AUTHOR: David Whitney is the LEADX3M Fellow in Innovation and Intrapreneurship, actively engaged in delivering the groundbreaking LEADX3M Driven Business Transformation (DBT) - Intrapreneurship program to medium sized and large firms in US and internationally. For a full review of his profile, please visit the Fellows page and scroll down to his bio.
FRUGAL INNOVATION PRACTICES ARE primarily associated with emerging markets. This occurred because frugal innovation produced outputs (products and services) that fit emerging markets’ special needs and unique requirements. Namely, that products and services had to be affordable so that poor(er) customers could 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 can be applied to produce scalable operations and sustainable business practices. My research on frugal innovation led me to discover three defining criteria about its practice. Innovation processes and practices are frugal if they simultaneously achieve:
Achieve substantial cost reductions
Concentrate on core functionalities
Contribute to achieving optimal performance
These criteria applied when markets determined if, when, and how frugal innovation is a good fit. If, when, and how the fit was right, frugal innovation practitioners – whether working in companies or innovating out of necessity to live – are also likely to exercise a “frugally innovative” mindset.
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 the product or delivering the services. 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 Indian 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. Also, jugaad is often associated with a cobbled-together rural vehicle that is common in India. The vehicle is built by combining a wagon with a repurposed diesel irrigation pump. Although it may be crude in design, the vehicle is highly valued for its purposeful effectiveness.
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 and 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 ISRO Mars program and innovative products like the Jaipur Foot. (The Jaipur Foot is produced by a leading global organization that designs and manufactures artificial limbs. Due to its low-cost – less than $50 – and non-compromised quality, the Jaipur Foot has restored mobility and dignity for hundreds of thousands of low-income individuals living in emerging markets).
Lodaya’s insights helped me greatly to understand the if, when and how of frugal innovation. What I learned from Niraj was supplemented by witnessing if, when and how frugal innovation is practiced in another part of the world. That occurred when I visited a New Zealand company, Globex Engineering Ltd. Auckland-based Globex specializes in solving problems through intelligent mechanical engineering.
One of my hosts during the visit 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.” Good on ya, mate – I love Scholten’s business philosophy! Scholten is spot on with his claim as I witnessed first-hand how Globex’s creative designers and talented engineers turned creative ideas into prototypes – and then magically transformed the prototypes into commercially viable products.
My experience at Globex left me fascinated by frugal innovation. This is because I saw the benefit in frugal innovation being practiced in a developed market – and not 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 performing its design and engineering “magic” for clients. Shannon told me: "Practicing frugal innovation, whenever possible, gives us a second look at problems. Pursuing a frugal innovation approach requires a better understanding of the issues or the requirements at hand.”
Shannon further explained the practice of frugal innovation by citing 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% to 0% in a few days.”
Frugal innovation is similar to other concepts that seek to do more by having less. The three accompanying concepts 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.
1. Value Engineering
General Electric launched the concept during WWII. 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 used 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.”
Again, WWII played a prominent role in launching a concept that aligns closely with frugal innovation practices. 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.
The practice of kaizen is often associated with Toyota’s introduction of quality circles in the company’s production processes. In practice, a quality circle is comprised of workers who perform the same or similar tasks. These workers meet regularly to identify and address work-related problems, challenges and opportunities. The practice was revolutionary after WWII and became widely adopted in Japan in the 1950s. An updated and strengthened kaizen was (re)introduced
to the West in 1986 with the publication of Masaaki Imai’s book, “Kaizen: The Key to Japan’s Competitive Success.”
By definition, “kaizen is based on common sense, self-discipline, order and economy.” The practice
of continuous improvement contributes much in 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 as well as in industries ranging from financial services to healthcare to retail to transportation and government.
The innovation process practiced in most industries often uses frugal innovation techniques in order to prove the concept. By using this low-cost approach, innovators use early version prototypes to elicit customer (or user) feedback which is then incorporated into next versions of the product, service, process or practice being produced. Yet applying kaizen principles and practices is not solely the domain of companies. Many individuals, including myself, apply kaizen best practices when striving to achieve continuous improvement in the areas of personal growth and professional development. Like me, many kaizen practitioners are characterized by their growth mindset.
3. 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 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. 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 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.
Though nuances exist between JIT and lean manufacturing, the key similarity is both do more with less. Frugal innovation principles contribute to the efficiencies generated by JIT production while is instrumental in producing the added customer value associated with lean manufacturing.
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. It is no secret then, as to why so many innovative products and/or services are delivered to the millions of high-income consumers sitting at the top of the consumer pyramid.
That is why global consumerism follows the money. That leads to the top of the consumer pyramid, not the bottom where billions of low-income consumers reside in geographically remote countries. These bottom of the consumer pyramid dwellers 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. Many of the bottom-of-the pyramid consumers lack technological know-how, they do not receive adequate health care and often receive substandard education – if they receive any education at all. Theirs is a bleak world and their situation is daunting.
And yet, these difficult conditions can lead to opportunities where 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/or services without compromising quality. Frugal innovation reduces the amount of resources needed to design, develop, produce and sell the products and/or services the targeted marketplace – which, again, consists of billions of consumers – needs and wants.
In doing so, frugal innovation practices transform low-income consumers from passive consumers into active ones. This transformation of the bottom of the consumer pyramid dwellers into active consumers has an important and lasting impact on a global economy. What results is a global economy that benefits – and profits – from economic growth that is more inclusive. The increased inclusivity allows more consumers to improve their lives and become more empowered by their participation as consumers in the global economy.
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Article originally published in July 2018: https://www.businessmagazinegainesville.com/frugal-innovation/