Response to The Economist
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.