Frugal innovation - economically to success
© Nora von Ameln / University of Tübingen
Less is more! This best describes the original idea of frugal innovation. Societal and social developments act as drivers of this type of innovation. It is characterized by simplified solutions and optimal adaptation to the needs of a specific target group. The focus here is on customers in the entry-level segment who want simple, robust and affordable solutions. Both emerging markets and new niches in domestic markets are addressed. The aim is to reduce technological complexity to a minimum of functionality without neglecting safety and quality standards. Frugal does not mean cheap and low-quality, but simplified and good enough for the task at hand.
According to a 2014 Harvard Business Review article by Navi Radjou and Jaideep Prabhu, frugal innovation is a growth strategy that aims to create significantly more business and social value while dramatically reducing the use of scarce resources such as energy, capital and time. Long practiced by companies in complex and resource-constrained emerging markets such as India and China, frugal innovation is now being adopted by pioneering Western companies to meet the needs of cost- and environmentally-conscious consumers in developed countries. Frugal innovation is not just about doing more with less, but also about doing better with less. Meaningful products and services should be created that integrate four core characteristics: Affordability, Simplicity, Quality and Sustainability. Frugal, or frugal innovation, challenges the traditional "more for more" business model of Western companies that pump billions of dollars into research and development, use many natural resources to develop complex, expensive products, and charge customers more and more for new features. But this "bigger is better" approach to innovation has run its course for two important reasons. First, American and European consumers, who have less and less money to spend, no longer want over-engineered and expensive products. And second, natural resources such as water, minerals and wood are becoming more expensive and scarce.
In order to successfully develop such solutions for the entry-level segment, local and target group-specific knowledge is particularly important (www.konstruktionspraxis.vogel.de, 2021). In recent years, changes in social values in industrialized nations have also led to a growing interest in simple product solutions. In the best case, services and products are intuitive and easy to use for a growing target group of aging people, which is why an overload of rarely used additional features can be dispensed with. At the same time, global challenges such as climate change or the Covid 19 pandemic are making a large part of the population call for quickly accessible solutions, independent of global supply chains. For example, frugal innovation in the medical field has been applied to valves for ventilators made by 3D printers. This pragmatic, low-cost and locally available solution from the Milan FabLab countered medical equipment shortages and also saved lives in the pandemic situation (3D Printing Business Media Ltd., 2020). However, replicating the valves violated the copyright of the original manufacturer, who did not want to support FabLab. Strictly speaking, these are pirated products, which are also not approved under the current Medical Devices Act. The innovative engineer Fracassi was aware of all this: "If the time is not there and people are fighting for their lives, we cannot capitulate to bureaucracy" (www.derstandard.de, 17.03.2020).
The bloated Western model of innovation is not only wasteful and ill-suited to the market, but also fails to deliver what it promises, namely to bring social progress and improve the well-being of citizens. In the wasteful U.S. health care system, for example, costs continue to escalate while patients are less and less likely to receive good value.
© Mrsiraphol / Freepik
In contrast, Robert Bosch GmbH, for example, has conceptualized an injection pump for Indian automaker TATA. This is more cost-effective than previous product solutions and even complies with the stricter exhaust emission values under EU directives (FAZ.net, 2008). In doing so, the companies consciously take the risk of displacing existing more expensive products from their own portfolios. This is because losing market share to competitors in the face of growing demand in emerging markets would entail significantly more damage (Vahs and Brem, 2015).
© Studio Anna Heringer
Looking in the direction of architecture, one discovers another example worth mentioning, namely the "Anandaloy" building. Using regional and fast-growing raw materials such as clay and bamboo, German architect Anna Heringer designed a therapy center for disadvantaged people in Bangladesh, for which she received the Obel Award in 2020. In doing so, she sent the important signal that local materials are valuable, qualitative building materials and that innovative buildings can be created through the targeted use of tools (UBM Development AG, 2020). In addition to the center for people with disabilities, it also houses a small workshop for fairly produced textiles.
The battery-powered refrigerator "ChotuKool" is also an innovative approach to food storage in India, where poor families live in extremely cramped conditions and existing furniture must be moved daily to make room for sleeping. The battery-powered refrigerator is self-sufficient against the permanently occurring power interruptions and can easily keep non-consumed food fresh until the next day. It is small, lightweight, and highly portable (www.wipo.int., 2013).
Another example that supports the previous descriptions, according to a 2012 HBR article, is French automaker Renault. In 2004, Renault launched the Dacia Logan, a no-frills sedan priced at 5,000 euros. Originally aimed at emerging markets, the low-cost car became a huge success in Western Europe, where the recession led price-conscious consumers to seek affordable products that offered better value for money. Carlos Ghosn, CEO of the Renault-Nissan Alliance (a strategic partnership between Renault and the Japanese automotive group Nissan), sensed his opportunity and began developing an entirely new line of entry-level vehicles under the Dacia brand. Today, Dacia is the fastest growing car brand in Western Europe (including the demanding German market). Renault's entry-level models, mostly sold under the Dacia brand, have become the automaker's cash cow, accounting for more than 40% of global sales in 2013, up from 20% in 2008. Thanks to a strict policy of not discounting at retail, Renault achieves above-average margins on these products. In addition, Dacia's products are environmentally friendly: 95% of the components in every Dacia are recyclable. With the successful launch of the Logan - and subsequently other Dacia brand vehicles - Renault has created an entirely new vehicle segment in the automotive industry, combining quality and affordability. Although Western competitors such as Volkswagen are planning to introduce their own low-cost brands, Renault may be years ahead in the art and science of frugal innovation. In 2021, for example, Renault launched Europe's most affordable electric car - the Dacia Spring - for just 12,000 euros. Renault works with local labor and suppliers in each case to keep costs low and use resources locally (Migros.ch, February 2022).
© Renault Communications
Europe's most affordable electric car: the Dacia Spring
As a final example, Unilever's efforts should not go unmentioned. In 2010, Unilever's sober CEO Paul Polman unveiled the Sustainable Living Plan, a bold strategy to double the company's sales to 80 billion euros while halving its environmental impact by 2020. Since 2010, the company has deeply integrated sustainability - and social inclusion - into all its core activities. For example, its R&D department has developed high-quality products that are both affordable - such as small detergent packs with just five washes now sold in Spain - and sustainable, such as soaps that kill germs faster and better with less water. The Supply Chain Group ensures that Unilever's global value chain - consisting of 260 factories and 460 warehouses in 90 countries - is less wasteful and more energy efficient. And its purchasing and sales teams strive to improve the lives of 500,000 smallholder farmers and traders with whom the company works around the world. Through all these efforts, Unilever is building a frugal innovation engine that can serve four billion consumers in a socially and environmentally responsible way since 2020 (HBR, November 2014).
It is the enlightened leaders like Ghosn and Polman who are instilling a culture of frugal innovation in their companies to create greater business and social value faster, better, and more cost-effectively. By learning to do more with less, they are rewriting the rules of the innovation game - and even changing the game completely in their respective industries.