Frugal Innovation Research
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Frugal Innovation is about doing more with less. Entrepreneurs and innovators in emerging markets have to devise low cost strategies to either tap or circumvent institutional complexities and resource limitations to innovate, develop and deliver products and services to low income users with little purchasing power, often at mass scale and arguably in a sustainable manner. My DPhil research seeks to understand this institutionally complex, constraint-based, and low cost innovation which is designed in or for emerging market contexts.
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Frugal Innovation Research
- 1. FRUGAL INNOVATION When doing less is new Yasser Ahmad Bhatti yabhatti@frugal-innovation.com DPhil (Candidate) in Management Research, Said Business School, University of Oxford www.frugal-innovation.com
- 3. Business in Emerging Markets 66% of the world’s economic growth in next 5 years will come from emerging markets (EIU 2011). In 1987 EMs share of global GDP was 16%; In 2011 is 31% (EIU 2011).
- 4. Business in Emerging Markets In 1989 the 10 tallest buildings were all in North America. In 2011, 7 of 10 are in Asia (EIU, 2011). In 2006 there were only 15 companies from the BRICS on the FT’s 500 list. In 2008 it had risen to 62 (Economist, 2010). In 2010 BusinessWeek’s 50 Most Innovative Companies rankings, for the first time the majority of corporations were based outside the U.S particularly from Asia.
- 5. Seeds of the Dream Mr. Ratan Tata 5
- 6. Tata Nano Car 6
- 7. A House for 3 Months Salary “One home for every Pakistani” - Malik Riaz, CEO Bahria Town 7
- 9. Vodafone’s solar-powered VF247 at Rs, 1500 provides rural customers with Torch, FM radio, a prepaid balance indicator, and the ability to charge under normal daylight. Dual Sim Source: http://www.pluggd.in, http://www.treehugger.com/cars/ride-your-bike-to-charge-your-phone.html, http://www.gizmowatch.com/entry/juice-up-your-mobile-phone-with-good-old-muscle-power/
- 10. OLPC’s $100 laptop and Intel Classmate’s competition creates market for Netbooks Source: one.laptop.org/
- 11. Chotukool weighs 7.8 kg and priced Rs 3,250, runs on a cooling chip and a fan similar to those used to cool computers. Consumes 1/2 the power consumed by regular refrigerators and uses high-end insulation to stay cool for hours without power. Has only 20 parts, as opposed to more than 200 parts in a normal refrigerator. Source: http://inhabitat.com/design-for-the-other-90-lifestraw, www.solvatten.se, and http://www.innosight.com/impact-stories/chotokool-case-study.cfm
- 13. (Frugal) Innovations for Emerging Markets © Yasser Bhatti 2012 YEAR PRODUCT/SERVICE DESCRIPTION © Yasser Bhatti 2012 1975 Microfinance Microloans Grameen 2002 AuroraLab Lenses $5 intraocular lense by Aravind Eye Hospital 2004* One Laptop Per Child $100 laptop for children worldwide 2004 Dacia Logan $5K car for Europe 2007 Mobile Phone Banking M-Pesa, Kenya; Telenor Easy Paisa Pakistan 2008* Cardiac Surgery $800 cardiac surgery Shetty’s Narayana Hos 2008* Tata Nano $2000 Car for India’s masses 2008 Husk Power Systems Off Grid electricity from Rice Husk 2009 Remotion Knee $30 prosthetic knee 2009* GE ECG $1000 handheld electrocardiogram device 2009* GE Ultrasound $15K PC based ultrasound device 2009* Zhongxing X-Ray $20K (1/20th price) of most x-ray machines 2009* Tata Swach ½ dollar per month filtered water device 2010* Gudrej Fridge $60 portable refrigerator for rural areas 2011* Aakash Tablet $35 tablet for India’s school kids
- 14. My Research Question(s) 1. What is FRUGAL and INNOVATIVE about frugal innovation? 2. Who are the players and actors in the market for frugal innovation? 3. Why is the market for frugal innovation emerging? 4. How can frugal innovation be operationalized? What capabilities and core competencies are required to meet the needs of emerging market customers (i.e. frugally innovate)? © Yasser Bhatti 2012
- 15. Research Question(s) 5. Are the capabilities and core competencies unique & source of Competitive Advantage? 6. How do emerging market firms differ from foreign firms in the capabilities to overcome contextual constraints in emerging markets? 7. Does Rogers Diffusion Curve apply to BOP? 8. Will Frugal Innovation be Disruptive? 9. Will Frugal Innovation spread like TQM? © Yasser Bhatti 2012
- 16. Challenges faced by EM Two main challenges persist in emerging nations for innovation and entrepreneurship: – First is the problem of dealing with institutional voids and resource constraints and – second is affordability; • the problem of addressing the needs of the bottom (and middle) of the pyramid • i.e. the largest socio-economic segment of the population. => both input and output costs of the innovation process have to be minimized. © Yasser Bhatti 2011
- 17. Institutional Void Examples Institutional voids are defined as the lack of institutional facilities, norms, and regulations needed for a well functioning economy (North, 1990) 1. Lack of legal protection for property rights; 2. Poor enforcement of commercial laws; 3. Non-transparent judicial & litigation systems; 4. Lack of agency contracting; 5. Underdeveloped factor markets; 6. Lack of financial credit availability; 7. Inefficient market intermediaries.
- 18. Resource Constraint Examples Resources controlled that enable the firm to conceive of and implement strategies that improve its efficiency and effectiveness (Daft,1983; Barney, 1991) and are tradable and non-specific to the firm. • Lack of assets, • capabilities, • organizational processes, • firm attributes, • information, knowledge.
- 21. Frugal is not Cheap P e Frugal Standard r f o r m a n Cheap c e Cost © Yasser Bhatti 2011
- 22. Frugal is not Cheap Price-performance space for Frugal Innovation ©Remotion (used with permission)
- 23. Defining Frugal Innovation FI involves either overcoming or tapping institutional voids and resource constraints to create more inclusive markets. “Frugal innovation” given local institutional contexts • discovers new business models, • reconfigures value chains, • & redesigns products • to use resources in different ways to • serve users who face extreme affordability constraints, • often in a scalable & sustainable manner. © Yasser Bhatti 2010
- 24. Theory of Frugal Innovation Social / BOP Design Thinking Innovation Affordability constraints 1. Bricolage TATA 2. Reverse Engg Nano / F r u g a lBRAC / Grameen 1. Social Movements 3. Improv/Jugaar Sarvajal 2. Social Capital Rickshaw Business / Tech / Bank Institutional Schumpeterian Innovation Innovation Innovation Easy Paisa / Institutional Resource EKO constraints/voids constraints © Yasser Bhatti 2011
- 25. IDEO toolkit for developing world http://www.ideo.com/work/human-centered-design-toolkit
- 26. MARKETS STATES-GOVT Mapping MARKETS the Ecosystem for S/M/C Emerging MARKETS Field States – Government COMMUNITY MARKETS COMMUNITY Community Markets - Society -Private © Yasser Bhatti 2012
- 27. Core Competencies in Engineering for the Developing World (Basu, 2010) Ruggedization Lightweight GE’s Mac I 400 $800 Cisco and NetHope’s electrocardiogram in a Emergency Net-Relief Kit backpack Simple User Affordability Centric Design Aravind preventative Jerry Can for Naandi’s eye care Safe Water Program Simplification Green Tata Chemicals Rice Husk water Filter Technologies Vodafone’s Solar powered Mobile Handset Adaptation Use of Local Materials Nokia’s Mobile Phone Bicycle Charger Kit / Manufacturing Vortex Engineering’s solar powered ATMs for rural banking Source: http://www.scu.edu/socialbenefit/innovation/frugal/corecomp.cfm
- 28. Dimensions on which to Arrows connote another layer in (frugally) innovate extremities of dimensions Affordability Distribution / Scale up Availability Frugal Innovation R&D Price / / Input Costs Simplification Output Costs Servicing Adaptability / Localization Quality / © Yasser Bhatti 2012 Performance
- 29. “Magnificent Simplification” "If GE doesn't master reverse (frugal) innovation, the emerging giants could destroy the company.” (Immelt, Govindarajan, and Timble, 2009)
- 30. How do you balance? More is better X More with less Cost X Quality Constraints X Slack Localization X Globalization Inst. Voids X Inst. Complexity Adaptable X Efficiency Sustainability X Scale Profit maximization X Social impact © Yasser Bhatti 2012
- 31. Will Frugal Innovation spread like TQM? • My hunch is that like the TPS that was adopted worldwide as TQM, • Frugal innovation will be the next integrated management philosophy to diffuse from the East to the West… • but the next question will be whether this will give firms a competitive advantage? • Probably not, because still, no one does TPS better than Toyota! © Yasser Bhatti 2012
Editor's Notes
- Source http://borderbuster.blogspot.co.uk/2010/07/emerging-markets-make-up-growing-share.html
- In 2010 Bloomberg BusinessWeek’s 50 Most Innovative Companies rankings, for the first time since the annual rankings were launched in 2005, the majority of corporations are based outside the U.S and the new global leaders are coming out of particularly Asia.
- Image source: http://www.puppylinux.com/baby-laptops/classmate.htm& http://one.laptop.org/
- Image source: Innovation management online http://www.innovationmanagement.se/2010/12/13/technology-entrepreneurship-for-emerging-markets-an-ecosystem-approach/* Year indicates public disclosure in media and not necessarily year of conception or successful implementation; some are challenges yet to be met
- Focus on artefacts, products, but where do they come from ? Impact of existing ecosystem? How is the new ecosystem formed? How are value chains restructured? What enables this restructuring? What do we need to know about FI to accomplish it in other sectors, domains?
- Capabilities which are distinctive or superior relative to those of rivals, may become the basis for competitive advantage if they are matched appropriately to environmental opportunities (Peteraff, 1993). RBV focuses on the firm as the level of analysis and its resources as the unit of analysis.
- Capabilities require institutional backing such as regulatory, health, education, and perhaps the most important, financial institutions and resources. For innovation, Johnson et al (2003) mention that in order to build competence and innovate it is important to establish institutions that enhance order, trust and predictability in the life of individuals and in the workings of firms and other organizations. The “institutional voids” concept hints that many emerging nations do not have the right institutions in place that would otherwise together make up a National Innovation System (Lundvall, 1992; Freeman, 1995). Therefore, all emerging markets fail to some extent in providing necessary institutions to support basic business operations such as regulatory systems, contract-enforcing mechanisms, financial markets, and even supply-chain infrastructure such as roads, ports, and transportation.
- Capabilities which are distinctive or superior relative to those of rivals, may become the basis for competitive advantage if they are matched appropriately to environmental opportunities (Peteraff, 1993). RBV focuses on the firm as the level of analysis and its resources as the unit of analysis.
- Study an ecosystem rather than an innovation. A standard innovation is an ecosystem, but frugal innovation is a different ecosystem (reconfiguring)Frugal is not cheap, it is reconfiguring value chains, I want to focus on cases for the poor, but conceptually it is useful for the West as well (like ebay). What does ebay have in common with the Tata Nano: the same concept in two different institutionally complex contexts (Ventresca).In the emerging markets innovation is about reconfiguration and rebundling of products and processes (Henderson and Clark, 1990) to fulfil needs at lower cost and at economies of scale.
- Innovation under three or any two of the three constraints is Frugal innovationAny two of three sandbox constraints foster frugal innovation
- Discuss core competencies with examples from the field.
- The process may be very complex in managing linkages, resources, and stakeholders, but the overall aim is to make the outcome simplified. Just killing costs alone could kill the system as it would neglect underlying interdependencies. It involves rethinking the process, thinking differently on why and how to innovate and then that will result in reduced costs.