Frugal Innovation: Market-driven value innovation or resource scarcity?22 October, 2014 / Articles
Long ago, a multinational shoe company sent three salesmen to Africa to explore market opportunities. The first one wired back: “Nobody here wears shoes, no market potential.” The second wired back: “Nobody here wears shoes, great market potential.” The third wired back: “Nobody here wears shoes, great market potential, I have tied up with a man here who can make shoes and can also ship some back to the corporation at a fraction of the current purchase cost. He also has people making shoes for him in Vietnam, India, Bangladesh, China…” good but old example of today’s ‘Frugal Entrepreneurship’.
Two key observations here – frugal innovation requires the mindset to think of opportunity and not constraints; and frugal innovators should focus on ‘value innovation’ and not be driven by scarcity.
From $2,500 cars to $35 laptops to $800 heart surgeries, frugal innovations that characterise the art of improvising effective solutions using limited resources have been the characteristic of the emerging economies, to do more for less, to cater to broader markets. And why just companies, even not-for-profit institutions and government bodies have started realising the importance of being frugal. Even Stanford University (Entrepreneurial Design for Extreme Affordability), and Cambridge University (Inclusive Design) have programs focused on frugal innovation. The Obama administration has an office of Social Innovation and Civic Participation to encourage grassroots entrepreneurs in health-care and energy.
Does the need of being frugal change by emerging or developed economies? Businesses or consumers in the developing economies are resource-constrained and affordability is an important criterion for product success. Companies addressing these markets have no option but to reduce the upfront costs of development and the direct cost involved in the production and delivery of products.