From “Premium” to “Good Enough”: Frugal Innovation in the Emerging Markets

Frugal engineering means developing simple products for emerging markets and is becoming increasingly important for many companies. Frugal products are not cheap or inferior, they are simplified and yet qualitatively robust. But how can frugal products be developed successfully?

A company that wants to successfully enter the emerging markets normally has to adapt and customize its products to often completely new market conditions. The customers there are demanding and price-cautious at the same time. They require the high quality of industrialized countries, yet they are not ready to pay for this quality.

Frugal is not cheap or inferior, but simplified and good enough.

Frugal engineering does not mean slimming the complex Western products to make them cheaper. How can for example a high-end European fridge-freezer machine be simplified for the Indian market, if there is neither enough space nor sufficient power supply in the narrow Indian kitchens? A lot of high-end products are simply not implementable in the emerging markets.

But how to develop products tailored to the emerging markets? The word “frugal” means “simple, but good”. In the industry it means designing functionally reduced and thus lower-priced, but qualitatively robust products. Frugal is not cheap or inferior, but simplified and good enough.

Local knowledge as innovation management fundament

The strategy of frugal engineering is to innovate in the target market on the basis of the local knowledge. The most important aspect is to identify the basic conditions and local customer needs through monitoring and active on-site participation. To understand the utility of a product it is absolutely essential to have access to the field, to approach local customers systematically and to be constantly present on-site, and thus receive the necessary insights.

Frugal: Functional, Robust, User-friendly, Growing, Affordable, Local.

Fundamental requirements for frugal products

For the construction of frugal products one should keep in mind the acronym that displays six main requirements for the frugal products:

  • Functional: The product has to come with high-graded functionality. It cannot include any unnecessary extras or superfluous knickknacks and has to satisfy all fundamental needs in its basic functions. Its functional scope can be considerably limited, but it has to be tailored exactly for the key demands of local customers.
  • Robust: The product developed for the emerging markets has to be highly resistant, low-maintenance and robust against climate factors, dust and poor infrastructure.
  • User-friendly: The product has to be comprehensible, uncomplicated and easy to operate in both its composition and functioning.

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Innovation Management – The Boom – Not Doom – from Market Failure

New Sources of value

While it might seem that the disruption du jour is all anybody is ordering these days, making innovation, growth and new value seem like insurmountable things, businesses should focus on where they can find value most quickly. So why not begin where others have ended in non-consumption, organizational friction or market failure? Such unexpected failures provide opportunities for solutions, and solutions are the source of explosive value.

What do these three common challenges mean in business terms? Simply that the economics are not valuable enough to get folks to focus on them. Often, it seems that the problems are too unwieldy to tackle, the transaction costs are too high or the friction is too great to internalize the costs within a firm. However, understanding these issues can help explain why a vast number of businesses are difficult to franchise or scale, or a segment of a market is perceived to be of insufficient value, and therefore of no benefit or interest.

Take any expanding company and ask: what underlies your growth? Across industries and time, explosive value has come from addressing market failure, organizational friction, and non-consumption head-on, through the development and deployment of new assets and capabilities. These issues create a white space or void – an opportunity – in which an innovative solution can provide businesses with the value and growth they seek.

Across industries and time, explosive value has come from addressing market failure, organizational friction, and non-consumption head-on

Taking on Market Friction

An excellent example of taking on market friction is Uber. The essential value proposition of Uber is ‘convenience’ – get a car when and where you want it and the payment for the service is transparent. Eliminate the frictions of inconvenience and payment transactions and what do you get? Explosive growth.

Market breakdown can be seen in Google and Apple iTunes l with material implications on explosive value creation (for them) and value destruction (for others).

Finding Solutions to Market Failure

The gap between the significant need for innovation in this arena and the meager returns to those who invest in this innovation management which represents a market failure. How so? The typical pharmaceuticals business model is based on price-times-volume equals revenue opportunity, meaning investment focus. However, anti-microbial resistance does not follow this model because the more the drugs are used, the lesser the efficacy of those drugs.

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25 Steps to Jump-Start your Innovation Journey

We’ve covered some essential ground to help you prepare your innovation journey, and now it’s time to put these concepts into action. The innovation formula addresses the very specific tasks that have to be accomplished for innovation to emerge from your organization not only as a matter of luck or at random, but through a concentrated effort that results in sustained innovation performance. Here you will find the Taking Action steps along with 25 additional suggestions that we hope will help you to think and plan creatively and productively about how to make innovation a reality in your organization.

  • Change and complexity, the external world that seems to be different nearly every day.
  • Risk and the need to come up with great ideas, and to balance potential rewards with the risks that come with striving to attain them.
  • Speed, the imperative to go fast because the external world isn’t waiting around for you or your organization, and your competitors would be happy to seize your market share and make it their own.
  • Engagement, because it takes the observations, expertise, and insights of many people working effectively together to come up with great ideas, and then transform them into working solutions to problems that your customers really do want to solve.
  • Leadership, because no innovations happen without courage, commitment, support, and often resources, and these are elements that you, as leader, must provide in highly visible and emphatic ways.
  • And then tools, which can make the path much easier and faster even if they’re not fancy.

Your Innovation Team

This will be a dynamic group of people from many different backgrounds who have vital roles to play in support of your firm’s innovation management objectives. Without knowing the specifics of your situation, your organization, and the unique challenges you’re facing, please consider the following as a suggestion and a general set of jobs or roles that are useful to the successful pursuit of innovation in a small organization, that is, your company.

Complexity and Change: The Strategy Manager

We began the discussion of your innovation needs, requirements, and opportunities by exploring the driving forces of change that are shaping the world of tomorrow. We talked about technology, science, culture, the population, and climate change, and these broad trends as well as some that may be specific to your industry or your organization present a continually changing panorama that you need to be paying close attention to, for there’s no telling when an external change will lead to a specific requirement or challenge for you.

Getting Started

As you recruit the best people you can find to participate on your innovation team, and work to engage with them as your teammates, colleagues, and fellow travelers on the innovation journey, one of the most important things to remember is that innovation is driven by divergent thinking, which we also know as lateral thinking, and as a leader you must specifically encourage, promote, and indeed insist on the necessity of divergent thinking across all aspects of the work, from the design and management of your innovation efforts, to the conduct of the many ongoing innovation projects.

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Four Tools to Support Creativity and Innovation

There are four different types of innovation tools that we’ll describe here, including the design of the work place itself, practices that encourage and even enable effective collaboration, open innovation approach to connect inside innovation teams with outside partners and experts, and online learning tools that constitute the virtual work place. Separately and especially together, these can make a tremendous enhancement in the performance and the satisfaction of individuals, teams, and your entire organization.

The last element of the innovation formula is the tools that enable you, or support you, to produce better innovation outcomes more quickly. This is often a sensitive topic for small businesses, which generally don’t have the resources to provide innovation teams with big work spaces, generous travel budgets, and fancy prototyping tools.

As we were wrapping up the tour, however, one of the facilities leaders who had been our tour guide, and who had been with the company for decades, mentioned that while the new labs were certainly lovely, he noticed that something had been lost over the years. He remembered the early days of the company, which was started in left over Quonset huts from World War II.

The work place

The qualities and characteristics that make Quonset huts and skunkworks so useful is that they’re open, flexible, and no one is inhibited about messing around in them and trying something new.

Unfortunately, the architecture profession and office furniture manufacturers have standardized on this utterly drab and uninspiring concept of what “the physical space” ought to be.

Tom Allen and Gunter Henn address this issue in their lively book about the design of offices: “Most managers will likely acknowledge the critical role played by organizational structure in the innovation process, but few understand that physical space is equally important. It has tremendous influence on how and where communication takes place, on the quality of that communication, and on the movements – and hence, all interactions – of people within an organization. In fact, some of the most prevalent design elements of buildings nearly shut down the opportunities for the organizations that work within their walls to thrive and innovate.

Effective collaboration

To create innovation requires that people engage in exploring new topics, understanding, diagnosing, analyzing, modeling, creating, inventing, solving, communicating, and implementing concepts, ideas, insights, and projects. These attributes are all facets of “learning,” and any organization that thrives in a rapidly changing environment has surely encouraged its members to learn and to apply active learning results to keep up with external changes. Read more at >>