What Everybody Ought to Know About 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 :
- Outsource all non-core activities
- Use technology in imaginative ways
- 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.
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.
1. Is Frugal transitional?
2. Are Western nations doomed by its unarticulated wants?
3. Is this space for another emerging market?
“Scratch the surface, there may be a diamond underneath” – are there clear possibilities for Frugal innovation in Serbia?