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Adopting Open Innovation to Stimulate Frugal Innovation and Reverse Innovation

Adopting Open Innovation to Stimulate Frugal Innovation and Reverse Innovation

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Published by: Crowdsourcing.org on Feb 16, 2013
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02/16/2013

 
Electronic copy available at: http://ssrn.com/abstract=2197782
 
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Adopting Open Innovation to StimulateFrugal Innovation and Reverse Innovation
Mokter Hossain
 
Researcher 
 
Institute of Strategy
 
Department of Industrial Engineering and Management
 
Aalto University, Espoo, Finland
 
mokter.hossain@aalto.fi
 
 
Electronic copy available at: http://ssrn.com/abstract=2197782
 
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Abstract
 
Frugal innovation and reverse innovation have very recently emerged as interesting concepts.Frugal innovation is based on cost constraints to serve low-income customers in developingcountries. When frugal innovation comes to developed countries and become commerciallysuccessful it is considered as reverse innovation. Recently, many companies, such as GE,Siemens, Procter & Gamble, etc. have engaged heavily in frugal innovation and in reverseinnovation. Open innovation, on the other hand, has not been considered in the context of low-income customers in developing countries yet. We argue that using open innovation concept indeveloping countries may accelerate the pace of frugal innovation and reverse innovation.Consequently, quality product with low-income will be widely available not only in developingcountries but also in developed countries. Hence, western companies need to change their longhold business strategies and reshape their business models. This study aims to illustrate whycompanies from rich countries need to be aware of and take step to become successful adoptingfrugal innovation and reverse innovation.
Introduction
 
Innovation paradigm has experienced a tremendous change in last one decade. Several newconcepts related with innovation have emerged in recent times. One of those concepts is openinnovation.Chesbrough (2003)
coined this concept and defines it as “a paradigm that assumes
that firms can and should use external ideas as well as internal ideas, and internal and external paths to market, as the firms look to advance their techn
ology”. Open innovation has received
high interest from both industries and research institutes. Just recently, frugal innovation andreverse innovation have been used significantly in various industries such as medicalinstruments, electronics, information and communication technology, and agriculture, etc. tomeet the needs of low-income customers. The fundamental edge of these two concepts is basedon low-cost consideration. Frugal innovations are not only successful in low-income countries but also these innovations are arriving in high-income countries that are considered as reverseinnovation.Open innovation, on the other hand, has so far been considered in the context of rich countries particularly in high-tech industries with a few exceptions of several highly growing countries(Hossain, 2013). Moreover, open innovation has shown a new way of dealing with technologies.Can this concept also be used to stimulate frugal innovation and finally to turn frugal innovationinto reverse innovation? So far, despite being these concepts important to explore, to the best of 
the author’s knowledge, no study have
been elucidated them together. This study is an attempt toexplore this pressing question. Hence, it will provide insight for managers to establish their  business models and business strategies.
 
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To reduce costly research and development (R&D) projects and to conduct risky innovationresearch at low costs, open innovation can be used for low-cost product development inemerging markets. Open innovation has been cultivated through online platforms for manywestern companies to find ideas from innovative people in emerging markets. It bringsinnovation from new locations at a very low cost. To illustrate the importance of open innovationto drive frugal innovations and reverse innovations, each concept is briefly discussed in thefollowing sections. It expounds how open innovation can be used more rigorously to stimulatefrugal innovation and reverse innovation. Implication of this study is drawn in the final section.
 
Movements of companies for frugal innovation
 
Companies confront various challenges to serve the increasing number of low-income consumerswho clamor for affordable solution that is sufficient enough to meet their needs. Frugalinnovation is an innovation with low-cost, simple usability, efficient and aims at large low-income customers (Soman et al., 2012). In Hindi, a word named
 J ugaad 
is also used to expressfrugal innovation (See,Radjou et al., 2012a).
 
The traditional business culture is based on highly affordable customers and it neglects the ideato serve more with less. This culture is losing its lustre. Orientation towards frugal innovationhas become an important agenda for many western companies. Frugal innovation is aninnovation which is mainly based on extreme resource constraints to meet the needs of low-income customers who otherwise remain un-served. Renault-Nissan led by Carlos Ghosn, for example, has taken very active steps for frugal innovation to innovate faster and cheaper aimingat unmet customers. In the same vein, large companies such as GE, Procter & Gamble, PepsiCo,and Siemens are also heavily involved with frugal innovation for their sustainable growth(Radjou et al., 2012b). These companies are changing their business strategies and restructuringtheir business models. For long-run success, companies need to develop affordable products withcost-constraints and achieve sustainable growth.German giant Siemens is heavily involving R&D teams of India and China for affordablesolutions to meet low-income customers. Its SMART (simple, maintenance-friendly, affordable,reliable, and timely-to-market) product portfolio aims to innovate devices at a cost of 40-60%
cheaper than the cost of usual available devices in the market. Siemens’ medical device named
Fetal Heart Monitor (FHM) is developed with cheap microphone technology instead of costlyultrasound technology. FHM provides affordable health care initially in developing countries andsubsequently in developed countries. Siemens SMART product portfolio claims to have over 160 products and product families for emerging markets (Siemens, 2011)
. Renault’s affordable
vehicles are sold for about $10,000. It has low-price pickup and van in the market, too. Thesevehicles are sold under the Dacia brand. However, Renaults has not exposed its idea of low-costvehicles to its customers. Rather, it has positioned these vehicles as more value at less cost withfeaturing as stylish, comfortable, dependable and affordable (Radjou et al., 2012b).Gérard

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