In his speech and conversation with Brad Stevens, Navi Radjou explains how major crises and very limited resources are an incredible combination of needs that leads to disruptive innovation and creating value.
Less is often more, and it can be seen from the lifestyle of people in developing nations who invent new ways of using their limited resources. Similar is the case with entrepreneurs in emerging markets who have to work with limited resources. This is something that we are facing on a global scale today. Major crisis and very limited resources are an incredible combination of needs that leads to disruptive innovation.
Resource scarcity can be a big opportunity to innovate and create value. For example, the CEO of Selco, Harish Hande has distributed solar energy systems to 200,000 poor households in some of the most remote parts of India. The innovation here is not the technology but the business model because the poor cannot afford to pay monthly subscriptions to solar energy, so they instead make daily micro-payments of few cents using their mobile phones, which avails them clean electricity on demand. So, the takeaway here is that we need a lot of innovation in the mindset and business models as much as in the products and services to address today’s needs of the marketplace.
Is there a unique approach used by these entrepreneurs to do more with less? In finding the answer to this question, we discovered a whole new paradigm, which I call frugal innovation. In a nutshell, frugal innovation is the ability to do more and better with less. By ‘better’, we mean bringing more value(s)- economic, social as well as ecological value, while at the same time trying to minimise scarce resources like capital, energy, and time but also making wise use of all the resources you already have. So, it is really about optimising the delivery of value while also maximising the value of all the resources you have. It gets more interesting when you start introducing an order of magnitude to this formula; it brings the idea of creating a solution that delivers ten times more value, ten times cheaper, and ten times faster. It is then that it becomes really disruptive, but it is even possible to do 100 times better with 100 times lesser resources. For example, keeping a premature baby in an incubator requires electricity and costs USD 20,000 in the West. To address this problem, Jane Chen and five other graduates from Stanford University came up with a solution that looks like a small sleeping bag that can keep the baby at a constant temperature and costs only USD 200. This frugal solution has saved the lives of 300,000 babies in the last seven years.
We need to focus on resources that we often have in abundance and how we can use these resources cleverly to overcome the scarcity of what we do not have.
In my book Frugal Innovation, I identify six principles that can be used to implement frugal innovation. These principles are highly relevant in this current crisis. Elaborating on three of those principles, the first principle is the notion of flexing your existing resources. Today, we are facing a scarcity of resources like masks, ventilators, etc. and so we are running with a sense of lack. Instead of looking at the glass as half empty, focusing on what we don’t have, we can instead look within, or look around and see what we do have.
We need to focus on resources that we often have in abundance and how we can use these resources cleverly to overcome the scarcity of what we do not have. A relevant example during this crisis is James Dyson, the inventor of the Dyson vacuum cleaners, who took the digital motor inside the vacuum cleaner and adapted that into a ventilator in just 10 days. Today, they are delivering 15,000 of these ventilators worldwide. Thus, we do not have to think about coming up with new products but about leveraging what we already have cleverly to create more value. Similarly, in Italy some doctors got the inspiration to take snorkelling masks used by scuba divers and use them as ventilators as well as masks. The company that was making it, Decathlon is now using its R&D team to assist volunteers to adapt the snorkelling mask and use it as a respirator.
The second principle is going to be a big trend in the coming years and is called regeneration. This principle is about how we can co-create regenerative solutions. Regeneration is the next big idea that will replace sustainability because now we do not want to sustain the status quo but build better systems, and to do that, we have to regenerate business. When we talk about regeneration, it is really about going beyond just reducing our carbon footprint and thinking about how you can enlarge your positive impact on the planet. An example of regenerative solutions is Interface, which is a company that makes carpets, and they have built a factory that not only pollutes less but also offers incredible services to the local community such as potable water and clean energy that they generate and distribute to the local community. These are the regenerative solutions we need to bring up to deal with climate change in the next decade.
The third principle is hyper-collaborating with atypical partners. It is an important principle right now because we have a major crisis where companies are struggling to find solutions and often, they try to find solutions on their own. This principle is an invitation to partner and co-create solutions. It can be seen in Kalundborg, Denmark where 12 co-located companies share their waste, energy, and other resources in a very symbiotic way, which is called industrial symbiosis. It is essentially a way of applying principles of the sharing economy to the business-to-business sector. A relevant example of this principle today is the collaboration between Ford and GE Healthcare to make ventilators. GE Healthcare has already developed frugal medical devices in places like India, so Ford is leveraging the company’s expertise in frugal innovation to create ventilators in America. Similarly, GM is teaming up with a company called Ventec in California to convert their factories that make cars to make ventilators.
Regeneration is the next big idea that will replace sustainability because now we do not want to sustain the status quo but build better systems, and to do that, we have to regenerate business.
Today, we are under stress or an imbalance between perceptions of external demands and internal resources, but if we look within ourselves, we will find many resources that we have. We can leverage those resources cleverly to address the sense of scarcity. Also, it is very important in these times to think beyond individual interests and think about how to use the three principles to have a bigger impact on other people’s lives. While the notion of frugal innovation can be applied in tactical ways in response to the crisis today and we have to innovate faster as well as cheaper, I hope that it can become the new normal, a new way of thinking innovation even after the crisis. It is because, after this crisis, another crisis in the form of recession will be on the way and behind that, an even bigger crisis is lurking, called climate change.
Brad Stevens in Conversation with Navi Radjou
Brad Stevens: Amidst this crisis that we are dealing with and the difficulty we are facing with COVID-19, where is the greatest untapped opportunity we can leverage, or mistake that we can make?
Navi Radjou: The healthcare sector is going to be very useful because that’s the sector with the bigger gains. Healthcare is also about how old companies across sectors can think about the well-being of their employees and also their customers. A lot of amazing things are happening in the US around healthcare innovation because we are sitting on a big problem where healthcare costs have already been increasing. By the next year or two, healthcare will account for 20% of the GDP of this country, so there is going to be more awareness among citizens, customers, and even employers, around well-being. In the short-medium term, I say that we think about very frugal ways to make people live in a very healthy fashion, physically and mentally.
Incredible solutions are emerging now, such as telemedicine, and the silver lining in this crisis is that many things can be done remotely. The previous concept of physically going to see a doctor is dead, so we have to figure out a whole new paradigm of healthcare that is focused on predictive healthcare where we have Fitbits and other kinds of devices that can monitor health in a more proactive fashion. We have to learn to manage well-being by exception, that is, using AI to look for patterns and detect health issues and then intervene in a very punctual manner. Therefore, the healthcare sector, and more broadly the wellness and well-being domain is where we are going to see a flurry of frugal innovations happening.
Stevens: If you had to pick one action that the small organizations can take to survive through the crisis, what would it be?
Radjou: First you reassure your people, because right now, the dominant emotion is fear and anxiety, and give them the right advice to keep themselves and their loved ones healthy. Research shows that during times of crisis, people have this radical openness where they are open to see things clearly. This is very difficult in normal times because they are locked into a particular perspective, but right now this crisis is shattering all the belief systems, all the preconceived notions well entrenched in our perspectives.
I, therefore, recommend everyone to go for the bolder innovation at this time. An example of this is IBM. In 2002, the US was getting into a deeper recession because the dot com and the internet start-ups went belly up, which created a crisis economically, then we had 9/11. At that time, IBM had a new CEO, Sam Palmisano, and when he came on board in 2002, he decided to use this to rethink about not just their strategies but also their values and purpose, so they hosted the “Values Jam”, which was essentially an online event. Today, you can do that easily but back then it was quite extraordinary They invited all the employees to brainstorm on what should be the new value system of the company. What came out was the idea to innovate not just for customers but for society at large, and that’s what I’d recommend doing right now.
It does not sound tactical but it is a way to invite collaborators, employees, and even partners to revisit the organization’s purpose and mission right now. It is because people are very willing to rethink the whole company itself. Once the crisis is over, people will go back to that traditional way of looking at problems and issues so the perspective becomes more rigid. So, while things are very fluid in people’s minds and their consciousness, leaders should take advantage of this to redefine the core purpose and mission as a company in the future.
Stevens: Do you see the opportunities first to copy idea implementations forth from poor countries to the West? How do we shift the mindset in the West to embrace some of this and take advantage of this?
Radjou: We do have to develop first the humility and right now, the mind is fluid, people are open to taking any solution we can get. Every day, I am contacted by people asking me to connect them with someone in India, because in India they developed a $6 worth of paper test strip. So, there is indeed the possibility to import the solutions, and it’s already happening. GE Healthcare, for example, has developed several low-cost medical devices in India that are now being sold in the United States, like low-cost ECG devices, low-cost ultrasound devices. Siemens America also sells here low-cost CT scanner developed in China.
There are other solutions that are not just products but services that have been imported into the US. One well-known is called ‘Text4baby’. Since America has high infant mortality, Johnson and Johnson Foundation and other partners took a simple solution inspired by Africa and Mexico, which is to send every day some text messages to expecting mothers and give them some daily health tips. A simple intervention like that inspired by developing countries has proven to have a huge impact and is being used by one million women right now in the US.
However, more than products and services, it’s about how we bring in this frugal mindset, this frugal consciousness, and this is where we need to create a different culture where innovation is not centralised in big R&D departments, and it is more democratised. Ford Motor Company, for example, has created FabLabs or maker spaces where people have very limited resources but unlimited freedom, so they can actually experiment and prototype quickly. This is what we need. We need an agile culture because we have optimised innovation in this country for efficiency. It’s called scale and scale doesn’t work. Now, we are seeing that we should stop scaling up and start optimising our innovation activities for agility. This is something we can learn from emerging markets, especially China. Chinese companies like Haier, which is a white goods manufacturer, can churn out white goods appliance in four weeks. That’s mind-boggling. They have this agile culture that can sense and respond very quickly to market shifts. That’s the kind of frugal, flexible mindset that you also have to cultivate in the US, inspired by emerging markets.
Stevens: How are the ways that people can be frugal in the brick and mortar retail industry that had to shut down more than 50% of their businesses? Anything creative you have seen?
Radjou: There are two companies, Best Buy and Ahold, that are taking advantage of this current crisis. Ahold is rethinking how they can redefine with their employees the purpose, and Best Buy is looking for ways to leverage their existing resources like employees to help the society. Delivering meals is one way to do it, but leveraging employees to do good in society is also a way to test the new purpose in the future, which is to focus more on societal needs. Best Buy is a company that has always been very good in its treatment of its employees but now they are using those in the crisis to think about how they can deliver greater value to society as well by leveraging their human resources.
Stevens: Any tips on how to bring the whole organization on the same page for frugal innovation and to do 10x and 100x innovation to create value? With the rise in triage and crisis, how do you get people on this side?
Radjou: There are two examples I can think of, which connects to the topic of leadership. You cannot change culture unless leadership is involved. The two examples that are inspiring are one, Renault Nissan which is a global car company that was facing a big slump in the late ‘90s because they were disconnected from the market needs. People were unwilling to buy expensive cars, they wanted to buy cheaper cars and they didn’t know how to do it. It was a crisis, so their CEO came up with this radical idea wherein he wrote on a napkin, specs about a car that can be developed for just $5000. This is called design-to-cost in the supply chain. The engineers who were used to developing cars worth $20,000 were now asked to develop a car for $5000, and they were clueless. Nevertheless, they teamed the French engineers with engineers in Romania who, under communism, were used to doing more with less because of the scarcity situation. Long story short, in 2005, they launched Logan, a $5000 sedan. Once they got the confidence of making such a car, they then developed a whole new product line. So, my answer is that start with one solution well identified with a big goal, but then you work on coming up with a whole new product line, which is what Renault Nissan did. It’s called the Dacia brand, which today accounts for 40% of the total revenues. Last year, they launched in China, with the same platform, electric vehicle for just $9000. This was possible because of their leader, their CEO who said this is how they should rethink how they make cars.
Another approach is that of Paul Polman’s, former CEO of Unilever, who in 2009, came up with a radical idea, that by 2020, the company will double its revenues while reducing its carbon footprint by 50%. 10 years later, they achieved that goal, and today they are one of the poster children of the fight against climate change. Bottom line is that you need to set a bold target, something which seems like a mission impossible for your time because it is only when you create a sense of constraints that you catalyse more creativity. So, organizations shouldn’t be modest with their goals but begin with maybe one project like one product that embodies the principles of frugal innovation, gives confidence to the teams that they can do that, and then build on the confidence to show them that they can systematically develop such solutions.
Also, many of the innovative ideas will be driven by young people, so these organizations need to understand how to reach out to young people. They are way ahead of Generation X, so the inter-generational collaboration is the key to regenerate and revitalize the traditional companies.
Stevens: Would you like to leave us with some closing thoughts as we part ways?
Radjou: I know these are challenging times, and when everything seems so adversarial in the outside world, it’s important to go within. It’s important to practice self-care. It sounds selfish but as they say, you have to put on your oxygen mask first before helping others, so we all should carve out some time every day for some kind of practice where we can go within and recharge our batteries. Funnily enough, that’s also very frugal because you do not want to burn out.