Frugal Innovation and Its Implementation: Leveraging Constraints to Drive Innovations on a Global Scale (Contributions to Management Science) 3030671186, 9783030671181

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Contributions to Management Science

Nivedita Agarwal Alexander Brem   Editors

Frugal Innovation and Its Implementation Leveraging Constraints to Drive Innovations on a Global Scale

Contributions to Management Science

The series Contributions to Management Science contains research publications in all fields of business and management science. These publications are primarily monographs and multiple author works containing new research results, and also feature selected conference-based publications are also considered. The focus of the series lies in presenting the development of latest theoretical and empirical research across different viewpoints. This book series is indexed in Scopus.

More information about this series at http://www.springer.com/series/1505

Nivedita Agarwal · Alexander Brem Editors

Frugal Innovation and Its Implementation Leveraging Constraints to Drive Innovations on a Global Scale

Editors Nivedita Agarwal University of Stuttgart Stuttgart, Germany

Alexander Brem University of Stuttgart Stuttgart, Germany University of Southern Denmark Sønderborg, Denmark

ISSN 1431-1941 ISSN 2197-716X (electronic) Contributions to Management Science ISBN 978-3-030-67118-1 ISBN 978-3-030-67119-8 (eBook) https://doi.org/10.1007/978-3-030-67119-8 © Springer Nature Switzerland AG 2021 This work is subject to copyright. All rights are reserved by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer imprint is published by the registered company Springer Nature Switzerland AG The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland

Introduction: What We Don’t Know About Frugal Innovations yet? Future Research Potentials to Leverage Constraints for Driving Innovations on a Global Scale

Due to today’s rapidly increasing technological change, we are witnessing new technologies that are getting available to a large population around the world. One of the reasons is the increasing number of innovations that are not explicitly dedicated to fit to the needs of industrialized economies (only), but rather to emerging markets and bottom-of-the-pyramid markets (Agarwal et al. 2018, 2020), that make up for about 50% of the world’s total population suffering from income poverty1 (UNDP 2014). Frugal Innovation is an approach to create faster, better, and affordable solutions (Radjou and Prabhu 2015) and to serve markets that typically face constraints in the availability of certain resources (Hossain et al. 2016; Agarwal et al. 2021). Over the last years, several sub-developments could be witnessed for frugal innovations and frugal market conditions, e.g., frugal engineering or women entrepreneurship in a frugal context (Rosca et al. 2020) or linking the ecosystem thinking to frugal innovation (Igwe et al. 2020). While research targeting frugal innovations has been increasing over the past years, there are still many questions and aspects left unanswered. The need for further scientific development of this phenomenon especially in a global context is gaining attention. For example, in developing a frugal engineering process and adopting an ex-ante perspective (Brem et al. 2020). Understanding how frugal innovations can help specific industries such as the medical industry to come up with faster solutions (Miesler et al. 2020), and respond to exogenous shocks (Giones et al. 2020). Expanding the geographical focus from Asia to other parts of the world, for example exploring similarities and differences to concepts like Gambiarra in Brazil (Wimschneider et al. 2020). And finally, in bringing in the policy aspects to foster frugal innovations at a larger scale (Mvulirwenande and Wehn 2020). Frugal literature is primarily based on insights from multinational companies but requires exploration on an entrepreneurial level as well (Michaelis et al. 2020). The good news is that the frugal innovation field is also moving into a consolidation phase (Tiwari and Herstatt 2020). For instance with Hossain’s (2020) paper on frugal innovation conception, development, diffusion, and outcome. One noteworthy reason for that might be that the research community implicitly is arriving at a consensus by 1 Defined

as people living from less than $2.50 per day (UNDP, 2014). v

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Fig. 1 Overview of future research aspects as identified by our experts panel

using the term frugal innovation to refer to other similar concepts such as low-cost, gandhian, or constraint-based innovations. In the last decade, the usage of these other terminologies in the field has decreased significantly. Against this background, we took the opportunity of this book project to initiate a review among the contributors on current and future research opportunities for frugal innovation. Based on our prior research and with the help of an expert panel consisting of top scholars of this very field, we were able to identify a vast number of such aspects (see Fig. 1) that are still to be explored in context of frugal innovation. The chapters of this book mark a start to this, by targeting some of the named aspects and guiding researchers into future avenues. As a matter of clarity, we have structured the identified issues for future research approaches into five main pillars: Challenges, Characteristics & Evolution, Engineering & Development, a Global Perspective, and New Perspectives of frugal innovation. For each of these pillars, we have further outlined sub-topics that may help creating both, a more precise understanding of what frugal innovation is, and the different future research directions. Challenges of frugal innovation. This pillar is aimed at two main targets: first, challenges for the phenomenon of frugal innovation itself. It will be important to create an in-depth understanding of customer awareness and customers’ perception of frugal products, the aspects of ethics and sustainability in regard to the future eligibility of frugal innovations, its new contexts in innovation practices and firm leadership, and innovative and organizational issues that arise from this change of priority. Second, challenges for researchers working on those questions, in creating a conceptual framework of frugal innovation capable of facilitating the tackling of the above issues. Characteristics and Evolution of frugal innovation. The target of this pillar’s future research questions is threefold: Affordability as necessary characteristic of any frugal product: How can it be achieved and maintained? Social impact as development

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goal flourishing a central purpose of frugal innovation: How can frugal innovation contribute to achieving relevant and necessary social developments and benefits? Quality as a focus of frugal products to allow for sustainability: How can quality of frugal products be ensured without dismissing low cost, also considering uncertain future developments? Global Perspective of frugal innovation. The third pillar targets on building a global understanding of frugal innovation. For this, it aims on taking more local perspectives for the application on frugal products. Furthermore, our experts panel pointed out that it will become necessary to elaborate a product-oriented perspective and a process-oriented perspective of frugal innovations and especially their development. Yet, developing toward a global understanding will likely shed light on new challenges that might provide further new research perspectives in this regard. Engineering and Development of frugal innovation. Taking the perspective of engineering and development, frugal innovations require certain techniques, methods, and processes that enable high-quality, cost-efficient products. In addition to exploring such approaches, research may view frugal innovation from an industry perspective to better understand all stages of a frugal value chain. Furthermore, this pillar will be highly disrupted by the influence of industry 4.0, but its impact on frugal innovation as well as future challenges are still not clear in many ways. New Perspectives of frugal innovation. The last future research pillar considers new perspectives influencing frugal innovation. For example, the impact of digitalization on frugal innovation, the development of future research, or societal changes in the wake of global developments, will have to be studied when considering frugal innovation in the future. To this extent, the book is structured into four parts as of the following overview.

Part I: Evolution of Frugal Innovation In the first chapter, ‘Institutional Perspectives on Frugal Innovation,’ Daniel Etse and Adela McMurray respond to the fact that institutional factors in developing countries are likely to affect frugal innovations significantly. This fact has not yet received much attention from research. Therefore, institutional factors influencing frugal innovations are explored. The authors conducted a study based on well-known frugal innovation cases and identified eight major institutional factors influencing frugal innovation. Accordingly, these factors are then discussed regarding their possible impacts on the management of frugal innovations. The following chapter, ‘Frugal Innovations in Healthcare: Factors Affecting the Diffusion in Developing Economies’ by Hareem Arshad, takes into account the growing pressure on healthcare systems worldwide to both improve their medical service and decrease cost. Thus, based on 28 semi-structured interviews delivering insights from public, private, and NGO hospitals, the author constitutes that recommendations from hospital administrations and governments are main drivers for the diffusion of frugal innovations in the healthcare sector. These are further capable of

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enabling policymakers and researchers to address some of the largest challenges for frugal innovations in this field.

Part II: Frugal Engineering and Development Process The starting chapter of this part, ‘Strategic Alignment of Multinational Corporations for Frugal Innovation—A Case Study’ written by Julia S. Roppelt, Anirudha A. Dambal, and Sergej von Janda, analyzes implications for practitioners in MNCs based on a 5-step case study conducted on Siemens Healthineers projects. The study provides strategies to leverage the benefits of frugal innovations while exploiting traditional innovation know-how. More perspectives on future research are provided in light of the findings from the case studies. As fourth chapter follows ‘Quality Control of Frugal Products’ by Balkrishna C. Rao. The author stresses on the need for stringent quality control for frugal products emerging from frugal design processes. Accordingly, this chapter highlights the breaking up of quality checks into two parts for confirming both the rigor of design-procedures and also performance of resulting frugal products. ‘User-Driven Innovation with Frugal Characteristics: A Multi-Case Analysis of China’s Innovation-Driven Economy’ by Henning Kroll and Ingo Liefner is the fifth chapter of this book and explores that, despite frugal innovation is not a common term in China to date, frugal activities are indeed very vividly present in China and deserve further attention. To this extent, awareness and user-oriented solutions in unorthodox ways and the ability to leverage and network distributed capacity outside of the nation’s geographic centers of innovation and ability to explore new models of collaborative innovation that reach beyond corporate boundaries are studied. The following Chapter ‘Fostering Frugal Innovation Through Computer-Aided Engineering: Benefits and Challenges for Emerging Economy Firms’ by Stefan Bernat and Solmaz Filiz Karabag studies how digital simulation tools can foster frugal innovation and what organizational challenges this process may imply. Results show that computer-aided engineering indeed helps firms fostering frugal innovations and contributes to more sustainable developments. Additionally, firms can gain advantages regarding marketing and learning. On the other side, challenges regarding software, hardware, and technical skills are imposed that businesses need to overcome in the first place. Otherwise, frugal development processes can be endangered by inaccurate simulation results.

Part III: Frugal Innovation Becoming a Global Phenomenon This part starts with a chapter by Liza Wohlfart, Julian Groganz, Sven Manefeld, and Fabian Fröhlich. In ‘Frugal Innovation for Developed Markets: Target Customers, Characteristics, Success Factors,’ they explore the growing interest of some

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high-income states around the globe in frugal products. Based on case studies from three different industries, as well as societal trends identified by an additional small empirical study, they provide answers and reasons to this trend and further highlight more directions for future research to take on this interesting perspective potentially making frugal innovations even more relevant all over the world. The eighth chapter, ‘New Business Models for Frugal Innovation: Experience from an Enterprise Supporting Sustainable Smallholder Agriculture in Kenya’ by Jackson Musona, addresses the mega trend of digitization in light of bottom-ofthe-pyramid markets. A case study based on a farming enterprise offering digitally enabled soil testing in Kenya reveals four business model development approaches that successfully enabled the enterprise to deliver their frugal innovations. It further reveals the role of digitization in the evolution of frugal business models. The gained insights are thus not only relevant to research, but also to managers of businesses involved in frugal innovations. In the ninth chapter by Francesco Rosário and Araken Lima, frugal innovations are viewed from a South American Perspective. ‘Small Industrial Companies and Frugal Innovation: A Case Study in the State of Alagoas/Brazil’ discovers the markets, strategies, and perception of entrepreneurs regarding their products. Results show that a majority of entrepreneurs do not see the need for frugal products, thus the chapter continues by explaining the reasons for an interesting phenomenon: Even where resource scarcity is present, not all companies strive to develop solutions tailored to fit local market conditions.

Part IV: Adding New Perspectives to Frugal Innovation Our last part starts with a chapter by Anne H. Koch. In ‘Implementing Frugal Innovation: Leveraging Constraints as Opportunities for Electric Rickshaws in India,’ the author focuses on the disruption of public transportation in the emerging market of India. First, it is discussed what defines vehicles as frugal, then a conceptual model on the constraints and diffusion of frugal innovations is presented that further illustrates specific affordability and resource constraints and possible ways to overcome them in order to foster the diffusion of electric rikshaws in India. The chapter concludes by discussing further research possibilities regarding opportunities for market disruptions with frugal innovations. Chapter ‘Building Sustainable Innovation Through Changes in Employee Behavior and Organizational Capabilities’ by Minna Saunila, Juhani Ukko, and Tero Rantala studies different dimensions of employee behavior and organizational capabilities considering their effects on value creation in a resource-constrained environment. With an empirical study of 160 organizations from Finland, various factors influencing sustainable innovations of an organization and the ability to explore new models of collaborative innovation that reach beyond corporate boundaries are identified.

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‘Digital Transformation as Enabler of Affordable Green Excellence: An Investigation of Frugal Innovations in the Wind Energy Sector’ by Rajnish Tiwari comes as the twelfth chapter of this book. Featuring case studies and further content analysis, it delivers preliminary evidence for the conjunction of frugal innovations and digital transformation enabling ‘affordable green excellence.’ Propositions are made for further research and a definitional update for frugal innovation is provided. As concluding chapter of this book, ‘Frugal Digital Innovation: Leveraging the Scale and Capabilities of Platform Ecosystems’ written by Suchit Ahuja delivers valuable insights on how two digital platforms have a social impact by driving competitive advantage. Therefore, frugal ecosystems are taken into consideration to analyze the effects of frugal digital innovation in developing countries and emerging economies. The chapter views the use of an application context of such platforms, the dynamics of digital business strategy, and the renewed role of digital platforms in rapidly changing ecosystems. The aim of this introductory chapter was to open up new aspects and introduce future research perspectives on frugal innovation. To mark a start, the following chapters of this book will already target some of the above topics. Structured by target and topic, they are focused on enriching the existent understanding of Frugal Innovation and Its Implementation: Leveraging Constraints to Drive Innovations on a Global Scale. We would like to thank the experts who contributed to our panel survey with their valuable insights.

References Agarwal N, Chakrabarti R, Brem A, Bocken N (2018) Market driving at Bottom of the Pyramid (BoP): An analysis of social enterprises from the healthcare sector. J. Bus. Res. 86:234–244 Agarwal N, Chakrabarti R, Prabhu J, Brem A (2020) Managing dilemmas of resource mobilization through Jugaad: A multi-method study of social enterprises in Indian healthcare. Strategic Entrepreneurship Journal. Agarwal N, Oehler J, Brem A (2021) Constraint-based thinking: A structured approach for developing frugal Innovations. IEEE Transactions on Engineering Management. https://doi.org/10. 1109/TEM.2020.3042929 Brem A, Wimschneider C, de Aguiar Dutra AR, Cubas ALV, Ribeiro RD (2020). How to design and construct an innovative frugal product? An empirical examination of a frugal new product development process. Journal of Cleaner Production 122232 Giones F, Brem A, Pollack JM, Michaelis TL, Klyver K, Brinckmann J (2020) Revising entrepreneurial action in response to exogenous shocks: Considering the COVID-19 pandemic. J. Bus. Ventur. Insights 14, e00186 Hossain M, Simula H, Halme M (2016) Can frugal go global? Diffusion patterns of frugal innovations. Technol. Soc. 46:132–139 Igwe P, Odunukan K, Rahman M, Rugara D, Ochinanwata C (2020) How entrepreneurship ecosystem influences the development of frugal innovation and informal entrepreneurship? Thunderbird International Business Review Michaelis TL, Carr JC, Scheaf DJ, Pollack JM (2020) The frugal entrepreneur: A self-regulatory perspective of resourceful entrepreneurial behavior. J. Bus. Ventur. 35(4):105969 Miesler T, Wimschneider C, Brem A, Meinel L (2020) Frugal innovation for point-of-care diagnostics controlling outbreaks and epidemics. ACS Biomater. Sci. Eng.

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Mvulirwenande S, Wehn U (2020) Analysing frugal innovation incubation programmes: A case study from the water sector. Prometheus 36(2):95–115 Radjou N, Prabhu J (2015) Frugal innovation: How to do more with less. PublicAffairs Ltd., London, UK Rosca E, Agarwal N, Brem A (2020) Women entrepreneurs as agents of change: a comparative analysis of social entrepreneurship processes in emerging markets. Technological Forecasting & Social Change 157 Tiwari R, Herstatt C (2020) ‘Pushing the envelope’–transcending the conventional wisdom on frugal innovation. Int. J. Technol. Manage. 83(1/2), 3 UNDP United Nations Development Programme (2014) Human Development Report 2014, New York Wimschneider C, Agarwal N, Brem A (2020) Frugal innovation for the BoP in Brazil-an analysis and comparison with Asian lead markets. Int. J. Technol. Manage. 83(1–3):134–159

Contents

Evolution of Frugal Innovation Institutional Perspectives on Frugal Innovation . . . . . . . . . . . . . . . . . . . . . . Daniel Etse and Adela McMurray Frugal Innovations in Healthcare: Factors Affecting the Diffusion in Developing Economies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Hareem Arshad

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Frugal Engineering and Development Process Strategic Alignment of Multinational Corporations for Frugal Innovation—A Case Study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Julia S. Roppelt, Anirudha A. Dambal, and Sergej von Janda Quality Control of Frugal Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Balkrishna C. Rao User-Driven Innovation with Frugal Characteristics: A Multi-Case Analysis of China’s Innovation-Driven Economy . . . . . . . . . . . . . . . . . . . . . Henning Kroll and Ingo Liefner

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Fostering Frugal Innovation Through Computer-Aided Engineering: Benefits and Challenges for Emerging Economy Firms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117 Stefan Bernat and Solmaz Filiz Karabag Frugal Innovation Becoming a Global Phenomenon Frugal Innovation for Developed Markets: Target Customers, Characteristics, Success Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141 Liza Wohlfart, Julian Groganz, Sven Manefeld, and Fabian Fröhlich

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New Business Models for Frugal Innovation: Experience from an Enterprise Supporting Sustainable Smallholder Agriculture in Kenya . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165 Jackson Musona Small Industrial Companies and Frugal Innovation: A Case Study in the State of Alagoas/Brazil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191 Francisco José Peixoto Rosário and Araken Alves de Lima Adding New Perspectives to Frugal Innovation Implementing Frugal Innovation: Leveraging Constraints as Opportunities for Electric Rickshaws in India . . . . . . . . . . . . . . . . . . . . . 219 Anne H. Koch Building Sustainable Innovation Through Changes in Employee Behavior and Organizational Capabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233 Minna Saunila, Juhani Ukko, and Tero Rantala Digital Transformation as Enabler of Affordable Green Excellence: An Investigation of Frugal Innovations in the Wind Energy Sector . . . . . 247 Rajnish Tiwari Frugal Digital Innovation: Leveraging the Scale and Capabilities of Platform Ecosystems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 279 Suchit Ahuja

Evolution of Frugal Innovation

Institutional Perspectives on Frugal Innovation Daniel Etse and Adela McMurray

1 Introduction Frugal innovation (FI) which may be defined as the designing and production of goods, services, systems, business models, and solutions in a manner that minimises resource utilisation and total cost of ownership while enhancing utility, functionality, and affordability (Knorringa et al. 2016; Meagher 2018; Weyrauch and Herstatt 2016) is gaining considerable traction among management scholars and practitioners (Brem and Wolfram 2014; Rao 2013; Weyrauch and Herstatt 2016). This increasing interest in FI may be due not only to its enormous economic potentials, especially as its main target is the huge market at the base of the pyramid (BoP), but more importantly its implications for social and environmental sustainability (Basu et al. 2013; Bhatti et al. 2017; Kahle et al. 2013). For example, FI solutions such as the MAC 400 handheld ECG machine which has made ECG scan services significantly affordable (Hossain 2018b; Rao 2013); the M-Pesa mobile money which has provided financial inclusion for a large number of unbanked population in developing countries (Kingiri and Fu 2019; Meagher 2018); and Jayaashree Enterprises’ low cost sanitary pad making machine (Sharma and Kumar 2019) are notable examples with major socio-economic implications (Bhatti et al. 2017; Meagher 2018; Sharma and Kumar 2019). The Mitticool, a clay fridge which operates without electricity and is almost totally biodegradable (Hossain 2018a), and Toyola, an improved and environmentally friendly cook stove (Kayser and Budinich 2015) are notable examples of FIs with significant environmental benefits. D. Etse (B) Kumasi Technical University, PO Box 854, Kumasi, Ghana A. McMurray College of Business, Government and Law, Flinders University, Sturt Road, Bedford Park, SA 5042 GPO Box 2100, Adelaide, Australia e-mail: [email protected] © Springer Nature Switzerland AG 2021 N. Agarwal and A. Brem (eds.), Frugal Innovation and Its Implementation, Contributions to Management Science, https://doi.org/10.1007/978-3-030-67119-8_1

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Though there is a growing recognition of its relevance to developed countries and the global economy at large (Agarwal and Brem 2017; Angot and Plé 2015), FI largely remains a phenomenon for the developing countries’ context (Hossain 2018b; Knorringa et al. 2016); a context characterised by complex, weak and uncertain institutional environment (Doh et al. 2017; Mair and Marti 2009). ‘Institutional void’ is a term often used to describe the nature and conditions of institutions in developing countries (Gao et al. 2017; Mair and Marti 2009), and it refers to the underdevelopment or absence of institutions that enable and support market transactions (Doh et al. 2017). The absence or ineffectiveness of relevant institutions hinder the proper functioning of society and constitute a major barrier to economic activities (Hodgson 2006; Mair and Marti 2009). Institutional voids create situations where markets are less open and subject to numerous of restrictions; where capital market is underdeveloped and access to credit rare; where incentives for innovation are constrained and availability of skilled labour scarce; and where economic and other rights cannot be guaranteed by the judicial system (Doh et al. 2017; Gao et al. 2017; Sharma and Iyer 2012). Institutions are of extreme importance in the social realm (Hodgson 2006). Though debates continue to rage regarding what and what does not constitute an institution (Hodgson 2006; Wooten 2015), there however appears to be a consensus on the rulelike and regulatory effect of institution on social interactions and behaviour (North 1991; Su 2020). In this chapter, we adopt Hogson’s (2006) definition, which defines institution as systems of established and prevalent social rules that structure social interactions. Institutions consist of social systems and structures such as language, money, law, systems of weights and measures, manners and etiquettes, as well as firms and organisational systems (Hodgson 2006, p. 2). This definition was adopted because of its broad scope and comprehensiveness. We concur with scholars such as Hodgson (2006), Scott (2005), and Zucker (1987), whose concept of institution turns to emphasise the regulatory aspect, rather than the nomenclature. For example, the term ‘religion’ may be an organisation, or institution depending on what one is looking at; if the focus is on just the collective or group aspect then it may be referred to as an organisation, however, if the focus is on the system of belief that guide the behaviour of the members, then it may fit the description of institution (Bouma 1998). It is the absence or ineffectiveness of the regulatory effects of relevant social systems and structures that we refer to in this chapter as institutional void. While institutional void may on the one hand facilitate flexibility and experimentation, which may in turn enable frugal innovation (Pansera and Sarkar 2016; Prabhu and Jain 2015; Radjou and Prabhu 2014), on the other hand it may hinder effective development and diffusion of the innovation due to the former’s negative consequences for business and economic activities (Doh et al. 2017; Hodgson 2006; Mair and Marti 2009). Though FI is likely to be impacted significantly by its institutional milieu, there is scarcity of studies that provide insights into the institutional factors that constitute the FI contexts, and how these affect the innovation. This scholarly oversight may limit appropriate theorisation of the concept, and formulation of appropriate solutions to address relevant institutional issues. In an effort towards addressing this

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scholarly oversight, this chapter explored the institutional factors that characterise and influence the FI process. It responds to the following major research questions: 1. 2.

What institutional factors characterise FI process? What influence do the institutional factors have on FI process?

Using the systematic review approach, this paper analysed and synthesised relevant contextual information on three well-known cases: Mitticool fridge; Jayaashree Industries’ sanitary napkin machine; and Toyola cook stove, with the purpose of ascertaining relevant institutional factors and how they influence these innovations. The three cases were chosen because of two main reasons: 1. they provide rich background information which sheds light on institutional factors that influence the various phases of the frugal innovation value chain, and 2. the extant literature cites them as valid examples of frugal innovation, as exemplified in Sharma & Kumar (2019); Rosca et al., (2017); Rao (2013); and Agbemabiese et al., (2012). A brief overview of the three cases is presented as follows:

1.1 Mitticool Fridge The Mitticool fridge is a well-known and often cited case of frugal innovation (Manceau and Morand 2014; Rosca et al. 2017). It is a fridge made of clay which functions without electricity but on the principle of evaporative cooling (Gauri Vagnar 2009; Rego and Corradi 2018). Its inventor Mansukhbhai Prajapati hails from Nichimandal, a village of Morbi in the Saurashtra region of Gujarat, India, and is from the lineage of a long tradition of potters and clay crafters (Kalpana Sastry and Tara 2014; Rego and Corradi 2018). Due to its affordability and low or no maintenance cost, and coupled with the fact that it requires no electricity to run, the Mitticool fridge has come to address the food preservation need of rural Indian dwellers who lack the needed purchasing power to acquire conventional fridge, and have no access to electricity to power the latter even if it were affordable. Moreover, Mitticool is eco-friendly, as it is almost completely biodegradable (Nair et al. 2017; Yadav and Goyal 2015). It also provides economic opportunity for local people, especially through employment creation (Hossain 2018a). Thus this frugal innovation impacts sustainability in socially, environmentally, and economically beneficial ways.

1.2 Jayaashree Industries Jayaashree Industries builds and assembles low-cost mini sanitary napkin making machine (Jayaashree Industries 2014) and is one of the often-cited examples of frugal innovations (Hossain 2018b; OECD 2015; Sharma and Kumar 2019). This low-cost machine produces affordable sanitary napkin using four or five simple processes consisting of: defibration or grinding of wood fibre into fluffy absorbent material;

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compacting the absorbent material into shape; wrapping the compacted material with non-woven fibre; sterilisation of the product; and packaging (Bhandare 2019; Jayaashree Industries 2014). The inventor of the machine Arunachalam Muruganantham is an Indian social entrepreneur from a family of handloom weavers in rural Tamil Nadu (Bhandare 2019; Venugopal and Abhi 2013). The Jayaashree innovation addresses the menstrual sanitation challenges of rural and poor Indian women, who are unable to afford conventional sanitary napkins, and more importantly it confronts the traditional myths, taboo, and stigma that characterised menstrual hygiene in India (Bhandare 2019; Garikipati and Boudot 2017; Venugopal and Abhi 2013). Moreover, this innovation makes women an integral part of its supply chain, by enabling women self-help groups (SHG) and micro-entrepreneurs to procure the machines, and manage the production units set up in the various communities (Sharma and Kumar 2019; Tinsley and Agapitova 2018; Venugopal and Abhi 2013). The Jayaashree innovation thus contributes to the enhancement of women’s dignity especially in rural India by providing them with affordable and hygienic means of managing their menstruation, with implications for improved reproductive health, and economic productivity. Moreover, by including women in its activities, this innovation provides social and economic empowerment for a marginalised section of the society.

1.3 Toyola Cook Stove The Toyola cook stove is among the examples of frugal innovations often cited in the extant literature (Bendul et al. 2017; Numminen and Lund 2017; Rosca et al. 2017). It is an improved and environmentally cleaner stove used in Ghana and other West African countries. It consists of an exterior metal frame, and an inner ceramic liner which facilitates improved combustion, better heat conservation, and efficient fuel (i.e. charcoal) use (Osei 2010; Smith 2011). Compared to the alternative traditional stoves, Toyola has been rated 40% to 50% more energy efficient (Osei 2010; Smith 2011). The entrepreneurs in charge of the production and distribution of the stove are Suraj Wahab and Ernest Kyei (Kayser and Budinich 2015; Osei 2010). Toyola’s value chain consists of independent artisans that produce various components of the stove, and the marketing and distribution is done by agents of which women constitute a substantial proportion (Agbemabiese et al. 2012; Ashden Awards 2011; Osei 2010). Due to its fuel efficient, and combustion enhancing qualities, the Toyola cook stove helps lower the emission of toxic smoke and fumes, and in this way contributes to the reduction of smoke-related diseases, which are said to be responsible for about 1.9 million prematured global deaths per annum (Kayser and Budinich 2015; Smith 2011). It also assists households to save on cooking fuel, as less fuel is used, which has implications for deforestation and environmental pollution. The Toyola cook stove’s decentralised business model facilitates economic participation of diverse individuals and groups, including the socially marginalised.

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2 Methodology 2.1 The Design Case study was the design employed in this study. The institutional environment of FI is a phenomenon about which little is known, and which is also largely context specific, as such the case study approach was considered apposite for its investigation (Goffin et al. 2019; Yin 2013). This study analysed three well-known cases: the Mitticool fridge; the Jayaashree Industries’ sanitary napkin machine; and the Toyola cook stove. These cases were purposively selected because they provide rich background information which sheds light on institutional factors that influence the various phases of the frugal innovation value chain, and they appropriately represent end-to-end frugal innovation, as they exemplify the mindset, the process, and the outcome that underpin frugal innovation. To obtain in-depth understanding of the institutional environments of the FI cases under investigation, as well as enhance validity and reliability, the systematic review approach was enlisted to identify and select a wide range of relevant scholarly literature. The systematic review is a detailed technique that adopts a scientific, replicable, and transparent process to provide collective insights into fields and sub-fields, enhance methodological rigour, and develop a more reliable knowledge base (Tranfield et al. 2003). Google Scholar, a widely used web-based academic search engine which catalogues between 2 and 100 million records of both academic and grey literature (Haddaway et al. 2015), was the search tool used, as its coverage of scientific and scholarly literature appears more comprehensive than many other major multidisciplinary databases (Martín-Martín et al. 2018).

2.2 The Selection Process The inclusion criteria used for selecting the relevant publications were: publication’s focus on the cases under investigation, and their description of the context/conditions in which the cases operate. Publications were excluded: if they were unrelated to the case study; if they were duplicates; or if their focus was not on the case study but just cited it as an example. The process of selecting relevant articles and other scholarly publications for the various cases entailed three main activities: entering relevant keywords into Google Scholar search bar and web searching publications; manual screening of abstracts and contents to determine relevance and focus; and exclusion of unrelated publications, duplicate items, and publications whose focus is not the case under investigation. Moreover, the selection process was replicated by an independent senior academic researcher so as to enhance data integrity, and ensure that the selection process was valid and reliable. The search for relevant publications spanned a period of three weeks; from 25th September to 13th October 2019.

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The selection process for each of the case studies and the resultant outcomes are summarised in Tables 1, 2, and 3 as follows: Table 1 above outlines the selection process of scholarly publications related to Mitticool fridge. The initial search produced a total of 205 publications. The screening process and exclusion of unsuitable items resulted in the reduction of the items to 22 relevant publications. A reference list of the relevant publications is provided in Appendix 1. The publication selection process for the Jayaashree case study is outlined in Table 2 below. Table 2 above outlines the process used in selecting relevant publications on Jayaashree Industries. An initial search result of 133 items was reduced to 18 relevant publications after the screening process. A reference list of the relevant publications is provided in Appendix 1. Table 3 above provides an outline of the publications selection process for Toyola stove. An initial hit of 89 publications were reduced to 14 after exclusion of items that were found to be unsuitable. A reference list of the relevant publications is provided in Appendix 1. Table 1 Literature selection for Mitticool fridge Activity undertaken

Outcome

The word ‘Mitticool’ was entered into the Google Scholar search bar

205 initial hit obtained

Screening of publications showed that 125 items were unrelated to the case study, these were thus excluded

80 publications remaining

13 items were found to be duplicates, thus they were excluded

67 publications remaining

45 items did not focus on the case study; they 22 relevant publications remaining just cited it as an example, these were thus excluded

Table 2 Literature selection for Jayaashree Industries Activity undertaken

Outcome

The words ‘Jayaashree industries sanitary 133 initial hit obtained napkin’ were entered into the Google Scholar search bar Screening of publications showed that 85 items were unrelated to the case study, these were thus excluded

48 publications remaining

2 duplicate items were identified, these were thus excluded

46 publications remaining

28 of the remaining items did not focus on the case study, though they cited it as an example; these were thus excluded

18 relevant publications remaining

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Table 3 Literature selection process for Toyola stove Activity undertaken

Outcome

The words ‘Toyola stove’ were entered into the Google Scholar search bar

89 initial hit obtained

Screening the publications showed that 42 items were unrelated to the case study; these were excluded

47 publications remaining

Further screening showed that 33 of the remaining items did not focus on the case study but only cited it as an example; these were excluded

14 relevant publications remaining

2.3 Analysis and Findings The data analysis approach employed in this study was the constant comparison analysis of text, and this entailed: critical reading of the selected publications; recording relevant information; systematic comparison of subsequent information with previously identified ones till saturation is reached; clustering of identified information by similarity; and labelling each group or cluster of information with a descriptive theme (Onwuegbuzie et al. 2012). This approach is a well-established and validated qualitative data analysis technique (Bengtsson 2016; Strauss and Corbin 1990). The critical reading focused on the attributes of the contexts within which the innovations were developed and are operating including; the social, economic, political, and cultural characteristics of the contexts. Another area of focus of the critical reading included: the biographical details of the innovator and the genesis of the innovation; the developmental stages through which the innovation has gone; factors that have facilitated the progress of the innovation; and factors that have served as hindrances to the innovation. All institutional related information obtained through the reading was recorded against the case studies in a tabular format. Patterns identified in the recorded information formed the basis of the data clustering and categorisation. Ideas, concepts, and practices that related to an identified pattern were synthesised to form a category or group of factors. Using this approach, 8 major FI institutional factors were identified, and these are: culture and tradition; legal and regulatory regimes; activism of non-governmental and international organisations; government arrangements and systems; market/trade arrangements and systems; informal relations and partnerships; family relations; and media influence. The findings are presented in Table 4. Table 4 above presents an overview of the major institutional factors that constitute the institutional environment of the FIs under investigation. It presents a brief description of the 8 institutional factors, their effects on the FIs, as well as references of the source of the information. These findings are discussed in the next section.

Gupta 2019; Joshi 2015; Singh et al., 2019; Fressoli et al., 2014; Rego & Corradi 2018 Bhat 2015; Gupta 2018; Ajith & Goyal 2016; Prabhu & Jain 2015; Sahoo & Panda 2016

Bhandare 2019; Sharma & Kumar 2019; Tinsley & Agapitova 2018; OECD 2015; Gupta 2018 Joshi 2015 Agbemabiese et al., 2012; Piedrahita 2017; Osei 2010

Cultural and traditional beliefs as well as practices regarding menstruation in India significantly hindered the development and diffusion of Jayaashree enterprise’s sanitary napkin innovation The pottery occupation/trade is associated with lower social status in the India’s caste system, and thus negatively affects the social acceptance and economic participation of people from such social strata Preference for traditional cooking practices in Ghana especially among rural communities negatively affects the acceptance of improved cook stoves such as Toyola; which are more environmentally friendly, healthier, and more effective and efficient

Culture and tradition

References

Major effects

Traditional knowledge and indigenous skills in the production of pots and other clay products were the basis of Mansukhbhai Prajapati’s Mitticool innovation The Jugaad (creative improvisation) mindset which characterises the Indian culture and tradition was a key driver of both the Mitticool and Jayaashree innovations

Institutional factors

Table 4 Major institutional factors and their effects

(continued)

Negative Negative Negative

Positive Positive

Effect type

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Major effects

Grassroots Innovation Movements (GIMs) in India, especially the Grassroots Innovation Augmentation Network (GIAN) supported Mitticool and Jayaashree in a significant way. It assisted in obtaining certification and patents for the innovations; it facilitated access to funding; it linked the innovators to relevant government, as well as skills and research institutions; it has been instrumental in the upscaling as well as marketing activities of both innovations. Local and international NGOs are in diverse ways playing instrumental role in the diffusion and adoption of Jayaashree’s sanitary napkin innovation The United States Agency for International Development (USAID); EnterpriseWorks, Ghana; E + Co; the United Nations Environment Programme (UNEP); and the African Rural Energy Enterprise Development (AREED) are key international agencies and NGOs which have been instrumental in funding the development and upscale of Toyola cook stove. The Kumasi Institute of Technology and Environment (KITE), a local NGO developed Toyola’s business plan and facilitated the acquisition of loan from E + Co

Institutional factors

Activism of NGOs and International Organisations

Table 4 (continued) Fressoli et al., 2014; Hossain 2018b; Rego & Corradi 2018; Yadav & Goyal 2015; Kalpana & Tara 2014; Wierenga 2015; Sharma & Kumar 2019 Hossain 2018b; Koh et al., 2016; Date & Chandrasekharan 2017; Tinsley & Agapitova 2018; Sahoo & Panda 2016 Agbemabiese et al. 2012; Osei & Kraimer 2010; Haselip et al., 2015; Akolgo et al. 2018; Ashden Awards 2011; Kayser et al. 2015

References

(continued)

Positive Positive Positive

Effect type

Institutional Perspectives on Frugal Innovation 11

Major effects

Government arrangements and systems The National Innovation Foundation (NIF) and its related Micro Venture Innovation Fund (MVIF) which are special initiatives of the Indian government to support grassroots innovation have contributed significantly to the development and upscale of Mitticool and Jayaashree innovations. The support provided by NIF and MVIF include: patent registration; provision of funding; product testing; marketing and networking; and organisation of innovation competition and award function. Both Mitticool and Jayaashree have been impacted positively by state recognition and presidential awards. Academic institutions including: The Indian Institute of Technology (IIT); the Indian Institute of Management (IIM) and the National Institute of Design have in various ways contributed to the improvement and upscale of the two innovations

Institutional factors

Table 4 (continued) Hossain 2018b; Wierenga 2015; Fressoli et al. 2014; Kalpana & Tara 2014; Haldar 2017; Sharma & Kumar 2019 Gupta 2019; Venugopal & Abhi 2013; Hossain 2018b Kimiko & Miki 2019; Sahoo & Panda 2016; Gupta 2019; Wiernga 2015; Hossain 2018b

References

(continued)

Positive Positive Positive

Effect type

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Legal and regulatory regime

Institutional factors

Table 4 (continued)

(continued)

Negative

The innovations are poorly protected and OECD 2015; Hossain 2018b; Joshi 2015 exposed to the risk of copying due to the weak Agbemabiese et al., 2012; Haselip et al., 2015; nature of the regulatory system, though Yankey 2009. patented. Lack of clarity regarding legislations and policies on sustainable/clean energy and related innovations is a major hindrance to the adoption of Toyola stoves in Ghana

Negative Negative

Effect type

Positive

Bhat 2015; Sharma & Kumar 2019; Hossain 2018b; OECD 2015 Osei 2010; Agbemabiese et al., 2012; Haselip et al., 2015; Energica 2009; Piedrahita 2017; Yankey 2009

Unavailability and poor nature of public infrastructure such as roads and electricity serves as a major barrier to development and marketing of Jayaashree as well as Mitticool Lack of relevant government policy and support is a major barrier to the adoption of the improved cook stove, Toyola in Ghana. The absence as well as the poor nature of public infrastructure such as road and electricity in Ghana negatively affects the production and distribution of Toyola

The regulatory system ensures that the Fressoli et al., 2014; Wierenga 2015; Venugopal intellectual property of the innovators is & Abhi 2013; Kalpana & Tara 2014 protected. Mitticool and Jayeeshree innovations have been patented.

References

Major effects

Institutional Perspectives on Frugal Innovation 13

Major effects

References

Poor infrastructure constitutes a major hindrance to the distribution of Mitticool and Jayaashree products. Lack of purchasing power and the extreme poverty that characterises the targeted market serves as a major barrier to the effective demand of Mitticool and Jayaashree products Traditional beliefs and cultural practices are major barriers to marketing and sale of the Jayaashree sanitary napkin innovation. The poor nature of the transportation infrastructure in Ghana and the difficulty in accessing the remote communities in the rural areas serve as a major hindrance to the distribution and sale of Toyola stoves Demand for Toyola products is negatively affected by the abject poverty that characterises a large proportion of their targeted customers.

OECD 2015; Sharma & Kumar 2019; Bhat 2015; Hossain 2018b Abhi et al. 2015; Wierenga 2015; Hossain 2018b; Goyal & Goyal 2016 Sharma & Kumar 2019; Tinsley & Agapitova 2018; OECD 2015; Gupta 2018 Agbemabiese et al., 2012; Osei 2010; Energica 2009 Kayser & Budinich 2015; Osei & Kraimer 2010; Piedrahita 2017; Agbemabiese 2012

Market/trade arrangements and systems E-commerce is a key tool by which Mitticool Hossain 2018b; Gupta 2019; Tuteja et al. 2016; and Jayaashree innovations are being marketed. Haldar 2017; Wierenga 2015 Both innovations have online presence, and Kayser et al. 2015 through this platform they are able to expand their customer base locally and internationally Telephone communication; voice and sms constitute a major means by which Toyola enterprise transacts business with agents and distributors of the improved cooking stoves.

Institutional factors

Table 4 (continued)

(continued)

Negative Negative Negative Negative Negative

Positive Positive

Effect type

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Major effects

The main means by which the Jayaashree sanitary napkin machine is marketed is through collaboration with informal self-help groups (SHGs) of women across India The Toyola value chain consists of independent artisans that produce various components of the stove, and agents that market and sell the stoves. The business relationship between the various actors in the supply chain is informal, and thrives on mutual trust.

The support of family and friends of the innovators has been identified as a major driver of the innovation process. Hiraben, the wife of the innovator of Mitticool and their two sons have in various ways contributed to the innovation process. Though she initially abandoned him during the initial and challenging stages of the innovation process, Shanti, the Jayaashree innovator’s wife, later returned and has been instrumental in awareness creation and marketing of the innovation.

Institutional factors

Informal relations and partnerships

Family relations

Table 4 (continued) Effect type

Kalpana & Tara 2014; Haldar 2017; Venugopal & Abhi 2013; Wierenga 2015; Gauri Vagnar, A 2009 Kalpana & Tara 2014 Venugopal & Abhi 2013; Hossain 2018b; Wierenga 2015

(continued)

Positive Positive

Sharma & Kumar 2019; Date & Chandrasekharan Positive 2017; Tinsley & Agapitova 2018; Hossain 2018b Positive Rosca et al. 2017; Osei & Kraimer 2010; Energica 2009; Agbemabiese et al. 2012; Kayser & Budinich 2015

References

Institutional Perspectives on Frugal Innovation 15

Effect type

The print and electronic media have contributed Hossain 2018b; Koh et al., 2016; Wierenga 2015; Positive immensely to the popularity and significant Fressoli et al., 2014; Yadav & Goyal 2015; attention that the Mitticool and Jayaashree Kalpana & Tara 2014; Pansera 2012 innovations have received both locally and internationally. These innovations have been widely publicised through the coverage provided by the media, especially the powerful ones such as the BBC, the Forbes Magazine, the Economist, and the Guardian newspaper

Media influence

References

Major effects

Institutional factors

Table 4 (continued)

16 D. Etse

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3 Discussion Developing countries, which arguably constitute the base and primary target of frugal innovations (Angot and Plé 2015; Hossain 2018b), have often been referred to as contexts characterised by institutional voids, i.e. a situation which describes the absence or ineffectiveness of structures and arrangements that enable and support market transactions (Doh et al. 2017; Gao et al. 2017; Mair et al. 2012). The findings of this study indicate that, the institutional environment of FIs is largely informal, and enforceable arrangements and structures that facilitate and promote innovation appear weak or non-existent. From the 3 case studies, 8 major institutional factors were identified, and these are: culture and tradition; activism of non-governmental and international organisations; government arrangements and systems; market/trade arrangements and systems; legal and regulatory regimes; informal relations and partnerships; family relations; and media influence. These factors and their effects on the FIs are discussed as follows: Culture, which Hofstede and colleagues refer to as the collective programming of the mind that distinguishes members of one social group from other groups (Hofstede et al. 2010), was found to have major influence on the FIs. Culture as an embodiment of informal institutions (Alesina and Giuliano, 2015; North 1991) consists of the unwritten rule of the game in society (Hofstede et al. 2010). It was found to have positive as well as negative effects on the FIs studied. For instance, it was found that traditional knowledge and indigenous skills in pottery and the making of clay products contributed positively to Prajapati’s innovation of the Mitticool fridge (Fressoli et al. 2014; Gupta 2019; Rego and Corradi 2018; Singh et al. 2019), and that, the Jugaad mindset which is a characteristic feature of the Indian culture was a major driving factor of the Mitticool as well as Jayaashree innovations (Bhat 2015; Gupta 2018; Prabhu and Jain 2015). On the other hand, cultural beliefs and practices regarding menstruation in India had a major negative effect on the development as well as diffusion of the Jayaashree sanitary napkin innovation (Bhandare 2019; Sharma and Kumar 2019; Tinsley and Agapitova 2018). For example, the belief especially among rural Indians that women who used sanitary pads were the devil’s brides contributed negatively to the acceptance of the innovation (Anandan 2018). In Ghana, preference for traditional cooking practices especially among the rural communities was found to be one of the major hindrances to the acceptance of Toyola, an improved and environmentally friendly cook stove (Agbemabiese et al. 2012; Osei 2010; Piedrahita 2017). As developing countries are often steeped in traditional beliefs and cultural practices (Peeters Grietens et al. 2012; Soetan 2001), there may be the need for frugal innovators and relevant stakeholders to give special consideration to the cultural environment; harness attributes of the culture that can be deployed to enhance the innovation, and devise innovative solutions to circumvent aspects of the culture that are inimical to the innovation. Education and sensitisation may be strategically important for changing unhelpful, harmful, and archaic cultural practices that hinder FIs.

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Another major institutional factor identified is the activism of non-governmental organisations (NGOs) and international agencies. Activism of NGOs and other civil societies play significant role in changing societal behaviour and shaping attitude (Doh and Teegen 2002; Schäffner et al. 2014), especially in developing countries where these actions significantly influence public policies and promote a wide range of development-related issues including: democracy, sustainability, human rights, health, food security, and economic empowerment (Clarke 1998). Our findings suggest that, local as well as international NGOs play critical role in the development and diffusion of FIs. For example, Grassroots Innovation Movements (GIMs), notably the Grassroots Innovation Augmentation Network (GIAN) in India played instrumental role in the development and diffusion of the Mitticool fridge and the Jayaashree sanitary napkin machine (Fressoli et al. 2014; Hossain 2018a; Sharma and Kumar 2019). The development and diffusion of Toyola cook stove in Ghana has mainly been as result of the technical and financial support of international agencies including: the United States Agency for International Development (USAID); the United Nations Environment Programme (UNEP); E + Co; and the African Rural Energy Enterprise Development (AREED) (Agbemabiese et al. 2012; Ashden Awards 2011; Osei 2010). The keen interest of NGOs and international agencies in FIs may be due the sustainability dimensions of these innovations. Thus, by aligning FIs with sustainability values, frugal innovators may stand the chance of obtaining needed support from relevant NGOs and international organisations. Furthermore, it was found that government arrangements and systems constitute a major institutional factor that influences FIs. The policy environment as well the weak public infrastructural systems were found to have substantial negative effect on the development and diffusion of FIs. The unavailability of public infrastructure such as reliable electricity supply and good transportation system negatively affected the development and marketing of the FIs in India (Bhat 2015; Hossain 2018a; OECD 2015) as well as Ghana (Agbemabiese et al. 2012; Osei 2010). Moreover, absence of relevant government policies was identified as a major hindrance to the development and diffusion of Toyola cook stove in Ghana (Agbemabiese et al. 2012; Piedrahita 2017). On the other hand, special government arrangements and initiatives for FIs, and the support of higher educational institutions were found to positively influence the development and dissemination of FIs. The National Innovation Foundation (NIF) and the Micro Venture Innovation Fund (MVIF) which are special initiatives of the Indian government to support grassroots innovations were found to have contributed substantially to the expansion and upscaling of Mitticool and Jayaashree innovations (Fressoli et al. 2014; Sharma and Kumar 2019; Wierenga 2015). State and international awards and recognitions also played important role in legitimising and enhancing the popularity of the innovations (Gupta 2019; Hossain 2018a). Moreover, academic institutions including the Indian Institute of Technology; the Indian Institute of Management; and the National Institute of Design contributed in diverse ways in enhancing the quality as well as promoting the Mitticool and Jayaashree innovations (Gupta 2019; Hossain 2018a; Kimiko and Miki 2019; Sahoo and Panda 2016).

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19

Another major institutional factor identified is market/trade arrangements and systems. It was found that various market and trade arrangements guided and shaped the activities and transactions of the FIs. For example electronic commerce (Ecommerce) was found to be a major enabler of marketing and sale of the FIs. The Mitticool and Jayaashree innovations have online presence, and through their websites and other electronic platforms they are able to expand their customer base and enhance their trading opportunities both locally and internationally (Gupta 2019; Hossain 2018a; Wierenga 2015). The voice and SMS telephone communication constitute a major means by which Toyola transacts business with its customers and distributors (Kayser and Budinich 2015). However, poor infrastructure and extreme poverty that characterise the target markets, as well as some traditional beliefs and practices were major inhibiting factors to the marketing and sale of the innovations, both in India (Hossain 2018a; OECD 2015; Sharma and Kumar 2019) and Ghana (Agbemabiese et al. 2012; Osei 2010; Piedrahita 2017). In addition, it was found that the innovations were affected by legal and regulatory factors. Though the Mitticool and Jayaashree innovations were patented so as to safeguard their intellectual property rights, the patents did not adequately protect these innovations, as they were exposed to frequent copying due to the weak nature of the regulatory system (Hossain 2018a; Joshi 2015; OECD 2015). With regard to the Toyola cook stove in Ghana, the absence of relevant legislations and policies was a major barrier to the development and diffusion of the innovation (Agbemabiese et al. 2012; Haselip et al. 2015; Yankey 2009). Apart from its failure to protect the existing FIs, the weakness of the regulatory regime in the developing countries may discourage future innovation efforts due to the high risk of pirating. Another major institutional factor identified is informal relations and partnerships. As self-regulating socio-economic arrangements, created for the purpose of facilitating production and sale of the FIs, the identified informal relations and partnerships in the case studies fit the definition of informal institutions (Fuentelsaz et al. 2019; Helmke and Levitsky 2004). For instance, the main approach by which the Jayaashree sanitary napkin making machines are distributed and sold across India is through collaboration with self-help groups (SHG) of women (Hossain 2018a; Sharma and Kumar 2019; Tinsley and Agapitova 2018). By means of a decentralised business approach, Jayaashree industries sets up sanitary napkin production units in local communities, and these production points are owned by women self-help groups, consisting of 4 to 10 female entrepreneurs from rural India (Sharma and Kumar 2019; Tinsley and Agapitova 2018). In a similar fashion, the Toyola cook stove in Ghana operates on the basis of informal collaborations and partnerships. The Toyola value chain consists of independent artisans and distribution agents, and the relationship that underlie these arrangements is informal and thrives on mutual trust (Agbemabiese et al. 2012; Kayser and Budinich 2015; Osei 2010). Family relation was another major institutional factor identified to have influenced the cases studied. Though generally recognised as a fundamental social institution (Aldrich and Cliff 2003; Nam 2005), the institutional role of family in business and organisational matters appears to be a neglected area in the management literature (Aldrich and Cliff 2003). The findings of this study suggest that, family relations have

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major influence on the creation and diffusion of frugal innovations. The support of spouses, children, and other relatives was found to be important factors in the FI process. For instance, the support of Hiraben, Prajapati’s wife, and that of their two sons had substantial positive influence on the creation and marketing of the Mitticool innovation (Gauri Vagnar 2009; Kalpana Sastry and Tara 2014). Moreover, the awareness creation as well as the marketing and sale activities carried out by Shanti, Muruganantham’s wife had major positive influence on the diffusion of the Jayaashree sanitary napkin products (Venugopal and Abhi 2013; Wierenga 2015). Not forgetting to mention the psychological and emotional stress that the Jayaashree innovator experienced when he was abandoned by his wife, mother, and other relatives during the formative stages of the innovation (Anandan 2018; Bhandare 2019; Hossain 2018a), and the adverse effect that this might have had on the innovation process. Media influence was another institutional factor that had substantial effect on the cases studied. The mass media have variously been referred to as one form of institution or another. They have among other things been referred to as: social institution (Silverblatt 2004); political institution (Allern and Blach-Ørsten 2011); and economic institution (Orr 1987), probably reflecting the varied and substantial societal influence the media. In this study, we found that the influence of the print and electronic, as well as the local and international media was instrumental in popularising and legitimising the FIs. The coverage by powerful media organisations such as the BBC, Forbes magazine, the Economist, the Guardian newspaper, and the National Geographic brought these innovations to global attention and facilitated their diffusion (Hossain 2018a; Kalpana Sastry and Tara 2014; Koh et al. 2016; Smith 2011). It is unlikely that these innovations would have garnered the kind of global attention they have attracted over the years without the influence of the mass media.

4 Conclusion In this chapter, we explored the effects of the institutional milieu of developing countries on frugal innovation process. Contrary to the often held view that institutional void facilitates frugal innovation, our findings suggest that the absence of relevant institutions constitutes a major hindrance to the frugal innovation process. This is mainly because institutional void appears to have serious negative effects on critical issues such as access to capital and other critical inputs; acquisition of relevant technical expertise; and availability of socio-economic structures and systems required for successful commercialisation and diffusion of the innovation. In fact almost all the significant progress that we observed relative to the three case studies were due to various forms of institutional interventions. Thus institutions appear to matter a great deal in successful frugal innovation process. We identified eight major institutional factors at play in the frugal innovation process, and these are: culture and tradition; legal and regulatory regimes; activism

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of NGOs and international organisations; government arrangement and systems; informal relations and partnerships; market/trade arrangements and systems; family relations; and media influence. Our study contributes an institutional perspective to the frugal innovation literature and challenges the notion that institutional void creates a conducive environment for frugal innovation. Further studies may be required to bring further clarity to bear on the frugal innovation and institution nexus. More importantly, studies with relevant primary data may be required to test the findings reported in this chapter.

Appendix 1 Mitticool (22 Publications) 1.

2.

3.

4. 5. 6.

7.

8.

9.

Bhat IA (2015) Jugaad innovation: a frugal and flexible approach to innovation for the 21st century. Afr J Sci, Technol, Innov Dev, 7(1):71–72. https://doi.org/ 10.1080/20421338.2015.1006909 Fressoli M, Arond E, Abrol D, Smith A, Ely A, Dias R (2014) When grassroots innovation movements encounter mainstream institutions: implications for models of inclusive innovation. Innov Dev, 4(2):277–292. https://doi.org/ 10.1080/2157930x.2014.921354 Fressoli M, Around E, Abrol D, Smith A, Ely A (2013) Grassroots innovation’s framings and their modes of engagement: implications for models of inclusive innovation, paper presented o the International Conference LALICS 2013, 11–12 November, 2013, Rio de Janeiro Goyal P, Goyal A (2016) Jugaad innovation in Indian rural marketing: meaning and role. SCMS J Indian Manag 13:5–18 Gupta S (2019) Understanding the feasibility and value of grassroots innovation. J Acad Mark Sci. https://doi.org/10.1007/s11747-019-00639-9 Haldar S (2017) Green entrepreneurship in the changing market scenario in India. Retrieved 12 October 2019, from https://s3.amazonaws.com/academia. edu.documents/54624432/EDII_ECOPRENEURSHIP.pdf? Hossain M (2018a) Adoption of open innovation by small firms to develop frugal innovations for inclusive development. In: Vanhaverbeke W, Frattini F, Roijakkers N, Usman M (eds), Open Innovation in SMEs World Scientific Joshi R (2015) The essence of lived experiences of grassroots innovators: a phenomenological study. (Doctor of Philosophy), The University of Technology Sydney Retrieved from https://opus.lib.uts.edu.au/bitstream/10453/ 43358/2/02whole.pdf Joshi RG (2015) Fostering Transformation through the moBilization of Grassroots Innovations; UNESCAP Regional Report; UN ESCAP: Bangkok, Thailand

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Kalpana Sastry R, Tara O (2014). Rural innovations @ grassroots: mining the minds of the masses. Hyderabad, India: National Academy of Agricultural Research Management Nair A, Tiwari R, Buse S (2017) Emerging patterns of grassroots innovations: results of a conceptual study based on selected cases from India. In: Herstatt C, Tiwari R (eds) Lead Market India. India Studies in Business and Economics: Springer Pansera M (2012, 9–11 November 2012) Frugality, grassroots and inclusiveness: new challenges for mainstream innovation theories. Paper presented at the GLOBELICS International Conference Hangzhou, China Pansera M (2012) Eco-innovation as a Development Tool: Evidence from Latin America and Asia. Retrieved 28 September 2019, from https://www.res earchgate.net/publication/320323924_Eco-innovation_as_a_Development_ Tool_Evidence_from_Latin_America_and_Asia/link/59ddec1f458515f6ef 0e3260/download Prahalad D (2013) design strategy for the bottom of the pyramid, pp 131–144. https://doi.org/10.1007/978-3-642-36540-9_12 Prakash O, Mathur A (2013) Integrated and corporate learning in higher education: challenges and strategies. In: Narasimharao B, Kanchugarakoppal S, Fulzele U (eds) Evolving corporate education strategies for developing countries: the role of universities: IGI Global Rego J, Corradi A (2018) ICH and ‘Frugal Innovation’: a contribution to development through the framework of the 2003 convention. Int J Intang Herit, 13:174–187. Rego J, Corradi A (2018) ICH and ‘Frugal Innovation’: a contribution to development through the framework of the 2003 convention. Int J Intang Herit, 13:174–187. Sarkar S (2018) Grassroots entrepreneurs and social change at the bottom of the pyramid: the role of bricolage. Entrep & RegNal Dev, 30(3–4):421–449. https://doi.org/10.1080/08985626.2017.1413773 Singh SH, Maiyar LM, Bhowmick B (2019) Assessing the appropriate grassroots technological innovation for sustainable development. Technology Analysis & Strategic Management, pp 1–20. https://doi.org/10.1080/09537325. 2019.1646420 Tuteja G, Kaushik A, Verma, A (2016) Rural entrepreneurs of India: redefining business realities by employing e-commerce technologies. VIMARSH – A Peer Reviewed Refereed Journal, 6(1):48–56 Wierenga M (2015) Local frugal innovations: how do resource-scarce innovations emerge in India? (Masters), Aalto University Retrieved 28 September 2019, from https://aaltodoc.aalto.fi/bitstream/handle/123456789/18429/hse_ ethesis_14103.pdf?sequence=1&isAllowed=y Yadav V, Goyal P (2015) User innovation and entrepreneurship: case studies from rural India. Journal of Innovation and Entrepreneurship, 4(1). https:// doi.org/10.1186/s13731-015-0018-4

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Jayaashree Industries (18 Publications) 1.

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7. 8. 9. 10.

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Abhi S, Venugopal V, Shastri S (2015) Social entrepreneurship—building sustainability through business models and measurement of social impact, pp 295–323. https://doi.org/10.1007/978-81-322-2086-2_13 Bhandare N (2019) Breaking new ground: films on menstruation shatter an old silence. Indian J Gend Stud, 26(1–2):196–206. https://doi.org/10.1177/ 0971521518808050 Damani B, Sardeshpande V (2015) Social change using innovation and technology. In: Majumdar S, Guha S, Marakkath N (eds) Technology and innovation for social change. Springer, New Delhi Date G, Chandrasekharan S (2017) Beyond efficiency: engineering for sustainability requires solving for pattern. Engineering Studies, 10(1):12–37. https:// doi.org/10.1080/19378629.2017.1410160 Garikipati S, Boudot C (2017) To pad or not to pad: towards better sanitary care for women in indian slums. J Int Dev, 29(1):32–51. https://doi.org/10. 1002/jid.3266 Gaurav P, Meta A, Ghandhi H, Mehrotra N, Tarun A (n.d.) Jayaashree Industries: making meaning to the society, case study for operations & supply chain management course. Retrieved 29 September 2019, from https://media-openideo-rwd.oiengine.com/attachments/8fc8cb53-6cc642b0-a346-1597a30abc07.pdf Goyal V (2016) Scope and opportunities for menstrual health and hygiene products in India. Int Res J Soc Sci, 5(7):1–5 Gupta S (2018) Developing frugal, sustainable and inclusive solutions for cities (Masters), Polytechnic University of Milan Gupta S (2019) Understanding the feasibility and value of grassroots innovation. J Acad Mark Sci. https://doi.org/10.1007/s11747-019-00639-9 Hossain M (2018a) Adoption of open innovation by small firms to develop frugal innovations for inclusive development. In: Vanhaverbeke W, Frattini F, Roijakkers N, Usman M (eds) Open Innovation in SMEs World Scientific Kimiko A, Miki E (2019). “Padman”: a case of diffusion of innovations theory. J Cult Symbiosis Res, 13:17–20 Koh H, Hegde N, Das C (2016) Hardware pioneers: harnessing the impact potential of technology entrepreneurs: The Lemelson Foundation OECD (2015) Innovation policies for inclusive development: scaling up inclusive innovations. OECD, Paris Sahoo S, Panda A (2016) Arunachalam Muruganantham: the man who sparked a revolution agains all odds. Parikalpana: KIIT J Manag, 12(1):98–101 Sharma G, Kumar H (2019) Commercialising innovations from the informal economy. South Asian J Bus Stud, 8(1):40–61. https://doi.org/10.1108/sajbs12-2017-0142 Tinsley E, Agapitova N (eds) (2018) Reachin the last mile: innovative business models for inclusive development Washington, DC: The World Bank

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Venugopal V, Abhi S (2013) A new white revolution: case study of a social entrepreneur. South Asian J Manag, 20(4):144–152 Wierenga M (2015). Local frugal innovations: how do resource-scarce innovations emerge in India? (Masters), Aalto University Retrieved from https:// aaltodoc.aalto.fi/bitstream/handle/123456789/18429/hse_ethesis_14103.pdf? sequence=1&isAllowed=y

Toyola Cook Stove (13 Publications) 1.

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Agbemabiese L, Nkomo J, Sokona Y (2012) Enabling innovations in energy access: an African perspective. Energy Policy, 47:38–47. https://doi.org/10. 1016/j.enpol.2012.03.051 Akolgo GA, Essandoh EO, Gyamfi S, Atta-Darkwa T, Kumi EN, Maia CMBdF (2018) The potential of a dual purpose improved cookstove for low income earners in Ghana—Improved cooking methods and biochar production. Renew Sustain Energy Rev, 82:369–379. https://doi.org/10.1016/j.rser.2017.09.044 Ashden Awards (2011) Case study summary: Toyola energy limited Ghana. Retrieved from: https://www.cleancookingalliance.org/binary-data/ RESOURCE/file/000/000/46-1.pdf Bendul JC, Rosca E, Pivovarova D (2017) Sustainable supply chain models for base of the pyramid. J Clean Prod, 162:S107–S120. https://doi.org/10.1016/j. jclepro.2016.11.001 ENERGICA (2009) Pre-feasibility study for an improved cook stoves project in Northern Ghana. Danish Energy Agency Gabrane S (2013) Distribution channel capabilities of energy products at the bottom of the pyramid in Africa (Masters). Hasselt University. Retrieved 30 September 2019, from https://uhdspace.uhasselt.be/dspace/bitstream/1942/ 15550/1/11320952012834.pdf Haselip J, Desgain D, Mackenzie G (2014) Financing energy SMEs in Ghana and Senegal: outcomes, barriers and prospects. Energy Policy, 65:369–376. https://doi.org/10.1016/j.enpol.2013.10.013 Haselip J, Desgain D, Mackenzie G (2015) Non-financial constraints to scaling-up small and medium-sized energy enterprises: Findings from field research in Ghana, Senegal, Tanzania and Zambia. Energy Research & Social Science, 5:78–89. https://doi.org/10.1016/j.erss.2014.12.016 Kayser O, Budinich V (2015) Cooking. In: Kayser O, Budinich V (eds) Scaling up business solutions to social problems: a practical guide for social and corporate entrepreneurs Palgrave Macmillan Kayser O, Budinich V (2015) Marketing—from needs to wants. In: Kayser O, Budinich V (eds) Scaling up business solutions to social problems: a practical guide for social and corporate entrepreneurs Palgrave Macmillan Osei R (2010) Toyola charcoal stove: improving the environmenet and health of the poor in Ghana. New York

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Piedrahita R (2017) On the assessment of air pollution and behavior within a cookstove intervention study in Northern Ghana and development of improved measurement techniques. (Doctor of Philosophy), University of Colorado, Boulder. Retrieved from https://scholar.colorado.edu/mcen_gradetd s/136 (136) Rosca E, Arnold M, Bendul JC (2017) Business models for sustainable innovation—an empirical analysis of frugal products and services. J Clean Prod, 162:S133–S145. https://doi.org/10.1016/j.jclepro.2016.02.050 Yankey V (2009) Country chapter: Ghana Regional Reports on Renewable Energies Eschborn

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Frugal Innovations in Healthcare: Factors Affecting the Diffusion in Developing Economies Hareem Arshad

1 Introduction Scarcity of resources and financial crisis along with global competition has prompted organizations to think frugally. Prahalad (2011) identified the importance of the Bottom of the pyramid market (the market segment of around 4 billion people that lives at less than $2 per day) in emerging economies for MNC’s. According to him, bottom of the pyramid (BOP) is an untapped market with high potential if the managers focus on awareness, accessibility, availability and affordability. The Economist (2010) defined frugal innovation as “instead of adding more bells and whistles, strip the products down to their bare essential.” Tiwari, Fischer and Kalogerakis (2016) are of the view that “Frugal innovations seek to create attractive value propositions for their targeted customer groups by focusing on core functionalities and thus minimizing the use of material and financial resources in the complete value chain. They substantially reduce the cost of usage and/or ownership while fulfilling or even exceeding prescribed quality standards.” Frugal innovation gains relevance and adopted by various industries, e.g., TATA Nano (an automobile) world’s cheapest car is the perfect example of frugal innovation. Besides TATA Nano, there are various examples of frugal innovation in other sectors like TATA Swach (water purifier), GE lullaby (baby warmer), etc. developed for emerging economies. According to the World Bank, human capital is considered as one of the strongest assets for the economic progress of a country. To make the most out of this valuable asset, countries need to invest in healthcare services to assure good healthcare conditions of its citizens. Universal health coverage has the potential to change the healthcare conditions of individuals by giving quality healthcare services to people without

H. Arshad (B) University of Leipzig, Leipzig, Germany e-mail: [email protected] © Springer Nature Switzerland AG 2021 N. Agarwal and A. Brem (eds.), Frugal Innovation and Its Implementation, Contributions to Management Science, https://doi.org/10.1007/978-3-030-67119-8_2

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financial distress. Fifty percent of the world’s population have no access to healthcare facilities and approximately 100 million individuals are pushed into the lines of poverty because of expensive healthcare services (World Bank 2017). Moreover, 800 million individuals spend more than 10% of their budget on healthcare services, which creates pressures to choose between healthcare and other needed expenses for the family. Increase in health expenses around the globe is an important reason for increasing poverty (World Bank 2017). Healthcare systems around the globe are making efforts to decrease cost and improve medical services (Bianchi et al. 2017). Developed countries face problems in the healthcare delivery system due to its aging population. In OECD countries, the aging population is expected to rise from 4% in 2010 to 10% in 2050. This rise in aging population creates pressure on healthcare budgets spending thereby producing a need for more efficient and innovative solutions (European Commission 2012b). Frugal innovations have the potential to minimize the challenges in healthcare (The Economist 2010). Most of the current literature on frugal innovation pays particular attention to healthcare. More recent attention has focused on bringing affordable and good enough solutions to both developing and developed economies. GE Healthcare, e.g., developed a portable and inexpensive ultrasound machine with the cost of USD 15,000 that is much cheaper than the competitive offerings. This product is developed in China but serving the needs of other emerging and developed economies including the USA. It is also referred to as an example of reverse innovation, which is defined as an innovation developed in emerging or developing economies and then transferred to developed economies (Hossain et al. 2016). Much of the available literature on frugal innovation deals with case studies from healthcare such as Aravind eye care, the Narayana Hurdayalya heart hospital, PEEK vision, which is a low-cost smartphone adapter that enables eye exams to be done virtually, GE’s ECG machine, etc. (Hossain 2016). Rogers was the first who shed light on the theory of diffusion of innovation as early as 1962. Before that, only few articles were presented in the literature (Kapoor et al. 2014). According to Rogers’ theory “the diffusion of innovation is the communication of the innovation among the members of the social system, by the help of certain communication channels over the period of time” (Rogers 2003). In the last decade, various scholars have been working on different aspects of the diffusion of innovation theory (Zanello et al. 2016). Despite the enormous potential of healthcare frugal innovations, there is little academic research on the diffusion of healthcare frugal innovation (Arshad et al. 2018; Bhatti et al. 2017). This study aims to fill this gap by exploring the potential barriers and drivers for diffusion of healthcare frugal innovation in emerging economies. We selected two frugal innovations that originate from India and where India is also the first launch market. We selected Indian products for two reasons: Firstly, the concept of frugal innovations emerges from India. Secondly, due to its geographical proximity since Pakistan and India are neighboring countries with similar socioeconomic conditions. We further selected Jaipur foot from orthopedics and Narayana Hrudayalaya heart hospital from cardiology as our specific innovations and interviewed professionals to identify the potential barriers and drivers for diffusion of

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these frugal innovations from India to Pakistan. This selection was made because the adoption process differs greatly for products and processes (Harris et al. 2016). The paper is structured as follows: We first introduce Rogers’ diffusion of innovation theory and findings of empirical studies on the diffusion of innovation in healthcare, emerging and developing economies. Based on the theory, we conducted semi-structured interviews with 15 orthopedists and 13 cardiologists in Pakistan. In chapter number three we present the results of our empirical study. The paper closes with a summary and conclusion.

2 Theoretical Framework 2.1 Rogers’s Theory of Diffusion of Innovation The concept of the diffusion of innovation gains relevance in 1962 when Everett M. Rogers published his first book on “Diffusion of Innovation.” According to Rogers (2003) “diffusion of innovation is the process by which an innovation is communicated through certain channels over time among the members of the social system.” Diffusion of innovation involves the communication of a new idea or new product among the members of the social system. If we take a closer look at communication, we can see that it is the process, which involves creating and sharing of knowledge among each other in order to achieve mutual understanding. The thing that makes a difference between simple communication and diffusion of innovation is the newness of idea. Therefore, we can say that diffusion of innovation is a special type of communication, which involves the spread of new ideas. The four main elements of diffusion of innovation are (1) the innovation itself, (2) its communication through certain channels, (3) the involvement of time and (4) the spread of this innovation in the social system (Rogers 2003). Innovation is defined as “the idea practice, or object perceived as new by an individual or other unit of adoption” (Rogers 2003). Rogers defined certain attributes of innovation, such as relative advantage, compatibility, complexity, trialability and observability, which play a vital role in the rate of adoption of the innovation. Relative advantage is defined as the extent to which an idea or innovation is considered as superior to the other ideas or innovation by the users based on certain factors depending upon the users. These factors can be the ease of use, the economic advantage or some other social benefits that the users gain by adopting certain innovations compared to others. Compatibility is defined as the extent to which an innovation or an idea is supposed to be consistent with the prevailing values, former experiences and requirements of the users. If the innovation is not compatible with the specified conditions and guidelines defined by the users, then it will be very difficult to be adopted. Complexity is defined as the extent to which the innovation is not user-friendly and it’s difficult for the users to understand it properly. Generally, an

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innovation is easier to be adopted if it is easy to understand as compared to an innovation, which requires some new techniques and skills in order to adopt that innovation. Trialability is defined as the extent to which users are able to do experiments with the innovation on a limited basis to get proper understanding of it. If the users get a chance to look deeper into the innovations, they will be able to learn it more quickly by performing the required tasks. Observability is defined as the extent to which the outcome of the innovation is noticeable to the users. If the outcomes are easier to observe, there is a good chance for adoption of that innovation as compared to the situation in which the outcomes of that innovation are hard to find (Rogers 2003). An innovation that has a relative advantage, compatibility, trialability, observability and less complexity as compared to other innovation has great chances of adoption (Rogers 2003). The second element of the diffusion of innovation is the communication channel. Diffusion of innovation involves an innovation, the person having the knowledge or experience of using that innovation and the other person to whom this innovation is introduced for adopting it. In order to communicate the innovation to the other person to whom the innovation is introduced, there is a need of communication channels to make the connection between the two persons (Rogers 2003). The third element of the diffusion of innovation is time. Time is important in the innovation decision process, innovativeness and in the rate of adoption of that innovation. The innovation decision process is the mental process through which the individual (or other unit of adoption) passes through five stages, i.e., knowledge, persuasion, decision, implementation and confirmation. In the knowledge stage, an individual obtains preliminary information about the innovation in order to get some idea about it. In the persuasion stage, an individual tries to evaluate the innovation to make a decision (the third stage) of implementing or rejecting that innovation. Lastly, in the confirmation stage, the individual reinforces the decision of adoption (or rejection) or sometimes the decision can be reversed depending upon the situation. Innovativeness is referred to an extent to which an individual (or other unit of adoption) is comparatively earlier in adopting that new idea or innovation as compared to the other members of the social system. Depending upon the degree of earlier adoption, individuals are classified into five categories starting from innovators (active in adoption), early adopters, early majority, late majority and laggards (very low in adoption). Lastly, rate of adoption is defined as the speed with which a new idea or innovation is adopted by the members of the social system. Briefly, time is an important dimension in the innovation decision process, innovativeness and in the rate of adoption (Rogers 2003). The fourth element of diffusion of innovation is the social system. The diffusion of innovation takes place in a social setting referred to as social system. Rogers (2003) defines it as “a set of interconnected units engaged in joint problem solving to achieve a typical objective.” Precisely, the social and communication structures that prevail in the social system facilitate or create hindrance in the diffusion of innovation in that particular system.

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To conclude, Rogers (2003) states that for diffusion of innovation, 4 factors that we need to check for in the interviews, innovation itself along with communication channel, time and social system are the most important elements. In order to understand the process of diffusion of innovation, there is a need to understand four elements deeply through which an organization is able to diffuse its innovation efficiently and it enables them to estimate the definitive demand for that innovation. In order to get a better understanding for the specifics of diffusion of innovation in healthcare, emerging, and developing economies, the following section additionally provides a review of the literature since 2010 on the diffusion of innovations in healthcare, emerging, and developing economies.

2.2 Diffusion of Innovation in Healthcare Zhang et al. (2015) conducted a study by implementing E-appointment scheduling in primary healthcare units in Australia and found out that innovation attributes, time, communication channel and social system are critical factors for diffusion and adoption of consumer e-health services. The findings of the study are in line with Rogers’ diffusion of innovation theory. Mirheydar and Parsons (2013) reviewed the literature for diffusion of robotic surgery in urological practice and found the importance of innovation attributes. Emani et al. (2012) found that innovation attributes are critical factors for the perception of personal health records usage and for predicting its value. Doyle et al. (2014) investigated the integration of mobile devices into nursing curriculum by using the Rogers ‘diffusion of innovation model and found the importance of innovation attributes as most crucial for its adoption. Dearing et al. (2013) stress the importance of innovation attributes for diffusion of innovation. George et al. (2012) investigated the pre-experience perceptions of telemedicine among African Americans and Latinos by using focus groups. The findings suggest that innovation attributes, particularly relative advantage and compatibility, shape the speed of diffusion. Chong and Chan (2012) collected the data from 182 healthcare units and by using structural equation modeling analysis, stress the importance of innovation attributes for the diffusion of Radio Frequency Identification in the healthcare industry. Sugarhood et al. (2014) investigated the factors that influence the diffusion of telecare technology by using semi-structured interviews and found the factors such as innovation attributes, organizational characteristics, users’ preferences and social system facilitate or hinder its usage and adoption. Brooks et al. (2012) identify the factors that affect the diffusion of telehealth clinics for mental healthcare to the rural American Indian Veterans and found out that factors such as users’ preferences, innovation attributes, and hospital staff feedback can increase the speed of telehealth diffusion. From a qualitative study of fifteen primary and secondary healthcare

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organizations in the UK, Barnett et al. (2011) investigated the factors that facilitate or hinder the innovation implementation and diffusion. They found that innovation attributes, networking, contextual factors of organization such as resources and capabilities and hospital staff and administrations are critical in impeding or facilitating diffusion. Another study shows that innovation attributes, users’ preferences, and organizational culture play a vital role in the adoption and diffusion of innovation (Ward 2013). Khanassov et al. (2014) examined the factors responsible for the implementation of case management interventions in primary healthcare units and found out that innovation attributes and users’ preferences are critical for adopting such practices. Dingfelder and Mandell (2011) found that networking, innovation attributes, hospital administration and staff are the factors that play important role in diffusion of innovation. Parsons et al. (2013) found that diffusion and adoption of surgical innovation depend on innovation attributes, users’ preferences, marketing persuasion teams and physicians’ preferences and knowledge. Silva and Viana (2010) used a case study approach and interviewed a wide range of stakeholders in healthcare to identify the potential decision makers for the adoption of CT scanners in Brazil. The results show that hospital administration, physicians and sales representatives of the healthcare industry influence decisions. Skinner and Staiger (2015) found that hospitals that are keen toward learning and adopting low-cost innovations have outcomes that are more productive for their patients. They stress the importance of hospital culture for diffusion and adoption of innovations. Dunn and Gallego (2010) found that networking and clustering among hospitals impedes the diffusion of innovation among smaller and rural facilities. Carpenter et al. (2011) found that organizations affiliated with research networks supports in diffusion of innovative techniques. Dunn et al. (2012) investigated the factors that influence the diffusion and adoption of new medicines by using the Bass diffusion model in Australia and found the importance of internal factors such as social contagion more important as compared to external factors such as regulation. Merschbrock and Munkvold (2014) conducted a case study of a healthcare construction project and found that technological, administrative and personal characteristics of the users are influential factors for the diffusion of business information modeling in the project. Parsons et al. (2014) found that diffusion of surgical innovations depends upon the coordinated efforts of physicians, surgical societies, policies and representatives from the medical industry. Another study explains the design activities that can be used for the diffusion of effective cancer communication innovations and found out that needs assessment, testing and demonstration, stakeholders and influential members produce greater impact in diffusion (Dearing and Kreuter 2010). In conclusion, the literature suggests that innovation attributes, user preferences, networking and hospital staff and administration play a vital role for the diffusion of innovation in healthcare. Moreover, organizational culture, technological characteristics and policies also affect the diffusion of healthcare innovations.

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2.3 Diffusion of Innovation in Developing and Emerging Economies User preferences promote mechanisms of creation and diffusion of innovation as determined in the mobile banking industry of developing economies in which the speed and diffusion of services created by users become double as compared to the traditional producer developed services (Boor et al. 2014). Innovation in institutions and development of policies also act as a determinant to promote or prevent diffusion of innovation in developing economies (Lybbert and Sumner 2012). The literature further suggests that collective learning plays a vital role in the diffusion of foreign firms’ practices among the local enterprises of the developing economies (PerezAleman 2011). Another study proposed a conceptual framework for the diffusion of customer relationship management in developing economies. The findings suggest that time, geographic proximity, economic, industry, market, product and organizational similarities affect the learning process across regions (Kumar et al. 2011). Several other factors such as entrepreneurial mindset, informal structures and financial pressures create hindrance in technology diffusion in BOP clusters in Brazil (Silvestre 2014). By reviewing the concept of diffusion modeling in the context of single and cross markets, the authors suggested the importance of social influences that drive the diffusion processes. Some factors such as market entry time, demographics, cultural and economic differences are critical factors to the diffusion of innovation (Peres et al. 2010). Similar conclusions come from authors, who found innovation attributes as a determinant factor in diffusion of innovation by looking deeply inside the literature and historical cases of the diffusion of innovation (MacVaugh and Schiavone 2010). Mannan and Haleem (2017) identify the relative importance of the determinants of diffusion of innovation by using AHP through extensive literature review. The results suggest that relative advantage and compatibility are important factors in terms of innovation attributes, rational relationship and norms in terms of social system, mode of communication and understandable communication in terms of communication and progressive technology and rate of adoption in terms of time constitutes higher weights. Wu and Chu (2010) investigated the determinants for diffusion of mobile telephony in China and found innovation attributes and social system as the main determinants for diffusion of mobile telephony. Redmond (2013) argued that there exist a difference in the process of diffusion for new products and new financial instruments in terms of networking, innovation attributes and the extent of externalities. Shen (2014) investigated the sample of 193 countries and argued that networking with international organizations like WHO, communication and financials are critical factors for diffusion or adoption of mental healthcare policies. Kadu and Stolee (2015) identified the barriers and facilitators for diffusion and implementation of chronic care model (CCM) in primary care setting. After analyzing twenty-two studies, each of the factors, i.e., organization structure, networking, communication and attitude of healthcare provider, is critical barriers in adopting that model. Negro et al. (2012) reviewed the literature and found lack of

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knowledge, institutional and government recommendations as barriers for diffusion of renewable energy technologies. Zhu et al. (2012) studied the theories of diffusion of innovation and ecological modernization to identify the types of industrial manufactures among Chinese manufacturers. Their findings suggests three types of industrial manufacturers such as early adopters, followers and laggards in the context of green supply chain management practices. They stress environmental, operational and economic openness as determinant for diffusion of innovation. Zanello et al. (2016) reviewed the literature on the barriers for diffusion of innovation in developing economies. The predominant factors that stands in the way for diffusion include external factors and internal factors. External factors are defined as those factors that are outside the organization and can prevent or promote the mechanisms of diffusion of innovation such as political, economic and institutional constraints. Internal factors are defined as those factors that are internal to the organization such as human capital, resources and networking capabilities. Qureshi et al. (2017) investigated the literature for identifying the potential barriers for adopting solar PV at the household level. Later, interviews were conducted in Pakistan and the results show that innovation attributes, government recommendations and availability are the critical factors responsible for adoption of solar PV among household in developing economies. Akhlaq et al. (2016) did the systematic review and found the factors that stand in the way of innovation diffusion specifically in the health information exchange. Health information exchange facilitates the healthcare professional and policy makers in taking the right decision for improving population health. The predominant factors that affects its diffusion include structural, financial and political barriers. Another study investigated the determinant for diffusion of internet across the world by using a panel of more than 200 countries and identified network effect as an additional factor that facilitate the diffusion of innovation in low-income emerging economies (Andrés et al. 2010). In conclusion, the literature suggests that the networking, innovation attributes and economic factors play a vital role for diffusion of innovation in developing and emerging economies. Certain other factors facilitate or create hindrance in the diffusion of innovation in emerging and developing economies including communication, political and government recommendation, geographical, market and organizational similarity. In addition, user preferences, institutional support and entrepreneurial mindset are also prominent in the diffusion of innovation in emerging and developing economies (Table 1).

3 Empirical Analysis In order to analyze the diffusion of frugal innovations in healthcare in emerging and developing countries, we selected two frugal innovations in healthcare. The first is the product innovation Jaipur Foot, founded in 1975, which is an ultra-affordable, rubber-based prosthetic for people with below-knee amputations (Arya and Klenerman 2008). And the second are process innovations carried out by Narayana

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Table 1 Shows the summary of the factors of diffusion of innovation as per Rogers, healthcare and developing and emerging economies. In short, apart from Rogers factor for diffusion of innovation, organizational characteristics, user preferences, geographic proximity, hospital staff and administration and other factors mentioned below play vital role in the diffusion of innovation in healthcare and developing and emerging economies Literature

Factors

Diffusion of innovation (Rogers 2003)

Innovation attributes, communication channels, time and social system (Rogers 2003)

Diffusion of innovation in healthcare

Innovation attributes, organizational characteristics, social system, physician preferences, marketing persuasion teams, surgical societies, user preferences, networking, hospital staff and administration, stakeholders (Sugarhood et al. 2014; Zhang et al. 2015; Ward 2013; Dingfelder and Mandell 2011)

Diffusion of innovation in developing and emerging economies

Innovation attributes, networking, economic, political factors, user preferences, collective learning, geographic proximity, industry, product, market similarities, entrepreneurial mindset, informal structures, communication channel, social system, organizational structure, environmental, operational, availability (Zanello et al. 2016; Qureshi et al. 2017; Redmond 2013; Negro et al. 2012; Boor et al. 2014)

Hurdayalaya Heart hospital, founded in 2000, which offers low-cost complex cardiac surgeries (Khanna et al. 2005). These frugal innovations were selected because they both originated and were first launched in India, which is a neighboring country with a similar socioeconomic status. Based on the review of the literature in Chapter 2, a questionnaire was developed for the study. Four perspectives were explored in the semi-structured interviews: (1) familiarity and motivational factors for using frugal innovations, (2) the communication channels, (3) barriers and drivers for diffusion of specific frugal innovations and (4) important stakeholders for implementing and sustaining these innovations in their hospital. Twenty-eight semi-structured interviews were conducted with experts from cardiology and orthopedics in Punjab, Pakistan from January to March 2018. The interviews were transcribed and analyzed using MAXQDA software and the qualitative content analysis approach. A qualitative content analysis, a term introduced by Kracauer (1952), is a way in which the meaning within the text can be discovered and analyzed. Kuckartz (2014) defined “qualitative text analysis as a form of analysis in which an understanding and interpretation of the text play a far larger role than in classical content analysis, which is more limited to the so-called ‘manifest content.’” Kuckartz (2014) defined three basic methods of qualitative text analysis: thematic analysis, evaluative analysis and type-building analysis. Evaluative analysis is more suitable for theory-oriented research. In type-building analysis, elements are grouped together on the basis of similarities in terms of selected characteristics with the aim

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11%

89% No

Yes n=28

Fig. 1 Familiarity with frugal Innovation

to differentiate rather than develop a theory. Thematic analysis was considered an appropriate technique because of the exploratory nature of the study (Kuckartz 2014). Of the 28 interview participants, 78% were from public hospitals (including semigovernment), and more than 80% of the participants were consultants.1 Six participants (21%) were women and all of them were cardiologists. Fifteen participants had more than 5 years of experience, ten of whom were orthopedists and five cardiologists (Appendix). The findings related to the four perspectives identified are presented below.

3.1 Familiarity and Motivational Factors for Using Frugal Innovations Three participants specifically orthopedists were familiar with the term “frugal innovation.” None of the cardiologists knew this term before (Fig. 1). Hence, it is concluded that the term is unknown in Pakistan. 68% of participants were using frugal products or techniques in their hospitals. 29% of participants were not using any frugal product or technique in their hospital and 3% of them had no information about it (Fig. 2). Hence, it is concluded that most of them do still use it. Of the 68% of participants, 11 participants were using locally made implants, 5 were using low-cost medications and techniques, 2 were using government recommended products, and 1 was using a refurbished machine or locally made stents (Fig. 3). From this information, it is noticeable that frugal innovations are widely adopted both in orthopedics and in cardiology. Many participants reported that they had been using these products or techniques for more than five years. Organizational factors also play a vital role in using any 1 Consultant is the title of a senior hospital-based physician or surgeon who has completed all of his

or her specialist training and been placed on the specialist register in their chosen specialty.

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3% 29% 68%

Yes

No

No informaƟon n=28

Fig. 2 Practicing frugal product or technique 12 10 8 6 4 2 0 Refurbished machines

local made stents

Government recommended products

low cost medicaƟons/techn iques

Cardiologists

1

1

2

4

0

Orthopedists

0

0

0

1

11

Orthopedists

Cardiologists

Local made implants

n=19

Fig. 3 Practicing frugal product or technique

product or technique in the hospital. One of the participants mentioned that he used it previously at another workplace. Specifically in orthopedics, ten have been using these products and techniques for more than five years, one used it in his previous workplace no longer does, and one has no information. In cardiology, seven participants have been using them for more than five years. The participants identified three factors, namely innovation characteristics, patient satisfaction, and recommendation by higher authorities or government, which keeps them motivated to use these frugal products or techniques (Fig. 4). In addition to the mutual driver’s innovation characteristics and patient satisfaction in both medical specialties, recommendation by higher authorities or government is a significant driver in the field of cardiology. Participants recognized that apart from patient’s observation and hospital owner and administration, more focus is placed on common practice that already prevails in the hospitals (Fig. 5). Specifically in orthopedics, seven doctors stated that the idea for using the abovementioned innovation is common practice; three mentioned that it came from patient observation, i.e., by dealing with their problems; one mentioned that it was initiated by the hospital owner and administration. In cardiology, five mentioned it as

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H. Arshad 12 10 8 6 4 2 0 InnovaƟon characterisitcs

PaƟent SaƟsfacƟon

RecommendaƟon by Higher authoriƟes or Government

Cardiologists

3

3

3

Orthopedists

8

7

0

Orthopedists

n=19

Cardiologists

Fig. 4 Motivation to use frugal innovations 14 12 10 8 6 4 2 0 Common pracƟce

From paƟents observaƟon

From hospital owner and administraƟon

Cardiologists

5

1

1

Orthopedists

8

3

1

Orthopedists

Cardiologists

n=19

Fig. 5 Initiation of idea

common practice, one from patient observation, and one from the hospital owner and administration. Therefore, there are no major differences between both medical specialties.

3.2 Communication Channels There are certain channels like mass media or interpersonal communication that can be adopted depending upon the type of innovation and the ultimate users of that innovation. In some situations, people prefer the advice of the near peers who have adopted the certain innovation as compared to the scientific results. These near peers are referred as social models and through them; it is easier for the others to adopt that particular innovation (Rogers 2003). Based on the interviews, the communication channels can be divided into six categories (Fig. 6). Respondent 1:

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Senior doctors Medical reps and pharma companies Research arƟcles PresentaƟon, group discussions, meeƟngs,workshops, seminars Conferences & Symposia Internet, social media, websites 0 Orhtopedists

2

4

6

Cardiologists

8

10

12

14

16

18

20

n=28

Fig. 6 Communication channels

“I learn about the latest innovations in my field when i came to know that there are so many equipment there are so many implants which are very expensive which we have imported from different countries and even from the different cities of the Pakistan and they are not in the reach of poor people and we will bound to introduce some of the implants which are in the range of the people of as far as the local locality is concerned basically i belong to Multan i know the economy of people over here. They are financially not very sound so i got an idea we should introduce the new implants with low cost with compatible results which are compatible with that of the results which are with off the machines are the implants which are imported from the different countries of the world.” Respondent 2: “Conferences, papers of the research.” Respondent 3: “Conferences….these are the workshops, lectures and team………lectures and teams.” Respondent 6: “Internet….conferences……articles and sometimes like some books so actually these are the sources from which we get these data.” Respondent 8: “mutual discussion, group discussions……internet…. Yes we go on conferences and symposiums….and workshops and we all we discuss each and other with our colleagues for our work and for our patient benefit.” Eighteen participants identified internet, social media and websites as the most prominent communication channels to learn about the latest innovations followed by conferences and symposia and presentation, group discussions, meetings, workshops, etc. In terms of differences between both medical disciplines, research articles are most important to orthopedists while internet, social media and websites are most important to cardiologists. Moreover, conferences and symposia as well as presentation, group discussions, meetings, workshops and seminars are prominent communication channels in both medical specialties.

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3.3 Barriers and Drivers for the Diffusion of Specific Frugal Innovation In order to identify the barriers and drivers for diffusion of specific frugal innovation in their hospitals, participants were asked about their familiarity with Jaipur Foot and Narayana Hurdayalaya Heart Hospital. Three out of fifteen are familiar with Jaipur Foot. Not surprisingly all of them are orthopedists (Fig. 7). They indicated their learning attitude and interest in research and conferences as reasons for being familiar with it. Although they are familiar with Jaipur Foot, they have not adopted it in their hospitals despite its benefits because of the five-stage process of innovation decision. For making innovation decision, knowledge itself is not essential. It is rather a five-stage process of knowledge, persuasion, decision, implementation and confirmation (Rogers 2003). In order to persuade them to adopt Jaipur Foot, more information from the right communication channels is required. Moreover, they mentioned patient satisfaction and availability as the main drivers for adopting Jaipur Foot in their hospitals. Of the cardiologists questioned, none were familiar with Narayana Hurdayalaya Heart Hospital.

3.3.1

Barriers for Non-adoption

Out of 28 interviewees, 3 were familiar with the Jaipur Foot. The other 25 participants identified lack of awareness, political and other reasons, such as lack of expertise, lack of teamwork, non-availability, long-term benefits, importing cost as barriers for non-adopting Jaipur Foot and the strategies of Narayana Hurdayalaya heart hospital in their hospitals (Fig. 8). Fig. 7 Familiarity with specific frugal innovation

11%

89%

No

Yes

n=28

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45

16 14 12 10 8 6 4 2 0

Lack of awareness

PoliƟcal reasons

Other reasons

Cardiologists

6

5

5

Orthopedists

8

6

2

Orthopedists

Cardiologists

n=25

Fig. 8 Reasons for non-adoption

3.3.2

Drivers for Adoption of Innovation

The top three drivers for adoption of innovation are innovation attributes, recommendation by hospital owner and administration and government recommendation. More than 80% of participants were willing to adopt the innovations namely Jaipur Foot and Narayana Hurdayalaya Heart Hospital, if these innovations meet some stated requirements. Respondent 1: “If the cost of those prosthesis would be acceptable and in the acceptable range and would be in the as far as it would be compatible with the economy of our people definitely we will use it.” Respondent 2: “Yes we will access that innovation whether it is feasible or not then we can accept it. Availability of the implant what so ever it is what so ever whether it is a medicine or implant or prosthesis. First we see its whether it is effective. Yes if it is effective then its availability then its availability and then cost. That’s very important. Whether it is feasible for our poor patients or not.” Respondent 3: “We are we are doing it. We are bringing it but not with the names. As we are doing lot of surgeries of the European and American researches but not with their names.” Some of the participants (almost 14%) are not willing to adopt these innovations because of political reasons with India and their high importing cost. Respondent 15: “Well, until and unless those techniques are from special channel from and they are like allowed in our hospital and they can, the government have also like they

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H. Arshad InnovaƟon aƩributes

RecommendaƟon by hospital owner and administraƟon Recommended by Government RecommendaƟon by seniors InnovaƟon mindset RecommendaƟon by European or American society Availability 0 Orthopedists

5

10

Cardiologists

15

20

25

30 n=28

Fig. 9 Drivers for adoption of innovation

have agreed to using those things we will definitely be using those things as far as those things are beneficial for our patients. If the results are good and they are cost effective and they are being easily adaptable. so we will definitely be using them and those things should be should be agreed by the proper channel that involves the government of Pakistan as well as other like you know the superintendent and all those dean which are involved in, those bodies those like those administration which are agreed by the administration we will definitely be using those things. And they have to be screen by the administration and then we can use it.” Most importantly, innovation attributes and recommendation by hospital owner and administration are the important drivers to adopt these innovations in their hospitals. Specifically for cardiologists, recommendation from the government plays a vital role in adoption (Fig. 9).

3.4 Role in Decision-Making Sixteen participants have 50% role in decision-making. Eight of the participants have no role in decision-making and 4 have more than 50% role. Hence, it is concluded that nature of the organization, designation and the cost of the innovation are the factors responsible for creating the differences in the role of decision-making (Fig. 10).

4 Discussion The contributions of this paper to the literature are twofold: First, we identified the potential barriers for diffusion of the abovementioned specific frugal innovations as: lack of awareness, political factors and other reasons (lack of expertise, lack of teamwork, non-availability, long-term benefits, importing cost). Secondly, the potential drivers for adoption of the abovementioned specific frugal innovations

Frugal Innovations in Healthcare: Factors Affecting … 18 16 14 12 10 8 6 4 2 0

47

50% or less

no role

More than 50 %

Cardiologists

6

3

4

Orthopedists

10

5

0

Orthopedists

Cardiologists

n=28

Fig. 10 Role in decision-making

as: innovation attributes, recommendation by hospital administration and owner, recommendation by government, recommendation by seniors, innovation mindset, recommendation by European and American society and availability (Rogers 2003; Dingfelder and Mandell 2011; Silva and Viana 2010; Zanello et al. 2016). Orthopedics professionals are more concerned with innovative products and techniques and believe on doing and adopting new products that are beneficial for their patients as compared to cardiologists that are following common practice and government recommended products. One reason for mentioning the importance of government recommended products might be that 11 out of 13 cardiologist are from public hospitals. Finally, this study provides insights that for diffusion of frugal innovation products or techniques in other low-income emerging economies in addition to medical professionals, individuals from hospital administration and government settings constitute a higher importance. It is due to the power distribution, i.e., more power for decision-making is in the hands of government and hospital administration, which creates barriers for the diffusion of frugal innovations. Despite similar socioeconomic condition and the proximity of both countries, a diffusion of both selected frugal innovations did not occur. The question arises, what frugal innovators, users and politics could do to drive the diffusion of frugal innovations across borders. Frugal innovators need to create awareness about the frugal products or techniques at global level by encouraging scientists from lowincome emerging economies to demonstrate the ideas and benefits of using them; which is not only ideal for low-income emerging economies but also important for developed countries to achieve sustainability. For instance, in our scenario, there is a need to create awareness about Jaipur foot and Narayana Hurdayalaya Heart hospital at the global level. It could be done by encouraging doctors from low-income emerging societies to disseminate information about the utility of using these frugal innovations. Along with it availability of the innovation is also necessary for its adoption. Moreover, evidence-based medicine are needed to convince both the doctors and patient about the benefits and effects of using that particular innovation. Policy makers and researchers should convince the hospital administration and owner along with

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doctors in order to make sure the adoption of that particular products or techniques in the hospitals. Government should encourage the upbringing of frugal innovative products or techniques by making policies through which professional training, demonstration, and testing of these products should be made available across the borders, which helps in professional skills development and patient satisfaction. International medical societies, for instance, European and American society should promote the benefits of these frugal innovative products and techniques and should recommend them at the global level.

5 Conclusion Regardless of the potential that diffusion of frugal innovation has in healthcare, none of the studies focus on this topic. Generally, the literature on frugal innovation deals with definitions and differences between frugal innovation and other types of innovation to have a clear boundary and knowledge of the respective term (Zeschky et al. 2014; Rao 2013; Landrum 2007). Some other researchers are defining the relationship of frugal innovation and sustainability. Frugal innovations are not considered only by emerging economies rather it should be adopted in the developed economies in order to bring prosperity (Kalogerakis et al. 2016; Kahle et al. 2013; Rosca et al. 2016; Pansera and Sarkar 2016). Importance of frugal innovation for MNC is another dimension that are highly popular among the frugal innovation literature (Tiwari and Herstatt 2012; Anderson and Markides 2007; Agarwal and Brem 2012). This study therefore provides a deeper understanding of the barriers and drivers associated with diffusion of frugal innovation in healthcare in low-income emerging economies. To this aim, semi-structured interviews were conducted with experts in the field of orthopedics and cardiology in Pakistan in 2018. Two frugal innovations were selected namely, Jaipur foot and Narayana Hurdayalaya Heart hospital because they both were originated and first launched in India which is a neighboring country with similar socioeconomic conditions. Using qualitative methods, this study has captured four perspectives: first, familiarity and motivational factors for using frugal innovations; second, the communication channels; third, barriers and drivers for diffusion; and lastly, important stakeholders for implementing and sustaining these innovations in their hospitals. To conclude, the factors responsible for diffusion of frugal innovation in healthcare in low-income emerging economies include; innovation attributes, hospital owner and administration recommendation and government recommendations. Organizations and managers should consider these factors keenly if they want to diffuse their frugal healthcare innovation in low-income emerging economies. In terms of future research, more research on the diffusion of frugal innovation is needed. Our study has various limitations. Firstly, our data is limited, therefore there is a need to get further information and expand the knowledge by interviewing more professionals from different regions in the developing and emerging economies. Secondly, scholars should employ more cases to refine knowledge and provide more

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compelling insights about the diffusion of frugal innovation product or techniques in low-income emerging economies. Moreover, deep understanding of the factors that accelerate the diffusion process such as which element of innovation attributes are more compelling for diffusion and strategies for adoption of frugal innovation in other regions. Rigorous analysis in one medical specialty may be helpful in identifying the factors that accelerate the diffusion of frugal innovation in low-income emerging economies.

References Agarwal N, Brem A (2012, June). Frugal and reverse innovation-literature overview and case study insights from a German MNC in India and China. In Engineering, technology and innovation (ICE), 2012 18th International ICE Conference on, pp 1–11. IEEE Akhlaq A, McKinstry B, Muhammad KB, Sheikh A (2016) Barriers and facilitators to health information exchange in low-and middle-income country settings: a systematic review. Health Policy Plan 31(9):1310–1325 Anderson J, Markides C (2007) Strategic innovation at the base of the pyramid. MIT Sloan Manag Rev 49(1): 83 Andrés L, Cuberes D, Diouf M, Serebrisky T (2010) The diffusion of the internet: a cross-country analysis. Telecommun Policy 34(5–6):323–340 Arshad H, Radic M, Radic D (2018). Patterns of frugal innovation in healthcare. Technol Innov Manag Rev 8(4) Arya AP, Klenerman L (2008) The jaipur foot. The Journal of bone and joint surgery. Br Vol 90(11): 1414–1421 Barnett J, Vasileiou K, Djemil F, Brooks L, Young T (2011) Understanding innovators’ experiences of barriers and facilitators in implementation and diffusion of healthcare service innovations: a qualitative study. BMC Health Serv Res 11(1):342 Bhatti YA, Prime M, Harris M, Wadge H, McQueen J, Patel H, Darzi A (2017) The search for the Holy Grail: frugal innovation in healthcare from low-income or middle-income countries for reverse innovation to developed countries. BMJ Innov 3(4):212–220 Bianchi C, Bianco M, Ardanche M, Schenck M (2017) Healthcare frugal innovation: a solving problem rationale under scarcity conditions. Technol Soc 51:74–80 Brooks E, Manson SM, Bair B, Dailey N, Shore JH (2012) The diffusion of telehealth in rural American Indian communities: a retrospective survey of key stakeholders. Telemed E-Health 18(1):60–66 Carpenter WR, Reeder-Hayes K, Bainbridge J, Meyer AM, Amos KD, Weiner BJ, Godley PA (2011) The role of organizational affiliations and research networks in the diffusion of breast cancer treatment innovation. Med Care 49(2):172 Chong AYL, Chan FT (2012) Structural equation modeling for multi-stage analysis on Radio Frequency Identification (RFID) diffusion in the health care industry. Expert Syst Appl 39(10):8645–8654 European Commisson (2012) The 2012 ageing report. Economic and budgetary projections for the 27 EU Member States (2010–2060). European Economy 2: 2012 Dearing JW, Kreuter MW (2010) Designing for diffusion: how can we increase uptake of cancer communication innovations? Patient Educ Couns 81:S100–S110 Dearing JW, Smith DK, Larson RS, Estabrooks CA (2013) Designing for diffusion of a biomedical intervention. Am J Prev Med 44(1):S70–S76 Dingfelder HE, Mandell DS (2011) Bridging the research-to-practice gap in autism intervention: an application of diffusion of innovation theory. J Autism Dev Disord 41(5):597–609

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Frugal Engineering and Development Process

Strategic Alignment of Multinational Corporations for Frugal Innovation—A Case Study Julia S. Roppelt, Anirudha A. Dambal, and Sergej von Janda

List of Abbreviations CSF MNC OLT RQ

Critical Success Factor Multinational Corporation Organizational Learning Theory Research Question

1 Frugal Innovation as MNCs’ Reaction to Aspiring Global Challenges Current developments, such as climate change, constantly rising healthcare costs, and increasing income gaps force governments, consumers, and companies to rethink their current actions in order to contribute to a sustainable development of the future (Caroll 1991; London and Hart 2004). According to calculations of the Club of Rome in 1972, the earth will reach its limits in the next 100 years, provided growth in human population, industrialization, environmental pollution, food production, and use of natural resource continues at the same rates (Meadows et al. 1972; Turner 2014). J. S. Roppelt (B) · A. A. Dambal (B) Siemens Healthineers AG, Erlangen, Germany e-mail: [email protected] A. A. Dambal e-mail: [email protected] S. von Janda (B) University of Mannheim, Mannheim, Germany e-mail: [email protected] © Springer Nature Switzerland AG 2021 N. Agarwal and A. Brem (eds.), Frugal Innovation and Its Implementation, Contributions to Management Science, https://doi.org/10.1007/978-3-030-67119-8_3

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Since this challenge is prevalent and highly relevant (Turner and Alexander 2014) the United Nations published the sustainable development goals in 2016 and launched an appeal to their stakeholders to follow these targets (United Nations 2019). Given the restricted power and motivation of consumers and governments, multinational corporations (MNCs) need to take responsibility as they control substantial resources and command the required influence to drive change (Wettstein 2010). However, above-mentioned challenges are not the sole reason for MNCs to rethink their business practices. Within the last decade, emerging markets such as Asia, Latin America, or Africa gained considerable importance on a global scale accounting for more than 50 percent of the global population. The middle class in emerging markets is expected to double in size to 4.9 billion consumers by 2030 and the economies in these markets grow three times faster than developed market economies (Neumann et al. 2017; Roland Berger 2015). To sustain growth in emerging countries, livability and healthcare quality needs to be improved by enhancing the access to affordable and qualitatively sufficient healthcare. Hence, MNCs need to pursue the opportunity to tap into previously unserved, fast growing markets in the developing world, while tackling upcoming challenges in developed countries. One aspiring approach that gains increasingly attention by scholars and practitioners in this context is frugal innovation (Arshad et al. 2018; Bhatti et al. 2017; Neumann et al. 2017). Frugal innovation refers to an innovation process that results in product, service, or a business model innovation that comes at low cost and, at the same time, is sustainable, simple, and offers good-enough quality to meet the basic needs of resource-constrained customers in both developed and developing markets (von Janda et al. 2020). Research on frugal innovation is still in its infancy and, apart from the studies presented in this book, few empirical studies have been conducted in this field (e.g. Cunha et al. 2014; Winterhalter et al. 2017). Existing literature agrees that it is not sufficient to sell down-stripped versions of products aimed at developed market consumers to resource constrained consumer segments at reduced prices and that a radical transformation of the innovation process and business model is required to develop frugal innovations (Hossain 2018; Ray and Ray 2010). However, the driving factors of frugal innovation remain underexplored. Additionally, literature calls for research to investigate how MNCs can implement frugal innovation (Barczak 2012; Roland Berger 2015; London and Hart 2004; von Janda et al. 2020). Our study follows these calls for research and examines why and how MNCs should foster frugal innovation, analyzing multiple frugal innovation projects in the healthcare industry—an industry that is commonly acknowledged to be a promising incubator for frugal innovation (Bhatti et al. 2017). The remainder of this book chapter is structured as follows. In chapter two, we present the organizational learning theory (OLT) as the theoretical background of our research. Building on the OLT, we conduct a review of literature in the field of frugal innovation in the third chapter. The literature gaps we identify are addressed in a qualitative case study and our findings are discussed in light of existing literature in chapter four before we draw our conclusions.

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2 Theoretical Background Prior literature emphasizes that innovation should be seen as a learning process (Prahalad 2012), outlining the importance for MNCs that seek to engage in frugal innovation to learn (Prahalad and Hammond 2002). In particular, corporations can gather explorative learnings from innovation in low-income markets and transfer those innovation-related learnings to high-income markets (Bhatti et al. 2017; Pisoni et al. 2018; Prahalad and Hart 2002; Radjou and Prabhu 2012; von Janda et al. 2020). Hence, we propose that frugal innovation holds cross-departmental and crossmarket learning potential for multinational corporations. Consequently, we consider the OLT as a fruitful theory to explore both the motivation of MNCs to engage in frugal innovation and how MNCs can implement frugal innovation in their global operations (Bacharach 1989). Organizational learning reflects the process by which knowledge is acquired in an organization and through which firms adapt to their respective environments (Dodgson 1993; Polanyi 1966). This process is triggered by external shocks (Cyert and March 1963). In the organizational learning literature, scholars differentiate between explicit and tacit knowledge generation. Explicit knowledge is characterized by documentability and transferability. Tacit knowledge, in contrast, is either unarticulated or unconscious and, therefore, difficult to impart (Barney 1991). Organizational learning is considered to be an important driver of competitiveness (Garratt 1987). Specifically, the acquisition of tacit knowledge can increase firms’ competitiveness due to its unique characteristics that cannot be transferred easily (Barney 1991). This increased competitiveness results in higher performance, leading to MNCs’ long-term survival and growth (Chandler 1962; Fiol and Lyles 1985). In the realm of frugal innovation, we conclude that not only internal considerations but also developments in the external environment of a firm trigger MNCs’ strategic renewal and acquisition of knowledge decision to remain competitive as well as to ensure long-term survival of the firm. After the publication of the book “On Organizational Learning: A Theory of Action perspective” by Argyris and Schön (1978), the OLT has been applied as a theoretical perspective throughout various research disciplines. One of the main contributions to our understanding of organizational learning is the distinction of two types of learning (Argyris and Schön 1999). The first type, single-loop learning, occurs whenever an error is detected and corrected, without refining the underlying values or norms and is used for learning from routine tasks (Goodman et al. 1982). The second type, double-loop learning, constitutes a promising learning process for complex issues. It occurs when mismatches are corrected by examining and refining the governing variables, including underlying norms or values, before the actions are adopted (Huber 1991). Double-loop learning can be triggered through individuals, if their investigation results in a change of values of their theory-in-use, and organizations, if individuals investigate on behalf of the organization (Goodman et al. 1982). Both types of learning often arise in conjunction.

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The OLT perspective on learning is in line with the claims of exploration and exploitation theory (March 1991). Exploration aims at identifying disruptive insights or knowledge and is perceived as a means to innovate project for project. Especially experimentation, risk-taking attitude, flexibility, and the application of double-loop learning result in the exploration of the unknown (Gilsing and Nooteboom 2006; March 1999). Exploitation, in contrast, focuses on removing undesirable obstacles through incremental innovation (March 1999). This kind of learning is executed permanently and characterized by refinement or enhanced efficiency (March 1991). Single-loop learning is key for achieving the exploitation of existing knowledge (Gilsing and Nooteboom 2006). In our research, we draw a link between exploration of knowledge and frugal innovation because frugal innovation activities per definition aim at exploring innovative ways to achieve high value with few resources, whereas traditional innovation follows established patterns and processes to exploit existing knowledge. Neither solely focusing on exploitation nor on exploration results in a long-term sustainable competitive advantage (March 1991). If a corporation relies on exploration of knowledge, it suffers from relatively high costs associated with this type of knowledge acquisition and cannot exploit newly gained insights easily. The exclusive focus on exploitation, however, yields short-term growth but lacks long-term sustainability and misses the exploration of new opportunities to capitalize on. Therefore, it is crucial for companies to balance their efforts in explorative and exploitative learning (Gilsing and Nooteboom 2006; March 1991). Crossan et al. (1999) were among the first to explore the tension between explorative and exploitative learning integration in organizations. The authors developed a framework to integrate multiple levels on which organizational learning occurs: the individual level, the group level, and the organizational level. The authors proposed the 4I framework (i.e., intuition, interpretation, integration, and institutionalization of knowledge), claiming that knowledge obtained on the individual level through intuition and interpretation can be integrated on the group level and then be institutionalized on organizational level. This process is referred to as feed-forward, sparked by the explorative behavior of the individual and resulting in organizational adaption. Furthermore, the framework proposes that knowledge on the organizational level needs to be fed-back to the group level and individual level, ensuring the exploitation of existing knowledge by focusing on refinement and routinization. Crossan et al. (1999) emphasize the role of top management in supporting the organizational culture and integrating leaders’ values and ideas with the shared values among the employees. This OLT framework constitutes a promising multi-level strategy for MNCs forced to engage in explorative and exploitative learning simultaneously. Referring to frugal innovation, scholars suggest that responsible and independent groups are decisive to achieve a high degree of frugal innovation performance while exploiting traditional business (Corsi and Di Minin 2014; Esko et al. 2013; Farooq 2017; Winterhalter et al. 2017). Against this background, we apply the OLT to explore the role of individuals, groups, and the organization as well as their interfaces with regard to the successful implementation of frugal innovations in a firm’s global operations.

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3 Literature Review As frugal innovation constitutes a nascent but emerging phenomenon, a great portion of the literature in this field focuses on the definition and conceptualization of this focal construct (Agarwal et al. 2017; Brem and Wolfram 2014; von Janda et al. 2020). The term “frugal” originates from the Latin expression frugalis, meaning affordable and usable. The terminology has been introduced into the management discourse by Carlos Ghosn, the former CEO of Renault and Nissan, aiming to achieve “more with less” resources through frugal engineering (Kumar and Puranam 2012; Lehner and Gausemeier 2016). Frugal engineering strives for product development focusing on attributes such as robustness, portability, de-featuring, leapfrog technology, megascale production, and service eco-systems (Agarwal et al. 2017). However, frugal innovation only gained substantial attention from management practitioners and academics after an article in the Economist in 2010 suggested to “break the rules” through frugal innovation, reducing products to their basic requirements to meet the needs of particularly price-sensitive customers (Wooldrige 2010). The current discourse on frugal innovation provides two major perspectives (von Janda et al. 2020). First, some researchers explore frugal innovation from an outcomeoriented perspective, defining frugal innovation affordable, sustainable, simple, and good enough or basic quality products, services, or business models that result from firms’ innovation activities (George et al 2012; Gupta 2012; von Janda et al. 2020). Some scholars claim that the main value of frugal innovations lies in a significant reduction of their total cost of ownership (Tiwari and Herstatt 2013). Others propose that frugal innovations refer to resource constrained solutions, including products, services, and business models, that have been introduced despite or because of resource constraints at tremendously lower price points compared to competitive products, while still offering good-enough value to customers that would remain un(der)served without these solutions (Hossain et al. 2016). Hence, frugal innovations enable non-affluent customers to consume products and services fitting their specific needs (Weyrauch and Herstatt 2016). Zeschky et al. (2014) move beyond a cost-based definition and claim that frugal innovations even incorporate enhanced value, often through disruptive innovation. A second vein of frugal innovation research investigates frugal innovation from a process or a management philosophy perspective. This rather young and emerging sub-stream views frugal innovation as a specific process that helps to develop frugal products, services, or business models, often originating from emerging or developing markets with the potential to be transferred to developed markets in later lifecycle stages (George et al 2012; Gupta 2012). Because developed markets have increasingly been identified the beneficiaries of frugal innovation, scholars’ attention shifted from the differentiation between developed and emerging markets to low and high-income customers (Rao 2013). In the scope of this present study, we follow the latest contributions to research and understand frugal innovation as both a process and an outcome. The frugal innovation process comprises specific resources and capabilities that lead to a specific type of

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outcomes—namely frugal innovations. These innovations refer to products, services, and business models taking the needs of resource-constrained customers into account and, thus providing enhanced value for customers at significant lower total cost of ownership than competitive solutions. Besides working on the definition of frugal innovation, researchers have also investigated the antecedents of this phenomenon (e.g. Ernst et al. 2015; Soni and Krishnan 2014). In this chapter, we define antecedents as external factors that motivate or drive the development of frugal innovation in a company. Against the theoretical background of this chapter, it is important to understand these antecedents of frugal innovation since the OLT claims that the external environment triggers internal renewal considerations. A comprehensive review of the literature identifies four antecedents of frugal innovation, encompassing weak institutional power, market fragmentation, resource scarcity, and shifting customer demands. Weak institutional power is predominantly prevalent in emerging markets—where frugal innovations often originate from—and describes a lack of institutional power to enforce regulations, ensure compliance with the law, and combat corruption (Hoskisson et al. 2000; Hossain 2018; Lee et al. 2011; Miller 1998). As these factors represent barriers to traditional innovation projects of MNCs, frugal innovation often emerges as an alternative, embracing constraints to leverage innovation through creative techniques (Ernst et al. 2015; Khanna et al. 2015). Another antecedent of frugal innovation commonly mentioned in the literature is market fragmentation, referring to a situation in which there are many different types of customers for a solution or many different providers of a solution. (Cambridge University Press 2014). Market fragmentation is particularly common in emerging markets, where many local competitors compete for distinct consumer needs, requirements, and preferences at very low price points (Dawar and Chattopadhyay 2002; Prahalad 2012; Shankar et al. 2008). Through frugal innovation activities, MNCs receive the opportunity to capture market share and create value while reaching these low-price points (Ernst et al. 2015). The third antecedent of frugal innovation, resource scarcity, encompasses the limited availability of financial resources (e.g. consumer income or stakeholder investments), human resources (e.g. the lack of educated staff), and physical resources (e.g. the lack of reliable infrastructure or diminishing natural resources) (e.g. Nakata and Weidner 2012; Ray and Ray 2010; Soni and Krishnan 2014). While some of these resource constraints, for example, related to infrastructure, are more pronounced in emerging markets, others, such as diminishing natural resources, pose challenges to companies even in developed markets. These resource constraints obstruct traditional innovation approaches and call for the creative recombination of existing resources to offer affordable high-value solutions, for example via frugal innovation (Ernst et al. 2015; Winterhalter et al. 2017). Shifting consumer demands constitute a fourth antecedent of frugal innovation. For example, the climate crisis motivates customers to consume in a more responsible way, resulting in an increasing demand for sustainable products and services that make responsible use of available (natural) resources (Hart and Christensen 2002; Immelt et al. 2009; Lim et al. 2013; Wooldrige 2010). Another trend underlying this

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factor is the increasing consumer demand for simple solutions rather than complex (and costly) multi-functionality (von Janda et al. 2020). Partly based on the presented research on frugal innovation antecedents, some scholars explore the factors that influence MNCs’ decision to engage in frugal innovation. However, previous research lacks an empirical perspective and is mainly grounded in anecdotal evidence. Furthermore, this literature stream lacks a theoretically grounded framework to depict the drivers of frugal innovation in a holistic manner. To the best of authors’ knowledge, Simula et al. (2015) present the only empirical study on the drivers of frugal innovation in MNCs. Although the authors develop a conceptualization of frugal innovation, their study has two major shortcomings. First, Simula et al. (2015) assume that frugal innovation is limited to emerging markets and can only be transferred to developed markets via reverse innovation—an assumption to be challenged. Second, although the study discusses several selected drivers of frugal innovation, it lacks a theoretical underpinning and empirical comprehensiveness. Most other studies on the drivers of frugal innovation develop claims from anecdotal evidence, without providing sufficient empirical evidence (see Table 1). Against this background, Tiwari et al. (2017) call for further empirical research on the opportunities and challenges resulting from the engagement in frugal innovation for various stakeholder groups. To gain a thorough understanding of the motives of MNCs to engage in frugal innovation, we aim to empirically explore the reasons why MNCs engage in frugal innovation and to integrate our findings in a comprehensive framework grounded in the OLT. Accordingly, we phrase our first research question (RQ) as follows: RQ1: Why do MNCs engage in frugal innovation?

In addition to research on the antecedents of frugal innovation and the motives of MNCs to engage in frugal innovation, scholars have dealt with the success factors of this innovation approach. Research agrees that frugal innovation significantly differs from traditional innovation approaches that rely on abundance and the development of solutions for relatively affluent customers (Ernst et al. 2015; Prahalad and Mashelkar 2010; Winterhalter et al. 2017). Several studies have carved out the critical success factors (CSF) for MNCs planning to engage in frugal innovation. Often cited CSF encompass Bricolage, Management Support, Frugal Mindset, Local and Social Embeddedness, Business Model Innovation, and a dedicated Organizational Unit for frugal innovation. The first CSF explored in the context of frugal innovation is Bricolage, defined as the innovative and creative recombination of existing resources (Ernst et al. 2015). Bricolage is especially important, as it alleviates resource constraints through smart ideas and thus fosters innovation in resource-scare environments (Ernst et al. 2015). Full management commitment is necessary to grant budget and resources to invest in the future. In this way, it is ensured that frugal innovation activities receive the necessary freedom to operate and are not neglected due to short-term profitability concerns (Angot and Plé 2015; Farooq 2017; Hossain 2018; Ray and Ray 2011). Especially in established corporations, it is crucial to stimulate and incorporate a frugal mindset and change the practiced “best-in-class” to a “good-enough” mindset, leveraging frugal

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innovations (Winterhalter et al. 2017). It is vital to step back and start by analyzing the core needs of the target group from scratch and not only develop an existing solution further and include more features. This would result in over-engineered solutions that constitute challenges to operate for unskilled professionals and an expensive solution covering more than needed (Roland Berger 2015; Simula et al. 2015). To develop these “good-enough” innovations, authors claim that it is essential to be socially and locally well embedded in the local context to identify the customers’ core needs. Local ecosystems support gaining insights and leverage the local market knowledge to address customer needs correctly (e.g. Corsi and Di Minin 2014; Ernst et al. 2015; Hossain 2018; London and Hart 2004; Ray and Ray 2010; Schuster and Holtbrügge 2014). Furthermore, the literature points out that frugal innovation requires new business models, encompassing not only new and unconventional partners for sourcing and defining solutions but also sales channels to address the unmet markets (e.g. Anderson and Markides 2006; Esko et al. 2013; Prahalad 2012). Taking a value creation process perspective, Winterhalter et al. (2017) focus on how firms can set up frugal innovation. By analyzing the value creation and capturing process of five cases, they suggest that besides a frugal mindset, a dedicated organizational unit to foster frugal innovation represents a CSF in firms’ organizational configuration for frugal innovation. Our literature review reveals that most studies exploring the CSF of frugal innovation rely on anecdotal evidence solely. They neither create links nor show potential interdependencies between frugal innovation and traditional innovation processes and fail to provide a step-by-step approach to implement frugal innovation in MNCs’ established organizational structures. Moreover, most prior studies on frugal innovation analyze the success factors exclusively from a resource-based view, lacking the integration with the OLT. This contrasts with the common understanding that organizations need to incorporate constant learning approaches to leverage frugal innovation successfully and to implement these learnings beyond initial target markets and low-end solutions. Apart from this, existing research fails to take the dynamic market environments into account, depicting a static one-time picture of the value creating and capturing process through frugal innovation instead of providing a dynamic consideration of the organizational development process to embrace frugal innovation successfully. To fill this gap, we follow numerous calls for research (Ahuja and Chan 2014; Barczak 2012; Simula et al.2015) and pose the following second research question: RQ2: How can MNCs integrate frugal innovation in their global operations?

4 Empirical Study Due to the fragmented and nascent nature of prior literature on our phenomenon of interest, we decided for a qualitative approach to explore our research questions. The presented literature review serves as a starting point for our own empirical study. Specifically, we apply a combination of the case study methodology (Eisenhardt

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1989; Yin 2014) and the grounded theory approach (Corbin and Strauss 1990) to analyze data from several frugal innovation projects at Siemens Healthineers to understand how and why frugal innovation is implemented in real-life settings (Yin 2014). Our literature review and the OLT provide an analytical frame to structure our own empirical study as well as the presentation of our results. Due to the theoretically grounded nature of our explorative study, several themes and topics presented in the literature review reappear and are reflected in the presentation of our results.

4.1 Research Context Because of the increasing pressure on the healthcare industry to sustainably reduce healthcare costs while ensuring global access to healthcare, the opportunities created by frugal innovation are particularly significant in this industry (Arshad et al. 2018; Bianchi et al. 2017). For this reason, we decided to focus our study on the healthcare industry. Specifically, we identified Siemens Healthineers as a fruitful object of investigation. Siemens Healthineers is a leading medical device manufacturer, constantly adapting to new market requirements. As a multinational cooperation, Siemens Healthineers operates in 75 countries with its headquarters in Germany. In total, the company employs approximately 50,000 employees globally, with 13.4 billion USD revenue in the fiscal year of 2018 (Siemens Healthineers AG 2018).

4.2 Data Collection and Analysis Working together with senior level executives and having access to an overview on current and past innovation projects at Siemens Healthineers, we chose eligible cases encompassing both frugal product and platform innovations for our investigation. We considered all projects relevant that were in line with our definition of frugal innovation. In total, we selected two platform innovations and two single-product projects. Based on our selection, data was collected via theoretical sampling. We conducted expert interviews, observations of traditional and frugal innovation teams, and analyzed archival data. Expert interviews. In total, we conducted 18 in-depth interviews with managers who had first-hand experience in our selected innovation projects. Our interview participants possess an average of 5.6 years in frugal innovation experience and represent different departments, including marketing, sales, research and development, and support functions. They shed light on our phenomena of interest from the perspective of Germany, China, and India as well as from various hierarchical levels to ensure diversity and magnitude of perspectives on our research topic (Eisenhardt 1989; Yin 2014). Detailed characteristics of the sample can be found in Table 2. In line with Strauss and Corbin (1990), we applied a constant comparison technique to

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the interview data gathered and compared new emerging insights with previous ones as well as with the results from our literature review. Observations. Two of the researchers worked within Siemens Healthineers and had the opportunity to observe differences in working styles, routines, and interactions between traditional and frugal innovation teams as objective non-participants. All observations were recorded via excessive notes for subsequent data analysis. Archival data. For purposes of data triangulation, we included customer presentations, internal decision meeting presentations, information from company and project websites, and press releases in our analysis. Our data was processed applying a three-step coding process proposed in the literature (Strauss and Corbin 1990). First, we coded the data in vivo to extrapolate the actual intention of the interviewed person or author. Conceptual information that could not be gathered through in vivo coding was coded via open coding. Second, we applied axial coding to analyze how different codes relate to each other to eliminate redundant codes as well as to identify higher level code categories and their corresponding sub-codes to systematize the coded data and to discover overarching concepts. To determine the code categories, a within-case analysis was performed before a cross-case analysis followed. Third, the code categories were allocated to predefined clusters. We derived these clusters from our literature review and the OLT to conceptualize our findings grounded in theory. In this vein, we shed light on existing literature and discuss similarities and differences with previous research. Through triangulation of data collection methods, we strengthened the reliability of our findings. To further increase the trustworthiness of our study and to assure the generalizability of our results, we consulted experts from competitor companies in the healthcare industry and discussed our findings. Additionally, we gave our interview partners the opportunity to review a managerial summary of the results to ensure a high degree of validity of our generated insights (Pratt 2008; Tracy 2010).

4.3 Findings and Discussion Our findings are organized in two frameworks closely linked to the OLT. The first framework comprises the factors that motivate MNCs to engage in frugal innovation. The second framework depicts a five-step approach for MNCs to implement frugal innovation in their global operations. Both are presented and discussed in light of existing research in the following.

4.3.1

Motives to Engage in Frugal Innovation

Drawing on the OLT, organizations are seen as open systems that depend on their environment. This theoretical claim was confirmed in the scope of our interviews. Specifically, one interviewee explained that “the external perspective triggers internal

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Fig. 1 MNCs’ motivation in frugal innovation framework (authors’ own work)

activities” (Head of Department 41 ). Accordingly, our framework explaining MNCs’ motivation to engage in frugal innovation distinguishes between company external factors and company internal factors that motivate frugal innovation (see Fig. 1). The external factors trigger internal motivation which, in turn, helps to overcome or compensate internal barriers to frugal innovation. The majority of factors are valid for emerging and developed market settings. The factors that are solely attributable to emerging markets are marked as such. We first discuss company external factors that motivate frugal innovation, before turning to internal factors. Market Potential. Our research shows that managers see great market potential for frugal innovations in both emerging and developed markets. The growing market potential in developed markets, which for many managers is a decisive motivator to initiate frugal innovation projects, is mainly attributable to the increasing price sensitivity of customers in these markets as well as to trends such as simplification (von Janda et al. 2020). The insights we generate provide further support for prior literature on motives to engage in frugal innovation, stating that emerging markets have become an attractive target for MNCs via frugal innovation due to a fast growing resource constrained population and decreasing barriers for businesses (Cunha et al. 1 Senior

Vice President, Vice President/Head of Department, Manager are numbered to preserve anonymity and reflect the multitude of interviewees.

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2014; Nakata and Weidner 2012). Additionally, our study results reveal that the medical device market in emerging markets is very fragmented and mainly served by local competitors that stand in fierce competition at very low-price points (Dawar and Chattopadhyay 2002). Often, these local competitors cannot balance the need for low cost and good-enough quality at the same time. Siemens Healthineers sees an opportunity in entering these markets with frugal solutions. One of our study participants explains: “The growing population size and the raising middle class become increasingly powerful due to a rise of disposable income for healthcare, results in the fact that a medical device manufacturer aims to be present in such a market.” (Head of Department 7)

Further, our research supports earlier claims in literature (Angot and Plé 2015), proposing that it is interesting for MNCs to target price-sensitive customers with need-based solutions today, as these customers are likely to become loyal customers when they get more affluent in the future. However, we go one step beyond and highlight the potential of frugal innovations in developed markets, too. Customers in both emerging and developed markets tend to bundle purchases of high-priced systems for special examination or research with affordable (backup) systems for the mainstream procedures. In general, bundling refers to a package consisting of separate products (Homburg 2017). To remain competitive in tenders, our interview partners confirm that Siemens Healthineers faces the necessity to innovate frugally to provide price-competitive products in low-end market segments all around the world. Market Dynamics. Dynamic market environments serve as another motivating factor for firms to engage in frugal innovation. Dynamic market environments require accelerated reactions to changes in the market and a frugal innovation culture can serve as a suitable means to address these changes. Furthermore, MNCs face increasing competition by emerging market low-price competitors, forcing them to rethink their innovation paradigms. Our respondents voiced competitive pressure to be first on the market and to address rapidly changing consumer needs with affordable, good-enough quality solutions. Lack of Infrastructure. The infrastructure to develop, manufacture, distribute, and sell traditional innovations is often underdeveloped or nonexistent in emerging markets—often the origin of frugal innovations. Infrastructure refers to the “basic systems and services, such as transport and power supplies, that a country or organization can use to work effectively” (Cambridge University Press 2014). One of our study participants describes: “A prevalent challenge especially in India constitutes the break-down of the power supply several times daily.” (Manager 5)

Frugal innovation can be a suitable means to address challenges related to infrastructure insufficiencies. In this regard, our findings contradict prior research claiming that a lack of infrastructure in emerging markets represents a barrier for MNCs to engage in innovations due to relatively high up-front investments required to build the necessary infrastructure (Hammond and Prahalad 2004; Nakata and Weidner

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2012). Siemens Healthineers proactively embraces this challenge and, for example, invests in the reliability of products, developing frugal solutions that do not depend on constant power supply anymore. Regulatory Barriers. Barriers to the development of frugal innovations can, among other factors, arise from the regulatory market environment. Innovations in the healthcare industry must pass a cost-intensive and time-consuming approval process with local regulatory authorities, the outcome of which is often uncertain. These regulatory barriers pose a major challenge for frugal innovations in particular, as they are based on fast and cost-effective processes. Customer Acceptance. Another factor discouraging companies from developing frugal innovations is a potential lack of customer acceptance. Several of our interviewees reported that customers might not accept frugal solutions. Our participants attribute this mainly to the fact that customers are reluctant to changing internal workflows, which would be required for using a stripped-down, frugal solution to meet rather basic needs affordably. “We considered plenty of ideas to develop a frugal system. However, we failed in the end as it was questionable whether such a solution can find a market.” (Head of Department 6)

In summary, our framework shows that the market environment can both motivate and prevent the development of frugal innovations. In the following section, we turn to the internal motivating factors for and barriers to the development of frugal innovations. Our framework depicts these motivational factors on both the corporate and the individual level. Furthermore, our findings reveal that company internal motivational factors can compensate existing barriers to frugal innovation. Strict Cost Targets. Above-mentioned market developments, such as an increasing price sensitivity of consumers or competition from emerging market-based lowcost competitors, drive Siemens Healthineers to implement strict cost targets on their operations. Our analysis points out that the majority of Siemens Healthineers’ actions are led by ambitious cost targets which cannot be achieved via conventional innovation processes. Frugal innovation provides an opportunity to achieve these cost targets and, thus to offer solutions at low prices, to gain market share and, at the same time, remain profitable. Furthermore, our analysis reveals that traditional innovations developed at Siemens Healthineers were often very costly to manufacture, pricy for customers, and “not able to address the price point of our local competition” (Senior Vice President 1). These facts fostered the engagement in frugal innovation to contribute to the long-term survival of the firm. Strategic Orientation. Throughout our interviews, many study participants described frugal innovation as both an opportunity to learn and a strategic project to secure the future of Siemens Healthineers. Frugal innovation can foster internal learning and experience in testing new processes, ways of working, and business models. Our interviewees commonly agreed that the frugal innovation projects explored in our research have exemplary character for the future. For example, the modular product design implemented in some of the frugal innovation projects will be applied to other solutions, following the assumption that “when you start from scratch, you can always do it in a way where these components can be reused in

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even high-end systems” (Head of Department 2). Particularly in emerging markets, Siemens Healthineers aims to build up a local ecosystem and local facilities to be prepared for growth in emerging markets in future. That is in line with the claim, that frugal innovations are seen as a “classical foot in the door strategy” (Manager 5) to untapped and future growth markets. Frugal innovation provides learning opportunities not only to the developing firms but also to customers purchasing a frugal solution. Especially first-time buyers need to become familiarized with frugal solutions to pave the way for future purchases, considering the projected rise in income resulting in more affluent customers and being able to afford high-end systems. In addition to factors at the corporate level, our research reveals factors at the individual level that can motivate frugal innovation: Enhancing Healthcare Quality, Global Healthcare Access, Job Stability, and Sustainability. For example, one of our interview participants explains that the personal motivation behind the engagement in frugal innovation lies in delivering high-quality healthcare to a broad customer base worldwide: “I have this personal motivation and that is why I work for Siemens. Every day, I am excited to work for it, because that is my underlying passion to deliver world-class healthcare to everyone.” (Manager 7)

Although prior research on the strategic orientation of MNCs in emerging markets suggests that corporate activities should be led by social or environmental concerns (Stiglitz 2002), our findings only in part confirm this proposition. On a personal level, our informants indeed stated securing local jobs is an underlying motivation for Siemens Healthineers to engage in frugal innovation. Furthermore, some study participants named the pursuit of sustainable consumption goals as another personal motive. However, from a corporate perspective, the profitability of a business case is the decisive factor to legitimate investments in frugal innovation. Overall, our analysis reveals that, while personal motives for the development of frugal innovations are not to be neglected, these motives are reflected in our data much less frequently than the motives at company level. In the following, we turn to company internal factors that can be a barrier to frugal innovation. Corporate History. When it comes to the barriers of frugal innovation, the corporate history and the established mentality have been highlighted throughout our data to represent severe internal hindrances to the development of frugal innovations. At Siemens Healthineers the corporate history for high-quality products at premium prices in combination with an inherited best-in-class DNA results in a lack of experience with frugal innovation. For many developed countries-based MNCs, a premium brand image has been a key success factor in the past. Thus, the high-quality associations of employees and customers with a respective brand often reduce the internal motivation to explore frugal innovation. A best-in-class DNA incorporates a corresponding mindset, relying on established norms, values, and processes and, therefore, resulting in organizational resistance when it comes to driving frugal innovation initiatives. This insight supports anecdotal evidence from prior research claiming that the best-in-class mindset and established conventions reduce MNCs’ motivation to

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engage in frugal innovation and that a transformation of the corporate mindset is crucial (Prabhu and Jain 2015). Lack of Motivation. In line with prior literature (Prabhu and Jain 2015), our findings show that a lack of motivation or a lack of a sense of need for change hinders the development of frugal innovation. One study participant explains: “We are in a too good shape. To be motivated to engage successfully in frugal innovation, we need a sense of urgency.” (Senior Vice President 1)

Planning Uncertainty. Finally, our analysis indicates that frugal innovations are often accompanied with more difficult predictions of sales units and profits. Especially in emerging markets, low prices are outweighed by great unit numbers to compensate the profitability loss. Consequently, forecasting inaccuracy decreases the incentives to engage in frugal innovation. This finding confirms the assumptions of Prabhu and Jain (2015) who state that quarterly results-driven management and higher perceived risk reduce the incentives to actively engage in frugal activities.

4.3.2

Integration of Frugal Innovation in Established Operations

Research commonly acknowledges that frugal innovation differs from traditional innovation in many ways (Ernst et al. 2015; Prahalad and Mashelkar 2010; Winterhalter et al. 2017). Both, the frugal innovation process and its outcomes require resources and capabilities different from those required for traditional innovation (von Janda et al. 2020). Hence, the second research question we posed in the context of our research aims to explore how both types of innovation can be combined in one global innovation strategy. Building on the OLT framework proposed by Crossan et al. (1999) as well as on the analysis of our case data, we identify a five-step process for the integration of frugal innovation in MNCs’ global operations. This process comprises (1) fostering visionary management and gaining management commitment, (2) carving-out a frugal innovation core team, (3) establishing interfaces to the traditional innovation team/unit, (4) initiating regular feed-back between the corporate and the individual/group level, and (5) enabling regular feed-forward of new processes, products, services, or business models from the frugal innovation team to the traditional innovation team at both the corporate and the individual/group level. Figure 2 depicts this dynamic process visually. Step 1: Visionary Management & Management Commitment. To implement frugal innovation in established operations of MNCs, our research reveals that visionary management and management commitment are decisive. Our findings represent the first empirical confirmation of similar claims in prior literature (Esko et al. 2013; Farooq 2017). First, the management has to recognize emerging opportunities from frugal innovation. A visionary management style is crucial as it helps to embrace future opportunities arising from frugal innovation. Furthermore, MNCs’ management needs to commit its long-term strategic orientation towards the implementation of frugal innovation in corporate operations, since frugal innovation requires different processes, working styles and mindsets for which the organization must be shaped.

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Fig. 2 Five-Step approach for frugal innovation in MNCs (authors’ own work based on Crossan et al. (1999))

The OLT supports this finding, also emphasizing the responsibility of the management to reinforce organizational culture and the integration of values in the shared values of the entire organization (Crossan et al. 1999). Management commitment further refers to the allocation of a distinct budget and resources to the exploration of frugal innovations that do not overlap with budgets for traditional innovation. If management is not fully committed to go this path, budget and resources will be focused on the exploitation of business in the scope of traditional innovation, yielding higher short-term profits. Step 2: Carve Out. In the second step of frugal innovation implementation in MNCs operations, it is vital to carve out or establish a so-called frugal innovation satellite (Manager 3). An autonomous innovation team should be in charge of the application of creative innovation techniques aiming at the development of frugal innovations. It is important that this team is equipped with its own resources and capabilities and can operate outside the MNC’s established innovation paradigm. Traditionally, innovation developers, especially in developed markets, follow the principle to implement a maximum of functionalities and the latest technologies in an innovative solution. Very often this approach leads to “over-engineering”, a phenomenon that is criticized in the frugal innovation literature, as it results in complex, expensive solutions that significantly exceed customers’ needs for functionality and quality (Altmann and Engberg 2016). Frugal innovation, in contrast,

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starts bottom-up with the exploration of the customers’ basic needs, before determining the basic values the system should provide, following the paradigm to do more with less. One interviewee emphasizes: “There has to be a level of independency that the frugal project gets. You cannot do it with the same milestones that you would do for a high-end product. You cannot use the same tools and tool infrastructure. You cannot use the same engineers on both projects. You need to develop expertise where the market requirement is.” (Head of Department 2)

By carving out a frugal innovation satellite from the organizational structure, a high degree of independency of this satellite from established business and processes should be secured. The important role of top management commitment in this carve out phase is unarguable. The top management needs to be an enabler or facilitator of frugal innovation activities in this autonomous satellite team. A reduction of hierarchical structures is crucial to foster fast and uncomplicated decision making in the frugal innovation satellite and to provide room for experimentation and learning, without endangering the MNCs’ traditional core business. At the same time, it is important in this fourth step of frugal innovation integration to avoid the emergence of “a two-tier community” (Head of Department 4 and 5). The management has to recognize and communicate the different focus areas of the traditional and the frugal innovation team without valuing one more than the other. This approach is critical in avoiding interpersonal or intra-team conflicts and to ensure a supporting team climate for both traditional and frugal innovation. To ensure the success of the frugal innovation satellite, we have identified three CSFs throughout our study on the frugal satellite group level. First, a cultural transformation of this group is needed to develop a frugal understanding within the satellite resulting in out of the box thinking that follows the “more value through less resources” principle (Winterhalter et al. 2017). Second, a diverse and agile working team, representing different cultural and national backgrounds, characters, experience levels, and genders contributes to the diversity of perspectives in the team. This results in more solution-oriented ideas, yielding an enhanced overall frugal innovation performance. The importance for team diversity in frugal innovation is supported by Pisoni et al. (2018). As a frugal innovation satellite can be much smaller in terms of team size than traditional innovation units, it is crucial to leverage the creativity of all team members. Furthermore, our study reveals that the social and local embeddedness of a frugal innovation satellite is critical to success (Ernst et al. 2015; Hossain 2018; London and Hart 2004; Ray and Ray 2010). Through the integration of local suppliers, customers, and employees, the needs of the target group can be understood faster and better. Co-creation activities can help to explore and serve the basic needs of frugal innovation customers without the danger of over-engineering. Step 3: Interfaces. In the third step of frugal innovation implementation, MNCs need to create interfaces between the frugal innovation satellite and other organizational units. It is important to provide opportunities for formal and informal exchange between traditional and frugal innovation teams through dedicated individuals, consulting posts, or knowledge exchange sessions, so that both teams can benefit from each other. While the OLT supports our call for exchange among the

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individual/group and organizational level to facilitate and enable learning (Crossan et al. 1999), prior frugal innovation research stresses the importance of the development of independent subsidies for frugal innovation activities (Corsi and Di Minin 2014). We consider a separation of traditional and frugal innovation teams as crucial but acknowledge the importance of regular exchanges to ensure interface compatibility for facilitating the transfer of frugal innovations to traditional innovations and avoiding double developments. This separation of frugal and traditional innovation allows Siemens Healthineers to pursue exploration of blossoming frugal innovations while exploiting existing business, as proposed by Shankar and Hanson (2015). Our findings go one step further and call not only for formal and informal exchange mechanisms but also for a common roadmap to facilitate the reintegration of the satellite in the organization. This enables the exploitation of newly gained knowledge and for example the reuse of frugally developed components or business models. One of our study participants reflects: “Not integrating this project enough in the overall business line roadmap and failing to establish interfaces between the frugal and traditional innovation team was a big mistake.” (Head of Department 3)

A common roadmap ensures the technical and procedural interface compatibility among frugal and non-frugal innovations and avoids the cannibalization of non-frugal solutions through carefully pre-defined areas of application. Additionally, it enables projects beyond the initial scope of a frugal innovation to benefit from cost-effective components that have been developed in the frugal innovation satellite. Step 4: Feed-Back. Through the established interfaces, traditional innovation teams gain the opportunity to feed-back their applicational, procedural and technical experience to the frugal innovation satellite. Consequently, costly double developments are avoided, and the frugal satellite can free-ride on established patents and use or recombine existing technologies to reduce the risk of initial technical problems and shorten development cycles. “The strategy of [project name] was to reuse as much as possible from our platforms without increasing efforts. We aimed to reuse processes, components, innovations, patents and knowledge. Whenever we questioned the features or costs of a component or a system, we developed the corresponding component from scratch. Frugal innovation only works if innovations originating from the mainline are reused in frugal products […] and if lacking parts are developed from scratch through the right people with the right experience to achieve a feasible business case.” (Head of Department 1)

Step 5: Feed-Forward. The final step in the successful implementation of frugal innovation is the feeding-forward of innovations from the group to the organizational level. The frugal innovation satellite can provide newly gained explicit and tacit knowledge and valuable insights to the entire firm. In particular, the independent development team aims to cross-pollinate innovation such as components and business models across the organization to reduce the costs of the business line, enabled by the modularity of products and solutions. “We are measured via specific key performance indicators such as costs and reliability. The expectation will be that if something is viable in a frugal development setting, it also has

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to be viable in a traditional innovation setting. […]. We will investigate how the colleagues from the frugal innovation team resolved this challenge and will reuse this approach.” (Head of Department 7)

The overarching goal is the transformation of the organization to become more frugal and competitive, in response to the above-mentioned environmental trends for price-sensitivity, simplicity, and sustainability. After the frugal innovation satellite has completed the exploration of a project, it is important to reintegrate this product, service, business model, or best practice into the organization to fully exploit potential benefits and to ensure the sharing of success stories on an organizational level. This can be achieved by not only transferring the physical outcomes from the frugal innovation satellite to the traditional innovation team, but also through assigning key experts from the frugal innovation team to responsible positions in traditional innovation. Following a continuous re-integration approach, the organization can be transformed into a frugal innovation organization iteratively, which has been proven a successful path within Siemens Healthineers.

5 Conclusion In the present study, we have applied an explorative research approach grounded in existing literature and the OLT to address the research questions of (1) why MNCs engage in frugal innovation, and (2) how MNCs can integrate frugal innovation in their global operations. We have developed a comprehensive and easy-to-apply framework to explain MNCs’ motivation to engage in frugal innovation and a fivestep approach to offer a promising strategy for MNCs to implement frugal innovation. Particular value of our study lies in the application of the OLT to the literature field of frugal innovation. Our frameworks are well-grounded in the OLT, showcasing the application of this established theory in the frugal innovation research field. We believe that the application of the OLT in our study contributes to the theoretical maturity of the frugal innovation literature and illustrates the fruitfulness of its application to shed light on the benefits of frugal innovation for multinational corporations. Our findings rely on multi-case data to validate and extend prior research, primarily building on anecdotal evidence and lacking a sound theoretical underpinning. In this respect, our research answers various calls for empirical studies on frugal innovation (Ahuja and Chan 2014; Barczak 2012; London and Hart 2004; Simula et al. 2015; Tiwari et al. 2017). In line with OLT, our findings encompass the complexity and multidimensionality of learning since we consider two different levels, individual/group and organizational learning (Crossan et al. 1999). Learnings gathered on the group level through single-loop learning can be transferred to the organizational level and organizations, in turn, can institutionalize these frugal innovations across the entire organization, resembling the process of double-loop learning (Argyris and Schön 1999). We further reveal, that frugal innovation and their reintegration is a circle resulting

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in a transformation of the firm to become more frugal and therefore, agree to Cunha et al. (2014), claiming that a transformation of the entire corporation is required because environmental changes ask for new competences to capitalize on resource constrained markets. Moreover, Angot and Plé (2015) assume that new resources, competences, and value propositions are needed to innovate frugally. They also stress the importance to transfer knowledge across the organization as well as the need for new structures to gain independence from both process-driven traditional innovations and mindsets following the innovation-implies-more approach. The authors identify three core limitations, employee resistance, management resistance, and self-cannibalization. Our five-step approach mitigates these limitations, since the interfaces and the associated development of a common roadmap between traditional and frugal innovation minimize the risk of cannibalization. As frugal teams are composed carefully, a separate budget and distinct resources are allocated to these projects, management is likely to pursue this long-term strategy, because it does not affect short-term profits from ongoing business. The transfer of knowledge pointed out by Angot and Plé (2015) and by our findings is also highlighted in the study of Lim et al. (2013). Lim et al. (2013) claim that innovation from emerging markets has the potential to be successful in MNCs’ advanced markets, what is referred to as reverse innovation in literature. We realized in the scope of our study, that the implementation of frugal innovations in MNCs is indeed similar to the concept of reverse innovation, which incorporates innovations that are first adopted in emerging economies before trickled up to affluent countries afterwards (Govindarajan and Ramamurti 2011). Our findings go one step beyond by not differentiating between emerging and advanced geographical markets, but between price-sensitive and valueconscious customers on the one hand and affluent customers on the other hand. This coincides with the definition of reverse innovation by Radojevic (2015) stating that any enterprise innovating for a new market first and retransferring this innovation to its primary market is pursuing reverse innovation.

5.1 Managerial Implications Our findings support MNCs in implementing frugal innovation as a means to address aspiring challenges in emerging and developed markets, including the rise of the global middle class, increasing cost pressures, emerging consumer needs for lowcost, simple, and sustainable solutions of good-enough quality. Based on the OLT, we specifically provide two strategic recommendations for managers. First, our findings indicate that it is crucial to acknowledge the importance of learning from innovation in emerging market environments to address the shifting needs of consumers in developed markets. In this sense, we encourage practitioners

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to engage in the exploration of frugal innovations and to rethink existing innovation paradigms or business models to remain competitive. Managers need to embrace potential hindrances and uncertainties in the market environment to come up with innovative ideas securing the future of their companies. Second, for the implementation of frugal innovations in the global operations of a firm, we suggest our Five-Step Approach to Frugal Innovation, fostering the successful integration of frugal innovation while, at the same time, pursuing traditional innovation activities. We advise managers to incorporate the revealed CSFs on both organizational and frugal innovation satellite level.

5.2 Limitations and Future Research Despite the impactful contributions of our study to research and practice, our findings are subject to limitations, opening windows of opportunities for future research. Although we believe in the generalizability of our findings beyond the healthcare industry scope of our study, we call for future research to validate this assumption empirically. Both qualitative and quantitative research will be useful in applying and testing our frameworks to different industry contexts. Furthermore, our data has been collected over a limited period of time. This allows only for inferences on the current state of practice. Therefore, a promising vein for future research rests upon the exploration of the implementation of frugal innovations or the examination of motivational factors to engage in frugal innovation over time in the scope of longitudinal studies. Lastly, while we look at the motives for frugal innovation at both the individual and corporate level, our data identifies implications of frugal innovation for learning only at an organizational, cross-departmental level. However, it could be an interesting further aspect to investigate the potential of frugal innovation for individual learning or team learning in more detail. Acknowledgements The authors gratefully thank Siemens Healthineers for supporting this study and appreciate the valuable insights in day-to-day practices and personal experiences. Without the support of Siemens Healthineers, this study would have not been possible.

Appendices See Tables 1 and 2

External Barrier

External Motivation

Weak infrastructure

Social aspects

Dynamic Market

Category

Market Potential

Perspective

Nakata and Weidner 2012

Stiglitz 2002

Unstable electricity in emerging markets

Disconnect of worlds’ poor can no longer be ignored (continued)

Need to respond to changing customer needs

Large and high growth markets

Cunha et al. 2014

Baregheh et al. 2009

Emerging markets with hardly competition and high growth offer long-term growth opportunity

Lee et al. 2011

Firms offering solutions for the poor are likely to be consulted when they get affluent

Bottom of the pyramid constitutes largest remaining global market

Nakata and Weidner 2012

Angot and Plé 2015

Underexploited emerging markets and low-income developed market segments as target

Details

Pisoni et al. 2018

Authors

Table 1 Literature Review on MNCs’ Motives to Engage in Frugal Innovation

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Positive feedback produces strong path dependence and can lead to suboptimal equilibria Requirement: Willingness to engage in frugal innovation

March 1991 Cunha et al. 2014

Source Authors’ own work

Limited motivation as corporations are quarterly results driven

Prabhu and Jain 2015

Lack of Motivation

Risk averse, quality focused culture in MNCs, prevalence of standard processes

Underestimated local competition

Roland Berger 2015

Corporate history

Dawar and Chattopadhyay 2002

Internal Barrier

Access to skilled personnel and resources in emerging markets

Corsi and Di Minin 2014

Customers stick to traditional approaches

Lacking infrastructure and high upfront investment required

Hammond and Prahalad 2004 Rosca et al. 2016

Details

Authors

Strategy to survive

Market hindrances

Category

Internal Motivation

Perspective

Table 1 (continued)

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Table 2 Sample Characteristics Characteristics

Absolut

Relative [%]

Total

18

100

Modality Advanced Therapies/X-Ray Products

6

33.3

Computed Tomography

5

27.8

Magnetic Resonance

1

5.6

Syngo

2

11.1

Support Function

4

22.2

Position Senior Vice President

2

11.1

Vice President/Head of Department

8

44.4

Manager

8

44.4

Marketing

8

44.4

Sales

1

5.6

R&D

6

33.3

Cross-functional Responsibility

3

16.7

Function

Country-perspective China

1

5.6

India

3

16.7

Germany

14

77.8

Average Frugal Innovation Experience [years]

5.61

–

Source Authors’ own work

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Quality Control of Frugal Products Balkrishna C. Rao

1 Introduction The advent of frugal innovation and its subsequent widespread applications are a testimony to humankind’s ability to leverage scarcity-based constraints for effectively innovating on a global scale. Frugal innovations are increasingly being applied to improve living standards of society at large (Zeschky et al. 2011; Tiwari and Herstatt 2012; Rao 2013; Knorringa et al. 2016; Prabhu 2017; Agarwal et al. 2017; Tiwari and Bergmann 2018). In this regard, witness the increasing numbers of grassroots and advanced products such as MittiCool and GravityLight, respectively, being utilized in rich and poor segments alike (Rao 2017a). Their appealing list of features including no-frills structure, robust functionality and low cost are also endearing these innovations to practitioners of sustainability. In other words, their “sustainable” appeal stems from catering to society at large with affordable products that are frugal in resource consumption while functioning robustly under various scenarios of the operating-life of these products. Therefore, widespread deployment of frugal products can significantly buttress efforts at sustainably improving living standards of people in all strata by offering quality products that are not expensive. However, the features making frugal innovations suitable for sustainable development also adversely affect their creation and subsequently demand stringent quality control. In particular, the no-frills structure typical of these innovations necessitate undertaking of rigorous methodologies for their design (Rao 2019). Methodology for the systematic rigorous design of frugal products has been reported (Rao 2017b) with need for studies on controlling and also verifying the quality of the resulting products’ performance. Other than rigorous design, it is also imperative to do rigorous quality checks on the performance of frugal products. B. C. Rao (B) Department of Engineering Design, Indian Institute of Technology Madras, Chennai 600036, Tamil Nadu, India e-mail: [email protected] © Springer Nature Switzerland AG 2021 N. Agarwal and A. Brem (eds.), Frugal Innovation and Its Implementation, Contributions to Management Science, https://doi.org/10.1007/978-3-030-67119-8_4

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This chapter outlines the importance of quality of frugal products generally in terms of robust functionality under various scenarios of real-time loading. Accordingly, importance of adherence to rigorous design procedures in the factor-offrugality approach and also good performance will be emphasized. In particular, various aspects of achieving rigor in design with scarce resources together with some traditional concepts of quality control for extending them to the realm of frugal products will be covered. It should be noted that this chapter is by no means a comprehensive guide to quality issues for frugal products. It will allow the reader to gain insight into the importance of quality for frugal products and ramifications on how quality would affect practises of purveyors of these products. Besides, most of the content is an extension of the classical work by Juran (Juran et al. 1974) to account for features unique to frugal products.

2 Design and Quality The frugal consumption of resources is generally a major constraint while realizing products that deliver performance at par with traditional or conservative products that are padded with excess material. The resulting typical lower factors of safety hover around failure conditions making it imperative to undertake rigorous design procedures and subsequent stringent quality checks to confirm the necessary robust functionality of frugal products. The design procedures necessary for frugality have been published by the author (Rao 2017b) with more research updating this effort in the foreseeable future. The sub-sections to follow describe briefly the developed frugal-design approach and also quality of developed products, the theme of this chapter.

2.1 Frugal-Design Approach The frugal-design approach (FDA) based on the factor of frugality (FS ) has been reported recently in Rao (2017b, 2019). Accordingly, this subsection is based on the design-procedure documented in detail in Rao (2017b, 2019). Here F denotes the factor of frugality, which subsumes the classical factor of safety S. In other words, F accounts for the scientific principles of traditional design through S, which will have a low value of ∼ 1.5 for frugal products. The low value of safety factor offsets padding of excess materials thereby making the design light-weight but also typically “flimsy”. Therefore, rigorous design procedures have to be methodically followed for achieving a low S design that saves on materials but also possesses robust functionality. The rigor in design is also essential to get-it-right in the conceptual or design stage since any problems later in the product-development process could increase costs. Such a rigorously designed low S design consuming lesser materials is made to loose more weight through other extraneous schemes under Material Saved

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(MS). The MS schemes pertaining to various aspects of design including simplicityin-design, materials, biomimetics and others are utilized to skimp on material in excess to that saved by a low S design. Therefore, the factor of frugality is given by,

F = S +

n 

MSi

(1)

i=1

where the index i indexes MS through its n components corresponding to n extraneous schemes. Equation (1) is a first-generation model details of which have already been published in Rao (2017b, 2019).

2.2 Quality of Frugal Products The frugal products designed and also fabricated according to the tenets of FDA have to go through a quality check. This is because a quality check confirms the theoretical credentials of a given product and whose absence for frugal products would not confirm performance, thereby allowing diffusion of improper products. And this is more so for frugal products, whose origins depend on scarcer resources and, thus warrant thorough scrutiny of their quality. Although quality is looked upon as “fitness-for-use” by consumer (Juran et al. 1974), the “conformance-tospecifications” for makers (Juran et al. 1974) of frugal products entails serious efforts due to the frugal nature of these products. In other words, the onus of creating quality is on makers of frugal innovations since customer is not aware of the frugal nature of a product but expects excellent functionality. And this responsibility can be well managed by proper policies and mission statements by makers to coordinate activities by all stakeholders including design, manufacturing, sales and finance for the success of their frugal products. Another reason for stressing on proper quality control of frugal products stems from the costs involved. First customers have to be wooed with lower prices. And second, purveyors typically will look forward to reining in their costs in making these products. Proper quality control of frugal products can in this regard facilitate reconciling these conflicting demands. Also, quality control is important for frugal products, in the first place, because of the need to ideally avoid costs associated with repairing and also mending goodwill after releasing bad quality products into the market. The quality of a frugal product should be checked in two stages. First, it is imperative to confirm strict adherence to the tenets of FDA. This is because good performance of frugal products will not result without the rigor that is essential to their design. Any deviations from the established rules of FDA would possibly compromise the integrity of product. The confirmation of adherence to rigorous FDA procedures will pave the way for the second stage involving vetting the actual prod-

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Fig. 1 Feedback loop expected of every process contributing to making of a frugal product (Adapted from Juran et al. [1974])

uct performance. The performance refers to the service or application rendered to the user whose positive experience would be contingent on the frugal product having successfully cleared the second stage.

3 Control of Quality In extension of classical principles, any activity planned for its quality control has to first be put under statistical control. This is because statistical procedures are a must for any quality-related programs because statistical measures aptly quantify nominal values and the accompanying variance of a characteristic of that activity. Accordingly, this section assuming prior implementation of statistical control presents only some aspects of quality control that would be significant for frugal products. The actual quantification of quality of a frugal product is possible through the traditional principles of quality control (Juran et al. 1974). Figure 1 shows a schematic of quality control as practiced generally (Juran et al. 1974). Although Fig. 1 shows a general schematic, every process inherent to making frugal products, including engineering and non-engineering, should be stringently controlled to achieve the high precision “targets” required for successful frugal products. Therefore, any target for an arbitrary frugal product will usually need to be tightly followed with very little room for slack. In other words, the actual value (A) of a measurement for a target is given by, A = T + E

(2)

where, T is true value of the quantity/property being measured and E is measurement error with E accounting for random or chance variations observed in actual measurement of T. Therefore, any activity of frugal products should have the lowest E possible since this will directly influence the goal of reaching the target. In other

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words, measurement bloc of Fig. 1 should have the lowest E even when the average of the target is same as T. Hence, purveyors have to consider and coordinate all Es coming from all activities—involved in realizing a product—to design effective quality-control systems for satisfying customers. Moreover, the complex nature of frugal products entail use of experimental tests that hew themselves to the necessary levels of standards required for gaging quality in frugality (Rao 2017b). Such standards should be set in terms of the high accuracy and high precision required of the procedures, tests and sensors involved in confirming output of frugal products for quality. The quality control chart developed by Shewhart (1980), a schematic shown in Fig. 2a, is an important classical tool for informing when a corrective action is required. The chart in Fig. 2a shows three horizontal lines denoting upper and lower control limits and nominal or average value (Juran et al. 1974). The horizontal lines control for chance variation wherein numerous small random causes would contribute to the spread of the frugal product-characteristic-statistic around its average or nominal value. Any value falling outside these limits points to a major deviation that needs to be addressed. From a frugal standpoint, the limits have to be set at smaller values to check for any drifts from nominal values and also maintain stringent tolerances for robust functionality of the product. Such tightness in control limits necessary for frugal products is qualitatively compared in Fig. 2a with control limits for traditional products. Also, the drift to another nominal/average value of a concerned process should be ideally avoided as depicted in Fig. 2b. Furthermore, control-charts should be run continuously to reap their benefit of monitoring a process for any slightest drift that would be crucial to quality from a frugal viewpoint. It should be noted that automation should be used where it is necessary to achieve tight tolerances of the control chart to avoid human error. The employment of automation in any aspect of frugal-product-production should consider the trade-off between human error and necessity to maintain low cost. An existing technique called six-sigma popular at the industrial behemoth GE® should be adopted by makers of frugal products. This is because six-sigma tolerates very few defects by maintaining very tight standard deviations from the mean. In doing so the yield of a process is improved drastically while forcing the output from the concerned process to hew very close to the mean. The tighter control necessary for frugal products makes the six-sigma technique a natural choice. The Pareto principle (Juran 1975) popularly applied in classical quality problems should be revisited for frugal products. This is because not just the few as expounded by the Pareto principle but the entire gamut of aspects involved in production of frugal products might be important for success. This is because control of factors not included in the 20% group might contribute little improvements that could cumulatively aid in achieving the total quality of the frugal product.

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Fig. 2 Shewhart control chart a and unnecessary drift in process-performance, b for a frugal product (Adapted from Juran et al. [1974])

The importance of research and development (R&D) has been emphasized by Rao (2017a) for frugal innovations in general. The R&D activity will contribute immensely to every activity leading to the successful debut of frugal products. In this regard, R&D efforts should be utilized to delve into techniques such as sixsigma and others for tightly controlling the production of frugal products. Besides, proper R&D efforts can in the first place help in honing in on quality problems in a product thereby avoiding incorrect identification of trouble spots.

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3.1 Quality Audits and Policy Quality assurance is an important feature of any business entity and is more so with organizations dealing in frugal products. The high costs typically associated with quality vetting (Juran et al. 1974) are an antithesis to undertaking of frugality by an entity. These costs could be significant for smaller entities or job-shops visà-vis larger entities capable of mass production. However, these costs are worth bearing by any serious activity, including business, in frugal innovations due to the balancing act required in designing products from scarce resources while aiming for excellent functionality. Therefore, quality control should be the most significant activity undertaken for any serious forays into frugality. Such control can be made official by including it in an existing quality-audit department or creating one from scratch. Such a department can coordinate efforts including pilot studies to confirm the high levels of quality needed for frugal products before they reach the market. An important aspect of quality for frugal products is convincing the customer about the quality credentials of a frugal product despite its low price. Here again, a qualitydepartment can make a difference by working with marketing staff in beaming the superior quality of frugal products at low cost. A quality-audit department for frugal products would differ from its traditional brethren in ideally closing the quality gap (Juran et al. 1974) in the productdevelopment process. The quality gap comprising understanding, design, process, operation and perception gaps (Juran et al. 1974) helps in honing onto and subsequent control of areas affecting quality. In the frugal case, the quality gap between customer-expectation and product-creator can be ideally closed by involving all sections of an organization in the design process so as to inform the entire workforce about rigor associated and expected of frugal products. In fact, the same qualitycontrol principles that apply to frugal products also apply to the internal workings of the makers of these products. Hence, everybody from sales and administration to design and production should be groomed on the importance of quality to products built out of scarcer resources. Moreover, such a department should also keep an active log or history of events that lead to failures which later generations of workers can use to advantage for ironing out quality issues for frugal products. The effectiveness of any quality control program for frugal products depends directly on how well quality is institutionalized by the company or entity involved. Companies and entities connected with frugal products should make detailed quality manuals that shed light on the importance of frugality and why rigor is necessary in making these products successful. These manuals will summarize all quality-control charts mapping the tight tolerances required of products and the ensuing rigor needed in various departments of the company in achieving it. The purveyors of frugal products should also hew to environmental and other regulations set at global, state and national levels. These rules should be used by a maker to achieve/improve the functionality of their products built out of scarce resources. Moreover, makers of frugal products should also utilize life cycle analysis (LCA) in the initial stages of FDA to confirm the energy credentials of the product.

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The audit department should also check results of LCA and include in its qualityassessments both accuracy of LCA and the product specifications. Instilling LCA into design and quality control will truly make the product a sustainable tour de force. In case of frugal products and frugal services, the quality control should be an ongoing process that does not cease to function. Continuous monitoring for quality throughout the lifetime of any entity involved in making frugal products is a must. In fact, the emphasis on rigor, on a continuous basis, in any activity related to creation of frugal products should be enshrined in the quality mission statement (Juran et al. 1974) of the maker. Also continuous benchmarking should be sought against a frugal product’s own stringent features in addition to competitors’ winning aspects. In particular, internal benchmarking will also be significant for frugal products vis-àvis their traditional brethren. The traditional constituents of mission statements related to markets, technology, competition, performance, etc. (Juran et al. 1974) should also include frugal-related information where necessary. Overall, mission statements should be drafted carefully so as to give goals that can be achieved by various sections of a company for realizing frugality within various constraints of the maker or company. In fact the quality mission for frugal products should be so pervasive as to make individual workers aware of the stringent norms expected of them. This will enable a coordinated effort rooted in rigor and also hewing stringently to quality control for making frugal products eventually succeed in the real world. Unlike quality control for traditional applications, development of frugal products requires coordination of all involved, i.e., upper, middle and lower ranks of the workforce. In fact, even supply chains, if any are involved, should be made quality conscious from a frugal perspective. This is because the frugal nature necessitates tight control of quality wherein even the most insignificant issues at any level should be addressed effectively. Also, employees at all levels of the organization should be encouraged to submit their ideas—possibly based on their insitu observations—for improving quality many of which could facilitate successful quality control. The involvement of the entire workforce in being attentive to even the minutest details should be encouraged considering the constraints and also rigor native to frugal products. Lastly, companies should at least give thought to the trade-offs between stringent quality control and customer-needs. Such trade-offs can help in reining in costs by focussing on quality that is commensurate to the needs of the customer. In other words, the rigor in control of quality can be relaxed and, accompanying costs lowered, provided the functionality satisfies customers over the life of the frugal product.

4 An Example This section presents the quality control of a frugal shaft made of steel, whose design details have been reported by Rao (2017b). The selection of this simple example is based on the current non-existence of real-time frugal-applications and also any detailed treatment is beyond the scope of this chapter.

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Fig. 3 Design of a frugal shaft (Rao 2017b)

Figure 3 shows a shaft designed through the frugal-design approach (Rao 2017b) with an outside diameter (OD) of 56 mm and an inside diameter (ID) of 44 mm. Such a shaft has been produced with just enough steel so as to attain the diameters shown in Fig. 3 through the indirect extrusion process. Therefore, effective quality control would require extrusion-dies to possess high precision in terms of both surface-texture and tolerances that are commensurate to achieving in turn the proper texture and tolerances on these diameters. In other words, die surfaces should possess roughness values much less than 0.8 µm to achieve tolerances as tight as ±0.025 mm. Although these are crude approximations based on existing processes, the frugal shaft needs such high precision in the processes used for its production with defect rates ideally close to zero. Quality control for such tight tolerances on the frugal shaft would necessitate tighter control limits and also avoidance of any drifting, see Fig. 2a, b. In fact, such high precision required of tooling has several ramifications including for instance the selection of a proper extrusion machine-tool able to precisely align its constituent parts and also withstand higher loads stemming from the precision required in the shaft. Lastly, six-sigma principles should be adopted in the quality control of this shaft to keep both defects and process-variations at a very low level. This would aid achievement of narrow tolerances while not wasting material.

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5 Benefits of Quality Control The combination of frugal design and quality control will improve the usability of frugal products. The verification of quality will also lend credence to the usage of the factor of frugality, a scientific tool of ecodesign, for quantifying frugality crucial to many sustainable solutions. The meticulous adoption of rigorous design and quality control during and also after product-realization would plausibly unleash large quantities of such products from various sectors into mainstream economy for widespread sustainable development. Other than environmental impact, stringent quality control of frugal products and/or frugal solutions will also go a long way in successfully realizing the goal of achieving robust functionality at lower costs using meager resources. The problem of “chronic-waste” (Juran et al. 1974) will actually be more important to frugal products. The term refers to waste in resources of a company in trying to firefight products, after releasing into market, with shoddy quality. The makers of frugal products will realize their margins only if they tightly control the quality of all aspects of their business in realizing their products. Therefore, stringent quality control is more important from the angle of chronic-waste for frugal products. Effective quality control also significantly helps in understanding the needs of customers (Juran et al. 1974). The process of quality control actually helps gage the fitness-of-use from the customer’s perspective. In particular, focussing quality control on the needs perceived by the customer of a frugal product could significantly aid in plausibly avoiding rigor and associated costs with some features of the product. Such customer-focussed-needs can be effectively realized by using the scientific principles of FDA to unleash quality frugal products in various sectors. Also, mass production of frugal products designed through FDA is possible provided proper stringent quality checks are in place to strictly rein in costs by avoiding outlays associated with fighting quality problems. Moreover, discrepancies in quality of frugal products should lead to introspection by creators resulting in newer features and products. Since frugal innovations have appeared only recently, quality control will be crucial to the frugal-productdevelopment process since deficiencies in the initial wave of products would hold lessons for futuristic products. Moreover, although effective quality control helps stick to specifications, they can also help R&D activities of the purveyor in achieving breakthroughs when fixing a quality-deficiency, e.g., away from control limits, that leads to a new version or a completely new type of frugal product.

6 Future Work This chapter has laid out the general principles of quality for frugal products. In particular, it has extended the classical principles of Juran to frugal engineering with lots of room for futuristic research into making this successful. The principles laid

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out in this chapter have to be fleshed out with details coming from a given frugal product/service in a given sector. This work has focussed more on the quantitative aspects with futuristic focus also on the people actually using the tools of quality control to deliver high-quality frugal products. In doing so, this chapter has provided an overview of the quality problem with frugal products with some areas needing futuristic efforts outlined in the following paragraphs. The supply chain involved in any frugal product enterprise has to be coordinated to follow quality principles necessary for producing frugal wares. The absence of suppliers’ efforts in this regard would surely dent the expectations of the concerned maker of frugal products. There is also a need to extend the ISO standards (ISO 1994) to the domain of frugal products. The extension of such a widely accepted standard will help immensely in adopting the principles of this chapter for frugal products. Moreover, devoting a portion of total quality management (TQM) (TQM 1997) to frugal products and frugality in general will along with ISO standards-on-frugality go a long way in affecting widespread adoption of frugal products. In fact, classical TQM stresses on the possibility of lowering costs by adhering to good quality (Blanton 1998) which can be used to advantage for frugality. Lastly, awards should be created to reward entities truly hewing to the principles for producing successful frugal products. These rewards will go a long way in recognizing true frugal champions and also goad others into going frugal.

7 Conclusions This chapter stresses on the need for an important aspect of new-product-development called quality control, which though popular with traditional products and services carry serious connotation for frugal solutions. The road to success will be paved only through institutionalizing quality control in all aspects of producing frugal products. Accordingly, this chapter has stressed on the need, in the first place, to follow systematic design procedures such as the frugal design approach for methodical creation of frugal products from scratch. Second, frugal products designed rigorously should be subject to stringent quality control for both customer satisfaction and reining in of costs. In doing so, this chapter has extended some of the concepts of traditional quality control to the domain of frugal products. A rule of thumb would be to make traditional quality control tighter for all processes/activities, technical and non-technical, associated with the making of frugal products.

References Agarwal N, Grottke M, Mishra S, Brem A (2017) A systematic literature review of constraint-based innovations: state of the art and future perspectives. Trans Eng Manag 64(1):1–13

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Blanton G (1998) Hidden costs to society. Quality Digest 18(6):18 ISO (1994) ISO 9000 handbook, 2nd edn. Irwin Professional Publishing, Fairfax, VA, USA Juran J (1975) The non-Pareto principle; mea culpa. Qual Prog (May):8–9 Juran J, Gryna F, Bingham R (1974) Juran’s quality control handbook. McGraw-Hill, New York, USA Knorringa P, Pesa I, Leliveld A, van Beers C (2016) Frugal innovation and development: aides or adversaries? Eur J Dev Res 28(2):143–153 Prabhu J (2017) Frugal innovation: doing more with less for more. Philos Trans R Soc A: Math, Phys Eng Sci A375:20160372 Rao B (2013) How disruptive is frugal? Technol Soc 35:65–73 Rao B (2017a) Advances in science and technology through frugality. IEEE Eng Manage Rev 45(1):32–38 Rao B (2017b) Revisiting classical design in engineering from a perspective of frugality. Heliyon 3(5):e00299 Rao B (2019) The science underlying frugal innovations should not be frugal. R Soc Open Sci 6(5) Shewhart W (1980) Economic control of quality of manufactured product. American Society for Quality Control (ASQC), Milwaukee, WI, USA Tiwari R, Bergmann S (2018) What pathways lead to frugal innovation? Some insights on modes & routines of frugal, technical inventions based on an analysis of patent data in German auto components industry. Working Paper, No. 105, Hamburg University of Technology (TUHH), Institute for Technology and Innovation Management (TIM), Hamburg Tiwari R, Herstatt C (2012) Open global innovation networks as enablers of frugal innovation: propositions based on evidence from India. Hamburg, Germany. Institute for Technology and Innovation Management Working Paper, Hamburg, Germany TQM (1997) A Manifesto of TQM (1-4)—Quest for a respectable organization presence. Societas Qualitas Zeschky M, Widenmayer B, Gassmann O (2011) Frugal innovation in emerging markets: the case of Mettler Toledo. Res-Technol Manag 54(4):38–45

User-Driven Innovation with Frugal Characteristics: A Multi-Case Analysis of China’s Innovation-Driven Economy Henning Kroll and Ingo Liefner

1 Introduction In recent years, an ever-increasing number of empirical analyses on regional innovation in China are being published. Mimicking the national level policy discourse of China’s rise as an “innovation-driven economy” on its way to a “world powerhouse”, however, many of them remain inspired by a one-dimensional, technologyoriented perspective. Prevalently, technological capacity has become regarded as a one-dimensional criterion along which localities and local ecosystems can be classified into performance categories like “outstanding”, “good”, “mediocre” and “low” (Yi and Fengyan 2015). While some researchers have begun to consider structural and systemic factors with a view to inputs or framework conditions, the majority of them continue to frame regional innovation outputs in terms of a positivist “domestic flying geese model” with some areas leading, some lagging and some catching-up (e.g. Liu and White 2001; Yi and Fengyan 2015; Prodi et al. 2016) and an overall aim that laggards should score “better” in the future. While this notion of “catching-up” (cf. Viotti 2002) may indeed be relevant at the level of national economies, it does not necessarily suffice to explain trends at the regional level where diversity and local particularities play decisive roles. Furthermore, the above-mentioned approaches fail to convince at a fundamental level of innovation theory. According to long-established insights, innovation is an interactive, multidimensional process with not only multiple sources but, equally, multiple outcomes (von Hippel 1988)—in which the market demand prompting it H. Kroll (B) Fraunhofer Institute of Systems and Innovation Research, Karlsruhe 76139, Germany e-mail: [email protected] H. Kroll · I. Liefner Institute for Economic and Cultural Geography, Leibniz Universitaet Hannover, Hannover 30167, Germany © Springer Nature Switzerland AG 2021 N. Agarwal and A. Brem (eds.), Frugal Innovation and Its Implementation, Contributions to Management Science, https://doi.org/10.1007/978-3-030-67119-8_5

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plays a decisive role (SPRU 1972). While technological advances do play a central role for “the introduction of new solutions on the market” (OECD 2005), innovation is neither always prompted by breakthrough discoveries nor commonly commercially most effective when it is. Therefore, this paper will argue that the effective diversity of innovation and innovation processes in China needs to be better acknowledged in future studies—including additional, needs-oriented dimensions with frugal characteristics. In the following, this paper will start with a problem definition and conceptual recap that motivates the enquiry into frugal innovation in a Chinese context. Subsequently, it presents a literature survey of what is known about low-cost innovation in China to then proceed towards covering three main perspectives on the issue grounded in case study. Ultimately, it will integrate findings from the three different cases in a final discussion and make some concluding remarks.

2 Problem Definition A great number of publications from different disciplines have studied the emergence of innovation capacity in Chinese regions (e.g. Wei 2007; Chen and Guan 2011; Sun et al. 2013; Wang et al. 2014; Liefner and Wei 2014; Kroll 2016) and more than a decade of empirical research has yielded ample evidence of diversity in many dimensions (Wei 2007; Kroll and Schiller 2010; Fu et al. 2012; Crescenzi et al. 2012; Huggins et al. 2014; Kroll and Frietsch 2014; Wang et al. 2014). From the government-driven high-tech districts of Beijing (Zhou and Xin 2003; Chen and Kenney 2007; Kroll and Schiller 2010) to the internationally connected technology hub of Shanghai (Liefner et al. 2013) and the flexible, sometimes maverick production environment of Guangdong (Fu et al. 2012; Dong and Flowers 2016) no single regional innovation ecosystem ever appears alike (Wang et al. 2014). However, an increasing number of current studies seem to shift away from this established focus on diversity, losing sight of the fundamental factors, needsorientation and market-savvyness, that once laid the foundation of China’s economic success (Dong and Flowers 2016). Consciously or unconsciously, they take over government semantics on China’s catching-up in science and technology (“world powerhouse of scientific and technological innovation”) and project those into the domain of the real economy (Yi and Fengyan 2015). While technological catch-up and, eventually, innovation leadership will indeed be the likely destiny of China’s national economy, this paper maintains that it would be mistaken to let our analytical focus shift away from what, besides this much studied phenomenon, remain central, and fundamental, components of China’s economic success (McKinsey 2015). Even though absolute poverty has become an increasingly less pressing issue for China, fundamental social and regional disparities remain, keeping life frugal for many in many, including the most advanced environments (cf. NBS statistics as represented in Figs. 1 and 2). Accordingly, limited purchasing power and affordability remain relevant aspects of many segments of the domestic market that constitute

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central sources of demand for Chinese enterprises. Importantly, this consideration is relevant not only for the country’s inland or Western periphery (cf. Fig. 1) but, no less, with a view to many rural areas of provinces that, on average terms, belong to the national leaders in terms of technological capacity and per capita income (cf. Fig. 2). Moreover, a sizeable population of migrant workers adds to this issue. Even if the nation’s urban middle classes are growing, the majority of Chinese consumers can thus up to today not be considered to belong to a segment of wealthy, saturated urbanites free of unfulfilled basic needs. While such lead user groups exist in Beijing, Shanghai and Shenzhen, opportunities to scale production and profit remain significantly higher for firms that deliver frugal, tailored-to-purpose solutions for average users in “small town China”. For those user groups, innovations in functionality, robustness and affordability matter more than appealing yet unessential high-tech gadgets. Furthermore, China’s global role as an exporter to less developed and emerging economies is increasing fast. On African markets, Chinese machinery (HS 84) has

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70% 60% 50% 40% 30% 20% 10% 0% above 5,000 $ annually Share of PopulaƟon

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reached import shares of up to 50%. On the markets of Least Developed Countries, Chinese electronics goods (HS 85) reach similar levels which, for the lack of domestic production, will not uncommonly amount to absolute market shares (cf. Figs. 3 and 4). Overall, the importance of developing nations for Chinese exports in machinery (HS 84) and electronics goods (HS 85) is rising and has in recent years close to converged with that of all “developed nations” even in a broad definition that includes the entire EU28 under that heading (cf. Fig. 5). In any case, the role of developing nations’ markets has long surpassed that of the European Union in both fields (around 2008– 2009). Overall, i.e. including commodities like textiles and apparel, it had always been greater than that of Europe and has by now reached more than double its relevance. In summary, it is thus fair to say that most of China’s export markets remain in a very substantial manner characterised by limited buying power and rough application environments that require innovation for a purpose rather than technological advances for their own sake. Consequently, there are a great number of anecdotal indications that those innovations that Chinese lead producers are drawing profit from are by no means always of the technology-driven sort (Zheng et al. 2016, 2017). In the literature, several detailed case studies reported examples of user-oriented, frugal innovations from or for China (e.g. Ge and Ding 2008; Hang et al. 2010; Zeschky et al. 2011; Corsi et al. 2015; Sun et al. 2016; Shan and Khan 2016) while other analyses looked back on the beneficial legacies of past, cost- and utility-driven business ecosystems like the “Wenzhou model” (Shen 2015; Chen 2015) or the “Shanzhai cluster” (Dong and Flowers 2016; Zhou et al. 2013, Fernandez et al. 2016) which made the country successful in the first place. At the same time, new approaches to improve market awareness in low- to midincome market segments are emerging, based on new Information and Communication Technology (ICT)-enabled models for user-driven, utility-oriented and thus often frugal innovation. Currently, they can be found predominantly in two fields. One is

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a subset of the central government’s past campaigns for urban “mass innovation”, Chinese makerspaces (Lindtner 2014; Saunders and Kingsley 2016) which, despite their rootedness in urban environments, emphasises tinkering before classic product development. The second is a subset of the parallel, and ongoing, campaign for rural development, grassroots innovation in “Taobao (淘宝) villages” (Qi et al. 2019; Luo and Sheng 2018; Lin et al. 2016; Leong et al. 2016; Tan et al. 2016; Zhang et al. 2017) in which rural entrepreneurs in predominantly the coastal provinces’ backcountry produce tailor made, often frugal products for online sales. Remarkably, even the 13th Five Year Plan now suggests to “upgrade” China’s creative economy and innovative capacity “from below” through “collaborative innovation” (CEFC 2017)

3 Conceptual Background According to Schumpeter (1934), and, more recently, the OECD (2005), innovation is the “successful introduction of new goods or services to the market”. Thus, absolute technological novelty is neither a necessary nor a sufficient condition for

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innovation. In contrast, solutions may be leaner and commercially more effective if innovators limit themselves to deploying existing technology in a new context where it enables a new solution or fixes a problem (Christensen and Ruggles 2006). In this context, the central role of user needs and market demand as drivers of innovation have long been acknowledged (SPRU 1972). Moreover, the current state of literature indicates that the conscious leveraging of local limitations as a productive entrepreneurial challenge can lead to improvements and efficiency gains in the process of product development and, as a consequence, yield better, more fit-forpurpose solutions (Brem and Wolfram 2014; Radjou and Prabhu 2015). Such suitable solutions for low-income environments that are now commonly referred to as frugal innovation more often depend on appropriate design, architectural innovation and delivery services than on expensive and in rough environments too often dysfunctional high-tech features (Zhou et al. 2013; Radjou and Prabhu 2015). Despite their lack of technological novelty, “good enough” innovations can be solutions with better customer fit or provide remarkably better value for money, making frugality attractive even for those users who could, in principle, afford more (Agarwal and Brem 2012). Eventually, affordable solutions can thus develop impact among a much larger circle of customers and thus become more profitable and transformative in economic

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terms (Agarwal and Brem 2012; Meriade 2016; Kroll and Gabriel, forthcoming). Hence, smart, lean solutions for an existing problem or a change of the technological platforms on which it is being solved can provide the foundations of high-yield business models. They are thus something different than a technological interim stage “to be overcome” (Yi and Fengyan 2015). To the contrary, “reverse innovations”1 like flip (cell)phones from China during the early to mid-2000s (Christensen and Ruggles 2006) became challenges to established solutions in leading economies although, technologically, they did not offer any advances (Agarwal and Brem 2012; Radjou and Prabhu 2015). With a view to possible sources of market- and needs-awareness, different strands of the literature observe an increasing opening of the innovation process to users, non-experts and organisations outside of the immediate innovation chain (Bogers et al. 2017), which could have positive repercussions for innovators’ strategic ability to source user feedback outside of core metropolitan regions. In conceptual terms, the established notion of “open innovation” (Chesbrough 2003) has become extended beyond its initial point of reference reflecting no longer simply cooperation within the industrial sector, but the integration of a broader circle of actors and communities from society and regional environments (West and Lakhani 2008; Huff et al. 2013). With its increasingly digitised economy and a close to unfettered accessibility of comprehensive “big data” sources to public and private businesses, China has become one of the greatest living labs with a view to developing new, ICT-driven approaches to connect producers and users and establish new innovation networks. Consequently, ICT-platform technologies may harbour particularly strong, or at least very specific, potentials for frugal innovation in China.

4 Key Proposition Against the background of the above said, this paper’s proposition is that future studies of China cannot ignore the India-centred literature on jugaad, frugal, inclusive, polycentric, grassroots or catalytic innovation (e.g. Christensen and Ruggles 2006; Brem and Wolfram 2014; Radjou and Prabhu 2015). That is, the opportunities inherent in the ability to “innovate fixing real-world problems” on the large low- to middle-income markets that remain relevant for the majority of China’s producers up to today. Precisely this capacity remains a fundamental basis for many Chinese firms’ unique selling proposition and great source of value creation at the level of regional economies, both urban and rural (McKinsey 2015). More generally, we put forward the proposition that maintaining and renewing capacities for frugal innovation remains a worthwhile endeavour even when countries transition to a stage where poverty relief per se has become less pressing.

1 I.e. innovations developed for and on emerging markets that later became popular in more advanced

market environments also.

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At this point, inclusive innovation may be a less natural point of departure for academic and policy discourse than in India or elsewhere in the developing world (Gupta 1997; Radjou and Prabhu 2015). Consequently, a rather limited number of Chinese studies have been conducted under the formal heading of “frugal innovation” or “inclusive innovation” (Zhou and Xie 2012; Sun et al. 2013; Zhou et al. 2013; Yu et al. 2017). That most Chinese policy has during the past two decades adhered to a quite unambiguous technology-push orientation did not help to compensate this lack of momentum (Prodi et al. 2016; Ning et al. 2017; Daniels et al 2017). Some papers, however, suggest that Indian and Chinese approaches to innovation have some similarities, e.g. concerning the prevalence of problem-oriented, situative approaches to business development lacking a linear, “theory-practice” approach to the use of technology and favouring non-technological approaches to innovation (Meriade 2016). With a view to the frugal innovation literature, this paper will underline that dynamics of frugal innovation can remain central under circumstances where other parts of an economy have moved to “higher levels” permitting different business models. Drawing on three main examples it illustrates, first, how countries can learn from their frugal past and, second, what keeps driving and renewing frugal approaches under conditions of beginning abundance.

5 Literature Review: Examples of Frugal Aspects in Chinese Innovation In the following, this paper will review three core examples of demand- or needsdriven innovation in China. Beginning with a review of past experiences with frugal innovation in “shanzhai” type industries it will subsequently present two more recent, potentially transformative approaches that keep generating momentum for frugal innovation today, rural Taobao villages and urban Makerspaces. Thus it builds a twofold perspective on, first, the country’s ability to productively retain and leverage existing experiences in the area of frugal innovation and, second, its ability to nurture the build-up of novel sources and processes of frugal innovation under evolving framework conditions. The three cases will illustrate different ways in which producers have acquired or are acquiring an awareness of present and latent market needs in various price segments. Subsequently, they will demonstrate which markets China’s frugal innovators have come to or continue to serve. Challenging the proposition that technological capabilities have some to supersede formerly relevant drivers of economic growth they will in a structured manner provide examples how the commercial success of Chinese firms continues to depend on serving low- to mid-end segments of the market, international as well as domestic, urban as well as rural. On that basis it will argue that affordable, yet “good-enough” innovations will continue to substantially contribute to China’s economic success in the future.

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With a view to methodology, the case studies are primarily grounded in literature reviews, but have in their less quoted passages substantiated and validated through several on-site visits and in-depth phone interviews of experts from business, research organisations and intermedaries during 2016, 2017 and 2018. Interviewees were selected with a view to covering different perspectives (academic, entrepreneurial, governance) and, more specifically, motivated by the attempt to cover remaining gaps in our understanding that had become obvious in early drafts of this paper. Locations covered include Beijing, Shanghai, Kunming and Shenzhen, of which Beijing, Shanghai, Kunming were visited in person including 3–4 site visits each, covering at least the academic and the entrepreneurial perspective. Shenzhen was covered through a personal meeting in Guangzhou, a phone interview as well as in-depth discussions with other researchers who had done in-depth research in the area.

6 Fundamentals of Industry: The Heritage of Shanzhai As a first case study, the following section will elaborate on the Shanzhai cluster that emerged in the neither urban not rural greenfield environment of the Pearl River Delta during the early 2000s and left an important imprint on its economy up to today. Shenzhen and the Pearl River Delta emerged as “factory of the world” following the 1980s opening-up and reform policy on what had largely been an agricultural environment before. Up to today, they are characterised by the maverick entrepreneurial and merchant culture that hallmarked the first decades of China’s rise. One prominent example of this independent business environment was the “Shanzhai” ecosystem that tailored mobile phones under the 2G standard to specific needs in various segments of the domestic and foreign market by adapting design and functionalities of a very limited number of existing baseline products (Keane and Zhao 2012; Zhou et al. 2013; Chen and Wen 2016). Well into the 2010s, the majority of Shanzhai producers compromised on quality and technological sophistication (Chen and Wen 2016; Dong and Flowers 2016) while they were at the same time immensely successful by developing entirely new low-income markets through targeted, marketsavvy customisation (Rong and Shi 2010; Zhu and Shi 2010; Zhou et al. 2013; Liu et al. 2015b). The Shanzhai cluster is a prime example for (low-income) user-oriented innovation in China as its firms, possessing limited technological capabilities, concentrated on a market-driven approach to innovation. Feeding swift and personal user feedback directly into the innovation process, Shanzhai firms focused on architectural recombination, design and distribution (Keane and Zhao 2012; Zhou et al. 2013; Liu et al. 2015b; Ren et al. 2016; Fernandez et al. 2016). In media coverage, the Shanzhai culture is therefore often equated to counterfeiting, i.e. taking existing technology and designs and illegitimately recombining them for an own purpose. However, this constitutes a symptom rather than the foundation of the cluster’s main operating

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principle. When, during the early 2000s, a lack of intellectual property rights enforcement met with an eagerness to deploy any technology or design available to meet customer demand, a vast amount of counterfeit products undoubtedly resulted. The central proposition, however, was flexibility, not forgery (Zhu and Shi 2010) or, as newer literature puts it, the provision of an imitated core with “enhanced or innovative features adapted to local market needs” (Qin et al. 2018a). Since most Shanzhai products are obviously different from the original and thus not deceptive they are with a view to the imitation dimension predominantly legal unless the recombination of designs entails secondary violations (Qin et al. 2018b). Working around two providers of turnkey processors, for example, a huge population of narrowly specialised yet closely interlinked production firms created any variety of existing mobile phones that the market, specifically low-end segments of it, seemed to support (Chen and Wen 2016; Fernandez et al. 2016). With the rise of 3G smartphones, this canonical Shanzhai innovation ecosystem in the mobile communication sector has in recent years ceased to exist (Keane and Zhao 2012; Chen and Wen 2016). That notwithstanding, former Shanzhai firms’ central capabilities with a view to flexibility and openness to market signals persisted. While some of the mobile phone sector has upgraded (Yang 2014) other products exported to less developed overseas markets from Guangdong continue succeed on precisely those “good enough” propositions and close interactions with low-income users that once supported the Shanzhai cluster (Lindtner 2014). In recent years, low-cost smartphone providers like Transsion/iTel have come to outsell American and Korean competitors on African markets (China Daily 2017a). Up to today, Shanzhai buyers weigh functional values—different from classic counterfeit buyers with a focus on (seeming) status consumption, social conformity and materialism (Qin et al. 2018a). Arguably, Shanzhai is a generic cross-industry phenomenon that exists as an effective late mover strategy in many emerging markets (Qin et al. 2018b). With a view to the coining of the term, however, it at least as closely associated with Southern China than “frugal innovation” is with India.

7 New Avenues in the Rural Domain: Taobao Villages As a second case study, the following section will elaborate on the emergence of “Taobao Villages”, that, for the first time in history, put rural communities in the position to consciously adapt their specific, low- to mid-level production capacities to overarching, non-local market demand (China Daily 2018a). In other words, China’s unparalleled dynamics in e-commerce have given rise to new distribution networks that promote a novel type of so far unseen rural clusters that integrate agriculture, crafts and small-scale industrial production in novel ways (Guo et al. 2014; Liu et al. 2015a). “Taobao” is China’s biggest e-commerce platform, founded and operated by the Alibaba Group. Like its Western counterparts, it supports Business-to-Customer and Costumer-to-Costumer transactions (Chen 2016). In 2014, Taobao and associated

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websites held an above 80% market share of online shopping in China (Tan 2015). By the end of 2014, the average number of daily Taobao users had surpassed 120 million (Gao et al. 2015). The Taobao website facilitates orders and payments, brings in logistics companies, and offers tools to handle and negotiate problems. Accordingly, “Taobao Villages” are formally acknowledged concentrations of independently set up online shops in the countryside that are at a subsequent stage often supported and developed from their “embryonic stage” by local government (Luo and Sheng 2018; Zeng et al. 2015). To be officially nominated as a “Taobao Village” by Alibaba, a rural community has to realise annual e-commerce transactions of over 10 million yuan, involve 10% of household in online selling and be home to more than 100 online shops (Gao et al. 2015). Often, a single entrepreneur starts a first online business which is then followed by others and further suppliers from the area, and later officially supported (Luo and Sheng 2018; Zeng et al. 2015). While many shops focus on the sale of farm produce and local specialties, others provide specific craft and light industrial production for niches of urban demand (Liu et al. 2015a). Among the top ten product categories we find automotive parts, luggage, daily necessities, sports products and home furnishings. With a view to development and orientation, there were seven types of acknowledged Taobao business models in 2018 (Luo and Sheng 2018). The first Taobao village was set up in 2009. Initially, their spread remained hampered by limited rural Internet penetration (Qi et al. 2019) so that no more than twenty had been launched by 2013. Since Internet access improved, however, it spread rapidly reaching 200 sites in 2013 and 780 in 2015—driven additionally by the government’s then “Internet Plus” campaign (Zhu et al. 2017; Chen et al. 2016). By 2018, no less than 3,220 Taobao villages and 363 “Taobao Towns” had mushroomed across the country (Luo and Sheng, 2018). Alibaba has established a presence in 600 counties, thus theoretically covering 30,000 villages in 29 provinces or provincial-level regions (China Daily 2018a). Currently, it is expected that the number of Taobao village will exceed 5,500 in 2020 (China Daily 2018b). From the perspective of remote rural places in China, Taobao has provided a novel channel not only for product sales and distribution but also to explore latent demands by establishing and improving connectivity with users in places where finance and other conditions for traditional businesses are less available (Qi et al. 2019). To facilitate the process, Alibaba conducted workshops specialising in the production and distribution of particular commodities (Lin et al. 2016), helping farmers to access the huge consumption potential in less-prosperous rural as well as more affluent urban areas. In 2017, retail sales of consumer products in rural areas amounted to 5.2 trillion yuan, outpacing growth in urban areas. At the same time, online sales reached 1.24 trillion yuan, an annual increase of close to 40% (China Daily 2018b). In the course of the development of “Taobao Villages”, Alibaba has teamed up with various local authorities in improving roads, broadband Internet services, power supply and logistics to support farmers in setting up their online stores (China Daily 2017c), falling in line with central government’s general push to better develop the Chinese countryside. In 2014 and 2015, the first 256 counties were selected for

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piloting e-commerce in rural areas. Each of them received, on average, 18.75 million yuan from the central government for rural logistics, e-commerce service stations and primary processing facilities, as well as an update on quality control systems and help with brand establishment (China Daily 2018a). Several scientific contributions discuss the reasons why Taobao effectively worked as a tool to provide remote villages with unprecedented business opportunities and became a major factor in the empowerment of parts of the rural population (Qi et al. 2019; Leong et al. 2016; Liu et al. 2015a). According to these studies, Taobao provides effective ways to cope with the limitations of remoteness (limited local demand, poor transport infrastructure) while the entry barrier towards using Taobao with respect to capital, experience or technical capabilities is very low (Chen 2016). Taobao can thus be viewed as a business model innovation based on newly available platform technologies that is particularly well suited to the needs of resourcepoor and remote companies, conforming to the definition of a frugal innovation (Liu et al. 2016). Based on a thorough case study, Liu et al. (2016) identify several mechanisms of enhanced value creation including the spread of entrepreneurial opportunities to people who were previously excluded, the solution of fundamental information deficits and asymmetries, and options to gain better market access. Put differently, Taobao village organisation models help to increase local incomes by limiting transaction costs and enabling market expansion for businesses that would have otherwise remained local (Guo et al. 2017). Overall, most studies, and certainly most news reports, shed light on the opportunities for local villages and producers brought about by Taobao. Despite public claims of employment potentials, rather limited evidence exists regarding the longterm effects on local economies, for example regarding the sustainability of (purely) Taobao-based business strategies for regional development. Often, this remains discussed at a rather generic and potential-oriented level as for example in Li (2017). A case study presented by Lin et al. (2016), however, discusses evidence of structural changes in successful Taobao villages regarding individual career prospects, family business organisation, physical planning issues and effects on social conditions that reveal a tremendous impact of Taobao on rural economies and livelihoods. According to internal Alibaba figures, more than 1.8 million new jobs had been created by rural e-commerce nationwide in 2017, and total transactions surpassed 220 billion yuan, accounting for more than 10% of the nationwide online retail sales, and the number of active online stores exceeded 660,000 (China Daily 2018a). By 2020, government sources predict that the number of new jobs created may rise to 3 million (China Daily 2018b). However, there are also some drawbacks and limitation. So far, about 90 per cent of Taobao villages remain concentrated in eastern coastal provinces, especially in the highly entrepreneurial provinces of Zhejiang (1172), Guangdong (614), Jiangsu (452) and Shandong (367) (Luo and Sheng 2018; Liu and Ai 2018). Apparently, local entrepreneurial spirit and geographical closeness to established markets (and Alibaba’s headquarters) still matters, putting provinces at the interior at a certain disadvantage (China Daily 2016). In 2018, a mere 14 Taobao villages were found in

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Fig. 6 Distribution of Taobao villages in 2018 (Source Luo and Sheng 2018, p. 4)

the seven Western provinces and autonomous regions (Luo and Sheng 2018). Furthermore, several studies have identified that a basic level of education and Internet literacy can be a hampering entry condition for setting up a Taobao village (Qi et al. 2019; Liu et al. 2015a). Despite corporate claims to the contrary (AliResearch 2018), moreover, Alibaba’s Taobao has—by definition—a near monopoly as a sales platform for many villages, and many fees are structurally too high for small producers, so that future growth must remain uncertain. Additionally, the need for certification when selling food products online has been an obstacle for small farmers (China Daily 2018a) (Fig. 6).

8 New Avenues in the Urban Domain: Makerspaces As a final case study, the following section will elaborate on the development surrounding the emergence of a Chinese “maker culture” in leading urban environments as well as the accompanying government push for “mass innovation” (Xinhua 2016).

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While the maker movement did not originate in China, it saw a swift and vigorous take-up among young, urban populations of Shanghai, Shenzhen and later Beijing, often guided by experienced entrepreneurs with connections to industry and government (Lindtner 2015). Later, it drew momentum from central government’s drive for “mass innovation” that, while more encompassing, put specific emphasis on the makerspace approach. Undoubtedly, for example, Premier Li Keqiang’s 2015 visits to makerspaces gave the maker scene visibility and recognition, lifting it from its independent niche into the limelight of national policy ambitions (China Daily 2017b, d; Marshall and Rossi 2017). As in other countries, however, the actual relevance of makerspaces depends, first, on a sufficient basis of people willing to join the community and, second, on a robust connection to industry which translates their ideas into a relevant contribution to the innovation process (Saunders and Kingsley 2016; Fraunhofer ISI/Nesta, 2017; Halbinger 2018). Only where entrepreneurialism meets with creativity will the typical makerspace tasks of hacking, designing and prototyping in small, co-working teams come to fruition. In China, the young urban population’s unparalleled affinity to ICT platforms and immediate user feedback in combination with a certain fatigue of “producing distant from global design” (that may not fit local needs) provides an arguably better foundation for “making” than elsewhere (DigitalTrends 2017). Likewise, the specific heritage of Shanzhai and in any case many firms’ readiness to flexibly implement changing designs meant that their interfaces for shifting demand signals are better and their receptiveness for impulses from the world of makers rather high (Julier 2016; Saunders and Kingsley 2016). Accordingly, successful computeraided design (CAD) model simulation, prototype manufacturing and hands-on practice have been realised in different university and university library environments (Liang et al. 2018, Li et al. 2018) As mentioned, however, the viability and relevance of makerspaces depends on the first place on conscious consumers’ readiness to articulate daily life issues as problems, introduce them in a co-working environment and collectively solve them (DigitalTrends 2017; Marshall/Rossi, 2017). In China, therefore, the main momentum of the maker scene originated in Shanghai and Shenzhen, where established entrepreneurs recognised the potential inherent in the combination of an entrepreneurial ecosystem and a discerning urban user community. These different moments of creativity combined provided a fertile ground for makerspace activities. Moreover, many of the first makerspaces’ managers were well networked in the Chinese ICT sector since the 1990s with connections to both domestic and global industry (Saunders and Kingsley 2016). Thus, many of China’s initial makerspaces profit from an established tradition of production on demand of which the Shanzhai cluster was but one of several facets (Julier 2016). Finally, both domestic and international firms realised the potential of makerspaces for recruiting and joined them as sponsors of activities, office space and equipment (about 20% of all makerspaces had a dedicated parent company in 2015) (Saunders and Kingsley 2016; Fraunhofer ISI/Nesta 2017). In consequence, the uptake of the maker movement in China was quite dynamic and self-sustained where it resonated with an emerging middle classes’ abilities

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and demand and where there was local precedence of industry taking unusual demand signals seriously. In 2015, about 40% of all makerspaces had successfully commercialised a product (Saunders and Kingsley 2016). Quite swiftly, the concept successfully spread to Beijing where a creative student population around the nation’s largest universities provided a fertile ground for collective tinkering and the experimental development of new, smart and frugal urban solutions (Yang et al. 2016). Even if in part more elitist and on the playful side than the citizen-driven activities in Shanghai (overall, only about 50% of all Chinese makers are students), Beijing’s makerspaces provide a new, relevant framework for the articulation of demand and ideas that were already nascent among a young urban population (Yang et al 2016). The initial problem of a missing link to close-by industry could be readily overcome by connecting the capital’s makerspaces with producers in Shenzhen or the Yangtze Delta. As Beijing’s universities are setting up branches in Shenzhen, some Shenzhen makerspaces have recently come to set up branches in Beijing (Saunders and Kingsley 2016; Fraunhofer ISI/Nesta 2017). Subsequently, the government’s “mass innovation” campaign spurred a set-up of makerspaces in various second- to third-tier cities which has to be seen more critical. In 2015, about hundred active makerspaces existed nationwide (Saunders and Kingsley 2016), with official numbers more than ten times as high (China Daily 2017b), not least since the label “maker space” is provided publicly at minimal charges. In 2016, the prevalent expert assessment had become that China was in danger of setting up “more makerspaces than it has makers” and newer studies concede that is difficult to gauge extent and substance of the phenomenon (Li et al. 2018). Overall, few cities beyond Beijing, Shanghai and Shenzhen convene a sufficient level of entrepreneurship, conscious consumerism and functioning links to local industry among their local population to set up makerspaces in the sense here discussed. Hence, many more recent sites largely rely on subsidies, are apparently not active enough to contribute much to industrial innovation (Marshall/Rossi, 2017). Moreover, some are makerspaces in name, yet set up for entirely different purposes (Yang et al. 2016; Xi et al. 2017) and as a result suffer from closed innovation, efficiency-orientation, few focal products and unduly specialised organisation (Zhan and Yang 2017). Where viable makerspaces exist, however, they provide robust indication of a high-level articulation of urban demand. In the future, they may well constitute central elements of flexible production models, taken to a higher technological level yet continuously focused on a tight fit with latent needs and customer demand (Liang et al. 2018; Fraunhofer ISI/Nesta 2017; Julier 2016; Lindtner 2015).

9 Discussion: Which Role for Frugality in Chinese Innovation In summary, the selected examples demonstrate that there is ample evidence of not only a continued legacy of non-technological approaches to innovation in China but

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also strong signs of continued dynamism, transformation and further development. In both past and present situations, it was quite predominantly entrepreneurs’ capacity to develop fit-for-purpose, low-threshold, i.e. in substance frugal, innovations that has supported socio-economic dynamism and opened up new avenues for development. Side by side with China’s ever-increasing technological capacities, producers’ ability to understand latent needs has been central drivers of innovation in all types of environments, from urban to rural. Today, they continue to being developed based on the new opportunities provided by information and communication technologies. Quite clearly, therefore, all three case studies provide evidence of crucial success factors that are in too many current studies neither conceptually nor empirically well represented. They thus underline that any comparative regional analysis of Chinese innovation models that focuses on technological achievements alone would with great likelihood fail to develop relevant explanatory power of past dynamics as much as predictive power for future developments. In particular, as the information and communication technologies crucial for the above-mentioned new models’ success are not necessarily conceived within those ecosystems through and in which they develop most relevance for frugal innovation and subsequent socio-economic advances (Luo and Sheng 2018; Guo et al. 2014; Liu et al. 2015b). In summary, this paper’s findings thus emphasise the need to analyse and understand the foundations of those firms’ business models that, eclipsed by the new technological lighthouses and drawing on innovation with “frugal characteristics”, continue to generate the bulk of value added and exports in China, in leading coastal as well as in emerging inland regions. Furthermore, it underlines the rise of new models of innovation that may eventually reconnect customers and users in so far unforeseeable ways across the innovation chain and across urban-rural divides. Needless to say that these findings neither call into question the increasing role of technological innovation for China nor the increasing economic relevance of its urban middle classes. In a country of 1.4 billion, the latter constitute a growing source of demand on their own and continue to support high-end producers with the buying power of small national economies. Not least the study on the urban maker scene has implicitly demonstrated how relevant urban lead users have increasingly become. With the view to the literature on frugal innovation, our review thus demonstrates, that the technological upgrading, even global leadership, of some leading firms as well as the increasing spread of living conditions in a country does by no means imply that frugal innovation-based business models, once foundations of the economy, have per se become obsolete. Instead, they illustrate how China’s businesses continue to profit by keeping alive existing capacities in frugal development while at the same time updating and repositioning them based on societal trends and new technological options. As the case here documented shows, there are several aspects which keep frugal approaches both viable and vital. The buying power of both “small town China” and the large number of developing markets that the country increasingly serves combine aggregate even more demand than its discerning urbanites. For the upcoming decades, mid-income markets will remain central for many parts of the Chinese economy and new, ICT-based platform technologies will become crucial for serving

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them in novel, increasingly networked ways—be it through decentralised innovation in makerspaces, or through decentralised production in Taobao villages. And while genuinely low-income markets may remain dwindling domestically, they will remain readily accessible elsewhere in Asia or Africa.

10 Conclusion This paper has advocated the consideration of user-driven, low-cost innovation models in future comparative studies of the Chinese innovation system. It does so at a time when the integration of a broader basis of users is both facilitated by technological advances and strongly promoted by government. Today, many of China’s corporates and many of its entrepreneurs continue to draw their competitive advantage (both globally and domestically) from a particular ability to grasp latent market needs, understand options in their societal environment and respond swiftly with frugal, or at least tailored-to-purpose, solutions. With increasing technological capabilities, moreover, some of them have successfully translated these capacities acquired under frugal circumstances to upper-end segments of the market. At the same time, others leverage newly available technological options for frugal purposes, to simply continue what they do well, shifting to new, frugal markets both inside and outside of the country. As the first case study emphasised, the fundament of China’s current economic success continues to rest on an outstanding ability to do provide needs-oriented, affordable solutions and to adapt to changing markets. In addition, the second and third case study outlined how established frugal capacities can be renewed and reinvigourated by new business models and a reshaping of innovation networks. In this context, digital technology provides new, enabling platforms for inclusive innovation. Arguably, it is not least the very particular yet also very dynamic Chinese ICT ecosystem that will provide distinctive options and opportunities in this regard. With these findings, this study substantiates the case that economies do not naturally grow out of frugal innovation once they develop. To the contrary, it shows that they can benefit by reframing once gained capacities in frugal innovation and that they would lose out if they unlearned them. In this, it resonates with arguments elsewhere developed for Europe (Kroll and Gabriel, forthcoming). That said, future research on Chinese innovation with “frugal characteristics” will have to develop and refine a methodological and empirical toolset to move beyond literature reviews in establishing and generalising the specific traits of frugal innovation with “Chinese characteristics”. A central element in this will undoubtedly be the decisive—but indeed very particular—role of information and communication technologies with a view to substance (cf. Shanzhai), business models (cf. Taobao) and the opportunities it harbours for distributed innovation (cf. Makerspaces).

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Fostering Frugal Innovation Through Computer-Aided Engineering: Benefits and Challenges for Emerging Economy Firms Stefan Bernat and Solmaz Filiz Karabag

1 Introduction Many innovation strategies and practices have been studied for their applicability in established economies (Anderson and Tushman 1990; Christensen and Bower 1996; Henderson and Clark 1990) as well as in emerging ones (Hobday 1995; Kim 1997; Lee and Lim 2001). Among these models, frugal innovation has attracted the attention of scholars and practitioners due to its disruptive potential to create new markets by reaching out to non-consumers (Rao 2013; Tiwari and Herstatt 2012). Frugal innovation represents a new approach to managing innovation, which may help firms innovate by creating less expensive, more flexible, inclusive, and eco-friendly products and services (Radjou and Prabhu 2015). It is commonly described as the ability to do more with less (Radjou and Prabhu 2015), and is expected to provide not only affordable but also quality products and services (Hossain 2018) to both low-income and middle-class consumers in established and emerging economies (Agarwal and Brem 2017; Agarwal et al. 2017; Ahuja and Chan 2014). In several cases, consumers in emerging economies cannot afford existing products and services, which makes them conscious about the relationship between price and value (Ahuja and Chan 2014). In turn, consumers in established economies have started seeking the best value for their money, especially since the last economic crisis (Zeschky et al. 2011). Additionally, frugal innovation can reach eco-friendly consumers by providing more sustainable innovations than existing alternatives in established (Radjou and Prabhu 2015) and emerging economies (Levänen et al. 2016).

S. Bernat (B) · S. F. Karabag Department of Management and Engineering, Linköping University, 581 83 Linköping, Sweden e-mail: [email protected] S. F. Karabag e-mail: [email protected] © Springer Nature Switzerland AG 2021 N. Agarwal and A. Brem (eds.), Frugal Innovation and Its Implementation, Contributions to Management Science, https://doi.org/10.1007/978-3-030-67119-8_6

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Hitherto, most studies have focused on defining frugal innovation to differentiate it from other innovation strategies and management models (Hossain 2017, 2018). Scholars have provided various definitions, from product-, market-, and process-oriented definitions to criteria-oriented ones (Pisoni et al. 2018), but have not explored how this type of innovation can be achieved (Weyrauch and Herstatt 2016). Lately, instead of focusing on defining frugal innovation (Hossain 2018), it has been suggested that researchers should investigate the frugal design of products (Pisoni et al. 2018) and how firms can build capabilities to innovate frugally. Thus, this study takes this research stream a step further and explores some engineering and product development processes that help firms innovate frugally (Tiwari and Kalogerakis 2017). Specifically, we explore the role of computer-aided engineering (CAE) for fostering frugal innovation and how firms in emerging economies strive to organize their innovation activities when establishing and applying these digital tools. The focus on CAE can be justified as follows. CAE technologies refer to the computer software applied to build, test, evaluate, and optimize virtual prototypes (Zorriassatine et al. 2003). CAE provides quantitative analyses that virtually simulate the structural, functional, kinetic, and dynamic performance of products (Tao et al. 2018b). It is used mainly at the beginning of product development, during the phases of conceptualization, preliminary development, and engineering design (Dankwort et al. 2004). Along with other information and communication technologies, such as computer-aided design (CAD) and computer-aided manufacturing (CAM), CAE technologies support product lifecycle management where product data are shared among several actors and processes to increase the performance and sustainability of products (Terzi et al. 2010). By making use of such digital technologies in engineering, firms can create high-quality, cost-effective, and environmentally friendly products (Tiwari and Kalogerakis 2017), thereby facilitating the development of frugal innovation (Agarwal and Brem 2017). Additionally, as CAE has become more popular in recent years (Xue 2018), it has improved the product development capabilities among small and medium enterprises (Matta et al. 2015). Despite these cited benefits, some studies have not found a strong relationship between CAE and firm success (Pérez-López and Alegre 2012). Therefore, it is worth exploring if and how CAE technologies can support firms’ frugal innovation activities. This study focuses specifically on emerging economies. Although, in the recent past, firms from such countries played a minor role in the global innovation landscape, many have now emerged as important players in several sectors (Fleury et al. 2013; Li and Kozhikode 2009). This study is guided, thus, by the following research questions: 1. Is it possible for CAE technologies to help firms in emerging economies design and develop frugal innovation? If so, how? 2. What kind of benefits can firms achieve by engaging in frugal innovation using CAE technologies? 3. What are the organizational challenges faced by emerging economy firms when applying CAE technologies to foster frugal innovation?

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Three firms in Brazil that have applied CAE for new product development were selected for a multiple-case study. Coming from different sectors—telecommunications, metallic towers, and industrial processes—comparing and analyzing these cases provide the means to identify similarities and differences in the CAE benefits and the challenges in fostering frugal innovation. This chapter is organized into six sections. The next section reviews the innovation literature on emerging economies, establishes the main criteria for frugal innovation, and presents the conceptual framework applied to investigate the cases. Section 3 details the research design and case selection. Section 4 describes the cases by focusing on the main characteristics of frugal innovation. Section 5 applies the conceptual framework to compare the cases and tackle the research questions. Finally, Section 6 summarizes the main findings, limitations, and scope for further study.

2 Theoretical Background In the literature, innovation has been linked to several concepts such as creation, design, invention, newness, and technology. As a result, scholars have proposed various definitions, models, and strategies of innovation. Here, we are interested in exploring the approach to frugal innovation in emerging economy firms.

2.1 Innovation Literature in Emerging Economies: Imitating, Adapting, and Innovating Different innovation strategies have been proposed in the literature on emerging economies. For instance, Hobday (1995) studied the “four dragons” of East Asia. He suggested a path of learning starting with assembly, for example, contract production for original equipment manufacturers, followed by efforts to assimilate design technology and develop indigenous product brands. Kim (1997) studied the drivers of Korea’s fast industrialization and highlighted the need for accumulating technological capabilities over time, from duplicative to creative imitation. Lee and Lim (2001) also investigated Korean industries and proposed three models of catch up for latecomer firms: following forerunners, skipping some of their stages, and creating new parallel paths. These strategies propose that firms in emerging economies start by learning about existing technologies through imitation, then adapt them to their markets, and, ultimately, start innovating on their own. From another perspective, Zeschky et al. (2014) presented a typology for resourceconstrained innovation, comprising low-cost innovation, good-enough innovation, and frugal innovation. According to Zeschky et al. (2014), the result of low-cost innovation is a less expensive alternative to Western products that benefit from the

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reduced operational costs when firms, especially in emerging economies, exploit local advantages such as low labor costs, local sourcing, standardized components, scale, and efficiency. Ostraszewska and Tylec (2015) define good-enough innovation as innovation that focuses not only on lower prices but also on adapting and redesigning products to match the specific needs of low-income customers, thereby requiring a certain product novelty. In turn, Tiwari et al. (2017, p. 24) state that frugal innovations: … seek to create attractive value propositions for their targeted customer groups by focusing on core functionalities and thus minimizing the use of material and financial resources in the complete value chain. They substantially reduce the cost of usage and/or ownership while fulfilling or even exceeding prescribed quality standards.

In sum, low-cost, good-enough, and frugal innovations can be understood, respectively, as the same for less, tailored for less, and new for less (Zeschky et al. 2014). In the literature on innovation in emerging economies, recently, frugal innovation has gained the attention of both scholars and practitioners (Hossain 2018; Pisoni et al. 2018), being recognized as having the potential to create disruptive innovations (Ray and Ray 2011; Tiwari and Herstatt 2012). For example, Rao (2013) investigated the disruptive potential of frugal innovation and examined a list of 28 popular (e.g., portable ultrasound and Chaturon refrigerator) and not-so-popular (e.g., robotic hand and Spike missile) frugal innovations. Despite the different characteristics of frugal innovation in the literature, some attributes have been cited repeatedly. For this study, we consider the main criteria of frugal innovation proposed by Weyrauch and Herstatt (2016): substantial cost reduction, concentration on core functionalities, and optimized performance level. Frugal innovation seeks to attain substantial cost reduction through lower purchase prices or reduced total ownership costs from the customer perspective (Weyrauch and Herstatt 2016). The concentration on core functionalities criterion relates to core benefits and reduced complexity, targeting user requirements for higher user benefits (Weyrauch and Herstatt 2016). As suggested by Cunha et al. (2014), frugal innovation focuses on the essential functions that users expect to satisfy when buying the product. In turn, the optimized performance level covers the operation of all functionalities and engineering characteristics, such as durability and accuracy, regarding the required performance level in a particular context (Weyrauch and Herstatt 2016). Although these criteria do not offer a quantitative perspective, they provide a qualitative framework that may identify the degree of frugality of the product (Agarwal and Brem 2017).

2.2 Conceptual Framework Scholars have identified some drivers of frugal innovation. Agarwal and Brem (2017) indicated that advanced technologies and digitalization are helping frugal innovation

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create low-cost and high-quality products. Based on a study on India’s auto component industry, Tiwari and Kalogerakis (2017) suggested that digital technologies, such as CAE, are driving frugality. They pointed out that Indian firms (e.g., Bharat Forge Ltd.) have provided high-quality and affordable solutions by using various simulation tools. Moreover, CAE technologies can provide digital twins, which is a smart-enabling technology for the design, operation, and maintenance of complex systems (Tao et al. 2018a). However, according to several authors, firms interested in building innovative capabilities should not only be dedicated to improving their technological competence, but also strive to develop their organizational dimensions. Dutrénit (2004) argues that the literature on emerging economies has focused on the accumulation of technological knowledge instead of the interaction between technological and organizational factors, which ultimately impacts the creation of technological knowledge. As pointed out by Pavitt (1998), considerable attention must be devoted to organizational structure and the procedures used to transform technological knowledge into products. As frugal innovation has been developed mainly in emerging economies under various constraints, many impeding factors, such as resource scarcity, weak institutions, limited education, and poor infrastructure, have affected the implementation of this type of innovation (Hossain 2018). Therefore, it is worth investigating how organizational factors impact innovation capability building across emerging economy firms. Based on the literature review, we drew a conceptual framework to explore the cases. We adopted the main criteria suggested by Weyrauch and Herstatt (2016) to investigate how CAE technologies can lead to frugal innovation. Although there may be overlaps among the selected criteria, analyzing each separately will help us approach the problem and elaborate on the research questions. Weyrauch and Herstatt (2016, p. 12) also highlight the following: “We need to look at the challenges that can be encountered while pursuing frugal innovation.” Therefore, we also added organizational challenges as a moderator to clarify the conditions for CAE that facilitate or hinder frugal innovation (Pisoni et al. 2018). Moderators help us understand better when a situation is likely to occur, as they moderate the relationship between the constructs (Huff 2008). Figure 1 summarizes the conceptual framework.

3 Research Method 3.1 Design As mentioned previously, this study investigates how CAE technologies may foster frugal innovation and what challenges firms face when establishing and utilizing these digital tools. As our research questions ask “how” and “what” in relation to a topic that cannot be controlled by the researchers, we adopted the qualitative case study methodology (Yin 2003). In addition, we investigated multiple cases to

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Fig. 1 Conceptual framework for investigating CAE technologies and frugal innovation (Source Authors’ own elaboration)

increase external validity and reduce observer bias (Voss et al. 2002). Moreover, the use of multiple cases provides compelling evidence (Yin 2003) and more robust conclusions, as the propositions are based on diverse empirical data (Eisenhardt and Graebner 2007).

3.2 Case Selection Elaborating on the conceptual framework, which relates CAE to frugal innovation, we applied a theoretical sampling strategy (Patton 1990; Shakir 2002) and established the following criteria for selecting the cases: 1. firms from an emerging economy—as the most relevant context for the topic of frugal innovation (Pisoni et al. 2018); 2. firms that applied CAE to design and develop affordable and quality products—to explore how these technologies contribute to fostering frugal innovation; and 3. firms from different sectors—to collect varied empirical evidence. Regarding the first criterion, we selected Brazil as the emerging economy. Brazil is a prominent economy classified as an advanced emerging market (Kearney 2012). Several other scholars have highlighted the innovation capabilities of Brazilian firms (Bernat and Karabag 2018; Figueiredo 2014; Fleury et al. 2013). As such, a further investigation of innovative Brazilian firms has been recommended in the literature (Frank et al. 2016; Hoskisson et al. 2013). Accordingly, we selected Brazilian firms that utilize the same application suite for CAE, including finite element analysis (FEA), computational fluid dynamics (CFD), and electromagnetic analysis, to compare directly the technical benefits and organizational challenges of applying CAE for new product development. Additionally, we chose firms from different sectors and of different sizes to increase data diversity. Table 1 presents information on the selected firms.

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Table 1 Information on the selected firms Firm

Sector

Employees

CAE staff

Foundation

Adoption of CAE

Pluton Antennas

Telecommunications

3

1

1993

2011

Jet Towers

Metallic towers

12

1

2016

2016

Semco

Equipment for industrial processes

50

1

1980s

2013

3.3 Data Collection We collected data from multiple sources to improve our understanding of the topic (Flynn et al. 1990). Primary data were collected from the selected firms, consulting firms, and simulation experts through semi-structured interviews following a standard protocol to maintain consistency. All interviews were conducted in Brazilian Portuguese and subsequently transcribed and translated to English. Secondary data were collected from publicly available documentation about engineering simulation such as scientific articles, white papers, and magazines. Before collecting data from the selected firms, we interviewed experts in CAE technologies from the Brazilian consulting firm Engineering Simulation and Scientific Software (ESSS) to gain an overview of the topic. The second round of interviews included another consulting firm named Núcleo de Cálculos Especiais (NCE), contributing to our data analysis. Table 2 presents a summary of the interviews.

3.4 Data Analysis For the data analysis, we adopted cross-case synthesis (Yin 2003), which can be used only for studies of multiple cases. After describing the cases, we developed a table with the constructs of substantial cost reduction, concentration on core functionalities, optimized performance level, and organizational challenges to relate the firms to the conceptual framework. The table was then expanded with empirical evidence to provide comparisons showing the similarities and differences among the cases.

4 Case Descriptions 4.1 Pluton Antennas Pluton Antennas is a Brazilian firm initially created in 1993 to provide Internet-related services and products such as reselling routers, being a wireless Internet service

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Table 2 Summary of interviews Firm

Interviewee’s experience and position

ESSS

Type

Interview length (in minutes)

Chemical November 14, engineer, 20 years 2017 of experience in CAE, relationship manager for universities and research institutes

Video conference

70 min

Mechanical November 24, engineer, 17 years 2017 of experience in CAE, business manager

Video conference

60 min

NCE

Naval engineer, 27 years of experience in CAE, general director

Phone call

60 min

Pluton Antennas

Bachelor of January 30, 2018 Phone call computer science, 10 years of experience in antennas, 6 years of experience in CAE, owner

60 min

Jet Towers

Mechanical November 28, engineer, 12 years 2017 of experience in CAE, founding partner and director of engineering

60 min

Military, 7 years of experience in wireless systems, founding partner Semco

Date

October 31, 2018

Video conference

February 7, 2018 Phone call

Control and May 22, 2018 automation engineer, 4 years of experience in CAE, product and application engineer

Video conference

50 min

80 min

(continued)

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Table 2 (continued) Firm

Interviewee’s experience and position

Date

Type

Interview length (in minutes)

Phone call

35 min

January 24, 2018 Phone call

60 min

Mechanical December 5, engineer, 25 years 2018 of experience in mixers and agitators, sales manager Simulation experts

Naval engineer, 19 years of experience in CAE, simulation manager

Materials December 6, engineer, 19 years 2018 of experience in CAE, simulation expert

Phone call

60 min

provider (WISP), and providing anti-spam software. Currently, the firm develops and manufactures antennas (from 0.9 to 18 GHz), radio frequency identification (RFID) adaptors, and metallic support structures. Pluton Antennas started the development and manufacturing of antennas in 2007 when the owner identified the need for horizontally polarized antennas in the WISP market. The firm learned how to design antennas from the Internet and specific magazines. The first antennas were handcrafted using recycled materials, such as cooking oil cans, without any bench testing equipment. Subsequently, the firm improved product performance by improving the quality of its raw materials and acquiring a spectrum analyzer to verify and calibrate the main antenna parameters. However, the design of new antennas was still based on trial and error, as stated by the owner: I was visited by a firm that offered me a software to design and simulate antennas. It was fascinating, but the price was too high. Then, I kept working empirically [based on trial and error], designing and mounting antennas as I envisioned that they should work.

In 2011, the owner decided to invest in CAE and acquired hardware and software to design, simulate, and test antennas. He also attended a three-day training course on how to use the software functionalities, such as electromagnetic analysis, and how to draw antenna components on the user interface. The first development using CAE was a feeder for a four-meter parabolic antenna of 1.5 GHz. Afterward, an omnidirectional horizontally polarized antenna of 5.8 GHz was designed as well using CAE. As the owner stated: I designed this [5.8 GHz] antenna entirely in the simulator, without any experimental stage. The antenna started in the simulator and was designed using common materials, based on the dimensions of common materials. It became a feasible and cheap antenna.

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After prototyping and testing the physical antenna of 5.8 GHz and comparing the results with those from the virtual ones, the firm decided to run a process of certification of conformity with the Brazilian Telecommunications National Agency (ANATEL). As an outcome of using CAE, approval was granted at the first submission and no additional tests were required. Since then, Pluton Antennas has used CAE to design, simulate, and test its products to save time and resources. Currently, Pluton Antennas offers 42 different antenna types, all designed using CAE. Additionally, the firm identified a new market by utilizing CAE to design adaptors and interfaces that accommodate antennas and radios from different manufacturers with different connectors. Every time a technology is replaced by a new one (e.g., from 3 to 4G), thousands of outdated antennas and radios go into the market at a meager price. For this reason, some adaptors may be needed to make the different connectors compatible. As stated by the owner: For example, someone goes to another country, buys one type of radio and wants to connect it to another antenna. However, that is not possible because the connectors do not match. Then, I use the simulator to design interfaces that connect them.

In sum, making use of CAE, Pluton Antennas is developing cheap and certified antennas according to the norms and standards of the Brazilian regulatory agency, and customizing interfaces to reuse outdated technologies.

4.2 Jet Towers Jet Towers is a Brazilian firm in the metallic towers industry. The firm was established in 2016 to serve the market of WISPs, radio stations, TV channels, and data transmission. Currently, Jet Towers develops, manufactures, and installs two types of metallic towers: cable-stayed towers, which use cables on the sides to support the tower, and self-supporting towers, which have a pyramid-like structure. Since its foundation, Jet Towers has made considerable investments to acquire hardware and software for virtual prototyping. The firm has utilized its Director of Engineering’s 12 years of experience in CAE. Jet Towers applies different CAE technologies: finite element analysis to identify weaknesses and over-dimensioning structures, computational fluid dynamics to understand how wind affects its towers, and electromagnetic analysis to calculate the propagation properties of electromagnetic waves into the structure. By using this set of digital tools, the firm has designed and tested various geometric configurations of metallic towers with different parameters (e.g., connections, materials, weight, deflection, and dragging) that optimize costs while ensuring safety and reliability. As the result of using CAE, Jet Towers has been able to design, in just a few months, a new line of towers that are lighter, cheaper, and more resistant than the conventional ones in the market. As stated by the firm’s Director of Engineering: The self-supporting tower was always more expensive than the cable-stayed [tower]. It was like five or six times more expensive. That is, the self-supporting tower was unaffordable for

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many internet providers. However, as we provide low-cost towers, we are opening niches in the market. Moreover, as the structures are lighter and easier to mount, customers can install the towers by themselves. Without the need for an assembly team, the total cost of towers is around 40% cheaper.

To comply with technical norms, Jet Towers adopted Brazilian norm NBR 6123, which specifies loads due to wind on construction. According to this reference, winds in some regions of Brazil can reach up to 162 km/h. To support towers that can withstand this wind range, the firm has established a higher requirement for developing wind-resistant towers, as stated by the Director of Engineering: We have seen winds in this range [162 km/h] that are damaging towers. Then, we decided to specify 200 km/h as a standard. It is a round number; an impressive number. All towers we develop are designed to support 200 km/h, and they can be lighter and cheaper than current towers, basically due to simulation.

Jet Towers has applied CAE as well to design towers with special requirements. For example, a mining firm in Brazil required a very stable tower with minimal vibration at the top to be able to attach an ultra-sensitive security camera. After using CAE to design the new tower, the structure was tested in the simulator to determine deformation and vibration in strong winds. The results indicated that a tower with a height of 45 m deforms 4 cm at the top when subjected to winds of 200 km/h. Additionally, the natural frequency for the tower was calculated at 2 Hz when exposed to winds from 2 to 8 km/h, which do not have the dynamic pressure to deflect the tower. Based on these technical details, the mining firm decided to order the tower, as stated by the Director of Engineering: So, in the worst-case scenario, the deflection at the top of the tower would be 3 mm displacement with 0.1 g [gravitational acceleration] of vibration. No other firm gave them this amount of information, so they ended up buying from us.

In short, using CAE enabled Jet Towers to develop a complete line of affordable, lighter, and high-quality metallic towers, and to design unique towers according to customers’ requirements in only a few months after opening for business.

4.3 Semco Process Technology Semco Process Technology (hereafter, Semco) is a Brazilian branch of Semco Group. The firm has a background in marine equipment dating from the 1950s to the 1980s. Since the 1980s, Semco has been engaged in developing and manufacturing agitators, mixers, dispersers, and mills. The firm provides solutions for various industries such as mining, chemical, petrochemical, pulp, paper, sugar, alcohol, food, and beverages. Semco uses three different approaches when developing new processes and equipment. First, it has accumulated more than 35 years of experience in process technology, which supports the firm in designing most of the processes and equipment required by customers to date. Second, for complex processes, the firm uses a pilotscale laboratory by inviting customers to bring in raw materials and creating a trial of

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200 to 300 L. This trial is run with sensors analyzing how the process is performed. Afterward, the pilot is scaled up to the dimensions according to each customer’s needs. Third, Semco can use CAE technologies to identify the more complicated processes required by customers or simulate results when the lab is not equipped to deal with a specific raw material. As stated by the Product and Application Engineer: We were required to make a test in the lab using spackling paste as the raw material; but, it was not possible. The material was so complicated that we could not make a test. Then, we utilized computational fluid dynamics [a type of CAE], which enabled us to see what was happening, including the problems and the lab limitations.

CAE can be utilized to optimize processes and save resources as well. Many variables (e.g., tank dimensions, position and geometry of impellers, viscosity, heat exchange, and working regimes) are involved in designing high-performance equipment. By utilizing CAE, it is possible, for example, to estimate the best place to add a catalyzer in a tank, so that the impellers can shear and spread it over a more significant area and volume, ensuring the best performance for a chemical reaction. The outcome entails saving resources, as stated by the Product and Application Engineer: Sometimes, we replace a competitor’s equipment that is still working. They have heavy and big motors that work 24 hours a day. Just the savings on electric energy are enough to justify the investment in our equipment.

Other benefits of CAE were also observed at Semco. For instance, the prototyping phase can be performed in the simulator instead of using trial and error with physical models, thereby saving resources and time during the development of new products and technologies. Moreover, CAE can be utilized to adapt and reuse existing equipment from different sectors, such as from the production of sugar to that of synthetic leather. Finally, as stated by the Product and Application Engineer, Semco also applied CAE to evaluate and repair the equipment of competitors: If you do not run the sugar process right, it turns to caramel. You need a minimum speed inside the heat exchange. Then, we run a 3D model [of the competitor’s equipment] according to the situation. We found out that the impellers were in the wrong position and rotating at the wrong speed. There were also some shields that impeded the right flow of fluid.

However, the firm has faced several challenges in establishing and applying CAE technologies. For 30 years, Semco had to pay royalties to a foreign firm to receive consulting advice on equipment selection and simulation results about industrial processes. In 2012, Semco decided to build its own CAE capability. Thus, the firm reorganized its R&D activities by investing heavily in software, hardware, training, and technical support for CAE. It was a long-term investment, since training in CAE, such as computational fluid dynamics, usually takes several months or even years. Another critical challenge was creating confidence in the tools, which depends on achieving functional correlations between real and simulated results. As stated by the Product and Application Engineer, building confidence is not straightforward and can take a long time: Computational fluid dynamics [a type of CAE] may be a problem. It can give you wrong results. It is not that simple. It is not a tool where pressing OK gives you the right results.

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In sum, by using CAE, Semco built its own capability to design and develop highly efficient equipment for industrial and chemical processes with lower costs of ownership and the ability to reuse equipment from different sectors.

5 Discussion We analyzed the selected cases using the conceptual framework of CAE and frugal innovation, looking at this in terms of substantial cost reduction, concentration on core functionalities, and optimized performance level along with organizational challenges. Table 3 summarizes the primary empirical evidence from the cases investigated.

5.1 The Development Process of Frugal Innovation Based on the main criteria proposed by Weyrauch and Herstatt (2016), we now answer our first research question by scrutinizing how CAE technologies can help firms design and develop frugal innovation. Substantial cost reduction is characterized by providing products or services at significantly lower prices compared with traditional prices (Weyrauch and Herstatt 2016). Based on the three cases, we can infer that CAE contributes to reducing product costs. For example, CAE helped Pluton Antennas in designing antennas using parts commonly found in the market, thereby lowering its final product costs. Jet Towers was able to provide affordable metallic towers by reducing the over-dimensioned structures of conventional towers. Additionally, because its towers are now lighter and produced in a modular fashion, Jet Towers provides consumers with a do-it-yourself (DIY) approach to installing the towers, thereby lowering costs further. DIY has been highlighted in the literature on frugal innovation (Radjou and Prabhu 2015). By utilizing CAE to optimize industrial processes, Semco has designed efficient equipment with lower costs of ownership and easier maintainability, thereby saving customer resources over its operational timeframe. As proposed by Tiwari et al. (2017), frugal innovation aims to reduce the product price not only at purchase but also during its entire usage timeframe. Further, by applying CAE, all three firms were able to save time and resources by accelerating the development process and creating virtual prototypes instead of physical ones. In short, CAE appears to support firms in designing more affordable products with lower prices and costs of ownership. Concentration on core functionalities means seeking the highest customer benefit, which closely relates to user requirements (Weyrauch and Herstatt 2016). All the studied cases provided evidence on this. By using CAE to design different types of adaptors and interfaces, Pluton Antennas matched the customer need to connect radios and antennas from different manufacturers. Jet Towers utilized CAE to create a unique structure, with specific vibration requirements at the top of the tower. Semco

Substantial cost reduction

Jet Towers

Optimized performance level

Organizational challenges

– Towers designed – Learning about to support winds materials and of 200 km/h connections of (instead of the metallic towers 162 km/h required – Faster time to market by the Brazilian norm NBR 6,123) – Marketing tool to convince customers and aid sales

– High cost of hardware and software – Only one CAE expert in the firm

Learning about – High cost of antennas and hardware and electromagnetic software – Need for propagation Faster time to investment in market training courses Design of – Only one CAE interfaces that expert in the firm allows the reuse of outdated technologies – Development of a new business model – Promotion of circular economy

Benefits for organizations and business models

– Design of – Certification of – customized conformity interfaces and according to adaptors according Brazilian to customer needs Telecommunications – National Agency – (ANATEL)

Concentration on core functionalities

– Design of towers – Design of unique that use fewer raw towers according materials than to customers’ conventional requirements towers – Less cost to freight lighter towers – Customers able to install towers by themselves (40% cheaper)

Pluton Antennas – Design of feasible and cheap antennas based on conventional materials found in the market

Firm

Table 3 Summary of evidence from the CAE technology cases

(continued)

– Affordable, lighter, and high-quality metallic towers

– Cheap antennas certified by ANATEL

Outcomes

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Benefits for organizations and business models

– Design of – Engagement with – Optimization of – Learning about equipment that has customers to better several variables to materials, lower costs of know the chemical design equipment, and lab ownership such as processes to be high-efficiency limitations – Faster time to lower consumption performed equipment market of electric energy – Marketing tool to and easier convince maintainability customers and aid sales – Reuse of equipment from one sector to another – Repair of competitor’s equipment

Optimized performance level

Semco

Concentration on core functionalities

Substantial cost reduction

Firm

Table 3 (continued) Outcomes

– Need for – Highly efficient reorganizing R&D equipment with activities lower costs of – Need for ownership investment in hardware, software, training, and technical support – Need to increase confidence in CAE – Only one CAE expert in the firm

Organizational challenges

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also used CAE to engage with customers and obtain more detailed knowledge of their industrial processes. In this context, the literature has described several successful frugal innovations based on bottom-up solutions and engagement with local context and customer requirements (Radjou and Prabhu 2015; Rao 2013). Accordingly, we suggest CAE can also be used to facilitate engagement among designers, developers, and customers, thereby helping firms focus on customer requirements and core functionalities. Optimized performance level indicates an adequate level of functioning and quality to match the desired purpose and the environmental conditions where the product will operate (Weyrauch and Herstatt 2016). By utilizing CAE, the firms were able to design products according to the specific norms and standards from regulatory agencies. As described in the literature, frugal innovation is not only about reducing costs but also about fulfilling or even exceeding prescribed quality standards (Tiwari et al. 2017). For example, Pluton Antennas was granted a certification of conformity by ANATEL and Jet Towers designed structures to support stronger wind forces than required by Brazilian norms. Semco applied CAE to optimize several variables involved in its industrial processes and design high-efficiency equipment. Accordingly, Tao et al. (2018b) studied CAE as an optimization tool for innovative design. Therefore, we advocate that CAE can be used to design products following the adequate level of performance required by regulatory agencies or the intended purpose of customers. In sum, regarding the first research question, the findings show that CAE has significant potential to support the design and development process of frugal products by helping firms focus on core functionalities, reduce prices and costs of ownership, and achieve or even exceed standard quality levels.

5.2 Further Benefits of CAE for Organizations and Business Models To answer the second research question, we identified further benefits that firms can achieve when engaging in frugal innovation through CAE technologies. Organizations may benefit from CAE in several areas. By storing simulation data, designers and developers codify knowledge, which can be reused in future developments, thereby supporting learning mechanisms, such as experience accumulation and knowledge articulation (Zollo and Winter 2002). By using virtual prototypes with several variables (e.g., materials, dimensions, and geometries), designers learn more about the physics of products, thereby increasing the absorptive capacity of firms (Berggren et al. 2016) for creating state-of-the-art designs (Anderson and Tushman 1990). In this context, technological experimentation is crucial to produce new knowledge (O’Connor 1998) and boost the innovation process (Pavitt 2004). Moreover,

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CAE can facilitate decision making during design, selection of materials, development, troubleshooting, and maintenance of products, which can be applied by designers when deciding about the core functionalities of frugal products. CAE can also support firm business models. For example, Jet Towers and Semco used CAE as a marketing tool to present products and services and convince new customers of product quality and performance, thus aiding sales. Faster time to market is also possible, as prototypes can be designed and tested more efficiently through virtual prototyping (Tiwari and Kalogerakis 2017). Pluton Antennas applied CAE to design new adaptors and interfaces that allow the reuse of outdated radio equipment, thus serving a new market, promoting a circular economy, and creating a positive socioeconomic impact (Agarwal and Brem 2017). At Semco, CAE enabled the firm to repurpose equipment from one sector to another and adapt accessories when repairing equipment. Finally, by using CAE firms can effectively include environmental considerations in product design (Tao et al. 2018b), thereby achieving sustainable development. Sustainable development refers to the economic utilization of resources, reuse of existing components (Rao 2013), and the use of locally abundant materials (Hossain 2018). For instance, by using CAE, Jet Towers used less raw materials, making the products lighter than traditional ones and requiring less fuel for shipping, whereas Semco designed highly efficient equipment that required lower consumption of electric energy. Thus, sustainable development can be considered an important part of the enriched business models achieved through CAE-driven frugal innovation.

5.3 Organizational Challenges for Applying CAE Technologies To answer the third research question, we analyzed the organizational challenges faced by the firms when applying CAE technologies to develop frugal innovation. The initial challenges can be grouped into three categories: software, hardware, and technical skills. The high cost of CAE software and hardware, not only for initial acquisition but also for continuous upgrading, can be a barrier. To overcome this challenge, engineers have strived to demonstrate to managers the benefits of investing in CAE. However, this task is not always easy and investments in CAE technologies may compete with other internal projects, such as those to reduce costs, which can have mismatching goals (Karabag 2019). Therefore, CAE engineers have struggled continuously to prove the benefits of simulation—such as lowering the cost of product development and enabling the firm to develop new products—where the impact on the business model is high but not easily measured. However, as reported by those interviewed, the most significant challenge to establish and utilize CAE relates to technical skills, that is, the ability to apply and operate the software with reliability. The development of CAE technical skills may, thus, take a long time, particularly in emerging economies, such as Brazil, with their weak

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educational systems and massive demand for technicians and engineers (Kay 2012). CAE users are required not only to attend specific training courses regarding the operation of the software, but also need to have background knowledge in basic and applied sciences. As highlighted by the Product and Application Engineer at SEMCO, CAE is not a simple tool that provides reliable outcomes merely by pressing the OK button. In other words, long-term preparation is needed to provide consistent and reliable results using CAE technologies. Therefore, contrary to the intuitive connection expected between digital technologies and frugal innovation (Tiwari and Kalogerakis 2017), we argue that there is a minimum threshold regarding the reliability of simulations that firms must achieve before being able to foster frugal innovation through CAE. In the beginning, any simulation may lead to errors or wrong results, undermining confidence in CAE. If so, developers may start using fewer virtual prototypes and more physical laboratories, thus making managers reduce investments in CAE and hindering the development of frugal innovation. To inspire confidence in virtual prototyping, investments in hardware, software, and technical skills are required not only for the short-term but for a longer-term perspective. This situation places a firm in a dilemma regarding expenditures on CAE technologies for short-term results (i.e., to support incremental innovation) versus long-term results (i.e., to promote radical innovation). As suggested by Tushman and O’Reilly (1996, p. 11), “managers need to be able to do both [incremental and radical innovations] at the same time, that is, they need to be ambidextrous” to remain successful over long periods. Entrepreneurial managers (Teece 2016) that understand the impact of simulation on product innovation may help firms align these activities with firm strategies. Additional challenges were observed as well regarding organizational culture and learning. For instance, R&D routines had to be reorganized to accommodate CAE activities. The need for physical prototypes during product development may hinder the adoption of virtual prototypes by firms. Moreover, converting tacit knowledge into explicit knowledge (Nonaka 1994) is a challenge for organizations with few CAE experts, as observed at the three firms, where only one person was able to operate the CAE software. In such cases, firms risk losing the ability to foster frugal innovation through CAE technologies if the needed knowledge is not internalized.

6 Conclusions Most literature on frugal innovation has been concerned with establishing criteria to define the topic. In contrast, this study focused on the development process of frugal innovation. We explored if and how CAE can foster frugal innovation and what organizational challenges emerging economy firms face when applying such digital tools. Three Brazilian firms from different sectors were analyzed through a multiple-case study.

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The findings show that CAE has the potential to foster frugal innovation. CAE technologies can help firms develop products according to the main criteria of frugal innovation, as proposed by Weyrauch and Herstatt (2016): substantial cost reduction, concentration on core functionalities, and optimized performance level. Further advantages include benefits for the organization and business models such as better decision-making processes during the design of new products, improving firm learning mechanisms and absorptive capacity, helping marketing operations and sales, and faster time to market due to a reduced development cycle. Additionally, CAE can improve sustainable development by saving resources during product development, reducing energy consumption during operations, and extending the use of existing products. Despite these various benefits, several challenges should be addressed continuously as well. The high costs of hardware and software have been highlighted not only as an initial barrier to utilizing CAE technologies, but also in terms of maintenance and upgrades. However, the most critical challenge lies in CAE users, that is, the engineers and technicians who operate the simulation software and need a high level of knowledge in basic and applied sciences. This challenge is particularly significant in emerging economies due to the weakness of their educational systems (Loyalka et al. 2014). Furthermore, if firms have not achieved a minimum level of reliability in operating CAE, there is a risk of mistakes and inaccurate outcomes that can, ultimately, undermine confidence in virtual prototyping, thereby hindering the subsequent use of such technologies and the development of frugal innovation. In short, just having CAE software and hardware does not guarantee the development of affordable and quality products. Quite the opposite, firms need to find a balance between technological knowledge and organizational factors. Therefore, the suggestion is that investments in CAE, along with highly skilled technicians and the reorganization of R&D routines, pave the way to enable reliable outcomes that foster frugal innovations through such technologies. Otherwise, the development of frugal innovation may be jeopardized by inaccurate simulation results. This study is not without limitations. As we only explored firms in Brazil, investigating other emerging or established economies can test our findings. Moreover, the study does not explain the entire process influencing frugal innovation; as such, further studies can elaborate on the different sectors and other drivers, such as market conditions, regulatory norms, and innovation ecosystems. A quantitative study to test the conceptual framework would also be appropriate as a next stage. Acknowledgements We would like to thank Christian Berggren for his helpful suggestions on an earlier draft. We are also thankful for the rich comments provided by Tony Fang during the 3rd Emerging Markets Inspiration Conference at Stockholm Business School and by Charlotte Norrman and Ksenia Onufrey during the 2nd Project, Innovation, and Entrepreneurship (PIE) Seminar at Linköping University. This work was supported by the National Council for Scientific and Technological Development (CNPq), Brazil (reference number: 203048/2015-6), and by Vinnova (Innovation Agency of Sweden) (research grant numbers: 2014-03388 and 2018-02930).

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Frugal Innovation Becoming a Global Phenomenon

Frugal Innovation for Developed Markets: Target Customers, Characteristics, Success Factors Liza Wohlfart, Julian Groganz, Sven Manefeld, and Fabian Fröhlich

Frugal Innovation has gained a lot of importance over the past few years, in research as well as industry. Various scientific conferences feature Frugal Innovation as a key topic, and it is a popular focus area of student theses. High-end manufacturers have leveraged the opportunity to explore new markets in Asia and Africa with simple solutions in parallel to their well-known quality brands, such as Daimler (BharatBenz transport vehicles), Claas (Crop Tiger combine harvester) and Bosch Home Appliances (FreshBox cooling device). High-income countries also show interesting examples of frugal solutions from various industries, such as IKEA (furniture), Accor (hospitality), Aldi and Lidl (retail), Ryanair (transport) as well as Dacia, Ford and VW (automotive) (Wohlfart and Fröhlich 2019; Tiwari et al. 2018, p. 31; European Commission 2016, p. 22). Besides the draft documentation of selected examples, however, research on Frugal Innovation for developed economies is still limited. Existing studies have predominantly dealt with solutions for developing and emerging countries, including socalled reverse innovations. These are solutions companies from high-income countries initially developed for emerging markets and then introduced to their home market later (Zeschky et al. 2014).

L. Wohlfart (B) Fraunhofer IAO, Stuttgart, Germany e-mail: [email protected] J. Groganz Siemens Energy, Karlsruhe, Germany S. Manefeld Immobilien Service Manefeld, Überlingen, Germany F. Fröhlich Trumpf, Stuttgart, Germany © Springer Nature Switzerland AG 2021 N. Agarwal and A. Brem (eds.), Frugal Innovation and Its Implementation, Contributions to Management Science, https://doi.org/10.1007/978-3-030-67119-8_7

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While many authors have mentioned the relevance of Frugal Innovation for highincome countries, market demand as a whole still seems to fall short of expectations (cf. European Commission 2017, p. 101). One reason for this is that lowincome population groups in developed countries differ from BoP customers and even middle-class clients in developing and emerging countries. High-income countries benefit from social security systems that make basic frugal solutions obsolete and they are subject to higher regulatory standards the solutions have to consider, for example with regard to medical devices (cf. European Commission 2017, p. 102). Another significant distinguishing feature of developed countries is their leading position in many high-tech areas (e.g. digitization, biotechnology, etc.) that provides creative impulses to solution design but also raises the threat of over-engineering. Research on frugal solutions from developed countries for their own markets is one of the current research fields explored by the Institute for Industrial Engineering (IAO) of Fraunhofer Society, the largest organization for applied research in Europe. This chapter is an overview of preliminary findings. It starts with a definition of Frugal Innovation, followed by a framework and research questions. A case study analysis based on examples from three different industries (Basler industry camera lenses, Decathlon camping tents and Emporia smart phones) as well as a desk research on societal trends, supported by a small series of interviews, provide answers and propose directions for future research.

1 Defining Frugal Innovation for Developed Markets This chapter first provides a definition of Frugal Innovation based on the current state-of-the-art to then explore the subject of developed markets. Both will serve as a foundation for the establishment of a framework and research questions in Sect. 1.2, as well as the case study analysis in Sect. 1.3. The results of the desk research on societal trends and the interviews are presented in Sect. 1.4.

1.1 Frugal Innovation Etymological studies locate the origin of “frugal” in the Latin word “frugalis”, meaning “usable”, “economical” or “suitable” (cf. Pfeifer and Braun 1997). One of the first sources that mentioned the term “Frugal Innovation” was an article in the English weekly newspaper “The Economist” from 2009 (Tiwari et al. 2016, p. 14). Using examples from the Indian health system, the author described how a broad population can benefit from affordable high-quality care by using modern technology, a clever organization of processes and innovative business models. Early research on the topic focused on solutions for poor and very poor groups in society, the so-called Bottom of the Pyramid (BoP), a term coined by Prahalad and Hart (2002, p. 3). “In short, the poorest populations raise a prodigious new managerial

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challenge for the world’s wealthiest companies: selling to the poor and helping them improve their lives by producing and distributing products and services in culturally sensitive, environmentally sustainable, and economically profitable ways” (Prahalad and Hart 2002, p. 3). Current contributions likewise predominantly mention examples from emerging countries such as India or developing countries on the African continent (cf. Radjou et al. 2012; Ramdorai and Herstatt 2015; Leliveld and Knorringa 2017). Brem and Wolfram (2014, p. 19), for example, define Frugal Innovation as “a derived management approach, based on Jugaad,1 that focuses on the development, production and product management of resource-saving products and services for people at the BoP by achieving a sufficient level of taxonomy and avoiding needless costs”. The European Commission (2016) instead focuses on “simplicity / de-featuring”, “context-specific utility” and “robustness / long service life”, stressing the relevance of Frugal Innovation for customers beyond the BoP: “Intentionally, [our] list of criteria does not distinguish between Frugal Innovations in developing and developed economies. Contrary to rather strong claims in the literature, such a distinction does not seem relevant at a fundamental level, as both frugal conditions and creative entrepreneurs able to respond to them can in principle be found in both environments”. Other criteria of Frugal Innovations highlighted by the European Commission (2016) are a focus on basic needs and the use of basic technologies, in addition to low costs and excellence in ecological footprint. Definition: This publication defines Frugal Innovation as follows: “Frugal innovations […] satisfy the needs of price-sensitive customers with good-quality products that are easy to use. To keep prices down, only core functionalities are integrated and the performance exactly matches the customer requirements. Furthermore, their robustness and low operational costs reduce the total-cost-of-ownership” (Weyrauch and Herstatt 2017; Wohlfart et al. 2018).

1.2 Developed Markets A suitable differentiation criterion for markets proposed by the World Bank is the Gross National Income (GNI) per capita. The GNI per capita has proven to be relatively easy to assess and, in addition, shows a close correlation with other nonmonetary variables. These include “life expectancy at birth, mortality rates of children, and enrollment rates in school” (see World Bank 2020). The GNI is also a suitable indicator from an economic point of view, as it indicates how much a country’s citizens can “afford” on average, i.e. what “affordability” means in a specific country. Based on the GNI per capita, the World Bank (2019) identifies four income classes: high-income (developed markets), upper-middle income (emerging BRICS markets 1 “Jugaad

is an improvisational approach to solving one’s own or others’ problems in a creative way, at a low cost, in a short amount of time, and without serious taxonomy or discipline applied by people at the BoP as a result of poverty and exigency” (Brem and Wolfram 2014, p. 19).

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Brazil, Russia, India, China and South Africa), lower-middle income (other emerging markets) and low income (developing markets). Definition: The examples of Frugal Innovation for “developed markets” in this chapter refer to the World Bank’s cluster of “high-income countries” with a GNI of more than $12,375 US per capita. The terms used to summarize all other countries are “middle-income countries” (emerging markets) and “low-income countries” (developing markets).

2 Framework, Research Questions and Research Methodology Table 1 presents relevant context, background and solution characteristics with respect to Frugal Innovation. From a context perspective, Frugal Innovations can originate from developed, emerging or developing markets, see above, and they can target all of these markets. An aspect so far neglected by the framework is the profile of target customers in developed markets. This issue will be the focus of the first research question addressed by this paper. Research Question 1: Who are the target customers of Frugal Innovations in developed markets? Background-wise, the source of a Frugal Innovation is either an established company (“Corporate Frugal Innovators”) or an individual citizen respectively a team of them (“Grassroots Frugal Innovators”), which may initiate a start-up enterprise to scale their innovation (Wohlfart et al. 2016). Both streams differ in terms of the process and their objectives. While Corporate Innovators benefit from an elaborate engineering infrastructure with sophisticated top-down processes, their grass-roots colleagues make use of the resources at hand to come up with concepts in an improvised bottom-up approach. And companies usually pursue economic objectives first when venturing into Frugal Innovation, while their grassroots counterparts are driven by environmental and/or social aims. As far as the solutions themselves are concerned, the publication follows Fraunhofer IAO’s classification that highlights the five attributes sustainable, modest, affordable, robust and targeted (SMART) as key characteristics of Frugal Innovation (Wohlfart et al. 2019): – Sustainable: Social and ecological friendliness as well as economic profitability – Modest: Deliberate reduction of functions and performance to core customer requirements – Affordable: Price that matches the budget of the target group – Robust: Reliable quality, simple use – Targeted: Focus on a specific, cost-sensitive target group The definition is based on Weyrauch and Herstatt’s (2017) understanding of Frugal Innovation as solutions that excel in substantial cost reduction (affordable), focus on

Developed Markets*

Target region

Economic*

Aims

*Focus of this chapter

Characteristics

Sustainable

Sophisticated*

Process

Solution

Corporate Frugal Innovators*

Source

Background

Developed Markets*

Region of origin

Context

Table 1 Frugal Innovation framework

Modest

Affordable

Environmental

Improvised

Grassroots Frugal Innovators

Emerging Markets

Emerging Markets

Robust

Social

Developing Markets

Developing Markets

Targeted

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core functionalities (modest) and optimized performance level (robust), while also addressing monetary, social and environmental considerations (sustainable) and the setting of a clear focus (targeted). Fraunhofer IAO’s definition of Frugal Innovation provides the background for the second research question addressed by this chapter. Research Question 2: Does Fraunhofer IAO’s definition of characteristics for Frugal Innovation apply for developed markets? The last research question targets the development of Frugal Innovations for developed markets. This question will also be answered by consulting the three case studies. Research Question 3: What are the success factors of Frugal Innovation in developed markets? The next chapter dives into selected case studies of Frugal Innovations for developed markets to answer question two and three. It is based on a thesis that looked into five examples of Frugal Innovation in total (see Groganz 2019). Presenting all of the case studies would exceed the limitations of this contribution, so the authors have restricted the following analysis to three cases that can illustrate our key findings in a concise way. The case study approach was chosen due to the nature of the topic at hand: research on Frugal Innovation for developed markets still is a rather unexplored subject. The selection of the three cases aimed at ensuring that different industries are covered and that there is sufficient information on each case. The case study analysis presented in the next section was based on available publications, such as company reports, scientific articles and online media. The societal analysis in section four also leveraged existing publications. In addition, a short interview series with pronounced frugalists was done.

3 Case Studies of Frugal Solutions for Developed Markets2 3.1 Case Study 1: Basler Basler AG is a German manufacturer of cameras and camera accessories with about 600 employees headquartered in Ahrensburg near Hamburg. The company is one of Germany’s so-called hidden champions in that the public largely ignores it, despite its strong market position in the industry. Basler’s market share of more than 20% makes the company the market leader in industrial cameras (Aktiencheck 2018). In 2018, the company achieved corporate sales of 150 million euros (Basler 2018c, p. 5). The main application area of Basler’s cameras is industrial image processing in factory automation, for example to support quality inspections of raw materials as well as semi-finished and finished products and to enable position detection and positioning tasks of robots. New markets Basler focuses on include medical technology, laboratory automation, traffic and logistics (Euler 2015). 2 Based

on the thesis of Julian Groganz at the University of Applied Sciences of Kaiserslautern in cooperation with Fraunhofer IAO (Groganz 2019).

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According to the German Engineering Federation (VDMA), industrial production increasingly moves from random checks to full inspections for enhanced traceability and ease of documentation. Full inspections, however, rely on modern image processing systems (VDMA 2016, p. 4). In addition, the ongoing automation and flexibilization of production capacities through “seeing” robot systems also entails a strong need for image processing technologies. For the VDMA, machine vision systems are one of the key technologies for increased productivity and international competitiveness (see VDMA 2016, p. 3). Despite continuing high growth rates in emerging markets, the majority of the global value creation in the manufacturing industry (54%) takes place in developed countries (see World Bank 2019), where high-wage levels and strict occupational safety, health and environmental regulations have promoted automation. This makes them especially interesting as a sales market for industrial image processing components. Basler itself also manufactures its components exclusively in high-wage countries, Germany and Singapore, with 80% of its value added being generated in Germany (as of 2015)—a fact Basler stresses by the label “Engineered in Germany” (Basler 2018a; Euler 2015).

3.1.1

The Frugal Solution: 1/2.5 Lenses for Industrial Cameras

The advancement of manufacturing technologies for semiconductor elements gradually resulted in an increasing miniaturization of camera sensors and other devices. Initially, most sensors had a 2/3 format; now 1/2 sensors dominate the market (Basler 2017, p. 1). Lens sizes, however, have not kept up with this development; most still have an image circle of 2/3 . To manage the misfit, users of 1/2 sensor systems have to use lenses with a higher resolution (and a higher price) to ensure optimum image quality. Basler decided to develop a series of lenses with an image circle that perfectly matches 1/2 sensor cameras, see Fig. 1. The following overview contributes to the second research question presented above by matching the characteristics of Basler’s lenses to Fraunhofer IAO’s classification of Frugal Innovations (“SMART”). Sustainable. Basler’s 1/2.5 camera lenses contributed to a sales growth from 97.5 million in 2016 to 150 million in 2018 (Basler 2018c); sales further increased in 2019 (Basler 2019). The lenses clearly present a profitable (sustainable) business model. Modest. The 1/2.5 lens series is available in six fixed focal lengths (no motorized zoom); most cameras with 1/2 sensors are used for tasks that need a fixed focus. The pixel size delivered by the lens series is 2.2 µm, which corresponds to a resolution of about 5 megapixels, which is comparable to that of a standard mobile phone. Again, this choice is sufficient for many industrial applications and modest in that it does not exceed this standard requirement. The lens perfectly fits a working distance of 0.5 m, which makes it possible to use the camera for the majority of image processing tasks in manufacturing without any time-consuming adjustments (Basler 2017, p. 1).

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Fig. 1 1/2 camera sensors: use of 2/3 vs. 1/2.5 lenses (Source Basler 2020; own translation)

Affordable. Basler’s 1/2.5 camera lenses have a low price that allows small companies with a restricted budget to use high-quality camera systems. The cost reduction achieved by the lenses is up to 80% for the lenses themselves (compared to larger ones providing a comparable quality) and up to 40% for a complete camera system (Basler 2017, p. 2). Robust. The lenses are particularly easy to install and commission thanks to their alignment to standard lighting conditions and working distance. A mark indicates the aperture that fits most applications. By holding on to the “C-Mount” as a standardized camera winch, the lens series is backward compatible, i.e. it fits existing cameras, even those from other manufacturers. The lack of a motorized zoom lens increases the robustness of the devices. Basler underlines the special longevity and reliability of its products (Basler 2018a) by extending the warranty period of two years to three. Targeted. The lenses are an optimum match for companies that use 1/2 sensor cameras in industrial image processing applications with a working distance of 0.5 m. The match of characteristics against the SMART classification of Frugal Innovations shows a good match between the two. So the second research question can be confirmed for the first case study analysis.

3.1.2

Success Factors

Official publications by Basler AG (Basler 2018a, c), interviews with company founder Norbert Basler (Basler 2018b) and camera product and market manager Rene von Fintel (see w.MEDIA 2018) as well as a conference presentation by CEO Dr. Dietmar Ley give an insight into the specifics of Basler’s development process. The following paragraphs highlight some of the findings.

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Basler sees itself as a developer of so-called Value Innovations (Ley 2017, p. 30), i.e. solutions for (latent) requirements that are currently unmet (Johnson et al. 2014, p. 59). A strong customer co-creation process helps the company to identify relevant needs and to address them in an appropriate way. Rene von Fintel stresses that Basler looks beyond existing customer requirements in this process by considering challenges their customers face (w.MEDIA 2018), as these are indicators of needs customers are not fully aware of or find hard to express. Based on the knowledge gained, Basler adjusts its activities to ensure that customers benefit from the best possible price/performance ratio, minimum integration efforts and maximum availability (Ley 2017). Basler also uses Lean Management across the entire value chain from development (“Lean Innovation”) to production (“Lean Operations”). Economies of scale, i.e. manufacturing large numbers of components, in addition contribute to the optimization of costs and prices (Basler 2018a). According to company founder Norbert Basler, another success factor is the company’s ideation culture. Basler aims at the establishment of an open working atmosphere that allows the expression of “unorthodox, aspirational ideas” (Basler 2018b). This even includes welcoming radical innovations that may severely affect the present business (Ley 2017, p. 31) as well as tolerance towards failure (Basler 2018b). The company founder also stresses that the assignment of employees according to their strengths and interests is an important aspect of Basler’s innovation culture (see Basler, Die Basler Story 2018b). Basler’s success factors related to the 1/2.5 camera lenses, as demonstrated above, include a strong customer co-creation and a strong ideation culture. These factors will be the first building block for answering the third research question.

3.2 Case Study 2: Decathlon The French company Decathlon is an international retailer of sports equipment. Decathlon generated sales of 11.3 billion euros in 2018 with over 1,511 stores in 51 countries, making it one of the largest sports equipment retailers in the world (Decathlon 2019a; ManagerMagazin 2017). The company’s range includes products from a total of 20 private labels, so-called passion brands, each representing a different type of sport (see Decathlon 2019b). “B’TWIN”, for example, is the brand for cycling, “Tribord” for water sports and “Artengo” for racket sports. “Quechua” is Decathlon’s hiking and camping brand. The global sports and outdoor market, which includes functional clothing, camping equipment, footwear and sports accessories, clearly aims at high-income countries. Its major part, i.e. more than 70% of sales, is in high-income countries (Statista 2019). Decathlon’s advertising slogan “sport for the many” underlines the company’s mission to offer good quality at low prices: “In a world where sport has so much to give, providing attractive, innovative and technical products at the lowest price is not a job, it’s our mission. Everywhere. For Everyone. Because we love sport users.” (Decathlon 2019c).

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The Frugal Solution: Quechua 2 Seconds Pop-Up Camping Tent

In 2005, Decathlon launched a tent under its hiking and camping brand “Quechua” that can unfold itself on its own due to its special construction—the “2 Seconds” Pop-Up Camping Tent. After unpacking it from the circular transport bag, a jerky throw into the air is sufficient to help the tent take on its final shape supported by a glass fibre structure. The only thing the user has to do is to tension the tent with ropes. The glass fibre structure is part of the outer skin of the tent, so there is no need to assemble the poles and connect them to the tent (Fig. 2). An innovative inner skin helps to keep the tent dark and cool. The following is an overview on relevant features of the 2 Seconds Pop-Up Tent. The characteristics are matched to the SMART classification presented above. Sustainable. Information on the profitability of the 2 Seconds Pop-Up Tent cannot be found. The brand Quechua, however, is one of Decathlon’s 20 so-called Passion Brands that contribute to a major part of the company’s overall sales. Decathlon’s own brands generate up to 60% of its turnover (Decathlon 2016). Insights into Decathlon’s social and environmental standards are restricted and therefore hard to assess (Rank a brand 2019). The company’s sustainability report shows ongoing efforts in line with their Code of Conduct (Decathlon 2021). Modest. The 2 Seconds Pop-Up Tent compromises on aspects that are not that relevant to the targeted users, see below, occasional motorized campers. The structure enabling the fast setup, for example, results in a comparatively large pack size. Although the tent is very thin when folded, it has a relatively large diameter of 65– 85 cm and is thus around twice as large as comparable alternative solutions. Another

Fig. 2 A Quechua Pop-Up Tent with integrated supportive structure (Source Wilkinson 2019)

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concession to simplicity is the relatively high weight: the tent is about 20% heavier than an average tent on the market. The 2 Seconds Pop-Up Tent also lags behind alternative tents on the market in terms of available space, but is sufficient to provide two people with a place to sleep. With respect to watertightness, the tent can cope with a short shower, but struggles with long periods of rain. In addition, the folding of the tent after its use is not as easy and self-explanatory as its setup but Decathlon offers instruction videos for this step. Affordable. The 2 Seconds Pop-Up Tent is more than 60% cheaper than comparable tents on the market, i.e. other entry-level tents of established brand manufacturers with an inner and outer skin that have a dome shape and fit two people, as a study of 15 competitive solutions showed (Groganz 2019). Robust. The 2 Seconds Pop-Up Tent offers people with limited previous camping experience a fully functional, high-quality tent with a fast and easy setup. The setup takes more than 2 s, as the name suggests, but it is fast compared to conventional tents. Users report a setup time of about 3–5 min instead of 15 min, which corresponds to an average time saving of about 75% (Singletrackworld 2019; Waldhelden 2019). Comfort is also high. The “Quechua 2 Seconds” has an inner tent and an outer skin, which ensures good ventilation and reduces condensation. With the “Fresh&Black” series launched in 2016, Decathlon also offers users a luxury that conventional tents do not: a dark inner tent that absorbs light; cools the interior; and thus ensures a restful night’s sleep. Targeted. The tent specifically targets occasional motorized campers such as festival visitors and beach goers, who are not ready to pay a high price but willing to compromise on pack size and weight. They want a fast, simple setup, because they only use the tent from time to time. The tent is not an optimum choice for hikers covering large distances, families or long-term campers. Again, the SMART classification of Frugal Innovations was a good match for the characteristics of the solution discussed above. The second research question can be confirmed for the second case study analysis, too.

3.2.2

Success Factors

An important building block in Decathlon’s development process is the cooperation with various partners in the ideation process. The central research centre is in contact with various universities and topic experts such as physiotherapists, podiatrists and physicians to enable a flow of information from academia and industry into the company (Hillairet et al. 2009, p. 198). The decentralized units, in addition, benefit from the involvement of inventors from outside the company (Hillairet et al. 2009, p. 199). An external partner also provided the impulse for the 2 Seconds Pop-Up Tent. He showed the responsible product manager Jean-Francois Ratel the tent of an American manufacturer with a self-supporting setup (Patrigeon 2019, pp. 102f). This tent did not provide enough space to host two people comfortably but it provided Decathlon with the basic idea for the company’s own solution (Patrigeon 2019,

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p. 103). Decathlon then used a small, interdisciplinary core team consisting of Ratel, an engineer, a designer and a prototype builder to develop the product concept (Patrigeon 2019, p. 105). A decisive success factor related to the 2 Seconds Pop-Up Tent in this process was customer co-creation (Patrigeon 2019, p. 105). The idea for a tent that can set up itself emerged in field tests with campers Ratel participated in (Patrigeon 2019, p. 102). Ratel found that it takes at least 4 days to create sufficient trust and a common language for the unfiltered exchange of valuable information (Patrigeon 2019, p. 105). The success factors of the 2 Seconds Pop-Up Tent that contribute to the third research question are in line with the findings of the first case study presented above: customer co-creation and a strong ideation culture.

3.3 Case Study 3: Emporia Emporia Telecom is an Austrian manufacturer of mobile phones and smart phones for elderly people. Emporia maintains offices in Linz, Austria and Shenzhen, China. The company currently has around 100 employees; its sales volume in 2019 was about 30 million euros. Due to demographic development, the proportion of the population over 64 years of age in the industrialized countries is comparatively high (around 18%) and increasing, compared to developing economies (around 7%) (Deutsche Stiftung Weltbevölkerung 2018, pp. 6f). Developed countries also exceed in the adoption of smart phone devices in this age group (~36% of people over 64 years compared to ~ 9% in developing countries, as of 2018 (extrapolated on the basis of Deloitte 2014, p. 1; Taylor and Silver 2019, p. 13; Initiative D21 2019, p. 38; Bankmycell.com 2019). Current obstacles of smart phones include a comparatively short battery life, high price and low robustness against bumps and scratches compared to non-smart mobile phones. Smart phones that sufficiently meet these obstacles present an attractive option for seniors in industrialized countries, with developing and emerging countries gradually catching up.

3.3.1

The Frugal Solution: SMART.2 smart phone

From an external design perspective, the Emporia SMART.2 looks similar to other smart phones. It differs in user friendliness by offering seniors a simple interface and it excels in robustness and price. The following overview on characteristics based on the SMART classification provides more details. Sustainable. Emporia’s SMART.2 strongly supports social sustainability goals by targeting elderly people. It offers them an easy introduction to the world of smart phones and access to the digital world in general. Features such as an emergency button increase the seniors’ safety. Eighty-five per cent of 1,000 seniors participating

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in a study of Emporia said that such a service is a necessity. This is even truer for women, with 85% of the female and 73% of the male study participants valuing the functionality (Emporia 2019c). Figures on the profitability of the SMART.2 phone cannot be found but the economic success of Emporia’s phones in general is high. The company sold about 600.000 phones in 2018, adding up to a revenue of around 30 million EUR and an increase in revenue of 30 per cent compared to the previous year (Emporia 2019d). Modest. SMART.2 cuts back in the most expensive components (Cowsky 2017; Quora.com 2016) to achieve a low price: display, RAM, processor and cameras. Emporia has selected these restrictions with care and consideration of other product features. The senior-friendly user menu, for example, uses large symbols and fonts, so a higher pixel granularity would not provide any significant benefit. The resolution of the main camera allows image prints up to an A4 format, which is sufficient for most uses (Eichfelder 2017). The two megapixels of the front camera likewise are adequate for occasional selfies, their main application area. Emporia’s performance choices are inline with the main activities of seniors when using smart phones. These are, according to the company, phoning or texting (96%), taking photos (94%), messaging (85%), writing e-mails (60%), followed by using street maps and navigation services (56%) as well as looking up timetables or opening hours (56%). Playing data-intensive games with sophisticated graphics is of minor importance for them (20%) (Emporia 2019a). Affordable. Emporia’s smart phone SMART.2 is on average 23% cheaper than other smart phones on the market (Groganz 2019). Robust. The Emporia SMART.2 has a contemporary, modern and appealing design. Its specific user interface differentiates the phone from other devices with an Android operating system. The menu relies on large symbols, a clear, black writing on a white background and a well-structured setup. Users can add further programs in addition to the preinstalled applications with the “App Installer” that offers a pre-selection of popular applications such as WhatsApp (Testsieger 2018). Emporia supports users with a detailed operating manual and training. The “Touch Trainer” application offers a playful way to become familiar with gesture controls such as typing, wiping and zooming (Emporia 2018, p. 17). A textured plastic cover on the back provides a non-slip grip. The eight-megapixel main camera is equipped with an LED flash that also serves as a flashlight. A specific highlight for elderly users is the emergency call button mentioned above that contributes to the safety of users in the event of an accident or health incident. Pressing the button will give a call to five contacts consecutively (Emporia 2018, pp. 69f). If none of the contacts answers the emergency call, the device automatically calls the European emergency call 112. At the same time, a warning tone starts that alerts people close by to the user (Emporia 2018, p. 68). As long as the smart phone is in emergency call status, it runs hands-free at full volume and automatically answers all incoming calls (Emporia 2018, p. 70). Targeted. SMART.2 aims at active seniors in developed countries looking for an affordable, well-designed and robust solution that offers them safety and mobility.

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The second research question can also be confirmed for the third case study analysis. The SMART classification again provided a suitable summary of the main solution characteristics.

3.3.2

Success Factors

Emporia’s research and development (R&D) processes include a detailed assessment of customer needs. The company first develops a clear understanding of who these customers are. Besides the end user, this assessment also considers other stakeholders such as network operators, telecommunications distributors, retailers and service providers (Schaumberger 2017, pp. 7–8), while putting a specific emphasis on grasping end user needs (“User Driven Development”). The three phases of the process follow a Design Thinking approach. The first phase “Explore” summarizes empathizing and defining tasks (Doorley et al. 2018). It starts with a systematic classification of the market into targeted sub-segments and user groups out of the company’s scope. Emporia also does an assessment of stakeholder needs and develops “personas”, i.e. fictitious characters that help to get a thorough understanding of the target groups (Doorley et al. 2018, p. 2). The second phase, “Create”, includes ideation and prototyping tasks (Doorley et al. 2018, p. 2). The third and final phase, “Evaluate”, serves to test the prototypes with selected representatives of the target customers (cf. Doorley et al. 2018, p. 2). This last phase again includes user observation aimed at learning from their interaction with the prototypes. The three phases of the process are done in iterative cycles. Other open innovation activities of Emporia include face-to-face sessions with senior citizen clubs, online idea competitions and workshops with lead users and interdisciplinary experts (e.g. specialist journalists, gerontologists). These activities feed into the two phases Explore and Create (Schaumberger 2017, p. 14). Emporia’s ideation process also benefits from academic partners that contribute latest scientific findings (see Emporia 2019b, p. 1) and tools, for example for simulating age-related limitations (Schaumberger 2017, p. 4). The SMART.2 case study also highlights the importance of customer co-creation for Frugal Innovation as well as the importance of a strong ideation process. These aspects will be taken into account when summarizing the main success factors of Frugal Innovation for developed markets (research question 3) in the following lessons learned overview.

3.4 Lessons Learned The case study analysis suggests that Fraunhofer IAO’s SMART classification applies to Frugal Innovations for developed markets. Frugal Innovations for different markets seem to share similar characteristics but differ in how these characteristics play out. While Emporia’s smart phones, for example, can be considered affordable for

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seniors in developed markets, they exceed the budget of most customers in low-wage countries. The same applies to robustness. While the robustness of Emporia’s phones results from factors such as their solid design, robustness may mean coping with a lack of electricity supply in middle- or low-income countries. With respect to success factors of Frugal Innovation for developed markets, the case studies above highlighted the aspects customer co-creation and ideation culture. The study of Groganz (2019) presents more details on these factors. They show that a thorough understanding of the customers and their problems is in fact an important success factor for companies from developed markets that address their home markets. They struggle even more with this factor, however, when designing new solutions for emerging or developing markets due to geographical distances, language barriers and cultural differences. Ideation, on the other hand, is specifically critical for Frugal Innovation aimed at developed markets (Groganz 2019). This presumably results from the fact that limited resources restrict the number of potential solutions in middle- and low-income countries, while high-income ones have a broad range of solutions at hand they need to consider. Developed markets also benefit from the reuse of existing technologies to keep costs down as well as the deployment of new technologies such as 3D printing and computer simulations (e.g. Digital Twin). All of these aspects increase the ideation efforts.

4 Societal Trends in Developed Markets This chapter presents insights into the customers of Frugal Innovation in developed markets by looking into societal trends. It starts with a short introduction to three major developments—Neo-Ecology, Sharing Economy and Maker Movement—before diving into two in more detail: Neo-Minimalism and Frugalism. Our research on Frugalism was supported by a small interview series with confessed frugalists. According to German trend think tank Zukunftsinstitut, “Neo-Ecology” will be one of six megatrends that will shape the retail sector of tomorrow (Schleicher 2019). Neo-ecologists favour products with a sustainable edge, in the sense of a high social or ecological friendliness, a consumption attitude called “Blue Commerce". Some neo-ecologist consumers even look for status symbols with added ethical value, a trend called “Sustainable Luxury” (Schleicher 2019). Neo-ecology efforts include the recycling and upcycling of products; zero waste initiatives; and circular economy cycles. Dr. Oliver Stengel, research associate at the Wuppertal Institute for Climate, Environment and Energy, is convinced that the current change of mindset in society results from several recent events. They include a greater awareness for intensive animal husbandry, inhumane manufacturing environments in Asia and the deliberate shortening of the shelf life of products, also known as artificial obsolescence (quoted from Brzoska 2014). The current Fridays for Future movement can be expected to provide further momentum. The strong

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social and/or environmental orientation of many Frugal Innovations makes these products an attractive choice for neo-ecologists, along with high-end solutions that excel in sustainability. While it can be assumed that Neo-Ecology will increase the demand for Frugal Innovation, the impact of another trend, the Sharing Economy, is less certain. Prabhu (2016, p. 10) defines this trend as follows: “The sharing economy, exemplified by Airbnb, BlaBlaCar and Kickstarter, has empowered consumers to trade spare assets with each other and thus generate new sources of income”. The Sharing Economy questions the necessity of ownership as such. At least in the urban centres of the world, it will become possible to live almost free of property in many areas of life (Zukunftsinstitut 2019). Besides saving costs, the sharers also value the connections they create with others and the independence that results from fewer belongings. The products that are shared should excel in robustness to cope in a multi-user scenario but not necessarily affordability. On the contrary: the intent to make a product attractive to a large group of consumers might prevent needed restrictions that would allow the saving of costs. The Sharing Economy thus could be a lever for Frugal Innovation, but it might just as well be an impediment. While Neo-Ecology and the Sharing Economy may impact the demand for Frugal Innovation, another relevant trend will influence available options on the market: the Maker Movement. Prabhu (2016, p. 10) presents the following summary of the trend. “The maker movement […] features proactive consumers who tinker in spaces such as FabLabs, TechShops and MakerSpaces, designing solutions to problems they encounter”. The trend manifests itself in Grassroots Frugal Innovation initiatives aimed at providing affordable solutions to immediate problems. It can therefore be expected to provide a strong impulse to the bottom-up side of Frugal Innovation. The following discussion of two additional trends, Neo-Minimalism and Frugalism, aims at understanding consumers of Frugal Innovation in developed markets in more detail. In the past, science often neglected this consumer group as it was assumed that poverty is the main driver of Frugal Innovation. While this is true, both for emerging and developed markets, some consumers may also voluntarily chose to restrict the budget they invest in certain solutions. They, too, are target customers of frugal offers. The authors have looked into the two trends with the objective to detail their links (or lack thereof) to Frugal Innovation. The following chapters are a summary of their findings.

4.1 Neo-Minimalism Minimalism has existed for a very long time, for example as an art movement since the 1960s or a way of living in the early 1990s. “Neo-Minimalism” or “Postmodern Minimalism” is a relatively young lifestyle that started in the 2000s as a counter-trend to the consumer society (Gatterer et al. 2017, p. 45). It was triggered by a comprehensive change in social values in the young generations and has since impacted people from all ages, genders and lifestyle groups. The current pandemic is expected

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to provide further momentum to the trend (TheMinimalists 2020). Neo-Minimalism manifests itself in voluntary renunciation without economic necessity, in contrast to forced non-consumption in emerging and developing countries. The conscious preventing of superfluous consumption is driven by two strong impulses: “For some it is a kind of self-help to cope with the oversupply of products and to increase their own level of well-being. Others aim at changing society through their own consumer behaviour” (Zukunftsinstitut 2019). Neo-minimalists consider a reduction of consumption as an increase in quality of life (Müller 2018, p. 16) as it creates time and energy for achieving professional goals, maintaining social contacts and pursuing hobbies, while preserving natural resources. The central question neo-minimalists ask themselves during purchase decisions is the benefit of the product for their lives. In some cases, simple rules serve as a guideline, as Millburn and Nicodemus (2014, pp. 87, 153) point out, such as “just in case”: consumers abandon goods or refrain from their acquisition if they can buy them within 20 min for less than 20 euros. Compassion and empathy are at the centre of the trend, both for the self and for the planet. Examples of Neo-Minimalist consumption can be found in various areas of life. One is the “Tiny House” trend that initially emerged as a reaction to rising rents and house prices in cities, an increasing desire for mobility and the idea of a retreat in nature. Today, tiny houses are a fashionable way of living. The young Swedish label Asket is another example. Asket exclusively produces timeless basic clothing—no seasonal goods, no trends—and scores with transparency. The company’s website illustrates the cost structure behind the products and provides details on the origin of the materials as well as the manufacturing process (Zukunftsinstitut 2019). Etzioni (1998) distinguished three groups of neo-minimalists in the late 1990s that are still relevant today: moderate (down-shifters), strong and holistic. Moderate neo-minimalists, according to Etzioni, chose to non-consume in selected areas, for example, household appliances or sports equipment. The decisive factor for this group of neo-minimalists is not the price, but the quality and the effectiveness of a product. They consume less but value their possessions and are ready to invest in high quality. They strive for a life that is both luxurious and simple by focusing on few selected items of high value. Successful entrepreneurs such as Steve Jobs and Mark Zuckerberg have become famous examples of moderate neo-minimalists with their specific choice of clothing style. Both have reduced their wardrobe in an effort to reduce the number of small everyday decisions while making time for major ones. Strong neo-minimalists are willing to change their career and to compromise on income to gain free time (Etzioni 1998). They often reduce their working hours or start a new profession, even in ways that present a move down the career ladder according to traditional norms. The young generations show many representatives of this group with employees asking for sabbaticals, home office arrangements and paternity leaves that allow them to achieve a healthy work-life balance. Budget-oriented purchase decisions are a necessity for these neo-minimalists. Holistic neo-minimalists declutter all areas of their life and try to avoid consumption in general (Etzioni 1998). These “drop-outs” break away from society to pursue

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a self-sufficient lifestyle that minimizes costs and puts ethics first. Typical representatives of the movement are rural (hippie) communities, squatters and punks. Holistic neo-minimalists refrain from consumption and possession in general; some aim at self-supply. What does the Neo-Minimalism trend mean for providers of frugal solutions? The demand for high-quality offers that preserve natural resources and benefit society will presumably continue to increase. Consumers like the moderate minimalists will probably pay less attention to the price than the need: Is this purchase really necessary or an optional luxury? Their main motivation to go for frugal solutions instead of high-end products will be simplicity, not cost. They will favour the high ease of use resulting from the restriction of functionalities to what consumers truly need and value. Strong minimalists are probably the most interesting customer group for Frugal innovators. They look for solutions that combine good quality with sustainability and low prices. Holistic neo-minimalists largely refuse to consume and are therefore probably of little importance as a customer group in developed markets.

4.2 Frugalism3 Besides neo-minimalists, there is a society group called “Frugalists” that originated in the USA. They focus on saving money for the purpose of a short work life— “Financial Independence, Retire Early” (in short “FIRE”), as they say. In essence, FIRE is about maximizing the savings ratio by spending less and/or increasing income in order to build up wealth. Frugalists are a small but growing community, as the number of related publications shows (Wagner 2019). In order to gain a better insight into this social group and to assess its connection to Frugal Innovation, Fraunhofer IAO in cooperation with the University of Stuttgart has conducted a short study on Frugalists. The results of these interviews are presented below. The study was done based on semi-structured interviews (see Helfferich 2014, p. 600) with six professed frugalists. Desk research and an online advertisement placed in a frugalist forum served to identify suitable experts. The questionnaire consisted of eleven questions that covered basic topics such as definitions as well as personal questions concerning, for example, the interviewees’ consumer behaviour and perceived quality of life. With regard to frugal solutions, the focus was on the service sector, an area often neglected by Frugal Innovation research. The following is a summary of the most important findings. Frugalism, as defined by the interviewees, describes the conscious investment of existing personal resources such as money, time, knowledge, strength and attention in an optimum way to support personal goals. Other experts summed up frugalism as “the will to create the best possible life” or the “efficient shaping of life according to

3 Based on the thesis of Sven Manefeld at the University of Stuttgart in cooperation with Fraunhofer

IAO.

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the best possible parameters”. Freedom and self-determination are important values in the frugalist community. At the core of the frugalist movement is a strong belief that financial independence is the most important means to allow a strong focus on personal aims and ambitions. The frugalists try to achieve this goal by establishing what they call “an efficient lifestyle” in the sense of an optimum ratio of money versus time. One frugalist, for example, stressed that a good money management helps to save time otherwise needed to build up financial resources. Other interviewees likewise pointed out the high importance of financial aspects in their community that manifest themselves in initiatives aimed at either generating more income or reducing expenses. Some confirmed the living according to simple rules described by Millburn and Nicodemus (2014, p. 87) above: “I have a nutrition plan with eight recipes that serves as a shopping list and prevents spontaneous purchases in the supermarket. In addition, I’ve reduced my clothes to a minimum and will only buy new garments if a piece is torn and needs replacement”.

4.3 Lessons Learned There are obvious overlaps between the neo-minimalist movement and the frugalism trend. Both try to limit their expenses in pursuit of higher objectives. However, neo-minimalists do so to ease their life and to make it more meaningful through decluttering and renunciation, while frugalists put financial independence first. In general, they seem to share most with the group of strong neo-minimalists. They, however, differ in time perspective. Strong neo-minimalists try to minimalize their costs to allow a lifestyle with a good work-life balance right here and now, while frugalists aim at achieving that balance one extreme at a time. They restrict their life now to be free of work later. The Neo-Minimalism trend suggests that private consumers in developed markets will increasingly ask for sustainable solutions, both in the high- and the low-price segment. Especially strong neo-minimalists will create a major market for solutions that succeed in harmonizing high quality, social sustainability and environmental friendliness with low prices. Frugalists also favour affordability but it is less obvious if they also value quality and sustainability. They could be interested in Frugal Innovation for costs alone. Both trends will be subject to the further development of the Sharing Economy.

5 Summary and Outlook This contribution aimed at addressing three research questions that were answered as follows.

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Research Question 1: Who are the target customers of Frugal Innovations in developed markets? The societal trends presented in this chapter suggest that the demand for Frugal Innovation in developed markets will increase in the next couple of years. The extent of the market growth will, however, depend other current developments such as the Sharing Economy. In general, voluntary renouncers such as the Neo-Minimalists and the Frugalists seem to be the major consumer group in developed markets, so future research into these groups seems relevant. Research Question 2: Does Fraunhofer IAO’s definition of characteristics for Frugal Innovation apply for developed markets? The research presented in this chapter showed that Frugal Innovation solutions share comparable characteristics across different markets; Fraunhofer IAO’s definition of characteristics applies to both of them. They, however, differ in the details. Affordability, for instance, is an important factor in all markets but has a different meaning in a high-income country compared to a middle- or low-income one. Research Question 3: What are the success factors of Frugal Innovation in developed markets? Key success factors of Frugal Innovation for developed markets include customer co-creation and ideation. The latter is even more important for developed countries than for emerging or developing ones. The authors suggest that future research should take a closer look at historic examples that have proven very successful to learn more about the characteristics and success factors of Frugal Innovation for developed markets. From a customer perspective, a large-scale survey on expectations of different generations or lifestyles could be valuable to match trends to consumer demands.

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New Business Models for Frugal Innovation: Experience from an Enterprise Supporting Sustainable Smallholder Agriculture in Kenya Jackson Musona

1 Introduction Bottom-of-the-pyramid (BOP) markets represent a massive proportion of those in developing countries. These market segments present opportunities for business, due to their rapid growth rates (George et al. 2012). Introducing specific forms of innovation and business models—which deliver superior value at extremely low cost—creates new markets and allows for competitive positioning (Mudambi 2011). The literature on innovations to serve BOP consumers emphasizes the social nature and low-cost focus of the business models that deliver said innovations (Bendul et al. 2017; Sinkovics et al. 2014). Frugal innovations (FIs) have emerged as a result. FIs constitute a specific form of resource-constrained innovation that is faster, better, and cheaper—one that targets more people using minimal resources (Prabhu 2017). Weyrauch and Herstatt’s (2016) concept origin perspective proposes three criteria that characterize FIs in both developing and developed markets: substantial cost reduction, core functionalities, and optimized performance level. The intention to develop low-cost, sustainable solutions to address society’s immediate needs has led to the emergence of the frugal innovation discourse (Pisoni et al. 2018). In Africa, Nakasone et al. (2014) have identified agriculture as a sector that could benefit significantly from the impacts of FI, since many households directly or indirectly depend on agriculture (Diao et al. 2010). Specifically, East Africa has been cited as a good example of how the combined attributes of its context and digital technologies (DTs) could revamp new business models for the evolution and diffusion of FIs in agriculture (Howell et al. 2018). Innovative business models and

J. Musona (B) Lappeenranta-Lahti University of Technology, School of Business and Management, 53850 Lappeenranta, Finland e-mail: [email protected] © Springer Nature Switzerland AG 2021 N. Agarwal and A. Brem (eds.), Frugal Innovation and Its Implementation, Contributions to Management Science, https://doi.org/10.1007/978-3-030-67119-8_8

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sustainable financing are key to ensuring that innovations are affordable and accessible in resource-constrained environments (e.g., Chakravarthy and Coughlan 2011; Parthasarathy et al. 2015). According to Winterhalter et al. (2017), new and innovative business models in BOP markets are an amalgamation of robust value propositions—emphasizing reduced costs with superior value and other aspects that enhance consumers’ willingness to pay for products and services (Winterhalter et al. 2017). Frugally innovated product redesigns, adaptation, and restructuring of traditional business models could be a way of meeting demand in low-income markets while ensuring enterprise viability (Zeschky et al. 2011). Frugal innovation thus involves both redesigning products and rethinking production processes and business models (Soni and Krishnan 2014). Prior studies have identified various features that emphasize the specificities of frugal business models (e.g., Rosca et al. 2017). A free flow of information has been identified as another basic element in the democratization of innovation systems. The ever-increasing use of mobile phones and the Internet, in developing countries, offers unprecedented opportunities for frugal business models that are enabled by knowledge sharing (Arocena et al. 2015). Yet the current literature is limited in critical aspects of approaches to and descriptions of FIs and business models for FIs (Agarwal et al. 2017). There is a lack of understanding around how small and emerging enterprises could successfully create and capture value through FI in low-income markets, especially so by leveraging prevalent digital technologies (Leliveld and Knorringa 2018). Pursuant to the identified gap, the objective of this study is therefore twofold. First, it seeks to explore the ways in which an enterprise develops a business model to bring a frugal innovation to the market. Second, it illuminates the role of DTs within a frugal business model. This study draws empirically from the context of frugal innovation in Africa—employing the single case of an enterprise that targets smallholder farmers with digitally enabled low-cost soil sensors and associated services in Kenya. The study therefore seeks to address the research question: how does an enterprise achieve sustained value creation and capture through frugal innovation in low-income markets, and what role do digital technologies play? The following sections provide theoretical background to FI and business models. Next, digitally driven new business models are discussed, as an emerging phenomenon in FI. In Sub-Sect. 3.3, I provide background information on the case enterprise, its business models, and innovation. Section 4 discusses findings, while Sect. 5 concludes with the theoretical implications of the study. Limitations and possible future research avenues are presented in the final section.

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2 Theoretical Background 2.1 Frugal Innovation and the BOP The world’s population currently stands at approximately 7 billion people and is expected to grow to 9 billion people by 2050. Prabhu (2017) argues that it is required, for world economies to meet the needs of current and future populations, to put into action a radical and systematic innovation model—one that is rooted in principles of frugality and focuses on meeting the needs of many people, using drastically fewer resources. Due to this urgent need to meet the demands of a growing population while reducing our use of resources, the phenomenon of high-value resourceconstrained innovation has gained popularity. Scholars have labeled the concept differently. Examples include: good-enough innovation (Christensen et al. 2006); cost innovation (Williamson 2010); jugaad innovation (Radjou et al. 2012); resourceconstrained innovation (Ray and Ray 2010); and frugal innovation (Zeschky et al. 2011). “Frugal innovation is the novel application of low-cost product and service design, while allowing new applications specifically targeting resource-constrained customers” (Zeschky et al. 2014). It refers to a type of market-based innovation, initiated in and around constraints (Zeschky et al. 2014), wherein innovators with creative ideas serendipitously engage in changing institutional, technological, and organizational constraints. The literature is still divided on the role of FIs in sustainable development (Brem and Ivens 2013; Prahalad and Mashelkar 2010). Some scholars claim that FIs play a significant role in sustainability, as they offer the potential for economic efficiency under conditions of severe resource scarcity—that is, doing more with less for more people (Prahalad and Mashelkar 2010). Yet the role of FI remains under some debate, despite extensive literature and empirical cases—mostly in the context of India (e.g., Hossain et al. 2016; Radjou et al. 2012; Rao 2013; Tiwari 2017; Tiwari and Herstatt 2012; Zeschky et al. 2011)—and the potential that the FI discourse offers around much-needed sustainable development. Several contentious issues are still to be addressed in the literature. Some of these problematic areas include limited application of the business model perspective in understanding FIs. This is due to lack of a unified definition of the business model concept, with various definitions and conceptualizations having been presented (e.g., Chesbrough and Rosenbloom 2002; Teece 2010; Zott and Amit 2010; Zott et al. 2011). This, I believe, limits theoretical contributions to the FI research stream. Many of the case studies of FIs are also from India (Pisoni et al. 2018). Cases of FIs that have been successfully delivered to the market in Africa are not well documented and are therefore limited in the current FI literature (Howell et al. 2018). Moreover—despite the critical role played by small and emerging local enterprises in supporting FI—the extant literature has paid far greater attention to the ways in which multinational enterprises (MNEs) implement and profit from the adoption of frugal approaches to innovation, in developing and emerging markets (Ray and Ray 2010).

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The relationship between FI and business models has been presented in some emerging literature streams, with scholars highlighting the specificities of frugal business models and their features (Rosca et al. 2017). However, this literature does not clarify the approaches to attaining said business model features for FI. This study contributes to the identified gaps by examining a case of frugal innovation in the agricultural sector in Kenya. It aims to understand how the enterprise attained the business model (s) that successfully delivered the FI to the market, as well as the role played by digital technologies. Supply- and demand-side resource scarcity challenges have pushed firms in developing countries to engage in FI, with their business models strongly inclined towards environmental and social sustainability (Cunha et al. 2014). Business models for innovations in developing and emerging markets significantly differ from business models for innovations in advanced markets (George et al. 2012; Landau et al. 2016). Developing countries’ conditions determine the nature of business models that firms adopt. Environmental dynamism, market unpredictability, and institutional uncertainty pose challenges. They also lengthen the period required to attain the desired business model for the diffusion of innovations (London and Hart 2004). Furthermore, “markets are either poorly developed or do not exist” (Seelos and Mair 2007, p. 52). Within such contexts, business model experimentation plays a critical role in creating business models that foster the adoption and diffusion of FI (Andries et al. 2013; McGrath 2010; Sosna et al. 2010; Trimi and Berbegal-Mirabent 2012). Business models for FI focus on setting up value creation and capture mechanisms, to reach new customers with unparalleled value propositions. Most customers targeted are those in remote rural areas—locales that barely have access to public services and are often not served by mainstream businesses (Mair and Marti 2009; Stephan et al. 2015; Tracey and Phillips 2011). The FI business model discussion is thus dominated by creating value for the local people and determining how to sustainably capture said value (Rosca et al. 2017; Sinkovics et al. 2014; Winterhalter et al. 2017).

2.2 Business Models and Frugal Innovation Business model conceptualization varies, albeit within a convergence of conceptual themes. The various conceptions show that a business model is complex, multidimensional, and yet to be defined in a unified way (Tuli et al. 2007). Meanwhile, Osterwalder et al. (2005) have framed a business model as a conceptual tool for understanding a firm’s business activities—which can therefore be a mechanism for analyzing, communicating, managing, comparing, and assessing performance and innovation. Thus, business models define the interaction of value proposition, value creation and delivery, and value capture. This implicitly influences organizational structuring for future promptitude and malleability (Osterwalder and Pigneur 2010). Zott et al. (2011) later presented business models as mechanisms for capturing value created from various sources.

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The specific roles and features of a business model, as relevant to this study, are noted in the literature. First, business models can support the strategic marketing of innovative processes, products, and services (Teece 2010; Zott and Amit 2008). Second, business models themselves can be innovated to provide a competitive advantage by changing the terms of competition (Demil and Lecocq 2010; Johnson 2010; Zott and Amit 2010). In addition, the business model consists of key elements— i.e., value proposition, value creation and delivery, and value capture (Osterwalder and Pigneur 2010)—whose coordination is crucial for delivering innovations to the market (Teece 2010). The elements are further made up of independent but integrated components. To some extent, changing certain components affects other elements and consequently determines the performance of the whole business model. The reason for drawing from the business model theoretical perspective, to understand FIs at the BOP, thus stems from preceding expositions. Early studies on business models have confirmed that a firm’s business model and its innovation activities are linked (e.g., Calia et al. 2007; Chesbrough 2007). Management and strategy scholars have discussed the business model concept extensively, elucidating its key role in innovation. The literature gives the impression that viable business models are designed and put into effect straight from the drawing board, leading to positive competitive and performance outcomes for the underlying innovations. Contrary to this view, Sosna et al. (2010, p. 384) argued that “in reality new business models rarely work the first time around.” The design and implementation of a business model for new innovations demand venture alignment. Resource mobilization by managers is likewise required, along with the development of capabilities and competencies that advance learning and change (Sosna et al. 2010). As a result, a venture ends up with a specific business model—one that best meets its goals and objectives—after going through a process of planning, designing, testing, and re-testing of alternative business model variants, in response to market and environment factors (Henry Chesbrough 2007; Sosna et al. 2010). Spieth et al. (2016) relate innovation to the evolutionary nature of a business model. They suggest that business models cannot be predetermined, but that they emerge partially in response to environmental dynamism (Heij et al. 2014; Schneider and Spieth 2013). The extant literature suggests that, when emerging in dynamic contexts, firms are bound to experiment with different business models (VendrellHerrero et al. 2018). Business model experimentation is a method for discoverydriven, dynamic innovation around the business model, based on unknown assumptions, by testing and clarifying the results of the change (McGrath 2010). BOP markets are highly uncertain, dynamic, and complex (Kistruck et al. 2015; Subrahmanyan and Gomez-Arias 2008). It is therefore expected that rapid business model experimentation, insight, and evolutionary learning play a significant role in delivering innovations to the market (McGrath 2010). This dynamic perspective of the business model conceptualizes the development of a business model as an “initial experiment,” after exposure to customers, partners, and other key stakeholders within the ecosystem. The experiment is followed by continuous alterations—based on a trial and error process in which the business model is streamlined to fit the local context (Sosna et al. 2010). New business models are usually conceptualized

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during exploration, where managers are constrained by market uncertainty and environmental dynamism (Heij et al. 2014), leading to unpredictable business model outcomes. The uncertainty and unpredictability are exacerbated in BOP markets, due to both their inherent unique challenges (London and Hart 2004) and their institutional contexts, which rarely support economic activity (Kistruck et al. 2011). According to Eyring et al. (2014), the extent to which new business model localization fits the local context, through testing, is a critical factor in successfully delivering and enhancing the diffusion of innovations in emerging markets.

2.3 Digital Technologies in Frugal Innovation The recent digital revolution has radically changed the global innovation landscape, thereby creating opportunities for new business models and low-cost, yet high-performing, innovations that suit local conditions (Rao 2013). DTs—such as mobile phones; geo-location; websites; ICT; and platforms for generating, storing, and processing data—have enabled innovators to design effective low-cost solutions that address location-specific problems in resource-constrained environments like the BOP (Linna 2013; Howell et al. 2018). According to a study by Howell et al. (2018), innovators in resource-scarce environments are taking advantage of opportunities that are unfolding—due to the continued reduction in costs of general-purpose technologies and the increased availability of disruptive ICTs—to design FIs and new business models that are applicable in different economic sectors. Changes in institutional conditions and advancements in ICT-enabled DTs have, therefore, created opportunities for emerging markets enterprises. Entrepreneurs make use of these technologies and of the few resources at their disposal, combined with their ingenuity and improvisation, to develop goods and services for previously disenfranchised rural populations (Ahlstrom 2010). Overall, there has been huge growth in mobile phone usage and ICT innovations (Avgerou et al. 2016). The significant increase in the availability and uptake of ICTs creates opportunities for big data usage in critical sectors, while platforms open up new venues for innovation (Nielsen 2017). The use of DTs reduces innovation costs while allowing the accumulation of knowledge, with scale effects (Colledani et al. 2016). Yet the opportunities afforded by digital innovations, and the mechanisms through which the application of DTs enhances innovation and business success in developing countries, are under-researched phenomena (Nielsen 2017). Nonetheless, Lan and Liu (2017) note that digitization and the advancement in big data analytics are key factors that are reshaping and restructuring modern firms’ business models, in the context of digital enablement through FI. This allusion highlights the vital role played by DTs when firms experiment with different business models, under uncertainty and environmental dynamism, to ultimately achieve a viable business model. As previously noted, this study aims to explore business models in the context of frugal innovation, while elucidating the role of DTs. Using the case of Agripinto (a pseudonym)— a venture supplying low-cost soil sensors and associated services to smallholder

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farmers in rural Kenya—the study highlights how an initial mismatch between innovator problematization and the targeted customers’ “actual needs” led to recurrent business model trial and error, in which the key learning involved leveraging DTs.

3 Methodology The study is based on a single case study approach. Single case studies are appropriate when the case is extreme, unique, and revelatory (Siggelkow 2007; Yin 1994). This case was therefore selected for theoretical reasons and due to the inductive and theory building nature of the study (Eisenhardt and Graebner 2007). The author was responsible for case identification and selection, data collection, and analysis— while an outsider perspective was sought on the themes generated in data analysis, to ensure validity of the findings (Eisenhardt 1989). A combination of data sources allowed for the documentation of changes in business model components over time (Andries et al. 2013). Any observed combination of Osterwalder and Pigneur’s (2010) business model components was considered to be a specific business model. A trial with two or more such combinations at any given time, in contrast, was regarded as reflecting different business models (Andries et al. 2013). This clarity allowed for a clear demarcation between a completely new business model and an addition to said business model.

3.1 Case Identification and Selection Given the study’s focus, cases that serve its purpose are difficult to identify; they are rarely documented in this context. The identification of the case was facilitated by the fact that the author was working on a project in which he was conducting fieldwork in Kenya and, thus, had the chance to engage with several entrepreneurs involved in sustainable innovation. The case was therefore selected from an initial sample of 12 enterprises, within the framework of a broader project on sustainable innovations in developing countries. Case selection was made purely on a theoretical basis (Eisenhardt 1989), after assessing whether the product and/or service offered by the case enterprise qualified as a frugal innovation and whether the current business model(s) could be described as viable. The frugal innovation assessment was based on a criteria suggested by Weyrauch and Herstatt (2016). See Fig. 1, for the detailed assessment. In addition to the assessment criteria mentioned earlier, the case inclusion criteria were based on: (i) the case enterprise’s main product-service offering qualifies for the criteria of frugal innovation; (ii) it is a commercially driven social enterprise, focusing on grassroots customers and working with the objective of achieving any of the sustainable development goals; and (iii) the enterprise has achieved or is close to achieving commercial viability, at the time of conducting the interviews.

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1

2

Substantial reduction in costs

Cost reduction of 75% as compared to conventional lab soil testing services in Kenya.

If the innovation has significantly lowered costs in terms of purchase price, use or total cost of ownership.

- technology launched at a price of $5. -leveraging fast spread of cheaper digital technologies in the global south, e.g. mobile phones. - conventional soil testing without complimentary services such as interactive SMS costs $20. - reduce logistical costs in terms of input deliveries as the technology comes with group input delivery services based on soil requirements.

Focus on core functionalities

Focus on essential functions, i.e. simple plug-in gadget

If the innovation mainly focuses on core functionalities required for its use and application in line with local conditions.

Optimum performance 3

Does it qualify the criteria

AGRIPINTO's innovation

YES

YES -simple plug-in device. - farmer needs only the gadget and any type of a mobile phone. - suitable for rural context as farmers do not need to travel to access soil testing services. Performance level fit the intended purpose optimally and local conditions

Ascertained performance level required for the purpose for which the innovation is intended and the local conditions.

- soil test results instant and accurate through the interactive SMS service. - embedded additional services like weather and market data. - improved farmer resilience through advice and recommendations services. - farm specific soil condition data.

YES

Fig. 1 Criteria for frugal innovation (Adapted from Weyrauch and Herstatt 2016)

3.2 Data Collection and Analysis The study was mainly supported by empirical evidence from in-depth interviews with the two co-founders of the enterprise, from field observations, and from archival research (Ventresca and Mohr 2017) based on internal documents, news articles, videos, and reports. Therefore, there was a triangulation of multiple data sources (Denzin et al. 2006). The author followed the enterprise for a period of two years (2018 and 2020), conducting in-depth interviews with both co-founders and discussions with employees during field visits. The data analysis was based on themes that emerged from the in-depth interviews and other sources of data (Nowell et al. 2017), while following inductive theory building (Gioia et al. 2013).

3.3 Value Creation and Capture: Agripinto’s Soil Sensors and Associated Services 3.3.1

Case Background and the Innovation

In 2016, Agripinto—a local precision farming venture—launched its soil sensors in Kenya, after undergoing various iterations, dating back to 2014, to ensure the smooth functioning of its sensor technology. Figure 2 shows a five-year historical overview of the evolution of Agripinto and its innovation.

2014

Agripinto formed as part of an Electronics company focusing on greenhouse automation.

2014

Agripinto as a stand alone company focusing on agricultural technologies

2016

Agripinto incorporated as a stand alone company focusing on soil sensor technology.

2017

Commercializati on and launch of soil sensor technology

Fig. 2 Five-year historical overview of Agripinto and its innovation

2019

11000 farmers engaged by Agripinto on the soil sensor technology

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Started by three Kenyan entrepreneurs, the company successfully developed soil sensors that can give real-time information on nutrient status and other soil-related problems. The soil sensing technology is described as cheap, accurate, simple, and fast. It is currently supported by an interactive SMS service that provides instant soil status and recommendations, along with additional crop advisory services. Agripinto’s sensor technology is a form of disruptive innovation in Kenya. Conventional soil testing services are slow. They are beyond the reach of many smallholder farmers, are carried out only in towns, and require a sanitized and carefully administered process for accurate results—thereby creating institutional voids (Tracey and Phillips 2011). Degraded soils—due to farmers’ lack of knowledge regarding the condition of their soil and the best agronomic practices to undertake—were the major challenge that resulted in the birth of Agripinto’s innovation. Most smallholder farming activities are based on a combination of intuition and advice from agricultural extension workers or agro-dealers. Therefore, farmers lack knowledge of agricultural technologies that help them better understand their farm situations. The original Agripinto founder’s idea emerged, based on developing a simple gadget that a farmer plugs into the soil. The farmer then instantly receives information on soil status, the best crops to plant, and the type and quantities of fertilizers to apply. As the idea gained traction, the founder partnered with a colleague, who became a co-founder. According to Drechsel et al. (2001), many countries in Africa are facing severe soil fertility depletion challenges due to escalating soil nutrient loss. Recent technological revolutions have ushered in new opportunities for solving such problems. The upsurge in ICTs and cheaper digital sensors has significantly reduced the cost of coming up with cheaper and customized innovative solutions. The challenge of soil nutrient depletion calls for innovative solutions like Agripinto’s sensor technology, which can provide accurate and real-time actionable information for farmers. In Kenya, conventional soil testing costs between 1500 and 2000 Ksh per sample. This is equivalent to approximately $15–$20, whereas Agripinto’s soil sensing innovation costs just $5 per session. Conventional soil sampling procedures require trained personnel who can carefully follow the procedure to avoid contamination and interpret the results—to an extent, a rural farmer may find it difficult to follow the soil sampling procedures and to interpret the results. Agripinto’s soil sensor technology provides an easy and faster alternative for conducting on-farm soil tests. The soil testing package comes with additional crop management advice and the delivery of recommended inputs as a “solution package.” Soil analysis supports farmers in applying the correct amount of fertilizers. It thereby reduces input costs and the negative environmental impacts of synthetic fertilizers, while improving crop yields. The Agripinto solution works through a network of agents, who provide the soil testing services to farmers on behalf of the company. Soil testing and associated services are bundled around input provision, which allows soil testing costs to be factored into the prices of inputs through the “solution package.” Bundling everything around inputs has assured innovation adoption and diffusion, while achieving Agripinto’s objective. This approach did away with farmers’ challenges around accessing recommended inputs. The business

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model works in such a way that Agripinto conducts the soil testing and then provides the analysis results and input recommendations, which are jointly delivered to the farmers. As of July 2019, Agripinto had engaged more than 11,000 smallholder farmers.

3.3.2

Business Models by Agripinto

Agripinto’s soil sensors are anchored on a value proposition that focuses on providing actionable information to farmers and farmer-focused businesses. Since its inception, the value proposition has remained the same. Yet, how the value is delivered to the targeted customers has evolved over time. Currently, the venture is operating with two business models: a business-to-customer model and a business-to-business model. By understanding farmers’ mind-sets and what drives their actions—which is key in co-creation (Prahalad and Ramaswamy 2004)—the way in which the innovation has been presented to targeted customers has constantly changed. Observing how farmers interacted with the innovation, receiving feedback and learning, greatly influenced changes to both the innovation and the way it is delivered to target customers. Initially, Agripinto started by designing an off-the-shelf soil-testing gadget for farmers to buy in retail shops and carry out the soil testing themselves. This model of supplying an off-the-shelf gadget to retail outlets for farmers to purchase did not work. Farmers failed to perceive the off-the-shelf gadget’s value and thus were not willing to pay for it. Howell et al. (2018) have argued that a technology may have inherent value, yet failure by targeted customers to perceive its value may result in the innovating firm being unable to monetarily capture the value—thus affecting sustained value capture and leading to business model failure. Through continued interaction with customers, it turned out what Agripinto thought was the “customers problem” was not perceived as such by the farmers as target customers. Agripinto later realized the “real problem” was “where and how” to get inputs and “where” to sell their farm produce. As a result, Agripinto abandoned the off-theshelf gadget business model and introduced input recommendation services of soil testing. Agripinto delivered the new value proposition through a subscription model. In the monthly subscription model, farmers were required to buy the soil sensors from Agripinto and to simultaneously subscribe to the input recommendation and agronomic advisory services. In most African countries, agriculture is rain-fed. This makes farming activities and the associated income highly seasonal. This seasonality of income affected the subscription model, as farmers could not afford to pay their subscriptions on a monthly basis. This challenge led to a model in which Agripinto started providing farmers with soil testing services and agronomic information, bundled around farm input recommendations and delivery. This model meant that Agripinto assumed the role of a farm inputs provider, collaborating with farm input providers. They did this by bundling their cheap sensors and agronomic information provision services around farm inputs, to offer what they referred to as the “inputs bundle.” A product-service package of soil testing and analysis services, agronomic information, and input recommendations

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was thus delivered to the farmer, along with the inputs. Using this model, the value proposition and delivery focused more on farm inputs provision, with the sensors and related services being a key part of the “input bundle.” In this model, the costs of soil testing and analysis, agronomic information, and input recommendations were embedded in the total costs of delivering farm inputs and market information to the farmers. Agripinto incorporated and leveraged digital technologies in aspects of developing the soil sensors, continued customer interaction, as well as value delivery through instant messaging. From inception, the innovation was centered on cheaper digital sensors, which were efficient in detecting different parameters such as soil pH, temperature, and humidity with later access to platforms that provide free access to data. These were key in the soil recommendations and provision of farm-specific information to both farmers and other businesses. Nielsen (2017) argued that DTs such as platforms open up new ventures for innovation. Meanwhile, participating in innovation attracts a bigger market. With the new “input bundle” model, Agripinto recruited influencer farmers and people as agents to introduce the solution and offer other complimentary services. Thus, the product-service offering included soil testing offered by the agents, soil analysis and recommendations delivered instantly to the farmer via short message service (SMS), and delivery of the recommended inputs. The model works in such a way that if a certain farmer wants their soil tested, the farmer simply sends an SMS to a five-digit number provided by Agripinto. The nearest agent would then be directed, also through messaging, to go and do the test and relay the information to Agripinto—which does the analysis and provides recommendations instantly. After that, there are farmer aggregation and group delivery of recommended inputs. This reduces Agripinto’s input delivery costs, while also lowering the farmers’ logistical costs of securing inputs. To the farmers, this model appears as if they are getting free soil testing, recommendations, and agronomic advice. Changes to Agripinto’s value creation and capture were based on experimenting with different models. Its customers and suppliers became “business partners,” until Agripinto achieved a business model that ensured sustained value capture. This is synonymous with what Henry Chesbrough (2007) described as adaptive business model types. Moreover, the data Agripinto collects from farmers—combined with other data from different platforms to which they have access—has also created a market for data. Other farmer-centered businesses require this data to be able to serve farmers (their target customers) using exact information and ensure sound decision-making. This business model targets farmer-focused institutions such as banks, savings and credit cooperatives, and fertilizer companies. Agripinto partners with these institutions to link them to farmers through accurate data and information. As this new business model, centered mainly on leveraging digital platforms and ICTs evolved, Agripinto created value by conducting data analytics for farmer-focused businesses and organizations. Going forward, the venture sees greater revenue potential from this second model, which they have been able to use for cross-subsidization, thus lowering the costs of soil testing for smallholder farmers.

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Overall, the key focus of the soil sensor solution has remained the same. What has changed over time, through the trial and error process, is the way the solution is presented to the targeted customers. Thus, the “how” part of offering the solution changed dramatically in a short space of time. With the incorporation of more DTs, the target market also expanded. The co-founder of Agripinto emphasizes that their current business models are viable and still offer room for learning and incorporating additional services. Yet he was quick to highlight that they are yet to break even on invested capital; they expect to do so within a period of two years. As a result of the introduction of this soil testing innovation and associated services, notable changes and impacts can be observed at both the local and industry levels. According to Agripinto’s co-founder, there has been a change in farmers’ mind-sets; they now understand the critical role of soil testing and how it contributes to their yields and ultimately incomes. This is shown by the growing number of farmers embracing the innovation. The number of engaged farmers grew from 2000 in 2017 to 11,000 by July 2019. From an early stage, Agripinto partnered with several public and private organizations. This, together with leveraging DTs, played a key role in bringing flexibility to the trial and error process. Partnerships created access to resources— for example, technical know-how—that were critical in developing the innovation (Chesbrough et al. 2006). Low-cost DTs made experimenting with different business models relatively easier and cheaper.

4 Discussion Based on the analysis, the case of Agripinto and its soil sensors reveals four approaches to the evolution of a sustained frugal business model in a digital enablement context at the BOP. These approaches are adjustable commitment, continuous experimentation, long-term focus, and the bricolage principle. Regarding adjustable commitment, the analysis reveals that Agripinto’s core value proposition—which was the provision of real-time actionable insights to farmers, based on soil testing and analysis—did not change from very early on. There was a great amount of commitment to this value proposition, right up until a sustained value delivery and capture mechanism were discovered by trying out different business models. However, even though the core value proposition did not change, value delivery and capture changed dramatically. This was based on market knowledge developed over time; the flexibility to change certain components of the business model, brought about by DTs; and changing the solution narratives. When exploring approaches to business model development under uncertainty, Andries et al. (2013) identified focused commitment as a strategy used by entrepreneurial ventures—wherein they commit to one business model for several years, from the very beginning. They related this concept to the aspect of path-deepening search (Ahuja and Katila 2004), whereby ventures repeatedly experiment with the same model hoping for its viability over time. In the context of frugal innovation at the BOP, the case enterprise’s commitment to a certain business model turned out to be adjustable—based on other components of

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the business model—while, at the same time, still being committed to the core value proposition. The case of Agripinto reveals some peculiarities of BOP markets, which call for adjustability of commitment and flexibility to changes in certain components of a frugal business model. First, the nature of the consumers makes it difficult to understand their “real need.” According to Alur and Schoormans (2013, p. 190), “BoP consumers have very low purchasing power and consequently are very price sensitive,” markets are poorly developed or do not exists at all (Seelos and Mair 2007), and often lack infrastructure (Karnani 2007). BoP customer needs and challenges can properly be understood through direct interaction and product testing, which could be costly. The innovation may be extremely affordable and offer the required performance levels, yet the targeted customers may still not perceive its use value (Howell et al. 2018). Thus, target customers’ use value perception is critical to the evolution, adoption, and diffusion of frugal innovations. The innovating venture should be able to monetize the value created, through increased consumers’ willingness to pay for the innovation. Business models incorporating cheaper DTs thus play a critical role in balancing use value and monetary value. Through adjustable commitment, the innovating venture would be at liberty to immediately adjust certain components of the business model, after initial assumptions have failed to yield expected results. The changes and adjustments are therefore fast and immediate, based on market knowledge and change flexibility necessitated by cheaper DTs, which reduce the cost of adjustment. Second, the BOP is characterized by rampant institutional challenges, making the business environment highly uncertain and dynamic. The evolutionary outcome of a frugal business model is thus unpredictable (Heij et al. 2014). The challenges of bad governance, poor infrastructure, and unstable institutions call for flexibility to adjust the business model commitment in FI in order to navigate these challenges (Klein 2008). In the case of Agripinto, after realizing that farmers were unable to perceive the value of the soil sensors in the initial business model, the venture had to immediately adjust. It was forced to find a way to present the same value proposition, in a manner that it believed would help farmers perceive the value: “…because initially, from a very early stage, my…thinking was we might just develop this electronic gadget and put it out to any farmer…[ ] and then you realize farmers won’t buy it. So, the ‘how’ of delivering all these technologies already changed. But the technology itself, I don’t think it’s going to change. Maybe more innovative ideas will be added on to it.” While the commitment to a given business model was adjustable, there was endurance and a show of commitment to the core value proposition—even though the venture was not breaking even on the invested capital. The commitment to the core value proposition lasted over a considerably long time period, with the hope that at some point the innovation would break even and be able to make profit. Thus, regarding the adjustable commitment approach to business model development, it could be concluded that the enduring mechanism is intrinsic to frugal business models, allowing for perseverance. Meanwhile, change flexibility allows a variety of business models to be pursued, until the most viable one is achieved: “…financially we haven’t broken even on the revenues…. [ ]because, per farmer, our biggest costs are around marketing and training. And that will take maybe a couple of time. But we also understand that,

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because farmers tend to influence each other, so if we pick a good critical mass, we will eventually break even.” Based on the above findings, the following proposition is made: Proposition 1: Low-cost digital technologies allow flexibility to adjust business model commitment, which positively influences sustained value capture in frugal innovation. During business model development, continuous experimentation is regarded as a focused learning strategy. It allows feedback to influence further learning, by observing how intended customers interact with the product during testing and piloting. By observing and receiving market feedback, there is focused learning, which informs changes to the frugal business model in line with the feedback received and the observations made. After effecting the changes, the venture embarks on another experiment to see if the new assumptions incorporated into the business model still hold. This means that there is iterative experimentation, with feedback and learning going back and forth until a business model—one that is in line with the business objectives—is attained. In the case of Agripinto, continuous experimentation was evident as they tested different business models, until they ended up with the current business models: business-to-customer and business-to-business. The analysis shows that the experimentation process was rather additive and continuous, as opposed to simultaneous (Andries et al. 2013). Within a space of two years, the venture had experimented with four different business models. While the core value proposition remained the same, the delivery methods and the value capture mechanisms continuously changed. This was based on interactive feedback and on observing the manner in which targeted consumers interacted with the product offering. “…that interaction with the end-user informs a lot. Because we’ve had to change a lot of things based on mainly going out interacting with farmers. That informed us on, for example, changing from having an off -the-shelf gadget that a farmer should buy to having agents who are even better trusted by those farmers to serve them.” Continuous experimentation resulted in focused learning and gaining crucial information through customer feedback, observations, and engaging with community members. Agripinto was able to learn about key cultural issues, such as trust, which are critical to conducting business at the BOP. Involving community members resonates with the concept of co-creation (Prahalad and Ramaswamy 2004). Marketbased solutions to BOP challenges are best developed with full participation of the people therein, who come onboard as partners in innovation. This approach can transform local economies and support the diffusion of frugal products, as trust and legitimacy issues are solved by collaborating with locals. For Agripinto, collaborating with local influential people as agents and brand ambassadors—together with the application of ICTs through the interactive SMS service—ensured that certain business model components changed dramatically. Focused learning occurred through continuous experimentation, as the venture was driven by purpose and the experimentation process was repeatedly carried out to

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achieve a specific desirable business model. The dynamics of continuous experimentation and focused learning, as revealed in this study, show that—by continuously experimenting with various business models—a frugally innovating enterprise is exposed to business model diversity. This enables it to better create, deliver, and capture value, through full commitment to a business model that best serves customers with varying needs (Vendrell-Herrero et al. 2018). The proposition below then follows: Proposition 2: Continuous experimentation, in a digitally enabled frugal innovation context, creates diversity in value delivery. This positively influences value capture through optimal value delivery choices. Long-term focus turns out to be an important approach in business model development for FI, at the BOP. This long-term focus applies mechanisms such as building partnerships for accessing key external resources. In the case of Agripinto, partnerships were forged in the early stages of business establishment, allowing the venture to access technical knowledge. Partnerships thus played a role in product design and prototyping, as well as in product market testing (Chesbrough et al. 2006). The American Society of Mechanical Engineers—as a partner to Agripinto—was instrumental in providing technical support during product development. Netfund, a parastatal supporting green innovation in Kenya, provided the initial grant for market testing. Moreover, at the BOP, outcomes of a given business model are very unpredictable and vague. This requires an entrepreneurial venture to be visionary and focused. The institutional environment is dynamic and uncertain—and payback periods for invested capital are considerably longer, compared to advanced markets. The process of creating a perception of value among the intended customers was slow and gradual, as was learning to understanding the market. An analysis of the Agripinto case shows that long-term focus occurs through the mechanism of gradualism and comprehension: “…[ ] but more and more you realize that farmers are really cost sensitive, they only want to cater for the most immediate thing. And there are people who serve farmers, who also don’t have that farmer understanding. So, that experimentation needs a lot of time, a lot of capital. Which—if you’re working with foreign investors—they could give you one year, or they will be very impatient.” Agripinto practiced patience while experimenting with various business models— with the belief that, at some point along the way, things will work out for the better. This is synonymous with the tenets of a long-term focus, where immediate rewards are foregone in favor of delayed gratification (Curtis Banks et al. 1983). A preference for investing the few available resources, in anticipation of better rewards from the innovation’s success in the long run, was quite evident in the Agripinto case. Thus, bricolage—making do, with available resources to create value for the targeted customers—turned out to be key. “We tend now then, to reduce our ambition in execution. Just because we have to stay lean and spend resources in a constricted way. Even if you have this big vision of doing something, if I have money and would want to hire 10 software developers to launch the product in the next five months, but realizing you can’t get those resources, then you hire one developer and launch the

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product in two years. So, we tend to reduce our ambition in execution.” As the combination of a long-term focus and bricolage was evident, the following proposition is thus presented. Proposition 3: A long-term focus strategy that employs bricolage increases a firm’s operational efficiency, which positively impacts value creation and capture in frugal innovation. This study has shown that frugal business model evolution, in digital enablement at the BOP, occurs through continuous experimentation, long-term focus, adjustable commitment, and the principle of bricolage. Table 1, in the appendix, shows the data structure with first-order themes to aggregate themes and interview quotations.

5 Conclusion In this study, I have analyzed how a frugal innovation evolved at the BOP, through the theoretical lens of business models. The study further reveals the role of digital technologies in frugal business model development. The analysis shows that the case venture employed four approaches to business model development in frugal innovation and that DTs were instrumental in, for example, ensuring flexibility around adjusting the commitment to a given business model. Low-cost DTs, such as digital platforms, mobile networks, and mobile phones, enabled commitment adjustment by lowering the cost of experimenting. DTs also played an important role in the interaction between the venture and its customers, by facilitating feedback and enhancing learning. DTs were used as a mechanism to enhance value delivery—through the interactive SMS service for farmers and through the platform as a service for other farmer-focused businesses. Agripinto was able to position itself—and to bridge the information gap between farmers and other farmer-focused businesses—through provision of farmer-specific data. DTs enabled the discovery and expansion of new knowledge boundaries, facilitating the development of the frugal innovation and its associated services. The application of DTs in Agripinto’s FI also required data manipulation, which led to the emergence of new business models—for example, the platform as a service business model. Therefore, drawing from evidence in the analysis of Agripinto, DTs play a critical role in the diffusion of FIs in the market. DTs necessitate market creation and expansion through reaching many customers in different locations in a short space of time, irrespective of their location. Moreover, as highlighted before, DTs characteristics, e.g., reduced transaction costs (Howell et al. 2018), allow flexibility in changing certain components of the business model through cost reduction in business model experimentation and trial and error process, thus leading to sustained frugal innovation business models that increase diffusion of FI. In sum, DTs influence sustained value creation, delivery, and capture in FI. This study further reveals that the successful delivery of frugal innovations on the market is dependent on business models with strong emphasis on collaborations and partnerships (Musona et al. 2020), for example, with organizations and institutions with market experience, and co-creating solutions with customers (Howell et al.

“… [ ] after that it has been an interesting journey, I think. Yeah, collaborating with different partners. So, at a very early age we were able to get some support”

Partnerships

(continued)

“The only language farmers hear is inputs. … [ ] So, in our business we have sort of structured this, uh, the farmer centered business, which is delivering value, information and everything to farmers. And gradually we’re still sometimes envisioning that we could make soil testing so cheap that every farmer does it. Because we know the value is in that data that we’re extracting.” “And gradually by understanding the mindset of the farmer, you start looking at what really, uh, what, what drives them. And over time the one thing that we’ve seen farmers consider as a need is inputs”

Gradualism

Customer-centrism

“Yeah, but more and more you realize that farmers are really cost sensitive, they only want to cater for the most immediate thing. And there are a whole lot of people who serve farmers who also don’t have that farmer understanding. Yeah, so, we play in between” “So, on that front I think that, uh, in the next one or at most two years, we should have broken even on that front. With the farmers I think we just need patience and because at the end of the day we have to really work with farmers”

Long-term focus

Delayed gratification

Comprehension

Second-level abstractive themes Third-level abstractive themes Interview quote

Table 1 Business model development approaches and interview quotations

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Experimenting

Market knowledge

Enduring

Change flexibility

Retheorizing solution

Continuous experimentation

Adjustable commitment

(continued)

“Because we have been sort of experimenting with different models. I think it has played to our advantage because then we are trying to get a sweet spot for ourselves. And as I mentioned, we are a precision farming company, that is our niche. And the demand for that service going forward would come from actually both sides”

“Yeah! because per farmer, our biggest costs are around marketing and training. And that will take maybe a couple of time. But we also understand that because farmers tend to influence each other, So if we pick a good critical mass, we will eventually break even”

“So, the solution and its outcomes remain the same but the hows, I think they have changed. How we are going to offer that has changed. Yeah. So, the how of delivering all these technologies already changed”

“So, when you approach the farmer, you don’t tell him that, you know, if you do a soil analysis your crops are going to do well. Now instead you change the conversation to where do you buy your inputs. Do you know instead of using a lot of this input, you can even reduce the quantity and use this soil analysis”

Second-level abstractive themes Third-level abstractive themes Interview quote

Table 1 (continued)

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Available resources

Making do

Lean business

Interactive feedback

Focused learning

Bricolage principle

“… [ ] Because we’ve had situations where we don’t have money- Then what do you do? So, if you have people who really understand that, you know, ‘yeah, it’s going to be tough until we have this running’- Which means that even when it comes to financial issues, they could be more lenient in making the company work. So, even if you really have this big vision of doing something, if I have money and would want to hire 10 software developers to launch a product in the next five months. But realizing you can’t get those resources, then you hire one developer and launch the product in two years”

“So, some of our, we tend now then to reduce our ambition in execution just because we have to stay lean and spend resources in a constricted way”

“…. [ ] any decision that we made has been informed by the feedback or observation of how our perceived customers are working with it. So, we just look at the farmer and how they have been interacting with our solution. And because we’ve been able to learn thatInitially we never had, the aspect of after providing recommendations, where the farmers can get inputs and So, we added the layer of inputs. Like yeah, we can do all these soil analyses, we can give you the best recommendations but most importantly, because what you care is about inputs, we kind of added that. And you realize even for us, if we’re going to experiment something that, it’s a market that people fear because, you know, if the farmers don’t have money unless I’m an NGO I shouldn’t be there. Um, so which means that you really have to be well funded to run all these small experiments until you get the right business model”

Second-level abstractive themes Third-level abstractive themes Interview quote

Table 1 (continued)

New Business Models for Frugal Innovation … 183

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2018). In the case of Agripinto, partnerships and collaborations allowed successful delivery of their innovation through jointly offering it with other products and services. Partnerships and collaborations create access to critical resources that otherwise would not be available. Frugal business models that allow balancing of use value (for customers) and monetary value (for the innovating venture) turned out to be key in delivering FIs. Such business models, for example, leverage digital technology characteristics to enhance close interaction with target customers, which increases market knowledge through a deep understanding of real customer needs and challenges they face. This is synonymous with the previously discussed concept of continuous experimentation as a focused learning strategy. Learning and incorporating customer feedback in developing the innovation and the business model ensures that FIs are brought to the market successfully. Additionally, the study emphasizes the role of business models that reduce marketing and customer training costs. In most cases, markets for FIs are either poorly developed or do not exist at all, thus require innovators to invest more in marketing and customer training to create product or service knowledge, perception of use value, and thus foster diffusion. In this regard, business models that employ strategies such as working with local influential people, who are also customers, contribute to reducing marketing and training costs. Lastly, BoP consumers are low-income earners, thus their purchasing power is heavily compromised (e.g., Alur and Schoormans 2013), and this negatively affects their willingness to pay, making them highly price sensitive. This therefore means they are not willing to pay for products whose price they perceive to be high. Results of this study show that innovators under such conditions should aim to lower prices by maintaining drastically lower costs, while mass producing and targeting many customers. This would increase sales and diffusion of FIs, leading to market-driven venture growth.

5.1 Theoretical Implications Through the business model perspective, this study makes novel contributions to the frugal innovation and sustainability literature streams by illustrating empirically how sustained value creation and capture is achieved at the BOP. The study makes four key contributions. First, it offers fine-grained insights into approaches and strategies in frugal business model development to successfully deliver FIs on the market. Andries et al. (2013) highlighted that firms operating under uncertainty practice simultaneous experimentation, i.e., testing various business models at the same time. In this study, the concept of experimentation is revealed, albeit in an additively continuous manner. The case venture continuously tested various business models. Through interacting with consumers and getting feedback, the venture shaped its business model by “adding to” or altering the value proposition and delivery components of the existing business model. This occurred continuously—in a back-and-forth and serendipitous manner—until business models that meet the venture’s objectives were achieved. The analysis shows that—in dynamic, complex, and uncertain environments such as the BOP—business models are not static. Business model outcomes are very

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difficult to predict in such environments, thus requiring continuous experimentation. Continuous experimentation, in turn, results in the adjustment of existing business model assumptions, as one’s understanding of the market and business environment improves over time. This study further illuminates the mechanisms through which the continuous experimentation approach occurs: focused learning, experimenting, and interactive feedback. This is where the study makes its main contribution regarding the experimentation approach to frugal business model evolution. Focused learning is a process in which a venture introduces its product or service in the market, and thus gains further understanding around what more needs to be done to improve the innovation’s adoption and diffusion. As a result of learning from the market, changes to the product or service offering are effected in line with target market expectations. In focused learning, product prototypes therefore act as artifacts that facilitate thinking, understanding, learning, and re-communicating key features, concepts, and ideas. This is crucial in design thinking, to enhance the sustainable business modeling process (Geissdoerfer et al. 2016). The mechanism of focused learning consists of activities that facilitate collaboration by connecting with various stakeholders within the business ecosystem. More ideas are thereby generated, by working with other business actors, comparing ideas, and accessing resources. These activities become critical in frugal business model development to successfully deliver FIs on the market. The experimenting mechanism involves piloting before broad introduction, running small experiments that do not require a lot of capital, and the perception of no clear strategy in the initial stages. The whole concept is thus anchored around trying out new ideas. Interactive feedback is important in both focused learning and experimenting. It entails information and knowledge that is generated as a result of interacting with market players. The information may be either negative or positive. Yet it is crucial in adjusting or altering any of the business model components, such that the business model ultimately creates value for the innovating firm, customers, and other stakeholders. Second, the study develops a framework of sustained value creation and capture through FI in a digital enablement context. We highlight the way DTs influence frugal business models. The propositions help guide entrepreneurs to succeed as sustainable businesses and frugal innovators, in complex and uncertain environments such as the BOP. Third, the study contributes to grassroots sustainable entrepreneurship by integrating sustainability with FI through FIs characteristics such as the focus on minimizing use of resources and solving social challenges. The studied case shows a clear social mandate in objectives, innovation, and business model development process, thus highlighting how FI is associated with social sustainability. Fourth, earlier findings (e.g., Andries et al. 2013) identified focused commitment in business model development—this study identifies adjustable commitment in frugal business model development. This is likely a peculiar distinction between designing sustained value creation and capture for FI in a developing country context versus business model development in developed countries. In a BOP and digital enablement context, an adjustable commitment to FI business models allows for variety and diversity in business models. It thus gives the innovating enterprise a

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high propensity to choose its ideal business model—which, in turn, shapes the path to the firm’s long-term survival and growth. Additional approaches to business model development at the BOP could be identified: long-term focus and the bricolage principle. A long-term focus ensures that the firm remains visionary and moves toward achieving its goals in the face of uncertainty and vagueness around business model outcomes. Meanwhile, the bricolage principle is employed to ensure that innovative ideas are implemented with fewer and available resources, creating value for both the intended customers and the innovating firm.

5.2 Limitations and Future Research While this study has opened new insights into the evolution of FI through the business model perspective, there are several limitations that may warrant caution when interpreting the results. It is worth noting that the interviews used as the primary source of evidence in this study were collected from two informants, who are the founders of the case enterprise. There is thus a possibility of response bias. The enterprise’s co-founders as key respondents were responsible for making critical enterprise decisions. Thus, the respondents’ narration of the historic events leading to the success of the enterprise and to its current business models provided in-depth knowledge as to how the business models and innovation evolved. Again, at the time of the interviews and observations, the enterprise was just two years into full commercialization of its operations. This means that the interviewees had a fresh memory of how they had developed the venture from an idea until its full commercialization. By July 2019, the venture was only two years into full commercialization and had engaged over 11,000 farmers. The venture was thus new and, hence, I am limited in fully claiming that the current business models are viable. There is a possibility that the case venture may adopt other business models or, rather, innovate the current ones. In dynamic and uncertain environments such as the BOP, business models are always innovated in line with external and internal factors (Chesbrough 2010). The use of one-off data may also limit the generalizability of the findings to this context. Data collected over time in a longitudinal manner could help in overcoming this limitation. Zeschky et al. (2014) have argued that innovators with creative ideas apply their ingenuity to engage in changing institutional, technological, and organizational constraints to come up with their innovations. Further studies—adopting a business model lens to explore how innovators engage in the highlighted changes—could make significant theoretical contributions. Studies exploring bricolage, through a business model perspective in innovations at the BOP, could also help generate additional theoretical insights. Lastly, studies focusing on how entrepreneurs involved in sustainable

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innovations at grassroots level make sense of their activities and how this shapes the venture development process will contribute to sustainable entrepreneurship theory. Funding Details The second round of data collection was partially funded by the Finnish Foundation for Economic Education (Liikesivistysrahasto).

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Small Industrial Companies and Frugal Innovation: A Case Study in the State of Alagoas/Brazil Francisco José Peixoto Rosário and Araken Alves de Lima

1 Introduction The rise of emerging markets, especially in the BRICS countries (Brazil, Russia, India, China, and South Africa), presented to the world a new market segment, called market from the base of the Pyramid or low-income market (Prahalad 2012; Prahalad and Hart 1999). But in these national markets, there is also the middle-class consumer, who has recently risen to the rank of consumer and has become the target of several local and multinational companies. Fierce competition between the companies fighting for a both middle-class and low-income consumers has become a new form of the global battle. However, despite the recent increase in income to be observed, such emerging middle-class consumers still possess restricted excess income, compared to consumers in more developed countries in Europe and North America. In so many cases, these consumers suffer additional restrictions, such as lack of infrastructure, bad services, or non-existent ones and other problems. As a result, companies have begun to develop specific solutions for these markets that are characterized by high value and low cost. According to Rosário and Lima (2017), competitiveness for small and medium-sized companies is the result of their ability to organize competitive resources, as proposed by Penrose (2006) and evolved in Grant (2008). This type of competitiveness, brought up in this article, refers to how such companies manage to organize their competitive resources for the production of innovative goods and services suitable to their local market,

F. J. P. Rosário (B) Federal University of Alagoas (UFAL), Maceió, Brazil e-mail: [email protected] A. A. de Lima Brazilian National Institute of Industrial Property (INPI-BR), Rio de Janeiro, Brazil e-mail: [email protected] © Springer Nature Switzerland AG 2021 N. Agarwal and A. Brem (eds.), Frugal Innovation and Its Implementation, Contributions to Management Science, https://doi.org/10.1007/978-3-030-67119-8_9

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with low cost and high performance. This means organizing attributes typically of frugal innovation. These solutions are being presented as new approaches for innovation that have come to be known as, for example, inclusive innovations, jugaad or creative adaptation, innovation below the radar, reverse innovation, etc. A common feature is that they all emerged in peripheral regions and emerging markets (Bhatti and Ventresca 2013; Heeks et al. 2014). The types of innovation described by these terms have important structural differences both in the way they were conceived and in the proposition and mechanisms of value creation. For example, while some solutions can emerge from the redesign of an existing product to make it dramatically cheaper, others may be entirely new and create new markets as well. Based on the research presented here, it was identified that the surveyed companies work strongly oriented toward the development of solutions based on some already existing product or process, or a set of them, focusing on making them cheaper, or more efficient for the context of these companies. It was found, therefore, that the use of frugal innovation concepts is observed in all analyzed cases. Frugal innovation, in recent innovation literature, is globally understood as a strategy for the innovative effort of companies whose goal is to offer to specific market segments of low income or even middle-income economies, low-cost products, of high usability and similar performance to traditional ones. The concept of frugal innovation has become relevant for enabling an analytical background for the capture of different gradients in the use of a frugal approach by companies using a constraintbased strategy. This part of the book is an attempt to connect a broad and global concept to the local reality. Due to the current structural conditions of the world economy, the relevance of analyzing the local context of innovation with the frugal innovation approach lies in the fact that mainstream innovation, common in higher-income countries, has been hard to be reproduced, and almost impossible to be diffused, and incorporated in emerging countries. To make the research that named this chapter, one questionnaire was built with Professor Christine Wimschneider of the Faculty of Business, Economics, and Law at the University of Erlangen-Nuremberg (FAU), in Germany, in one of her visits to Brazil in May 2018. At the time, a working group was defined that gave origin to the research present in this chapter. The researchers who wrote this chapter are from the Federal University of Alagoas (UFAL) and from the Brazilian National Institute of Industrial Property (INPI-BR), both are working on the Graduate Program in Intellectual Property and Technology Transfer for Innovation (PROFNIT). To elaborate the research questionnaire, in addition to these institutions, researchers linked to the State of Santa Catarina Industry Federation (FIESC) and the Federal University of Santa Catarina (UFSC) were involved. Therefore, this article proposes to present how the concept of frugal innovation is perceived and executed in the product and process strategy by small industrial companies in the state of Alagoas/Brazil. To reach this goal, 26 online questionnaires

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with variables based on frugal innovation definitions were applied to a sample of 80 micro and small local companies that had been empowered by the Innovation Management Program of the State of Alagoas Industry Federation (FIEA). So, the collected data was treated using the multi-dimensional staggering technique, to generate a map of perceptions of the surveyed business people about possible approaches to the development of frugal innovations in the company. The results show that even companies not aware of the term frugal innovation, their practices, and philosophies of work, already feature a few similar results of those in surveys conducted in other regions of the world. As a result of the perceptions map created, a company’s Positioning Matrix was elaborated revealing four business patterns and practice. On the one hand, companies are distributed according to the challenge of operating with higher or lower technological complexity; on the other hand, according to the market strategies they adopt, if oriented to technologies embedded in machines and equipment, or to develop new business models and reliable local brands. This chapter is divided into five sections beyond this introduction. In the second section, a literature review, abroad and in Brazil, is carried out for theoretical support of the theme. The methodological design of the research is in the third section, including an analytical frame with the researched constructs and the techniques used in data treatment. In the fourth section, one can find the results and discussions, where lies a map of perceptions of the businessmen surveyed as well as the Matrix of positioning of the companies for the frugal innovation approach. In the fifth section, one can find final remarks where possible ways for further research are indicated. Finally, the references of the researched literature are presented. We are deeply grateful to the Innovation Management Core of the FIEA for enabling access to the companies as well as the project “Comparative study on Science Parks and Emerging Technologies between China and Brazil,” coordinated by professor Xiangdong Chen from Beihang University/Beijing, who allowed us to perform an immersion in technology parks and Chinese companies clarifying the phenomenon of innovative efforts in companies of emerging countries in Asia.

2 Innovation and Resource Constraints Innovation is a theme that usually refers to the most advanced technologies or some kind of sophisticated hardware, used in most end consumer products. This type of innovation is what can be deemed as mainstream or innovations that require high technological capabilities as well as artifacts updated with cutting-edge technologies, i.e., that is what is said to be the technological innovation. On the other hand, another group of innovations is emerging in a new world scenario of countries and regions featured for having few natural, financial or human resources, as well as a large institutional vacuum that strongly mitigates the emergence of innovations. These are the countries with an immature national system of innovation (Albuquerque 2005).

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In the literature review, frugal innovation comes up with in various forms such as inclusive innovations, or jugaad, or creative adaptation, or below radar innovation, or even as reverse innovation. It is important to say that all these forms arise in peripheral regions and emerging markets. These kinds of innovations have in common that they are developed under conditions of resource constraints, oriented toward cost reductions, design adaptation and the inclusion of individuals and companies generally precluded from the traditional market system. (Bhatti and Ventresca 2013; Heeks et al. 2014; Hossain 2018; Srinivas and Sutz 2008). The relevance of frugal innovation is currently linked to the challenges posed by environmental issues, severe institutional pressures, and even demographic issues, all of these empowered by the socioeconomic conditions that characterize emerging economies. On a purely market-based approach, increasing competition in emerging markets, the advancement of digital technologies available in various means, and the increase of the world’s population are all issues that require different approaches to companies’ innovation. This scenario, particularly in emerging markets environment, has induced the interest in studying innovation not only focusing on mainstream technologies, but also in development of new solutions (innovations) in products and/or services that do not feature sophisticated technological characteristics, but that may satisfy the basic needs at a low cost and comparatively high customer value (Brem and Ivens 2013; Soni and Krishnan 2014). Heeks et al. (2014) label these types of technological solutions as “inclusive innovation,” but other labels are already explored in the literature as “pro-poor innovation,” “below-the-radar innovation,” “elementary innovation,” “Innovation BoP (Bottom of the Pyramid),” “frugal innovation,” “local innovation,” (indigenous innovation), resource-constrained innovation,” etc. (Agarwal et al. 2017). In this chapter, the focus will be on frugal innovation, seen as a new approach, both for product development programs in companies and for public innovation policy, which expected result is to offer, to specific segments of low-income markets, or even average income, low-cost products, high usability and performance similar to the products intended to be replaced or that serves as a reference. Bhatti and Ventresca (2013) present two useful criteria that help identify innovations, whether based on processes or products, first is that the phenomenon must be new, as also recognized by Oslo Manual (OECD 2006), and that it may not be completely original, but must be new to the user or in their use. The novelty associated with innovation does not need to be universal but may be new to a specific company or market. On the other hand, innovation can be considered the development of a new productive resource (a new idea) or the recombination of already existing resources with new applications, perceived as new for people involved, even though for other people it may seem to be an imitation of something that exists elsewhere. (Bhatti and Ventresca 2013). Another criterion presented by Bhatti and Ventresca (2013) is that innovation must imply improvement for being more effective or more efficient when compared to existing solutions. Innovation may involve sophisticated research and development

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projects in industrial companies, but it can also emerge as incremental improvements to existing technology fulfilled by virtually anyone, entrepreneur, or user. Breschi et al. (2000) argue that innovation generates a flow of subsequent innovations, which are a gradual improvement over the original, or creates new knowledge that is used for other innovations in related areas. In this sense, innovation does not necessarily need to be entirely new or require a lot of the immense financial and human resources often associated with high-tech research and development. The issue of frugality found the innovation at a time when expanding multinational companies realized the potential growth of emerging markets. But this expansion did not occur by the development of new products with advanced features and premium prices. On the contrary, in emerging markets, the companies had to understand the local limitations imposed for both multinationals and already installed companies of all sizes. It is in this context that the importance of the frugal innovation approach fits in, for it develops based on demand-oriented solutions, with scarce resources and where access to such products and services is crucial to get the scale production and sales.

2.1 Application and Research on Frugal Innovation The term “frugal innovation” has been used to denote specifically the kind of innovation developed to resource-constrained consumers in emerging markets. Focused markets are those comprised of consumers of the bottom of the income pyramid (Prahalad 2012; Prahalad and Hart 1999). India was the first country where the frugal innovation approach became an academic research strand strongly reinforced in correlated commercial practices. In recent years, numerous publications have reported frugal innovation cases in different regions of the world, particularly in emerging markets, as well as the incorporation of this singular approach into the R&D projects of large multinational companies. In these markets, the small- and medium-sized enterprises (SMEs) also increasingly have presented adaptations in their operations to satisfy the needs of local customers. This does not surprise at all since SMEs are estimated to cover over 90% of all companies in the world (Wimschneider et al. 2018). In Brazil, academic researches on frugal innovation are still in the very beginning. A search on the prescriber “frugal innovation” in the fall of 2018 in academic Google came up with 60 works. The same consult in the Brazilian master and doctoral thesis database of the Higher Education Personnel Improvement Coordination (CAPES), for the period 2014-2018, came up with only 10 master/doctoral theses. Part of these works deals with case studies and/or the search for analytical models to explain this phenomenon. Some of them can be considered relevant for the understanding of this field of study in Brazil and the establishment of applied methodologies designed specifically for the Brazilian case.

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A study carried out by Silva (2018) with companies of the state of Sergipe, in the Northeastern region of Brazil, focused on the verification of whether the correspondent elements of frugal innovation in India’s companies (Jugaad) are also present in the targeted companies surveyed in Sergipe. The author noted that the principles of Jugaad are present in the actions practiced by all companies participating in the study that was carried out, emphasizing that some companies even share the same kind of action. Another study carried out by Lacerda (2016), focused on how Brazilian companies are developing innovative products for the bottom of the pyramid consumers, concluded that this specific kind of production requires other kinds of skills for which the surveyed Brazilian companies are not prepared. It is a brand-new challenging model of development. In both referred works, the authors applied the multiple case study methodology. Rossetto et al. (2017) made a study proposing an instrument to measure Frugal Innovation presenting the preliminary results of the first steps of the scales development process. In this study, multivariate data analysis was used as a methodology that has resulted in the proposition of a set of constructs in three dimensions to identify the impacts of frugal innovation on companies: (a) substantial costs savings; (b) creation of an ecosystem for frugal innovation; (c) focus on functionality and performance of the companies. Lastly, it is needed to mention two foreign works addressing frugal innovation in Brazil from a perspective of adaptations and improvisations (Jugaad), Prabhu and Jain (2015), and Wimschneider et al. (2018). The first work refers to innovations in India but mentions the Brazilian “gambiarra” suggesting that it is the Brazilian side of the Indian jugaad (Prabhu and Jain 2015). The second one presents a survey of small local and multinational companies in Brazil discussing the similarities and differences between gambiarra and jugaad. The results of these works show that jugaad and gambiarra are equivalent concepts, with the difference that gambiarra refers to negative connotations and is yet to be accepted and introduced into the formal management practices of the Brazilian companies (Wimschneider et al. 2018). Thus, it is possible to understand that these kinds of solutions encompassed by frugal innovations are thoroughly influenced by local (institutional) socio-political context. In the context of scarcity and conformed by institutional issues, the agents (firms and individuals) develop new routines that do not normally meet the traditional criteria for decision making in the company. These new routines imply new methods, models, and approaches for solving local problems and meeting the various demands of communities in emerging countries. Srinivas and Sutz (2008) developed a typology for solving these problems according to their complexity: i. ii. iii.

problems that have been identified as important worldwide but with no real solution(s); problems posed and identified in industrialization contexts that do not attract worldwide attention; problems that had already been solved but where the solution(s) found needed adaptations when adopted as innovations in a given context;

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197

problems that have already been resolved but where the solution(s) found are for different reasons not used in the context in which the problem is present; Replacement issues: How to build a known device or machine by replacing some of its components with other components or instruments to get similar performance?

By defining the context as a determinant for the type of search implemented for solving a problem, it is possible to understand that, in some regions of emerging countries, individuals and companies are facing local needs, whether social or commercial, using less orthodox methods than formal P&D. Therefore, in emerging economies characterized by resource-poor environments and institutional fragility (Hoskisson et al. 2000), and whereas, in the Brazilian case, more than 95% companies are small- and medium-sized enterprises (SME), it is important to realize how SME that develop new products or processes intend to present solutions to local problems of their markets.

3 Methodology The research developed for this chapter was exploratory, with a qualitative approach. Data was obtained by sending questionnaires online that were then analyzed using descriptive statistics and the multidimensional scaling technique available in SPSS v. 22. The construction of the questionnaire1 was based on a literature survey to establish a set of constructs to support the analysis to be implemented. The referred constructs were elaborated from the works of Agarwal and Brem (2012), Brem and Ivens (2013), Brem and Wolfram (2014), Bhatti and Ventresca (2013), and Hossain (2018), shown in Fig. 1. These constructs were organized as a questionnaire in a way to be submitted to the chosen companies sample to: a.

b. c. d.

Identify if the company uses any kind of customer segmentation based on technology/input, or product offered, or even if the company is attempting to develop products and/or services for customer groups to whom so far there were no product offers. Identify what is the approach for raising solutions when companies are developing products and/or services to face problems in their local markets. Identify whether the offers of the companies feature some typical characteristics of frugal innovation or not. Identify if typical frugal innovation strategies are employed.

With the questionnaire in hand, the sample was extracted from a universe of 80 companies participants of the Innovation Management consulting process offered by the Federation of Industry of the State of Alagoas (FIEA). The initial sample 1 Attached

2.

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Constructs

Variable

Priority customers Segmentation of the grouping for the target Customers company.

Variable attributes * The ending segment B2B, High. * B2B segment from low to medium. * The segment B2C, end high. * Low to medium B2C segment. * Customer segments so far at missed and the poorly served (B2B and B2C) * Continuously to improve and hone, the quality and/or technological characteristics * Developing and offering something new, by less. * Developing and offering something more, by less * Technology-based approach * Problem / Solution Based Approach

Product or service development

Approach to finding solutions in product or service development.

Company strategy

* Undo (redo) the industry standard product / service * All development from scratch * Use of advanced technology (eg nanotechnology, digitization, Strategies used by automation, creation of mobile companies to develop solutions etc.) products that are * Location more accessible and * Specific marketing/branding or better adapted to local pricefication activities. challenges of * To set up new purchasing and/or resources constraints. sales channels. * In collaboration with new actors; * Development of new pricing or revenue models; * Developing new business model.

Authors

Agarwal and Brem (2012); Hossein (2018)

Brem and Wolfram (2014)

Hossein (2018); Brem and Ivens (2013)

Fig. 1 Research analytical framework

included 26 companies, one of which was excluded due to being a large company. Thus, the final sample defined by accessibility was 25 micro, small, and medium enterprises (MSME). The definition of the size of the company was established by the Brazilian tax criterion of the Receita Federal of Brazil (Table 1). Regarding the size of the companies, it is presented the following characteristic (Table 2). According to the sectoral distribution in Table 3, the majority of respondents are from the food and beverage sector (40%), wood and furniture (20%), plastics (15%) and the remaining sectors added up to the remaining 25%, of the samples. The choice of the state of Alagoas as the research area was because, along the years, it has been ranked with the lowest social indicators in Brazil, and has permanently

Small Industrial Companies and Frugal Innovation … Table 1 Company Sizes in Brazil

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Industrial Company Size

The limit billing (R$)

Number of Employees

Micro enterprise

360 thousand

Up to 19 employees

Small companies

360 thousand up to 4.8 million

From 20 to 99 employees

Medium companies

4.8 million to 100 million

From 100 to 499 employees

Big Companies

Above 100 million

From 500 or more employees

Source Prepared by the author with data from of Brazil’s receita federal and Brazilian National Institute of Geography and Statistics (IBGE)

Table 2 Firm size distribution (%)

Frequency

%

The cumulatives percentage

Micro

8

32.0

Small

13

52.0

84.0

Middle

4

16.0

100.0

25

100.0

Total

32.0

Source Output from SPSS V. 22

Table 3 Sectors of the surveyed firms

Sector

Number of employees

Foods and drinks

10

Wood and furniture

5

Plastic

3

Ceramic products

1

Water and sewage treatment

1

Cement and concrete

1

Cardboard packaging

1

Clothing

1

Truck bodies

1

Semi jewels Total

1 25

reproduced this condition in a peripheral region that presents strong constraints: (a) in local market demand; (b) in the availability of technologies and material resources of any kinds; (c) in the availability of funding for research firms; (d) in the qualification of the local labor.

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The questionnaire was well accepted by the respondents whose involvement in the survey made it possible to collect the data set to be organized using descriptive statistics as well as techniques for both multidimensional scaling (MDS) for further analysis. Descriptive statistics showed the general characteristics of the companies and allowed a first analytical approach to the results of the applied questionnaire. The multidimensional scaling (MDS) approach was used to look for similarities among the elements in the set of companies surveyed concerning three constructs. In one of them, the goal was to organize companies into groupings that described the similarities in terms of (a) customer segmentation; (b) product or service development; (c) company strategies. In another construct, the MDS was applied to look for similarities among surveyed companies regarding their product characteristics, according to their entrepreneurs. Lastly, after the result of this analysis, the word cloud technique was applied to assist in the interpretation of the two dimensions of the perception map generated.

4 Analysis of Results Frugal innovation mainly involves the design of specific solutions aimed at lowincome market segments based on low cost and technological simplicity, but the challenge is reaching out a quite the same performance as any other similar product and that is easy to handle. In the case reported here, when analyzing data on how surveyed companies segment customers to suit their production to local needs, it was noted that 52% of them are input suppliers. Another part, 40% of them, is companies supplying low complexity inputs to other companies in middle and low-income markets (Table 4). Most of these companies strive hard to improve their industrial processes, deploying innovative activities to achieve significant cost savings and reduce the number of operations for their consumers. These procedures were observed mainly in companies of the food and beverage sector. But despite the context of local market constraints, 36% of the surveyed companies target their products to the upper and middle classes. These companies are in the sector of clothing, wood and furniture, and food and beverage industries. These sectors primarily use traditional technologies and were impacted by the expansion of the Brazilian middle class from 2003 onwards, reflecting on the increase in consumption of civil construction services as well as food and beverages. In the poorly served social segments, the surveyed companies operate in the water treatment sector using self-developed technologies. In the latter case, it is a market that requires sustainability and low cost, typical characteristics of markets for frugal innovation (Fig. 2). In general, the surveyed sectors primarily use widespread technologies or are lowtech sectors. They are generally labor-intensive, but in some contexts, one observes cases with capital intensity. However, Von Tunzelmann and Acha (2006) present

Small Industrial Companies and Frugal Innovation … Table 4 Client segments firm’s distribution

201

Frequency

%

The cumulatives percentage

B2B High-End Segment

3

12.0

12.0

B2B Middle segment

5

20.0

32.0

B2B Low segment

5

20.0

52.0

B2C High-End Segment

3

12.0

64.0

B2C Middle Segment

6

24.0

88.0

B2C Low Segment

2

8.0

96.0

Poorly Served Segment

1

4.0

100.0

25

100.0

Total Source SPSS output

Fig. 2 Customer segments by company actuation

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Table 5 Product development modes Frequency

%

The cumulatives percentage

Continuously improving and enhancing quality and/or technological features

19

76.0

76.0

Developing and offering something new for less

1

4.0

80.0

Developing and offering something more for less

1

4.0

84.0

4

16.0

100.0

25

100.0

Problem/solutions-based approach Total Source Research data

cases where companies merge with other complementary ones of high-tech sectors to establish their market offer. The research also identified some routines and developments that can be labeled as companies adaptations to the local market, such as: a. b. c.

The development of local natural preservatives for food. User-producer interaction for the development of design innovation. Improvements and adaptations in Basic Industrial Technologies (TIB) for the local context.

Regarding the approach used to find solutions in the development of products for local problems (Table 5), 76% of surveyed entrepreneurs answered that they focus on the improvement of available technologies easy to operate as well as addressing products for the market of Alagoas. For the more traditional or low-tech sectors, according to Von Tunzelmann and Acha’s (2006) concept, technical advancement comes from up-stream supply industries. Or, in Pavitt’s (1984) concept, sectors with technological advancement dominated by the suppliers. It is noteworthy that some of the surveyed companies have strategies for developing products aimed at solving local problems, even if limited to a few available resources. In the research sample, it was found that 16% of companies work in this perspective (Fig. 3). These companies are in industries such as truck bodies, healthy food, clothing, and plastics. These companies are focused on the application of innovation management techniques and the development of alternative processes for the manufacturing of their products in response to the poor environment of knowledge, and other resources in the Brazilian Northeastern Region. When challenged to come up with low-cost solutions to the local market (Table 6), three companies responded that the sectors of ceramic and food and beverage are not that challenging. In the case of the ceramic industry, the core product is the red ceramic, which is mainly for local consumption and is strongly dependent on the demand of the local civil construction sector. Due to the local features of civil construction, there is no robust demand for better products from the ceramic industry in Alagoas others than bricks and tiles. On the other hand, the food and beverage companies offer basic bakery products, and the

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Fig. 3 Types of approaches to finding solutions in product development Table 6 Company effort/challenge to develop low costs products Frequency

%

The cumulatives percentage

Disfeaturing of the standard/existing product/service

9

36.0

36.0

Entire development from scratch

3

12.0

48.0

Use of advanced technology

1

4.0

52.0

Localization

1

4.0

56.0

Specific marketing/branding or pricing activities

3

12.0

68.0

Collaborate with new actors

1

4.0

72.0

Develop new business model

4

16.0

88.0

Nothing

3

12.0

100.0

25

100.0

Total Source Research data

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improvement they can reach out is limited to the incorporation of new machines and equipment. As they are small traditional companies with little operational and management resources, they are usually more focused on business operation and poorly oriented for internal solution development. A relevant part of the surveyed entrepreneurs, 36% of the sample, responded that they undo products for better understanding the technologies inside and replicate them for locally marketed products. Indeed, that undoing process is not a reverse engineering process, but just preparation of a simple copy adapted to the local market of existing products and services (Fig. 4). Most of this work is done internally within the company with little or no external intervention. That is, there are no interactions with universities, laboratories, or product development centers. This is due to the little development of the local innovation system, where universities and their research centers are not very permeable to external demands. Three surveyed companies, representing 12% of the valid sample, develop solutions based on their models and outline. That means that, for some companies, the incorporation of design and other technologies in the production or even embedded in their products may allow them the entrance in new markets. One of these companies, in the food sector, adapts their existing machines for process improvement.

Fig. 4 Types of companies’ strategies/efforts to respond to local challenges at low cost

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Currently, for small businesses in traditional markets, innovations are more tied to business models than technological innovations themselves. In this survey, it was found that 16% of companies respond to the challenges of local demand with the development of new business models. An example is a company of plastic products sector working with recycling by addressing the production to a combination of reverse logistics with a circular economy. Another company, in the packaging sector, developed a production project focused on packaging thermal on demand. The business model is to customize packaging units to reduce the storage costs of the users who need special packaging. Still, regarding the type of approach in the search for low-cost solutions for the local market, three companies (12%) develop brands that reflect the effort to produce suitable product conditions of the local demand. Specifically in these companies, one can observe the huge effort to improve product and packaging design. A food company in this category tries to develop new flavors and products with a healthy appeal by the use of naturally available local input to enhance engagement with the surrounding community.

4.1 Analysis of the Perception of the Entrepreneurs The answers to the questionnaires led to the construction of one perception map with two different dimensions each (Fig. 5). Each dimension attempts to summarize the judgments of the respondents regarding the issues presented in the methodology, which are: I.

II. III.

To identify if the company segments customers by technology/input or product offered or even if the company tries to develop products or services for customer groupings for which, so far, there is no proper offer. To identify what approach is used to finding solutions to develop products and/or services to face problems in local markets. To identify whether typical of frugal innovation strategies are mostly employed.

An application was performed of the Multidimensional Analysis (non-metric) technique for drawing up a map of perception, where a summary of the construct presented in Table 1 was made. The model used for the analysis was the Euclidean distance, and the MDS technique was the PROXSCAL, available in the SPSS statistical package. The first step of this analysis was to assess the quality of the model’s fit to the data, which was done using the Stress measure. These are measures similar to the correlation coefficient, measuring how bad the difference between the proximity measures and the corresponding distances would be (Bevilacqua 2004). For the acceptance of metrics Stress, values close to 0.05 would be considered the most adequate. As a complement, squared correlation (RSQ) was used to verify the variability of the model data (Hair et al. 1998), ranging from 0 to 1, where the first value represents that the model is bad

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Fig. 5 Perception map derived from Frugal Innovation constructs proposed for the researcha (Note a : From SPSS V.22 output)

and the second, the opposite (acceptable above 0.6). This procedure was performed to extract the map presented in this research. Thus, for the first map, RSQ = 0.85, Stress = 0.195 and S-Stress = 0.270 were obtained. Such results can be considered an acceptable fit for exploratory research and with a conceptual basis in formation. As previously exposed, the perception map dealt with items I, II, and IV of the constructs presented to the surveyed entrepreneurs. The interpretation of the map from the characteristics extracted from the companies answers is that there may surely have two dimensions in which the surveyed companies are grouped, (a) those presenting solutions and products with technological approach (dimension 1); and (b) those based on strategies to respond to low-cost challenges (dimension 2). Dimension 1 summarizes the level of technological complexity faced by firms. Dimension 1 (positive) right side, with the largest number of companies, groups those with more simple products, more commoditized markets, and striving to improve both the process and the product. Efforts for innovation are incremental and related to the pursuit of cost reduction for the end products. In this dimension one can identify the following end products: a.

Food and beverages (juices, dairy, mineral water, processed foods, coffee, baking, confectionery, and ice cream).

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b. c. d.

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The Construction suppliers (furniture and mattresses, semi-ready mortar, wooden doors, condominium water treatment, ceramics, signage). Consumer products (plastic bags, semi-jewelry, wooden decoration articles, clothing). Packaging.

On the right side of dimension 1, with greater proximity in terms of responses, are grouped the food and beverage companies, of complementary products for civil construction, and general consumer products more oriented to the effort to reduce costs. On the left side of dimension 1, there are three companies focused on developing low-cost products, but targeting a specific type of market. Customized packaging, UV-coated shirts, and development of plastic recycling processes, and healthy foods are examples of the companies’ products referred to in this dimension 1. These are the companies that present products and processes with slightly more complex technologies. Dimension 2 explains the strategy to respond to low-cost challenges. At the top of the vertical axis are companies that are trying to reduce costs by enabling a more efficient business model and brands development. There are several types of efforts, like the following: a. b. c. d. e.

Specialization in low-income products with the development of new flavors at lower prices. Development of production processes to increase the shelf life of perishable bakery foods. Development of specialty coffees for specific customers (subscription). Water treatment for condominiums via contracts (technology as a service). Design of the point of sale and development of a healthy and low-cost product.

At the bottom of the vertical axis of dimension 2 are the companies concerned with the hardware aspect. It means the ones focused on incorporating machinery and equipment as the main strategy to lower costs. These are companies strongly focused on copying and adapting existing technologies to improve products and processes to deliver solutions to face problems in their markets. Using an Ansoff´s type matrix (Fig. 6), the final analysis can be summarized as follows: A.

In quadrant A (Technological hardware—blue) the striking features of this position are the companies’ approach to local market problem-solving. The companies’ answer to the problems, in this case, depends primarily on the incorporation of new machines and equipment into the production process. The practice of copying some existing products for the development of other improved products and services adapted to the local reality was also observed. These are the companies based on technological hardware adapted to the local market.

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Technological approaches to problem solving and end products Oriented to the solution of problems. Product differentiation Strategy to

Technological software

oriented.

Product oriented

Differentiation with Technology and brand

respond to low cost challenges

Product technology oriented.

Technological hardware

Local adaptation

Fig. 6 Company Positioning Matrix of type in regarding efforts for production solutions and low-cost technologies

B.

C.

D.

In quadrant B (Technological software—red) there are companies that develop a problem and solution-based approaches but operating fewer complex technologies in their products and trying to position themselves by developing new business models. These are companies based on business models or technological management software. In quadrant C (Differentiation with technology and brand—yellow) are the firms that produce with technologies developed or adapted to their products, associate a brand with the developed technology and trying to innovate in the business model. These are companies based on differentiation by product‘s technology. Quadrant D (Local adaptation—green) presents companies that continually seek to improve product quality by working with innovation and process management and seeking to adapt the product to the local market. These are companies oriented to the challenge of local product adaptation.

The Analysis of the Enterprise Positioning Matrix for low-cost production and technologies is based on the concepts proposed by Srinivas and Sutz (2008) that established a typology for low-cost solutions. Local innovations emerge from the adverse context that sets up an incomplete innovation system, which is typical of the peripheral regions such as the Brazilian Northeastern case. Therefore, it is relevant to consider the efforts of companies adopting novelties in their products or processes, even if adapted and developed from a native inventiveness. This is the heartwood of frugal innovation.

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Srinivas and Sutz (2008) argue that local technological solutions to problems already solved in other contexts or locally adapted or copied technological solutions (substitution problems) are also part of the way frugal innovation presents itself. According to the perception map prepared with the responses of small business owners surveyed, it is noted that most local businesses are relatively product oriented, given the higher concentration of companies in quadrants C and D. The most extreme cases (outliers) found in the research are represented in the perception map in quadrants A and B, as companies that are relatively more oriented toward the search for technological and management solutions to the local market challenges. The perception map analysis is not straightforward, but it offers a good indication of the possible types of strategies and solutions sought by local companies, considering that the search process is a fundamental routine for innovations.

5 Concluding Remarks Traditional innovation is capital intensive and presents itself in statistics as entirely new products or processes for the companies or the market at large. However, frugal innovation is another way of approaching innovation when it does not have the usual attributes of traditional innovation but is capable of making a difference for companies and certain regions of the countries with emerging economies. This article is part of the effort for conceptualize and identify, in peripheral regions of Brazil, the application of frugal innovation concepts by part of the micro and small companies. The term “frugal innovation” has been used to denote innovations specifically developed for resource-constrained consumers in emerging markets. The focus market originally is the consumers at the bottom of the income pyramid (Prahalad 2012; Prahalad and Hart 1999). In the considerations of Bhatti and Ventresca (2013), frugal innovation needs to be something new in the context of the company or to the user, but not completely original. Frugal innovation must also imply improvement because it is more effective or more efficient than existing solutions and may even be disruptive to the point of modifying the regional economic structure, according to Rao (2013). These are criteria that were taken into consideration in the construction of the questionnaire applied to the surveyed micro and small entrepreneurs. And in the research, it was noted that even not knowing the term frugal innovation, its work practices and philosophies already deliver results similar to research conducted in the world. The companies’ Positioning Matrix proposed in this article and developed from the surveyed entrepreneurs’ perception map showed, in a summarized way, the patterns and business practices observed from the quadrants of the perception map. The matrix shows that companies are distributed around the challenge of operating with greater or lesser technological complexity and between market strategies oriented to

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technologies embedded in machines and equipment, or to new business models and recognized local brands. The four general characteristics presented can support future research, as well as the elaboration of the analytical frames of constructs and variables, which can be replicated in other contexts in Brazil. The matrix is not definitive and can be expanded to verify the relationship between the quadrants and the performance of companies that use those practices to innovate. It is believed that the theme of frugal innovation is extremely relevant for innovation research in Brazil as well as in other emerging countries, behold of the challenge that the country faces to incorporate innovation strategies in companies, despite all the known gaps in the National System of Innovation. Thus, frugal innovation can be an adequate strategy to reach new results by the use of new approaches to business innovation, considering the Oslo Manual (OECD 2006) metrics and concepts. The chapter also favors a deep reflection on the competitive environment of companies that are carrying out some degree of frugal innovation. From a local perspective, what one observes is that, despite the lack of a clear understanding of the innovation models by businessmen, companies are innovating using the logic of frugal innovation. This happens even in the context of resource constraints to innovate due to the weaknesses of the local innovation system in providing knowledge transfer or any other kind of support to small- and medium-sized companies to implement innovative activities. The perceived fact is that to innovate and be well succeeded in emerging markets, companies ought to face the huge challenge of transforming the fragilities of the general environment in their favor. Nonetheless, from a global perspective, it is necessary to highlight the role to be played by MNEs in the context of possible increasing income inequality and market competition running stronger every day due to the hard dispute for the world economical hegemony established by the ongoing confrontation in terms of trade and technologies by Asian countries and the USA. In such a scenario, one can expect fewer opportunities for innovations that require a high level of resources from companies, i.e., the cost of innovating in cutting-edge technologies for final products consumers can increase, narrowing the margins of profits. So, in response to such a scenario, large multinational companies from developed countries and the main world technological centers could be led to turn to act with more competitive pressure in emerging countries aiming at reaching new markets to keep their profit patterns. One can expect the intensification of this process when observing the rise of Asian multinational companies operating with very low-cost products and already competing in almost all Western countries. In this way, what can be expected is that companies in emerging countries, that in some way operate with a frugal innovation approach, will suffer a more intense competition in a non-symmetrical dispute between the parts. Such a situation may require stronger actions of industrial and innovation policies in emerging countries to support local innovative companies or even a nascent industry based on native technology.

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Attachment 1 Iteration history for the two-dimensional solutions (in squared distances) Young’s S-stress formula 1 is used. Iteration

S-stress

Improvement

1

.36865

2

.28345

.08520

3

.27263

.01083

4

.27084

.00179

5

.27078

.00006

Iterations stopped because S-stress improvement is less than .001000 Stress and squared correlation (RSQ) in distances RSQ values are the proportion of variance of the scaled data (disparities) in the partition (row, matrix, or entire data) which is accounted for by their corresponding distances. Stress values are Kruskal’s stress formula 1. For matrix Stress = .19538 RSQ = .85002

Attachment 2 The questionnaire below was based on debates and discussions with Professor Christine Wimschneider of the Faculty of Business, Economics, and Law at the University of Erlangen-Nuremberg (FAU), in Germany, in one of her visits to Brazil in May 2018. At the time, a working group was defined that spin off the research present in this chapter. The researchers who wrote this chapter are linked to the Graduate Program in Intellectual Property and Technology Transfer for Innovation (PROFNIT), in addition to being also linked to the Federal University of Alagoas (UFAL) and the National Institute of Industrial Property (INPI). To build the questionnaire, in addition to these institutions, researchers linked to the Santa Catarina Industry Federation (FIESC) and the Federal University of Santa Catarina (UFSC) participated in the effort to prepare the questionnaire.

Question 1

continuously improving and enhancing quality and/or technological features

Response options

Developing and offering something new for less

Developing and offering something more for less

Technology-based approach

Problem/solutions based approach

(continued)

Purpose Identify what is the underlying approach with which the companies try to find solutions for problems

B2C Low-to Middle Segment

What is the company’s approach to (product/service) innovation?

B2B Low-to Middle B2C High-End Segment Segment

Question 2

B2B High-End Segment

Response options

Identify if company targets constrained customer segments or So far unserved/poorly even tries to develop served customer segments and bring (B2B and B2C sector) products/services to customer groups for which so far no suitable offering exist

Purpose

Something that catches the attraction of the companies, that receive the survey:

Which kind of customer group is your company primarily targeting with the product(s) or service(s)?

Idea Tapping new markets and customers by embracing resource constraints

Teaser

Drafted questions for survey

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Standardized

Sophisticated

Complex

portable

Social

Adapted to regional/local needs Sustainable/ecological

Expensive

Digital

Luxurious

xxxxx

Accessible

Purpose

Develop new pricing/revenue model

Set up new procurement and/or sales channels

Collaborate with new actors

nano-tech, digitization, automization, creating mobile solutions etc.)

product/service

Develop new business model

xxxx

pricing activities

Has the company ever been challenged to develop a product/service that is more affordable/better adapted to local/regional Identify whether needs? If yes, how did the predominant product development and commercialization strategy look like? typical frugal innovation strategies Disfeaturing of the Entire development Use of advanced Localization Specific are employed standard/existing from scratch technology (e.g. marketing/branding or

Question 4

Easy-to-use

AFFORDABLE/cost-effective

Technological

Which adjectives describe the companies’ products/services best? (multiple responses allowed)

Response options

Purpose Identify whether companies’ offerings present typical frugal innovation characteristics or not

Question 3

Drafted questions for survey

(continued)

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References Agarwal N, Brem A (2012) Frugal and reverse innovation: literature overview and case study insights from a German MNC in India and China. In: Katzy B, Holzmann T, Sailer K, Thoben KD (eds) Proceedings of the 2012 18th international conference on engineering, technology and innovation. Munich. pp 1–11 Agarwal N, Grottke M, Mishra S, Brem A (2017) A systematic literature review of constraint-based innovations: State of the art and future perspectives. IEEE Trans Eng Manage 64(1):3–15 Albuquerque EM (2005, March) Inadequacy of technology and innovation systems at the periphery: notes on Celso Furtado’s contributions for a dialogue between evolutionists and structuralists (Texto para discussão, Nº 254). Universidade Federal de Minas Gerais/Cedeplar, Belo Horizonte Bevilacqua S (2004, outubro) O emprego da multidimensional scaling: estudo de caso envolvendo seis instituições de ensino superior do noroeste paulista, uma contribuição para a qualidade em serviços. Revista Pesquisa e Desenvolvimento Engenharia de Produção, Florianópolis (3), 43–53 Bhatti YA, Ventresca M (2013, January 19) How can ‘frugal innovation’ be conceptualized? SSRN Electron J. Available at https://ssrn.com/abstract=2203552 or http://dx.doi.org/10.2139/ssrn.220 3552 Brem A, Ivens B (2013) Do frugal and reverse innovation foster sustainability?: introduction of a conceptual framework. J Technol Manag Grow Econ 4(2):31–50 Brem A, Wolfram P (2014) Research and development from the bottom up-introduction of terminologies for new product development in emerging markets. Journal of Innovation and Entrepreneurship 3(1):1–22 Breschi S, Malerba F, Orsenigo L (2000) Technological regimes and schumpeterian patterns of innovation. Econ J 110(463):388–410 Grant RM, (2008) Conteporary Strategic Analysis. Blackwell Publishing, Malden, MA Hair JF, Black WC, Babin BJ, Anderson RE, Tatham RL (1998) Multivariate data analysis. 7. ed. v. 5, n. 3, 207–219. Englewood Cliffs, NJ: Prentice Hall: 1998 Heeks R, Foster C, Nugroho Y (2014) New models of inclusive innovation for development. Innov Dev 4(2):175–185. https://doi.org/10.1080/2157930X.2014.928982

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Hoskisson RE, Eden L, Lau CM, Wright M (2000) Strategy in emerging economies. Acad Manag J 43(3):249–267 Hossain M (2018) Frugal innovation: a review and research agenda. J Clean Prod 182:926–936 Lacerda KC (2016) Inovação em produtos para a base da pirâmide: evidências em empresas brasileiras. Avaliable in https://repositorio.ufpb.br/jspui/handle/tede/8275 OECD (2006) Manual de Oslo: proposta de diretrizes para coleta e interpretação de dados sobre inovação tecnológica. Brasília: Finep. Avaliable in https://edisciplinas.usp.br/pluginfile.php/263 613/mod_resource/content/1/Manual%20Oslo.pdf Pavitt K (1984) Sectoral patterns of technical change: towards a taxonomy and a theory. Res Policy 13(6):343–373 Penrose ET (2006) Teoria do Crescimento da Firma. From 1959 english edition. Editora UNICAMP, Campinas Prabhu JC, Jain S (2015) Innovation and entrepreneurship in India: understanding jugaad. Asia Pac J Manag 32:843–868 Prahalad CK (2012) Bottom of the pyramid as a source of breakthrough innovations. J Prod Innov Manag 29(1):6–12 Prahalad CK, Hart SL (1999) Strategies for the bottom of the pyramid: creating sustainable development. Ann Arbor 1001:48109 Rao BC (2013) How disruptive is frugal? Technol Soc 35(1):65–73 Rosário FJP, LIMA AA (2017) Competitividade Empresarial: recursos, capacitações e inovação. In: Boff SO, Fortes VB, Menegazzo AF, Tochetto GZ (eds) Propriedade Intelectual e Gestão da Inovação. Deviant, Erechin/RS (1), pp 99–121 Rossetto DE, Borini FM, Bernardes RC, Frankwick GL (2017, novembro) A new scale for measuring frugal innovation: the first stage of development of a measurement tool. In VI Simposio Internacional de Gestão de Projetos, Inovação e Sustentabilidade-SINGEP. São Paulo, SP, Brazil Silva SBS (2018) Inovação frugal à luz dos princípios da Jugaad: estudo de múltiplos casos em MPEs. Master degree thesis. Universidade Federal de Sergipe. São Cristóvão. Avaliable in: https:// www.ri.ufs.br/bitstream/riufs/8744/2/SANDRA_BARBOSA_SANTOS_SILVA.pdf Soni PT, Krishnan R (2014) Frugal innovation: aligning theory, practice, and public policy. J Indian Bus Res 6(1):29–47 Srinivas S, Sutz J (2008) Developing countries and innovation: searching for a new analytical approach. Technol Soc 30(2):129–140 Von Tunzelmann N, Acha V (2006) Innovation in “low-tech” industries. In: Fagerberg J, Mowery D, Nelson R (eds) The Oxford handbook of innovation. Oxford University Press, Oxford, pp 149–175 Wimschneider C, Brem A, Agarwal N (2018) Gambiarra: the Brazilian Jugaad innovation?: An empirical examination of the antecedents of constraint-based innovations in two cultures. In: IEEE international symposium on innovation and entrepreneurship (TEMS-ISIE), 2018, Beijing

Adding New Perspectives to Frugal Innovation

Implementing Frugal Innovation: Leveraging Constraints as Opportunities for Electric Rickshaws in India Anne H. Koch

1 Introduction The number of personal cars is rapidly and considerably increasing worldwide. Pollution caused by vehicles causes climate change and is one of the biggest threats to human health. Yet, individual entrepreneurs and companies can address economic weaknesses and environmental problems also in resource-constrained environments with technological innovation. This chapter focuses on the disruption of public transportation with battery-operated electric three-wheelers which continue to complement and replace conventional rickshaws powered by internal combustion engines in the emerging market of India. Such electric rickshaws (e-rickshaws) have gained and continue to gain much popularity for transportation in India. The work presented here is in line with research on disruptive innovations in bottom-of-the-pyramid markets (Christensen et al. 2006; Hang et al. 2010; Wan et al. 2015). For bottom-of-the-pyramid markets, resource constraints are characteristic (Prahalad 2010). They provide fruitful conditions for frugal innovations which serve the needs of underserved populations at lower cost and superior customer value (Sharmelly and Ray 2018; Weyrauch and Herstatt 2016). Recent systematic literature reviews on published examples of frugal innovations (Hossain 2016, 2017) reveal that most of these come from Western multinational corporations (Bhatti et al. 2018). However, much frugal innovation activities also happen in developing or emerging markets (Bhatti et al. 2018; Petrick and Juntiwasarakij 2011; Zeschky et al. 2011). While more research exists on the unique requirements of the bottom-of-the pyramids segment and product conceptualizations, diffusion and user adoption of frugal innovations have been ignored (Agarwal et al. 2017). This study contributes to this area

A. H. Koch (B) Hult International Business School, 1355 Sansome Street, San Francisco, CA 94111, USA e-mail: [email protected] © Springer Nature Switzerland AG 2021 N. Agarwal and A. Brem (eds.), Frugal Innovation and Its Implementation, Contributions to Management Science, https://doi.org/10.1007/978-3-030-67119-8_10

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of research on the diffusion of frugal innovation as well as to research on the disruption of industries in emerging markets. It uncovers main affordability and resource constraints and ways of using additional resources that address the disruption of the selected market space. Specifically, the case highlights the benefits and challenges of disrupting urban transportation by conventional cars and auto-rickshaws with battery-powered rickshaws. India is chosen as context for highlighting the benefits and challenges of diffusion and development of disruptive innovation of sustainable urban transport. It is a bottom-of-the-pyramid market which makes considerable progress with e-rickshaws. The first part of the analysis categorizes e-rickshaws as frugal innovations by drawing conclusions from the literature and comparing different vehicle types. For the background of the context and the section after presenting the conceptual model, secondary data in the form of reports from the mass media, the Indian Government, and non-profit organizations has been gathered on the topic of e-rickshaws in India. At first, a literature search was conducted with the aim of identifying information on affordability and resource challenges. Second, the two solutions for the constraints presented in the conceptual model, namely cost aspects and issues related to the use of the products, were assessed in the literature. Further, the case occasionally uses exemplar quantitative data to provide contextual details on e-rickshaws in India. The final section provides examples for further research opportunities. The presented challenges and solutions for the diffusion of frugal innovations may be of interest for other industries and countries as well. Building on the implementation of products in automotive technology that were incubated in India, the final section also very briefly discusses the benefits and challenges of using electric rickshaws in developed markets.

2 The Need for Disruption by the Frugal Innovations of E-rickshaws In general, emerging market firms are well known for their capability to develop frugal innovations (Sharmelly and Ray 2018). Frugal innovations aim to disrupt existing innovation paradigms with significant cost reductions, while maintaining customer value on the other (Knorringa et al. 2016). They offer low cost and not just maintain, but offer superior customer value (Sharmelly and Ray 2018; Weyrauch and Herstatt 2016). Since frugal innovations are affordable, offer high value for customers, and are developed under resource scarcity, they are useful to meet the needs of customers with low purchasing power (Radjou and Prabhu 2014; Zeschky et al. 2011). Before the background of cost reduction, high value for customers, and solving sustainability challenges, the following paragraphs elaborate why erickshaws can be labeled frugal innovation in emerging markets. The three selected criteria which are characteristic for frugal innovations apply to the vehicles as follows.

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Frugal engineering refers to the process of designs that seek to minimize nonessential costs (Banerjee 2013; Brem and Wolfram 2014). Costs which are not essential are cut out in order to cut production costs of the three-wheeled vehicles. With considerable cost reductions offered by the Government in India to buyers, they are also more affordable than auto-rickshaws with conventional combustion engines. The government support is important since it adds to the low total cost of ownership from a customer perspective. The transportation with e-rickshaws is a cheaper solution than conventional auto-rickshaws (Marandi and Sharma 2017, October 5) or conventional cars. E-rickshaws are able to meet the performance levels with at least reduced expenses, if not “minimal” costs (Brem and Wolfram 2014) when considering four-wheeled vehicles. The smaller required amount of fuel or energy and the smaller size of three-wheeled vehicles compared to four-wheeled cars make them more cost-effective for customers. E-rickshaws also need less general maintenance compared to conventional cars and rickshaws with conventional combustion engines. Electric batteries which power the new rickshaws have considerably less components than the engines of conventional auto-rickshaws. The latter consist of many more parts which can break and need repair which can add to expenses of drivers. In comparison with four-wheeled cars, the three-wheeled vehicles are smaller and more compact in their design. They also consume less fuel than their counterparts. In this respect, the operation of e-rickshaws creates value for customers with minimal wasteful efforts, as is characteristic of frugal innovations. They are also a more convenient mode of transport for short mile connectivity than cycle rickshaws. Many of the e-rickshaw drivers used to pedal old-fashioned cycle rickshaws. It was less easy to use these vehicles because drivers had to cycle them which was less comfortable than using motorized rickshaws. The cycling work in moderately to highly polluted areas can be exhausting for drivers. With the passing years, also for this reason, many of the drivers who have used auto-rickshaws have switched to e-rickshaws. Another added value for customers and drivers is that rickshaws powered with electricity make less noise than auto-rickshaws. In sum, the frugal innovations of electric three-wheelers hereby concentrate on the core functionality with the highest customer benefits (Rao 2013) by offering less pollution and affordable and reliable rides within cities. In addition to cost and value benefits, e-rickshaws are also better for the local community and the environment because they cause less pollution than autorickshaws (Koch 2020). For some scholars, for instance Basu et al. (2013), social enterprises are built around the idea of frugal innovation and entrepreneurship to solve sustainability challenges in bottom-of-the-pyramid markets. Frugal innovation seeks to reduce not just the financial cost of doing business but also the environmental cost (Radjou and Prabhu 2014). The use of e-rickshaws has positive effects on the natural environment and reduces pollution. A research institute in New Delhi specializing in the fields of energy, environment, and sustainable development called the Energy and Research Institute has conducted a study on technological foresight for electric rickshaws. The study results that a 30% conversion from conventional three-wheelers to electric three-wheelers by 2030 would result in 7% reduction in carbon dioxide emissions. Furthermore, a 100%

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conversion of three-wheelers to electric rickshaws by 2050 would result in 18% decrease compared to the current way of operating rickshaws (Chandramouli 2019). Replacing a conventional auto-rickshaw with an electric auto-rickshaw can reduce carbon emissions by about 37 tons/per auto (Thakur and Pal 2018) over its 10-year lifetime (Singh and Jena 2018). Hence, the switch from auto-rickshaws to more three-wheeled vehicles is a big improvement and important goal for reducing air pollution and carbon emissions. As part of the market growth, drivers are switching from cycle rickshaws to erickshaws. This development adds to pollution because cycle rickshaws only need human energy for their propulsion. Is the e-rickshaw in this light really a technological innovation that tackles air pollution? An answer needs to consider also such alternatives as conventional cars and cycle rickshaws. Economic growth will not stop when technological alternatives arise. The transition to e-rickshaws is a natural progression that replaces cycle rickshaws and conventional cars and motorized rickshaws. The more customers buy four-wheeled vehicles with internal combustion engines, presumably the less the transportation energy mix of a country can shift to renewable energies. Furthermore, a buying behavior toward more four-wheeled vehicles with electric batteries would not help the environment as much as electric three-wheelers. Instead, economic growth with four-wheeled vehicles would have a much stronger negative effect on the natural environment and pollution. Four-wheeled vehicles are more resource-intensive to build, and they also consume more resources in the form of fuel.

3 Background for the Context: Disruption of the Transportation Sector in India In order to understand the disruption of the transportation sector in India, some background information on technological developments and funding is helpful. Rickshaws are commonly believed to have been invented in Japan in the 1860s, in a decade at the beginning of a rapid period of technical advancement. In the nineteenth century when transportation necessities for economic development increased, rickshaw pulling became an inexpensive, popular mode of transportation across Asia (Warren 2003). As further evolution of the traditional pulled or cycle rickshaw, engineers developed gasoline-powered vehicles. Conventional auto-rickshaws run on liquefied petroleum gas (LPG) or diesel. Such auto-rickshaws have become more popular in some cities as an alternative for last mile connectivity to stations and/or desired locations because of their low cost. The modifications from cycle rickshaws to auto-rickshaws enhanced the lives of not just the drivers but also passengers. Auto-rickshaws decreased the effort for drivers who operate vehicles with motor propulsion and increased possible speed and distance of transport for passengers. However, the auto-rickshaws with conventional combustion engines are a major source of pollution in many Asian cities.

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The Government of India introduced incentive schemes to promote production and buying of electric vehicles (Government of India 2012). Partially due to this development, more and more rickshaws that are running on electric power are produced, sold, and used across the country. The Indian Government wants single individuals who are buying vehicles and companies that manufacture electric vehicles to become more sustainable by developing products and services that are more affordable and environmentally friendly. The Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles (FAME India) scheme proposes to give a push to electric vehicles in public transport and seeks to encourage adoption of such vehicles. With this plan, India tries to expedite the rolling out of its ambitious program for electric vehicles. FAME India is a part of the National Electric Mobility Mission Plan (Government of India 2012) and encourages electric vehicles by providing subsidies. As part of this plan, the government offers incentives for electric buses, three-wheelers, and four-wheelers to be used for commercial purposes. The FAME scheme aims to boost the transition to electric mobility and to reduce the purchase price of electric vehicles used for public or shared transportation. It includes rickshaws and its successful implementation is expected to create a significant reduction in oil imports and emissions (Chandramouli 2019). Transportation defines how people live in cities worldwide today. As the current growth in many emerging markets suggests, e-rickshaws are likely to be even more influential in the future. Besides the support and willingness to change of the government, the choice of drivers and consumers to buy, use, and share environmentally friendly solutions decisively promotes economic growth and respects the environment. The economic growth creates immense potential for consumption of frugal solutions in India. Apart from standard, known solutions, the continuous economic growth also presents an opportunity for disruptive, non-conventional frugal solutions (Tiwari and Prabhu 2018). After presenting a conceptual model, the following presents challenges and solutions for the diffusion of and disruption by frugal innovations in the context of e-rickshaws in India. The presented solutions are often novel and non-conventional and solve the challenges presented by the constraints in the emerging market.

4 Challenges and Solutions for the Diffusion of and Disruption by Frugal Innovations An environment is resource constrained if it provides new challenges, whether problems or opportunities, without providing additional or new resources (Baker and Nelson 2005). By overcoming constraints that frugal innovations are exposed to, innovators or social entrepreneurs can disrupt markets and create market growth. The conceptual model illustrated in Fig. 1 shows challenges and solutions for the diffusion of frugal innovations. An increased spread of frugal innovation will lead

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A. H. Koch Challenges Aīordability Constraints

Resource Constraints

SoluƟons Cost EīecƟveness

Diīusion of Frugal InnovaƟons

Market DisrupƟon

Market Growth

Ease-of-Use

Fig. 1 A conceptual model on constraints and diffusion of frugal innovations

to more new products or services disrupting the market that will in turn lead to market growth. The new model builds on the acceptance model of constraint-based innovations by Agarwal et al. (2017). It also incorporates cost-effectiveness and ease-of-use as main variables. However, this chapter extends their model by starting out with challenges such as affordability and resource constraints. Second, it seemed important to link the type of constraint and type of solution for modeling and analysis of frugal innovations. Third, the model integrates the concepts of diffusion, market disruption, and market growth. The new perspective and argument of the model in Fig. 1 are that challenges like affordability and resource constraints can be resolved with cost-effectiveness and ease-of-use of new products or services. Entrepreneurs can use design thinking and bricolage as mechanisms (Bhatti et al. 2018) to increase both cost-effectiveness and ease-of-use. Finding solutions for the constraints can help the diffusion of frugal innovations. In cases where technology plays an important role in frugal innovations, ease-of-use has to do with technological advancements. The more the dimensions cost-effectiveness and ease-of-use increase, the more likely the diffusion of frugal innovations in the market will increase. An important mechanism at work here is cost-effectiveness. When the price of a disruptive technology is lower than that of the prevailing technology, it is more likely to be disruptive (Sood and Tellis 2005). Entrants that prove disruptive gain a foothold in a market by delivering more suitable functionality—frequently at a lower price. When mainstream customers start adopting the companies’ offerings in volume, disruption has occurred (Christensen et al. 2015). The more the diffusion of the frugal innovations increases, the more the new products or services will disrupt the existing market and hereby create market growth. The relationships of concepts with dotted lines are of secondary importance for the model. At least in the beginning, the diffusion of frugal innovation usually requires continuous efforts to find cost-effective and user-friendly solutions. When frugal innovations are first introduced into the market, cost-effective solutions or funding arrangements to facilitate ease-of-use are not always in place yet. The dotted arrows, which point back from diffusion of frugal innovations to cost-effectiveness and easeof-use, indicate the continuous search for solutions in this process. The arrow from

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cost-effectiveness to ease-of-use indicates that solutions that make it easier to use new products may depend on funding. It can make the products affordable for consumption. Independently of cost-effectiveness achieved by external funding, a new product or service often also needs to mature enough before it is easy to use. User-friendliness should be a goal when disseminating frugal innovation, because it only makes sense to scale new products if they are easy to use. Hereby, they become cost-effective. The following applies what is shown in Fig. 1 to the example of e-rickshaws in India and discusses some of the main challenges and solutions in this context. While the constructs presented in the model have not been measured, the research design was carefully considered for increasing validity of the case study. The conceptual model established clear roles of the selected constraints and solutions, providing the basis for data collection and analysis and hereby improved the research objectivity. After the initial search, the resulting literature was reviewed in more depth. Specifically, the literature was analyzed to match it to the different types of constraints and solutions listed in the conceptual model. As a result, the case highlights effective ways to overcome selected constraints with effective solutions in the Asian bottom-of-the-pyramid market.

4.1 Affordability Constraint 1: Cost-Effectiveness for Vehicle Owners More than 50% of rickshaw drivers in India operate on a daily rental model instead of ownership. The reasons for the high number of rented vehicles are lack of fitting financing options and/or the high cost of financing (Singh and Jena 2018). Such a lack of access to funds can be barriers for rickshaw pullers as well as for drivers of auto-rickshaws for upgrading to electric vehicles. The price for an e-rickshaw is often less expensive than for traditional auto-rickshaws. However, transitioning to e-rickshaws requires an initial investment to buy a vehicle if it is not rented. In many cases, when drivers are unable to meet stringent lending requirements, mainstream financers such as banks and non-banking finance companies don’t provide financing to these drivers. A usual practice in small commercial vehicles loans is self-funding for a minimum of 30% of the initial cost of auto-rickshaws. Microfinance institutions and informal channels are alternative financing sources for auto-rickshaw drivers. However, regulation prohibits microfinance institutions to finance more than 60,000 Indian rupees in the first loan cycle, which is about onethird of the cost of an electric auto-rickshaw (after government subsidies and other discounts) (Singh and Jena 2018). Yet, social entrepreneurs who face the affordability constraint of vehicle ownership can use other cost-effective solutions. The Government of India offers central financial assistance to the FAME scheme. These subsidies and other discounts which cumulatively total to about 1 lakh Indian rupees help to achieve parity in the initial capital cost of electric rickshaws and conventional auto-rickshaws (Singh and Jena 2018). Further, a report by the Indian

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Innovation Lab for Green Finance describes a loan product for financing low-carbon auto-rickshaws that will enable drivers to shift from conventional auto-rickshaws to erickshaws. The loan product offers debt financing for 100% of the cost of purchasing an electric auto-rickshaw, is collateral free, and has lower interest rates. It hereby helps reduce emissions in Indian cities and improves the livelihoods of the drivers through ownership of the vehicles. Drivers have higher savings of about 20% on average through the loan and avoid daily rentals of the vehicles (ibid.). Furthermore, a company called SMV Green Solution headquartered in North India joins forces with multiple entities involved in procuring a ready-to-drive e-rickshaw. It connects people to e-rickshaw manufacturers and financial institutions sanctioning loans that banks won’t normally give to low-income groups (Chandramouli 2019). All three presented solutions work against affordability constraints of e-rickshaw drivers. Besides the purchasing price of the whole vehicle, e-rickshaw drivers have another challenge compared to traditional auto-rickshaw operators. An average four-wheeler requires a change of batteries every three to five years. In contrast, e-rickshaws that run with lead–acid batteries require the purchasing of new batteries already after eight to ten months (Khaira and Sathe 2019, September 12). The requirement to buy new batteries adds to affordability constraints because many e-rickshaw drivers live in poverty. They need the continuous income from driving the vehicles. SMV Green Solutions helps by creating connections to battery providers and authorities (Chandramouli 2019). They also possibly help leveraging the financial constraint of purchasing expenses of new batteries.

4.2 Affordability Constraint 2: Cost-Effectiveness for Rickshaw Customers Another implementation challenge in the process of market disruption is rooted in affordability constraints of rickshaw users. Since purchasing power is lower in developed than in emerging markets (Hart and Christensen 2002; Radjou and Prabhu 2014; Zeschky et al. 2011), emerging markets are especially promising targets for the sharing economy. The Boston Consulting Group recently conducted a survey with respondents, most of whom live in urban areas and are well educated. In India, 93% of the respondents said they had used Ola Cabs, an Indian transportation network company offering services that include peer-to-peer ridesharing, and 81% of the respondents had used Uber. Both these participation rates are higher than in the USA or Germany (Wallenstein and Shelat 2017). The digital distribution of e-rickshaw services and the implementation of ridesharing in e-rickshaws can help to make the e-rickshaw services more cost-effective for customers. According to Ola’s website, sharing a taxi with users traveling on their route saves up to 50% of a passenger’s daily travel expenses. The ride service ensures minimum deviations and a better ride experience by reducing carbon footprint. If

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several customers ride the rickshaw in the same direction of a town, the shared costs make a lower individual price for each customer on the shared ride possible. The sharing economy is particularly interesting in the context of cities that struggle with population growth and increasing density (Cohen and Kietzmann 2014). India is in the process of adapting to growing cities with technological innovations. Ola Share is the latest offering of Ola Cabs and offers services that help to disrupt ways of urban mobility in transportation infrastructure. In this context, two disruptions based on technological innovations, namely sharing platforms and the technological advance of electric batteries in three-wheeled vehicles, come together. Both market disruptions add value for customers and have positive effects on the natural environment. The sharing economy opens up further opportunities for optimal efficiency in reducing traffic congestion and pollution by including e-rickshaws as services. The contribution of the sharing economy can also be seen as innovative and frugal at the same time for the following reasons. First, shared rides mean less cars on the road. Second, e-rickshaws fit on average seven people (including the driver) which is more passengers than most regular-sized cars. Traditional cars usually have four seats which means less seats than e-rickshaws. Furthermore, resources in ride-booking and ridesharing platforms are utilized closer to full capacity. Consequently, the functions of the sharing economy encourage more sustainable usage of existing assets. As a result of the sharing of assets, a greater amount of efficiency is gained (Kane 2016). The sharing economy is unique in its ability to optimize efficiency (Nica and Potcovaru 2015). If e-rickshaws are included in the offerings, the on-demand services help the disruption of traditional auto-rickshaws. In sum, besides easing affordability constraints for rickshaw users, digital platforms that include e-rickshaws help reduce emissions as electric transit options proliferate in Indian cities.

4.3 Resource Constraints: Charging Time and Range The above sections mentioned financial constraints of individuals who consider buying or using e-rickshaws. Other limiting factors are complementary resources such as the charging infrastructure of the vehicles. Like for electric cars, also for electric three-wheelers, battery charging time is often too long. Charging time is an area of major concern for customers in the three-wheeler vehicle segment of the Indian population. However, the government is aware that these concerns can be mitigated through rollout of fast and rapid charging terminals and charging infrastructure (Government of India 2012). Several companies work on charging solutions, electric vehicle batteries, and developing viable infrastructure so that commercial electric vehicles can operate at scale. Technology innovations need to be adapted to their specific context (Bhatti et al. 2018). Like electric four-wheeled cars, the ecosystem for e-rickshaws is also evolving. A spatially inclusive charging infrastructure for three-wheelers is necessary because drivers need a continuous stream of income during the day. Drivers

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cannot afford to lose so much time at charging stations. When e-rickshaw drivers charge their vehicles, they cannot drive them and lose valuable windows of business opportunities. For the market disruption with the technology innovation, more charging stations continue to be added to the infrastructure. The Ministry of Heavy Industries released a notification inviting proposals from municipal corporations, public sector undertakings, and public/private entities for developing the charging infrastructure for electric vehicles in India. The notification is initially planning to set up 1,000 charging stations for electric vehicles. After an evaluation of the received proposals, these charging stations will be sanctioned to different states, cities, and entities (Soni 2019, July 25). Charging possibilities also need to be fast enough. Overall, the charging needs to be fast, available, and mature enough before it is easy to use. This will help the diffusion of the frugal innovation even more. An alternative that is addressing the constraint of charging range, but decisively also charging time is battery swapping. It is an important path for technology diffusion since battery swapping helps to overcome the constraints of insufficient range for drivers of three-wheeled vehicles. In the process of technological advance and disruption, the non-availability of enough power for e-rickshaws is a constraint. The resource becomes limited if not enough charging stations and/or battery-swapping stations are part of the public transportation ecosystem. Ola Electric Mobility spun off its electric vehicles business into a separate unit and is experimenting with erickshaws that can exchange lithium-ion batteries quickly. To reduce downtime for drivers, the company has built a battery-swapping station specifically for e-rickshaws just outside of Delhi (Khandelwal et al. 2019, August 24). The plan is to install further battery-swapping stations in the country. This technological development and advancement will reduce charging time and range of e-rickshaws and hereby considerably ease the vehicle use for customers.

5 Discussion and Conclusions 5.1 Practical Implications As described, battery-operated electric rickshaws or e-rickshaws are a more comfortable, economic, and sustainable mode of transport compared to auto-rickshaws with traditional combustion engines. The government and policymakers in India need to massively continue to support the change toward technological innovation and electrification of urban transportation in India. The country works hard to get closer to reaching its ambitious expectations of decreasing pollution and decarbonization of vehicles. Technological advance and the leverage of constraints need to continue in efficient and effective ways. An environmentally friendly future of Indian transportation depends not only on fuel efficiency and electrification of the vehicles on the road. A greener future of urban mobility services depends on what energy sources are used to produce and power

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the vehicles on the road. Decarbonizing the fleet is also crucial in shaping a greener future for urban transport. In this context, well-to-wheel is a measure of the energy consumed both onboard a vehicle and throughout the supply chain that generated that energy, or the emissions generated during the production and consumption of that energy (Global Fuel Economy Initiative 2019, May). The well-to-wheel emissions of CO2 /km of new three-wheeled vehicles on the road can only continue to decline with the support of the government and changing behavior of drivers and users.

5.2 Theoretical Contributions and Implications This chapter makes a novel contribution to the literature in the underrepresented area of diffusion and user adoption of frugal innovations. Despite the need for a better understanding of the diffusion and user adoption of frugal innovations, these issues have so far been ignored in the literature (Agarwal et al. 2017). Only very few authors, such as Hossain et al. (2016), Agarwal et al. (2017), and Zhang (2018), have contributed to this area of research. In order to determine user adoption and actual use and purchase, Agarwal et al. (2017) suggested to analyze frugal innovations with the dimensions of cost-effectiveness and ease-of-use. Building on this insight, this chapter has extended their model on acceptance of constrained-based innovation in the following ways. The conceptual model illustrated in Fig. 1 integrates the variables of affordability and resource constraints. Second, cost-effectiveness and ease-of-use are presented as solutions for mitigating such constraints. Third, cost-effectiveness and ease-of-use are used as concepts that intermediate between the constraints and market diffusion. Further, the solutions of cost-effectiveness and ease-of-use are presented as important preconditions for market disruption and growth. When designing frugal innovations, entrepreneurs can establish mechanisms through which an increased diffusion will lead to more new products or services disrupting the market that will in turn lead to market growth. As mentioned above, design thinking and bricolage are important processes that can be used to help alleviate constraints for frugal innovations (Bhatti et al. 2018). These specific processes can help to create cost-effectiveness and easeof-use and also have positive effects on the diffusion of frugal innovation and market disruption. The mechanism of price is another factor that was discussed above for market disruption and market growth. The conceptual model has provided a new perspective on diffusion of frugal innovations and can be applied to other forms of transportation, other industries, and other countries. The complexity of the issue of diffusion of frugal innovation raises the question of the potential of generalizability of the model. As long as affordability and resource constraints apply in such contexts, and solutions that are cost-effective and user-friendly can be found for these constraints, the presented model can be applied. In such cases, a diffusion of frugal innovation and a disruption and growth of the market will generally result. Yet, further research could explore whether and when specific factors may hinder the diffusion of frugal innovation or market growth.

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If such factors are identified, they will likely interfere with the preconditions of costeffective and user-friendly solutions. In order to make progress on frugal innovation research, the following several avenues for further research are suggested. A potential drawback for economy or society is that battery recycling is, similar to electric cars, also problematic for e-rickshaws. The implementation and invention of efficient and effective battery disposal systems are challenges ahead. In order to avoid pollution as much as possible, the disposal of the batteries of e-rickshaws will need to be consistently implemented and monitored. Alternative frugal innovations of public transport and urban mobility, which were not in focus in this chapter and do not need battery recycling, are solar-powered rickshaws. Scholars could further explore how e-rickshaws are compared in terms of pollution, cost, and performance effects when solar power is part of the vehicle propulsion. Solar power is a technology that still advances as it is applied to e-rickshaws. The technology in addition to electric batteries is very beneficial for addressing local and global environmental problems. Second, we would need more in-depth analysis of affordability and complementary resource constraints and opportunities in other countries. In this context, a further investigation of the reverse innovation case would be interesting. The growing traction toward resourceful and minimalistic consumption in advanced economies also encourages to apply and potentially explore frugal innovation in these markets (Agarwal and Brem 2017). The benefits of cost, value, and sustainability of erickshaws could potentially apply and would be desirable for developed nations as well. Yet, only in rare cases, frugal innovation diffuses globally and finds its ways into developed markets (Hossain et al. 2016). Due to the higher purchasing power, affordability constraints for e-rickshaws will be less pronounced in developed than in emerging markets. However, since e-rickshaws are not commonly used in developed markets, resource constraints for charging the vehicles will strongly hinder the product and service distribution. The lack of charging infrastructure is a big reason for the unlikelihood that erickshaws will disrupt developed markets. A shift would need much support by government. In this respect, the Indian government can be a great role model. Yet, in India, the transportation sector is still much in flux. It is often much harder to switch to new technological progress in developed markets. It is even more challenging to reach cost-effectiveness and ease-of-use of products or services in unconventional ways. However, this would be the case for reverse innovations which likely would not have established cost-effectiveness and ease-of-use in developed markets. Third, beyond the chosen perspective of disrupting markets by leveraging resources as opportunities for technological innovation, it would help to approach challenges and solutions for the implementation of frugal innovation from additional theoretical perspectives. Others can more deeply cover a social innovation perspective, including a more fine-grained analysis of affordability constraints of drivers which own or rent e-rickshaws in interviews or surveys. Hereby, we would gain a more specified understanding of the challenge of how to reach also the population with the strongest affordability constraints. The inquiry should include other products and services in other industries that face constraints for frugal innovations in conditions of resource scarcity. Such inquiries

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can provide additional insights to find strategies to address such constraints and implementation challenges and turn them into opportunities. The research findings and practical implementations could benefit a greener environment and lead to profitable business and social enterprises.

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Khandelwal S, Goel V, Singh KD (2019) Chaotic switch to electric rickshaws in India. New York Times, 24 August 2019. Retrieved from https://www.pressdemocrat.com/business/9945004-181/ chaotic-switch-to-electric-rickshaws/ Knorringa P, Pesa I, Leliveld A, van Beers C (2016) Frugal innovation and development: aides or adversaries? Eur J Dev Res 28:143–153 Koch AH (2020) Institutional voids and strategic responses by multinational corporations in Base of the Pyramid markets in Asia. In: Arnold MG, Gold S, Muthuri JN, Rueda X (eds) Base of the Pyramid markets in Asia: innovation and challenges to sustainability. Routledge, New York, 49–67 Marandi R, Sharma K (2017) E-rickshaws are cleaning up India’s crowded streets. Nikkei Asian Review, 5 October 2017. Retrieved from: https://asia.nikkei.com/Business/E-rickshaws-are-cle aning-up-India-s-crowded-streets/ Nica E, Potcovaru A (2015) The social sustainability of the sharing economy. Econ Manag Financ Mark 10(4):69–75 Petrick IJ, Juntiwasarakij S (2011) The rise of the rest: hotbeds of innovation in emerging markets. Res Technol Manag 54(4):24–29 Prahalad CK (2010) The fortune at the bottom of the pyramid: eradicating poverty through profits, 4th edn. Wharton School Publishing, Upper Saddle River, New Jersey Radjou N, Prabhu J (2014) Frugal innovation. How to do more with less. Public Affairs, Philadelphia Rao BC (2013) How disruptive is frugal? Technol Soc 35(1):65–73 Sharmelly R, Ray PK (2018) The role of frugal innovation and collaborative ecosystems: the case of Hyundai in India. J Gen Manag 43:157–174 Singh VP, Jena LP (2018) Financing for low-carbon auto rickshaws. Report of India Innovation Lab for Green Finance, pp 1–16 Soni Y (2019) Electric vehicles this week: govt invites EV charging station proposals, electric highway pilot and more, 25 July 2019. Retrieved from https://inc42.com/buzz/electric-vehiclesthis-week-ev-charging-stations-electric-highway/ Sood A, Tellis GJ (2005) Technological evolution and radical innovation. J Mark 69:152–168 Thakur P, Pal S (2018) Estimating vehicular emissions from auto rickshaws plying in Bengaluru. Int J Sci & Eng Res 9(5):2241–2245 Tiwari R, Prabhu J (2018) Soft power of frugal innovation and its potential role in India’s emergence as a global lead market for affordable excellence. Working Paper 104, Hamburg University of Technology (TUHH) Institute, August Wallenstein J, Shelat U (2017) What’s next for the sharing economy. Boston Consulting Group Report Wan F, Williamson PJ, Yin E (2015) Antecedents and implications of disruptive innovation: evidence from China. Technovation 39–40:94–104 Warren JF (2003) Rickshaw coolie: a people’s history of Singapore, 1880–1940. National University of Singapore Press, Singapore Weyrauch T, Herstatt C (2016) What is frugal innovation? Three defining criteria. J Frugal Innov 2(1):1–17 Zeschky M, Widenmayer B, Gassmann O (2011) Frugal innovation in emerging markets. Res Tech Manag 54(4):38–45 Zhang X (2018) Frugal innovation and the digital divide: developing an extended model of the diffusion of innovations. Int J Innov Stud 2:53–64

Building Sustainable Innovation Through Changes in Employee Behavior and Organizational Capabilities Minna Saunila, Juhani Ukko, and Tero Rantala

1 Introduction Frugal innovations are offerings, products, or services targeted for resourceconstrained environments (Brem and Ivens 2013; Zeschky et al. 2014). The value proposition of frugal innovation focuses primarily on satisfying basic needs, thus offering basic functionalities (Rosca et al. 2017). Weyrauch and Herstatt (2017) concluded that they are usually characterized by three main elements: substantial cost reduction, concentration on core functionalities, and optimized performance level. The top priority of frugal innovation is not to diminish environmental concerns, but to contribute to resource efficiency by saving material and energy (Le Bas 2016). Thus, as frugal innovations do not have an obvious sustainability impact (Rosca et al. 2017) in terms of all three dimensions, frugal innovation can be considered a subset of sustainable innovation. Frugal innovations, as an example of sustainable innovation, not only involve new technologies, but also innovative ways of altering traditional value creation (Rosca et al. 2017), which requires departing from the existing knowledge base. As frugal innovation is about being able to generate more value with less input, prior research has concluded that an organization’s capability to utilize its employees’ and organizational capabilities are key strategic knowhow with the potential to influence future actions toward sustainability (e.g., Castiaux 2012; Boons and Lüdeke-Freund 2013; Ketata et al. 2015; Jorna 2017; Mousavi and Bossink 2017; Cillo et al. 2019; Pellegrini et al. 2019). While the generation of frugal innovation can be considered essential for dealing with future sustainability challenges, an understanding of these capabilities is crucial in facilitating sustainable innovations (Mousavi and Bossink 2017). In this chapter, organizational capabilities refer to an organization’s practices M. Saunila (B) · J. Ukko · T. Rantala LUT University, Lahti, Finland e-mail: [email protected] © Springer Nature Switzerland AG 2021 N. Agarwal and A. Brem (eds.), Frugal Innovation and Its Implementation, Contributions to Management Science, https://doi.org/10.1007/978-3-030-67119-8_11

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that support, for example, the communication and strategic objectives of the work. It has been demonstrated that these capabilities can contribute to value creation by organizations (cf. Aral et al. 2007). This can also assist in creating the conditions necessary for improving employee behavior in terms of increased role clarity, citizenship, and motivation (e.g., Anderson et al. 2014). According to Cillo et al. (2019), there is scarce evidence regarding factors that determine sustainable practices in organizations; especially, the micro-foundations of such practices require further research. This is especially true with regard to the impact of employee behavior and organizational capabilities on sustainable innovation, a topic in need of further investigation—also with regard to the domain of frugal innovation in organizations. Using a conceptual framework of the determinants of sustainable innovation, this chapter focuses on the employee behavior and organizational capabilities that allow organizations to operate sustainably within their innovation activities. This operationalization also forms a basement for the implementation of frugal innovation. We suggest conceptually that the knowledge required for successful sustainable innovation requires taking into account multiple dimensions. We argue that this needs to be reflected in certain dimensions of both employee behavior and organizational capabilities. The research question is as follows: What dimensions of employee behavior and organizational capabilities are connected to sustainable innovation? The research follows a quantitative approach, and the data set was gathered from a cross-section of organizations located in Finland. Statistical analyses were conducted to trace the relationship between employee behavior, organizational capabilities, and sustainable innovation. The chapter is structured as follows. First, prior research serving as the conceptual framework is presented. The following paragraphs describe the empirical case and methodology. Next, the results are presented in terms of which dimensions of employee behavior and organizational capabilities are connected to sustainable innovation. This section is followed by conclusions, implications for research and practice, an explanation of the study limitations, and suggestions for future research.

2 Building Sustainable Innovation Sustainable innovation usually refers to “the renewal of products, services and processes that not only delivers an improved economical performance, but also an enhanced environmental and social performance, in both the short and long term” (Bos-Bouwers 2010). However, Bos-Bouwers (2010) suggested that sustainable innovation in small and medium-sized enterprises (SMEs) tend to be characterized as incremental in nature and as taking small steps in the right direction. Similarly, Jorna (2017) considered sustainable innovation as the continuous process of human action that aims at adjusting the entity, for example, the organization, to the social or natural environment. In this chapter, the concept of sustainable innovation is used with the understanding that most innovations aim at providing value in the multiple aspects of sustainable development. Some innovations tend to be

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sustainability improving concerning environmentally sustainable practices, while others aim primarily at improving social welfare. What is common in all types of sustainable innovation is the urge to renew actions in a way that supports the change toward a more sustainable operation. Thus, in this chapter sustainable innovation refers to an innovation that aims at organizational renewal toward a more sustainable operation. Next, the interplay between sustainable innovation and frugal innovation is described.

2.1 Sustainable Innovation and Frugal Innovation Even though previous studies focused on the analyses of how frugal innovations drive sustainable development (e.g., Basu et al. 2013), the interplay between sustainable innovation and frugal innovation is ambiguous. According to Weurach and Herstatt (2017), studies in the field of frugal innovation usually define frugal innovations as having attributes such as limited features, lower costs, ease of use, and low environmental impact. Radjou and Prabhu (2014) presented six principles underlying frugal innovations, including, for example: engaging and iterating, creating sustainable solutions, and co-creating value with prosumers. Rosca et al. (2017) argued that frugal innovation can be considered an inclusive approach to innovation that maximizes value for different organizational and societal stakeholders while significantly reducing the use of natural and financial resources, especially in developing countries. As such, according to prior studies, the concept of frugal innovation is important for facing sustainability challenges in developing countries and can also generate new types of business models in industrialized countries. The concept of frugal innovation can also be seen through the paradox of “doing more with less” (Rosca et al. 2017). Some authors have further argued that being able to generate more with less, companies need to employ and develop their capabilities. Cunha et al. (2014) found that while companies have to develop their capabilities to do more with less, the paradigm of frugal innovation can be considered crucial for dealing with future sustainability challenges. Based on the existing literature, there is a wide range of determinants that affect an organization’s sustainable innovation. These determinants include, among others, organizational practices, human effort and motivation, support culture, and goals and continuous effort (e.g., Castiaux 2012; Boons and Lüdeke-Freund 2013; Ketata et al. 2015; Jorna 2017; Mousavi and Bossink 2017; Cillo et al. 2019; Pellegrini et al. 2019). Next, employee behavior and organizational capabilities are introduced as the key determinants of sustainable innovation.

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2.2 Employee Behavior and Sustainable Innovation All in all, it is commonly agreed that employees are one of the most important sources of sustainable innovation within an organization (e.g., Ketata et al. 2015; Jorna 2017; Delmas and Pekovic 2018; Pellegrini et al. 2019). The consequences of employee behavior have been studied in a variety of contexts (e.g., Franco Santos et al. 2012). Some studies have focused on the factors that facilitate role clarity (Kauppila 2014), and other studies have focused on the relationship between role stressors and job performance (e.g., Gilboa et al. 2008) or between role stressors and specific aspects of job performance, such as organizational citizenship behavior (e.g., Eatough et al. 2011). Many studies have also focused on the consequences of management control systems or strategy-making patterns on employee behavior with respect to desired goals (Hall 2008; Franco-Santos et al. 2012; Kauppila 2014; Ukko et al. 2017). Thus, in this chapter employee behavior is defined in terms of role clarity, citizenship, and motivation (cf. Franco-Santos et al. 2012). Innovation is more likely in a situation where people demonstrate high levels of integrity, competence, reliability, loyalty, openness to others, and view others as equals. Creating these types of favorable conditions for innovation involves having employees understand their roles (Dobni 2008). “Role clarity” can be defined as having two aspects: goal clarity, meaning the extent to which the outcome goals and objectives of the job are clearly stated and well defined, and process clarity, meaning the extent to which the individual is certain about how to perform his or her job (Hall 2008). Role clarity refers to individual beliefs about the expectations and behaviors associated with an individual’s work role (Hall 2008). Organizations benefit when employees complete tasks beyond their job descriptions, for example, when employees perform “acts of citizenship,” such acts contributing positively to the organization, for example, in terms of effectiveness and innovation (Dekas et al. 2013; Wojtczuk-Turek and Turek, 2016). Therefore, the following hypothesis was suggested: H1. Sustainable innovation adoption is shaped by employees’ role clarity. As a second determinant of sustainable innovation, organizational citizenship behaviors can be defined as “extra-role” behaviors (Williams and Anderson 1991), or as behaviors above and beyond the requirements of the job (Burnley et al. 2009). In the context of this chapter, it refers to a behavior that shapes an organization’s resources and processes in ways that result in sustainable innovation (Pellegrini et al. 2019). It can also be seen as “individual behavior that is discretionary, not directly or explicitly recognized by the formal reward system, and that in the aggregate promotes the effective functioning of the organization” (Organ 1988, p. 4). This study explores whether organizational citizenship behaviors (i.e., discretionary, extra-role behaviors aimed at the organization) advance sustainable innovation (Pellegrini et al. 2019). Therefore, the following hypothesis was suggested: H2. Sustainable innovation adoption is shaped by employees’ citizenship behavior.

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Employees’ commitment, motivation, positive attitude, and behavior are believed to be influential in creating sustainable value for an organization (e.g., Saunila 2017; Delmas and Pekovic 2018). People who possess creativity and intrinsic motivation with respect to their work will be influential in creating a work environment that supports the creation of innovation (Amabile 1997). Work motivation can be divided into intrinsic and extrinsic work motivation. Intrinsic motivation involves people performing an activity because they find it interesting and derive spontaneous satisfaction from the activity itself (Porter and Lawler 1968). Extrinsic motivation, in contrast, requires an instrumentality between the activity and some separable consequences, such as tangible or verbal rewards, and satisfaction does not come from the activity itself, but rather from the extrinsic consequences to which the activity leads (Porter and Lawler 1968; Gagné and Deci 2005). Intrinsic motivation involves the performance of an act or behavior because it is inherently interesting. Such behaviors are not motivated by readily identifiable causes or consequences (Gagné and Deci 2005; Delmas and Pekovic 2018). Therefore, the following hypothesis was formulated: H3. Sustainable innovation adoption is shaped by employees’ motivation.

2.3 Organizational Capabilities and Sustainable Innovation The organizational capabilities of an organization oriented toward innovation (e.g., Ketata et al. 2015; Pellegrini et al. 2019) differ from other organizations with regard to decision-making processes and formalization. For example, organizational capabilities include communication. Communication processes at all levels of an organization can also be characterized as organizational capabilities (Franco-Santos et al. 2012). According to Tang (1998), communication acts as a link between employees, the organization, and the external environment. Furthermore, proper communication infrastructure is one means of facilitating the processes of innovation development (Tang 1998). Ketata et al. (2015) studied the open culture that permits revelation to a variety of external knowledge origins for sustainable innovation, and found that communication is necessary for the process of creating and reinforcing innovation (Van Winkelen and Tovstiga 2009; Van Hemert et al. 2013). Therefore, the following hypothesis was suggested: H4. Sustainable innovation adoption is shaped by organizational communication. A second organizational capability is strategic understanding. Research by LópezNicolás and Meroño-Cerdán (2011) showed that strategic knowledge management, which is related to the processes and infrastructures that organizations employ to acquire, create, and share knowledge for formulating strategy and making strategic decisions, has an impact on performance. Similarly, Skarzynski and Gibson (2008) stressed that the organization needs to share a common vision with regard to innovation, as well as a disciplined approach to building innovation capabilities across the organization. This includes a strategy of understanding how highly sustainable

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innovation is to be achieved (Boons and Lüdeke-Freund 2013; Boons et al. 2013). Therefore, the following hypothesis was formulated: H5. Sustainable innovation adoption is shaped by organization’s strategic understanding.

2.4 Research Model To summarize, there is a scarcity of evidence about factors that determine sustainable practices in organizations and especially, the micro-foundations (i.e., the implications of employee-level determinants) of such practices require further research. Furthermore, the extant literature does not sufficiently incorporate multi-level perspectives on the phenomenon to improve our understanding of the determinants toward sustainable innovation. Previous studies have mostly concentrated on capturing the effects of individual factors for sustainability (e.g., Mousavi and Bossink 2017; Delmas and Pekovic 2018; Pellegrini et al. 2019) and the role of distinct resources in its reinforcement (Castiaux 2012; Ketata et al. 2015). The results of this chapter take this one step further by investigating the relationship between sustainable innovation and the multiple determinants that affect it. In this chapter, the classification of variables into employee behavior and organizational capabilities is not exhaustive, but is instead based on relevance. It is guided by previous works, such as the framework by Franco-Santos et al. (2012), which proposed a categorization of organizational outcomes as a plausible overarching framework to guide research on the different organizational-level consequences. Using that as a conceptual framework of the determinants of sustainable innovation, this chapter examines the antecedent status of different dimensions of employee behavior and organizational capabilities on sustainable innovation (Fig. 1).

3 Empirical Examination of Sustainable Innovation 3.1 Data Collection The data set was gathered from a cross-section of organizations located in Finland. The initial sample was 2653 human resources professionals. After the responses were received, the data was screened. Responses were excluded if they met any of the following criteria: first, if most of the items included missing values; second, if it was clear that the responses were deliberately incorrect throughout the survey (i.e., the best possible response was selected in all of the survey items); and third, if there were inconsistencies in the responses. Also, responses from micro-companies (less than 10 employees) were excluded. This process resulted in 160 responses being considered valid, which equals a response rate of 6 percent. Approximately 69 percent

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Fig. 1 Conceptual framework

of the responses originated from private sector organizations. Twenty-four percent of the respondents represented public sector organizations, and 7 percent originated from third-sector organizations. Twelve percent of the respondents represented small organizations with less than 50 employees. Thirty-two percent of the responses originated from medium-sized organizations and 56 percent from large organizations. The respondents represent a variety of industries, such as manufacturing and construction, retail, services, ICT, banking and finance, consulting/education, and social and health services.

3.2 Measurements The unit of analysis was the individual respondent’s perceptions of employee behavior, organizational capabilities, and sustainable innovation in their organization. The items were constructed based on scales informed by previous studies. The independent variables representing employee behavior were role clarity (employees’ awareness of their responsibilities and expected results of their work), citizenship (employees’ devotion to their work and care for organizational property), and motivation (employees’ intrinsic motivation). The independent variables representing

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Table 1 Descriptive statistics and intercorrelations of the variables Mean

Std. Dev.

Cronbach’s 1 alpha

2

1 Role clarity

2,9135 ,53631 ,831

1,000

2 Citizenship

3,2147 ,46874 ,560

,390*** 1,000

3 Motivation

3,1186 ,45477 ,636

,216**

3

4

5

,580*** 1,000

4 2,3750 ,49391 ,611 Communication

,391*** ,308*** ,222**

1,000

5 Strategic understanding

2,4615 ,55805 ,523

,561*** ,300*** ,315*** ,494*** 1,000

6 Sustainable innovation

2,6474 ,57951 ,777

,384*** ,504*** ,430*** ,410*** ,367***

Sign. *** ≤ 0.001

organizational capabilities were communication (the effective collaboration and dissemination of information) and strategic understanding (of strategy and the links between functions). Each of the independent variables was measured using two items. The dependent variable, meaning sustainable innovation (seeking innovative ideas, renewing operation, and accepting new ways of action for sustainable operation), was measured by three items. For each of the items, the respondents were asked to indicate their opinion on a scale ranging from 1 (weak) to 4 (excellent). Two control variables—number of employees (objective) and industry (objective)—were also entered in the survey. The validity of the variables was examined prior to hypothesis testing. Construct validity (i.e., whether or not the research truly measures what it intends to measure) of the scales was established by assessing content validity and criterion validity (Hair et al. 2010). To ensure content validity, existing measurements that had been empirically tested in previous studies were used. Criterion validity was assessed through correlation analyses, which showed that the constructs behaved in a credible manner. Reliability, which measures the extent to which the items in a scale represent the same phenomenon, was assessed by computing Cronbach’s Alpha (Table 1). The alpha values were greater than 0.50, which is considered acceptable.

3.3 Results of Analyses Table 1 presents the mean values, standard deviations, and correlation matrices for employee behavior, organizational capabilities, and sustainable innovation. The matrix shows significant correlations throughout between the independent variables (i.e., the dimensions of employee behavior and organizational capabilities) and the dependent variable (i.e., sustainable innovation).

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Table 2 The results of regression analyses Models

β

SE

1. (Constant)

3,125

,252

Size

−,116 ,065 −,141

Industry

−,016 ,017 −,074 −,932

2. (Constant)

−,438 ,409

Size

,021

Industry

−,032 ,014 −,148

Role clarity

,176

,085 ,163

2,074*

Citizenship

,342

,103 ,277

3,309***

Motivation

,264

,101 ,207

2,620**

Communication ,238

,087 ,203

Strategic understanding

,085 ,071

,074

St. β

,054 ,025

t

R

R2

Adj. SE R2

12,408 ,153 ,023 ,011 ,57432

F 1,889

−1,789 −1,071 ,646 ,418 ,390 ,45254 15,169*** ,389 −2,283*

2,738** ,867

Sign. *** ≤ 0.001, ** 0.001 < p ≤ 0.01, * 0.01 < p ≤ 0.05

The regression analyses (Table 2) show that the majority of the hypotheses were supported. Model 1 shows that the relationship between the control variables and the organizations’ sustainable innovation was insignificant. Thus, it seems that conditions such as organization size (as measured by the number of employees) and the industry classification do not influence the organizations’ ability to innovate in a sustainable way. Our second model (Model 2) for testing the actual hypotheses explains 41.8 percent of the variance in sustainable innovation. All dimensions of employee behavior, namely role clarity, citizenship, and motivation, were significant in the model. When it comes to organizational capabilities, communication was significant, but strategic understanding was non-significant in the model. Table 3 summarizes the results of the analyses.

4 Concluding Remarks As a novel perspective of leveraging frugal innovation in organizations, this chapter has presented the dimensions of employee behavior and organizational capabilities that are connected to sustainable innovation. First, the results of this study confirm that the sustainable innovation of an organization is increased by enhancements in employee role clarity, citizenship, and motivation. As frugal innovation can be considered a type of sustainable innovation (Rosca et al. 2017), all the three dimensions of employee behavior can also be considered essential in order to generate frugal innovations. This can be justified by presenting that citizenship behavior together with motivation can be considered as drivers for principles of frugal innovations

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Table 3 Summary of the results Hypothesis

Support

Interpretation

Employee behavior H1. Sustainable innovation adoption is Supported shaped by employees’ role clarity.

The clearer the employees’ roles are, the more likely the organization will adopt sustainable innovation.

H2. Sustainable innovation adoption is Supported shaped by employees’ citizenship behavior.

The more the employees possess citizenship behavior, the more likely the organization will adopt sustainable innovation.

H3. Sustainable innovation adoption is Supported shaped by employees’ motivation.

The more motivated the employees are to conduct their work, the more likely the organization will adopt sustainable innovation.

Organizational capabilities H4. Sustainable innovation adoption is Supported shaped by organizational communication.

The better the communication functions, the more likely the organization will adopt sustainable innovation.

H5. Sustainable innovation adoption is Not supported The level of strategic understanding shaped by organization’s strategic among the organization does not understanding. contribute to sustainable innovation adoption.

such as engagement and iteration, creation of sustainable solutions, and co-creating value with prosumers (cf. Radjou and Prabhu 2014). This is also in line with previous research suggesting that sustainable innovation is increased if employees are motivated (e.g., Delmas and Pekovic 2018) and/or if they complete tasks to a standard beyond that required by their job descriptions (e.g., Pellegrini et al. 2019). In line with these prior studies, the results of this study also suggest that employees’ activities are key in influencing an organization’s sustainable and frugal innovations. In addition to employee behavior, organizational capabilities are important in sustainable innovation. On the other hand, the results form a basement for the implementation of frugal innovation. The results support prior studies that presented organizational capabilities as key elements when promoting future actions toward sustainability (cf. Boons and Lüdeke-Freund 2013; Ketata et al. 2015; Pellegrini et al. 2019). The results showed that the more an organization invests in communication, the more likely it is to pursue sustainable innovation. Organizational capabilities can also be considered meaningful with regard to frugal innovations. For example, Rosca et al. (2017) argued that being able to generate more with less, companies need to employ and develop their capabilities. However, the second studied organizational capability, strategic understanding among the organization, does not contribute to sustainable innovation adoption. According to Bos-Bouwers (2010), sustainable innovation in SMEs tends to be characterized as incremental or frugal in nature and as taking small steps in the right direction, which may explain the non-significant result of strategic

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understanding. Strategic understanding may provide value if the created innovations are more radical in nature. The results emphasize not only the variety of factors that determine an organization’s sustainable and frugal innovation, but also the fact that there are no remarkable differences between organizations of different sizes and industries with respect to sustainable innovation. Thus, this research indicates that small organizations are able to sustainably innovate and deliver more value through less inputs by implementing frugal innovations.

4.1 Managerial Implications This chapter provides several instructions for managers developing and implementing frugal innovation in organizations. This chapter has shown a connection between employee behavior and sustainable innovation in terms of employees’ role clarity, citizenship, and motivation. In addition, a connection between organizational capabilities (e.g., communication) and sustainable innovation was found. The practical implication of these findings is to increase the understanding of the determinants of sustainable innovation and its subset, frugal innovation, and to assist practitioners in constructing their actions toward sustainable innovation processes. In addition, clarifying the individual determinants of sustainable innovation is easier than attempting to manage the phenomenon of sustainable innovation and its frugality as a whole.

4.2 Limitations and Avenues for Future Study In terms of limitations, the empirical findings of this study only cover a specific country and may not be fully generalizable. This research is cross-sectional in nature, which is a possible limitation. This chapter offers interesting possibilities for further research. First, it is not certain whether or to what extent each of the dimensions of employee behavior and organizational capabilities correlates with each of the sustainability performance constructs (e.g., social, cultural, etc.) or specific sustainable innovation types, such as frugal or reverse innovation. This could be an interesting subject for future research. Second, due to the limitations associated with the data used in this study, further research should validate the results by examining organizations in other regions.

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Digital Transformation as Enabler of Affordable Green Excellence: An Investigation of Frugal Innovations in the Wind Energy Sector Rajnish Tiwari

1 Introduction 1.1 Study Background The concept of frugal innovation originated in the previous decade with a focus on resource-constrained, under-served consumers living in the Global South (Zeschky et al. 2011; Agarwal and Brem 2012; Tiwari and Herstatt 2012a). However, frugal solutions are now finding increasing acceptance and adoption in the economically developed nations of the global North (Kroll et al. 2017; Tiwari and Bergmann 2020). Frugal solutions are today not exclusively targeted at private households (“consumers”) nor at the “poor” as such. they are also not confined to a “low tech” context (Herstatt and Tiwari 2015). We can increasingly observe frugal products and services that enable “affordable excellence” to price-sensitive users across customer segments, industrial boundaries, societal strata, institutional domains and national geographies (Agarwal and Brem 2017; Pisoni et al. 2018; McMurray and De Waal 2020). Since the topic of frugal innovations still constitutes a relatively nascent field, there are several issues that require researchers’ attention. For example, actual development of frugal products and services is still considered challenging, especially for firms from industrialized economies. These are often confronted with the presence of legacy systems resulting in path dependencies (Schreyögg and Sydow 2011; Tiwari and Kalogerakis 2020b). Furthermore, decades of working in affluent and saturated markets with an innovation paradigm that is centered on technology-push have created a mindset that does not readily accept a disruptive, frugality-oriented R. Tiwari (B) Hamburg University of Technology, Institute for Technology and Innovation Management, Am Schwarzenberg-Campus 4D, 21073 Hamburg, Germany e-mail: [email protected] © Springer Nature Switzerland AG 2021 N. Agarwal and A. Brem (eds.), Frugal Innovation and Its Implementation, Contributions to Management Science, https://doi.org/10.1007/978-3-030-67119-8_12

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approach toward innovation (Krohn and Herstatt 2020). Consequently, researchers such as Weyrauch and Herstatt (2020, p. 21) have called upon scholars to “explore how frugal innovations can be successfully developed.” Furthermore, it has been posited that “[m]ore research needs to be done if we are to better understand for which organizations and target groups frugal innovations hold promise” (Weyrauch and Herstatt 2020, p. 21). Therefore, the question of potential target groups seems to have remained unsettled to some extent, notwithstanding the progress made toward creating a definitional consensus in the previous few years. It is, however, not merely the question of the “right” target groups for frugal solutions. Since frugal products and services seem to be more concerned with “solving” immediate problems in a most efficient and cost-effective way (Tiwari and Herstatt 2014), this might lead to a perception that frugal innovations are to be separated from other path-breaking technological innovations. For instance, Le Bas (2016, p. 12) has suggested that frugal innovation “has important characteristics that are really opposed to the dominant trend of technological change.” He argues that frugal innovations not only have “a weak technological intensity” but also “a low level of technological complexity” and that they do not show any “clear relation with any Science Push.” On the other hand, an array of innovative solutions from the space industry, e.g., the Mars Mission by Indian Space Research Organization (Lele 2014), as well as from healthcare, e.g., iBeastExam—a solution based for early detection of breast cancer based on digital technologies (Cousins 2018), provide indicators that frugal solutions very well can lead to truly breakthrough technological innovations. When, under what conditions, and how frugal innovations enable creation of breakthrough technologies needs to be, therefore, researched more comprehensively. Another issue meriting researchers’ attention is the connection of frugal innovations to the questions of environmental sustainability. Previous research has brought to fore the possibility of a close connection between frugal innovations and environmental sustainability (Basu et al. 2013; Brem and Ivens 2013; Khan and Le Bas 2020). Frugal innovations have been also connected with the discourse on sufficiency. In words of Oliver Stengel, author of an award-winning German-language book on sufficiency:1 Products should be designed in a way that they can be repaired easily and expanded modularly, so you can upgrade modules without the need to immediately buy a whole new product or to manufacture it, too. One should make things in a way that they are easy to repair; and they are produced in a way that they have a kind of ‘timeless appearance’ – meaning that they are independent of fashions. (Tiwari and Kalogerakis 2020a, p. 115)

Nevertheless, there is a difference of perception in this regard. Weyrauch and Herstatt (2016) consider any positive correlation between environmental sustainability and frugal innovations as an incidental byproduct of an otherwise purely economic consideration. Rosca et al. (2016, p. 11) have also argued that the positive ecological impact of frugal innovations that emanates from “the use of less material for both production and maintenance and the support of local materials use is rather a spillover effect.” A study by Albert (2019) based on content analysis of published articles 1 For

Stengel’s work on sufficiency, see Stengel (2011) .

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suggests that frugal innovations do not have an inherent ecological sustainability, as opposed to an inherent social and economic sustainability. Not surprisingly, Rosca et al (2018, p. 151) on the basis of a systematic literature review of the interlinkages between frugal innovation and sustainable development postulate a research gap in this area: “the link between frugal innovation and ecological development is not sufficiently addressed by current studies.” Lately, the role of digital technologies and digital platforms in creating affordable and green solutions has been highlighted in at least some publications. Ahuja and Chan (2020, p. 88–89) have posited that “[…] digital technologies, as well as the ecosystem of the firm play an enabling role in the development of frugal innovation capabilities.” Agarwal et al. (2020) have identified technologies, such as the Internet of Things (IoT), cloud computing, and big data, as enablers of frugal solutions. Similarly, studies by Tiwari and Herstatt (2020) and Tiwari and Kalogerakis (2020b) have seen digital technologies at the core of frugal innovation pathways, along with increasing cost pressure, requirements for enhanced environmental sustainability, and changing regulatory framework conditions. Nevertheless, the number of studies from management discipline researching the interplay of digital transformation and frugal innovation has remained limited. Notable exceptions to this, apart from the ones mentioned above, include Nandram (2015) and Hesseldahl (2017).2 Thus, the question of digital transformation as an enabler of cutting-edge, ecologically sustainable and affordable technological solutions has remained under-researched.

1.2 Research Objective In light of the research gap discussed above, the present study investigates the following research questions: (1)

(2)

Is there (sufficient) evidence to connect digital transformation with the creation of affordable, resource efficient, and reliable solutions that can be categorized as frugal? What are the implications of that evidence, if any, for the concept of frugal innovation?

The objective is to generate preliminary propositions based on two pillars: anecdotal evidence and systematic empirical investigation in a still-fuzzy research field. These two guiding research questions are examined on the basis of a mixed methods approach on the role of digital transformation in the field of wind power,3 which “is one of the fastest-growing renewable energy technologies” (IRENA 2019d) 2 In engineering and healthcare disciplines there is an increasing number of publications that show-

case how frugal (affordable and high-quality) solutions can be developed (Chaturvedi and Pappu 2018; Chavali and Ramji 2018; Neal 2018). . 3 The terms “wind power” and “wind energy” are used in this study interchangeably. For an overview of the sectoral scope and boundaries, see Sect. 3.1.

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and in which both digital transformation and elements of frugality can be clearly observed. Wind power’s globally rising usage can be, at least in part, traced back to increasing financial affordability (IRENA 2019d; GWEC 2020), which is a core characteristic of frugal solutions.

1.3 Research Design This qualitative study follows an explorative research approach employing a mixed methods research design involving the case study method (Eisenhardt 1989; Yin 2018) combined with a qualitative content analysis (Mayring 2000), which is suitable to the research objective of generating preliminary propositions. The study is contextualized as a nested case study of the wind energy sector as it also contains an illustrative subcase (cf. Gibbert et al. 2008). While the global wind power sector provides an embedding context for the societal and business need for frugal solutions in this industry, the subcase (“Digital Wind Farms” solution of GE Renewable Energy) provides help to generate initial insights on the connection between frugal innovation and digital transformation. The illustrative subcase is chosen as it provides a particularly rich set of information relevant to the present study and available in the public domain. Apart from availability of relevant information, this illustrative case also fits the criterion of theoretical sampling, which advocates selection of cases that represent “extreme situations and polar types in which the process of interest is ‘transparently observable’” and that “are likely to replicate or extend the emergent theory” (Eisenhardt 1989, p. 537). The insights, thus generated, are then further developed into relevant categories with the help of a qualitative content analysis (Mayring 2002, 2015), which is performed on annual reports (2013–2018) of six globally leading, publically listed wind turbine manufacturers (WTMs). While the selection of the GE subcase helps generate a useful preliminary structure (“guiding questions”) for conducting the content analysis of the annual reports and also serves a triangulation purpose, it does not directly impact the study results since these are based on a much broader empirical material.

1.4 Chapter Structure The remainder of this chapter is organized as follows: Sect. 2 sets the theoretical context by providing a definitional framework for frugal innovation and digital transformation. The interlinkages of these two concepts available in the extant literature are also briefly discussed here. Section 3 familiarizes the reader with the global wind power sector and the trends that it is witnessing. Section 4 builds a cornerstone of this study where digital transformation in the wind power sector is investigated. It begins with an introduction to the radical structural changes that the power sector value chain

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in general is undergoing. This is followed by a subcase of Wind Digital Farms and a qualitative content analysis of annual reports of six leading global WTMs. Results and their implications are discussed in Sect. 5. The chapter ends with a concluding summary in Sect. 6.

2 Theoretical Framework 2.1 Frugal Innovation The concept of frugal innovations emerged toward the end of the previous decade in countries such as China and India and initially gained traction due to concerted reporting by business press (cf. Dehoff and Sehgal 2006; Economist 2009; Economist 2010; Lamont 2010). The twin focus on emerging economies and high affordability connected this concept closely with social inclusion (George et al. 2012), as also discussed in the previous section. Some authors continue to connect frugal innovations even today primarily with poverty-centered Bottom of the Pyramid (BOP) markets where frugal products offer alternative solutions to existing products that were originally developed for high-income consumers (Cadeddu et al. 2019, p. 23). Research has, however, also shown that even though concepts such as cost innovations, BOP, Jugaad, or inclusive innovation have certain overlaps with frugal innovation, there are also considerable differences between them (Zeschky et al. 2014; Weyrauch and Herstatt 2016; Agarwal et al. 2017). A consensus seems to have emerged around the notion that innovative solutions can be considered frugal, “if they simultaneously meet the three criteria substantial cost reduction, concentration on core functionalities, and optimized performance level” (Weyrauch and Herstatt 2020, p. 19). Nevertheless, in a recent work, this author has raised the point that this definition needs reworking to take into account implications of technological advancement (Tiwari 2019). For example, frugal innovations can create path-breaking radical innovations with new utilities and functions so that a comparison in terms of a significant cost “reduction” is not always possible. In such cases, it is rather the high affordability of the new solution that matters. Furthermore, the concept of affordability needs to be defined comprehensively and should include multiple dimensions, e.g., financial tenability, social responsibility, environmental sustainability, and infrastructural reasonability (Tiwari 2019). Second, digitalization makes it possible to modularize by bundling products, technologies and services into single offerings thereby greatly reducing the total cost of ownership (TCO).4 This means that it might not always be required to focus on the bare minimum functions. The focus would rather shift toward a modular design, which begins with a minimum viable product upon which new functionalities can be added to respond

4 It

obviously remains possible to unbundle products and create leaner packages.

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to customized needs in a given case (Tiwari 2019, p. 26). The example of 3Nethra Digital Non-mydriatic Fundus Camera is a case in point (Forus Health 2019). This study, therefore, works with the following normative definition of frugal innovation that has been modified from Tiwari and Herstatt (2020, p. 47): Frugal innovations refer to those innovative products, services, processes, technologies or business models that target the value proposition of ‘affordable green excellence’. A clearly defined and focused set of functions is used in conjunction with modular architecture to match aspirations of the targeted customer segment. Frugal solutions seek to minimize the use of material and financial resources in the entire value chain, substantially enhancing affordability. While complying with all relevant regulatory norms in the target market, frugal innovations may disrupt prevailing industry standards.

2.2 Digital Transformation The topic of digital transformation has become immensely important in the past few years (Gassmann and Sutter 2016; Abolhassan 2017). The rapidly sinking costs of digital technologies have turned into a core driver for new business models (Gassmann and Sutter 2016). The radical and disruptive shift it is causing for societal stakeholders is best summarized in the following quote: The digital era is catalyzing business; it is unleashing technological change that may appear chaotic on the surface, but is resulting in massively powerful systems of intelligence that enable humans and machines to collaborate securely. By opening up newer means of communication with large data exchanges, new, connected ecosystems are changing the way people, devices and organizations exist, work and interact. (Dataquest 2020)

Ahuja and Chan (2020, pp. 92–93) have posited that the digitalization of resources, capabilities, processes, products, services, and business models that goes beyond the mere technical process of shifting organizational processes from the analog to digital modes can lead to innovation outcomes that may include new products, platforms, services, new customer experiences and value networks.5 The interplay of enabling technologies and the relevant areas of impact can be seen in Fig. 1.6 Digital technologies, such as artificial intelligence, can be regarded as enabling technologies that have “the potential to change all aspects of productions, consumption, and government services in our daily life. They will have a massive impact on entrepreneurial ecosystems not only by providing new capabilities and business models but also by affecting their environment and its surrounding regulating framework” (Cetindamar et al. 2020, p. 52). Due to these very same reasons, innovators 5 Ahuja

and Chan (2020) differentiate between “digitalization” and “digitization”. While the latter term refers to the shifting from analog to digital form (e.g., creation of digital archives with scanned documents), the former term is much more encompassing and can enable entirely new products, services and business models (e.g., creation of online content offered worldwide with subscription options). Digitalization, thus, also co-opts additional socio-technical aspects with direct impact on the socio-economic context of the organization. 6 For the concept of “enabling technologies” (ETs) and their differentiation from “general purpose technologies” (GPTs), see Teece (2018).

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Fig. 1 Dimensions of global technology impact (Source Adapted from Cetindamar et al. [2020, p. 52])

may also face challenges in capturing value from their innovations in the digital economy due to factors such as imitability, the zero-price trap and lower barriers of entry for new competitors (Teece 2018).

2.3 Connecting Frugal Innovation with Digital Transformation Digital transformation is often associated with disruptive effects, e.g., business models can be based on zero tariffs (e.g., Facebook, Google Mail) and also might lead to provisioning of quasi-public goods by private sector for-profit firms reducing the cost of product development, production and consumption enormously on both supply and demand side (Tiwari and Buse 2020). Some studies have revealed use of modern digital technologies in creating focused, customer-centric innovations which combine qualitative excellence with financial affordability. For example, a study of frugal innovation pathways in India’s auto components industry suggested that the investigated firms often employed digital technologies for designing and developing products which allowed them to leapfrog certain development stages and reach high levels of process and resource efficiency in meeting the requirements of their target market. The growing worldwide demand for affordable, high-quality products induces such innovations (Tiwari and Kalogerakis 2020b). While the real value-add of the Internet-based technologies was earlier thought to lie in their ability to provide ubiquitous (anytime, anywhere) and immediate access to information and, inter alia, to location-based services (Shapiro and Varian 1999; Tiwari and Buse 2007), technological developments have added yet-another possibility to this. Today, data can be not just accessed in real time, but also that it is generated at a much greater scale due to integration of “smart” (digitalized) components that were earlier mechanized. This has enabled predictive maintenance that can altogether prevent a problem from arising rather than merely repairing an actual damage. This has the potential of saving valuable financial and technical resources

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and enhancing performance due to better availability of the production and service infrastructure. Furthermore, the ubiquitous access to services at a very cost-effective basis to geographically dispersed users can generate economies of scale and greatly reduce variable costs of digital solutions (Teece 2018). Moving on from the concept of location-based services, it can also enable customized and individual solutions that are context-sensitive. According to Hesseldahl (2017), the most valuable solutions are those that not just match an individual user’s profile, but also are composed for a particular time and location and take the current availability of resources into account.” Digital technologies allow greater modularization and differentiation, which is a central enabler of frugal solutions (Belkadi et al. 2018). They, thus, make it possible to offer personalized pricing, versioning and group pricing (Shapiro and Varian 1999). Technologies, such as artificial intelligence, data analytics and big data, enable solutions with better quality while reducing product development time and costs (Ahuja and Chan 2020). Furthermore, digital telecommunication technologies enable pooling of knowledge, e.g., in open global innovation networks (OGINs).7 Crowdsourcing of ideas can help generate creative ideas, thus, enabling knowledge sharing across product, industrial and geographic domains and fostering use of inventive analogies (Kalogerakis et al. 2010; Dataquest 2020).8 Availability of complementary assets, emergence of digital ecosystems and platform-based solutions can lead to new and highly affordable solutions (Tiwari and Buse 2020); see, e.g., also the case of iBreastExam (Cousins 2018). Digital platforms, such as Uber and AirBnB, “enable firms to compete using ordinary, readily available resources at lower costs and generally provide higher value to customers […]. New types of digital platforms that enable frugal innovation by providing affordable, inclusive and sustainable solutions are gaining popularity” both in emerging markets and in economically advanced nations (Ahuja and Chan 2020, p. 91). A recently published study by Agarwal et al. (2020, p. 137) has identified six specific technologies, i.e., 3D printing, mobile telecommunication, cloud technologies, big data, machine learning, and artificial intelligence, where technological advancement as leading to the creation of “better-quality, affordable, and accessible frugal innovation.” Similarly, the crucial role of digital technologies in finding early, effective and affordable solutions to combat the COVID-19 virus have been documented by Tah (2020). This discussion shows that digital transformation can lead to significantly improve cost structures and the resultant savings can be passed on to potential users. It also lessens the resource intensity of production and service provisioning. It is, therefore, reasonable to see a positive correlation between frugality and digital transformation. 7 For

the concept of OGINs and their role as enabler of frugal innovations, see Tiwari and Herstatt (2012b). 8 Also see the case of Weathernews, a Japanese firm, for developing a successful affordabilityfocused business model that is based on crowdsourcing of weather report inputs with digital means (Lakhani and Kanno 2017).

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Fig. 2 Value chain of the wind energy sector (Source Illustration after Tiwari and Tiwari [2019]; originally based on a generalized model of value chains for clean energies technologies proposed by CEMAC [2017])

Next sections will help us identify the specific advantages/benefits of digital solutions in the wind power sector and to formulate propositions about their potential connection.

3 Global Wind Energy Sector 3.1 Sectoral Overview The wind energy sector engages in “generation of electricity by utilizing the domestically available and renewable potential of wind, which can be integrated in an electricity grid, or be alternatively directly delivered off-grid for local use to endconsumers” (Tiwari and Tiwari 2019).9 Hereby, as per International Renewable Energy Agency, “[w]ind is used to produce electricity using the kinetic energy created by air in motion. This is transformed into electrical energy using wind turbines or wind energy conversion systems” (IRENA 2019d). Wind turbines are complex products that consist of more than 8000 individual components (CEMAC 2016). Value chain activities in this sector include development and manufacturing of wind turbines and their components, installation at the wind farm site, grid integration, as well the requisite operation and maintenance (see Fig. 2), and therefore involve a multitude of stakeholders from various socio-economic spheres. The global wind energy sector has grown impressively in the new millennium. According to Global Wind Energy Council (GWEC), wind energy “began the century as a niche energy source in Europe and the US, and ended 2019 as a mainstream source of clean, cost-competitive energy around the world” (GWEC 2020, p. 16). Facts clearly corroborate this statement: installed wind power capacity has grown by more than 25 times in less than two decades, from around 24 GW in 2001 to nearly 650 GW in 2019, registering a compounded annual growth rate (CAGR) of over 20%. The cumulative installed base has grown without a single break even if the pace of new annual additions has occasionally slowed down (see Fig. 3). China leads the globally installed base of wind energy with a share of (35%), followed by the USA (17%), Germany (9%), and India (6%), as of 2019 (GWEC 2020). Together with Spain, the UK, France, Brazil, Canada, and Italy, the group of 9 For

detailed discussions, also see, e.g., Ellenbogen et al. (2012), Mathew (2006), or Redlinger et al. (2002).

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Fig. 3 Global developments in the Wind energy sector (2001–2019) (Source Own illustration based on Statista [2020])

these top-10 nations accounts for 85% of the globally installed wind power (IRENA 2018), which also means that there is still a lot of untapped potential in other nations, caused for instance by formidably high investment and operating costs, and waiting to be unlocked. Table 1 shows the world’s largest wind turbine manufactures that had a turnover of at least one billion euros in 2018. Table 1 Major global wind turbine manufacturers with a turnover of one billion euros or above Own illustration based on Statista (2019); data partly relate to 2017 No.

Company name

Country (headquarters)

Revenues (billion euros, 2018)

1 2

Vestas

Denmark

10.1

Siemens Gamesa Renewable Energy

Spain

9.1

3

GE Renewable Energy

USA

8.3

4

Enercon

Germany

5.6

5

Goldwind

China

3.6

6

Nordex

Germany

2.5

7

Senvion*

Germany

1.9

8

Suzlon Energy

India

1.0

Total

42.1

*Senvion filed for insolvency in April 2019 and acquisition of parts of its business (European service assets and intellectual property assets) by Siemens Gamesa was announced in October 2019 (Da Fonseca and Liu 2019). The acquisition process was reported completed in January 2020 and carried a price of 200 million euros (Siemens Gamesa 2020)

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Ensuring access to “affordable and clean energy” is a part of sustainable development goals (SDGs) of the United Nations. Around 840 million people around the world were without access to electricity in 2017 (IEA 2019). Poor countries often face financial and infrastructural difficulties in connecting to centralized grids, while for around 40% of households the cost of electricity was still unaffordable (IEA 2019). In addition to electricity shortage, emerging economies also face the problem of low quality electricity, e.g., in the form of high fluctuation, low voltage, or regular power outage (Jain et al. 2015). There is, thus, need for frugal solutions in the wind power sector that would allow more countries and regions to benefit from the potential of wind energy. There are several use cases for wind and other renewable sources of energies. For example, renewable sources can help ensure reliable access to energy in refugee settlements and spur socio-economic development, e.g., better health, education, and productivity (IRENA 2019b). Digitalization has emerged as “a key amplifier of the power sector transformation, enabling the management of large amounts of data and optimizing increasingly complex power systems” (IRENA 2020, p. 86).

3.2 Need for High Affordability and Efficiency10 Wind power has emerged as “the least-cost option for new power capacity in a large and growing number of countries” (REN21 2018, p. 23). There is a trend “toward longer blades and taller towers that capture more energy from the wind as part of efforts to improve performance and reliability and reduce the cost of individual wind turbines and wind systems” (CEMAC 2016). An EU study from year 2014 puts the average cost of one MWh power with onshore wind at around e105, gas at e164, and coal at e233, while the costs of energy generated with nuclear power, offshore wind and solar energy all stood at roughly e125 per MWh (cf. Neslen 2014). Levelized costs of energy (LCOE), that refer to “costs of new power generation without public intervention” (European Commission 2014), have since then decreased further and are expected to continue doing so till 2030 (Ram et al. 2018). According to International Renewable Energy Agency, the global weighted-average LCOE of onshore wind projects commissioned decreased by 13% in 2018 in comparison with the previous year and by more than one-third in past eight years (IRENA 2019c, p. 18). Cost reduction and performance improvement are two core driving forces behind the rapidly growing demand for wind power (CEMAC 2017). Cost advantage has helped wind energy achieve grid parity (Suzlon 2018). With economies of scale and new technological developments, costs are expected to go further down by a massive

10 This section draws on the author’s study of the “Scope of cooperation between India & Germany in Renewables with a focus on Opportunities in the Wind Sector in India”, see Tiwari and Tiwari (2019).

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58% from current levels by 2050 (BNEF 2018). Technological progress and substantial reduction in the cost of batteries would make it easier to ensure uninterrupted power supply “when the wind isn’t blowing and the sun isn’t shining” (BNEF 2018). As a result, wind energy has become “mainstream, relevant and commercially viable” and has shaded its image of being alternate yet commercially unattractive source of energy dependent on government subsidies (Suzlon 2018, p. 6). Wind energy is now perceived as “a mature and cost-competitive technology” (REN21 2018, p. 109).

4 Digital Transformation in the Wind Power 4.1 Radical Structural Changes in the Power Sector Value Chain Power sector in general is undergoing a radical transformation driven by three key trends: (a) digitalization, (b) decentralization, and (c) electrification (IRENA 2019a). Digital technologies are enabling introduction of new applications in the power sector affecting its market design, business models and system operations and thereby “changing the boundaries and dynamics of the industry and helping to optimize renewables assets” (IRENA 2019a, p. 11). Especially technologies such as Internet of Things (IoT), artificial intelligence, big data, and blockchain are driving these changes. Figure 4 shows the enormity of the radical structural transformation in the renewable energy value chain. The new paradigm enabled by digitalization is not only creating a shift in the role of some stakeholders, e.g., consumers in the role of producers of electricity (“prosumers”) but is also leading to the emergence of some completely new stakeholders, e.g., providers of digital solutions and equipment. Wind power sector, as a key constituent of renewable energies, is increasingly at the forefront of this transformation. Here digitalization technologies operate on four key fronts: turbine productivity, wind farm commissioning, manufacturing processes and ancillary services (Siemens Gamesa 2019, p. 20). The profound role of digital solutions in the wind energy sector may be illustrated by this statement of Siemens Gamesa (2020): The company’s advanced digital capabilities enable it to offer one of the broadest product portfolios in the sector as well as industry-leading service solutions, helping to make clean energy more affordable and reliable.

4.2 Case of GE’s “Digital Wind Farm” As one specific example available in public domain we can consider the case of “Digital Wind Farm” (DWF) solution offered and implemented by GE Renewable Energy

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Fig. 4 Structural changes in the power sector driven by digital transformation (Image © 2019 IRENA, Source [IRENA 2019a, p. 30]. Used with permission)

Digital Services.11 As per company information, DWF “is an end-to-end wind energy system that leverages data, analytics, and software applications in partnership with our hardware and services solutions to enhance efficiency, cybersecurity, reliability, and profitability of [customer] assets over their lifetime” (GE Renewable Energy 2020). The DWF concept consists of two key parts: “a modular, 2-megawatt wind turbine that can be easily customized for specific locations, and software that can monitor and optimize the wind farm as it generates electricity” (HBR 2015). DWF collects, visualizes, and analyzes asset-, farm- and fleet-level data in real time, resulting in 11 This case is constructed based on information available in public domain and primarily provided by the company itself (GE Renewable Energy 2019, 2020), unless specified otherwise.

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“advanced wind performance and predictive maintenance capabilities” (GE Renewable Energy 2020). Constant collection and analysis of real time data, e.g., weather reports, component messages, service reports, performance indicators of similar models in GE’s fleets, with advanced analytics allows a predictive model to be built and to turn that data “into actionable insights” (GE Renewable Energy 2019). DWF acts as a “digital twin” of the actual wind farm by simulating it in a cloudbased computer model allowing a high level of customization. Engineers can choose “from as many as 20 different turbine configurations – from pole height, to rotor diameter, to turbine output – for each pad at the wind farm and design its most efficient real-world doppelganger” (HBR 2015). Modular designs are used for creating tailormade turbine for specific pads. At the same time, the data generated in real time at the wind farm is fed into the digital twin to ensure that the system can learn and improve the accuracy of its predictions and thereby further enhance operational efficiency (CIOReview 2015; HBR 2015). GE claims that the DWF technology could improve performance by raising a wind farm’s energy production by up to 20% and create a potential value-add to the tune of $100 million over the lifetime of a 100 MW farm (HBR 2015). Steve Bolze, president and CEO of GE Power & Water has been quoted as saying: The world’s electricity demand will grow by 50% over the next 20 years, and people want to get there by using reliable, affordable, and sustainable power […] This is the perfect example of using big data, software and the Industrial Internet to drive down the cost of renewable electricity. (HBR 2015)

In an interview to the Power Technology magazine, Dave Vernooy, executive digital product manager for GE Renewable Energy, said that GE’s objective is to help customers achieve more production, greater profitability, enhanced availability, and lower risk. He was quoted as saying: That usually means helping them find ways to better interpret and act on their operational data. Not every customer’s needs are exactly the same, so it’s important that we work with them throughout the ideation and development process. That way we know we’re building a digital solution that will actually be useful. In general, we’re trying to build digital solutions that will help their turbines and their operations run better tomorrow than they do today. (Power Technology 2016)

This statement suggests that DWF is intended to significantly improve customer performance on parameters such as operational efficiency, production, and profits. In one of the anonymous use cases presented by GE, its client was stated to have saved $96,000 ($825 per turbine) in a year. The savings were achieved, for instance, through 62% saving in overtime hours, 26% reduction in repeat tower climbs, and 13% lower morning downtimes (GE Renewable Energy 2019). India’s Tata Power and US-based Terraform Power are some of the known examples of wind power companies that use DWF (Froese 2018; GE Renewable Energy 2020). GE states to have optimized more than 15,000 wind turbines and have collected over 12 billion data points that help it to offer context- and customer-specific solutions. Another remarkable feature of this product proposition seems to lie in the possibility of highly customized customerspecific solutions, which seems to overcome the problem that the need for achieving economies of scale usually poses.

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Interestingly, the product is reportedly targeted not only at economically developed countries but also at rather cost-sensitive markets such as Brazil and India (Davidson 2015), that are likely to be attracted by its value proposition of improving performance while reducing costs and risks. Furthermore, DWF also allows thirdparty software applications to be developed for its interface (Davidson 2015), that turns it into a rather “open platform” attracting more application developers and possibly creating positive network effects further improving its value proposition in terms of cost reduction and a larger pool of available local and/or customized solutions (cf. Shapiro and Varian 1999). At the same time, DWF’s cost-competitive and attractive technology also enables substantial environmental benefits. This is likely to “create a virtuous cycle effect, driving further investment in technology and application that will serve to further reduce the cost of renewable energy” (Tura 2018).

4.3 Results of a Content Analysis 4.3.1

Methodology and Sample Description

The method of (qualitative) content analysis is often used for analyzing social discourse, where a text is often (though not always) coded in categories so that a structure in terms of central dimensions at the core of the text emerges (Titscher et al 2000; Kohlbacher 2006). Qualitative content analysis, as proposed by Philipp Mayring (2000, 2015), can work through summarization, explication, and structuration. Categories are built in a systematic, iterative, and rule-based process. The possibility of undertaking deeper qualitative interpretations while ensuring a systematic process means that it synthesizes “two contradictory methodological principles: openness and theory-guided investigation” (Kohlbacher 2006, p. 12). This method is especially suitable for the present study which investigates an un-researched theme and most of the available data is in the form of texts that need structuring and interpretation. As a part of the content analysis annual reports of six globally leading, publically listed wind turbine manufacturers (WTMs), i.e., Vestas, Siemens Gamesa Renewable Energy, Goldwind, Nordex, Senvion and Suzlon Energy, were analyzed for a period of 6 years (fiscal years 2013–2018).12 As shown in Table 1, all of these companies had annual revenues worth at least one billion euros in 2018 and belonged to the top-8 wind turbine manufacturers of the world (Statista 2019). The globally number three, GE Renewable Energy, and the globally number four, Enercon could not be

12 For Senvion that was hit by an insolvency only an “Interim Report” was available only for the first quarter of 2018. That report contained little strategic deliberations beyond the legally mandated details.

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included in the analysis as not enough data were available for them in the public domain.13 The annual reports of all companies were downloaded and a keyword search was performed on them to identify all relevant instances of text concerning digital transformation. The keyword search basically consisted of two terms “digital*,” and “digiti*” to identify various variants of “digital transformation” in American and British English, e.g., “digitalization,” “digital solutions” or “digitisation.” All identified text phrases/paragraphs were copied in an MS-Excel database and were manually read and analyzed to evaluate relevance to the present study. All in all, 144 instances of phrases related to digital transformation were identified. Twenty-three of the 128 entries were classified as “non-relevant,” leaving us with a sample of 121 relevant statements. An example of a non-relevant phrase is: “3 schools were support[ed] with solar based digital education system” (Suzlon 2017). This statement was treated as non-relevant as its context relates to a corporate social responsibility (CSR) measure with no direct connection to the firm’s business related to wind turbines. Subsequently, all relevant text phrases (121) were coded in respect to their use context, e.g., advantages/objectives of, and the tools/instruments employed for, implementing digital transformation. The following sentence from the annual report of Suzlon Energy for fiscal year 2016–2017 provides an example of entries identified as relevant (Suzlon 2017, p. 6): We have embraced digital transformation by investing in relevant technologies for improving our operations, maintenance services, scheduling and forecasting, and real-time monitoring of our machines.

This statement was initially coded as seeking the following objectives: operational efficiency, preventive/predictive maintenance, better operational scheduling, reliable forecasting, ensuring real-time monitoring. The coding categories evolved “bottomup” in an iterative, inductive process, following the principles of content analysis (Kohlbacher 2006; Mayring 2015). Table 2 contains the list of 15 categories that finally evolved and were aggregated into four core groups. Another example from Vestas’ annual report for 2018 shows how the tools/instruments were identified and coded (Vestas 2018, p. 23): 2018 was an extraordinary year for the development of data & consultancy services. With the ambition to digitalise its service offerings even further, Vestas acquired Utopus, a leading energy analytics and digital solutions company.

The above statement was coded as seeking the objective of offering a new service, by taking recourse to analytics as the tool/instrument. Details of tools/instruments were rather limited. All in all, four tools/instruments could be identified, i.e., big data, analytics, algorithms, and “Internet of Things” (IOT). 13 For

GE Renewable Energy, which is a business unit of General Electric Company, there were no sufficient information in the parent concern’s annual reports to allow comparisons with other wind turbine manufacturers” digital strategies. Enercon is a privately held company and does not publish detailed information related to its business beyond what is mandated by the law. .

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Table 2 Identified categories of advantages/objectives pursued by the investigated firms No.

Advantage/objective

Occurrences

Group aggregation

1

Efficiency gains for customer

34

Efficiency effects

2

New service offering

26

Service enhancement

3

Better maintenance

27

Maintenance effects

4

Efficiency (internal/operational)

25

Efficiency effects

5

Performance improvement

23

Performance effects

6

Development of new solutions

12

Service enhancement

7

Better forecasting

12

Maintenance effects

8

Lower operational costs

11

Performance effects

9

Real-time monitoring

10

Maintenance effects

10

Additional revenue generation

9

Performance effects

11

Better scheduling

10

Maintenance effects

12

Competitive advantage

5

Other effects

13

Grid integration

4

Other effects

14

Transparency

3

Other effects

15

Inventory management

2

Efficiency effects

Total occurrences

213

Source Own analysis

The validity and consistency of coding were ascertained in keeping with the recommendation of Mayring (2015) by two independent experts with domain knowledge of the wind energy sector and digital transformation. Both of these experts were selected from outside the project team to reduce team-specific blind spots. With the help of these experts, the 15 individual advantages/objectives could be grouped into four core categories, namely, efficiency effects, maintenance effects, service enhancement, and performance effects, as will be described in greater detail in the next section.

4.3.2

Results of the Content Analysis

The content analysis suggests that the sampled firms displayed a rapidly increasing awareness of digital transformation in the investigation period (2013–2018) and that the digital transformation has progressively turned into a highly dynamic trend for them (see Fig. 5). While prior to 2015, digitalization was hardly a topic important enough to be discussed in the annual reports and to be presented to the company’s (potential) investors and other stakeholders, the investigated companies have since then started not only to regularly raise this topic but also to present many more details to the public-at-large.

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Fig. 5 Increasing awareness of digital transformation in the investigated WTMs (Source Own illustration. Senvion faced financial difficulties and filed for insolvency in April 2019. Its annual report for 2018 was not available, so that data for 2018 only covers 5 firms)

But this emphasis on digitalization was not spread equally. While Siemens Gamesa (30), Goldwind (28), Suzlon (27), and Vestas (25) led in the total number of relevant entries related to digital transformation in their annual reports in the period 2013–2018, Nordex (8) and Senvion (3) trailed with very few entries. An interesting pattern that emerges from this content analysis is that the two companies with their roots in an emerging economy (Windgold from China and Suzlon from India) started mentioning digitalization in their annual reports regularly and earlier than their established Western counterparts and occupy the second and third position in terms of cumulative entries, respectively.14 Siemens Gamesa and Vestas have now, however, picked pace recently (Fig. 6). A striking fact is that Senvion consistently accounted for a negligible number of relevant entries related to digitalization (altogether 3) and has in the meantime filed for insolvency. It may be a matter of conjecture whether not paying enough attention to the digital transformation has been one of the reasons for its business failure and needs to be investigated separately.15 Embracing digital technologies could have

14 This might have some interesting implications for our understanding of technology adaptation models. It is probable that the lack of legacy systems has resulted in fewer path-dependencies for them, allowing them to explore newer/unconventional innovation pathways. Furthermore, proactive use of the possibilities offered by digitalization likely enables these firms to catch up with the established global players technically and win customer trust while overcoming liability of foreignness and/or liability of newness in global markets. 15 Wind energy production has now turned into “a mature and cost-competitive technology” (REN21 2018, p. 19). Also refer to Sect. 3 for the progressively decreasing levelized cost of energy (LCOE).

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Fig. 6 Entries related to digitalization in annual reports (2013–2018) (Source Own illustration)

led to more affordable and cost-effective solutions in an increasingly price-sensitive market. The content analysis of the identified 121 text phrases/passages revealed many potentially useful insights about how WTMs see the ongoing digital transformation and how they either intend to or already use these.

Enhanced Affordability Through Efficiency Gains The analysis reveals that WTMs are deploying digital solutions that enhance efficiency in their internal operations as well as in operations of their customers. Primary objective of efficiency gains is lowered operational costs in an industry that has to increasingly compete on cost basis as discussed in Sect. 3. The following excerpt from Suzlon’s annual report for FY 2017–2018 illustrates these points very clearly: Predictive /Prognostics Analytics based Maintenance, Condition Monitoring System (CMS) and Inventory optimization enable us to maximize turbine efficiency and availability by leveraging the big data technologies. These digitalization initiatives not only increase energy production at lower lifecycle cost but also ensure greater transparency of performance parameters at all levels. Further, digitalization is a win-win situation for customers and wind farm operators since it assists in enhancing revenue and reduces operations and maintenance cost. [emphasis added] (Suzlon 2018, p. 8)

The efficiency gains and potential better availability of information on performance parameters are correlated here with greater use of production capabilities and thus lower operational and maintenance costs, which connects these gains with frugalitybased solutions.

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Customer-Specific Solutions The role of digitally-enabled wind power solutions in enhancing affordability is further corroborated by the following excerpt from Siemens Gamesa’s annual report for 2017, which however also highlights a different potential advantage: Digitalization will transform the way we design and build turbines, as well as their operation and maintenance. Taking advantage of digital technology will result in higher efficiency and in lower costs along the entire value chain. Self-diagnostics and smart turbines will generate further cost savings. And real-time park optimization will enhance the value-tocost ratio for each customer’s unique requirements. [emphasis added] (Siemens Gamesa 2018, p. 19)

Especially interesting aspect in the text passage above, apart from confirmation of Suzlon’s analysis, is that it emphasizes unique requirements of individual customers and thus highlights that digitalization enables firms to provide customer-specific solutions that are highly affordable. In the pre-digitalization era, tailor-made solutions were especially expensive, whereas mass production allowed economies of scale and thus significant cost reduction. Not surprisingly, frugal innovation literature has often emphasized the role of economies of scale in reducing costs and increasing affordability. Example in this case, however, shows that frugal innovations are possible without mass production and economies of scale, when enabled by digital transformation.

Safety Gains on Affordable Terms In the annual report of Goldwind for 2018 another aspect is highlighted. Digital transformation in the wind power sector can significantly enhance safety of personnel and assets by the means of predictive maintenance. Designed specifically for the offshore wind power business, the Company applies digital and smart technology to build the “iGO” offshore wind power smart management platform. Through the construction of remote dispatching systems, equipment lifecycle archives and defect solution libraries, the Company develops defect surveillance modules based on status monitoring. It coordinates resource allocation for various parties, optimizes plans for marine missions, improves collaborative work efficiency, and reduces power generation loss and the frequency of marine trips. The platform is equipped with various software, hardware and data technologies such as hydrometeorology forecast and analysis, as well as onshore radar, enabling it to accurately respond to on-site emergencies and to implement plans timely, thereby ensuring the safety of outbound maintenance staff. [emphasis added] (Windgold 2019, p. 37)

These three examples show those aspects of digitalization that are highlighted by the investigated firms in their communication with their investors and other stakeholders. In an inductive and iterative process 15 categories of potential advantages/objectives were identified (Table 2). The 15 categories shown in Table 2 found all in all 213 occurrences and were bundled in four core categories of potential effects with the help of two external

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Fig. 7 Core objectives of digital strategies pursued by the investigated firms (Source Own illustration)

experts. Categories that had small numbers of occurrences and could not be added to these four core categories were summarized as “other effects.” As can be seen in Fig. 7, ensuring a high level of cost & resource efficiency, both internally and for the customer, turned out to be the most important aspect of the digitalization strategies of the investigated firms with 29% of all entries, followed by the possibilities of reducing maintenance efforts and keep the turbines running (28%). In one-fifth of the cases, the effects were related to better performance effects, e.g., to increased production. The possibility to develop new service offerings was found as another core advantage of digital transformation. The rest (5%) related to miscellaneous effects, such as competitive advantage, greater transparency and better grind integration.

5 Discussion This study set out to investigate whether there is evidence to connect digital transformation with the creation of affordable, resource efficient and reliable solutions that can be categorized as frugal. Its second objective was to analyze the implications of that evidence for the concept of frugal innovation so that preliminary propositions can be generated. The investigation based on twin pillars of anecdotal evidence and systematic empirical investigation in a yet-fuzzy research field indicate some very interesting insights with potentially significant implications, which are discussed in this section in the form of five propositions.

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Fig. 8 A “6-5-4-3” process framework for connecting digital transformation with frugality (Source Own illustration; technology enablers adapted from Cetindamar et al. [2020])

The study helped identify a “6-5-4-3” process framework for connecting digital transformation with frugality (see Fig. 8). Six general purpose technologies, viz. artificial intelligence, IoT, big data, data analytics, automation, and virtual/augmented reality, act as technology enablers that create five different types of innovation impact, which lead to four business effects. These four business effects can create three frugality effects. The process framework is described in the following. The first, and probably the most important of the five innovation impacts, is the possibility to create context-sensitive solutions, which take care of the very specific needs of the customer in a particular use context in terms of factors such as location, time of the day, and availability of resources at that specific point in time, e.g., at a specific wind park location. The second innovation impact of digital transformation identified in this study is that of double-sided systemic learning. The solution (customer-system) benefits from the learnings and experience that the innovator (provider-system) has generated so far, while the provider-system in turn continuously learns from the new, real-time data generated by the customer-system. This double-sided systemic learning creates a virtuous cycle that helps the provider-system further improve the solution and enhance its context-sensitivity. The third innovation impact of digital transformation that could be identified relates to positive network effects that are generated at two levels: (a) as the providersystem learns from the real-time data generated at various user sites (customersystems), its learnings become increasingly attractive for all other (potential) users that stand to benefit from these insights, and (b) by creating open platforms that allow interface with third-party applications the innovator is able to crowdsource

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knowledge and supplementary technologies while expanding the base of stakeholders with an interest in the success of its solution. Enhanced production with existing resources constitutes the fourth innovation impact of digital transformation in the present study. Better scheduling and forecasting models lead to better utilization of production capacities. Finally, predictive maintenance not only reduces downtime of facilities, through prevention it also reduces the cost of repair that would incur if a damage actually occurs. These five innovation impacts of digital transformation lead to four business effects identified in Sect. 4.3.2 (see Fig. 7) in the form of increased process and organizational efficiency, reduced maintenance costs and downtime, better performance and enhancement of the product/service portfolio. These four business effects can, in turn, lead to three frugality effects as described below:16 High affordability of the solution can be achieved through greater efficiency, better preventive maintenance, better performance as well as through service enhancement that could enable bundling of services and reduce operational costs. Affordability, as also argued by Tiwari and Herstatt (2020), must not be treated as a unidimensional criterion related to financial availability alone. It should be rather seen as a multidimensional construct that encompasses apart from financial affordability also (a) infrastructural affordability to ensure that the solution is either compatible with the existing infrastructural set-up or it can be implemented with a new infrastructural set-up whose acquisition does not make the solution so expensive as to violate the criterion of financial affordability, (b) environmental affordability that ensures that any eventually negative impact on the environment is at most within regulatory permissible limits and that the solution ideally makes a positive contribution to ecological sustainability, and (c) societal affordability in the sense of a socially desirable product with minimum negative impact on social values, such as human rights.17 The high affordability, as opposed to significant cost reduction, does not require a “reference” product as benchmark and allows the possibility of radical, breakthrough innovations in the sphere of frugal innovation. Target specificity of the solution constitutes a major criterion of frugality and most researchers have in the past implicitly and explicitly emphasized the need for frugal products and services to have focused functionalities to best meet the needs of their target customer group. The digitalization, however, takes this target specificity to a very different level, namely to context-sensitive solutions that meet the need of specific individual use contexts (in relation to changing location, time, or resource availability) of the same customer. 16 For

in-depth discussions of the frugality construct, see, e.g., Lastovicka et al (1999), Todd and Lawson (2003), Witkowski (2010), and Michaelis (2017). Especially, Michaelis (2017) introduces the concept of entrepreneurial frugality that has been so far dealt with only implicitly in the innovation management literature. 17 This point is especially important in the context of suggestive marketing of controversial (consumer) goods, such as skin-bleaching lotions, illicit drugs or weapons. For enlightening discussions in the specific context of the Bottom of the Pyramid markets, see, e.g., Karnani (2007), Banerjee and Duflo (2007), or Karnani (2009).

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Finally, effective resource utilization with the underlying motivation of receiving best-possible value in relation to the investment in terms of money, times or efforts spent seems to be at core of entrepreneurial frugality (cf. Michaelis 2017). “The purpose of both entrepreneurship and frugality,” according to Michaelis (2017, p. 1), “is to create value,” and optimal and most effective utilization of resources with the help of digital technologies is therefore possibly at least as important, if not more important, a consideration than resource constraint. This effect is achieved through greater efficiency, better maintenance, better performance and service enhancement. The interrelations between these individual business and frugality effects on the one hand and the innovation impact of digital transformation on the other hand are illustrated in Table 3, which also provides a base for formulating the preliminary propositions. P1: Digital transformation leads to significant efficiency effects, which are gained by the possibility to create context-sensitive solutions, double-sided systemic learning, and enhanced production. P2: Digital transformation enables substantial maintenance effects through the possibility of predictive maintenance as well as through context-sensitive solutions and double-sided systemic learning. P3: Digital transformation enables better performance of the innovative solution leading to quality gains vis-à-vis previous product generations. These performance gains result from context-sensitivity of the solution, double-sided systemic learning, network effects, enhanced production, and predictive maintenance. P4: Digital transformation leads to service enhancement in the form of new offerings in the product portfolio. These are enabled by context-sensitive solutions, double-sided systemic learning, network effects and predictive maintenance. P5: Frugality effects of digital transformation can be measured through high affordability, target specificity and effective resource utilization. The preliminary insights generated here, if confirmed, have significant implications for the concept of frugal innovation. The study expands the underlying base of drivers of frugal innovation by providing evidence for voluntary frugality in the entrepreneurial sector. It shows that frugal innovations do not have to be exclusively rooted in resource constrains. Rather, they can also emanate from a desire to proactively achieve the maximum possible value out of a given set of input factors. In words of Michaelis (2017, p. 3), “[.] a frugal person may consume as much as a non-frugal person; it is how they consume resources, which differentiates the frugal from the non-frugal consumer.” This is analogically also true for the business sector. The study also provided evidence to connect frugal innovations with environmental sustainability and high tech in the context of digital transformation. While some researchers in the past have connected frugal innovation to low tech, the present study delivers indicators that frugal solutions can be achieved also with high tech. It provides support for the hypothesis put forward by Herstatt and Tiwari (2015) that discussion of frugal solutions in the context of low vs. high tech is potentially misleading and develops that proposition further by providing evidence that frugality is rather achieved by the use of an “appropriate” (i.e., the most effective technology) in

Source Own analysis

Predictive Maintenance

x

x

x

x x

x

x

x

Enhanced Production

x

Double-side Learning

x

Network Effects

x

x

x

x

x

x

x

x

x

x

High Affordability

Service Enhancement

Frugality Effects Performance Effects

Efficiency Effects

Maintenance Effects

Business Effects

Context-sensitive solution

Innovation Impact

Table 3 Interrelations between innovation impact and business/frugality effects of digitalization

x

x

x

Target-specificity

x

x

x

x

Effective Resource Utilization

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a specific problem-solving context. The study also shifts focus from mere efficiency gains also to better and more effective resource utilization. The findings, even though preliminary in nature, also suggest a good fit with the “Coupling” model of innovation (cf. Rothwell 1994). On the one hand, the need of the global society for both affordable and renewable sources of energy (SDGs #7, #13) is creating clear incentives for firms to significantly reduce costs and raise operational/resource efficiency. On the other hand, technological advancement is enabling firms to reduce total cost of ownership, both for themselves and for their customers, without compromising on quality. Rather, firms are able to develop better quality products despite falling prices through effective use of resources. The efficiency and performance gains of technology are spread in the entire innovation value chain beginning from ideation to product development and production right up to marketing and sales. Keeping in mind these insights, this study proposes the following update to the definition of frugal innovation, which is adopted from Tiwari and Herstatt (2020): Frugal innovations refer to those innovative products, services, processes, technologies or business models that aim at to high affordability, high target-specificity and the most effective resource utilization. Modular architecture of the solution allows product differentiation to maximize the fit to individual customer aspirations while minimizing the use of material and financial resources in the entire value chain. While complying with all relevant regulatory norms in the target market, frugal innovations may disrupt prevailing industry standards.

6 Conclusion This explorative study set out to investigate the available evidence to potentially connect digital transformation with the creation of frugal innovations. The study pursued the objective of generating preliminary propositions on the basis of a mixed methods investigation involving case study research and a qualitative content analysis in the global wind power sector. The study discovered that digital transformation is being actively used by globally leading wind turbine manufacturers to create solutions that can be classified as targeting “affordable green excellence.” Several general purpose technologies, such as artificial intelligence, IoT, and data analytics, act as key technology enablers to secure efficiency, maintenance and performance effects as well to expand the product portfolio. They allow high (multidimensional) affordability, high target-specificity and effective utilization of resources that constitute the frugality effects of digital transformation. The study shows that the concept of frugal innovation can have a very close connection with the digital transformation, and the concept therefore needs an update. The focus has to shift from a substantial “reduction” in costs that per se has to be against a benchmark, reference product to “high affordability” that allows a much greater scope for breakthrough innovations. Furthermore, digitalization helps frugal innovations to transcend the boundary of “mere” efficiency gains and to enter the realm of more “effective” ways of resource utilization leading to radically new solutions. Based on these considerations, a definitional update for frugal innovation has been proposed.

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Due its research design, the study also faces certain limitations: It is based on secondary information sources. The content analysis is based on annual reports of a limited set of companies. Annual reports do not contain deeper insights on actual implementation of corporate strategies and the extent of their success. Furthermore, firms might be tempted to place content in their annual reports that they perceive as socially desirable from the perspective of their stakeholders. Nevertheless, the use of mixed-methods research and triangulation through literature review, use of nested cases, and content analysis with participation of two independent industry experts indicate toward relatively high robustness of the preliminary proposition generated in this study. Further research is needed to validate the propositions developed in this study, in larger-scale investigations both within the wind power sector as well as in other industrial sectors, where there is a strong societal need for affordable solutions and high resource efficiency, e.g., solar energy, food processing, or healthcare. A confirmation of the role of digital transformation in creating “affordable green excellence” may take the frugal innovation research to a new level of societal acceptance.

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Titscher S, Meyer M, Wodak R, Vetter E (2000) Methods of text and discourse analysis. Sage, Thosand Oaks Tiwari R (2019) Frugal innovations: an inquiry into causes, effects and pathways of affordable excellence, Institute for Technology and Innovation Management, Hamburg, Hamburg University of Technology, Submitted habilitation thesis Tiwari R, Bergmann S (2020) How society perceives frugal innovation: insights from a content analysis of German-language publications. In: McMurray AJ, De Waal G, Frugal innovation: a cross Global research companion, Abingdon, Routledge, pp 54–67 Tiwari R, Buse S (2007) The mobile commerce prospects: a strategic analysis of opportunities in the banking sector. Hamburg University Press, Hamburg Tiwari R, Buse S (2020) Key issues in managing innovation in a Global and digital World: an introduction to the Festschrift in honor of Cornelius Herstatt. In: Tiwari R, Buse S, Managing innovation in a Global and digital World: meeting societal challenges and enhancing competitiveness. Springer Gabler, Wiesbaden, pp 1–13 Tiwari R, Herstatt C (2012a) Assessing India’s lead market potential for cost-effective innovations. J Indian Bus Res 4(2):97–115 Tiwari R, Herstatt C (2012b) Frugal innovation: a Global networks’ perspective. Die Unternehm 66(3):245–274 Tiwari R, Herstatt C (2014) Aiming big with small cars: emergence of a lead market in India. Springer, Heidelberg Tiwari R, Herstatt C (2020) The frugality 4.0 paradigm: why frugal innovations are transcending beyond emerging economies. In: McMurray AJ, De Waal G, Frugal innovation: a cross Global research companion, Abingdon, Routledge, pp 40–53 Tiwari R, Kalogerakis K (2020a) What drives Frugal innovation in an economically developed economy? results of a qualitative study in Germany. In: McMurray AJ, De Waal G, Frugal innovation: a cross Global research companion, Abingdon, Routledge, pp 108–120 Tiwari R, Kalogerakis K (2020b) What enables frugal innovation? an examination of innovation pathways in India’s auto component industry. In: Tiwari R, Buse S, managing innovation in a Global and digital World: meeting societal challenges and enhancing competitiveness. Springer Gabler, Wiesbaden, pp 253–268 Tiwari S, Tiwari R (2019) Scope of cooperation between India & Germany in renewables with a focus on opportunities in the wind sector in India. Hamburg, Consulate General of India Todd S, Lawson R (2003) Towards an understanding of frugal consumers. Australasian Marketing Journal 11(3):8–18 Tura K (2018, November 12) GE digital windfarm—how machine learning is helping ge renewables drive process improvement, Retrieved April 29, 2020, from https://digital.hbs.edu/platformrctom/submission/ge-digital-windfarm-how-machine-learning-is-helping-ge-renewables-driveprocess-improvement/ Vestas (2018) Annual report 2017. Vestas Wind Systems A/S, Aarhus Weyrauch T, Herstatt C (2016) What is frugal innovation? three defining criteria, J Frugal Innov 2(1) Weyrauch T, Herstatt C (2020) What is frugal innovation? In: McMurray AJ, De Waal G, Frugal innovation: a cross Global research companion, Abingdon, Routledge, pp 3–39 Windgold (2019) Sustainability report 2018: preserving blue skies and white clouds for the future. Xinjiang Goldwind Science & Technology Co.,Ltd., Xinjiang Witkowski TH (2010) A brief history of frugality discourses in the United States. Consum Mark & Cult 13(3):235–258 Yin RK (2018) Case study research and applications: design and methods. SAGE Publications, Thousand Oaks, California Zeschky MB, Widenmayer B, Gassmann O (2011) Frugal innovations in emerging markets. Res Technol Manag 54(4):38–45 Zeschky MB, Winterhalter S, Gassmann O (2014) From cost to frugal and reverse innovation: mapping the field and implications for Global competitiveness. Res Technol Manag 57(4):20–27

Frugal Digital Innovation: Leveraging the Scale and Capabilities of Platform Ecosystems Suchit Ahuja

1 Introduction Digital innovation results from the digitalization of resources, capabilities, processes, products, services, and business models. Digitalization moves beyond digitization (technical process of shifting organizational resources, capabilities, and processes from analog to digital) and involves additional socio-technical aspects that impact socio-economic context of the organization (Yoo et al. 2010). Digitalization includes a range of innovation outcomes, such as new products, platforms, and services as well as new customer experiences and value networks. As long as there are underlying digital technologies and digitized processes, the outcomes themselves do not need to be digital (Autio et al. 2017; Nambisan et al. 2017). Increasingly, outcomes of digital innovation are not only profit-based but also technological, societal, governmental, environmental, sustainability, and social impact-based, where digitalization drives the design, evolution, and scale of economic, social, and environmental impact. To achieve profitability, competitive advantage, and societal impact simultaneously, firms fuse digital technologies, platforms, and business models with physical resources and capabilities within ecosystems. The digital platform may remain proprietary, but the resources and capabilities that revolve around it are ordinary in value, scarcity, and distinctiveness (Fréry et al. 2015). It is the orchestration and fusion of these physical and digital entities that lead to competitive advantage and wider impact (Ahuja and Chan 2017). Digital platforms are changing the nature of business across the world. The way businesses connect and engage with customers, suppliers, and partners is undergoing rapid change due to the emergence of digital platforms such as AirBnB, Uber, Tencent, Apple’s App Store, and Android Play Store. More importantly, using the S. Ahuja (B) Concordia University, Montreal, QC, Canada e-mail: [email protected] © Springer Nature Switzerland AG 2021 N. Agarwal and A. Brem (eds.), Frugal Innovation and Its Implementation, Contributions to Management Science, https://doi.org/10.1007/978-3-030-67119-8_13

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power of digital platforms, firms are able to simultaneously compete and collaborate with their rivals (Cusumano 2011). Digital platforms provide competitive advantage through “network effects” such that the higher the number of users of the platform, the more valuable the platform becomes for the owner and the users of the platform, which leads to several complementary innovations (Gawer and Cusumano 2014). Digital platforms enable firms to compete using ordinarily available resources at lower costs than available in existing products and services and generally provide higher value to customers (Fréry et al. 2015). In this chapter, we focus on two digital platforms that deliver social impact in addition to providing competitive advantage and profits. One of the ways in which firms orchestrate digital innovations and break traditional business boundaries is through participation in ecosystems that facilitate the exploitation of digital technologies and leveraging of entrepreneurial opportunity through business model innovation, contextual knowledge use, and fusion of physical and digital business processes, actors, and entities (Autio et al. 2017). This chapter focuses on a specific type of ecosystem called a frugal ecosystem. A frugal ecosystem is an entrepreneurial ecosystem, usually seen in the developing world in countries like India, China, Brazil, etc., that is highly constrained by resources, poor infrastructure, and scarcity and where firms focus on low-cost, sustainable, and social innovation to succeed (Ahuja and Chan 2016). Frugal ecosystems consist of firms, entrepreneurs, government and non-government agencies (NGOs), citizen volunteers, and other entities that are engaged in developing and promoting “frugal innovation”—by offering solutions that are focused on affordability, simplicity, sustainability, social, and/or environmental impact (Agnihotri 2014; Mundim et al. 2012; Varadarajan 2011). For example, an affordable solution like M-Pesa in Kenya has enjoyed unprecedented success with adoption by more than 70% of the population (Blosch 2011), especially those who do not have access to a bank account. M-Pesa is a simple mobile payment platform that works via SMS and does not require expensive mobile data or apps. Digital innovation and its effects in developing countries remain underinvestigated in the literature, especially in the face of the wide-ranging and fundamental impact of newer digital technologies. Nonetheless, some recent literature such as Academy of Management Journal (George et al. 2016), Journal of Internal Business Studies (Doh et al. 2017), and MISQ special issue on ICT and societal challenges (Majchrzak et al. 2012) examined how digital innovation is shaping changes in emerging countries by addressing constraints and creating both economic and social value. This chapter highlights the use of digital platforms in a contextualized setting (of a frugal ecosystem) such that the use of these platforms is tightly coupled with business, technology, and social innovation (Ahuja and Chan 2019; Autio et al. 2017). Second, it recognizes that the scale of digital business strategy is rapid and dynamic and to keep up with this, firms are increasingly dependent upon digital and spatial resources and capabilities (Autio et al. 2017). Third, the findings are at the intersection of digital platforms literature and frugal innovation research, emphasizing the role of digital platforms (Meyer 2000) and other technology capabilities that transcend traditionally established boundaries of the firm which are increasingly

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unclear as firms become deeply embedded within and dependent upon the ecosystem (Bharadwaj et al. 2013; El Sawy et al. 2010; Licht and Siegel 2008; Lucas et al. 2013).

2 Literature Review 2.1 Exploring the Context: Frugal Digital Innovation Frugal innovation is an emerging paradigm of innovation, mainly practiced in developing countries such as India, China, Brazil, and Kenya (Radjou et al. 2012) that face severe infrastructure, financial, social, and technological constraints. Frugal innovation redefines business models, reconfigures value chains and redesigns products to use resources in different ways and creates more inclusive markets by serving users with affordability constraints, often in a scalable and sustainable manner (Bhatti 2012; Bhatti and Ventresca 2012). Wierenga (2015, p. 9) provides a comprehensive definition of frugal innovation: “frugal innovation includes product features, process and benefits of the output…a novelty product, thus is new to the market in terms of application, material used or business model…requires minimal resources, and the materials used are recycled or easily replaceable. The features of the product have a value-adding function, instead of a price-increasing or appearance purpose. Most importantly, the product has to have an affordable pricing, either low enough for a single payment or through credit schemes offer the possibility to pay in several installments. The overall performance in relation to the price has to be in balance and indicate of high quality for the end user. Besides considering the environment and the economic background of the consumer, the product has to increase the quality of life of the customer and have obvious social benefits.” Figure 1 shows the multiple dimensions of frugal innovation and Fig. 2 shows a contextual setting for frugal innovation based on Wierenga (2015) and Bhatti and Ventresca (2012). Firms in frugal environments use creative, low-cost digital infrastructure and systems along with business model innovation to drive their performance. They also leverage digital platforms to connect and manage the infrastructure, systems, users, and partners within their ecosystems. Thus, we posit “frugal digital innovation” as an extension of frugal innovation where IT/IS plays a crucial, enabling role. Frugal digital innovation is a combination of business innovation, information technology/systems innovation, and social innovation in order to minimize a firm’s resource usage, by redesigning its processes, products and services to make them more affordable and sustainable (Ahuja and Chan 2019). The use of IT/IS coupled with frugal innovation practices is providing firms with frugal capabilities along with opportunities for competitive advantage and strategic differentiation (Ahuja and Chan 2019). Frugal digital innovation can be characterized as having three dimensions: Business innovation, technological innovation, and social innovation (Bhatti 2012). Business innovation comprises reconfiguration of the underlying components of business

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Fig. 1 Dimensions of frugal innovation

Scarce Resources Value-Added Features Aīordable Pricing High PricePerformance Quality

Frugal InnovaƟon

Social Benefit Novelty in Design and Development Emerging Market Origins Fig. 2 Characteristics of frugal ecosystems

Market/ Aīordability Constraints

Resource Scarcity/ Constraints

InsƟtuƟonal Constraints/ ComplexiƟes/ Voids

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models, i.e., processes, profit formulas, value propositions, and resources, in order to grow, expand or establish new revenue streams (Chesbrough 2010; Eagar et al. 2012; Hwang and Christensen 2008). Technological innovation represents advancement in technologies that enhance the production of goods and services. Disruptive technologies are simpler, cheaper, more reliable, and convenient than existing ones (Christensen 2013) and frugal digital innovation takes advantage of such technologies, often leveraging them to solve business and social problems. Social innovation refers to novel solutions to social problems that are more effective, efficient, and sustainable than present solutions, and for which the value created accrues primarily to society as a whole rather than to private individuals (Stanford Center for Social Innovation 2014). Social innovation augments business capabilities and relationships with better use of assets and resources (Caulier-Grice et al. 2012; Kanter 1999). Furthermore, social innovation is required for social progress, enabling inclusive growth, and prosperity at the grassroots in an affordable and sustainable manner (Porter 2015), and addressing institutional voids (Khanna et al. 2005). Institutional voids are created due to the absence of specialized intermediaries, regulatory systems, and contractenforcing mechanisms in emerging markets; they impede the implementation of business strategies (Bhatti 2012; Khanna et al. 2005). Social innovation has gained mainstream attention (Mintzberg 2015) with consumers demanding impact investing and social impact bonds (Liebman 2011).

2.2 Digital Platforms A digital platform is defined as the components used in common across a product family (Boudreau 2007; Parker and Van Alstyne 2005; Tiwana 2015) whose functionality can be extended by applications and its purpose is to orchestrate resources, capabilities, and value in the ecosystem (Parker and Van Alstyne 2005; Eisenmann et al. 2006; Evans et al. 2006; Tiwana 2015). In a digital platform-driven ecosystem, as more members join, the more valuable the platform becomes to consumers, given the greater variety of choice (Scholten and Scholten 2012). A platform’s long-term success depends on continuous innovation and renewal of the platform ecosystem embracing continuous services portfolio optimization and provision of superior consumer value (Scholten and Scholten 2012). In platform ecosystems, digital platforms generate strong network effects by addressing constraints such that people affected by those constraints join the platform in order to access resources, infrastructure, or networks (Cusumano 2011). If the platform is in use by a large number of customers, the platform owner firm can leverage it to sense and respond to market needs and as a means of competitive intelligence in order to maintain its competitive advantages (Mugavero et al. 2015). This is especially useful in frugal environments where maintaining control over the ecosystem can lead to significant benefits as the participants become increasingly dependent on co-existence with others for their own survival. This could lead to resource consolidation and efficiency gains where shared services and modules can

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be beneficial to all. For downstream entities in the value chain, platforms provide opportunities for developing complementary IS/IT capabilities to build value-added products and services. In order to remain competitive, firms must not rely only on the capabilities of the platform, but develop their internal and external business and process capabilities based on the ecosystem in which the platform is deployed (Tan et al. 2015).

2.3 The Frugal Digital Ecosystem Entrepreneurship research has focused heavily on the study of the entrepreneur or the founder as the driver of business and innovation (Nambisan 2017). On the other hand, new and emerging digital technologies have been changing the nature of business and entrepreneurship toward “digital ecodynamics.” Digital ecodynamics is a systemic phenomenon involving complex interactions among the triad of environmental turbulence, dynamic capabilities, and digital systems. The tight fusion among the three elements almost to the point of inseparability requires a “holistic” approach (El Sawy et al. 2010). A business ecosystem is defined as “an economic community supported by a foundation of interacting organizations and individuals—the organisms of the business world. Participation in the ecosystem enables members to move toward shared visions to align their investments, and to find mutually supportive roles” (Moore 1993, p. 26). Similarly, a frugal ecosystem as an ecosystem that is characterized by significant institutional voids and/or resource constraints, but where the collective relational connections of the participants are channeled toward developing simple, affordable, and sustainable solutions to fill institutional voids and/or address constraints (Ahuja and Chan 2017; Costello et al. 2013). Figure 3 shows the conceptualization of a frugal ecosystem where constraints, voids, platforms, and business capabilities intersect within tough socio-economic and politically fragile environments. Figure 4 shows the embeddedness of the frugal firm and individual entrepreneur within the frugal ecosystem. The top half follows traditional labeling that the literature in entrepreneurship and innovation studies follows. The lower half extrapolates the top layers and highlights “digitalization” through the digital platform, the ecosystem consists of several “digital platform participants,” and policy and regulations can shape the environment with respect to socio-economic and political issues including resource constraints and institutional voids. Recent advancements in the entrepreneurship literature move toward this view by considering the impact and effect of digital technologies by fusing the digital and physical aspects of entrepreneurship and innovation (Autio et al. 2017; Nambisan 2017). Specifically, Autio et al. (2017) and Nambisan (2017) show how fusion of digital and physical aspects of the firm, the digital platform, and the environment take advantage of digital and spatial affordances within entrepreneurial ecosystems.

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Socio-economic and Political Environment in Emerging Markets

Resource Constraints + Institutional Voids

Frugal Entrepreneurial Ecosystem

Business Capabilities

Digital Platforms

Fig. 3 Frugal entrepreneurial ecosystem Fig. 4 Ecosystem structure

PoliƟcal, Socioeconomic Factors Incubators, Accelerators, etc. Firm

Individual Entrepreneur

Digital Plaƞorm Plaƞorm ParƟcipants Policy and RegulaƟon

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2.4 Digital and Spatial Affordances in a Frugal Ecosystem An affordance is defined as an action potential offered by a digital technology (Majchrzak and Markus 2012). The focus of affordances is not on the artifact or the features of the digital tool, but on how actors’ goals and capabilities can be related to the inherent potential offered by those features. Digital affordances are generated by the digital platform or its underlying digital infrastructure and have a transformative effect upon the organization of economic activity (Nambisan et al. 2017). Extant research has highlighted three different types of digital affordances that are most prevalent in entrepreneurial ecosystems: (1) Decoupling: allows reprogrammability of digital technologies and weakens the coupling between form and function, allowing alternative uses of assets by redeployment without affecting product/service quality (Yoo et al. 2010). (2) Disintermediation: reduces or eliminates “middlemen” from the value chain, thereby facilitating the delivery of products/services direct-to-customers and offers more value at similar or lower prices than existing ones. (3) Generativity: Allows coordination and organization of dispersed audiences and participants, essentially allowing synchronicity in the decisions and actions of the organization beyond traditional boundaries (Nambisan 2017). Spatial affordances, in contrast, relate to the locus of innovation and entrepreneurship within an ecosystem and enable the organization, orchestration, exploitation, and exploration of resources and capabilities within that ecosystem (Autio et al. 2017). The extant literature discusses three types of spatial affordances: (1) Business Model Innovation: innovation now spans the entire value chain of the business and its ecosystem, as opposed to traditional product, process, and service innovation, which are limited and bound by organizational structures and procedures; (2) Horizontal knowledge spillovers: knowledge that may be shared across a variety of forms and functions within and outside organizational boundaries and essentially benefiting the entire ecosystem; (3) Locus of entrepreneurial opportunities: competitive and profitbased opportunities are shifting outside organizational boundaries and moving to ecosystems. Affordance actualization is the process of realizing the potential that is offered by technology affordances and is usually conducted by an actor, groups of actors, an organization, an ecosystem, and sometimes even by society (Chan et al. 2019; Te’eni 2016). In the context of digital innovation, especially when affordances are found embedded both across the ecosystem and within digital artifacts (such as platforms and apps), various entities “orchestrate” the actualization process by collaborating in a synchronized manner (e.g., through the platform) across different locations and time zones (Ahuja and Chan 2017; Vaast et al. 2017). The actualization of affordances results in creation of capabilities that can be exploited for various purposes including profit generation, efficiency, scale, and social as well as environmental impact. Much like other firm capabilities that are built on resources, routines, and competencies, platform capabilities are built on digital and spatial assets and their affordances (Chan et al. 2019; Te’eni 2016). Digital platforms allow for a recombination of elements and for assembly, extension and redistribution of physical and digital assets and

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value, thereby contributing to the dynamic emergence and evolution of capabilities (Nambisan 2017). In the extant literature, there is limited discussion of such capabilities that are driven by digital platforms and span the ecosystem (Nambisan et al. 2017). The discussion is even more limited in resource-scarce contexts and frugal environments. It is our aim to explore such capabilities through our cases and highlight their implementation and evolution. Next, we discuss our cases and methodology.

3 Methodology A multiple case study approach (Santos and Eisenhardt 2009; Yin 2013) was selected due to in-depth, illustrative cases and novelty of the phenomenon (Eisenhardt and Graebner 2007). Case study research can consist of both theory building and theory testing elements (Eisenhardt and Graebner 2007). Case studies are appropriate when researchers seek to describe phenomena, explore processes, and investigate why and how phenomena interrelate (Yin 2013). A case research approach allows for the gathering of rich, qualitative data, supporting complex and comprehensive analyses of frugal digital innovation. Furthermore, the case approach also allows for the examination of a complex phenomenon while permitting “retention of holistic and meaningful characteristics of real-life events” as well as the “retention of contextual conditions” (Yin 2013). These are important considerations for this chapter. Two digital platforms operating in India, a developing economy that is representative of the type of challenges and constraints that characterize frugal ecosystems, were examined. These digital platforms were selected after carefully examining ten different platform startups in developing countries that claimed to have created digital platforms for profitability and social impact. The firms were selected via a careful search and categorization exercise utilizing a large, web-based, global startup directory (http://www.indianstartups.com). The data presented here are part of a larger study, where more than 25 Indian digital startups using platforms (along with business incubators and ecosystem participants—partners, developers, suppliers, customers, government agencies, think tank representatives, incubator managers, etc.) were interviewed. The researchers conducted more than 70 in-depth, in-person interviews in India. A subset of these interviews is provided for the two digital platforms. The two platforms were selected as illustrative cases for exploration of capabilities. The quotes1 presented are snapshots from in-person interviews conducted with the founders and/or senior representatives of these platform startups in India as well as with participants within the platform ecosystems. The quotes were selected based on their clarity and brevity, given the tight page limitations. To enhance the validity of our findings, a case study database was created. Interview questions were pilot tested, and all interviews were audiotaped and transcribed. Initial codes were created using the interview guidelines and new codes added as the 1A

limited number of the most relevant excerpts due to paper length restrictions.

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research progressed. All transcripts were independently coded by the researcher and his team and high inter-rater agreement was ensured. Additionally, internal company documents relating to technical and business architecture, HR, training, strategy, etc. as well as internal and external websites and marketing materials were analyzed. In this way, multiple sources of evidence were used for triangulation (Yin 2013). DEDOOSE software (www.dedoose.com) was used to assist with data analysis, and employed principles of “analytical generalizability” (Yin 2013) to assist with theorizing.

3.1 The Case Sites The first platform, JobMatch, is a jobs matching platform that has operated in India for the past 8 years. It is specifically tailored toward the informal sector2 and entrylevel formal sector jobs that pay less than $250 US/month and makes jobs accessible to everyone while making hiring fast and easy. Its mission and purpose are to provide skilled aspiring workers (such as drivers, delivery personnel, nurses, beauticians, entry-level salespersons, and call center workers.) access to better employment opportunities. JobMatch is a for-profit platform startup that is committed to bettering people’s lives and providing dignified livelihoods. Its ecosystem consists of job seekers, employers, the platform itself, partner agencies that help with training and placement, and government agencies (federal and state levels) that design and implement HR policy as well as various programs for skill development and employment (Fig. 5). The second platform, IGG, operates as an orchestrator of a waste collection and recycling ecosystem in a large city in south India (approximate population of 11 million). The city encountered a complex waste-management problem and the local authorities lacked the infrastructure and capabilities to (1) manage collection and disposal of waste; (2) create awareness and education about recycling to change civic behavior toward better waste management practices. This had resulted in arbitrary disposal of garbage, lack of a systematic process for collection and recycling, and an overall apathetic attitude of the citizens toward garbage disposal, resulting in discarding of waste in close proximity to densely populated areas. Moreover, this situation had given rise to an army of ragpickers or wastepickers who were part of the informal economy. They would collect recyclable waste from dumping areas and sell them to local recyclers, often being exploited in the process with inadequate payments. In addition, they suffered from poor living and health conditions, irregular incomes, and often would fall victim to drug and alcohol addiction.

2 The

informal sector, informal economy, or gray economy is the part of an economy that is neither taxed, nor monitored by any form of government. Unlike the formal economy, activities of the informal economy are not included in the gross national product (GNP) and gross domestic product (GDP) of a country.

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Skills and Training Partners

Government Agencies

Missed Call Module Partner Module

Government Module

JobMatch Plaƞorm

IVR Module

Job Provider Module

Match Algorithm Module

Text Message Module Profile Builder Module

Job Seekers

Job Providers

Fig. 5 JobMatch ecosystem

To alleviate this issue, local government and municipal authorities reached out to Non-Governmental Organizations (NGOs) working on sustainability issues, a citizen run policy think tank (SWMRT), and IT companies in the city to find collaborative solutions. This collaboration resulted in the formulation of the IGG digital platform. Its primary goal is to improve the livelihood and working conditions of ragpickers, and to help them integrate into mainstream economy. An equally important goal is to involve citizens and communities in solving the problem of managing solid waste in order to keep the city clean. It did this by developing a not-for-profit ecosystem consisting of the IGG platform designed, developed, and maintained by an IT firm (whose CSR initiative funded the initial development); an NGO that trained and educated ragpickers in professionalism, communication, collection, and recycling of waste; the local government which established the physical infrastructure of “dry waste collection centres” (DWCC) across the city; and a number of citizen volunteers that were willing to participate in spreading awareness about this program. The researchers also interviewed the ragpickers and visited a DWCC in order to understand how the ecosystem works and examine the social impact of the platform. The ecosystem’s overall mission was “dignified livelihood for ragpickers, less landfills for all” (Fig. 6). The cloud-based platform itself consists of multiple modules and offers a suite of integrated business services, accessed by mobile apps built for wastepickers, citizens,

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Waste Audit Module Warehouse Module

Waste Collector Module NGO/ Training Module

IGG Plaƞorm

Customer Module

Volunteer Module

Vendor RegistraƟon Module

Supervisor Module

Fig. 6 IGG ecosystem

governments, volunteers, and social businesses. While the physical infrastructure (DWCC) is provided by the government and municipal corporation, IGG provides micro-business services and technology that enable business transactions, communications, reporting, ERP-type backend solutions, and geotagging services in multiple languages.

4 Findings In this section, evidence from the interviews is provided. The interviewees were asked about the background, mission, and characteristics of their platform ecosystems. In doing so, some institutional voids that prompted these digital platforms to come into existence were uncovered. JobMatch is an ecosystem for Bottom-of-the-Pyramid (BoP) jobs. We are a for-profit social enterprise. We provide a cross-platform solution for reducing information asymmetry in the informal sector and entry-level formal sector jobs marketplace. Lower income job seekers have way fewer resources to finding job opportunities, no access to the internet, no website focused on these kinds of jobs and they are limited to their own physical, personal social networks, often remaining in poverty. On the other side employers in the BoP sector always have difficulty finding job seekers. So our platform bridges this gap and works on multiple

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channels and devices both online and offline. Our platform runs on the web, mobile web, Android app, Integrated Voice Response (IVR) system, missed call system,3 and a host of other channels. (VP, JobMatch) IGG is a digital platform ecosystem that brings together government services, NGOs, Wastepickers Association, and community volunteers, using IT tools, apps, digital processes, and backend digital infrastructure. In the current Indian landscape, waste collection is about collection and dumping. We are trying to break it down into several processes like collection, segregation, aggregation, sales, recycling, etc. The platform provides a volunteer app, waste collector app, DWCC app, a central dashboard, social media integration accessible over mobile, tablets, desktop and web. (Director, IGG)

The above descriptions outline characteristics about institutional voids within the ecosystem and their emphasis on employment and environmental sustainability as well as the interactions among the participants. The next set of quotes focus on affordability and simplicity of ecosystem-level solutions, thus comprehensively encapsulating and capturing the definition of “frugal ecosystems.” Android apps is a big opportunity…iOS is not affordable for our customer segment….Android is very flexible in terms of both hardware and software…we want to be there for maids and cooks who want to search for a job and may or may not know how to use technology…we want to make it extremely simple for them to find jobs. This is the purpose of our platform. (Business Analyst, JobMatch) We have a cloud based platform, using analytics, and integrated with social media….Android is the most affordable platform for us…there are a lot of issues with centralized waste management like logistics and high costs…we are trying to decentralize…we have support from the public and the local ecosystem driven by volunteers…we want to keep it simple. (Director, IGG)

Next, the resource constraints that need to be addressed via frugal innovation are highlighted. The interviewees pointed to a number of constraints. Given page limitations, illustrative examples of business, technology, and social, constraints are provided as these were the ones most frequently mentioned. Waste is a very political issue with lots of bureaucracy involved locally….rules and regulations hinder progress, but if you can manage to foster a supportive ecosystem then you just have to implement the platform in the right way… some local forces want this to not be very profitable….you have to deal with the local waste mafia….you take away their business so you have to deal with them too. (Director, IGG) Technology adoption is a challenge initially…we are trying to use a better UI/UX for apps to drive adoption….we need to train our users…we are building a bottom layer…a bridge technology platform…not just apps because we aspire to be an ERP for social innovation…we have designed modules very generically…. (Business Analyst, IGG) We faced challenges socially. There is a perception that waste collection and segregation are scavenger jobs. Without a uniform and/or identity cards/badges the waste collectors were not 3 A missed call is a telephone call that is deliberately terminated by the caller before being answered

by its intended recipient, in order to communicate a pre-agreed message without paying the cost of a call. It is a common practice in South Asia and Africa. It is estimated that Indian service providers lose about 20% revenue due to missed calls.

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respected in the communities…there is a stigma attached with these waste collectors…they are seen as criminals or drug addicts….this program has given them an opportunity for a dignified livelihood. (Director, IGG)

To address the above constraints, the firms recognized that they not only needed to shape an ecosystem by partnering with various entities, but they also needed to leverage digital technologies in an appropriate manner to build simple, affordable, and sustainable solutions. The next part of the interviews focused on affordances and capabilities that are developed within a frugal ecosystem to alleviate some of the constraints and address voids. Several “value-add” capabilities that exploited the affordances provided by digital technologies themselves as well as the ecosystemwide needs of the business were observed. • Mobile Leapfrogging: The “leapfrog effect” is a term that is used to state the skipping over of current generation of technology solutions and rapidly adopting and scaling to the next generation (Fong 2009). With the proliferation of mobile phones, wireless data, and smartphone apps, riding the leapfrogging wave with mobile-first and cloud-first strategies in emerging markets provides a great opportunity for cost reduction, value creation, and rapid adoption. Capability

Supporting quote

Enabling affordances

Mobile leapfrogging Using mobile web and mobile decreases our Disintermediation cost of operating….IVR costs money…its Generativity cheap 35 paise per minute for local calls…..but thats still a lot of cost multiplied by 800 K people…this is a first step…if we do millions it will cost us even more…..we want to give the customers a richer, comprehensive experience through mobile web and app….availability of data and proliferation of smartphones are exciting. (Analyst, JobMatch)

• Local Adaptation: With limited resources, affordability constraints, and lack of cutting-edge infrastructure, digital platforms need to adapt to the local markets and develop capabilities that enable quick adoption by local customers. There were several instances of local adaptation in our cases. For example, the use of Integrated Voice Response to collect profile data from customers who do not have access to the internet but can make a phone call. For those customers who find it expensive to make phone calls, simply giving a “missed call” and hanging up for a follow-up call from a representative is another adaptation. Another example was the use of multiple languages by JobMatch. Although the costs of supporting additional languages would be burdensome, JobMatch did this so that a significant portion of the non-English speaking part of its customer segment could take advantage of the platform.

Frugal Digital Innovation: Leveraging the Scale … Capability

Supporting quote

293 Enabling affordances

Local adaptation We have adapted technology to the local Generativity context. Target demographic did not have Decoupling access to internet, so we worked with Telcos Business model innovation to offer job lists to job seekers. But job seekers had to pay relatively high prices to access us. IVR has added totally new possibilities combined with missed calls. (Analyst, JobMatch) We chose to diversify our platform to be multilingual. If it was all in English it would be bad news. Now we support 8 languages based on local demand in various markets in India. IVR is in 6 languages. Android App is in a bunch of different languages. Desktop and Mobile Web are also in at least a couple of languages. Most popular IVR language in Bangalore is Hindi. (VP, JobMatch)

• Repurposing: One way to operate frugally is to repurpose existing technology and other resources for multiple uses. This is where a platform can be particularly useful. In order to drive long-term sustainability, IGG needed to develop a multi-pronged strategy for leveraging the digital platform for various purposes. Therefore, the base digital infrastructure was designed to be robust, while the cloud-based modules and applications running on it were more generic and could be tuned to specific purposes. All modules were designed to be customizable to the customer’s preferences and feedback was collected for continuous improvement. Capability

Supporting quote

Repurposing

We have the same technology platform Decoupling running IGotGarbage and we have Horizontal knowledge spillover another product for farmers in the agriculture sector called IGotCrops….and we have IGotSkills….where we work with skill development….the modules are the same sitting on top of the base layer….We have cloud based modules, using analytics, and integrated with social media… We are building a bottom layer, a bridge technology platform….not just apps….we aspire to be an ERP for social innovation….we have designed modules very generically. (Director, IGG)

Enabling affordances

• Platform Lightness: Digital platforms for frugal ecosystems are designed to keep the information, hardware, and software light enough to function with limited computing and networking infrastructure. Platform lightness is achieved by lean digital infrastructure and data-light architectures often designed in open-source mode for ease of interoperability with other systems, but also localized, to

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converge with local contexts. IGG wanted a platform that was high in terms of adaptability and flexibility. This is also a key characteristic for ensuring that the platform is light and easily customizable. Capability

Supporting quote

Enabling affordances

Platform lightness We needed a light platform, each city has its own Decoupling intricacies of the ecosystem….our platform and modules are adaptable for this…we can configure according to the requirements…..especially dry waste sorting…..this is where our platform generates value….intrinsic value that we are able to explicitly capture. (Director, IGG)

• Service Universality: In frugal ecosystems, any new technology needs to be compatible with the most rudimentary existing systems can help achieve the “least common denominator” and reach populations at the bottom-of-the-pyramid. While reaching mass populations, it is also important to know precise characteristics and general location of entities within a geographical area to provide effective services. For IGG, when households signed up to be volunteers, the name of the person and a mobile phone number are registered via the Volunteer App. To uniquely identify customers, IGG also used geotagging for households and this information would be sent to the Waste Collector App with instructions to direct the waste collectors to a particular household. Additionally, a communication channel was open through Whatsapp and SMS. In this way, customers could be served for a fraction of the regular cost and universal service to both waste collectors and volunteers could be guaranteed. Capability

Supporting quote

Enabling affordances

Service universality Once people agree to volunteer, they are signed Locus of innovation up via an app and their name and mobile Generativity number is in our database. Dry waste pickup Disintermediation happens 1-2 times a week and an SMS goes out the night before tell them to keep their waste out. The impact of SMS through automated tech is invaluable…households are geotagged and it is easy to run a campaign, send updates, and save time and money for the waste collectors. (Director, IGG) Geotagging helps to track the houses…we also use Whatsapp groups….today I have around 350–400 people on Whatsapp groups….just volunteers who are connected with us….but I have to delete messages and data frequently because my phone runs out of memory….this is an affordable phone…I am uneducated….I don’t know how to write so I use voice messages on Whatsapp…. (Waste Collector, IGG)

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Next, both JobMatch and IGG had to design entirely new business models, whether it meant targeting a new set of customers or shaping a new ecosystem in order to be profitable and add value to society. Thus, their “value propositions” had to be framed very differently with both financial and social components, simultaneously driven by cutting-edge technologies. We are building value for job seekers and employers. We provide tips and guidance to job seekers on how to present their profiles to employers. We want to reduce mismatch in what employers are looking for and what job seekers were putting in their profiles…need to create a LinkedIn for BoP job seekers… We offer value to both sides of the market….job seekers and employers….and this is where we are different…we provide the best experience for our customers and support them throughout that experience and beyond. (VP, JobMatch)

With respect to technological innovation, a host of different technologies were deployed by both JobMatch and IGG. Both platforms are heavily reliant on social media, mobile, analytics, and cloud (SMAC technologies). We want to go where the most affordable smartphone, the most affordable internet, and the easiest to use OS are…that is where our customers are” and “we use our analytics capabilities to assess the value of trash at every point…collection, sorting, aggregation, and recycling…in our data analyses we have found these to be individually profitable. (Director, IGG)

To assess in-person social impacts of these platforms, several ecosystem participants were interviewed at a waste collection facility including waste collectors (in their local language) as well as their manager. For the IGG platform, the program manager and the developers that worked on the various projects were also interviewed. The business and social impacts that were spread across the ecosystems and not accrued by the platform alone. We value waste….value gets created at the dry waste collection center….sorted waste is worth a lot more than mixed waste…the collectors get much higher prices… Revenues have been doubled or triple for the waste collectors at the center….we have recycled 100 tons of waste in the last year alone at this small facility…I have a database through the app that keeps track of this data. (DWCC Manager, IGG) We are a social enterprise but we are for profit. We offer employers a Freemium service. We also offer Premium service if they would like to hire rapidly. We are there for maids and cooks who want to search for a job and may or may not know how to use technology…we want to make it extremely simple for them to find jobs. This is the purpose of our platform. (Analyst, JobMatch) As a developer, I feel inspired that waste collectors are my customers…I feel inspired to develop apps for them and I am content that my work is creating a social impact. (Developer, IGG) When I go to collect waste now, people treat me well, they respect me…the training has helped me…I live a more dignified life…I want to bring other waste collectors into this ecosystem. Things are much better for us here… (Waste Collector 1, IGG) I have been working for 4 years….I do everything here…all jobs…dry waste collection, sorting, driving the vehicles, picking up waste from houses, creating awareness among people….I used to be a mechanic, then I became a driver, then I was a daily wage worker….but this current job is the most satisfying….I have no problems here…my earnings are stable…I am satisfied…this is better than my previous jobs. (Waste Collector 2, IGG)

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To assess performance holistically, the focus was on business, technology, and social innovation. Some complementary benefits were discussed. Both platforms were profitable and their ecosystem partners as well as customers and volunteers were highly engaged. Due to their focus on innovating for the ecosystem, their operations are more efficient with controlled costs and increased revenues due to an emphasis on affordability and sustainability. They also discovered complementary benefits and new revenue streams. Our growth metrics are all up, our technology metrics are improving, and we are growing by expanding into more cities. Our costs and pricing for our services is down and more people can now take advantage of our platform. We want to share these benefits with ecosystem partners. (Director, IGG) We measure impact by calculating value of waste that has been recycled…..paper, plastic, landfill space savings, fuel savings, organic waste composted….we have a monitoring module in the digital platform that tracks waste flow… (DWCC Manager, IGG) It is not easy to find reliable drivers, admin staff, and security guards…JobMatch’s background check and verification services as well as matching capabilities to our requirements helps us hire with trust. They also ensure that those who are hired are paid well and not exploited. (Customer, JobMatch) (Table 1)

In this section, the findings from the two cases were presented and evidence was provided for how a set of capabilities allows platforms to overcome ecosystem constraints leading to frugal digital innovation. In the next section, the contributions of the chapter will be discussed.

5 Contributions and Conclusion This chapter empirically shows how frugal digital innovation takes place in two platform ecosystems that are resource-constrained and suffer from institutional voids. It focuses on platform and ecosystem capabilities that must be developed and implemented for success in constrained environments. The chapter describes antecedents of frugal digital innovation such as resource constraints and institutional voids, and demonstrates how digital and spatial affordances can be leveraged for creation of capabilities that enable the alleviation of these constraints, resulting in simultaneous economic, social, and environmental value creation and impact. This chapter has responded to several calls to study digitalization of entrepreneurship and innovation in a contextualized setting in order to build new theoretical and practitioner insights (El Sawy et al. 2010; Autio et al. 2017; Nambisan et al. 2017). It follows the principles of “scholarship of integration” (Boyer 1990), which involves “making connections across the disciplines, placing the specialties in a larger context, illuminating data in a revealing way, often educating non-specialists, too.” The chapter extends the discussion on digital platform ecosystems in a frugal context and brings new insights. It also leverages literature on digital and spatial affordances to interrelate constraints, digital affordances, and frugal innovation.

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Table 1 Summary of findings Component

IGG

JobMatch

Frugal Ecosystem

Fusion of constraints, digital platform, modules, NGOs, waste collectors, government, citizen volunteers, etc. mainly for sustainability

Fusion of constraints, digital platform, vendor, informal economy workers, employers, etc. to provide an affordable and accessible job-matching solution

Digital Platform

Mobile-based digital platform with several modules. Web-services architecture. Features include Whatsapp interface, geotagging, dashboards, trash vale ERP, etc.

Web, mobile-web, app, SMS, IVR, etc. supported through the digital platform. Ability to build profiles

Platform Lightness (enabled by decoupling)

Foundational layers in the architecture can be decoupled from the applications layer and redeployed in agriculture, education ecosystems

The architecture separates the form of the digital platform from the functionality it provides such that newer functionality can be added and new services built (for example, IVR, missed call, etc.)

Mobile Leapfrogging (enabled Remove middlemen from the by disintermediation) ecosystem, eliminate exploitation, provide dignified livelihood to wastepickers, and improve environmental sustainability

Remove middlemen from exploitation of informal economy workers, provide easier access to employment, make jobs accessible and job search affordable

Local Adaptation (enabled by generativity)

Coordination and organization of dispersed wastepickers, NGOs, volunteers, etc.

Coordination of job seekers in the informal economy with employers in both formal and informal economies

Service Universality (enabled by new locus of innovation)

Outside the boundary of a single firm, embedded within and across the ecosystem

Outside the boundary of a single firm, embedded within and across the ecosystem

Locus of accrued value (holistic impact)

Economic, technology, and Economic, technology, and social impact across ecosystem social impact across ecosystem

Value creation (through fusion Value chain starts with of physical and digital physical asset (waste) and ends elements) with physical-digital value creation (1) data about recycling; (2) sustainability data; (3) dignified livelihoods

Value chain starts with digitization of characteristics/skills via creation of a candidate profile and ends with a physical match between employee and employer resulting in better job/value creation

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The novelty of the findings will guide future research in this area. The chapter shows how the outcomes of leveraging digital platforms in frugal ecosystems go beyond economic impacts alone and emphasizes social and environmental benefits (Thompson et al. 2018). With issues of affordability and sustainability gaining global attention, this chapter presents an opportunity for firms to design solutions with strong business, technological and social impacts, thus developing a more holistic innovation agenda. This chapter highlights the crucial role that the frugal innovation plays in contexts that encounter constraints and voids giving practitioners insights into digital innovation mechanisms in emerging markets. The case studies display fusion of digital and physical assets and their orchestration, that are driven by community-based participants who may belong to under-privileged and socio-economically challenged sections of society. This chapter shows that digital capabilities in frugal ecosystems need to be implemented in a community-based, socially embedded, empowering, and inclusive manner. Frugal ecosystems can succeed only when ecosystem-wide accrual of the benefits and impacts takes place. With respect to frugal ecosystems, there is tremendous value to be unlocked by implementing capabilities in a grassrootsfocused strategy and digital platforms can be leveraged alleviate constraints and voids, thereby creating high-impact, affordable, and sustainable solutions. As both positive and negative societal implications arise due to digitalization, automation, and “serviceization” of work, the most under-privileged sections of society remain most vulnerable. It is important to provide avenues to improve their livelihoods and well-being by incorporating them into frugal ecosystems.

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