In 2010, the President of India has declared the next ten years the “Decade of Innovation”. This may be surprising for some because India’s innovation ecosystem seems not to have kept pace with their speedy economic growth. Despite efforts to raise it, expenditures on research and development remain below 1 percent of GDP. India’s collection of peer reviewed publications and the number of patents granted by the USPTO is well below that of China. Still, there is one side of the story that these numbers do not capture about India’s innovation. Highlighted in a recent study entitled “Our Frugal Future: Lessons from India’s Innovation System” by Nesta, a foundation in the UK that promotes innovation, India has emerged to become an expert in frugal innovation.
What is frugal innovation?
A widely successful example hails from the Narayana Hrudayalaya Group, one of India’s largest hospitals chains founded in 2000. The hospital’s cardiac unit began providing heart surgeries costing between $2,000 and $5,000, compared with $20,000 and $100,000 in the U.S., by using philosophies of mass production and lean manufacturing. Surgeons would train on a thousand pig hearts before touching a human one and they focus only on the most complex tasks, while others do the paperwork and preparation. For poor patients, it provides 60 free operations per week and is still able to turn a higher profit margin than the average American hospital. Dr. Devi Shetty, the cardiac surgeon behind this idea, was named the “Henry Ford of heart surgery” by the Wall Street Journal.
Or perhaps you remember the frenzy behind the Tata Nano launched in 2009. A brand new, family car that can be had for approximately $2,000, created so that children no longer had to risk their lives riding overburdened scooters in chaotic traffic. Though it had troubles with marketing, technical mishaps, and slow sales, the Nano was nonetheless a symbol of the capabilities of Indian frugal innovation.
So what exactly is it? Frugal innovation can be characterized by its means and ends. In response to limited resources – financial, material, or institutional – it minimizes use of resources from development to delivery. The result is products or services at significantly lower costs. But frugal innovation is not only about lower costs. Successful frugal innovation outperforms the alternative and can be made available at large scale.
In summary, frugal innovation:
1) Makes things better, not just cheaper. Take the Jaipur Foot for example. Using rubber, wood, and tire cord, a prosthetic limb can be made for less than $45 and function better than a $12,000 model. Making something better doesn’t mean we have to use products of higher spec. Making things with lower spec doesn’t mean it must perform worse.
2) Is about products and services. One approach to frugal innovation in services is a smarter use of human capital. Going back to the example of heart surgeries, surgeons perform only surgeries while the preparation and paperwork is reallocated to less expensive staff. This division of labour works well in a linear process like cardiac surgery. Another approach can be to respond to an institutional void. For example, VisionSpring provides affordable reading glasses in India and trains local entrepreneurs to provide basic eye care services – which would otherwise not exist – in their communities.
3) Remodels, not just removes the features. Although one strategy of creating the Tata Nano was to strip away unnecessary features, it required a very complex remodeling process to achieve the cost target – a new engine management system, lightweight steering shafts, and engine cooling module, to name a few. With the help of partners around the world, the car was successfully built. But then it also required remodeling of the service side, from repairs to financing. It struggled with distribution channels in the cities where their target consumers live and the financing options that would help the Nano penetrate the market.
4) Is low cost, but not low tech. Frugal innovation can very well be combined with frontier science and technology. General Electric’s MAC 400 Electrocardiograph machine takes a $10,000 device, adapts printing technology used in India’s bus terminal kiosks, and turns it into a $1,500 device, or just $1 (50 rupees) per patient. More recent versions bring the cost down to just 10 rupees per patient. A low cost, high tech device is potential for disrupting global markets. That’s the potential of frugal innovation.
The conditions are right in India.
With a culture of creative improvisation, the mindset and skillset for frugal innovation are in abundance in India. Jugaad is a Hindi word that translates roughly to “overcoming harsh constraints by improvising an effective solution using limited resources”. This is exemplified all over the country: on the streets, one would see diesel engines attached to carts to create trucks. Despite being having connotations of “making do”, the jugaad mindset promotes the notion of seeking opportunity in adversity and doing more with less, which are critical for frugal innovation.
As with conditions in China, India bears extreme economic conditions and gaps in the provision of services. Most of the rural population lack services in healthcare, drinking water, and sanitation facilities. This stimulates the need for frugal innovation in providing low cost solutions to basic human necessities. A growing consumer base that is extremely price-sensitive is also pushing innovation in affordable necessities.
India’s innovation strengths lie in service and business model innovation. For example, multi-tiered pricing model where the core service remains the same but profits from wealthier customers cover deficits of those with less ability to pay, and thus makes the whole model sustainable and inclusive, has been imitated around the world. The Aravind Eye Hospital runs on this model and is doing so profitably, delivering 200,000 surgeries per year.
Social investors are also optimistic about the opportunities in India, ready to pour in billions of dollars over the next few years in frugal innovation leading to positive social impact.
Where’s all the action and who’s doing it.
Delhi, Mumbai, and Bangalore are India’s most dominant hubs for research and innovation. The study also reports that Pune is a major hub packed with higher educational institutes and one of the best public labs and science and technology incubators in India – the National Chemical Laboratory and its Venture Center.
One unique statistic is that government in India is currently the largest spender of research and development. On the other hand, most of the spending in the other BRIC (Brazil, Russia, India, and China) countries and the UK and the U.S. come from business enterprises. While the government no doubt plays a major role in research spending, foreign direct investment (FDI) in research is not included in those statistics. In 2010, that number accounted for over $4 billion. Moreover, based on classic innovation indicators such as patents, innovation intensity in the private sector is low, but in reality many private firms are innovating (frugally) in the services, processes, and business models, which are overlooked by standard measures of innovation. Thus, frugal innovation can also be thought of as “hidden” in India.
Relevance to the world.
Uncovering frugal innovation is what the report set out to do. Cash-strapped economies in North America and Europe are now turning their heads to this new paradigm of innovation. Sluggish growth in these economies will increase demands for frugal products and services.
In addition to the financial aspect, there are concerns that current consumption and production patterns are unsustainable given the environmental constraints around climate, water, energy, and other resources. This will fuel the demand for more frugal models of production and consumption. Already, we have seen efforts to reinvent the toilet not only as a solution for those currently without access to one, but as an innovation for developed countries too. After all, a single flush of a standard toilet uses 19 litres of water – more than what a person in a developing world uses in a day.
Photo from arulnathan on Flickr, used under a Creative Commons license.