Back in the 1970s, during the energy crisis, the French had a slogan: “In France, we don’t have oil, but we have ideas.” That’s the spirit behind frugal innovation—a way of rethinking innovation in resource-constrained environments. Once the strategy of underdogs, it’s now gaining traction among players big and small, across the globe.
The Covid-19 pandemic highlighted the unprecedented challenges faced by healthcare systems worldwide. As a corollary, it also fostered innovations. Among them, the NASA ventilator project. These low-cost ventilators were produced in just 37 days, and their production license is available worldwide.
This project perfectly illustrates the power of frugal innovation. It can be defined as the ability to do more with less, delivering essential value in situations marked by resource constraints. For companies, it is a way to remain competitive and thrive in a resource-limited environment. A crucial strategy in an era of exceeding nine planetary boundaries: climate change, biodiversity loss, disruption of nitrogen and phosphorus cycles, land-use change, freshwater cycle disruption, introduction of novel entities into the biosphere, ocean acidification, ozone depletion, and increased atmospheric aerosol levels.
Cutting to the core
Frugal innovation is about finding simple and effective solutions that meet essential needs without unnecessary complexity. It is not limited to emerging markets and is relevant on a global scale.
For example, the Tata Nano, a car priced at €1,500, was initially designed as an affordable vehicle for the Indian market. However, it also demonstrated the applicability of frugal principles in developed countries, where interest in sustainability and minimalism is growing. Unfortunately, Tata Nano failed due to negative perceptions associated with its “cheapest car” branding, leading to concerns about quality and status among consumers. Additionally, reports of safety issues, such as vehicles catching fire, further deterred potential buyers. These factors resulted in low sales and eventual discontinuation.
This trend reflects a growing desire for products that are both economical and environmentally friendly, demonstrating that the simplicity of frugal innovation aligns with consumer values worldwide. Global consumers increasingly value economical and environmentally friendly products. A 2024 PwC survey found that 85% of consumers have experienced climate change effects, prompting 80% to prefer sustainable goods, even at higher prices. Additionally, 55% are willing to pay more for eco-friendly brands.
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By striving to deliver maximum value at minimal cost, frugal innovation enables companies to target underserved markets and provide effective solutions to urgent problems. Its alignment with current trends in cost management and sustainability makes it a valuable strategy for businesses looking to adapt in a world increasingly concerned with resource conservation.
Frugal innovation delivers high-quality, affordable products by emphasizing essential functionalities, reducing complexity, and optimizing resource use. For instance, the Jaipur Foot is an affordable prosthetic limb designed using locally available materials, making it accessible to low-income amputees. This approach ensures performance and durability without unnecessary features, challenging perceptions of inferior quality. However, if the frugal approach is misapplied—such as by excessively cutting costs at the expense of essential functionalities or quality—it can lead to subpar products that fail to meet user needs, thereby reinforcing negative perceptions of frugal innovations. Therefore, it’s crucial to balance cost reduction with maintaining core value and reliability simultaneously.
Measuring Frugal Innovation
To better understand frugal innovation and develop a scale to measure its effectiveness, we conducted a research study examining over 1,000 companies in Brazil, India, and the United States (USA). Three key pillars emerged:
- Essential Features
Emphasizing the essentials is the key to frugal innovation. Products developed with this mindset eliminate non-essential features that increase costs without enhancing core functionality. By retaining only essential features, companies often improve customer satisfaction by providing direct and reliable solutions that effectively address primary needs.
The Tata Nano offered a simple yet effective means of transportation. Similarly, NASA’s ventilator was exclusively designed around the essential functions needed to save lives (Rao, 2017; Harris et al., 2020). It is precisely by being “sufficient” that these innovations generate value and ultimately create a competitive advantage through their simplicity.
- Cost Reduction
A natural extension of this approach, cost reduction enables companies to maintain essential functionalities while optimizing resource use and minimizing expenses. This involves streamlining processes and leveraging locally available materials. By cutting costs without compromising essential features, businesses can effectively deliver value to underserved markets.
GE Healthcare, an Indian medical device company, leveraged locally available components for manufacturing its portable ultrasound machines. This allowed them to provide reliable diagnostic solutions at a fraction of the usual cost, making healthcare more affordable.
- Shared Sustainable Commitment
Finally, frugal innovation is built on a shared commitment to sustainability and community involvement. The NGO Grameen Shakti in Bangladesh exemplifies this approach by collaborating with local stakeholders to install low-cost individual solar systems. This partnership-based model is not only economically viable but also generates significant social impact.
Practical Insights for Managers
Managers looking to embrace frugal innovation must first assess their company’s capabilities. To do so, they should ask themselves: Is simplicity in design a priority for our company? Are our processes streamlined to minimize waste? Do we effectively leverage local resources?
Answering these questions can help businesses develop their frugality capabilities. By adopting checklists that evaluate essential functionalities, cost-effectiveness, and collaboration opportunities, managers can identify areas for improvement and optimize resource deployment.
Once again, GE Healthcare provides a strong example. By reassessing its production processes, the company managed to design low-cost ultrasound machines, leading to significant cost savings and better market accessibility. Another example is IKEA, which applies frugal principles by designing flat-pack furniture that reduces manufacturing and transportation costs, making its well-designed products more affordable for consumers worldwide.
Lessons and Global Implications
Frugal innovation is a universal strategy, not just a solution for economies with resource constraints. In Brazil, companies like the cosmetics brand Natura have adapted by using Amazonian plant extracts to cut costs and support local economies. In the United States, the focus has been on low-cost innovations to attract value-seeking consumers. Faced with soaring inflation, McDonald’s launched a $5 meal deal to include affordable options on its menu.
The principles underlying frugal innovation (focus on essentials, cost optimization, and forming partnerships) remain valid regardless of economic or geographic context. This universal applicability provides businesses with an unmatched competitive advantage, allowing them to meet diverse market needs effectively and sustainably.
Adopting frugal innovation enhances resilience and adaptability, enabling companies to thrive in both challenging and dynamic markets. It also ensures long-term sustainability by equipping businesses to tackle unforeseen challenges, navigate uncertainties, and seize emerging opportunities.
Key Takeaways for Managers:
- Leverage local resources and build sustainable partnerships to lower costs and create greater value.
- Assess the simplicity of your product designs and eliminate non-essential features.
- Streamline internal processes to reduce waste and enhance efficiency.
This article was originally published in French on The Conversation.
