The five myths of frugal innovation

RISHIKESHA T. KRISHNAN | Updated on November 14, 2013

Tata Motors’ commercial vehicle Ace, which was the outcome of a structured, market-driven development process, succeeded because of the focus on customer needs. — SHASHI ASHIWAL

The big markets of tomorrow are located in large developing economies like India. Customers in these economies, whether businesses or consumers, are resource-constrained and, hence, affordability is an important criterion for product success. Companies addressing these markets have no option but to reduce the upfront costs of development as well as the direct cost involved in the production and delivery of products. A paradigm of frugal innovation has emerged to guide this process.

Over the last decade, we have some experience as to what makes frugal innovation work, and what doesn’t. This experience dispels several common myths about frugal innovation.

Myth 1: Frugal innovation is about cutting corners.

Some people have associated frugal innovation with jugaad and quick-fix solutions. But, there are two major reasons why such solutions won’t work. The first is aspirational. While the farmer of the past may have been content with using a makeshift jugaad vehicle knocked together from materials available in and around his farm, today’s consumer has exposure to the best the world has to offer. Expectations regarding ergonomics and “look and feel” have gone up everywhere. Makeshift solutions are no longer acceptable. A product that lacks “integrity” and fails to provide a smooth user experience will be rejected.

The second reason is the rise in safety and quality standards. The embarrassment faced by one of the world’s largest automobile manufacturers in a huge recent recall of its multi-utility vehicles from the Indian market (now the subject of a major regulatory investigation) underlines how cutting corners is not a viable approach.

Myth 2: Frugal innovation doesn’t require good engineering.

Some of the world’s leading product designers — from F1 car designer Gordon Murray to Ikea Founder Ingvar Kamprad — are unanimous that designing a product that is affordable, functional and has integrity is more difficult than pushing the performance boundaries of a premium product. That’s why Murray has taken on the challenge of building a low-priced city car for European customers.

Successful frugal innovation often involves transcending what were earlier seen as tradeoffs (for example, in the automotive context between power and fuel economy), and, hence, needs high quality engineering. Cisco’s award-winning cellsite access router, the ASR 901, was designed with Indian mobile service providers in mind. These service providers have both older legacy technologies and the latest ones in their networks, so the ASR 901 had to be designed to meet the requirements of both at an affordable cost. That pushed up the bar for engineering excellence.

Myth 3: Frugal innovation requires low-cost engineering talent.

Indian engineering talent attracted international attention because of its low cost. Companies could employ four to five engineers for the cost of one engineer in the US or Europe. Yet, over time, wages have increased and India no longer offers the same cost arbitrage advantage. Does that mean India will no longer be able to contribute towards frugal innovation?

One of the important drivers of frugal innovation is a frugal mindset. This is characterised by a burning desire to find alternate, low-cost ways of solving a problem. It comes from being used to working with limited resources, and, hence, not seeking expensive solutions. Engineers who have grown up in resource-munificent environments often lack the innate ability to seek out such solutions. We may, therefore, be able to sustain the ability to do frugal innovation at higher wage levels as long as we can retain the frugal mindset.

Myth 4: Frugal innovation doesn’t need market/consumer insights.

In many companies, engineers and technologists think they know what consumers need and tend to be reluctant to go out into the field to meet users or listen to inputs gathered by the marketing department. If frugal innovation is only about lowering costs, does it mean that this typical engineering approach is a good fit for frugal innovation?

Nothing could be farther from the truth. Tata Motors’ Ace, a sub-one tonne commercial vehicle, has sold more than a million vehicles. At the same time, the company’s much-touted Nano has struggled to make a dent in the car market. Published accounts point to a major difference in the way these vehicles were developed — while the Ace was the outcome of a structured, market-driven development process, the Nano process was more inward-looking with a strong engineering focus on cost optimisation. The result was that the Nano disappointed many users on the performance front, and was also wrongly positioned.

The importance of a good understanding of user needs can’t be over-estimated. Several recent product successes, including Gillette’s low-cost razor Guard and Renault’s sports utility vehicle Duster, demonstrate the importance of immersion in the customer’s life to understand the specific conditions in which the product will be used, the customer’s priorities, and what kind of trade-offs can be made to lower costs. In the case of the Guard, this immersion revealed that the main challenge faced by men in India was avoiding a cut while shaving without running water and poor illumination.

Myth 5: Frugal innovation needs deep insight into unarticulated customer needs.

In a crowded market like that of mobile handsets, making a breakthrough requires creating a product that is very different from existing ones. That’s why to differentiate itself from the pack, Apple needed to identify user needs that customer themselves had not clearly imagined or articulated.

But, in the developing market affordable innovation context, such deep insight into unarticulated needs may not be necessary. Known user needs are not being met adequately by existing products. The challenge is to design and offer products that meet existing needs at an affordable price point rather than searching for unarticulated needs. The bigger danger is to go into the market with pre-conceived notions or with a mindset of “all customers are the same everywhere.” Customer immersion helps ensure that there is a good understanding of the existing needs and conditions of use.

(Beyond Jugaad is a monthly column.The author is the Professor of Corporate Strategy and Policy at IIM-B and author of From Jugaad to Systematic Innovation: The Challenge for India.)

Published on November 14, 2013

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