Frugal Innovation: A New Disruptive Business Paradigm
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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
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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
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Innova,ng faster, beUer, cheaper
FI = RESOURCES VALUE -‐ Customers
-‐ Shareholders -‐ Society
-‐ Financial resources -‐ Natural resources -‐ Time
3 Copyright © Navi Radjou
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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?
4 Copyright © Navi Radjou
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“Bigger is beUer” innova,on model
$603 billion spent in R&D
in 2011
5 Copyright © Navi Radjou
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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
hoto
grap
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his
page
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Chr
is C
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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?
6 Copyright © Navi Radjou
Source: Strategy & Business
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Structured processes s,fle crea,vity and reduce agility
7 Copyright © Navi Radjou
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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
8 Copyright © Navi Radjou
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Firms are being forced to innovate faster, beUer, cheaper
• Demographic shifts • Rapid technology changes • New regulations • Global competition • Dwindling purchasing power (West)
9 Copyright © Navi Radjou
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Firms need a new innova,on model
10 Copyright © Navi Radjou
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11 Copyright © Navi Radjou
Scarcity is mother of inven,on
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Source: gcstz.com/products
African ingenuity
Source: www.quotednews.com
Filipino ingenuity
12 Copyright © Navi Radjou
Brazilian ingenuity
Sou
rce:
http
://ex
patb
razi
l.wor
dpre
ss.c
om/p
age/
9/
Frugal ingenuity
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Ratan Tata, Chairman, Tata Group
13 Copyright © Navi Radjou
Frugal ingenuity
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Frugal products &
business models from emerging
markets
SECRET FORMULA?
JUGAAD
14 Copyright © Navi Radjou
x
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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
15 Copyright © Navi Radjou
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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
16 Copyright © Navi Radjou
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17 Copyright © Navi Radjou
Source: Siemens
Frugal innova,on pioneer: Siemens
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Frugal innova,on pioneer: Siemens
18 Copyright © Navi Radjou
Simple Maintenance-‐friendly Affordable Reliable Timely-‐to-‐market
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19 Copyright © Navi Radjou
Frugal innova,on best prac,ce #1: Leverage exis,ng resources and assets
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Frugal innova,on best prac,ce #2: Keep it simple
20 Copyright © Navi Radjou
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 »
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FRUGAL PRODUCTS
Frugal Mindset
21 Copyright © Navi Radjou
Frugal innova,on best prac,ce #3: Adopt frugal mindset
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Carlos Ghosn CEO, Renault-‐Nissan
“(These partnerships) allowed us to learn a lot more on… FRUGAL ENGINEERING”
22 Copyright © Navi Radjou
Adop,ng the frugal innova,on mindset: Renault-‐Nissan
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Do More with Less: Renault-‐Nissan
23 Copyright © Navi Radjou
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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!”
24 Copyright © Navi Radjou
Adop,ng the frugal innova,on mindset: Renault-‐Nissan
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Gérard Detourbet Renault’s head of entry-‐level vehicles www.youtube.com/watch?v=iEIk3RpV6RA
25 Copyright © Navi Radjou
Adop,ng the frugal innova,on mindset: Renault-‐Nissan
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26 Copyright © Navi Radjou
MIT-‐TATA Center for Frugal Engineering
hUp://educa,oninbrazil.mit.edu
Western universi,es are now teaching frugal innova,on
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27 Copyright © Navi Radjou
Western governments are now adop,ng frugal innova,on
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28 Copyright © Navi Radjou
“Jugaad Innova+on…is the most comprehensive book yet to appear on the subject [of frugal innova,on]”—The Economist
To learn more…
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29 Copyright © Navi Radjou
Thank you
Navi Radjou [email protected]
jugaadinnova,on.com TwiUer @JugaadAtWork
Facebook.com/jugaadinnova,on