Determine two (2) emerging trends in the external environment that prompted General Electric (GE) Healthcare to develop a new strategy for the production and marketing of a low cost Electroencephalography (EEG) machine in bottom of the pyramid markets (BOP).

 

Examine the XanEdu case pack’s “GE Healthcare (A): Innovating for Emerging Markets” case study

In a three- to four-page paper, address the following:

Find the two (2) new external trends that led General Electric (GE) Healthcare to rethink its approach to the development and promotion of a low-cost electroencephalography (EEG) machine in bottom of the pyramid (BOP) markets. Examine two (2) internal obstacles GE Healthcare encountered when expanding its BOP market in India and determine how they hampered the company’s development in this market sector. Examine two of the major external obstacles that GE Healthcare encountered when attempting to achieve its marketing objectives in the Indian market. Give two (2) solutions for overcoming these obstacles. Examine the particular actions that GE took to establish their BOP market expansion plan. Analyze the ways in which those actions adhere to strategic thinking and planning tenets. Find out how GE Healthcare’s plan to strengthen its position in BOP markets impacted the organization’s value chain in emerging and developed markets. The formatting requirements for your assignment are as follows: Times New Roman font (size 12), double spacing, one-inch margins on all sides, and APA or school-specific format for citations and references. If there are any more instructions, ask your lecturer. Include a cover page with the assignment’s title, your name, the name of your professor, the name of the course, and the date. The required assignment page length does not include the cover page or the reference page. Differentiate between strategic management, strategic thinking, strategic planning, and managing strategic momentum, which are the specific course learning outcomes linked to this project. Examine the significance of how the outside world affects health care institutions. Examine how internal environmental analysis can be used to pinpoint the source of a long-lasting competitive advantage. Examine the service delivery and support activities’ components as well as the organizational value chain. Examine the obstacles to the creation of new products that adhere to industry initiatives. To conduct research on issues related to the strategic management of healthcare organizations, use technology and information resources. Use appropriate writing mechanics while discussing the strategic administration of healthcare organizations.

(A) GE Healthcare

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A Focus on Emerging Market Innovation

01/2012-5776

Jasjit Singh, an associate professor of strategy at INSEAD, wrote this case. Instead of serving as an example of how to handle a managerial scenario effectively or ineffectively, it is meant to serve as a starting point for class debate.

Copyright INSEAD 2011

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“If GE doesn’t create new technologies in underdeveloped nations and export them globally, the new rivals from the developing world will… GE has a great deal of respect for long-standing competitors like Siemens, Philips, and Rolls-Royce. However, it is capable of competing with them; GE will never be destroyed by them. The developing market giants could, however, release goods that establish a new price-performance paradigm. Reverse innovation is essential; it is not an option.

CEO of GE Jeffrey Immelt and other authors

Healthcare by GE

General Electric, a $180 billion behemoth, had a $17 billion segment called GE Healthcare that, as of 2010, employed over 46,000 employees worldwide. As part of CEO Jeffrey Immelt’s increased emphasis on R&D, it was established in 2004 following the merger of GE Medical Systems with Amersham, a British bioscience/medical imaging company, and other healthcare IT companies.

Global sales of top-tier medical imaging and diagnostic products were a specialty of GE Healthcare. It ran as a 51:49 joint venture with Wipro in India under the name Wipro GE Healthcare. As a foreign multinational operating in India, GE faced institutional challenges and regulatory restrictions. By collaborating with a major Indian corporation, GE was able to address these issues.

India as a Global R&D Hub

For its R&D projects, GE had four main locations: the United States (Niskayuna), India (Bangalore), China (Shanghai), and Europe (Munich). Detroit and Sao Paulo, Brazil, as well as other locations for study, were also being explored. The availability of talent and proximity to significant markets were the main factors in choosing an overseas location for R&D.

The largest GE R&D facility outside of the United States was the John F. Welch Technology Center (JFWTC) in Bangalore. By 2010, the $175 million center, which had been operational since 2000, employed 4,300 technologists (about 1,100 in the healthcare industry). 4 India was a desirable location not only because of its low cost but also because of the country’s abundance of top-tier talent and the presence of a number of renowned educational and research institutions in an otherwise underdeveloped nation.

For GE enterprises, JFWTC conducted R&D in a variety of industries, including healthcare, energy, aviation, and transportation. Its typical area of focus has been serving the demands of clients in developed markets. The emphasis on products created exclusively for clients with particularly low incomes (the so-called “bottom of the pyramid” or BOP) in emerging economies, such as India, has, however, grown.

India as a market for healthcare

India’s $30 billion healthcare market was predicted to treble in size over the following five years as of 2010. According to estimates, the $3 billion to $6 billion medical devices market category is expected to expand between 10% and 15% annually.

Most of the 700 indigenous manufacturers of medical equipment in India only produce inexpensive items like needles and catheters. Few of the few companies that did produce more advanced equipment were able to match the quality or performance of international competitors. Despite this, they frequently had a sizable cost advantage, making them fierce rivals in mass markets where consumers had little purchasing power and were very price-conscious.

MNCs like GE, Siemens, and Philips were the main producers of high-quality specialized products, with GE being the leading supplier of diagnostic tools like ECG, MRI, CT, and ultrasounds. However, given the price points, the majority of GE Healthcare’s $400–500 million in yearly income in India had come from sales to significant hospitals.

In a recent $6 billion global “Healthymagination” campaign, GE Healthcare set out to lower healthcare costs, broaden access to treatment, and raise standards of care. This included a sizeable investment in BOP patient solutions. 7 This was anticipated to improve GE’s corporate social responsibility (CSR) reputation in addition to offering revenue prospects and developing new capabilities for emerging countries.

Indian GE Organization

By 2010, GE had set a $5 billion revenue target for India across all of its operations. But by 2010, it had actually made less than $3 billion. India still only accounted for less than 2% of revenues in the healthcare business. Immelt established a challenging 30% annual growth target for GE India over the following five years in order for the Indian business to exceed the $10 billion mark by 2015. Immelt realized that this fell far short of its potential.

The inability of GE to fully get into the mass market had been a major obstacle to its success in India. The unique needs of the Indian market did not receive much attention in the highly centralized global organization because sales from India made up a small portion of total sales. As a result, even R&D projects carried out in India tended to focus on satisfying the requirements of the relatively affluent groups that were comparable to GE’s developed market clients. The issue, as stated by a senior executive at GE Healthcare, was that “we were selling what we were making [rather than] making what the customers here needed.” 9

For India, GE unveiled a new “in country, for country” strategy to address the aforementioned issues. This required two significant organizational structural adjustments. First, India was to be treated as an independent area (on par with the US and China) on the organizational matrix’s geographic dimension. According to a former employee of GE Healthcare, “In our global meetings, India overnight went from getting only two slides in the GE International presentation to getting a whole presentation on its own.”

The second organizational reform was the establishment of GE India as the first nation to have its own profit and loss center. With merely a dotted-line connection to the global business heads, the Indian business heads were to now report largely to the country’s CEO. Managing the entire local value chain from India itself was supposed to increase local adaption and speed up decision-making, as Immelt stated: “We will treat GE India just as we would any other GE business with its own growth strategy, leadership development, and budgeting processes.” 10

In his 39th year, T.P. John Flannery, a senior vice president from GE’s global leadership team, took the place of Chopra, an Indian who had served as the country’s CEO in the previous organization. It was believed that decentralized decision-making would not compromise global strategy integration and cross-border information exchange because the new CEO had strong connections to GE’s global business heads.

Instead of assigning existing R&D teams the task of generating “value-for-money” products aimed at low-income markets, GE created new product teams with the exclusive purpose of creating and commercializing such solutions. Along with increased efforts in local marketing, sourcing, manufacturing, and service, local R&D funding was also given a boost locally. To better adapt to the Indian market, aggressive growth targets were set, along with objectives for drastic cost reduction and decentralized decision-making that would speed up decision-making. 11

An updated ECG gadget for India?

The efforts of GE’s Healthcare division to create affordable electrocardiogram (ECG) products specifically with the Indian market in mind serve as an example of how the company was an early adopter of the new “in India, for India” approach. Several new initiatives in this spirit had been started even before the new organization was fully in place.

Heart disease is a leading cause of death in India, making ECG testing extremely valuable for early detection. However, because commonplace ECG devices (like the over $10,000 MAC 5500 machine in Exhibit 1) were made to fit the needs and budgets of large, contemporary institutions, they exclusively served the top of the Indian market.

Few Indians with annual per capita incomes of just over $1,000 could afford pricey tests on sophisticated equipment. However, there were more problems besides cost. Hospitals were difficult for residents of remote locations and small towns to access. Therefore, simply manufacturing simplified variations of GE’s current goods would not be sufficient. It was important to consider the BOP’s particular difficulties.

ECG for the MAC 400

The JFWTC was given the assignment by GE management to develop an ECG solution for India. Three advantages of local R&D were found. First, the workforce was more knowledgeable about Indian clients. Second, it was more knowledgeable about locally accessible off-the-shelf components. Third, development expenses were far cheaper than for a comparable project in the United States.

With research expenditures of roughly $500,000, the MAC 400, an ECG gadget that targets the BOP, was created in about 22 months. The device was small enough to fit in a backpack (a similar worldwide product development effort may have taken twice as long and cost several million dollars). In comparison to traditional models, which frequently weighed over 7 kg, it was significantly lighter at 1.3 kg. It could operate for a week between charges and could be recharged in three hours. It could also perform over 100 ECGs.

A compact printing device modified from a design used for portable ticket printers took the place of the pricey printer typical of traditional ECG equipment. A three-channel output in the MAC 400 took the place of the conventional 12-channel printer output in high-end ECGs. Four buttons were used in place of the complete keyboard, and a small text-only setup display took the place of the enormous color graphic display. The device had a straightforward one-touch operation and inbuilt software that interpreted the ECG data and printed out a straightforward, understandable report. As a result, a cardiologist was no longer required to determine whether a patient had a heart issue and required a referral to a specialist.

It’s important to note that the development team did not compromise on the core functionality as a result of their relentless focus on removing non-core features common in high-end ECG machines (such as on-screen display, advanced analysis, full network connectivity and interoperability, barcode and magnetic card scanning, data storage and export, security, etc.). The analysis carried out by the MAC 400 was as trustworthy as that of a full-scale ECG device because it employed the industry-standard Marquette 12SL algorithm used by all of GE’s ECG machines. 12

The cost of the MAC 400 was roughly $1,000, which was less than a tenth of the cost of many full-size models and a third of the cost of medium-sized conventional devices. 13 The effective cost of a single ECG was determined to be less than $1, which was deemed cheap enough for widespread adoption. GE thought that the volume of sales would justify the product even though the margins on the MAC 400 were lower than those on high-end equipment.

Making a smaller-sized gadget with fewer functionalities naturally resulted in some cost savings, but these savings also came from the inventive use of locally accessible standard parts. The R&D team came up with a creative solution that relied on a commercial chip that cost only a fifth of the price of a bespoke processing chip. Similar to that, the team modified a printer that is commonly seen in bus terminal kiosks rather than creating a unique one from scratch.

The regional R&D team had access to all of GE’s acquired knowledge when the MAC 400 was being built. For instance, by using a technique developed somewhere else to create quick plastic-mold prototypes, the team was able to save money by collecting early input from physicians and avoiding expensive adjustments later. Similar to that, it was able to improve the printer’s appropriateness for ECG by drawing on GE’s prior experience designing printers for dusty environments.

A top official at the JFWTC described the MAC 400’s full potential by saying, “It will become the stethoscope of cardiologists.” 14 Another official stated, “The dream would be to sell at least one device to each GP (general practitioner).” 15

GE wanted to rely on more than just the Wipro-created network for cost-effective distribution, and it looked forward to exploring potential new alliances with large pharmacies, surgical centers, and pharmaceutical firms. It taught classes on the technical aspects of utilizing ECG equipment and presented the business case for purchasing one in order to inform potential consumers. It partnered with the State Bank of India, whose huge rural network was utilized to set up no-interest loans for buyers, in order to assist prospective buyers in getting past financial obstacles.

When the MAC 400 project was started, GE had only conducted a little market research and had few distribution channels for the new clients it was attempting to attract. As a result, the project was not only assessed financially but also as a tool to develop resources and competencies for the future as well as an experiment into the BOP prospect in general. Baby warmers, X-rays, and ultrasound equipment were some of the other product categories that GE Healthcare was attempting to target low-income consumers with similar strategies.

The MAC 400 was intended as an experiment, and it was a success not only in India but also in many other nations where it was actually frequently offered at higher price points. Within the first two years, MAC 400 generated $20 million in revenue, turning it into a respectable commercial success. Given that it was GE’s first push into a new market and the fact that the entire ECG category was only a small portion of the company’s overall healthcare portfolio, it is not surprising that this represented only a small portion of GE Healthcare’s overall revenues.

Although GE’s long-term goal was to open up new markets with products like the MAC 400, real channel limitations meant that a sizeable portion of the early sales actually happened within the existing customer categories. It became evident that developing the necessary sales, distribution, and service networks would be just as important as having the correct product in order to fully capitalize on the BOP opportunity. Additionally, to compete with current and upcoming products from low-cost Indian manufacturers like BPL Healthcare, a genuinely mass-market device would need to be even less expensive than the MAC 400.

GE later developed a less expensive ECG device, the MAC i (“i” standing for India), that weighed less than 1kg, used a single-channel printer output, and even did away with PC communication, based on the MAC 400 experience and considerable market research. It was just $500 when it was introduced in November 2009. Early market indicators suggested that MAC would succeed economically. Like its predecessor, it was produced locally using local components and continued to differentiate itself through dependability, user friendliness, and interpretation software (16).

ECG for the MAC 800

While the MAC 400 was being developed in India, GE’s R&D team in China expanded on the concept to create the MAC 800, a different portable ECG (see Exhibit 3). The new product was aimed not only at isolated areas but also at China’s standard clinics and hospitals.

The MAC 800 weighed 3kg, making it heavier than the MAC 400 but still considerably lighter than GE’s top-tier ECG devices. It included a telephone-style keypad to allow users to enter data because it was aware that China was already familiar with SMS texting. It had a full-size color display (with numerous language options) built on an easy-to-use Windows platform that provided an ECG test result preview. It also made it possible to send and store ECG data.

The MAC 800 product design, pricing strategy, and distribution channels used by GE Healthcare took advantage of China’s lower price sensitivity than India’s due to higher local income levels and greater government involvement in healthcare standard-setting and purchasing decisions. This created a different type of opportunity.

The MAC 800 cost roughly $2,500, which was more than twice as much as the MAC 400 but still less than one third of GE’s high-end ECGs. 17 Early signs suggested it was selling well; as of 2010, there were more than 20,000 installations in more than 50 countries.

“Reverse Innovation”

In an intriguing turn of events, GE began offering the MAC 800 in developed markets as well. While it held a 34% share of the mainstream ECG market in the U.S., GE saw an opportunity to use the MAC 800 to expand the ultrasound market to include primary care physicians, rural clinics, emergency rooms, and accident sites. Market studies revealed that U.S. physicians found the device user-friendly and found its SMS texting-style keypad acceptable.

This represented a change in the flow of innovation for a corporation that largely sold goods made for industrialized economies in emerging countries. Immelt used the term “reverse innovation” to describe the phenomenon and saw it as essential to the survival of Western multinational corporations battling the threat of emerging market firms expanding globally with their own disruptive business models. 21

The ideal global approach?

The revenues generated were still modest by GE standards, the margins were thinner than GE was used to, and the competition was beginning to heat up, so it was too early to declare GE’s BOP initiatives a significant commercial success, despite the positive press coverage and numerous awards for its innovative BOP products.

Given the lack of clarity surrounding GE’s competitive edge in serving BOP markets, some questioned if the company actually had a viable long-term strategy. Delivering standardized products globally, relying on scale to save costs and strict organization to maintain control, had led to previous triumphs. It did not appear to be the company’s natural course of action to adopt an “in country, for country” strategy for particular nations.

 

 

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