Innovation Management Sahil Sayal

An Academic assessment of General Electric’s MAC 400 Electrocardiogram Machine (ECG)

December 2013

M B A F T 6 G r e n o b l e G r a d u a t e S c h o o l o f B u s i n e s s , L o n d o n C a m p u s

General Electric’s MAC 400 ECG Machine

Word count: 3075

I would like to begin my discussion based on the following quote by Jeff Bezos. “I think frugality drives innovation, just like other constraints do. One of the only ways to get out of a tight box is to invent your way out” The world today is becoming more and more global, by global I would like to emphasize on the notion that, now countries are depending on each other far more than they did a few decades ago. This dependence has also created room for learning. The learning may originate from any direction. It is interesting to understand the passage in which the countries learn and adapt form each other. Going behind a few decades we saw, typically in every industry that technology and services were designed and invented in the developed economies and sold to the under developed economies (India & China) and third world economies like Africa. This scenario seems to have been revered as we further progress into the 21st century. This has happened due to Frugality or as mentioned above by the Jeff ‘Frugal Innovation’. My subject of innovation in my discussion is the solution found by General Electric (GE) for the Electro Cartography Machine (ECG). They ironically named it the MAC 400, a name eponymous with innovation’ MAC’ by Apple. The reason this topic is interesting is the fact that GE found a product, which was an innovation on its already existing line of ECG’s. It sought to find the solution through demand-­‐pull factors, rather than technology driven factors. The concept of MAC series of ECG machines by GE is that they are low cost and highly efficient than other usually expensive ECG machines. This relates to Product innovation, derived form a transitional design concept. GE created two products, which revolutionized the concept of reverse innovation. Vijay Govindarajan and Jeffery Immelt coined the term reverse innovation where, it is conceptualized in a developing economy before spreading to the westernized modern economy. My analysis is principally based on their paper, where they analyze GE strategies and have present similar findings. I will analyze the MAC ECG range and how it leads to innovation originating from the very place GE would have never thought of, i.e. China and India. I will then explain the application of relevant theory to this innovation, going through the stages in a orderly manner, and associating where necessary. It was in early 2009, when GE announced it was planning to spend $3 billion in order to create over 100 healthcare related innovations, with focus on reducing costs and improving quality, which included the $1000 hand-­‐held ECG machine (later sold for $700) and the under $15,000 ultrasound machine, both of which were originally developed in developing economies like India and China respectively (Immelt, Govindarajan and Trimble, 2009).

The focal point driving this innovation began in 2001, when a group of engineering scientists from General Electric India (GE), were visiting a hospital in rural India. They noticed everything about the hospital besides the frustration of the doctors in that hospital. GE has been very successful in making high quality ECG machines. The ECG is the most extensively performed cardiac

analysis test in the developed world. GE ‘premium’ range has been widely used in urban hospitals, while rural India was unable to have access to them due to their huge weight, costs and power requirements. As a result the cardiac problems, which could have been detected earlier, have gone undiagnosed, which meant loss of potential revenue for GE. The link provided will give you greater insights into this innovative product (Nesta, 2013).

It was then that these engineers got together and conceived the idea of developing a new product which would serve the needs of the untapped markets it wanted to capture and later on would prove be a success even in markets where GE was already dominating.

Figure 1. The ECG/MAC S-­‐curve

The S-­‐curve above tells us how the ECG machine was first launched and how technology/performance changed and subsequently so did its S-­‐curve as shown above. We can see that in the earlier stages near time 0, the curve for the ECG system is gradually increasing, which at the time was a Radical Innovation, as people did not know about the product until they were introduced to it. It was then accepted and the curve moves and bends signifying high demand later followed by stagnant demand, where the companies face competition from many factors, in our case High prices, which were not suitable for GE in India and China. The stagnant demand, lead to the (Demand Pull Innovation) creation of the MAC series. In the second curve we see that it behaves in the same manner as

the first curve, signifying growth and success of the newly developed product. The over lapping of the curves is very interesting as it tells us, how both type of technologies co-­‐exist at the same time. This shows demand for both the products but at the same time signify the importance and need of Incremental Innovation and Frugality to gain a competitive advantage. It also is irrational for new entrant to try this innovation as it’s at a very early stage, and most companies failed to for see its true potential. GE had the first mover advantage. This machine has huge theoretical evidence as it helps to put all theory and empirical studies into practice, such as Frugality, incremental and Disruptive Innovation. The machine is seeing steady growth since a very long time and its application has moved from rural areas in developing nations to big developed economies. The reasons for this are many, the most important one being, cost.

This innovative idea was radical and revolutionary given the importance of rural population in the growth of a nation and also the organizations, which saw potential in tapping this market. This idea was a ‘Disruptive Innovation’, as the innovation of the MAC series of ECG machines created a new market by applying a different set of values, which expectedly overtakes the existing market. According to me, this can be termed as Incremental Innovation rather than radical innovation, as developing the MAC series of ECG machine was an improvement towards costs and technology that changed the way people perceived ECG machines and services to be, rather than a complete Radical change of ECG systems (Leifer et al, 2000). It made the ECG accessible to people and places where no one had expected it to be. It popularized the values of cost saving among the people. As rightly said by Leifer, “Think of incremental innovation as cost cutting or feature improvements in existing products or services”.

The engineering team from Bangalore understood the problems being faced by GE in India. It wanted to tap the market but wasn’t able to. The objective was to extend the lifesaving power of the traditional ECG machines to a large mainly poor Indian population of 700 million. This was the bulk of India’s chronically undiagnosed patients were to be found. Building a machine like the MAC ECG could open new frontiers for GE. The trouble began with securing the funding from the Head office in USA. The team was able to secure $500,000 for the low cost versions, which they would call the MAC 400 in the future. The team’s biggest challenge was to fully understand the Indian healthcare market and how was it different from the other markets. The company had to get over on leaning on its potent brand, high-­‐end legacy; instead it had to understand that the system operated out of two main constraints, namely income and infrastructure (EBS, 2013). Income of the people in rural India is considerably low, and it makes people very cautious about how they spend it. A regular cost of an ECG test falls between $5-­‐ $20 which is reasonably cheap, but it leads to refusal from the patient to get the test done. The machine was made keeping in mind the demand and the consumer characteristics such as capacity to spend and importantly the ‘mentality’. The engineers had taken into consideration that people form rural Indian would normally ignore such chest pains due the high cost of the ECG test,

and convince themselves that such expenditure was unnecessary and pointless, and the pain would go away, but having a test which was available for less than a dollar would make any one take the test as they had a fraction to pay for it without pinching their pockets. Moreover the capital cost of the machine had to be very reasonable, the $3,000 current ECG model was also too expensive for most physicians and clinics. The MAC 400’s price would have to be very competitive so as to make it affordable to small come way down to be affordable to small clinics and individual. Looking at the extent of infrastructure in rural India, they produced a device which would be easily be carried form town to town and most importantly be portable, which would run on battery. Given the sever shortages of well-­‐trained doctors in rural areas the machine also had to be easy to use. The preliminary clean slate assessment by the group allowed GE to think of all possible constraints and factors in making the product successful and feasible. The main factors for the idea and the design were consumer led and also constituted open innovation.

GE had earlier been engaged in producing the entire ECG range of machines in house which was based on internally generated technology and it had custom made units and components. The machines from GE, not only ECG but GE’s entire range had chips, printers, electrical, and cables all designed by GE. AS we know in house technology and proprietary technology can easily drive up costs, the team had then look into different spheres to leverage other technology. The answers lied in Frugal Innovation or as its called locally in India, Jugaad.

Figure 2: Cycle of Open Innovation, Source: http://hostilesheep.com/how-­‐open-­‐ innovation-­‐gives-­‐rise-­‐to-­‐brand-­‐ambassadors-­‐3/ This innovation had ideas form external factors and internal factors. The above diagram clearly explains the types of open innovation GE resorted to in order to come up with this solution. GE knew it had a challenge at hand, and it could not find the solution within closed doors of its research facility. They had to look beyond what they traditionally did. The team adapted from the different scenarios and technologies that was prevalent in the country, which was followed by understanding what was required and how was it to be delivered. The requirement might not only come from one source but can come from several sources such as patients, producers and hospitals. This stage leads to open innovation, where ideas flowed form local sources, which I will explain further in the next paragraph. There was both inbound and outbound open innovation; in the form of technology, which was already, being used at other places was adapted to the MAC series of ECG machine and vice-­‐versa. The stages of open innovation described above were the exact steps, which GE undertook. The team then identified the possible technology to use and the market to which it would sell. Testing and ultimately production then followed these.

The team then hit upon different ways of doing that. After a series of experiments, the team came up with the idea of using the same kind of ticket printers used on public buses in India. For instance the Bangalore bus system used a printer, which would be the right size and the have the correct durability factor which was required for the ECG machines. GE would have a better option in buying these printers of the shelf rather than developing a special range for a certain market, which would be very costly in terms of production. Having a small-­‐minimized printer reduced the overall size and weight, getting rid of the monitors made room for more technical advancements, and consequently the battery to power the machine, and the wright of the machine coupled with minimal complexity lead to greater batter life, and the team managed to get 100 ECG tests on a single charge. The team was able to make the concepts of ease of use with ease of maintenance. The machine had a very modest interface, which consisted of a green button and a red button. As Oswin Varghese, the engineer of building this fundamentally different ECG, said, “If the person knows how to read traffic signs, he should be able to operate a MAC 400.”

Pictures of the MAC-­‐400 ECG machine and a physician with patients in rural India

The machine was known for its simplicity and ease of use, looking at the machine, one knew that it would be no rocket science to operate this. GE had not tied up with any universities of research labs, as far as open innovation was concerned, but it did not find the need to do so because it was able to look for real factors and technology which otherwise kept Indian growing. Indian technology and systems were made to cater to the population and GE used the same systems to serve its own need in order to serve the same population with technology they could relate to. It was a fine example of a thrifty, radical and abstemious in nature.

GE was the pioneer in the segment even before it had launched the cheaper version of ECG machines. GE was known for renowned healthcare system machines and equipment, and its ECG machines were a major selling force. Launching the MAC series of ECG machines gave it the first mover advantage and it was able to reap the benefits for long sustained periods. It did so by not only selling the product on countries like China and India, but also developed economies like its own, the USA, where driving the cost of healthcare was not only the agenda of the hospitals and clinics but also senators and political lobbyists. This served its needs and the needs of the component suppliers beautifully. The value chain it had created was a sustaining one. It not only created jobs in India, but also lead to reduced costs in developed countries, whereby helping to make hospitals capitalize on lower costs, which according to me is the ultimate goal in any value chain.

I feel GE created a system of values, which drive the value chain in this Business Model Innovation (BMI). These are the shared values, which related to the ECG machines. I feel it created essence in its innovation by creating value, which was based on societal factors, such as the poor population not being able to get adequate cardiac diagnostic’s services at low costs. These societal problems were seen as a potential to serve two needs, one of being a market leader and the other solving the problem the society was facing. The chart below explains the value chain proposition with the concept of shared value, which is applicable in this BMI. The focal point of this innovation was based on demand pull factors and explicit research, such as the market to cater, 60% of heart cases are from India, ECG is the first step for detection. The need for this machine was evident as 75% of Indians population lives in rural areas while 80% of the healthcare centers are in the urban areas (Govindarajan, 2012)

Figure 3: The Value chain characteristics of GE, with emphasis on shared value with relation to the MAC 400 ECG

There exists very little evidence on the exact value chain of the MAC ECG machines developed by GE, for reason of protecting its competitive advantage and technological know-­‐how. I have made the above-­‐mentioned analysis of how GE extracted the best out of the shared values it created. I feel given the size of the organization and the number of R&D projects it has, the true value chain is difficult to get hold of. But I would assume that the components are locally sourced and are efficient, in order to keep the costs low. The ultimate value of the product would flow to the consumer and the patients in the form that the ECG tests have now become cheaper, in fact a fraction of the previous costs and the accessibility to these services would be greater as the machines were highly portable and durable. The tests which were around $10-­‐$20, were now available for under $1, and the machine was now available for under $750 from over $5,000 before (Wharton, 2013). GE was able to patent its Portable ECG technology for the two years following its initial development, during the time it made more versions of the same such as the MAC 600, MAC 800 and the MAC 1200. These products were developed in differ countries based on the countries requirement sin which they were developed. Since there is unclear data on what GE actually patented I would assume the core technology of the MAC series was patented not only in the country of origin but also the USA. As far as other changes are concerned which only relate to that specific country, these can be protected within that country. These products were based on different demands and needs of the consumers depending upon the country where there were to be sold. For instance the people in India would not be ready to pay extra for additional ECG information than what was originally provided, but this was not the case in China, were the MAC 800 was able to provide additional technical information about a patient, for an additional cost. The Chinese wanted this and even paid extra!

I believe the concept that GE and several other large multinational organizations have followed for decades, developing high end products at the domicile country and using the same technology/products to sell to other markets around the globe, if not really the ideal solution to sustained growth in the coming future. In order to have sustained competitive advantage and to tap growth opportunities in third world countries and other emerging markets, the companies must pioneer with value segments in these markets by acclimating to ‘reverse innovation’. A term which means taking technology from developing nations to advanced nations in order to reduces costs and gain advantage. Developing products in countries like India, and selling them internationally. To sustain long term growth multinationals need a combination of both methodologies, even though some divergences do exists, but these can be overcome. I would like to conclude by saying if multinationals divert away from reverse innovation, they would lead to their own disruption. As Govindarajan says, “The game has just started and the full impact of this is going to be felt over the next couple of decades” (Wharton, 2013).

References European Business Review (EBS) http://www.europeanbusinessreview.com/?p=7051 (Retrieved on 26 December, 2013) Jeffery Immelt, Vijay Govindarajan and Chris Trimble, 2009: How GE is disrupting it Self, Harvard Business Review, October 2009. Leifer, Richard, Christopher, Lois Peters and Robert Veryzer, 2000. Radical Innovation: How Mature Companies can Outsmart Upstarts, Boston: Harvard Business School Press, Volume 4, 2000. Nesta http://www.nesta.org.uk/node/855 (Retrieved on 12 December, 2013) Vijay Govindarajan and Chris Trimble, 2012, Reverse Innovation: Create Far from Home, Win Everywhere, Harvard Business Press, 10 April, 2012, Business & Economics, 143-­‐160 Wharton Knowledge, University of Pennsylvania http://knowledge.wharton.upenn.edu/article/reverse-­‐innovation-­‐ge-­‐ makes-­‐india-­‐a-­‐lab-­‐for-­‐global-­‐markets/ (Retrieved on 28 December, 2013)