What Everybody Ought to Know About Frugal Innovation

nano_car_Frugal_innovation

Frugal innovation has already occupied attention of many innovation experts who gave it more or less identical definitions (which is frankly rarely encountered in innovation field).

The Definition: Frugal innovation or “reverse innovation”, “constraint-based” innovation as others call it is innovation designed to be inexpensive, robust and easy to use. It also means being sparse in the use of raw materials and their impact on the environment.

 

Indians are natural leaders in frugal innovations, with their ‘jugaad system’ (jugaad—meaning, do the best with what you got) , vast population and tremendous differences in social and economic status of its people. They are masters of developing make-shift but workable solutions from limited resources.

Key elements of Frugal innovation :

  1. Outsource all non-core activities
  2. Use technology in imaginative ways
  3. Apply mass production techniques in unexpected areas

 

Frugal innovation is not just about redesigning products; it involves rethinking entire production processes and business models. Companies have to drastically minify  their costs so they can reach more customers, and accept thin profit margins to gain volume. So the emerging world’s reverse innovation and frugal production are part of a new approach to management.

This new management model pushes two common thoughts beyond their prior limits:

1.The customer is king,

2.That economies of scale can produce essential reductions in unit costs.

 

Companies are starting with the necessities of some of the world’s poorest people and redesigning not just products but entire production processes to meet those needs. This can involve changing the definition of a customer to take in all sorts of people who were formerly expelled from the market economy. It means cutting costs to the bone and eliminating all but the most essential features of a product or service.

 

Known EXAMPLES:

The number of frugal products on the market is growing rapidly.

>Tata Motors has produced a $2,200 car, the Nano.

>Godrej & Boyce Manufacturing, one of India’s oldest industrial groups, has developed a $70 fridge that runs on batteries, known as “the little cool”.

> First Energy, a start-up, has invented a wood-burning stove that consumes less energy and produces less smoke than regular stoves.

> Anurag Gupta, a telecoms entrepreneur, has reduced a bank branch to a smart-phone and a fingerprint scanner that allow ATM machines to be taken to rural customers.

>Aravind Eye Hospitals from Madurai in India have reduced eye surgery costs by over 80% by applying standardization principles from McDonalds.

>Narayana Hrudayalaya from Bangalore have made open heart surgery so reliable & affordable (one tenth the cost in western countries!) that patients are flocking in from across the world.

> Solar Bottle Bulb is a sustainable lighting project which aims to bring the eco-friendly Solar Bottle Bulb to poor communities nationwide. This product was originally designed and developed by students from the Massachusetts Institute of Technology (MIT).

So then, whats really changed to give Frugal innovations such exploding start?

First of the possible reasons is definitely ever expanding India and China gigantic markets with their massive purchasing power dealt through sheer numbers and specific sensitiveness when it comes to pricing of the products.

Second reason is culture inability of Western countries to adapt to changing markets. Its hard to even imagine that Germans, Americans and British would develop such low cost products with their expensive work force. This is one of main reasons why western countries have to outsource large part of their industry just to keep their competitiveness in line with Asia expansion.

It is a race already lost.

“As the developing world grows its purchasing power, western organisations are globalising operations in order to meet the demand. In the last 10 years GE’s revenue in developing markets experienced compound annual growth of sixteen percent. IBM employs more people in developing countries than it does in the US. Eight of the world’s ten biggest investors in R&D have plants in China.”

 

Third reason is Wants vs Needs.

Third reason was born from fundamental need of Western people to spend money on something they really don’t need. Never Ending pursuit of more functionalities, features and options became cancer wound that ate right through peoples pockets. Gadgets, as I call them, became status symbols, not really tools to finish the job. Manufacturers and their Marketing and Sales armies dug right into the trap by listening to peoples wants, rather than focus on their true needs. That’s why Western countries failed to provide for Asia market overall.

 

“Perceived benefit sells. Customers want those 25 apps that they’ll never use because they like to think they are the kind of person who will.”

On other hand, India and China manufacturers filled emerging gap with ease and efficiency with simple battle cry on their lips: “completely devoid of luxury features, product does what it is supposed to, and that’s it. It ain’t pretty, but it works.”

 

Back to the future:

it’s hard to predict exactly how countries change as they grow richer. What will happen when that massive purchasing power of Asia gigants starts to cluster around specific power centres and fast emerging millionaires?

I think they are already becoming more western then the West itself. Tycoons are buying luxury products from western companies, again to achieve certain status. So it’s a snake eating its own tail again and again.

Where is Frugal innovation then among this lightning changes? I would say right in the middle…as a transition period it makes sense.

In the Conclusion:

Simply put, simple design and a minimal investment of time and resources has the same growth ambition potential as any other new product introduction.

New term for today:

“Innovation blowback —where you have something coming out of a country that has nothing except clever people.”

Frugal isn’t just for large companies. It’s a design principle that can help small firms make a big impact in developing nations.

Frugal is transitional period.

 

Questions:

 

1. Is Frugal transitional?

2. Are Western nations doomed by its unarticulated wants?

3. Is this space for another emerging market?

 

Announcement:

“Scratch the surface, there may be a diamond underneath” – are there clear possibilities for Frugal innovation in Serbia?

Fandango – Bajofondo Tango Club

Few words about Innovation with Mr Bror Salmelin

Europe2020_IP

Bror Salmelin, Policy Advisor to the Director of the European Commission

Education:
Graduated from Helsinki University of Technology with majors in Control and Systems Engineering, Electronics and Measurement Technology,1978.

Work career:
Assistant at Helsinki University of Technology 1979-1984.
Worked at TEKES (a Finnish agency co-ordinating industrial RTD) 1984 with management positions e.g. in Manufacturing, Industrial Automation and Electronics. 1994 onwards the Deputy of the Information Technology Section.
Finnish representative at Information Technology Committee of the IST programme. One of creators of the global IMS (Intelligent Manufacturing Systems) initiative from 1990, and during the Feasibility Study phase chaired the EFTA delegation.
Technology Attaché/ Vice Consul for TEKES in Los Angeles 1997-1998 establishing research and business contacts in ICT.
Works in European Commission; since 1998 as Head of Unit in various units (Integration in Manufacturing, Electronic Commerce and New Working Environments). In this context developed concept of European Network of Living Labs, which is grown through EU presidencies to 150+ sites innovation network for ICT intense services.
Since 2007 Policy Advisor for the Director in ICT addressing Societal Challenges (2011 onwards adviser for the Directorate-General). Responsible for innovation and take-up, and real world settings fostering innovation, Living Labs. Runs a senior industrial group “Open Innovation Strategy and Policy Group” with leading industries.
Member of New Club of Paris. Member of the Advisory Board for Innovation Value Institute, Ireland.
Expertise in intangible economy and value creation, related to policies like innovation policy, productivity and creativity.

Focused now on new service innovation.

 

 

1. Why is innovation so popular today?

BS: Innovation is a popular word, as countries and regions realize that they need to have a new approach to sustainable societal and economical growth. It is as word having inflation, as there is very little new taken on board from new innovation research, especially regarding knowledge intense sectors and knowledge society. We must see that innovation involves courage to take steps in new directions, and especially not now only to intensify the “old”.  Innovation is DOING things.

 

2. External or Internal innovation? What is your choice and why?

BS: Both. One does not exclude another. When seeing sources of innovation one can see that most of business ideas come from outside, or interactions with colleagues, clients etc. But we need to keep internally strong knowledge and cross-fertilization across areas to be able to identify and use the external. Internal knowledge and networking also is important to produce value for externals. It is to create a mutual win-win situation based on open collaborative approaches (crowds and co-creation).

 

3. What is more relevant by your opinion: Incremental or Breakthrough innovation for overall country and business growth?

BS: Incremental development is incremental, and as such necessary to improve things. But, at the end the real breakthroughs come with paradigm, behavioural changes. Hence it is important to create those kind of experimental environments to test new approaches, with controlled risk. New approaches might be technologies, behavioural models, societal behaviour and of course business models too. Experimentation in real world settings increase probability of success and increase scalability to different environments as well.

 

4. Name three things that makes innovation successful?

BS:

1.That it is an innovation, not invention only.

2.That innovation happens with cross-fertilisation across all actors, often in real world taking the societal and technical innovation together, to lead to service or business innovation

3.That in the process there is courage to do the unusual

 

5. Is Europe good ground for social innovation?

BS: Our main asset is highly skilled, multicultural and demanding population, strong societal values and also societal security. Based on this we need to develop such innovation processes fro co-creation of services for the citizens that this unique strength of Europe is an asset. This “most advanced users” is also true for business services. Hence, combining societal, business and economical aspects with technology innovation makes us competitive.

 

6. What are living labs? Why are they important?

BS: See www.openlivinglabs.eu and www.openinnovation-platform.eu. When the concept of Living Labs was developed in my unit together with the stakeholder roughly ten years ago, the critical issue was how to make Europe attractive for innovation, how to attract intellectual and financial capital for innovation in regions. This brought the key idea of co-creativity an PPPP (Public Private People Partnership) as leading principles. Living labs are now a network of European (and beyond) sites for doing innovation based on user-centricity, and out in the real world, having the users continuously participating in the process. This is very much also the fundament for our European view of open innovation. One could say Open Innovation 2.0. Living Labs as concept are important building blocks enabling the creation of real-world environments and open platforms for testing and developing innovative (service) ideas in scalable environments.

 

7. What is Creative commons? What tools are applied?

BS: Creative commons is one of the licensing formats enabling building and sharing open communities and services. Strong IPR is necessary to keep the platforms open, likewise strong common approach to architectures on functional level. Creative commons is one way of capitalising and developing the societal capital in open innovation ecosystems.

 

8. Digital agenda of Europe – can faster Internet, Cloud and Web 2.0  technology bring greater innovation results and growth?

BS: Per se these technologies are critical enablers for the true paradigm shift. Co-creativity and crowdsourcing require in practise high performing infrastructure. More important for open innovation however is to create proper open platforms for innovation, also taking legal (e.g. IPR, privacy, trust) issues on board, catalysing for sharing.

 

9. Why EU doesn’t  use Cloud services and build its own social innovation network?

BS: The EU strategy for cloud services is developing. Interoperability, data security, transferability, privacy issues are examples which need to be also adequately addressed, and it is affecting the whole cloud architecture and governance issues. We are using available social networking tools to gain experience, but also actively engage the stakeholders to our actions.

 

10. When do you think Innovation union will be reality?

BS: The Innovation Union is part of the EU 2020 programme. We will prototype the tools with e.g. Active and Healthy Ageing (AHA), followed by others. These are integrated actions delivering results on regional, national and EU level, combining short and longer term activities. The idea is really to increase the demand-side innovation dimension to the research and development policies and actions. Innovation Union is a reality when the actors get together, and learn to build on sharing and trust across the whole innovation process.

 

11.What do you predict will be future of innovation and what trends can we expect?

BS: User-centricity, co-creation and citizen involvement will be increasingly important. ICT enables new forms of collaboration of value communities, where the role of the public sector is really to ensure the mash-up of the different skills and drivers for innovation, in real world environments. On the other hand the role of the public sector is also to invest in the new seed of ideas, nurturing them to be harvested.

I wish I had a crystal ball..

 

Innovation Post