We recently attended the launch of Xerox's Innovation Hub in Chennai (a major South Indian city), their first such venture outside the developed world. The initial mission of the Xerox India Innovation Hub is to develop document management solutions that are relevant to emerging market countries and, at the same time, that help innovate solutions and services delivery worldwide. India, of course, has been a major destination for R&D among Western firms for some time now. Texas Instruments was leader of the pack, opening their R&D center in Bangalore way back in 1985. More multinationals followed suit in the 1990s. In 2000, GE founded the John F. Welch Technology Center in Bangalore, which is now GE's largest lab outside the US. And the story is similar for IBM, Microsoft, Cisco, and many others. Our research shows that Fortune 500 companies currently operate 63 "captive" R&D facilities in India (i.e., "captive" in the sense that these MNCs totally own and control all the physical and human resources available in these labs). So what took Xerox so long? And are they too late coming to the R&D game in emerging markets? In fact, what appears like imitation on Xerox's part is really a reframing of innovation in a global context. Indeed, we believe that Xerox is pioneering a whole new way in managing global R&D. Namely: creating lean and nimble innovation hubs in emerging markets which don't take the traditional "captive" route of owning all resources. Instead, these hubs focus on partnering with local universities and start-ups to get scale and speed in taking cutting-edge ideas to market. While we have written in the past about how companies like GE and Cisco are embracing polycentric innovation (i.e., shifting more R&D responsibilities to emerging markets and using India and China as a launching pad for global solutions), these multinationals are mostly relying on their own in-house R&D talent in India and China. But Xerox is tapping local partners in emerging markets to co-lead its shift to a polycentric innovation model — thus completely bypassing the need to build big, expensive R&D labs in emerging markets. Let us elaborate a bit on what makes Xerox's own version of polycentric innovation unique among the multinationals we have studied. At first, Xerox's polycentric innovation approach might seem counterintuitive. Like other multinationals, Xerox could easily have set up a captive R&D lab staffed with an army of low-cost talent, given that India boasts thousands of highly-qualified and inexpensive scientists and engineers. However, Sophie Vandebroek, Xerox's chief technology officer, realized that India is also home to world-class science and technology universities and a plethora of creative entrepreneurs who might already have developed solutions for problems that Xerox in-house researchers are trying to solve, such as remote document printing using mobile phones. And because these entrepreneurs are deeply embedded in their local communities, they have a greater sense of what end users need; they can thus produce solutions that boast higher market relevance. Rather than guessing local market needs and reinventing the technology wheel using in-house R&D personnel, Vandebroek therefore decided to set up an Innovation Hub in Chennai that would connect external inventors with in-house development and marketing capabilities to scale up these solutions and roll them out under the Xerox brand. The Hub's goal is to help Xerox achieve greater economies of scale and scope in innovation for both emerging as well as developed markets. This collaborative approach to doing R&D is called "open innovation" in academic circles. In recent years, multinationals such as Procter & Gamble, Eli Lilly, and Boeing have been practicing open innovation primarily in the US and European markets by building what we call "Innovation Networks" — collaborative ecosystems that leverage the talent, ideas, and capital from local universities, venture capitalists, and startups to co-create new products and services. To our knowledge, however, this is the first time that a multinational has decided to seed and anchor an Innovation Network in an emerging market and make it the cornerstone of its global R&D strategy. In doing so, Xerox is successfully integrating the well-established open innovation approach with the still-evolving polycentric innovation paradigm. Xerox's fledging Innovation Network in India already boasts several high-profile knowledge partnerships. For instance, Xerox has partnered with the Indian Institute of Technology Madras (IIT Madras), one of the country's finest engineering institutions, to use cloud computing to improve efficiency of document services delivery. It is also working with IIT Madras's Rural Technology Business Incubator to on solutions that improve workflow at small businesses in rural India. Xerox has joined forces with the Indian Institute of Science (IISc) to use machine learning and game theory principles to improve the performance of online service marketplaces. Finally, Xerox is in discussion with venture capitalists and entrepreneurs across India to identify promising startups with cutting-edge technology that could benefit Xerox. Interestingly, we noticed that almost all the participants at the launch of Xerox's Innovation Hub in India were its local partners. This is a stark contrast with the inauguration of other multinationals' R&D labs, which tend to be packed with hundreds of their newly-recruited in-house scientists and engineers! In coming decades, as emerging markets like India and China become global engines of economic growth, demand for new products and services is set to explode in these regions. To effectively respond to the rising innovation demand in emerging markets, multinationals must go beyond opening more R&D labs in India and China and shifting decision-making power to those regions. Rather, they must emulate Xerox's polycentric innovation model by building regional Innovation Networks in emerging markets that encompass local universities, government labs, venture capitalists, and entrepreneurs. By leveraging the talent and ideas of these external innovation partners, multinationals will be able to co-develop solutions for both emerging and developed market customers much faster and less expensively. Essentially, they can innovate more for less cost and for more people. We believe that Xerox's partner-driven polycentric innovation approach is the right strategy for multinationals seeking long-term success in emerging markets. Do you agree? What challenges do you think Xerox will face in implementing this novel approach? Have your own organization tried to deploy similar Innovation Networks in emerging markets? If so, tell us about your experience... ‘Source: Harvard Business Review Blog, 25 August 2010’ Navi Radjou is Executive Director of the Centre for India & Global Business (CIGB) at Judge Business School at the University of Cambridge where Dr. Jaideep Prabhu is the Jawaharlal Nehru Professor of Indian Business and Enterprise. Dr. Prasad Kaipa is a CEO Coach and advisor; he has worked with over 100 CXOs and 30 Fortune 500 companies in the areas of leadership development and innovation. Dr. Simone Ahuja is the founder of Blood Orange Media.