New Book — Frugal Innovation: Models, Means, Methods. Cambridge University Press

CUP_Cover
Bhatti, Y., Basu, R., Barron, D., & Ventresca, M. 2018. Frugal Innovation: Models, Means, Methods. Cambridge University Press.

Cambridge website / Amazon website

In light of growing discourse on ‘frugal innovation’, this book offers novel approaches to innovation based on extensive empirical research. The study complements a decade of scholarly attention on frugal innovation by taking a research-based approach to innovation in resource-scarce and complex institutional contexts. The findings suggest that concepts such as frugal, reverse, jugaad, social, grassroots and inclusive innovation in fact represent heterogeneous assemblies of innovation for social, environmental and economic value. The conceptual framework invites attention to more plural sources and elements in the study of models of innovation to inspire further research in the fields of strategy, innovation, entrepreneurship, economic sociology and development studies. The design framework offers models, metrics and competencies for practitioners and policymakers to identify, evaluate and design frugal innovations. The comprehensive view of frugal innovation demonstrates how firms can implement globally competitive strategies by pursuing innovation for humanity to improve lives for everyone, everywhere.

Foreword by Anita McGahan, Rotman Chair in Management and Professor of Strategic Management at Rotman School of Management, University of Toronto.

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Part I. Models of Frugal Innovation
Introduction
1. Outline of the Context, Literature and Methodology;
2. Conceptualising Innovation – Model 1
3. Conceptualising Innovation under Constraints – Model 2
Part II. Towards a Theory of Frugal Innovation
4. Integrative Results and Theory Development
5. Test of Models Using Secondary Cases
6. Emerging Concepts in Innovation
7. Implications for Research, Practice and Policy
Conclusion
Part III. Tools for Practice and Research
A. Toolkit to Identify and Categorise Frugal Innovations
B. Core Competencies from the Frugal Innovation Lab
C. Detailed Research Methodology and Design
References
Bilbiography of Frugal Innovation

Reviews

“Policymakers around the world and especially in emerging markets can leverage frugal innovations to better promote human welfare. The models and tools in this book should support leaders in their efforts to foster equitable growth and sustainable development.”
Shaukat Aziz
Chairman of the Oxford Emerging Markets Symposium Steering Committee and former Prime Minister of Pakistan

“This book should give tremendous impetus for serious and rigorous academic research on innovation under severe constraints.”
Vijay Govindarajan
Coxe Distinguished Professor at Tuck, Dartmouth and author of the NYT Best Seller, Reverse Innovation

“This book complements previous books in helping to establish frugal innovation as a field that merits serious attention in the diverse worlds of academia, practice and policy. It extends prior work by developing models, frameworks and tools to help scholars, innovators and managers to deliver meaningful and much needed innovation for all of humanity.”
Jaideep Prabhu
Professor of Marketing at Judge Business School, Cambridge and author of best sellers Jugaad Innovation and Frugal Innovation

“To solve the wicked problems confronting humanity and the planet, we need frugal innovators—wise problem solvers who operate with a business mind, social heart, and ecological soul. Building on earlier works on frugal innovation, this scholarly book offers a rigorous theoretical framework to understand, teach, and practice the art and science of designing and delivering frugal solutions that integrate six key elements: affordability, accessibility, simplicity, sustainability, quality, and purpose.”
Navi Radjou
Fellow at Judge Business School, University of Cambridge and coauthor of Jugaad Innovation and Frugal Innovation

“Frugal innovation is a topic of considerable interest to companies, policy makers and researchers. It offers both innovation to connect the poorest and most disadvantaged citizens to the benefits of new products and services and opportunities for firms to identify new and potentially lucrative markets. This important book offers important new conceptual and practical insights into frugal innovation and should be seen as essential reading for anyone engaging with this topic.”
Alex Nicholls
Professor of Social Entrepreneurship, Said Business School and Fellow in Management, Harris Manchester College, University of Oxford.

“Targeted to scholars and providing a solid foundation for future research, Frugal Innovation also offers keen insights on how social entrepreneurs conceive of innovation in multiple dimensions. Practitioners will find experience-based frameworks that help them synthesize and communicate the integrative nature of innovations that benefit the underserved. Like social entrepreneurship, frugal innovation is a term with many meanings. Integrative, synthetic, and clear, the authors examine multiple dimensions of innovation and distill frugal innovation as a hybrid approach tuned to environments with extreme resource constraints and resource voids. Both researchers and practitioners will benefit from learning how social entrepreneurs themselves perceive innovation.”
Thane Kreiner
Howard and Alida Charney University Professor and Executive Director, Miller Center for Social Entrepreneurship, SCU

“Frugal Innovation: New Models of Innovation and Theoretical Development will be a must have for academics, entrepreneurs, corporates and investors. It will advance how to get to inclusive solutions not merely based on cost-effectiveness and financial returns but combining them with purpose & impact. This book shows that Frugal Innovation is not just another innovation term but the empirical based models and theories that the authors have proposed will help enable creating & scaling solutions under resource constraints both by social entrepreneurs & traditional businesses.”
Venkata Gandikota
President and co-founder, The Nordic Frugal Innovation Society

“New models of innovation are desperately needed in global health systems which are being squeezed by increasing demand, declining budgets and rising complexity of disease. This book shows how frugal innovations can play a vital role in containing soaring healthcare costs while upholding quality standards, something which simply cannot be compromised in healthcare.”
Ara Darzi
Professor of Surgery at Imperial College London, member of the United Kingdom’s House of Lords and former Parliamentary Under-Secretary of State at the Department of Health.

“This book is needed! The marrying of social value and business value has gained steam in many circles with a focus on value – both human and economic. Frugal Innovation widens the path for intrepid innovators by grounding insightful conceptual frameworks upon an extensive base of empirical evidence.”
Kristian Olson
Director of the Consortium for Affordable Medical Technologies and Associate Professor, Harvard University Medical School

What is happening in emerging markets?

It is often maintained that firms from developed nations maintain a distant edge in innovation capabilities as compared to those from developing or emerging nations. But is the West actually leading the East in innovation?

We are not seeing just any standard innovation in emerging markets. I draw your attention to products such as a 2K pound Tata Nano car, 1000 dollar GE ECG machine, 100 dollar OLTPC laptop, or 10 pound Nokia solar powered mobile phone. These are only some of the low-cost yet high quality products emanating from emerging market opportunities through a phenomenon which is gaining popularity in emerging markets, particularly India and China, called FRUGAL INNOVATION.

In the latest Bloomberg BusinessWeek’s 50 Most Innovative Companies rankings, for the first time since the annual rankings were launched in 2005, the majority of corporations are based outside the U.S and the new global leaders are coming out of mainly Asia. Entrepreneurs, leaders and managers understand how to manage and generate innovation for sustained competitive advantage. In terms of executive leader mindset in China, 95% of executives said innovation was the key to economic growth, while 90% and 89% of respondents in South America and India, respectively, agreed. Comparatively lower, in the U.S., only 72% said innovation was important.

Popularized by special report by The Economist (2010): “…”frugal innovation” or “constrain-based innovation” is not just a matter of exploiting cheap labour (though cheap labour helps). It is a matter of redesigning products and processes to cut out unnecessary costs.” Further, researchers claim that frugal innovation is in deep contrast with products, services, and processes which are typically energy inefficient, raw material inefficient, and environmentally inefficient, often produced in the advanced developed economies.

Consumers in emerging markets are benefitting from frugal innovation. But will we all benefit? As the West looks to the East for ideas, frugal innovation from EMs could offer fresh ideas and new perspectives in cost minimization and innovation maximization to a world slowed down by the recent recession. What we learn from the East might help us to maintain a high standard of living without incurring escalating and debilitating costs to not only to our personal pockets but also to our natural environment.

What is frugal innovation? Definition

What is frugal innovation?
As a process frugal innovation discovers new business models, reconfigures value chains, and redesigns products to serve users who face extreme affordability constraints, in a scalable and sustainable manner. It involves either overcoming or tapping institutional voids and resource constraints to create more inclusive markets (Bhatti, 2011).

Simply, frugal innovation provides functional solutions through few resources for the many who have little means.

How is it different from standard innovation?
The general practice is to innovate for the top of the pyramid as there lies the greatest purchasing power with eventual trickle down effects. As such most design in Western markets relies on a ‘top down’ approach, targetting first the richer clientelle. Western practises use traditional (archaic) business and distribution models, rely on abundant resources (non-sustainable), incur costly product design and development, and result in high manufacturing costs which makes many science and technology innovations unaffordable for the bottom of the pyramid consumers.

In contrast, frugal innovation as is practised in emerging markets purposefully targets the bottom and then makes its way up to other levels to benefit all users.  There is potential to demonstrate that this is a new kind of innovation process which leverages institutional voids and resource constraints, debunks heavy R&D investment claims, and achieves profitability from BOP consumers.

Why am I passionate about frugal innovation?
As an engineer my motivation stems from making so many people happy. As a social scientist, the phenomenon leads me to question and rethink our longheld understanding of innovation — like what is innovation, where does it stem from (sources), how to best do it (design process), and for whom is it (diffusion).

How does the context affect innovation?
On the input side you have to deal with the challenges of complex institutions or the lack thereof as well as resource constraints and on the output side the challenge of low affordability. For instance, regulatory regimes in the West may actually hinder BOP innovation while the lack thereof in EM could offer ground for creativity. If the USA is managed by lawyers then Asia is managed by engineers and technocrats. In the Eest regulations may hinder access to such devices, but in the East, such prohibitive regulatory institutions don’t exist in EM so this may be an enabling context. Not only that, scholars such as Christenson believe this may be a fertile ground for disruptive innovation and creative destruction.

Are frugal innovation and social entrepreneurship and innovation related?
The two are not mutually exclusive and nor is one a subset of the other. There can be overlapping concerns as frugal innovation and social enterprise commonly agree on who to benefit,  but I believe they differ on how this is best achieved.

Social enterprise, to me, stems from a notion that the affluent, particularly those in the West, can promote development using business models that are self-sustaining. There exists contention on whether the profits from social enterprises can be issued to shareholders or should the profits be used solely for community development and reinvestment into growing the social enterprise.

In contrast, frugal innovation stems from unique circumstances in emerging markets given their vast populations with little yet growing means, few resources, and complex institutions or the lack thereof. Frugal innovation is a local phenomenon in emerging markets through which entrepreneurs try to make the most of what they control to fulfil local needs, needs which have been for too long neglected by mainstream businesses. There is no concern on how the profits are used or shared.

Having said that, “innovation” as a concept, a philosophy, and process is gaining popularity in for instance, South Asia, even more so than “social enterprise”. Many firms and universities are scrambling to formalize programmes in innovation, and guess what type of innovation is most relevant to them as well as doable within their reach? “Frugal innovation” –- They might not call it that, but many such efforts are structured around solving problems at a local and practical level and in a sustainable manner.

What is frugal about frugal innovation?
There are several dimensions to it not just limited to cost (please see diagram below), but the main theme is simplification in all aspects of process and end-result — something GE’s CEO Immelt calls magnificient simplification.


If its cheap, is it low quality?
On the contrary, it needs to be highly robust given the extreme environments in which the innovation functions. Further the innovation needs to be very intuitive to use and require very little servicing — what you might call “solutions for dummies”.

Services or products?
Both! In services there are examples of frugal innovation in communication, banking, energy, training, and education; among products examples lie in automobiles, medical devices, and housing. (Please see post on examples)

Who is best at frugally innovating, local firms or MNCs?
Foreign firms generally view institutional voids as challenges, have abundant or slack resources to the production process, and often target “up-scale” markets. Therefore, enabling drivers are missing to frugally innovate so standard innovation process is pursued. Local firm view institutional voids as opportunities, have fewer resources to feed into the production process, and are more inclined to target “Lower” or “BOP” markets. Since they experience enabling drivers to frugally innovate, they generate capabilities and core competences which are unique to frugal innovation. Collateral/complementary assets with interdependencies are missing in EM which open the way for disruptive innovation.

Perhaps it may not be one or the other — rather a joint venture of both would be the most fertile ground for frugal innovation.

Will frugal innovation become popular?
My hunch is that like the Toyota Production System that was adopted worldwide as Total Quality Management philosophy, frugal innovation will be the next integrated management philosophy to diffuse from the East to the West. The next big question will be whether this will give adopting firms a competitive advantage? Possibly not, because still no one does TPS better than Toyota!

 

Frugal-Reverse-Cost-BOP Innovation

CEO of GE Jeff Immelt calls the frugal innovation phenomenon reverse innovation. “If GE doesn’t master reverse (frugal) innovation, the emerging giants could destroy the company” (Immelt, Govindarajan, and Timble, 2009). Although there are several dimensions to frugal innovation, the overarching theme is simplification in process and outcome. There can be many connotations for “reverse” which are similar to frugal innovation in both process and outcome.

One, frugal or reverse innovation integrates specific needs of the bottom of the pyramid markets as a starting point and works backward to develop appropriate solutions which may be significantly different from existing solutions designed to address needs of upmarket segments (Silicon India, 2010). The context in which this innovation is seen occuring in lies in developing markets. Fu, Soete & Sonne (2010) claim that the innovation process itself is now likely to be reversed, starting with the design phase which will, to a large extent, be concerned with finding functional solutions for some of the particular BoP users’ framework conditions… (such as) a clear adaptation to the often poor local infrastructure facilities with respect to energy delivery systems, water access, transport infrastructure, digital access.

 

Two, there is a reverse process of diffusion among consumers. Innovation is often perceived in the developed world as technological revolutionary products tried and tested by innovators and early adopters (Rogers, 1962). Trendy and expensive products are accepted by the top of the pyramid first which then get trickled down to the masses or early and late majority consumers. Professional  groups in the highest income bracket in society that constitute the “tip” of the income pyramid act as the early adopters and the first try-out group, contributing to the innovation monopoly rents of the innovating firm. But this “professional-use driven” innovation circle has been the main source for extracting innovation rents out of consumer goods that was considered “too long” (Fu et al, 2010). Hence, in frugal innovation we see a challenge to this notion of diffusion from the top to the bottom. Frugal innovation “reverses” the process of diffusion by targetting the early and late majority consumers and relies on profiting not from monopoly rents, but rather economies of scale rents. Eventually, all segments of the market benefit from the innovation. A prime example of this is mobile phone banking by Telenor in Pakistan and MPesa in Kenya wherein success has in these business models have been marked through adoption by rural BOP consumers before becoming popular in all segments rural and urban.

 

Three, we might see a trend in practices of innovation being adopted from the East to the West wherein Western practices had dominated thus far. Innovation is no longer formulated just in the West and exported to the developing world. Instead, many new innovations that are considered “frugal” will emanate from the emerging world and into the West (The Economist, 2010). Again, mobile phone banking and inexpensive and portable medical devices are emanating from emerging / developing markets but could find their way to mature markets.

I believe frugal holistically describes the phenomenon more aptly. Reverse innovation, to me, is based on a primary characteristic of the phenomenon which is bottom-up and East-to-West. Others have called this phenomenon “Cost” innovation (Li and Hang, 2010) and “BOP” innovation (Prahalad, 2005) which limits the definition to simply reduction in cost of outcome for a specific target market. Instead, frugal innovation embodies the frame of mind, philosophy, process, and purpose behind this phenomenon spanning from exploration to exploitation phases. More on this later!