What does frugal innovation mean? In short, achieving better results using fewer resources. This can apply to individual products as well as entire corporate business models. It is a profitable, yet better and more resource-efficient, approach to managing processes using simple solutions, creating value with less capital, time and energy and with a lower environmental impact. It requires unconventional, creative thinking as well as cooperation, including between companies that may usually see themselves as rivals.Ultimately, frugal innovation has a positive effect on not only the economy, but also social coexistence, the environment and the climate.
Examples of frugal innovation
Renault is considered a pioneer of this concept in Europe. In 2004, the company launched its Logan model for EUR 5000, making it the least expensive car at the time. The enormous success of the launch led to a product line called Dacia and subsequently a separate business unit for entry-level vehicles. Today, such vehicles account for more than 40% of Renault’s sales. Indeed, the company earns more per car than it does on its more expensive models.
The low price is a result of frugal innovation. The Logan was initially developed by engineers in Romania who were used to working with limited resources. They thus restricted themselves to the essentials, reducing the number of components so that vehicles could be assembled more easily. For example, instead of developing two different rear-view mirrors for the left- and right-hand sides, as is standard practice, the same mirror was used for both sides. As a result, the Logan needed fewer raw materials and could be built faster and more easily.
In 2015, Renault launched its economical KWID model in India for EUR 3500. The company later used this as the basis for developing an electric variant that was released on the Chinese market for EUR 8000 in 2017. This in turn led to Europe’s most inexpensive electric vehicle, the Dacia Spring, which was launched in France last year at a price of EUR 12,000. Renault always works with local manpower and suppliers in order to keep costs low and use on-site resources.
Discarded shipping containers can be reused in a creative way. Thirty-two containers were used to produce 12 offices and small flats as part of a project based in Rhode Island in the US. The resulting complex was not only significantly cheaper than usual to build. The units can also be rented at a lower cost. The Kraftwerk co-working centre in Zurich is the result of similar repurposing of such containers.
During the coronavirus pandemic, employees at Swiss hotels in cities had little to keep them occupied, while alpine resorts were short-staffed. As a result, many rurally-based hotel employees temporarily worked in the mountains. They were essentially lent out for this purpose. Hotelleriesuisse has been using such flexible work models for some time. Its employees can work at different locations during the summer and winter depending on the demand. Employee sharing was also put into practice in other sectors during the pandemic. For instance, a contingent of underemployed staff at the tour operator Hotelplan helped ease the pressure on the stressed workforce of the online trader Digitec/Galaxus, which also belongs to Migros. Instead of sacking employees and thus losing valuable resources and talent, a creative solution enables them to be used in a different manner that benefits both sides. This also supports the local economy.
Unconventional bank branches
In contrast to many neobanks, the French start-up Nickel decided in 2014 to communicate with its customers in more than just digital ways. Cash machines were installed at existing small shops and kiosks, at which anyone could open a bank account in under five minutes with just their ID card. For an annual fee of approximately EUR 20, customers receive a debit card, can make and receive payments online and withdraw money from “branches”. Nickel currently has more than two million customers, two-thirds of which are SMEs that appreciate the simple, low-cost product portfolio and a large network of physical locations.
Ventilators made from diving goggles
In the spring of 2020, when ventilators ran out in northern Italy during the coronavirus pandemic, a doctor had makeshift ventilators made from surplus diving equipment at sporting goods stores. The required additional components were produced with the aid of a designer using a 3D printer. In this way, an existing resource was repurposed in a practical manner without a significant outlay.
Renting instead of buying
The Swiss rental platform sharely.ch, in which Migros also participates, enables its users to rent things that they only need occasionally, such as car trailers, drills and steam cleaners, which are usually available nearby. This not only saves money, space and resources, but also provides companies with new revenue sources and customers.
Exchanging space for heat
Since 2019, the French retailer Groupe Casino has rented out unused warehouses and stores to the IT company Qarnot Computing, which houses its servers and data centres there. At the same time, waste heat generated by the servers is used to heat Groupe Casino’s offices and shops and power their boilers. As a consequence, both sides cut costs, use their resources more efficiently and generate extra income.
Mindset is the greatest hurdle
Navi Radjou, clever ideas for how to achieve a lot with very little mostly arise out of necessity. Are poorer countries therefore better at frugal innovation?
In general, yes. People there usually don't have any other choice and have to be inventive. However, more and more people in wealthier countries are having to get by with less. Sixty percent of the people in the United States have less than USD 500 at their disposal for use in an emergency.Data gathered by the Organisation for Economic Co-operation and Development (OECD) before the pandemic shows that 22% of Europe’s population is threatened with poverty. The conditions for frugal innovation are there.
At the same time, the standards and legal safety requirements are higher in Europe, as are the costs.
That's right. There are certain lower limits. However, there are two very different target groups in Europe for products manufactured using frugal innovation. The first consists of wealthy and well-educated individuals for whom sustainability, the environment and climate change are important. The second group comprises poorer people who simply can't afford or don't want to buy expensive products. They have more pressing concerns than the future of the planet because they already run out of money long before the end of the month.
So the motivation would be there. Nevertheless, the number of specific examples appears to be relatively low. Why is that?
There are a few hurdles. The greatest is probably the mindset of product developers, who are trained to come up with something new that offers more than its predecessor. They often spend huge sums to create only minimal added value; exactly the opposite of frugal innovation. Even when engineers and developers adopt frugality as an interesting challenge, they are pressurised by sales and marketing departments that need something they can claim is a wonderful novelty. In an attempt to outmanoeuvre this mindset, Renault has created a separate sales department for its cheap entry-level vehicles.
18th European Trend Day at the GDI
On 9 March, the Gottlieb Duttweiler Institute (GDI) will address the issue of frugal innovation, namely surprising, simple ideas for achieving more with limited resources.Navi Radjou (51) will be one of the speakers. An expert in innovation, he was a vice president at research and consulting company Forrester Research. He is also the co-author of «Frugal Innovation: How to do better with less». Born in India, he holds dual French and American citizenship and lives in Paris.
Are there any other challenges?
It's best to stick to three principles: First off, keep it simple. What do customers really need? How do they use the product? Which features are essential and which can you just as easily do without? Secondly, don't reinvent the wheel. Can you build upon an existing product or location and modify it to create something new that offers adds value? Thirdly, think horizontally. Can you link previously separate areas, such as mobility, food and healthcare, and exploit them as a new, cross-sector ecosystem? And could you get rid of silo-based thinking within companies by using the same person for innovation, sustainability and marketing?
Another approach is cooperation between companies. But don’t they mostly view each other as competitors and less as partners?
Competitors are already cooperating in certain areas in order to save money. But the aim is for far more. In Germany, the Collaborating Centre on Sustainable Consumption and Production (CSCP) seeks to bring rivals together by asking them to consider how their market may look in 2030 or 2040. Tomorrow’s customers will have different needs and values, and a great deal will have to change in order to adapt appropriately. They can only succeed by jointly considering what they ought to do. Instead of fighting for the biggest possible slice of the cake in front of them, they should bake a new cake together.
Does such cooperation already exist?
Yes. The energy companies BP, ENI, Shell and TotalEnergies share a logistics hub in Malaysia which enables them to save money and reduce their CO2 consumption. In Switzerland, b2bcherry.com provides a platform that brings together companies, organisations, associations and others to share resources and infrastructure. The World Economic Forum (WEF) is also highly committed to this issue.
It is not about consuming less, but better and more selectively
Internationally, Switzerland compares quite well in terms of innovation. Justifiably?
It always depends on how it's measured. The number of new patents is mostly an important benchmark. And Switzerland is very successful in that respect. However, frugal innovation would mean developing something new by building upon existing patents. In general, Switzerland should ask itself what it's particularly good at and consider whether there are opportunities to develop these areas further in a frugal way.
Do you see a potential for that in Switzerland?
Yes. Switzerland is not only first-rate when it comes to research and development. It also values high quality and good service. Swiss companies could be a role model for the world. For example, I see a potential in the tourist industry. Projects that make service more affordable without sacrificing quality could address entirely new target groups. I once ran a workshop on that topic for CEOs and students at a hotel management school in Lausanne. The CEOs struggled with the idea, while the students found it really exciting and had plenty of ideas, such as hybrid forms of hotels and Airbnb.
How can you promote this mindset in day-to-day work at companies?
By using personal purchasing power to motivate them change. It is not about consuming less, but better and more selectively. For example, by buying local and regional products or borrowing and sharing things instead of buying them new. Or using them for longer instead of quickly replacing them, such as clothing and smartphones. All this is possible without sacrificing your own standard of living.
Photo/stage: Box Office © Nat Rea