Steinbeis experts help companies to (re)think frugally
Innovative products, innovative concepts, innovative thinking. Innovation has become one of those magic words of modern business processes, a concept that – applied rigorously – will apparently never fail to result in growth and advancement. A team of experts at the Steinbeis Consulting Center for Frugal Technologies has been examining whether that really is the case, also investigating the social benefits of innovative products. The focus of their work lies in the concept of frugality. What sustainability actually means – and the role it plays – have been pulled together for TRANSFER magazine by Steinbeis experts Rebekka Reichert and Wolfgang Heisel.
In 1934, the economist Joseph Schumpeter defined innovation as the implementation of “new combinations.” If you dig deeper into the term “innovation” in a modern context, it quickly becomes evident that it often cannot do justice to the challenges of everyday life and that a realignment in thinking is needed, particularly in the direction of climate change and its devastating impacts, or the shortage of natural resources and fair allocation. The modern market economy has no choice but to adopt an agile reaction to global developments, and innovators need to find ways to turn novel ideas into innovations that add social value against a backdrop of continually changing circumstances. A recent example of this is the pandemic caused by Covid-19, which has completely thrown value chains, demand, and supply into disarray.
Time to rethink and innovate frugally
Conventional approaches will no longer solve this problem. Things become interesting when you look at outsourced production and services. From an economic standpoint, the factors that speak in favor of such approaches are obvious. Labor costs are low, production requirements are minimal, and transportation costs are generally negigible. But in the meantime, wages in China are too high to produce in high volumes and still save money. In many cases, German business is in China for the Chinese. As a result, for years German firms have been striving to shift production to other Asian countries, particularly Vietnam, Thailand, and Malaysia. By adopting a so-called China Plus One strategy, they can also avoid the risk of becoming completely dependent on one country. The idea is to spread the production of important (or crucial) products – such as medicines – across several countries, to increasingly work with local partners within each country, and to extend product lines to include regional commodities and delivery hubs.
That said, this is not the only strategy. “The time has come to think again and develop a new understanding of innovation,” says Wolfgang Heisel, Steinbeis Entrepreneur at the Steinbeis Consulting Center for Frugal Technologies. The concept of frugal innovation puts an exciting new light on business, pulling together seemingly irreconcilable aims such as economic growth, sustainability, and low costs by focusing on the essentials. Looking forward, rethinking processes, and applying frugal criteria are an opportunity to forge partnerships beyond domestic boundaries. The aim and aspiration of frugal innovation (often referred to as a hack, or jugaad in India) is to keep things simple. Add-on functions that offer no significant benefit can be left out, and basic functions can be adapted, improved, or added. The outcome is a product that is sustainable and a better match for each market than the alternatives.
So how does frugal innovation work?
There is no uniform list of criteria that need to be met to engage in frugal innovation. The most commonly named factors are a substantial reduction in costs, an optimized level of performance, and a focus on core functions. Firms of any size can engage in frugal innovation. For both profit-oriented companies and end customers, but also for other stakeholders, it offers a tremendous opportunity to develop products that will become successfully established in the market. To enter emerging markets, such as India, it is crucial to respond to customer needs. It is also important to focus on the sustainability of innovations. Incorporating these two factors into interpretations of frugal innovation offers clear benefits.
Thinking again can also help you offer a diversity of options yet still respond to customer needs in different countries. Adopting this approach can also make it easier to overcome the kinds of restrictions encountered during the lockdown phase of the Covid-19 pandemic. It becomes possible to produce within one country if simpler technologies and equipment can be designed and used in such a way that they combine basic functions with optimized performance, and are designed to be inexpensive. “More simple” doesn’t necessarily mean “worse” or technologically outdated. Quite the opposite: “More simple” means that end products can be downscaled to exclude expensive and often complex components – or parts that are expensive to import – so they can be replaced by locally available and cheaper components that match application scenarios – which would also significantly reduce costs. Frugal thinking leads to a whole host of products and services, resulting in unique solutions that – due to how resources are assessed and used – can also be sustainable. And that is something that is urgently needed, even if it happens in small steps.