In Conversation with Navi Radjou and Jaideep Prabhu
Authors Navi Radjou and Jaideep Prabhu speak with Wilfried Aulbur about frugal innovation and ways in which it is being implemented in different parts of the world
“Frugal innovation is a disruptive new business strategy that enables companies to create more economic and social value while trying to minimize use of resources.”
“If you look at the R&D figures, India appears not to innovate but on the other hand if you look just at the audiovisual evidence in front of you see a lot of a certain kind of innovation happening.”
Wilfried: What is frugal innovation, jugaad innovation and why does it matter?
Jaideep Prabhu: When we started coming to India and other emerging markets to understand what was going on particularly in the innovation space, that’s when we encountered this notion of frugal innovation, the ability to do more with less.
We encountered this at different levels in the Indian economy, grassroots entrepreneurs, Indian companies and multinationals. When we asked people how they would define this frugal, flexible, inclusive innovation, they would use the Hindi word ‘jugaad’. When we decided to write a book about it we decided to call the book ‘jugaad’ innovation to capture this kind of spirit of frugal, flexible, inclusive innovation that you see not only in India but also in many other emerging markets. We have been particularly impressed by the interest in frugal innovation in the West. There, of course, they used the word frugal innovation by which they mean doing more or better with less.
Navi Radjou: Frugal innovation is essentially a disruptive new business strategy that enables companies to create more economic and social value while trying to minimize use of resources like money, natural resources and more importantly time which is a scarce resource.
Wilfried: What is the biggest obstacle to implementation?
Radjou: We call the first principle of frugal innovation engage and iterate which is essentially to say innovation doesn’t start with the R&D (Research & Development) function, but actually with the customer. So the first thing to do is to begin understanding what the customer needs actually are. There are now new ways to study customers in the natural environment for example, using ethnographic studies to zero in on what their fundamental needs are. So instead of guessing what the customer wants and practice what we call ‘just in case’ design where I’m going to put all the features in a product that makes it a monster product ‘just in case’ customer needs something, which is very expensive, time-consuming to build and environmentally unfriendly, you move to an environment where you practice what we call ‘just in time’ design. So you start with the basic customer needs which result in a product that addresses eighty percent of the needs first and then incrementally improve the product as you learn more and more about customer needs. So this approach of ‘just in time’ design is frugal because you don’t have to overdo everything and you can incrementally improve it.
Wilfried: So creating functionality and value that the customer needs rather than the complete universe of opportunities, which is the domain of engineers typically in the West. What else are some of the features that one would have to look at?
Radjou: The other feature is to change the focus from R&D driven innovation to customer focused innovation. The second one is increasing the speed and agility in a corporate culture because once you move to customer facing approach you need to be very responsive as customer needs change all the time. The reason you have to focus on this is because time is the scarcest resource; when you minimize time you increase value as well.
Wilfried: This increasingly is a reason why people look at India for engineering- not because it’s cheaper but simply because the turnaround time is faster. You can work, for example, in a two-shift model with engineers, which is a no-no say in Germany. I fully agree that it’s a very important component. What about the supply chain, how do you look at that?
Prabhu: As far as the supply chain is concerned, frugal innovation has some important things to say about how you use and think about your supply chain. On the one hand, this point about flexibility in the network becomes important and on the other, equally important is the point about being connected to your consumer. So, it opens up possibilities for you on the network bit to share some of your assets with the consumers. There is a sharing economy possible between companies B2B (Business-to-business) too where they could for instance share their trucks to distribute stuff or they can share expertise and so forth. The 20th century model where you had very long supply chains potentially because of the manufacturing system as well the idea that you would have a few big plants in remote places like China and then ship all these products all the way to your market which maybe Western Europe or North America, is very costly and environmentally damaging.
Wilfried: What we are seeing is decentralized manufacturing. It would be interesting to see what this would imply for example for China. If you look at manufacturing labor as a percentage of total labor in all countries including India, it has gone down over the last 20 years but for China it has gone up dramatically. So that would have some global repercussions. How do you ensure that both cross company learnings and learnings from the supply chain are integrated more effectively with the R&D efforts of a large company?
Radjou: It is important for large companies to have an open mindset and realize that the best ideas may not come from existing suppliers but may come from universities or start-ups. So an open mind is important and the way to to do that is to reshape the relationship between the large company and the suppliers. Today the relationship between suppliers and the company is on cost basis. It is transactional where companies try as much as possible to reduce the cost. What we are seeing some companies like Renault do is that they are building this world-class car in India and the person who was leading this project in Chennai spends 60 percent of his time with suppliers. He says it is because they cannot do frugal innovation unless the whole ecosystem is collaborating. He explains it as a two-way street, because suppliers in India may have amazing ideas but they may not know how to scale them up or bring them up to the level of quality that Renault requires. So Renault brings the scale & quality dimension and at the same time the suppliers keep bringing these ingenious ideas, so it is a win-win situation.
Wilfried: You have the small and medium size enterprises that are typically much faster, much cheaper as far as innovation is concerned and also closer to the market. Then we have this whole movement of makers that are potentially revolutionizing the way we innovate. How do we think about how to integrate them into a functional organization like a Nissan? How do we ensure that we actually scan the opportunities that are available around us in an effective way?
Prabhu: I can give you two examples that come to mind. One is of a US based company called Quirky, which is a startup that crowd sources innovations. Anyone can go on their website and suggest a new idea which others in the community then vote on. Quirky then selects the most popular ones to take forward. They have a workshop somewhere in Manhattan where they build prototypes of this and so on, and then eventually they might outsource the manufacturing. They have partnerships with retailers and those products are placed in retail outlets and online as well. Whoever came up with the idea in the first place gets a part of the returns. So this is very much their business model.
Now, take a company like General Electric (GE). GE, let’s say, has a line of air-conditioners and they say to themselves, well, we need to revitalize this line, we need innovation in this line, we could do it ourselves or maybe we could ask Quirky to help us. So they go to Quirky and say can you help us get some ideas. Quirky says sure as it happens there was someone who suggested an idea. The idea was simple that this person would go to work every day in Washington DC where it would be quite hot in summer and he would see all these apartment buildings with air conditioning units left on during the day so that people could return to a cooler house in the evening. He said this is silly for the environment or for them. Why don’t we have an air conditioning unit that you could control with an app on your smart phone and you could turn it on or off whenever you wanted! GE gets into a partnership with Quirky and they make this product, which turns out to be very successful and some of the revenues go to the original inventor.
Wilfried: Does this mean that only the rich emerging countries like China or the Western countries have a shot at this? What does it mean for India now that suddenly everybody is looking at frugal innovation in a much more aggressive way?
Radjou: I think its a myth is that only the more advanced economies can have access to these things like Fab labs or these technologies. As a matter of fact, Fab labs are coming up everywhere in India- in Mumbai, Pune and Delhi. My neighbour in Silicon Valley came up with this interesting innovation where he invented these wireless sensors that can be used in the farming sector to collect detailed information about the soil conditions that could help reduce the use of water and energy. We can call these kinds of things that my neighbour in Silicon Valley designed in his garage, hardware start-ups. Now, in India where we have the software capabilities, what I would like to see is the Make in India story and how profound the maker movement can be. I would like to see a more decentralized story. So essentially you will have big names making stuff at a large scale but for every such big company in India, I would like to see a hundred startups, hardware startups that emerge and leverage these affordable platforms like Fab labs or technologies like the low cost electronic chips to actually start creating companies that could have an impact in sectors like farming.
Wilfried: Sustainability is an important part of frugal innovation. How do you look at what’s the importance going forward? Is it just optimizing cost? So, if my product is cheaper I can sell more of it, what is the relevance here?
Prabhu: I will give you an example of how sustainability, frugality and decentralization work and I think there are some applications for India, which are very relevant at the moment. This example comes from Barcelona where the city has promoted Fab labs in a number of different locations in the city. One of the Fab labs in Barcelona decided to look at the issue of pollution in the city. So they conceived, designed and manufactured a device which has two components- one part has sensors which sit outside your window and pick up levels of nitrogen, carbon dioxide, carbon monoxide, noise and sunlight, and the other part fits into your computer so that is where the sensor sends the data through very low-energy, low-frequency radio signals. Now this data is sent through the Internet to a central server where data from other citizens who also have this device can then be processed. This data, which gives us information on the noisier parts of Barcelona or a particularly high level of carbon monoxide in the air, can then be used to lobby with the local government to make a difference.
Wilfried: Coming back to India, I think over the last 20 years probably one thing that has happened in the country is rather than just being a body shop, we today have a lot of engineering capability. However, when we compare India for example with China, innovation and number of patents seems to be very low indeed. We seem to currently be focusing on Make in India rather than making an innovative India. What is your take on what needs to happen in the country to really drive this agenda?
Prabhu: Lots needs to happen but I think it’s first worth re-examining this issue. Does India innovate or not and it is a bit of a paradox. On the one hand if you look at the R&D figures it appears not to innovate and it doesn’t spend much on R&D but on the other hand if you look just at the audiovisual evidence in front of you when you’re in India and talk to people, you see a lot of a certain kind of innovation happening. It’s often business model innovation that responds to customer needs, finds a better way to price, package or distribute and so on. So there is that kind of innovation, which often adds value, so we shouldn’t discount it. However I take your point that for instance that India needs to have a much larger part of it’s economy involved in manufacturing and therefore that requires more capital investment, more technological innovation which perhaps requires more spending but maybe cleverer spending. A lot needs to happen for that to happen. We could start with policy making it easier to hire and fire, the labour market needs to become a little more flexible so that all sizes of companies can scale and this is something you have in China.
Radjou: I think one of the best practices that we see in the other countries like in France where the government has set up an institution which is supposed to fund projects for mid-sized companies. So the idea is that now large companies have their own sources for funding but mid-sized companies in France are struggling because they cannot scale up. The idea is to focus on the back end of innovation. Most entrepreneurs are good at the front end, which is coming up with ideas and boot strapping the company. The challenge is how do you go from being a small entrepreneur to a large company. There we need to have a lot of government support. So while on the one hand I believe that it’s important to provide seed funding and that kind of aspect of bootstrapping in our ventures, on the other I am worried that you could then have thousands of small entrepreneurs everywhere in India and then many of them would struggle to scale up.