Strategic Choices for Frugal
Innovation in Base of the Pyramid
Contexts:
An Institutional Approach
Elsie Onsongo & Peter Knorringa
Centre for Frugal Innovation in Africa
International Institute of Social Studies (ISS)
Defining Frugal Innovation
•
(re)designing products, services and business models in order to reduce
complexity and total lifecycle costs while providing high value and affordable
solutions for BOP customers in developing countries
•
Frugal innovation involves both products/technologies and business models
•
Frugal innovation has been associated with base of the pyramid contexts
– [severely] resource constrained
• From producers perspective (production, exchange, consumption), and
consumers perspective (economic poverty)
– Institutionally* complex
• The rules of the game: institutional voids, mix of formal and informal
institutions
Institutions here refer to social structures: schemes, rules, norms, routines,
conventions, practices, values
Patterns of behaviour
•
To succeed amid these challenges, frugal innovation has been
conceptualised in existing literature as a process of adapting technologies
and related business models to these contexts.
– “redefines business models, reconfigures value chains and redesigns products”
(Bhatti, 2012, p. 35); “works backward to develop solutions” (Gupta, 2011)
•
However, firms operating in the BoP are known to shape/influence/change
their contexts. Does this strategy apply to frugal innovation?
Main question:
How do organisations engaging in frugal innovation navigate or exploit
BOP institutional environments through their strategic choices?
– We revisit both theoretical arguments underlying the notion of frugal innovation
– We expand these arguments by drawing from recent developments in the
entrepreneurship and neo-institutional literature
– We develop a typology of organisational strategies
– We develop research propositions
Navigating BoP contexts
• Khanna et al. (2005) outline three strategy choices for success:
1) adapting the business model to the context while keeping the core
value propositions intact,
2) altering the contexts to facilitate the deployment and or scaling up of
the business model, and
3) staying away when either endeavour is uneconomical.
• Dimensions of frugal innovation, derived from Soni and Krishnan
(2014) and in part, by George et al. (2012) for inclusive innovation
– the (frugal) philosophy or mindset at the basic level,
– the ‘process’ or workflow at the activity level, and
– the (frugal) ‘outcome’
Developing the typology…
Entry strategies for the BoP
Adapt to
context
The outcome
Dimensions
of frugal
innovation
The frugal
mindset
The process
Shape/Alter
the context
Do not enter
Strategy: Adapting to the context
•
The frugal outcome
– Appropriate technologies (Schumacher, 1973)
•
•
•
affordable, robust, user-friendly, etc
Good-enough innovation (Zeschky et al., 2014)
The frugal philosophy
– Material bricolage; improvisational mind-set (Levi-Strauss, 1967), experimentation,
effectuation
– India’s Jugaad (Radjou et al., 2012), Kenya’s jua-kali (Daniels, 2010), Russia’s ‘repair
society’ (Gerasimova & Chuikina, 2009)
– Social inclusion (George et al., 2012)
•
The frugal process
– Institutional adaptation (Van de Ven & Hargrave, 2004)
• Frugal reengineering: technical adaptation of products: redesign, reconfigure
technologies, “frugalizing” by customizing value-adding features, stripping down
luxury features, replacing high-quality materials with cheaper substitutes
• Business model innovation: iterative changes to value proposition, the revenue
model and distribution channels to respond to BoP needs
Example: Philips’ Community Life Centres
•
CLCs aim to improve community and primary health across Africa, by
extending new or existing health facilities into social and economic
community hubs, using innovative and sustainable programs, technologies
and services.
– The CLC bundles primary healthcare with light, water, solar energy and
entrepreneurship
– Services include: outpatient, laboratory, pharmacy, maternity, child welfare
•
Philips adapted to local context by:
– Fitting into the Kenya Health System framework as Level 3 Health Centre
– Frugal engineering:
•
•
Refurbishment of pre-existing health centres
Developing and using appropriate medical devices, e.g. the Wind-up Fetal Doppler (portable,
light, wind-up to charge, simple interface)
– Business model innovation:
•
•
•
Value proposition: Upgrade primary healthcare, community outreach using Philips backpacks
Adopting different revenue/financing models: public financing, donor agencies, venture capital,
etc
Modular deployment of CLC services
– There is no fundamental change to the health system through the CLC
Borehole and water storage unit
LED area lighting
Kiosks/ shops
Refurbishment of
existing buildings
Solar power unit
- Connectivity within the health system: IT, referral system
- Community outreach programme – Philips backpacks for CHW
- Clinical consulting – improved workflow and client flow
- Monitoring, evaluation and capacity strengthening
• Some preliminary research propositions
– Frugal innovation entails adapting both the technology and the
business model in response to both internal organisational
drivers and external institutional constraints
– For MNCs, frugal innovation involves learning from the practices
of successful local enterprises that operate from de facto frugal
mind-sets.
– Adaptation involves focusing on ‘good enough’ solutions, which
implies a constant evaluation of the ideal balance between
quality, cost and functionality in response to local requirements
and constraints.
Strategy 2: Shaping the context
• The frugal outcome
– New markets at the BOP (McKague et al., 2015)
– New (frugal) ‘rules-of-the-game’, de-legitimation of non-frugal arrangements
• Micro-level: changes in user practices,
• Meso-level: shifts in regulatory frameworks and industry arrangements
• The frugal philosophy
– Jugaad, Institutional bricolage, Effectuation, Social inclusion, Sustainability
• The frugal process
– Institutional innovation (Van de Ven & Hargrave, 2004)
– Institutional entrepreneurship (DiMaggio, 1988)
• Market creation/building through context brokering, spanning institutional
voids, context bridging
– Institutional work (Lawrence et al., 2009)
• Theorising, advocacy, educating, mimicry, constructing normative networks,
vesting
Example: Vodafone & Safaricom’s M-Pesa
• Mobile phone based financial services aimed at financial inclusion of
the unbanked
– Functions on basic phones and an agent network
– Services: deposit, cash transfers, withdrawals, savings, micro-insurance,
micro-credit
• M-Pesa changed the local context by:
– Creating and filling a policy void: Influencing the regulatory framework to
support mobile money
• Advocacy with central bank, educating the public, moralising on financial
inclusion (banking vs mobile money) to gain legitimacy
– Bridging urban and rural finance
– Transforming formal financial services: M-banking, lowering transaction
costs, lowering entry requirements
– Transforming informal financial services: formalising operations in chamaas,
eroding informal finance
• Some preliminary propositions
– Powerful frugal innovators engage in more overt frugal
processes of institutional innovation while less powerful actors
adopt subtle means of inducing change.
– Important breakthroughs occur through institutional
entrepreneurship in which individuals reframe the rules and
norms for business activity in an established context
– Implementing radical frugal innovation calls for the strategy to
engage in institutional innovation
Strategy 3: Do not enter
• Applies to the entry decision into extreme operating environments:
regions with on-going ethnic conflicts or ethnic-divided extremism,
unfolding or recurrent civil and political unrest, geographically
remote regions with extreme poverty and underdevelopment
– The frugal outcome
• Typically non-profit outcomes e.g. infrastructure development,
education: the domain of government and donor agencies
– The frugal philosophy
• Require the enterprise to muster an extreme frugal mindset of
bricolage, experimentation, effectuation
•
The frugal process
- Require extreme agility in business model innovation, high risk
• Preliminary proposition
– Local, bottom up frugal innovation initiatives are more
likely to succeed in extreme operating conditions in
the BOP than those of established firms or
multinational enterprises.
Completing the typology…
Adapt to context
The outcome
The frugal
mindset
The process
- Appropriate
technologies
Shape/Alter the
context
- New markets
- New regulatory
frameworks
- New practices
Do not enter
Non-profit,
humanitarian
outcomes
Bricolage, Effectuation, Social inclusion, Sustainability
- Frugal engineering
- Business model
innovation
- Institutional innovation
- Institutional
entrepreneurship
- Institutional work
Extreme frugality in
business models and
reengineering
Conclusion
• The adaptation strategy focuses on technological outcomes
• The strategy to shape a context focuses on institutional
outcomes
• Further propositions:
– These strategies may be exercised iteratively, or simultaneously.
Further case study research could when and why this switch occurs.
Further research could explore whether these strategies are
mutually exclusive
– The choice of one strategy may be mediated by the type and size of
organisation engaging in frugal innovation. Further research would
shed light on the dominance of one strategy over another among
different groups of innovating entities
Questions and comments:
[email protected]
Philips outreach kit (backpack)
Foetal doppler
Ear thermometer
Solar lantern
Vital signs monitor
Portable ultrasound
Medical
instruments
kit
Diagnostic ECG
Pulse oximeter
Child respiration
monitor
Blood pressure and
heart rate monitor