Frugal Innovation Research


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Frugal Innovation is about doing more with less. Entrepreneurs and innovators in emerging markets have to devise low cost strategies to either tap or circumvent institutional complexities and resource limitations to innovate, develop and deliver products and services to low income users with little purchasing power, often at mass scale and arguably in a sustainable manner. My DPhil research seeks to understand this institutionally complex, constraint-based, and low cost innovation which is designed in or for emerging market contexts.

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  • In 2010 Bloomberg BusinessWeek’s 50 Most Innovative Companies rankings, for the first time since the annual rankings were launched in 2005, the majority of corporations are based outside the U.S and the new global leaders are coming out of particularly Asia.
  • Image source:
  • Image source: Innovation management online* Year indicates public disclosure in media and not necessarily year of conception or successful implementation; some are challenges yet to be met
  • Focus on artefacts, products, but where do they come from ? Impact of existing ecosystem? How is the new ecosystem formed? How are value chains restructured? What enables this restructuring? What do we need to know about FI to accomplish it in other sectors, domains?
  • Capabilities which are distinctive or superior relative to those of rivals, may become the basis for competitive advantage if they are matched appropriately to environmental opportunities (Peteraff, 1993). RBV focuses on the firm as the level of analysis and its resources as the unit of analysis.
  • Capabilities require institutional backing such as regulatory, health, education, and perhaps the most important, financial institutions and resources. For innovation, Johnson et al (2003) mention that in order to build competence and innovate it is important to establish institutions that enhance order, trust and predictability in the life of individuals and in the workings of firms and other organizations. The “institutional voids” concept hints that many emerging nations do not have the right institutions in place that would otherwise together make up a National Innovation System (Lundvall, 1992; Freeman, 1995). Therefore, all emerging markets fail to some extent in providing necessary institutions to support basic business operations such as regulatory systems, contract-enforcing mechanisms, financial markets, and even supply-chain infrastructure such as roads, ports, and transportation.
  • Capabilities which are distinctive or superior relative to those of rivals, may become the basis for competitive advantage if they are matched appropriately to environmental opportunities (Peteraff, 1993). RBV focuses on the firm as the level of analysis and its resources as the unit of analysis.
  • Study an ecosystem rather than an innovation. A standard innovation is an ecosystem, but frugal innovation is a different ecosystem (reconfiguring)Frugal is not cheap, it is reconfiguring value chains, I want to focus on cases for the poor, but conceptually it is useful for the West as well (like ebay). What does ebay have in common with the Tata Nano: the same concept in two different institutionally complex contexts (Ventresca).In the emerging markets innovation is about reconfiguration and rebundling of products and processes (Henderson and Clark, 1990) to fulfil needs at lower cost and at economies of scale.
  • Innovation under three or any two of the three constraints is Frugal innovationAny two of three sandbox constraints foster frugal innovation
  • Discuss core competencies with examples from the field.
  • The process may be very complex in managing linkages, resources, and stakeholders, but the overall aim is to make the outcome simplified. Just killing costs alone could kill the system as it would neglect underlying interdependencies. It involves rethinking the process, thinking differently on why and how to innovate and then that will result in reduced costs.
  • Frugal Innovation Research

    1. 1. FRUGAL INNOVATIONWhen doing less is new Yasser Ahmad Bhatti DPhil (Candidate) in Management Research, Said Business School, University of Oxford
    2. 2. Business in Emerging Markets 66% of the world’s economic growth in next 5 years will come from emerging markets (EIU 2011). In 1987 EMs share of global GDP was 16%; In 2011 is 31% (EIU 2011).
    3. 3. Business in Emerging MarketsIn 1989 the 10 tallest buildings were all in NorthAmerica. In 2011, 7 of 10 are in Asia (EIU, 2011).In 2006 there were only 15 companies fromthe BRICS on the FT’s 500 list.In 2008 it had risen to 62 (Economist, 2010).In 2010 BusinessWeek’s 50 Most InnovativeCompanies rankings, for the first time themajority of corporations were based outsidethe U.S particularly from Asia.
    4. 4. Seeds of the DreamMr. Ratan Tata 5
    5. 5. Tata Nano Car 6
    6. 6. A House for 3 Months Salary“One home for every Pakistani” - Malik Riaz, CEO Bahria Town 7
    7. 7. $10K vs $1000
    8. 8. Vodafone’s solar-powered VF247 at Rs, 1500 provides rural customers with Torch, FM radio, a prepaid balance indicator, and the ability to charge under normal daylight.DualSim Source:,,
    9. 9. OLPC’s $100 laptop and Intel Classmate’s competition creates market for
    10. 10. Chotukool weighs 7.8 kg and pricedRs 3,250, runs on a cooling chip and a fan similar to those used to cool computers. Consumes 1/2 the power consumed by regular refrigerators and uses high-end insulation to stay cool for hours without power. Has only 20 parts, as opposed to morethan 200 parts in a normal refrigerator. Source:,, and
    11. 11.
    12. 12. (Frugal) Innovations for Emerging Markets © Yasser Bhatti 2012YEAR PRODUCT/SERVICE DESCRIPTION © Yasser Bhatti 20121975 Microfinance Microloans Grameen2002 AuroraLab Lenses $5 intraocular lense by Aravind Eye Hospital2004* One Laptop Per Child $100 laptop for children worldwide2004 Dacia Logan $5K car for Europe2007 Mobile Phone Banking M-Pesa, Kenya; Telenor Easy Paisa Pakistan2008* Cardiac Surgery $800 cardiac surgery Shetty’s Narayana Hos2008* Tata Nano $2000 Car for India’s masses2008 Husk Power Systems Off Grid electricity from Rice Husk2009 Remotion Knee $30 prosthetic knee2009* GE ECG $1000 handheld electrocardiogram device2009* GE Ultrasound $15K PC based ultrasound device2009* Zhongxing X-Ray $20K (1/20th price) of most x-ray machines2009* Tata Swach ½ dollar per month filtered water device2010* Gudrej Fridge $60 portable refrigerator for rural areas2011* Aakash Tablet $35 tablet for India’s school kids
    13. 13. My Research Question(s)1. What is FRUGAL and INNOVATIVE about frugal innovation?2. Who are the players and actors in the market for frugal innovation?3. Why is the market for frugal innovation emerging?4. How can frugal innovation be operationalized? What capabilities and core competencies are required to meet the needs of emerging market customers (i.e. frugally innovate)? © Yasser Bhatti 2012
    14. 14. Research Question(s)5. Are the capabilities and core competenciesunique & source of Competitive Advantage?6. How do emerging market firms differfrom foreign firms in the capabilities to overcomecontextual constraints in emerging markets?7. Does Rogers Diffusion Curve apply to BOP?8. Will Frugal Innovation be Disruptive?9. Will Frugal Innovation spread like TQM? © Yasser Bhatti 2012
    15. 15. Challenges faced by EMTwo main challenges persist in emergingnations for innovation and entrepreneurship: – First is the problem of dealing with institutional voids and resource constraints and – second is affordability; • the problem of addressing the needs of the bottom (and middle) of the pyramid • i.e. the largest socio-economic segment of the population. => both input and output costs of the innovation process have to be minimized. © Yasser Bhatti 2011
    16. 16. Institutional Void ExamplesInstitutional voids are defined as the lack ofinstitutional facilities, norms, and regulationsneeded for a well functioning economy (North, 1990)1. Lack of legal protection for property rights;2. Poor enforcement of commercial laws;3. Non-transparent judicial & litigation systems;4. Lack of agency contracting;5. Underdeveloped factor markets;6. Lack of financial credit availability;7. Inefficient market intermediaries.
    17. 17. Resource Constraint ExamplesResources controlled that enable the firm toconceive of and implement strategies that improveits efficiency and effectiveness (Daft,1983; Barney,1991) and are tradable and non-specific to the firm.• Lack of assets,• capabilities,• organizational processes,• firm attributes,• information, knowledge.
    18. 18. Large Population Affordability
    19. 19. Frugal is not CheapPe Frugal Standardrforman Cheapce Cost © Yasser Bhatti 2011
    20. 20. Frugal is not Cheap Price-performance space for Frugal Innovation ©Remotion (used with permission)
    21. 21. Defining Frugal Innovation FI involves either overcoming or tapping institutional voids and resource constraints to create more inclusive markets.“Frugal innovation” given local institutional contexts• discovers new business models,• reconfigures value chains,• & redesigns products• to use resources in different ways to• serve users who face extreme affordability constraints,• often in a scalable & sustainable manner. © Yasser Bhatti 2010
    22. 22. Theory of Frugal Innovation Social / BOP Design Thinking Innovation Affordability constraints1. Bricolage TATA2. Reverse Engg Nano / F r u g a lBRAC / Grameen 1. Social Movements3. Improv/Jugaar Sarvajal 2. Social Capital Rickshaw Business / Tech / Bank Institutional Schumpeterian Innovation Innovation Innovation Easy Paisa / Institutional Resource EKO constraints/voids constraints © Yasser Bhatti 2011
    23. 23. IDEO toolkit for developing world
    24. 24. MARKETS STATES-GOVT Mapping MARKETS theEcosystem for S/M/CEmerging MARKETS Field States – Government COMMUNITY MARKETS COMMUNITYCommunity Markets - Society -Private © Yasser Bhatti 2012
    25. 25. Core Competencies in Engineering for the Developing World (Basu, 2010) Ruggedization Lightweight GE’s Mac I 400 $800 Cisco and NetHope’s electrocardiogram in a Emergency Net-Relief Kit backpack Simple User Affordability Centric Design Aravind preventative Jerry Can for Naandi’s eye care Safe Water Program Simplification Green Tata Chemicals Rice Husk water Filter Technologies Vodafone’s Solar powered Mobile Handset Adaptation Use of Local Materials Nokia’s Mobile Phone Bicycle Charger Kit / Manufacturing Vortex Engineering’s solar powered ATMs for rural banking Source:
    26. 26. Dimensions on which to Arrows connote another layer in (frugally) innovate extremities of dimensions Affordability Distribution / Scale up Availability Frugal Innovation R&D Price / / Input Costs Simplification Output Costs Servicing Adaptability / Localization Quality / © Yasser Bhatti 2012 Performance
    27. 27. “Magnificent Simplification”"If GE doesnt master reverse (frugal) innovation, the emerging giants could destroy the company.” (Immelt, Govindarajan, and Timble, 2009)
    28. 28. How do you balance? More is better X More with less Cost X Quality Constraints X Slack Localization X Globalization Inst. Voids X Inst. Complexity Adaptable X Efficiency Sustainability X ScaleProfit maximization X Social impact © Yasser Bhatti 2012
    29. 29. Will Frugal Innovation spread like TQM?• My hunch is that like the TPS that was adopted worldwide as TQM,• Frugal innovation will be the next integrated management philosophy to diffuse from the East to the West…• but the next question will be whether this will give firms a competitive advantage?• Probably not, because still, no one does TPS better than Toyota! © Yasser Bhatti 2012
    30. 30.