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!