NAVI RAD­JOU on Fru­gal In­no­va­tion

The man who wrote the book on Fru­gal In­no­va­tion de­scribes the pres­sure con­sumers are putting on busi­ness to do bet­ter.

Rotman Management Magazine - - FROM THE EDITOR - In­ter­view by Carolyn Dre­bin

What is ‘Fru­gal In­no­va­tion’, and why did you de­cide to write a book about it?

My co-au­thor, Jaideep Prabhu, and I wrote a pre­vi­ous book in 2012, called Ju­gaad In­no­va­tion, based on the quick and flex­i­ble in­no­va­tion we were see­ing in emerg­ing mar­kets like In­dia, Africa and China. These are places where peo­ple have big prob­lems but very lim­ited re­sources, and that com­bi­na­tion leads to im­pro­vi­sa­tion and fru­gal­ity that gen­er­ate ul­tra­af­ford­able so­lu­tions. For ex­am­ple, $1,500 heart surgery, a $2,000 car, a $200 home so­lar sys­tem and a $100 schoolin-a-box. Ju­gaad is a Hindi word mean­ing, ‘the abil­ity to im­pro­vise a clever so­lu­tion’ in ad­verse con­di­tions. It’s ba­si­cally the ‘ Mac­gyver spirit.’ Our re­search in­di­cated that this clever abil­ity to do more with less was also highly rel­e­vant in the West.

Talk a bit about the de­mand for Fru­gal In­no­va­tion.

Con­sumers in de­vel­oped economies are be­com­ing more value-con­scious as well as more val­ues- con­scious, and this is putting pres­sure on com­pa­nies to find ways to do more — and bet­ter — with less. Fru­gal In­no­va­tion has two di­men­sions: From the cus­tomer’s per­spec­tive, peo­ple want to buy prod­ucts that are af­ford­able, easy to use, and eco-friendly; and from the com­pany’s per­spec­tive, the prod­uct must be fru­gal to de­velop, us­ing fewer re­sources (cap­i­tal, en­ergy, time). The end re­sult is greater value for the cus­tomer, the com­pany, so­ci­ety and the en­vi­ron­ment.

Tell us a bit more about the cri­te­ria that de­fine Fru­gal In­no­va­tion.

There are five cri­te­ria. The first is Af­ford­abil­ity. Since the re­ces­sion, peo­ple have be­come more thrifty. The next is Sim­plic­ity. Ev­ery­one wants to sim­plify their lives. Many peo­ple, es­pe­cially Mil­len­ni­als, are em­brac­ing a life­style of min­i­mal­ism. Sus­tain­abil­ity is the third cri­te­rion. As in­di­cated, peo­ple want prod­ucts that are en­vi­ron­men­tally sus­tain­able and so­cially re­spon­si­ble. The fourth cri­te­ria is Qual­ity. Just be­cause an in­no­va­tion is fru­gal, that does not mean that qual­ity can be com­pro­mised, es­pe­cially in sec­tors like health­care. In ad­di­tion to these four tan­gi­ble cri­te­ria, a fru­gal so­lu­tion must em­body a Pur­pose: it must con­trib­ute to the well-be­ing of our so­ci­ety.

Can you give us an ex­am­ple of these el­e­ments work­ing to­gether in har­mony?

One great ex­am­ple is the cloth­ing com­pany Eileen Fisher. In a time of fast fash­ion, this com­pany is pi­o­neer­ing ‘fru­gal fash­ion’: It wants its cus­tomers to buy fewer but longer-last­ing clothes and it has a proac­tive plan to be­come one of the most sus­tain­able and so­cially-re­spon­si­ble fash­ion com­pa­nies.

In the ap­parel in­dus­try, 97 per cent of gar­ments to­day are made over­seas by poorly-paid work­ers crammed into squalid fac­to­ries. But Eileen Fisher is keep­ing 25 per cent of its pro­duc­tion in the U.S. Across all of its man­u­fac­tur­ing ac­tiv­i­ties at home and abroad, the com­pany is in­vest­ing in or­ganic ma­te­ri­als, and is try­ing to elim­i­nate chem­i­cal dyes. It is also us­ing pro­cesses that rely less on water, pay­ing its con­tract work­ers bet­ter and of­fer­ing em­ploy­ees self-devel­op­ment op­por­tu­ni­ties. Ad­di­tion­ally, the com­pany is in­tro­duc­ing pro­grams to in­cen­tivize peo­ple to bring back their old cloth­ing to be ‘up-cy­cled’ or re-used. They are even hir­ing young de­sign­ers to re-use the fi­bres from old clothes to craft beau­ti­ful new gar­ments.

How does the tra­di­tional model of R&D change when com­pa­nies in­no­vate fru­gally?

You don’t need a big R&D lab and a bil­lion-dol­lar bud­get to in­no­vate. Un­der the old model of prod­uct devel­op­ment, it would take years to cre­ate, test and launch a prod­uct. Fru­gal In­no­va­tion uses a much more tar­geted and eco­nom­i­cal ap­proach: Com­pa­nies zero-in on what cus­tomers re­ally want, in­tro­duce that prod­uct to the mar­ket­place quickly, and con­tin­u­ally im­prove it, based on cus­tomer feed­back.

Another change in the R&D world is the con­cept of Open In­no­va­tion, which en­tails shar­ing knowl­edge be­tween de­part­ments, part­ner­ing with start-ups, re-us­ing tech­nolo­gies and re­cy­cling knowl­edge — even amongst com­peti­tors. Imag­ine tak­ing some ex­ist­ing in­tel­lec­tual prop­erty and ap­ply­ing it to a whole new do­main. For ex­am­ple, Gen­eral Elec­tric took ul­tra­sound tech­nol­ogy de­vel­oped in its

en­vi­ron­ment­peo­plepeo­ple­want­prod­uct­sthata­reen­vi­ron­men­tally sus­tain­able and so­cially re­spon­si­ble.

med­i­cal di­vi­sion and ap­plied it to the en­ergy sec­tor, as a tool to in­spect oil and gas pipelines.

Another great ex­am­ple is Ford Mo­tor Com­pany, which set up a Techshop in Detroit — a do-it-your­self pro­to­typ­ing stu­dio where em­ploy­ees can go to tin­ker in their spare time. It’s ba­si­cally a play­ground for adults that is open 24/7. This fa­cil­ity is equipped with 3D print­ers and ad­vanced tool­ing equip­ment, so if an en­gi­neer has a dis­rup­tive idea, she can go in there, rapidly pro­to­type it, and then show it to her boss and say, ‘This is what I was try­ing to ex­plain to you’. This ap­proach leads to faster ap­provals than a Pow­erpoint pre­sen­ta­tion ever could. Within three years of set­ting up this Techshop, Ford boosted its patentable ideas by over 100 per cent — with­out hav­ing to in­vest any more in R&D.

The old model of mass pro­duc­tion has be­come so waste­ful that you be­lieve to­day’s com­pa­nies must ‘flex their as­sets’. Please ex­plain.

Your com­pany’s as­sets should not only cre­ate value in terms of new prod­ucts and ser­vices: they should also be op­er­at­ing at op­ti­mum lev­els. For ex­am­ple, older build­ings that leak en­ergy and con­trib­ute to emis­sions need to be op­ti­mized for ef­fi­cient en­ergy use. New tech­nol­ogy al­lows ex­ist­ing build­ings to be re­con­fig­ured to save en­ergy — for ex­am­ple, by hav­ing the lights and air-con­di­tion­ing turn off au­to­mat­i­cally when a room is empty.

We still have the le­gacy of cen­tral­ized mass pro­duc­tion, whereby some­thing is built in large quan­ti­ties in a big fac­tory and shipped in mas­sive con­tain­ers around the world. What if we ‘flexed’, or op­ti­mized, not just as­sets like equip­ment or build­ings, but the whole sup­ply chain? The idea is that sup­ply chain as­sets could be dis­trib­uted so that, in­stead of hav­ing one cen­tral­ized fac­tory, you might have sev­eral ‘mi­cro-fac­to­ries’. These smaller pro­duc­tion units could be linked to smaller dis­tri­bu­tion units (‘mi­cro-stores’). As a re­sult, a com­pany could sense and re­spond faster to its cus­tomers’ needs in a lo­cal­ized way, while sav­ing re­sources and emis­sions.

For ex­am­ple, big-pharma com­pany No­var­tis, in part­ner­ship with MIT and the FDA, has cre­ated mi­cro-fac­to­ries no big­ger than a con­tainer, which al­low them to make drugs up to ten times faster, re­duce op­er­at­ing costs by 50 per cent, and emis­sions by up to 90 per cent. They also have bet­ter trace­abil­ity for their prod­ucts and are far more flex­i­ble. Many other in­dus­tries are now adopt­ing the con­cept of mi­cro-fac­to­ries—from au­to­mo­tive to bio-med­i­cal.

What does it mean to ‘hy­per-col­lab­o­rate’?

This is a very rad­i­cal idea. To­day we are see­ing an ex­pand­ing shar­ing econ­omy for con­sumers, in­clud­ing car shar­ing, bike shar­ing and home shar­ing. The next phase of this will be busi­ness-to-busi­ness shar­ing. The idea is that mul­ti­ple com­pa­nies will come to­gether to share re­sources — and that one com­pany’s waste is another’s raw ma­te­rial.

In Den­mark’s Kalund­borg Eco-in­dus­trial Park, for ex­am­ple, waste com­ing from a steel com­pany is used by another com­pany to make ce­ment. Com­pa­nies can even go be­yond mere waste and as­set shar­ing and share their em­ploy­ees, and even their clients and cus­tomers. This is a holis­tic ‘in­te­grated ecosys­tem’ ap­proach that rec­og­nizes that com­pa­nies have more to gain by shar­ing than by com­pet­ing.

A very ad­vanced level of hy­per-col­lab­o­ra­tion is shar­ing in­tel­lec­tual prop­erty. Elec­tric car com­pany Tesla has opened up its patents so other com­pa­nies can use them to ac­cel­er­ate the tran­si­tion to elec­tric cars. I think what­ever trend starts out as B2C (busi­ness to con­sumer) soon be­comes B2B. When you look at Mil­len­ni­als, they don’t see a sep­a­ra­tion be­tween how they act as a con­sumer and as an em­ployee.

We are see­ing an ex­pand­ing shar­ing econ­omy for con­sumers, and the next phase will be busi­ness-to-busi­ness shar­ing.

They car share, apart­ment share — so why not share at work? This is al­ready hap­pen­ing in start-up in­cu­ba­tors, and in the next decade, Mil­len­ni­als will rise to power in com­pa­nies and rad­i­cally change the cor­po­rate cul­ture.

Fru­gal In­no­va­tion is an op­ti­mistic way of look­ing at the global econ­omy. Is it at odds with our cur­rent geo-po­lit­i­cal cli­mate?

We need to take a global view. Emerg­ing mar­kets are grow­ing in con­fi­dence. There is a big void left by the Amer­i­cans when it comes to global lead­er­ship, and other play­ers such as China and In­dia are eager to take the cen­tre stage. Fru­gal In­no­va­tion is more rel­e­vant than ever to­day. With cli­mate change, we all need to learn how to do more with less. When faced with ad­ver­sity, there is even more mo­ti­va­tion. We in the West can’t af­ford to be com­pla­cent — es­pe­cially now.

What lies ahead for Fru­gal In­no­va­tion?

In the past, peo­ple were brought up to think in a lin­ear fash­ion — lin­ear sup­ply chains, lin­ear ca­reer paths — but Mil­len­ni­als are far more mo­bile in their ap­proach, and fu­ture gen­er­a­tions will be even more fluid. That must be taken into con­sid­er­a­tion by any­one con­sid­er­ing a fru­gal ap­proach. We all have to be­come more adapt­able.

Also, as in­di­cated, com­pa­nies are slowly start­ing to share their as­sets and re­sources, es­pe­cially when it comes to sus­tain­abil­ity and value cre­ation. In­no­va­tion is be­ing de­moc­ra­tized. The ‘ju­gaad mind­set’ says, in­stead of in­vest­ing in a Skunkworks-style in­no­va­tion project, why not just un­leash the cre­ativ­ity and in­ge­nu­ity of your em­ploy­ees and en­gage with cus­tomers and sup­pli­ers to co-cre­ate a fru­gal so­lu­tion?

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