short term gain as well as a high P/E performance for the stock market and for listing purposes. Hence: the conflict.

我在旅行中发现许多中国公司都在经历一种内在矛盾：一方面，他们面临压力，明白唯有通过创新才能支持公司的可持续发展和品牌建立；另一方面，也有一种自然倾向和文化让他们执行当前较划算的策略，以获得短期产出或者为筹划上市需要的高估值。因此，这便产生了矛盾。

At the core of it, I believe that true innovation requires a longer term vision, along with associated risks and costs. But, is there a way to compromise and benefit from the best of both worlds?

总的来说，我相信真正的创新需要长远眼光、风险和成本。但是，有没有一种两全其美的方法？

Most Chinese companies and products are based on current strong market pull and do not “need” or “want” to take the risk of developing fresh market segments. In short: they do not want to "rock the boat". For these companies, one compromise we are seeing in the market is the exercise of low cost innovation. This entails maintaining the basic product and process, while concurrently improving both or “adding” to them. Certainly, this is the more practical choice for the short term and fits nicely with the culture of lower risks and short term profit. But, is this good for China? Is this really the way to go?

大多数中国公司和产品由当前强大的市场需求拉动，他们“不必”也“不想”承担风险去开发新的细分市场。简而言之：他们不愿意破坏良好的现状。对于这些公司来说，我们所看到的折中方案是低成本创新。这意味着，维持现在基本的产品和流程，同时改良并提升产值。当然，这从短期来说更实用，尤其对于追求低风险、短期利益的企业。但这对于现在中国是不是好的选择？

Let’s briefly further review the choices. The low cost option has been referred to in several different ways. GE’s Jeff Immelt and Vijay Govindarajan, of the Tuck Business School, call it “reverse innovation”. S.D. Shib ulal, chief operating officer of Infosys Technologies calls it “frugal” innovation. My preference, however, is the popular term “incremental innovation”. No matter what you call it, though, the definitions are congruent. As described by the Economist: companies from emerging countries like China and India, for example, are redesigning products to reduce costs not just by 10%, but by up to 90%. They are redesigning entire business processes to do things better and faster than their rivals in the West. The net result is a sturdy product that can be offered for a substantially lower price and therefore affordable by the middle market.

让我们简单再回顾下这两种策略。低成本选项已经有几种不同的称呼，通用电气的杰夫·伊梅尔特（Jeff Immelt）和维杰·戈文达拉扬（Vijay Govindarajan），来自塔克商学院，他们称之为“逆向创新”。Infosys信息技术有限公司的首席运营官S.D. Shibulal称之为“节约”创新。然而，我更倾向于用一个流行词汇“渐进式创新”来概括它。无论你怎么定义，所指的是一样的。正如经济学家描述的：比如，中国和印度等新兴经济体的企业正在重新设计产品来降低成本，其节约幅度远非10%，而是达到90%。他们重新设计整

个业务流程，比西方的竞争者更快更好地进行生产。结果，最终的产品能以相当低廉的价格出售，因此被中型市场所接受。

Most industries worldwide have been touched by this approach from cars to computers and everything in between, and the list of products developed under this umbrella continues to grow rapidly. There are many examples: Tata Motors has produced a $2,200 car, the Nano. Godrej & Boyce Manufacturing has developed a $70 refrigerator that runs on batteries, known as “the little cool”. Start-up First Energy has invented a wood-burning stove that consumes less energy and produces less smoke than regular stoves. And, telecoms entrepreneur Anurag Gupta has reduced

a bank branch to a smart-phone and a fingerprint scanner that enables ATM machines to be taken to rural customers.

世界范围内的大多数行业都在采用这一策略，从汽车到电脑，一切的一切，这类产品的列表还在不断延伸。这里有不少例子：在印度，塔塔汽车集团生产了一种只需2200美元

（约合14022元）的汽车，印度的Nano. Godrej & Boyce公司生产的一种用电池的，取名

为“小冷器（the little cool）”的电冰箱，售价也只需70美元（约合446元）。Start-up First Energy公司发明了一种烧炭烤炉比一般烤炉耗能小，排烟少。另外，Anurag Gupta

电信公司将一个银行分支机构简化为一台智能手机和一台指纹扫描仪，让ATM机进入农

村区域。

In China, the list is equally impressive. Haier, a multinational consumer electronics and home appliances company headquartered in Qingdao, Shandong, took wine-cooler refrigerators, a

high-end consumer good, and redesigned it into a much cheaper middle-market one. In doing so, Haier secured 60% of the market in the process (Peter Williamson, former INSEAD professor). 在中国，这一名单同样惊人。跨国消费类电子产品和家用电器生产商，总部位于山东青岛的海尔集团，将一个高端消费产品——葡萄酒冷藏冰柜，面向低端的中型市场做重新设计。如此，海尔确保了该市场60%的份额（彼得·威廉姆森，前欧洲工商管理学院教授）。

All of these case studies demonstrate that incremental innovation has value. Now let’s ask ourselves a fundamental strategy question that many companies face, in and outside of China. Is this enough? Or, is it savvier to follow the “dramatic innovation” track, which provides fertile ground and the open space for the entrepreneurial spirited to freely “break” the rules,

challenge assumptions, take risks with an open mind, try to develop something totally fresh and

in doing so “create” an entirely new market?

所有这些例子说明渐进式创新是有价值的。现在让我们自问一个国内外许多公司都要面对的根本性战略问题。这就够了吗？换句话说，颠覆性创新的路径是否会更加明智？这一策略将为创业者提供灵感和空间，让他们倍受鼓舞，自由地突破规则、挑战假定条件，以开放的心态承担风险，尝试开发全新的产品，最终“创造”出一个全新的市场。

In my opinion, it is more advantageous for companies that want to be market leaders and to build a real brand, to ride both tracks simultaneously, keeping mind that different teams with different skill sets should be set up to support the initiatives taken under the umbrella of these respective approaches. Bear in mind though, that if successful, dramatic innovation has the potential to produce returns that far surpass that of incremental innovation.

以我来看，两种策略并行对于那些想成为市场领导者，想要树立起一个真正品牌的企业更有利。记住要设立有不同才能优势的团队，分别支持完成这两种策略对应的不同行动方案。然而，请记住，如果颠覆式创新成功的话，将可能获得远超过渐进式创新带来的回报。

A classic example of proven, pure, unadulterated “dramatic innovation” that has reached the highest level of success is Apple, developer of the iPod and iTunes, Mac laptop and desktop computers, the OS X operating system, and the revolutionary iPhone and iPad. Apple is a household name, which means that their branding has been enormously successful. They are

well-known not only as industry “leaders” but also industry“creators”. Each year, the world anticipates what Apple will come up with next. This company introduces products that we didn’t even know we needed but discover we can’t live without once we have them. As is the case with dramatic innovation, old assumptions are cast away and replaced by the designs of a totally new concept. The way Apple founder and current chairman of the board Steve Jobs lured John

Sculley away from Pepsi-Cola in 1983 to serve as Apple's CEO, sums up very nicely the philosophy of dramatic innovation. Jobs asked Sculley: "Do you want to sell sugar water for the rest of your life, or do you want to come with me and change the world?" In 2010, Apple surpassed Microsoft in market capitalization; it also became the most valuable consumer-facing brand in the world with an 84 percent increase to $153.3 billion.

经典的例子可用来证明这一点，采用纯粹的颠覆式创新并获得最高层次成功的案例当属iPod 和 iTunes的生产商苹果公司。Mac笔记本和台式电脑，OS X操作系统，还有革命性

的iPhone和iPod。苹果是一个家喻户晓的名字，这一点说明他们的品牌获得了极大的成功。苹果不仅仅是行业领军者，更是行业创造者。每年，世界都在期待苹果公司下一步会生产出什么。这家公司创造的产品是我们之前不曾知道自己需要的，但是一旦拥有却再也无法离开的。这便是颠覆式创新的例子，旧的假定条件被抛弃，取而代之的是一个全新概念的设计。1983年，苹果的创始人、前苹果董事会主席乔布斯邀请约翰·斯卡利（John Sculley）从百事可乐到苹果担任CEO时所说的正好诠释了颠覆式创新的真谛。乔布斯曾

经问斯卡利：“你想要自己的后半生都在卖糖水，还是和我一起改变世界？”2010年，

苹果的股票市值超过微软；苹果的品牌价值以84%的增长速度达到1533亿美元（约9771

亿元），成为世界上最贵的消费品牌。

A company that has adopted both strategies and has prospered nicely as a result is Chinese telecom giant Huawei. As reported by the press, Huawei absorbed foreign technology and business expertise, and adapted both to create products for the Chinese market before taking the same strategy into global markets. Here we have “incremental innovation”. In April 2011, Huawei announced a net profit in 2010 of US$3.64 billion.

同时采用两种策略并最终大获成功的一个例子是中国通信巨头华为。据媒体报道，华为引进国外技术和业务专长，并应用于中国市场，以及后来全球市场的产品生产。这是所谓的“渐进式创新”。2011年4月，华为公布2010年净利润为36.4亿美元（约232亿元）。

Notably, Hauwei, which reportedly was the world’s fourth largest patent applicant in 2010,

has also adopted the dramatic innovation approach, having established many R&D centers worldwide, including one in Israel. The Center in Israel is managed by strong visionary leaders with a long term outlook and a product pipeline in development for market launch not in the near future, but rather in another 5-10 years from now.

尤其引人注目的是，华为也采用了颠覆式创新策略，据报道，华为在2010年成为世界上

第四大专利申请者。华为在世界范围内设立了研发中心，其中一个在以色列。这一研发中心由具有远大梦想和长远眼光的一群领军人物管理，他们针对5到10年后而非最近的市

场研究、开发产品线。

In fact, most Israeli innovations would be classified as “dramatic” innovations. One of my favorite examples comes from our company Given Imaging -capsule endoscopy pioneers and developers of the “PillCam”, the gold standard for small bowel visualization. Given Imaging’s PillCam is an edible capsule with a camera inside.The camera photographs its journey down the gastrointestinal tract and then passes naturally with a bowel movement usually within twenty-

four hours. The pictures are saved on a data recorder and later downloaded. This offers a beautifully non-invasive and quick way to assess a situation. An anecdote: I gave a “model” of

the Pillcam as a “fun” gift to various esteemed colleagues at the 2010 World Economic Forum’s Annual Meeting of New Champions. It was my way of sharing the joy of Israeli dramatic innovation. The enthusiasm spread rapidly. I remember being told by a third party that our friends were sharing with pride the PillCam story with other friends, some who also pulled out “their” PillCam with equal excitement.

事实上，大多数以色列的创新应该归类为颠覆式的。其中一个著名的例子便来自我们的公司——胶囊内视镜的先驱、“PillCam”的生产商，为小肠可视化奠定标准的Given Imaging公司。该公司生产的“PillCam”是一种带有微型照相机的可食用胶囊。这个微型

照相机沿着胃肠道拍摄，在24小时内随着排便离开人体。图像被保存在一个数据记录器上，随后可供下载。它提供了一种非侵入且便捷的方式来检查身体情况。这里还有件趣闻：我把一个Pillcam的模型，作为一件有趣的礼物赠给在世界经济论坛2010年新领军者年会上各位受尊敬的同仁。这是我与人分享以色列颠覆式创新带来的快乐的方式。这一热情迅速传递开去。我记得曾被第三方告知，我的朋友们骄傲地与他们的朋友分享PillCam的故事，后者也同样兴奋地分享他们自己类似PillCam的案例。

Infinity Group’s Israeli portfolio company PowerPaper offers another excellent example of a

pure attempt at dramatic innovation, currently in the making. This relatively small company has invented a thin, flexible, environmentally friendly “printable” battery that can be applied to enhance products in just about any industry- medical devices, apparel, shoes, greeting cards, to name a few – the list is as infinite as the imagination but with the classic challenge of price. This “out of the box” thinking led to a product with cosmetic giant Este Lauder to develop, produce and market cosmetic patches to reduce wrinkles. The paper thin battery serves as a conduit to transmit the active wrinkle removal agent in the patch. The same technology has also led to the development of security password patches and RFID battery assisted tags, among other novel

and useful products. Founded in Is rael, most of Power Paper’s activities today are based in China, where the technology has been fine tuned for application to products for the local market. The challenge now is to build from “scratch” a new market that understands, appreciates and enthusiastically embraces this golden concept. Dramatic innovation projects need market lift and once found, the next step is simply to “go for it”.

英飞尼迪集团旗下的以色列投资组合公司PowerPaper提供了又一个尝试纯粹的颠覆式创

新的经典案例，事实上正在进行。这家相对较小的公司发明了一种轻薄、柔韧的，无污染的“可印刷的”电池，能够应用于提升任何行业的产品性能，如医疗设备、服装、鞋类、贺卡，这一列表任凭想象可无限延展，但同时受传统价格因素的挑战。这一创造性的想法让化妆品巨头雅诗兰黛开发、生产出一种化妆眼贴，可用于减少皱纹。超薄电池作为导管，可传递眼贴中的用来消除皱纹的有效物质。同一技术还被应用于安全密码补丁、RFID电

池辅助标签等其他新颖、有用产品的开发。Power Paper公司成立于以色列，但现在大多

数生产活动都在中国。为了适应中国本土市场，公司技术进行微调后才投入产品应用。现在挑战是如何从零开始建立一个理解、欣赏和热情拥抱这一黄金概念的全新市场。颠覆式创新项目需要市场助力，并且一旦建立，下一步便是去努力争取。

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