Frugal innovation practices are primarily associated with emerging markets. This is because frugal innovation produces outputs that fit emerging markets’ special needs and unique requirements — namely, that products and services must be affordable so that poor(er) customers can afford them. As low-income consumers participate in the global economy, their lives improve and their empowerment increases.
Frugal innovation is a process. It is used to reconfigure value and supply chains; it often applies ingenuity and design thinking practices to reconstruct products and redesign services. Frugal innovation creates new business models, and it can be applied to produce scalable operations and sustainable business practices. My research on frugal innovation has led me to discover three defining criteria about its practice. Innovation processes and practices are frugal if they simultaneously:
- Achieve substantial cost reductions
- Concentrate on core functionalities
- Contribute to achieving optimal performance
These criteria apply when markets determine if, when and how frugal innovation is a good fit. If, when and how the fit is right, frugal innovation practitioners — whether working in companies or innovating out of necessity to live — are also likely to exercise a “frugally innovative” mind-set.
Are frugal innovators cheap? Maybe some identify as such, though I see them as keenly aware of the costs involved and the expected amount of revenues to be produced from selling a product or delivering a service. For companies practicing frugal innovation, enhanced profits came from a combination of reducing (or containing) expenses and increasing revenues due to selling more products or services in both existing and future markets.
The term “frugal innovation” arose from translations of the Hindi word “jugaad.” The word signifies an “improvised arrangement or work-around obliged by a lack of resources.” The term reflects the process and practice of discovering low-cost, innovative solutions to problems intelligently, imaginatively and uniquely.
I gained insights on how jugaad is practiced in India by learning about it from a former student of mine. Niraj Lodaya is a biomedical engineer educated at the University of Florida who now works in his native India. Lodaya cited examples of jugaad from his professional experiences and personal observations: A refrigerator made of clay, Tata’s industry-changing and society-transforming Nano car, the Indian government’s Indian Space Research Organisation (ISRO) and its Mars program.
What I learned from Lodaya was supplemented by witnessing if, when and how frugal innovation is practiced in another part of the world when I visited New Zealand company Globex Engineering Ltd. The Auckland-based Globex specializes in solving problems through intelligent mechanical engineering.
During the visit, one of my hosts was the company’s managing director, Ed Scholten. Scholten is an experienced and expert engineer, and his business philosophy is, “If you can think it, we can make it.” Scholten is spot on with his claim, as I witnessed firsthand how Globex’s creative designers and talented engineers turn creative ideas into prototypes and then transform the prototypes into commercially viable products.
My experience at Globex left me fascinated by frugal innovation. This is because I saw the benefits of frugal innovation being practiced in a developed market rather than an emerging one. I was hooked on the concept and wanted to know more. So, I turned to Globex’s Craig Shannon. Shannon leads Globex’s product design practice, and I inquired how the company uses frugal innovation when performing its design and engineering for clients.
Shannon further explained the practice of frugal innovation with an example: “One of Globex’s clients posed a prickly challenge for our designers and engineers; the client required an on-site clean room to manufacture their products, but the client didn’t have the time or money to design and build the clean room they required. For us, designing and building the facility was not the challenge; not having much time and only a little money from the client were our team’s challenges. So, with a filter, an old blower, ducting, and some sheet metal, Globex designers and engineers constructed a mini clean room assembly area that reduced the client’s product assembly defects from 50 percent to 0 percent in a few days.”
Frugal innovation is similar to other concepts that seek to do more by having less. The three concepts highlighted below align with frugal innovation principles in that they, too, can be affected by limited resources or are restricted by needing to follow a mandate to continuously improve outcomes.
- Value Engineering
General Electric launched this concept during World War II. Due to the war, shortages of skilled labor, raw materials and component parts were commonplace. To overcome these constraints, the company looked for acceptable substitutes and observed that the substitutions it found often reduced operating costs, improved a finished product’s features and usage, and enhanced worker productivity and efficiency. What began as an effort to do whatever was necessary to compete in difficult times turned into a systematic process initially called “value analysis.”
As part of the Marshall Plan after WWII, American business leaders and quality management experts taught and implemented business practices in Japan. These practices resulted in the adoption of a Japanese word for improvement: “kaizen.” Soon, Japanese companies applied the term to describe activities that continuously improve business operations, practices and performance.
By definition, “kaizen is based on common sense, self-discipline, order and economy.” The practice of continuous improvement contributes significantly to achieving innovative outcomes; indeed, the practice is a fundamental element found in lean manufacturing and production processes. But, continuous improvement is not just limited to manufacturing and production; kaizen also applies to — and is widely used in — software development and other industries ranging from financial services to health care to retail to transportation and government.
- Just-in-time Production (JIT)/Lean Manufacturing
JIT principles are generally associated with Toyota’s production systems. The concept was born out of necessity and is attributed to Toyota’s president at the time, Fujio Cho. Cho feared that Japan’s auto industry would not survive intense competition unless it used innovative approaches to catch up to American auto manufacturers. This call to action contributed to the creation and subsequent use of JIT concepts, as other Japanese manufacturers quickly adopted JIT production principles and practices.
Lean manufacturing concepts are based on JIT fundamentals. By building on the JIT foundation, lean manufacturing concepts place an added focus on efficiency by seeking ways to produce measurable value for customers. With this emphasis on enhancing customer value, lean manufacturers are driven to produce something of value for the customer in every step of the production process.
We live in an age of global consumerism. But, global consumerism is not equal, or fair or uniformly spread across a planet consisting of 7+ billion people. The consumer pyramid is widest on the bottom, where billions of low-income consumers subsist on a few dollars a day. And yet, it is no secret why so many innovative products and services are delivered to the millions of high-income consumers sitting at the top of the consumer pyramid.
Global consumerism follows the money. That leads to the top of the consumer pyramid rather than the bottom, where billions of low-income consumers reside in geographically remote countries; those in the bottom of the consumer pyramid have limited financial resources and don’t have access to credit. They are classified as “non-bankable” by financial services companies and are shunned by global businesses.
And yet, these difficult conditions can lead to opportunities for frugal innovators to change the lives of billions of low-income consumers. That is because frugal innovation — in mostly all cases — lowers the production and distribution costs of products and services without compromising quality. Frugal innovation reduces the amount of resources needed to design, develop, produce and sell products and services to the targeted marketplace — which, again, consists of billions of consumers.
In doing so, frugal innovation practices transform low-income consumers from passive consumers into active ones. What results is a global economy that benefits — and profits — from economic growth that is more inclusive.
David Whitney writes about innovation and entrepreneurship and advises companies on all-things related to innovation and entrepreneurship. David is an international speaker and has taught courses on innovation and entrepreneurship in both college classrooms and corporate boardrooms around the world. Whitney is the Innovator-in-Residence at LeadingAgile Innovation Labs as well as serves as a business strategist at Advisory.Works. In these roles, David applies his operational experience and subject matter expertise when advising LeadingAgile’s and Advisory.Works’ clients and strategic partners. Whitney’s guidance helps companies achieve business excellence, commercialize innovations and attain operational breakthroughs by applying strategic planning techniques and implementing disciplined execution tools. Whitney works with companies of all sizes on how best to assemble and operate entrepreneurially-minded, innovation-oriented and profit-driven teams that repeatedly conceive, create, and launch commercially viable products and services.