Juggad Innovation

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Jugaad: A Frugal, Flexible Approach to InnovationPublished : July 03, 2012 in Knowledge@Wharton

In Jugaad Innovation: Think Frugal, Be Flexible, Generate BreakthroughGrowth, authors Navi Radjou, Jaideep Prabhu and Simone Ahuja present anew approach to innovation that is fueling growth in emerging markets aswell as developed ones. In their book, they outline the six principles ofjugaad, a Hindi word meaning "an improvised solution born fromingenuity": Seek opportunity in adversity, do more with less, think and actflexibly, keep it simple, include the margin and follow your heart. Radjouand Ahuja sat down with Knowledge@Wharton to talk about their approachto fostering innovation in a hypercompetitive world.

Below is an edited transcript of the conversation.

Knowledge@Wharton: Navi and Simone, thank you so much for joiningKnowledge@Wharton today. To begin with, I wonder if you could speaka little bit about the principles of jugaad innovation? And how doesBenjamin Franklin, the founder of our university, exemplify them?

Radjou: Ben Franklin is one of our favorite heroes when it comes tojugaad in early America. He grew up in a large family where he learnedabout the principles of doing more with less, which is essentially being very frugal. That frugality,of course, [was] embodied not only in his personal life style but also in terms of how he developedproducts and services. He was a serial entrepreneur before that term became very popular. One ofthe inventions that [we] showcase in the book is the Franklin stove, which is a very ingeniousinvention that used less wood than needed and produced lots more heat. Essentially, he created aproduct that used [fewer] resources and yet produced more value to the customer.

This Franklin stove was very well received in the 18th century. But what is phenomenal is that he alsoembodied this principle of [jugaad] -- you can call it thinking and acting flexibly -- in the sense that hewas a pioneer of the open source movement because he never attempted to patent this invention. As amatter of fact, Ben Franklin never really tried to patent [any of his] inventions. He felt that they ... neededto benefit a larger community, particularly people who may not be able to afford the inventions. Thatmeans that he also practiced this other principle of jugaad ... "include the margin." In other words, he wasalways thinking about making his inventions beneficial for the larger community, the masses if you like,as opposed to an elite. In a way, he was ahead of his time in the sense that he was an entrepreneur whohad this jugaad spirit and really cared about people around him. He tried to come up with solutions thatdelivered a lot of value at much less cost for a lot more people.

Knowledge@Wharton: You also say in your book that the Western innovation engine has become

too rigid, insular and bloated to remain effective. It consumes a lot of resources and makes a lotnoise, but produces little of significance. Why did this situation develop? And what can be doneabout it?

Radjou: The situation developed for essentially one reason. After World War II, Westerncompanies fell in love with one important concept, which is trying to industrialize everything.[They] tried to automate all the processes. The objective in doing so was to achieve largereconomies of scale. As a result, [they created] ... very formal ways of developing products andservices. So we saw the growth of so-called R&D departments and also some investment inprocesses such as Six Sigma, total quality management, etc. All these processes have been[developed] to deliver more predictability to organizations. And predictability became sacrosanct

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for a lot of fields because they felt that by having more predictability in the processes, they couldprovide better performance on a regular basis, and therefore, also keep Wall Street happy becausethere was less perceived risk in their activities because, after all, everything was predictable.

But the flip side of predictability is that when the world began to change faster and faster, thispredictability became an impediment [to companies' ability] to be agile and responsive to major changesin customer needs or to track major technology shifts, for example. In a way, what we found is that a lotof these companies did the right thing in the 20th century by investing in formal R&D processes,expensive R&D labs, a very structured type of development. But then in the last 10 to 15 years, what we

noticed is that as the world becomes more complex, the very investments the companies made are nowbeginning to turn against them.

One interesting data point is from Booz & Company, the management consultants, which actually hasdone research and shows that in 2010, the world's top 1,000 investors in R&D collectively spent awhopping $550 billion in R&D. But they did not really get much return for the huge investment theymade. That's where we are proposing an alternative approach to innovation, which will be very frugal,flexible and inclusive. We call the approach "jugaad."... What we tried to do is to say, look, there is atraditional approach, which worked very well for a long time, but that approach is very expensive. It's veryinflexible and it's also [quite elite], in the sense that only a few people in the company are doinginnovation. But we all know, with things like social media, that innovation has become everybody'sbusiness. So that means that we have to go rapidly to a new model that is much more cost effective, veryflexible, and then more importantly, what I mean by inclusive is that it's very democratic -- that sense that

it can open up and take the input of all your employees, customers and partners as well. That's reallywhere we came up with this idea of jugaad. I will let Simone explain a bit more about what it is.

Ahuja: Some of your readers may already be familiar with the word. It's a Hindi word, meaning"an improvised solution born from ingenuity." Through our extensive field research, [we] surveyedhundreds of people across India to learn the deeper meaning of the word, which can at times havenegative connotations. But we distilled it down to what we felt was an important meaning,especially for grassroots entrepreneurs. The spirit of jugaad is really an innovative fix, especiallyunder severe resource constraints. Jugaad is about being flexible in the source pool in the face ofadversity. And it's about being frugal and doing more with less, as Navi mentioned, in the face ofscarcity.

Knowledge@Wharton: To pick up on that point that you just mentioned, Simone, how do jugaad

innovators seek opportunity in adversity? Could you give any examples of grassroots entrepreneurswho have done that?

Ahuja: Absolutely. One of our favorite examples is that of a villager named Mansukh Prajapatiwho actually lives in the deserts of India. He's in a scenario where not only did they not have accessto electricity, but even if they did, most of the villagers would not be able to afford it. He wanted tounderstand how to drive a fundamental innovation [to] create a refrigerator that doesn't useelectricity, which would be a huge lifestyle shift for the people in his community. He turned to thenatural cooling effects of clay to create a totally off-the-grid, green, biodegradable refrigeratorcalled Mitticool that can store fruits and vegetables for up to five days and dairy products for up totwo days.

What's most remarkable about this is he used a millennial-old material to create this refrigerator that has

two compartments -- one that has water in the top that flows down the walls on the sides and cools alower chamber through evaporation. The tremendous flexibility -- and understanding that this materialthat's been present for so long can be used in such a unique way -- [drove] this very fundamentalinnovation.

Knowledge@Wharton: That's really fascinating. Another principle of jugaad, which Navimentioned before, is the principle of doing more with less. How did KPIT Cummins use thisapproach in India and what were the results?

Radjou: [KPIT Cummins has been working] with car manufacturers to come up with veryaffordable and frugal ways to improve the performance of cars. Of course, over time, what they


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discovered is that with the shift increasingly toward not only affordable cars but also the movementtoward more sustainability, they came up with a solution called Revolo. It's essentially a low-costplug-in.... Within a few hours of installing it, you can convert your car into a kind of hybrid car.This is phenomenally representative of the kind of jugaad spirit in the sense that it was just oneengineer who, one day, when he was stuck in a traffic jam in Mumbai, came up with this idea ofasking, what if he can convert existing cars -- any car that runs on gas -- into a fuel-efficient,high-performance hybrid. Revolo is a conversion kit. It includes the rechargeable battery pack, anelectric marker and a pulley. You can retrofit that into most cars in just six hours [using] any KPITCummins mechanic. What's fascinating about this is that it costs only around $2,000 as opposed to$5,000 or more in the West. And more importantly, the system costs 80% less than regular hybridcar options. The phenomenal impact is that it can actually increase fuel efficiency by 35% andreduce greenhouse emissions by at least 35%. That means more for less, in the sense that it deliverslots more value ... at much less cost for car users.

That is a fascinating example of how you can come up with an affordable and retrofit-able solution totransform these gas-guzzling cars that we have in the West into very environmentally friendly andhigh-performance hybrids. I think that's a great example of an innovation that delivers more value at lesscost.

Knowledge@Wharton: You also say in your book that companies should redesign theirorganizations around simplicity. How can this be done?

Radjou: I'm going to take some examples of companies that have done it. Philips is very famous forembracing simplicity as a key tenet of the design philosophy. Simplicity is becoming important ...because a lot of customers are put off by the complexity of technology. Any of you who have tried touse any kind of electronic device like high-definition TV that you try to install in your living room,you know how complex technology is getting these days. So there is a premium now associated withsimplicity. That means, can we come up with a good-enough solution, as opposed to anover-engineered solution? Because a lot of data shows that, for example in Microsoft software,nearly 90% of the features may not ever be used by the users. The question is, why botherover-engineering a product when you can simplify it and make life easier for the customer? Withthat being the impetus for driving simplicity, you see companies like Philips incorporatingsimplicity as a key tenet of their design philosophy. Philips has made it a point that all theirproducts ... will be very user-friendly and very maintenance-friendly as well. They have made italmost like a cornerstone of their product development model.

Another company that, in my opinion, really embodies the simplicity principle is Facebook, because theinterface of Facebook is very, very simple. They don't have a lot of complex features. The navigation ofthe website is very easy to use. The reason is because they employed something called social design,which is essentially a design philosophy where the technology takes a back seat to the user experience,which takes the front seat. That's a radical departure from the traditional R&D model, where the focusused to be on showing off, so to speak, your technology capabilities and hoping to wow the customers.Instead, the customer got put off by the technology's complexity. So, Facebook uses social design as away to make the user the king of the experience, and let them drive this whole experience, as opposed tothe technology being at the forefront.

Finally, the third company which embodies the spirit of simplicity is Siemens, the industrialconglomerate in Europe. They also have started coming up with a lot of products that are very simple to

use. And that, for me, is remarkable. Because Siemens is known for engineering prowess. It's all aboutpushing the envelope on technology. But having done that for 100 years, now they realize that just puttingmore technology into the product is not going to really help the customers. They are going back to thebasics and asking, "Can we come up with a good enough medical device?" Or, a good enough powergenerator that could really deliver performance, but still will be very simple to use and maintain?

Knowledge@Wharton: Well, that's great. How should jugaad innovators tap into marginalmarkets?

Ahuja: One of the things that we advise our readers and clients is that we have to be aware of theincreasing diversity of the marketplace around the world, but also right here in the U.S. We have to




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be aware that the middle class is shrinking and essentially becoming a marginal class. This is reallydriving a change in what customers want and need. Customers are looking for value for money andnot just features. What's happening is that companies are having to adjust to this. For example,Procter & Gamble is adjusting to the fact that many of their consumers are now looking forlow-cost products. For the first time in something like 38 years, Procter & Gamble developed alow-cost line of dishwashing liquids and hand soaps. They understand that they have to access sucha large group because the Gini index in this country -- which is an economic wealth indicator where"one" means the wealth all goes to one person and "zero" means the wealth is distributed equally --is very similar today in the U.S. to that of the Philippines and Mexico. I think the fact that P&Gactually developed a new product line for this group makes it clear that they understand they needto address this margin. But also, [the fact] that they're doing R&D dedicated toward this groupmeans that it's here for the long term.

I think another example would be Walmart. They are introducing financial services in some of their storesand in satellite branches now. They are offering services like check cashing right in Walmart stores,where a very, very high number of people actually pay with cash. That's another way to include themargin and generate revenue for the company in an area where brick-and-mortar banks are simply notmeeting the needs of these marginalized customers. Because A, they don't take the time to reallyunderstand their needs. And B, because they just feel it's not worthwhile for them. And that's clearly nottrue.

Radjou: We used to call [that] concept bottom of the pyramid." What P&G was saying is that it's

very humbling to realize that there is a bottom of the pyramid, right in the U.S. Except that it's thebottom 60% of this country, right? Essentially, that's the middle class of this country, and they arebeing squeezed into lower purchasing power. The 60% means it's a big population, right? That'sanother reason that it also makes economic sense for these companies, like Procter & Gamble andWalmart, to tap into those marginal segments, which are growing and are in bloom. Because if theydon't do that, then they're going to have these nimble products and emerging market competitorswho might come and steal that market share.

Ajuha: Right. We have, let's say, in the financial sector, 60 million unbanked or underbankedcitizens in this country. In the health care sector, we have approximately 50 million individuals wholack access to health insurance -- there's certainly a huge market share that needs to be addressed.

Knowledge@Wharton: We're almost out of time, but I have one last question. Any advice for

companies that want to implement the principles of jugaad innovation? How should they go aboutit?

Radjou: In the book, we outline six principles. They can just pick one of them to begin with. Forexample, it might be doing more with less. And then they can figure out if there is a particular areawithin their organization where they can apply this principle. For example, General Motors issaying, "Okay, can we re-use parts and components? Why do we have to reinvent the wheel forevery car across every market? Let's begin to standardize some of the platforms and reuse partsand components." In a way, that will lower the cost of global car development.

You can start like that on the R&D side. But I think you can also apply this principle of doing more withless in other parts of the organization as well. For example, if you are in the marketing function, you canthink about how to use social media to run a marketing campaign, which is a much more frugal way of

doing it than investing in expensive TV ads and whatnot. There are different functional areas in yourorganization where you can implement one of these principles very quickly. But I think what's importantin all this is the role of leadership. Because ultimately, what defines jugaad as a philosophy is abouttransforming the culture and the mindset of people in the organization. What we find is that this isn'tsomething that really can be easy to do with the millennials, the young workforce that is joining corporateAmerica in masses. But for the traditional managers, the middle management, this may be a bit disruptive.Because in a way, it's about changing the status quo, right? I think there must be some kind of incentivesystem, or some kind of mechanism put in place by leaders, to drive this behavioral change. Ultimately,jugaad is going to be about transforming the corporate culture of an organization. My tworecommendations would be, first, start small by implementing one of the six principles in a very focused,diluted fashion. Secondly, if you want to make the most out of jugaad, you've got to be able to drive




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massive cultural transformation as well, with the right incentive system and the right metrics. Simone,anything you want to add to that?

Ahuja: No. I think that's exactly right. That's exactly how we've seen it as being the most effective.Typically, when corporations want to integrate jugaad and drive jugaad innovation in theircompanies, they tend to do it first in smaller segments and/or by partnering with other groups whoalready understand how to do this, like grassroots entrepreneurs, for example, or individuals whoare coming out of programs like Stanford's entrepreneurial design program. That's the way thatthey're best driving this kind of innovation in their corporations.

Knowledge@Wharton: Navi and Simone, thanks so much for speaking with Knowledge@Wharton.

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