Consider an American company with a good-better-best product lineup with 80-90-100% performance at 80-90-100% pricing. When seeking to sell in an emerging economy, like India, the company may attempt to offer a watered-down version with 70% of the features and 70% pricing, yet that would only capture a small slice of the market. A breakthrough would be to offer a 50% solution at 15% price. It would be impossible for the company to achieve that if they began with the existing offering. The only way to get to an entirely new price-performance curve is by starting from scratch.
That was from the book Reverse Innovation by Vijay Govindarajan and Chris Trimble, from a new paper by the excellent Pete Modigliani. He shares a story of how General Electric tried to sell a lower-end model of medical equipment in India that would cost $5 to $10 per test, but it was still unaffordable to most Indians. GE then designed novel equipment that focused on lower cost, portability, ease of use and maintenance, and was able to push the cost down to $1 to $2. It is now sold in every country except US and Canada (presumably because these countries’ health systems reward higher costs).
Here’s Pete’s point with respect to defense acquisition:
When designing a new fleet of military drones for Allies, DoD should not start with a Global Hawk and try to strip away the costliest elements. Instead, design should begin with simple commercial drones and scale up. It should focus on developing software that enable many low-cost, single-purpose systems to work together in a network or swarm environment to achieve desired mission packages. Anduril won a recent contract for counter-unmanned aerial system capabilities “as-a-Service” that enable rapid upgrades in vendor-driven software and artificial intelligence. This is a proof of concept for not only the technologies, but also novel approaches to acquisition.
Pete introduces an idea how contractors who lose out on a competitive DoD program can transition their efforts to Foreign Military Sales:
In many cases the DoD selects the winning vendor because it included additional features and performance. Vendors not selected are reimbursed for their prototype investments but fail to win the development and production contracts. This would keep many companies out of the market for a decade or more. A vendor who embraced design simplicity at a fraction of the cost and wasn’t selected by DoD could be viable for FMS. If the runners up stayed in the market by developing and fielding FMS solutions, that would create competitive pressure on the DoD’s selected prime to perform more effectively.
My primary issue is that all contractors in the original DoD competition were designing to shoehorned/goldplated requirements. They likely didn’t start from the right place to be that viable alternative on the FMS market. The premise is that if you want 50% solutions for 15% the cost, you need start fresh and not chase a DoD requirement (e.g., Anduril).
Pete, however, urges DoD to “take more of an enterprise portfolio management strategy with a mix of exquisite and simple solutions.” He gives another example of Air Force’s Big Safari integrating existing sensors on a commercial aircraft platform and fielded it within 8 months of funding — the MC-12W Liberty performed 73% of all Air Force ISR sorties in Afghanistan. Could that outcome have been possible under a traditional acquisition rather than through a unique organization with handpicked teams and high technical expertise like Big Safari?
Pete has tons of insight throughout, read the whole thing!
Leave a Reply