Frugal Innovation: Perfect Environment for Intangible Asset Growth!

September 4th, 2012. Published under Frugal Innovation, intangible assets. No Comments.

Michael D. Moberly    September 4, 2012

Simply stated, frugal innovation provides functional solutions to innovation in environments with few resources and little means, especially, emerging market countries.

Frugal innovation is best described, in my view, as a process of skilled intellectual, relationship, and structural capital emerges and merges insofar as discovering new business models, reconfiguring value chains, and/or redesigning products to serve, often times ‘bottom of the pyramid’ users where there are affordability constraints, but in a scalable and sustainable manner.

Frugal innovators identify institutional voids and resource constraints to create more inclusive markets (Bhatti, 2011).  Of course, the key word here, again, in my view, is ‘inclusive’, based on outcome (product, service) relevance and attractivity to emerging market countries and users.

Frugal innovation is different from conventional innovation primarily because the paths and strategies (tracts) to develop innovative products and/or services are geared toward, again, the bottom versus the top of the proverbial consumer pyramid. At the top of the consumer pyramid of course, lie the primary sources of purchasing power, which some assume, inevitably produces a trickle-down effect.

A ‘local phenomenon’ is how frugal innovation is often characterized, because it is perhaps best suited for emerging market countries in which entrepreneurs must make the most of what they actually control, in my view, which is their intellectual, structural, and relationship capital. And, even though it may not be consistently called that, frugal innovation is structured around developing innovation to solve problems at the most practical level, and in a sustainable manner.

In the West, conventional ‘top down’ innovation and marketing approaches, by design, at least initially, target high end clientele. Too, western practices largely use traditional, some characterize as archaic, business and distribution models that are reliant on the abundance of non-sustainable resources, which in turn, elevate product design, development, and manufacturing costs.  Collectively, advocates of frugal innovation say, this makes numerous science and technology innovations unaffordable for the bottom of the pyramid (BOP) consumers.

Frugal innovation of course, as it was initially conceived, is found (practiced) primarily in emerging market countries and purposefully targets BOP consumer markets. Depending of course on the innovation actually developed, i.e., a product and/or service, ideally progresses to successive levels of users, presumably those higher on the proverbial consumer pyramid.

Too, in actual practice, pure frugal innovators are less apt to characterize the absence of regulatory oversight or resources in emerging market countries, as representing insurmountable or stifling hurdles, rather as leverage points to mitigate the necessity, as is incumbent in the West, for significant influx of investment (for R&D).  Again, ideally, frugal innovators are likely to achieve their initial profitability from the BOP consumers, wherever they may be.

There are multiple dimensions to frugal innovation which I believe we would be well advised to become familiar.  For example, they’re not just limited to cost, manufacturing, or distribution issues.  Rather, the main theme to frugal innovation which GE’s Jeffrey Immelt is known to apply, is that it is a ‘simplification in all aspects of process and outcomes’!

(This post was inspired by the work ofYasser Bhatti, a Higher Education Commission doctoral scholar at the Said Business School, University of Oxford.)

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