Monday, September 9, 2013

Four steps where “Frugal innovation” meets “8 steps to innovation”

When times are tough, anything frugal gains currency. “Frugal innovation” is no exception. Last week I attended a Tech Event of a global MNC where “frugal innovation” was the theme. CTO of the organization presented it as one of the key elements of his innovation strategy. Is there a process for frugal innovation? Perhaps there is no single answer to this question. In this article I would like to explore one such approach where “frugal innovation” meets “8 steps to innovation” - the framework in our book.

What is frugal innovation? Again there is no single answer here. However, it generally means creating products / services which cater to the needs of masses in emerging economies (check Wikipedia). That implies innovations which are affordable and accessible to a vast underserved population. Some of the examples of frugal innovation that I have come across are:  Low-end mobile phones, GE EKG, Tata Nano, Cisco cell-site router, Embrace infant-warmer, Aravind Eye Hospital, Vaatsalya Healthcare etc.

Now let’s look at the 4 steps which enable frugal innovation:

Challenge book (step-2): How you frame the problem significantly influences the solution you create. Vijay Govindarajan identifies an interesting characteristic of such products: 50% performance at 15% cost in his book “Reverse innovation”. However, that is just the starting point. If Jane Chen and team had applied the 50%-15% rule to their incubator project, they would have created a $3000 incubator. Instead they created an infant-warmer which costs $200 (1% of traditional incubator) and looks nothing like a traditional incubator. Jane & team visited villages in India and Nepal and met people like Savitha who lost her baby because she couldn’t travel to the nearest town with incubator facility in time (watch the TED video). After talking to several mothers like Savitha the team realized that they need a local solution that can work without electricity, simple enough for a mother or midwife to use, portable, that can be sterilized and used across multiple babies, and of course ultra-low-cost compared to the traditional $20,000 incubators.

Building the context into the challenge statement is extremely important and it is very difficult to do it without experiencing the situation in these markets first-hand. Govindarajan categorizes these aspects of the challenge as various gaps such as performance gap (50%-15%), infrastructure gap (e.g. lack of electricity), preference gap (e.g. usable by mid-wife) etc.

Experiment with low-cost at high-speed (step-4): Simple looking Embrace infant warmer has already helped over 22,000 low birth-weight and premature infants. However, during the design process the team had to iterate and test the solution dozens of time by going into the field and talking to doctors, moms and clinicians to ensure that it meets the need of the local communities. For a frugal innovation, doing each experiment at low-cost and with high-speed is highly desirable. Govindarajan calls this "focus on learning based on mini-experiments".

Iterate on the business model (step-6): Traditional business models may not work in these situations. Typically several iterations are required on who (customer), what (offering) and how (to reach and monetize). Vaatsalya healthcare, a hospital chain focused on rural & semi-urban areas, experimented on two business models for six months: full-service 20-bed hospital in Gadag and consulting mode no-bed clinic in Karwar. Gadag model worked and was replicated across 17 locations. Do you rent new space or do you partner with existing practitioners? Vaatsalya had to experiment to figure out that senior doctors whose kids are not interested in father's business are the ideal partners while entering a new town. You not only get a hospital but also relationships. Iteration of this kind is inevitable during frugal innovations.

Build an innovation sandbox (step-7): For Embrace infant-warmer the phase change material (wax-like substance) that melts at human body temperature and maintains it for 4 to 6 hours is the only non-trivial technological element. However, in a product like Tata Nano or GE’s low-cost EKG, the technological complexity is much higher. Hence, dozens of testing iterations are not enough. You need thousands of experiments. That needs a dedicated team and infrastructure investment such that experimentation goes from low-cost high-speed to low-cost high-speed high-volume. And you need to have this closer to customer base so that iteration with customer happens fast. Check out sandbox stories of Tata Nano and Wright brothers

Govindarajan calls such a dedicated team Local Growth Team (LGT) in the context of a global MNC. Companies like GE Healthcare & John Deere created LGTs in India and China for frugal innovation.

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  1. Nice post. But frugal innovation is not new. Henry Ford was perhaps one of the most successful frugal innovators of all time. We need to see what's different about frugal innovation now.

    1. I agree with you. Frugal innovation seems to be operating in two distinct models: One, the Henry-Ford-model - building low-cost product through economies of scale, process efficiencies and large distribution network. Tata Nano, GE MAC, Mobile phones follow such a model. Second, Gandhi-Schumacher-model, where the production is de-centralized, using relatively old technology, people centric, energy efficient, environment-friendly etc.

      While there is nothing new about Ford-model, the Gandhi-Schumacher model is finding a revival through sustainability movement. Husk Power Systems, Embrace infant-warmer are closer to GS model than Ford model.

      What do you think?

    2. Here is what an Economist article says about Tata Nano and Ratan Tata's early vision:

      As head of Tata Group, he envisioned distributing flat packs of parts to rural mechanics who would become successful entrepreneurs assembling the kits into complete cars in the heartlands where 750m poor Indians live. Manufacturing reality squashed the flat packs and the Nano, as the world's cheapest car came to be called, is now made in a giant factory in Sanand, Gujarat.

      I think the flat-packs idea would have brought Nano closer to the GS model. Currently it is operating under the Ford-model unsuccessfully. This is not to say that Nano would have succeeded with GS-model. Flat-packs vs Giant factory illustrate the two models.