Speaker – Navi Radjou

Doing more with less

Intro

Some weeks ago (April 27) I had the opportunity to attend an ESBRI seminar with Navi Radjou where he talked about frugal innovation. Radjou is a innovation and leadership advisor which serves on the World Economic Forum’s Global Future Council on Innovation & Entrepreneurship, a TED global speaker and has written several articles for Harvard Business Review as well as several books.

The speech is somewhat edited to fit a written context better but for the purpose of clarity; frugal = ”Sparing or economical as regards money or food.” [1] That is to say, being sparing with resources.

What is frugal innovation?

“So let start of with exploring the historical origins of the concept of frugal innovation.” Radjou goes on explaining his background growing up in a small town in India where fresh water was very scarce. Living in scarcity shaped him early as a boy and when he later moved to the US “to experience abundance” he was struck by the amount of money was spent on innovation.

“What we have seen in for the past 40 years in the western world is a kind of arms race between the US and the EU, and recently also Asia led by China, which is about outspending each other in terms of R&D where the idea is that if you spend more money on R&D, you will get more innovation.” This idea has been so prominent, argues Navi Radjou that “in 2015 it was estimated that some of the worlds largest companies had spent a whopping $680 billion on R&D. So what is wrong with that picture?” asks rhetorically and then refers to studies performed by Booz Allen, now known as Strategy&. Those studies show that there is no direct correlation between R&D spending and a company’s financial performance or ability to come up with new product and services or increase its market performance. “Because, besides money there are many other factors that affect an organization´s innovation capability such as organizational structure, strategy, leadership style, culture, whether you focus on customer needs etc. All these factors play an important role in how successful you are with your innovation strategy. So, money alone does not buy innovation.”

Radjou argues that there is one factor in particular which helps increase market performance and/or financial performance. “How well you understand actual customer needs.”

Customer needs!

“Most innovation occur in an ivory tower where people come up with blue sky inventions that aren’t really connected to customer needs. This leads to products like a $400 juice maker that actually turned out to be no more effective than squeezing the juice with your bare hands.  That is one example of what can happen if you spend a lot of money on R&D without understanding customer needs. ” Radjou continues by highlighting two other examples that have real impact on US taxpayers.  “In health care, the US´s spending per capita is among the highest in the world but health indicators such as life expectancy or child mortality aren’t higher than in other developed countries. Actually, life expectancy is stagnating and in some cases even declining in the US. Another sector which is of interest for US taxpayers  is the education sector where spending is high per capita but performance in science and math is lower than say, Finland. Clearly, a higher spending does not guarantee improved results.” Consequently, Radjou and his colleagues tried to understand how entrepreneurs in developing countries, despite the lack of resources, manage to innovate and create social and economic value.

“It turns out that entrepreneurs in developing countries have a unique mindset, they view the world in a different way compared to their counterparts in the US.” Illustrating the differences Radjou points out 2 factors:

  1. The small vs the big “what if?” question – This is about scope, where one can compare a Silicon valley entrepreneur who asks “what if I could connect my fridge to an app?” to an Indian entrepreneur who asks “what if I can create a fridge that does not need electricity?”. Over 600 million Indians do not have access to electricity so giving them access to fridge functionality solves a really big problem.
  2. The ability to use abundance to counter scarcity – Radjou uses Peru, a country with 95% humidity rate but which receives very little rain per year, as an example where a local group created a giant advertising billboard which collects the humidity in the air, condenses it, purifies it and generates around 90L drinkable water per week. Another example of using abundance to counter scarcity is a satellite which the Indian space agency had developed. The satellite cost $75million and the cost can be compared to the cost of the movie Gravity which cost $100million to produce. What the Indian space agency did was to use the abundance of software talent in India to simulate instead of building prototypes of the satellite pre-launch.

The MacGyver spirit

Navi Radjou continues the presentation by introducing a theory of frugal innovation but also notes that “it is not just an academic theory, but a way of viewing the world. Almost lite a perspective on life.” The essence of the theory is that it is possible to create greater value with fewer resources, going deeper it means:

  1. Focus not only on economic value but also on social and environmental value Environmental value is more than just reducing ones negative environmental effects such as reducing carbon footprint. Environmental value concerns focus on creating positive environmental value such as mitigating damage done by human activities.
  2. Create 10x or 100x the value with -10x or -100x of the cost – There are approximately 20 million babies born annually in the world and in developing nations, child mortality due to premature birth is very high due to a scarcity of incubators due to them being expensive and require electricity. Radjou explains that this problem as been solved, through frugal innovation, by a company whose product “essentially is shaped as a sleeping bag and the material inside can be heated so that I melts like wax and this keeps the baby at a constant temperature for approximately 6 hours. The solution costs 20% of an incubator and saves lives in places where the probability of surviving a  premature birth is low.”

The prosumer

The idea of frugality is becoming embedded into the economy and in our behavior as well, Radjou argues. There are some trends in western society at the moment which point towards a paradigm shift in how we consume. “The prosumer is a play with the words producer and consumer. Previously we had a paradigm of “I consume, therefore I am” while trends are pointing at a new paradigm which can be characterized by “I create or produce, therefore I am”.” Some of the trends Radjou highlights are:

  1. Sharing instead of owning  – The focus on sustainability and the environmental damage that humans are causing are changing the view on ownership among younger generations. For example, young people in cities today prefer to share a car instead of owning one.
  2. Creating – The youth that have been brought up with the internet are not content in being passive consumers. They want to be more active creators and often choose entrepreneurship rather than working for a large corporation.

The pillars of a new economy

The prosumers will lay the foundation for a new economy which, according to Radjou, rests on 3 pillars:

  1. Sharing – Examples of this is car sharing, apartment sharing, tool sharing and other B2C sharing services that connect individuals with each other or a service. PWC estimates that key B2C sharing sectors will grow from $15 billion today to $350 billion by 2025. “For me, the B2C market is just the tip of the iceberg. The real market is the B2B market, that is when companies start sharing resources and assets which will probably be in the trillions of dollars in terms of value.” Radjou predicts. “Let me give you a taste of what the B2B sharing market will look like. Today it has already started with the circular economy concept where the waste I create from the operation of my organization becomes the raw material for another organization´s production, this is called industrial symbiosis. So what happens when companies start sharing clients or even intellectual property rights?”
  2. Making –  Navi Radjou states that the maker movement acts as a good example of the making pillar as the movement incorporates the principles of making ones own products and services instead of buying them at a local store. The maker movement incorporates part of the sharing pillar through open source hardware and software such as using raspberry pi computers together with free online courses in order to set up virtual classrooms in rural areas.
  3. Reusing/Recycling – Circular economy represents this pillar as its underlying ideas break with our current linear production system. “Accenture estimates that a trillion dollar opportunity would emerge if more companies and economies transcend to a circular model. The jeans manufacturer Levi Strauss has created a collection where old plastic bottles are used together with other materials to create jeans.

frugal-innovation.jpg

Incumbents can adapt to the new economy by applying its principles into their own business models.

//Sammy-Sebastian Tawakkoli

Sources:

[1] https://en.oxforddictionaries.com/definition/frugal 2017-05-15)

 There are embedded links in the text which are not presented as sources here.

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