Further insights: Strategic frugality reframes cost-saving as a growth tool in finance

Frugal innovation is often seen as the opposite of Research & Development. Can you explain how these two concepts differ?

The distinction between Research and Development (R&D) and frugal innovation is significant, particularly in how each approach conceptualizes and implements innovation processes. On one hand, R&D typically involves systematic and formalized processes aimed at developing new products or technologies, often requiring substantial investment in resources, time and specialized personnel. On the other hand, frugal innovation focuses on creating cost-effective solutions that are accessible to a broader audience, particularly in resource-constrained environments, emphasizing efficiency and simplicity over extensive R&D processes. 

R&D is traditionally viewed as a structured approach to innovation, often characterized by high expenditures and a focus on advanced technologies. It is essential for developing new products and processes that can lead to significant competitive advantages in established markets. R&D activities are typically conducted within formal frameworks, involving dedicated teams and significant funding, which can lead to innovations that are complex and technologically sophisticated. This approach is often associated with high-tech industries and large corporations that have the financial capacity to invest in extensive R&D programs. 

Frugal innovation often involves leveraging existing technologies in novel ways, rethinking product designs to eliminate unnecessary features, and utilizing local resources and knowledge. This approach can lead to innovations that are not only cost-effective but also sustainable, as they often address local challenges directly and inclusively. Moreover, frugal innovation is characterized by its adaptability and responsiveness to local market conditions. It often involves a collaborative approach, engaging local communities and stakeholders in the innovation process, which contrasts with the more insular nature of traditional R&D. This community-driven aspect allows for a better understanding of local needs and preferences, leading to innovations that are more relevant and impactful. 

Stephen Mayhew, the former head of R&D Strategy Development at the pharmaceutical company Glaxo Smith Klein, asserts that the costs of R&D increase year on year, making it very hard to keep up positive returns on investments. He therefore suggests R&D departments should be organized differently, in a way that can be more effective and efficient.


Can you give me examples of frugal innovation in different industries?

Of course. For example, water scarcity is an increasing issue, particularly in developing countries. Access to potable water and water conservation are central to the innovation agenda. Countries like Israel and the UAE, actually among the highest per capita consumers of water, are advancing desalination technologies. They’re working on novel filtering systems that optimize energy consumption in desalination plants.

In 2008, Unilever’s Indian unit introduced the Pureit water purifier, which provided low-income consumers with a solution to avoid waterborne diseases. Then, in 2009, Tata Chemicals launched its own low-cost water purifier, the Tata Swach, which made clean drinking water even more affordable, offering it at half the price of the Pureit Classic in India.

Technology in affordable water purification continues to progress. For instance, the Swiss company Vestergaard Frandsen developed the LifeStraw, a handheld device that purifies water of bacteria and dirt by up to 99.9%.

Siemens also came up with an algae-based wastewater treatment system in India, which uses only 40% of the energy required by conventional sewage treatment plants.

And there’s a Swedish company that developed Solvatten, a portable household water treatment device for use in developing countries. What’s really interesting about Solvatten is that it uses sunlight to provide safe, warm water in just two to six hours, without the need for chemicals or batteries. Plus, it can be used multiple times a day, which really helps with water resource management.

So as frugal solutions continue to evolve, we clearly see that more devices are needed to manage and conserve water in an efficient and sustainable way.

Can these two approaches to innovation coexist within the same company? Are there any examples?

It is interesting to address this question because, generally, companies we refer to as ‘born social’, where social and environmental values are at the core of their business model, have no reason to engage in traditional R&D processes. This is because such practices go against their vision and mission as a company. A prime example of this is the Grameen Foundation.

However, as we discussed earlier, the frugal innovation model used to address social and environmental issues in developing countries has served as inspiration for both developed countries and companies. One such case is Renault/Dacia and the strategy employed by Carlos Ghosn, who cleverly implemented frugal innovation in launching the Dacia car. This vehicle was designed for families who dreamed of owning an SUV but could not afford it. This business case became widely known. At the same time, Dacia/Renault continues to maintain its traditional R&D department for innovating other types of products.

Another example from the automotive industry comes from Tata Motors in India, where the company developed the Tata Nano, an affordable car aimed at individuals at risk from riding in auto-rickshaws (tuk-tuk). The car was launched with an incredibly low price of 100,000 rupees (approximately US$2,000 at the time), making it the cheapest car in the world. The Nano was designed to make car ownership accessible to families who previously couldn’t afford it. Similarly, Tata Motors continues to carry out R&D for other projects. However, I am convinced that once products or services developed through frugal innovation are launched, traditional R&D innovation no longer remains as efficient or effective.


There are some remarkable stories of frugal innovation in the context of ESG. Can you share a few examples that have particularly stood out to you?

One particularly inspiring example of frugal innovation in the context of ESG comes from Mexico, where entrepreneur Omar Vázquez Sánchez has turned the environmental problem of sargassum seaweed invasion into a solution for affordable housing. In Puerto Morelos, Quintana Roo, Omar saw sargassum as an opportunity to create eco-friendly bricks for building homes. His company, Blue Green México, has worked with sargassum for over six years, using it as a raw material to produce bricks that are not only cost-effective but also have thermal properties ideal for construction in hot climates.

The production of these bricks is significantly cheaper than traditional adobe, reducing construction costs by up to 50%. Omar has already started a project to build 10 homes, which will be donated to families in need. This initiative not only addresses the challenge of excess sargassum but also provides affordable housing, demonstrating how frugal innovation can positively impact both the environment and society. This project perfectly encapsulates the potential of frugal innovation in the context of ESG, showing how creative solutions to environmental issues can contribute to social good.