Permanent beta: Why frugal innovation is such a hot concept for entrepreneurs

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The concept of frugal innovation originated in emerging markets, where social entrepreneurs and enthusiastic designers perfected the idea of creating low-cost, highly user-friendly devices that also fulfil a social need.

A clay fridge that uses no electricity but keeps food cool, mobile money services for people without bank accounts like M-PESA, and a billboard that collects water from humid air in a rain-scarce area of Peru are all cited as examples of frugal innovation in developing markets.

But increasingly the idea is being used more broadly. The recent COVID-19 outbreak has shown just how far frugal innovation can take off in developed markets: companies, healthcare organisations and entrepreneurs were faced with a real problem to tackle in a short amount of time with unexpectedly limited resources.

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That resulted in innovations like PPE that could be 3D printed at home or made from scuba masks, ventilators hacked with readily available equipment to double their capacity, and companies sharing the designs for their kit to allow other organisations to manufacture it themselves.

Frugal innovation, according to Jaideep Prabhu, professor at the University of Cambridge’s Judge Business School and author of books on the subject, describes it as “an approach to innovation that is essentially faster, better, and cheaper”.

Frugal innovation in developed markets often focuses on overcoming particular resource constraints – such a lack of electricity – or other problems that aren’t usually seen in the developed world. In that context there is a different set of constraints: the financial aftershocks of the Great Recession curbing spending, climate crisis putting pressure on companies to decrease resource usage, and an ageing population needing more targeted and user-friendly products.

Lean startups pioneered the frugal innovation approach in developed markets – and their success attracted the attention of larger corporates who wanted a piece of the action. The hold up? The bigger organisations’ innovation strategy is almost the exact opposite of a lean startup.

“This was a model of very big companies with big budgets that had specialised teams focused on innovation, often of scientists and engineers, and they would spend large amounts of money on long-term projects, which are often about technology for the sake of technology, I would argue. Then when they came up with something, they would use marketing muscle to push it through into the market,” Prabhu explains.

Rather than develop a product or solution and foist it on the market, frugal innovation aims to deal with a particular problem with a new business model, but using the resources already at hand.

It’s a question of “how do you make the most of what you already have available, not just in terms of resources, but also in terms of the way we do business,” says Yasser Bhatti, lecturer in innovation and strategy at Queen Mary University.

He cites the example of ColaLife, a company that’s devised an ingenious way to get anti-diarrhoeal kits to the rural and remote areas of the globe where they’re most needed by piggybacking on one of the world’s most comprehensive supply chains – Coca-Cola’s. The kits are designed to fit into the empty spaces in crates around the necks of Coke bottles, so they can be transported anywhere the soda is sold without the need for any new supply chain.

While frugal innovations can involve producing versions of existing kit for developing markets by stripping out features in order to cut its selling price, Bhatti said frugal innovation can deliver much more than just ‘defeaturising’.

“It’s more about rethinking from the bottom up, how can you redesign the product, but also how you can redesign the business model within which that product is going to work for society,” he says. While some frugal innovations may have started out low-tech or have a reduced feature set, many have later gone on to develop into highly sophisticated products and services. Similarly, frugal innovations might involve using technology to make services cheaper and more accessible.

A number of multinationals have already started to use the frugal innovation approach to create new products: GE Healthcare developed a low-cost and easy-to-repair ECG and baby warmers for use in countries where budgets were tight and components or electricity less abundant, while Siemens’ own frugal innovations meanwhile included healthcare products such as a foetal heart-rate monitor and digital X-ray machine.

“This epidemic has brought healthcare systems around the world under pressure and it’s touched upon everybody’s lives – people sitting at home, people in organisations, government, top leaders. I think the context has really forced everybody to adopt a more frugal innovator mindset,” Queen Mary’s Bhatti said.

Frugal innovations have mushroomed during the COVID-19 outbreak, but the constraints that inspired them – lack of resources, increased demand, budget challenges and so on – will continue to be an issue for all economies.

“The bigger opportunity for the application of frugal innovation will come post-COVID when we have to deal with the consequences of the recession, because some of the trends that we saw, even prior to the pandemic, like increasing loss of jobs to mechanisation and the use of AI and so on will probably accelerate now because of this,” says Cambridge’s Prabhu.

“Employment is going to be a big issue. I think the problem of poverty will be deepened in the developing world, and in the developed world inequality may increase because of this. Climate change has always been there, too. These big challenges remain, and I think frugal innovation offers potential solutions to a lot of this,” he says.

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So how should companies who want to use frugal innovation start off? During his research, Prabhu identified a number of factors that could be used by larger organisations moving towards frugal innovation.

First off, companies need to borrow a few ideas from their startup counterparts. Larger organisations need to be work to co-create products with users, building a minimum viable product for their needs and then regularly iterate to improve the product – essentially a permanent beta. Larger organisations could also benefit from working with startups too, for example, incubating them or partnering with innovators and maker spaces.

Improved sustainability across the whole operation should also be a priority for would-be frugal innovators, who should consider where they source their materials and the design of their products, as well as their supply-chain and manufacturing methods, as well as what effect their products have on consumer behaviour. Companies also need to work out how to use the assets they already have to be able to respond to opportunities and challenges better.

Nivedita Agarwal, chair of technology management at Friedrich-Alexander University (FAU), adds that companies also need to be embedded in the demographic they’re trying to reach. For example, organisations looking to create a product for a certain country need to have a team based there to fully appreciate the conditions and needs of the local market.

“If you’re sitting in a developed-world setting, you might not even imagine what kind of problems or conditions you are talking about when you’re going to rural villages – if there is no proper road, or there are no skilled doctors to use such complicated products. There is no other way that you actually get involved in that market and try to understand it… you have to be close to the target market, wherever it is.”

As well as better understanding the needs of their target market, once companies or teams are embedded in their target market, they’ll fully appreciate what can be done in low-resource or high-volatility markets.

Prabhu says companies that have been successful with frugal innovation have typically been ones where the new approach has been led from the top. “Committing to real progress and then reporting on it – that challenges the whole firm, wherever people may be in the firm, at any level, to think about how they’re going to achieve those objectives,” he says.

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