“Frugal innovation”: old wine in a new bottle?

Another post from Prasad Narasimhan, our Managing Partner in Bangalore.

I recently addressed a group of senior leaders from GE on a new topic that has GE abuzz – "Frugal Innovation: (also dubbed reverse innovation). Championed by CEO Jeff Immelt himself, the core premise is that while innovation was traditionally conceived in developed nations and trickled down to developing markets, the reverse is now inevitable. According to this, companies have to recognize that in the future, a significant share of innovation will be created in (and for) markets like India & China; and these will in turn ‘reverse flow’ into developed markets where consumers will find the value inherent in these innovations irresistible. The clarion call within GE is ‘Rethink innovation. Change or die!’

Indeed there are some stunning innovation stories here, particularly in health care. Aravind Eye Hospitals from Madurai in India have reduced eye surgery costs by over 80% by applying standardization principles from McDonalds. Narayana Hrudayalaya from Bangalore have made open heart surgery so reliable & affordable (one tenth the cost in western countries!) that patients are flocking in from across the world. The social achievements are compelling too. Many doctors serve voluntarily, lured in by the altruistic angle of these establishments, where poor patients often get very subsidized, even free treatment. As one CEO of a rival MNC establishment was heard saying: “How can we compete with these guys? They don’t even want to make money!” But they are making money, and expanding fast!

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Corporate India is jumping into the frugal innovation bandwagon. Tata Nano is the poster-boy of this idea. Following closely are several others. Godrej will launch their ‘Chota-cool’ (literally little cool) line of refrigerators that work on battery power for an India where power-cuts are common. Tata & Unilever have launched water purification devices promising potable water at very low costs. GE has launched an amazing portable ECG device, allowing the hospital to go to the patient. These are all brilliant concepts delivering real benefit to very large sections of consumers across poor countries like India.  

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Is frugal innovation then the new panacea for large companies to grow in the future?

Innovation, like water, finds its own level

Business needs to go where the money is. At the brandgym, we call this follow the money. If innovation largely originated in the first world, it is because those were the big markets. But with the BRIC markets growing strongly, new markets are being created. And consumer needs in these markets are different. Their desires are different. Innovation trickle down is simply not appropriate. Equally, recession and rapidly changing demographics in the west will dictate that innovation begins to flow the other way. This is only natural. Traditional flow (glocalization) and reverse innovation will co-exist, finding their natural equilibrium.

Old wine in a new bottle?

The phenomenon of frugal innovation is certainly new. But is the core concept really new? Frugal Innovation is defined as a ‘whole new management philosophy’, which 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 up-market segments. The Economist even headlined it as ‘the world turned upside down’!

But wait! Shouldn’t innovation anyway start with consumer needs and work backward to design the right products & services that delight her by delivering surprising value? So what is new? Clearly the value challenge is huge, often requiring dramatic reduction in price points. But that is just the fact that the start point (TG) is different. The principles aren’t.

 Founding principles or found principles?

Some key principles postulated to suggest frugal innovation as a separate beast include:

1.   Outsource all non-core activities

2.   Use technology in imaginative ways

3.   Apply mass production techniques in unexpected areas

None of these principles are new either. Outsourcing has been a big focus globally for years now. One just needs to look at the mobile phone industry globally to see how technology is being used imaginatively every day. And applying mass production techniques in unexpected areas is as old as Henry Ford!

Great innovation is ‘Rocket Science’

In our book ‘Return on Ideas’, we suggest that the ‘rocket’ provides an ideal metaphor for great innovation thinking. Rocketing starts with creating an inspiring vision. Narayana Hrudayalya set out to be the ‘world's largest heart hospital for children’, where no child would be denied treatment because her parent couldn’t afford it. Aravind Eye Hospital sees its vision as ‘eliminating needless blindness’. And GE medical looks at ‘revolutionizing rural healthcare by taking the hospital to the patient’. Visions as powerful as these galvanize the organization, inspiring new ways to create breakthrough innovation by breaking compromises.

Consumers may be frugal, but their desires aren’t

My earlier blog focused on how Nano is struggling. Tata did design the cheapest car in the world, but did not sufficiently factor in consumers’ real desires. These desires revolved around status, and were by no means frugal. By thinking about innovation for the bottom of the pyramid as ‘frugal’ innovation, are we making a mistake of over-focusing on the rational aspects with no heed to emotional considerations? I am not suggesting that we create ‘lovemarks’. We need strong ‘sausage’, but the ‘sizzle’ is crucial too.