1. 3Sunday 8 MArch 2015 CEYLON FTFt Insight
T
he world of business has become
extremely competitive as world
products are becoming increasingly
internationalized with the open market
economy widening and more companies
competing for the same markets. This
means that companies need to be on the
constant lookout for threats and new
opportunities. There are two main
strategies they can pursue – differentiation
in products or a lower cost. Innovation can
actually be combination of these factors as
a new product can have different features
and also be cheaper, like a phone for
instance and this change can be called
‘innovation.’
‘Innovation’ is seen as a propelling force
which can drive a business forward and
help it achieve a place in the market or a
larger market share. But innovation has a
broader meaning than most people realize.
Innovation is defined as a ‘development ’
which encompasses not only
‘technological innovation,’ that is, diffusion
of new products and services of a
technological nature into the economy, but
equally includes non-technological forms
of innovation, such as ‘organizational’
innovations. This may be the introduction
of new management or marketing
techniques, adoption of new supply or
logistic arrangements, and improved
approaches to internal and external
communications and positioning.
To understand the trends in innovation
taking place across the world, it is
particularly interesting to study techniques
that Far East Asian ( Asean region)
companies use to innovate and compare
these against Western techniques ( ie
Europe, USA , Australia predominantly).
The underlying common denominator in
this is the relatively large size of the
organization and the surrounding
economic conditions which enable access
to capital and resources. These are
companies which are situated in what we
can term ‘developed countries.’
Western approach to innovation
On the whole, companies in the West,
cannot compete on price alone; they need
to be different through advanced
technology, better design or a strong
brand. But to do this, they need invest in
development and this is costly and takes
time. A breakthrough product requires
extensive research and analysis which the
company has to fund from their internal
resources. This results in the company
typically trying to avoid duplicating efforts
by narrowing down options quickly and
focusing on bringing only one product
forward. The company takes pride in
creating offerings that are a little ahead of
the market. It strives to create
breakthroughs that can make its brand
stand out among the competitors to justify
its relatively high price. Since the company
is usually a public company, it has to get
consensus from the Board in order to
commence development of a new product
and this consensus and the development
of the product has to go through various
approval stages and takes time. Perhaps
‘slow and steady’ can be a description of
their approach in many instances.
So this means that when a Western
European company seeks to enter an
emerging market, it will typically start by
trying to export its existing products. It will
seek the upper segment of the market in
order to address customers that have
needs and budgets similar to its customers
back in its home market. This can be
called ‘a push approach’.
Asean approach to innovation
An Asian company on the other hand,
will listen closely to market needs and
identify an opportunity. They will typically
work from the products and technologies
that are already available in the market
such as the Western brands and adjust
them with a keen understanding of what
price, quality and features, customers
want. For instance once they see a smart
and successful new product, they are set
up to rapidly develop similar and cheaper
versions with special features they feel that
the customer needs. This is a customer
‘pull approach.’ This strategy removes the
risk of spending heavily on research for
products that may fail. Since many Asian
companies are young and trying to catch
up, are flexible and typically still owned by
the CEO who founded it, do not have large
funds for research, they can and have to
make quick decisions and take chances.
Due to this, Asian companies can reach the
very large mid-market segments that
Western companies often ignore. For
instance, Haier offers a range of washing
machines, each with variations by taking
into account that people in Chinese rural
areas often place their white goods
outdoors.
In brief and very generally, there are 4
main characteristics of Asean-style
innovation:
4 Suitable: Products fit customers
budgets and needs precisely
4 Letting go: Asian companies are
willing to change style, image even line
of business, if they sense a market
opportunity
4 Fluidity: The business
environment expects and supports
change and it is tolerant of uncertainty
4 Catching up: Asian companies
are young, their organizational structures
are flexible, and there’s an urgency in
their efforts to grow.
Whilst it is interesting to compare the
techniques of Asean and Western
companies, it is also critical to look at a
novel methodology used by companies and
people living in conditions where they have
very little access to capital and resources.
This is a true case of ‘necessity is the
mother of invention’ which describes a
home grown methodology called Jugaad
or Frugal Innovation.
Jugaad (frugal innovation) is an Indian
phrase used to describe the kind of
ingenuity that enables Indians to manage
the large and small challenges of everyday
life. The essence of Jugaad is to improvise,
and to quickly and cheaply cobble a
solution together from the materials at
hand. Frugal innovation challenges the
traditional ‘more for more’ business model
of Western companies which pump billions
of dollars into Research and Development
and use lots of natural resources to deliver
complex, expensive products and charge
customers ever more for new features. But
this ‘bigger is better’ approach to
innovation is becoming increasingly
difficult to undertake and unpopular for two
key reasons. First, increasingly budget-
constrained American and European
consumers no longer want over-
engineered and costly products. Secondly,
natural resources like water, minerals and
wood are growing more expensive and
scarce. Developments of frugal solutions
require one to re-think the whole chain of
business from market research, design and
development, through to marketing and
distribution, to compete in the low price
segment.
Emerging markets are a hotbed for this
kind of innovation, where the use of
financial and natural resources and time is
being minimized while maximizing the
value. But also in Europe, companies are
being forced to innovate faster, better and
cheaper, as poverty is still very
widespread. This requires more open,
flexible and cost-effective innovation
models.
In recent years, Jugaad has gained
attention among companies in the western
world because products like Tata’s Nano
car and GE’s MAC scanner for hospitals,
have shown that the Indian approach to
innovation can lead to solutions for the
mass market at extremely low prices.
Visionary European firms such as Renault,
Siemens, Pearson, and Unilever have also
started using this new approach to
streamline in a form of lean innovation.
Some core elements of the Frugal
Innovation Approach are as follows:
Hard prioritization of features
Engineers and designers need to
develop a proper understanding and feel
for the end users’ needs and ability to pay.
Developers have to prioritize extremely
hard to remove all unnecessary functions
and in many cases designers must develop
completely new ways to achieve a given
functionality which is simpler and cheaper.
Understand the ground reality
The company critically needs to
understand the market well, in order to
distinguish exactly what end-users need to
have, rather than what is merely nice for
them to have.
High volume
In order to build for low-cost solutions,
the product has to be based on proven
technology and built it from components
that are already produced in large
numbers. In addition, it is crucial to achieve
a high volume. With higher volume and
more customers, the cost of development,
equipment, personnel and buildings can be
spread.
The biggest challenge for companies is
to accept that the price must be radically
lowered in order to reach the target group.
Designers must develop from the bottom
up, by starting to improve the solutions that
the users in the lower part of the market
have currently available – rather than trying
to make lesser version of what the
company is currently offering in the
premium end of the market. Therefore
there will be a compromise in terms of
advanced technology, smooth performance
and optimum convenience for users.
Simple, but driven
by a different mindset
In many cases, local adaptations are
based on very simple ideas – but ideas
that Western developers never would have
come up with, because they do not fully
understand the context, that a product is
used in.
Creating a Platform
for Frugal Innovation
In India, the National Innovation
Foundation encourages a number of frugal
innovations. It is part of what is known as
the ‘Honey Bee Network’ which is formed
of like-minded individuals, innovators,
farmers and academicians and aims at the
pollination and cross-pollination of ideas,
creativity and grassroots geniuses. This
Network has now spread over 75 countries
and scouts, spawns, and supports
innovations with its outstanding traditional
knowledge at grassroots. Its mission is to
act as a medium for the documentation and
dissemination of local and traditional
knowledge. In the last 20 years, it has
documented more than one hundred
thousand ideas, innovations and traditional
knowledge practices. In terms of products,
the Honey Bee Newsletter, the creative
mouthpiece of the network, has been
published in seven Indian languages other
than English for approximately sixteen
years.
Frugality is one of the characteristics that
is important in the future, because low
prices and frugal solutions are essential to
cater for the rapidly growing middle class in
emerging markets. How many companies
in Sri Lanka look at frugal innovations?
Unfortunately very few and even fewer
innovations are given publicity. How many
companies in Sri Lanka actually have any
budget allocation for research? Recent
figures show that Sri Lanka only allocates
less than one quarter percentage of GDP
for research unlike India which allocates
more than three quarter percent of a much
higher GDP. Various government
Institutions in Sri Lanka do undertake
research in the agricultural and
environmental sectors for instance but it is
important to note that innovation needs to
be driven by the private sector which is
closer to the market and customer needs.
In the West, innovation is private sector
led.
Some interesting examples of private
sector frugal innovations, include a clay
fridge made in India which can refrigerate
fruits and vegetables without electricity, a
bike which provides power to a phone in
the African jungles and a Billboard in
South America which condenses air
moisture and turns it into approximately 90
litres of water on a daily basis to provide
drinking water as rainfall is extremely low.
Western companies typically operate in
mature structures that only allow changes in
certain steps.
Asian companies operate in fluid environment
that is less resistant to large and small chang-
es.
Stability
Linear evolution
Objects
Independent
Categories
Either/or
Single truth
Constant change
Cyclical development
Substances
Interdependent
Relationships
Middle way
Acceptances of paradoxes
RIGID FLUID
OPERATIONALOPERATIONAL
WITH AROSHA JAYASUNDERAWITH AROSHA JAYASUNDERA
Frugal innovation
gathers momentum
Arosha Jayasundera obtained
her first degree in Economics
(Hons) from the London School
of Economics. Following her
MBA in Marketing from CASS
Business School, she joined
DFCC and then ANZ Grindlays
and Standard Chartered Bank
(SCB). She held several senior
positions at SCB including Head
of Operational Excellence having
qualified first in the Group in
Lean Six Sigma. She is the
Director, Operational Excellence
and Transformation at Avix
Consulting Group. The company
offers a wide range of Training
courses in Process Excellence
techniques and Consultancy. We
hold Round Table Discussions
and free assessments of
Organisations’ efficiency levels.
arosha@avixgroupsl.com, www.
avixconsulting.com
Arosha Jayasundera