frugal innovation: a new disruptive business paradigm

Frugal Innova,on: A New Disrup,ve Business Paradigm Navi Radjou Co-‐author, Jugaad Innova+on Co-‐author, From Smart To Wise World Economic Forum Faculty member Fellow, Judge Business School, University of Cambridge

An India Innova+on Journey Ins,tute for Compe,,veness

Gurgaon—May 3, 2013

What is frugal innova,on?

FRUGAL INNOVATION IS: A flexible and inclusive approach to innova+on that maximizes value for customers, shareholders, and society—while minimizing use of financial and natural resources

2 Copyright © Navi Radjou

Innova,ng faster, beUer, cheaper

FI = RESOURCES VALUE -‐  Customers

-‐  Shareholders -‐  Society

-‐  Financial resources -‐  Natural resources -‐  Time


Agenda

•  Why do firms need frugal innovation now? •  How emerging markets like India are

driving frugal innovation? •  Which companies are pioneering frugal

innovation? •  What lessons can we learn from them?


“Bigger is beUer” innova,on model

$603 billion spent in R&D

in 2011


featuresspecial report

3

Not so fast. The results of our recent study of theBooz Allen Hamilton Global Innovation 1000 — the1,000 publicly held companies from around the worldthat spent the most on research and development in2004 — may provoke a crisis of faith. The study, whichwe believe is the most comprehensive effort to date toassess the influence of R&D on corporate performance,suggests that nonmonetary factors may be the mostimportant drivers of a company’s return on innovationinvestment (ROI2). The major findings:

Money doesn’t buy results. There is no relationshipbetween R&D spending and the primary measures ofeconomic or corporate success, such as growth, enter-prise profitability, and shareholder return.

Size matters. Scale leads to advantage. Larger or-ganizations can spend a smaller proportion of revenueon R&D than can smaller organizations, and take nodiscernible performance hit.

You can be too rich or too thin. Spending more doesnot necessarily help, but spending too little will hurt.

There isn’t clarity on how much is enough. Instead of clustering into any coherent pattern, R&D budget levels vary substantially, even within industries. Thissuggests that no single approach to spending money oninnovation development is universally recognized as themost effective strategy.

It’s the process, not the pocketbook. Superior results,in most cases, seem to be a function of the quality of an

organization’s innovation process — the bets it makesand how it pursues them — rather than the magnitudeof its innovation spending.

Collaboration is key. The link between spending andperformance tends to be strongest in those areas mostunder the control of the R&D silo, such as productdesign, and weakest in those areas where cross-functionalcollaboration is most difficult, such as commercialization.

These findings conjure up familiar images of frus-tration. Hardworking R&D teams invest time andmoney in the wrong projects; manufacturing, market-ing, and sales drop the ball on winning products andservices; and senior executives and policymakers simplythrow more money at research and development in themistaken belief that it will make a difference. When itcomes to innovation investment, it appears that in manycases, less may be more.

Innovation’s New ContextThe myth that higher R&D spend translates into com-petitive advantage has been around for decades, but itappears to be particularly strong now. Pick up any busi-ness magazine or newspaper. You’ll find ample evidenceof the belief in the effectiveness of larger budgets, forboth corporate and national competitiveness:

• “U.S. spending on R&D will also have to in-crease if the country wants to remain technologicallydominant.” —Fortune, July 2005 P

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The quest for innovation has long been a faith-based initiative: Spend more, and profitwill come. Are you losing out to nimbler competitors? On the high-cost end of global-ization? Is your sales growth flattening? Are your margins narrowing? Want to prove toWall Street you’re serious about growth? Don’t worry; just increase the R&D budget. Newproducts or services will emerge that make the difference — won’t they?


Source: Strategy & Business

Structured processes s,fle crea,vity and reduce agility


99.999% sameness... 0.001% originality

“You can’t put in place a Six Sigma process and say: ‘I’m going to schedule myself for three good ideas on Wednesday and two on Friday.’ That’s not how crea+vity works”

Sir George Buckley Former CEO, 3M


Firms are being forced to innovate faster, beUer, cheaper

•  Demographic shifts •  Rapid technology changes •  New regulations •  Global competition •  Dwindling purchasing power (West)


Firms need a new innova,on model



Scarcity is mother of inven,on

Source: gcstz.com/products

African ingenuity

Source: www.quotednews.com

Filipino ingenuity


Brazilian ingenuity

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Frugal ingenuity

Ratan Tata, Chairman, Tata Group


Frugal ingenuity

Frugal products &

business models from emerging

markets

SECRET FORMULA?

JUGAAD


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JUGAAD The gutsy ability to improvise an effective

solution with limited resources… …using ingenuity & resilience

Also known as: Jeitinho or Gambiarra in Brazil

Zizhu Chuangxin in China Système D in France

Do It Yourself (DIY) in USA


Frugal innova,on pioneer: Unilever

Paul Polman, CEO, Unilever

“I want to double Unilever’s revenues

by 2020 while cudng our

environmental impact by 50%”

Source: upload.wikim

edia.org



Source: Siemens

Frugal innova,on pioneer: Siemens

Frugal innova,on pioneer: Siemens


Simple Maintenance-‐friendly Affordable Reliable Timely-‐to-‐market


Frugal innova,on best prac,ce #1: Leverage exis,ng resources and assets

Frugal innova,on best prac,ce #2: Keep it simple


Christophe de Maistre CEO, Siemens France

« The complexity of our products and processes is hampering our commercial success both in emerging markets as well as in

developed economies »

FRUGAL PRODUCTS

Frugal Mindset


Frugal innova,on best prac,ce #3: Adopt frugal mindset

Carlos Ghosn CEO, Renault-‐Nissan

“(These partnerships) allowed us to learn a lot more on… FRUGAL ENGINEERING”


Adop,ng the frugal innova,on mindset: Renault-‐Nissan

Do More with Less: Renault-‐Nissan


Carlos Ghosn CEO, Renault-‐Nissan

“In the West, when we face huge problems and we lack resources, we tend to give

up (too) easily…

Jugaad is about never giving up!”



Gérard Detourbet Renault’s head of entry-‐level vehicles www.youtube.com/watch?v=iEIk3RpV6RA




MIT-‐TATA Center for Frugal Engineering

hUp://educa,oninbrazil.mit.edu

Western universi,es are now teaching frugal innova,on


Western governments are now adop,ng frugal innova,on


“Jugaad Innova+on…is the most comprehensive book yet to appear on the subject [of frugal innova,on]”—The Economist

To learn more…


Thank you

Navi Radjou [email protected]

jugaadinnova,on.com TwiUer @JugaadAtWork

Facebook.com/jugaadinnova,on