On 12 August, 2013 at the 73rd annual conference meeting of the Academy of Management, Orlando, Florida, I along with pioneering researchers of frugal innovation co-organized and convened a full paper symposium, the first of its kind on this topic at the Academy, on “Frugal Innovation: Ways forward for concept, theory and practice”. The symposium was sponsored by three major AOM divisions: International Management, Technology Innovation and Management, and Entrepreneurship. The symposium generated greater international visibility to this emerging field by fostering interactive dialogue and cooperation among worldwide researchers and a significant audience at the session.
The study of frugal innovation poses interesting questions on the nature of innovation from diverse social, economic and environmental perspectives. For managers, the study of frugal innovation may show how to leverage innovation practices in extreme environments as a source of competitive advantage. In terms of knowledge and theory development, the papers at this symposium contributed to literature on innovation studies by investigating the concept, theory and practice of frugal innovation. The geographically dispersed and interdisciplinary mix of researchers and practitioners looked at worldwide innovation strategies to solve some of the world’s most pressing issues on water, sanitation, housing, transportation, healthcare, etc. Key issues discussed revolved around concepts and theories drawn from the management of technology and innovation, concerns in management of the new product development process for high impact and greater scalability, and experimentation through variation in contexts, processes and outcomes of innovation.
The symposium looked at three aspects of frugal innovation – concept, theory, and practice. Papers were clustered in sequence as they contributed to each of these three aspects. Papers 1 through 3 by Yasser Bhatti, Sanjay Jain, and Rajnish Tiwari and Cornelius Herstatt covered conceptalization and theory while papers 4 and 5 by Preeta Banerjee and Will Oliver and Peter Hessledahl covered practice. A brief contribution by each paper is summarized below:
Paper 1: Yasser Bhatti (University of Oxford) contributed to the discussion by conceptualizing and theoretically analyzing frugal innovation. The paper develops conceptual models, proposes a theoretically embedded definition, and offers ways to operationalize frugal innovation by looking at resource scarcity and institutional voids as contingencies that could affect innovation means and outcomes. Two contextual perspectives are used — historical of the now developed markets when they were developing or facing austerity and current of today’s emerging markets as they seek to develop as well as developed markets which face austerity. The paper argues that the core idea behind frugal innovation is not new, however it has gained renewed interest and relevance in both emerging countries as well as developed ones, paving the way for future research and practice.
Paper 2: Sanjay Jain (Santa Clara University) contributed to theory building on frugal innovation by drawing on a prominent research stream within the technology innovation literature – Christensen’s notion of disruptive technologies. Employing this perspective, he suggests that frugal innovations are more likely to be developed by start-ups, academic institutions and foundations rather than by large incumbent organizations. Moreover such innovations are likely to be more appropriate for their intended audience – i.e., underserved communities – to the extent that they deviate more extensively from the dimensions of merit associated with existing technologies. In elaborating on these ideas. Jain demonstrates how the existing literature on technology innovation can help establish the theoretical underpinnings (and itself be extended by) for understanding the phenomena of frugal innovation.
Paper 3: Rajnish Tiwari and Cornelius Herstatt (Hamburg University of Technology) proposed to systematize the conceptual framework of affordability-driven innovations under the encompassing term ‘frugal innovations’ by tracing their theoretical antecedents. They conduct an extensive literature review and run a bibliometric analysis by creating a co-citation database. The paper makes propositions about characteristics of frugal innovations and their potential impact on business strategies as well as their relation to other variants of low cost innovations. This theoretic contribution would help create terminological clarity and assist future research by providing a sound and applicable framework of frugal innovations.
Paper 4: Preeta Banerjee and Will Oliver (Brandeis University) added to the discussion regarding the practice of frugal innovation in healthcare and IT sectors. Using semi-structured discussions held with about 15 such innovators, they find that, while like most entrepreneurs iteration must be constant, there are two different paths of growth for entrepreneurs involved in frugal innovation. Resulting themes are in keeping with their five categories of questions: about the entrepreneur, about the company they decided to create, about their incorporation of innovation (especially frugal innovation), and about potential growth and overcoming barriers in growth.
Paper 5: Peter Hesseldahl (Universe Foundation) shared practical findings from studies conducted over the past four years by the Universe Foundation, a Danish think tank on learning and innovation, on how the innovation approaches found in China and India are different than the typical style of new product development among Western companies. The purpose of these studies has been to reveal elements which can be implemented by companies in the Western developed economies in order to create ‘frugal solutions’. At the same time, the Universe Foundation, is investigating how the Asian approaches could be combined and augmented by some of the more typical Western strengths in innovation, such as integration in larger systems, using social networks, open innovation and involving users in the value creation. Practical lessons will be shared at the symposium on a number of methods and approaches used by companies in China and India, how they could be transferred and applied by Western companies, and ways in which they are currently being tested by a number of Danish companies in China.
Discussants: Radha Basu (Santa Clara University) and Marc Ventresca (University of Oxford), two leading scholars and practitioners of innovation, served as discussants for the papers in the session. Their comments were invaluable to the authors participating in the symposium, and significantly enhanced the quality of the symposium for the attendees.
About the Academy of Management:
The Academy of Management is one of the oldest, largest and most revered professional associations for management and organization researchers and practitioners. It was founded in 1936, has over 18,000 members worldwide, and publishes four journals, the most renowned of which included the Academy of Management Journal (AMJ) and the Academy of Management Review (AMR).
The annual meeting includes all management disciplines, including management of innovation and technology. Presentation and participation at the conference for all activities such as paper sessions, symposia, workshops, speakers, and doctoral trainings are strictly governed by a peer reviewed competitive process.
For those attending AOM, be wary of the sheer size of the conference. On average about 10,000 people attend make it probably the largest conference in Management discipline. One has to schedule and plan ahead which sessions to focus on and meetings with key people have to be organized well in advance. If one does not plan ahead, you risk being completely lost in the jungle.
The next Academy of Management Conference will take place in Philadelphia, USA, 1-5 August, 2014.
In the Schumpeter column of The Economist on ‘Asian Innovation’, 24 March, 2012, the Economist argues ‘frugal ideas are spreading from East to West’. I’d like to take this opportunity to clarify and dispel some notions of frugal innovation as presented by the Economist articles.
Since the Economist’s seminal special report espousing frugal innovation in April 2010, there tends to be a focus on purely cost reduction through component redesign or the stripping of superfluous features to a level of basic needs. While component innovation is important, I’ve found, based on interviews of many of the “frugal innovators” exemplified in the Economist articles, that they equally embrace modular, architectural, and business model innovation.
I have proposed a theory of frugal innovation which argues that frugal innovation isn’t being practised solely within the Schumpeterian domain of technology innovation, but inevitably overlaps and extends into the boundaries of institutional innovation and social innovation. It is in those intersections that hold the sweet spot which characterizes the true nature of frugal innovation, one that transcends a new value proposition based on cost or a specific marketing strategy.
This confluence of technology, institutional, and social innovation is necessary given the unusual contexts of emerging markets marked by resource constraints, institutional voids or even complexities, and large populations with affordability constraints. So simply put, frugal innovation provides functional solutions through few resources within complex or extreme contexts for the many who have little means.
Given local institutional contexts, 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 overcoming or tapping resource constraints and institutional voids and complexities to create more inclusive markets (Bhatti, 2011).
So there is potential to demonstrate that this is a new kind of innovation process which leverages the challenges of institutional and resource challenges to debunk heavy R&D investment claims, and achieve profitability from underserved consumers. It is different from the standard innovation approach predominantly practiced in more developed contexts.
But to what degree are the two different, is a question I am in the middle of finding answers to.
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!