Six essentials for driving frugal innovation
Innovation doesn’t have to be expensive.
The term “frugal innovation” comes from “frugal engineering,” a term coined by Renault-Nissan CEO Carlos Ghosn. In essence, it’s the art of doing more (and better) with less – adopting an old phrase of Benjamin Franklin’s for the modern age: “Waste neither time nor money, but make the best use of both.”
Manufacturing, in particular, is seeing the influence and adoption of frugal innovation drive business transformation, with firms from all sectors – including consumer products and financial services – increasingly turning to its principles to adapt to our current age of disruption, which is shaped by new technologies and climate change.
In a slow-growth global economy grappling with dwindling resources, frugal innovation, and the organizational revolution it requires to succeed, could be essential for future success.
Waste neither time nor money, but make the best use of both
There are six key approaches organizations should take to succeed when adopting frugal innovation to drive or adapt to business transformations:
1) Set audacious objectives
An audacious, memorable statement of ambition grabs the attention of people both within and beyond the organization.
Unilever’s Sustainable Living plan is a good example. It aims to reinvent the company’s entire product range and processes on sustainable lines, double sales and halve its environmental footprint by 2020. CEO Paul Polman argued the company had no choice but to find frugal solutions to deliver more value, using fewer resources, to the four billion consumers it aims to serve – and this clear and bold statement of necessity is galvanizing its people into finding breakthrough solutions.
2) Focus on customer needs
Addressing real customer needs is one of the foundations of frugal innovation. Yet sometimes even consumers themselves are not aware of what they want, which is where “ethnographic” consumer studies can prove invaluable.
Home accountancy software firm Intuit introduced a program called “follow me home,” in which employees from across the organization literally follow customers home and observe how they use the software. They spend 10,000 hours a year on this project, enabling Intuit both to identify features in the software that are causing its customers trouble, and to work out new features its customers need.
3) Team up with innovative partners
Reinventing your organization around frugal innovation isn’t going to happen overnight, which is where wider collaboration – or “hypercollaboration” – is critical. By partnering with nimble entrepreneurs and innovative organizations, businesses can learn to innovate faster and more cheaply, just like start-ups.
To make these work most effectively, it’s a good idea to create an innovation-brokering function, identifying and nurturing these partnerships, pulling pioneering, relevant ideas from the external ecosystem and bringing them to the attention of committed board-level stakeholders.
This is how hotel group Accor teams up with innovative start-ups and small to medium-sized businesses to deliver efficiencies and better customer experiences in its hotels, in a program overseen by a newly created organizational role, senior vice president of entrepreneurship advocacy. The program’s partners can trial their products in a few Accor hotels first, and see them adopted and rolled out to the firm’s global markets if successful, while Accor benefits from their innovation with minimal investment.
4) Make the most of what you already have
As an existing business, you have scale and experience that innovative start-ups can only dream of, which you can use to bring them on board as partners. But your existing human resources have perhaps the greatest potential. By restructuring teams around a specific part of your frugal agenda, especially when kept small and tight-knit, you can imbue people with a greater sense of purpose, which can in turn increase efficiency, speed and creativity.
The relationship between Ford and TechShop, which operates do-it-yourself (DIY) workshops, is a great example. Ford helped convert a Detroit warehouse into a TechShop where its employees can spend their spare time experimenting with 3D printers and other DIY technologies. This dedicated environment empowers Ford engineers to develop more experimental ideas – and has increased its patentable ideas by over 100%, without investing more in R&D.
5) Identify and overcome potential obstacles
Some stakeholders in your organization may initially push back against frugal innovation initiatives: R&D departments can fear that “frugal” means cheap and low quality. Sales teams, especially if motivated by bonuses, may also be reluctant to refocus on lower-price products. Marketing teams may worry that lower-cost products could devalue your brand. Board members may worry about the extra investment needed to set up successful innovation projects, and prefer to stay focused on the current, proven business model.
This is where looking to the future to identify areas of your business that could potentially be disrupted is so important – not only for planning ahead, but also for making a solid business case for a new direction to win over internal doubters. If they can see the potential profit – or loss of business from not acting – they will all see the benefit.
6) Find an inspiring leader
The single most important factor in implementing and realizing the benefits of frugal innovation is an inspirational, committed leader to galvanize the mindset of your entire organization – just as Paul Polman is doing at Unilever, and as Carlos Ghosn at Renault Nissan did a decade ago when first developing the concept of frugal engineering.
There’s a reason why the CEOs of some of the world’s most innovative companies are household names. Never underestimate the power of charismatic persuasion in transforming a business.