Lunch times in Mumbai would make a perfect case study of frugal innovation. An army of lunch box dabbawalas ride around the city, supplying hundreds of thousands of hungry workers with hot home-made lunches. They get around balancing up to 40 metal lunch pails on their heads, or pushing fully laden hand carts, or on bicycles. Every morning, the lunches are picked up from homes and taken to railway stations. They are then transported by train to a point where the dabbawalahs load them up.
Sorting is done mostly by a system of colour coding handles and box covers. Backed by India’s inexpensive railway network, it’s cheap to run. There’s even a text message ordering service for dabba customers. It’s a system that has been operating in Mumbai since the time Mahatma Gandhi was a law student. Now you’d say in a city of 23 million, the population of Australia, the chances of you getting a chicken biryani instead of the palak paneer would be pretty high. That never happens.
Forbes magazine has given the system a six sigma rating, which means it has an efficiency rate of close to 99.9 per cent, something that would make the system the envy of any service delivery company. As a result, it has attracted the attention of management consultancies and business schools from around the world. It’s an extraordinary achievement for a place that has appalling infrastructure – there are regular blackouts and a 45 kilometre car trip in Mumbai can take an hour and a half – and massive service gaps.
Less is more. In an age of environmental constraints of climate, energy and water on production and developed economies stuck in austerity, frugal innovation might soon be picked up by companies here. Certainly major outfits like Nissan, GE and Siemens are now embracing this new management model from the sub-continent. But the tantalising question is whether it works only in India. What about other parts of the world where labour costs are higher and where companies have invested heavily in expensive technology?
Certainly India is leading the world in this area, producing low-cost consumer products with all the frills stripped out.
The Tata Nano, the world’s cheapest car, is a case in point. It sells for about $2000. The Nano is built in the western Indian state of Gujarat. Tata will only work with suppliers in Gujarat, keeping transport costs low. The car has no air conditioning, the body work is plastic, the windows wind down by hand and there’s no power steering, air bag or passenger side mirror. You don’t drive it outside the city and it is best suited for runs of about five to 10 kilometres. The car’s main market: office workers from India’s lower middle class.
General Electric, which runs high-tech centres in Hyderabad and Bangalore has introduced an electrocardiogram in a backpack and a computer-based ultrasound machine called Vscan. They sell for $1000 and $15,000 respectively. This means equipment, which could once only be utilised in hospitals, is now available for doctors in rural areas.
Western companies have now started exploring frugal innovation. Carlos Ghosn, chairman and chief executive of the Renault-Nissan Alliance, calls it "frugal engineering” and has urged his engineers to study the way the Indians do it cost-effectively and quickly under severe resource constraints. As a result, Nissan is now a leading producer of electric and low-cost vehicles. Another example is Siemens which has developed a foetal heart monitor. Traditionally such monitoring was performed with ultrasound technology but the Siemens device uses microphones, making examination cheaper and easier to perform even without specialised training.
On the other hand, the concept of frugal innovation is distinctly Indian. The book by Navi Radjou, Jaideep Prabhu and Simone Ahuja, Jugaad Innovation, looks at what lessons companies can learn from India. Jugaad is a Hindi word meaning an innovative and creative fix or work-around. Walk around the streets of India and you’ll see it everywhere: scaffolding on buildings made from bamboo, aluminium clothes hangers turned into television antennas, motorcycle engines fitted in cycle rickshaws, turning them into low-cost taxis.
India is perfect for frugal innovation because it has a growing aspirational middle class and consumers that are price sensitive. Also, there are big gaps in service provision.
Western companies embracing it would have to adopt a completely different management model, one that requires them to make products that are good enough but not necessarily perfect or built to last. There is also the question of whether they can do the same with higher labour costs. On the other hand, it’s not the labour costs that are the main issue: frugal innovation practitioners are more nimble, flexible and ambitious than big companies.
And what if the products don’t meet safety or quality standards? For example, the Aakash, the cheap tablet championed by the Indian government as a means of ending the digital divide where one in every 10 of its 1.2 billion people use the internet, cost just $35. But it was an abysmal failure because of problems such as its tendency to overheat and have its screen freeze up.
So why can we expect more companies to consider jugaad systems? Think of the lacklustre growth in the West, real constraints on production created by climate, energy and water issues, high demand for frugal products in the world’s fastest growing markets, new technology platforms reducing the cost of innovation and a rapidly ageing population requiring new approaches to medical care. But to make that change, companies will have to become a lot quicker and their innovation systems will have to be more open.
At the same time, globalisation will enable western entrepreneurs to explore innovation in emerging markets and learn how to adapt those models.
We could be an entering an age where innovation will migrate from the east to the west.