In Conversation with Navi Radjou and Jaideep Prabhu
Authors Navi Radjou and Jaideep Prabhu speak about their new book Frugal Innovation: How to do more with less, and also about how the concept has been embraced in unique ways in both the developing and developed world.
“Small teams can do with limited resources what only large companies could do in the 20th century. With very limited budgets, they can come up with an idea, they can blow up a prototype, they can outsource the manufacturing, and then actually sell it.”
“Simplicity is essentially the consumer asking what the brand can do to simplify my life, and I am willing to pay for it by the way.”
Can you tell us what lead to you writing this book?
Navi Radjou: We have been looking at innovation in emerging markets and how in very resource-constrained environments people are able to use limited means to try to create more economic value for the communities. Of course, we began to look at India because we are both from India and through our research center setup at Cambridge Judge Business School. We actually documented in the book what is happening at three levels. At the very grass-root level in villages, the second level was with Indian companies whether IT companies like Infosys or it may be Tata Group with the Nano. Our domestic companies are able to come up with indigenous frugal solutions. And then the third dimension was how multinationals like GE are using emerging markets like India to come up with the frugal solutions. So that was the real genesis. I will have Jaideep describe how we evolved in our thinking and instead of sitting in the west and looking at what’s happening in emerging markets we just turned around and realized that in Europe and in the US, there is a context emerging now for this kind of frugal innovation.
Jaideep Prabhu: Yes. So the Jugaad book was published in 2012 and that was mainly almost entirely about Frugal Innovation in emerging economies like India and what western companies or large corporations generally operating in emerging markets could learn from the emerging market. But after the book came out, there was a lot of interest in the west about frugal innovation in the west for the west and this has many reasons. I think some are you could say negative reasons particularly post-financial crisis. There have been pressures on household budgets, government budgets, and consumers have become more value conscious in Europe, North America and one may say even places like Japan. So, you started to see some of that resource constraint on the demand side that you see in emerging economies but then there are also positive drivers. In the west increasingly people are also what we say values conscious, they are conscious about sustainability, preserving the environment, and gas resources. They are conscious about business having to contribute in a positive way to society and not just to shareholders. The final thing which is perhaps the most powerful aspect is that increasingly ordinary people even consumers who were previously passive are now taking more active role in the economy. We call them ‘prosumers’. They are not just consuming, they are also involved in the economic process and there are two trends that we identify as being part of this. One is the sharing economy so that people, consumers who have spare assets like a spare room or spare parking place or spare seat in their car when they’re traveling are sharing or trading these assets with others. Also a lot of these ordinary people are now empowered to not just passively consume but also make things and increasingly not just physical objects but electronic devises like cheap computers. They can invent stuff they can even commercialize it. Small teams can do with limited resources what only large companies could do in the 20th century. With very limited budgets, they can come up with an idea, they can blow up a prototype, they can outsource the manufacturing, and then actually sell it.
Are there a lot of startups doing that or are larger companies also getting into that model?
Jaideep Prabhu: It’s first documenting this frugal economy that we’re seeing rising in the west. Driven by prosumers, driven by entrepreneurs and then we ask the question what does this mean for the large western corporations, what are they doing in response to this? Very much like the Jugaad book where we said okay this is what’s happening in emerging, what does this mean for large companies? In this book, we’re saying this is what’s happening in the west what does this frugal economy mean for large western companies. And we’ve identified a fair number of firms that are leading in their respective sectors in this space and we talk about them and we draw lessons from them. Renault-Nissan from automotive is doing this. Marks & Spencer is doing it in retail, Novartis is doing it in pharmaceuticals.
Have the drivers for Frugal Innovation in the west been very different from developing countries?
Jaideep Prabhu: Yes, that’s correct. I think in the west a couple of drivers we have identified include one in the consumers who are looking for value for money because of the economic recession. Today the top 20% of Americans account for 60% of consumer spending that means that the income gap is growing between the richest and the middle class and today most Americans think that their children will be worse of financially than their own generation. So there is lot of economic angst right now, which means that consumers in the west are looking for more value for money. They also believe now in being environmentally responsible and socially caring so in turn they request brands to actually demonstrate not just as a CSR or some eyewash but actually embody those environmental and social values. Particularly the young people, about 67% say that they want to go work for companies that are socially and environmentally responsive. So it’s a combination of consumer needs, if you want to attract and retain future employees, future customers you have to do this, that’s the first driver. Beyond that, the other drivers include government requesting companies to become more socially and environmentally responsible, for instance regulations in Europe around recycling and then finally the competition is also a key driver.
Right, and in India on the other hand a big motivator for frugal innovation is just low cost.
Jaideep Prabhu: So we actually think of frugal innovation in the Indian context as evolved beyond low cost. Now people talk about affordable quality, which is essentially combining affordability and quality. We actually think that there are four attributes that have become together for a product to be called frugal. And that’s why in this book we raised the bar. In the first book, we talked about affordability and quality in terms of the value derived by the customer, not just in terms of features. In this book we raise the bar higher and we added two other variables, one is sustainability. We can make good quality products cheap but if you are going to be polluting environment it’s not very good and the fourth attribute is simplicity. Young people especially want to simplify their lives, consumers don’t want to have complicated devices that’s why this iPhone became successful. Simplicity is essentially the consumer asking what the brand can do to simplify my life, and I am willing to pay for it by the way.
How do companies ensure customer satisfaction does not get compromised?
Navi Radjou: By starting with understanding what the real needs of customers are. Customers will say one thing in focus groups and when you actually go into people’s house they are doing something else right. The biggest message for entrepreneurs here is that this is the golden age, which we call frugal entrepreneurship. Before access to money was the problem now it’s not a problem with crowd funding, more importantly most startups used to be in the softer world. Now what’s happening is that you can start entering the physical world, you can start changing farming industry, you can start changing medical device industry because the cost of tooling equipment and electronic components is plummeting. So the cost of innovating is going down. Even in the most sophisticated industries like drug, medical devices kind of thing.