Jugaad: A Frugal, Flexible Approach to InnovationPublished: July 03, 2012 in Knowledge@Wharton
In Jugaad Innovation: Think Frugal, Be Flexible, Generate Breakthrough Growth, authors Navi Radjou, Jaideep Prabhu and Simone Ahuja present a new approach to innovation that is fueling growth in emerging markets as well as developed ones. In their book, they outline the six principles of jugaad, a Hindi word meaning "an improvised solution born from ingenuity": Seek opportunity in adversity, do more with less, think and act flexibly, keep it simple, include the margin and follow your heart. Radjou and Ahuja sat down with Knowledge@Wharton to talk about their approach to fostering innovation in a hypercompetitive world.
Below is an edited transcript of the conversation.
Knowledge@Wharton: Navi and Simone, thank you so much for joining Knowledge@Wharton today. To begin with, I wonder if you could speak a little bit about the principles of jugaad innovation? And how does Benjamin Franklin, the founder of our university, exemplify them?
Radjou: Ben Franklin is one of our favorite heroes when it comes to jugaad in early America. He grew up in a large family where he learned about the principles of doing more with less, which is essentially being very frugal. That frugality, of course, [was] embodied not only in his personal life style but also in terms of how he developed products and services. He was a serial entrepreneur before that term became very popular. One of the inventions that [we] showcase in the book is the Franklin stove, which is a very ingenious invention that used less wood than needed and produced lots more heat. Essentially, he created a product that used [fewer] resources and yet produced more value to the customer.
This Franklin stove was very well received in the 18th century. But what is phenomenal is that he also embodied this principle of [jugaad] -- you can call it thinking and acting flexibly -- in the sense that he was a pioneer of the open source movement because he never attempted to patent this invention. As a matter of fact, Ben Franklin never really tried to patent [any of his] inventions. He felt that they ... needed to benefit a larger community, particularly people who may not be able to afford the inventions. That means that he also practiced this other principle of jugaad ... "include the margin." In other words, he was always thinking about making his inventions beneficial for the larger community, the masses if you like, as opposed to an elite. In a way, he was ahead of his time in the sense that he was an entrepreneur who had this jugaad spirit and really cared about people around him. He tried to come up with solutions that delivered a lot of value at much less cost for a lot more people.
Knowledge@Wharton: You also say in your book that the Western innovation engine has become too rigid, insular and bloated to remain effective. It consumes a lot of resources and makes a lot noise, but produces little of significance. Why did this situation develop? And what can be done about it?
Radjou: The situation developed for essentially one reason. After World War II, Western companies fell in love with one important concept, which is trying to industrialize everything. [They] tried to automate all the processes. The objective in doing so was to achieve larger economies of scale. As a result, [they created] ... very formal ways of developing products and services. So we saw the growth of so-called R&D departments and also some investment in processes such as Six Sigma, total quality management, etc. All these processes have been [developed] to deliver more predictability to organizations. And predictability became sacrosanct for a lot of fields because they felt that by having more predictability in the processes, they could provide better performance on a regular basis, and therefore, also keep Wall Street happy because there was less perceived risk in their activities because, after all, everything was predictable.
But the flip side of predictability is that when the world began to change faster and faster, this predictability became an impediment [to companies' ability] to be agile and responsive to major changes in customer needs or to track major technology shifts, for example. In a way, what we found is that a lot of these companies did the right thing in the 20th century by investing in formal R&D processes, expensive R&D labs, a very structured type of development. But then in the last 10 to 15 years, what we noticed is that as the world becomes more complex, the very investments the companies made are now beginning to turn against them.
One interesting data point is from Booz & Company, the management consultants, which actually has done research and shows that in 2010, the world's top 1,000 investors in R&D collectively spent a whopping $550 billion in R&D. But they did not really get much return for the huge investment they made. That's where we are proposing an alternative approach to innovation, which will be very frugal, flexible and inclusive. We call the approach "jugaad."... What we tried to do is to say, look, there is a traditional approach, which worked very well for a long time, but that approach is very expensive. It's very inflexible and it's also [quite elite], in the sense that only a few people in the company are doing innovation. But we all know, with things like social media, that innovation has become everybody's business. So that means that we have to go rapidly to a new model that is much more cost effective, very flexible, and then more importantly, what I mean by inclusive is that it's very democratic -- that sense that it can open up and take the input of all your employees, customers and partners as well. That's really where we came up with this idea of jugaad. I will let Simone explain a bit more about what it is.
Ahuja: Some of your readers may already be familiar with the word. It's a Hindi word, meaning "an improvised solution born from ingenuity." Through our extensive field research, [we] surveyed hundreds of people across India to learn the deeper meaning of the word, which can at times have negative connotations. But we distilled it down to what we felt was an important meaning, especially for grassroots entrepreneurs. The spirit of jugaad is really an innovative fix, especially under severe resource constraints. Jugaad is about being flexible in the source pool in the face of adversity. And it's about being frugal and doing more with less, as Navi mentioned, in the face of scarcity.
Knowledge@Wharton: To pick up on that point that you just mentioned, Simone, how do jugaad innovators seek opportunity in adversity? Could you give any examples of grassroots entrepreneurs who have done that?
Ahuja: Absolutely. One of our favorite examples is that of a villager named Mansukh Prajapati who actually lives in the deserts of India. He's in a scenario where not only did they not have access to electricity, but even if they did, most of the villagers would not be able to afford it. He wanted to understand how to drive a fundamental innovation [to] create a refrigerator that doesn't use electricity, which would be a huge lifestyle shift for the people in his community. He turned to the natural cooling effects of clay to create a totally off-the-grid, green, biodegradable refrigerator called Mitticool that can store fruits and vegetables for up to five days and dairy products for up to two days.
What's most remarkable about this is he used a millennial-old material to create this refrigerator that has two compartments -- one that has water in the top that flows down the walls on the sides and cools a lower chamber through evaporation. The tremendous flexibility -- and understanding that this material that's been present for so long can be used in such a unique way -- [drove] this very fundamental innovation.
Knowledge@Wharton: That's really fascinating. Another principle of jugaad, which Navi mentioned before, is the principle of doing more with less. How did KPIT Cummins use this approach in India and what were the results?
Radjou: [KPIT Cummins has been working] with car manufacturers to come up with very affordable and frugal ways to improve the performance of cars. Of course, over time, what they discovered is that with the shift increasingly toward not only affordable cars but also the movement toward more sustainability, they came up with a solution called Revolo. It's essentially a low-cost plug-in.... Within a few hours of installing it, you can convert your car into a kind of hybrid car. This is phenomenally representative of the kind of jugaad spirit in the sense that it was just one engineer who, one day, when he was stuck in a traffic jam in Mumbai, came up with this idea of asking, what if he can convert existing cars -- any car that runs on gas -- into a fuel-efficient, high-performance hybrid. Revolo is a conversion kit. It includes the rechargeable battery pack, an electric marker and a pulley. You can retrofit that into most cars in just six hours [using] any KPIT Cummins mechanic. What's fascinating about this is that it costs only around $2,000 as opposed to $5,000 or more in the West. And more importantly, the system costs 80% less than regular hybrid car options. The phenomenal impact is that it can actually increase fuel efficiency by 35% and reduce greenhouse emissions by at least 35%. That means more for less, in the sense that it delivers lots more value ... at much less cost for car users.
That is a fascinating example of how you can come up with an affordable and retrofit-able solution to transform these gas-guzzling cars that we have in the West into very environmentally friendly and high-performance hybrids. I think that's a great example of an innovation that delivers more value at less cost.
Knowledge@Wharton: You also say in your book that companies should redesign their organizations around simplicity. How can this be done?
Radjou: I'm going to take some examples of companies that have done it. Philips is very famous for embracing simplicity as a key tenet of the design philosophy. Simplicity is becoming important ... because a lot of customers are put off by the complexity of technology. Any of you who have tried to use any kind of electronic device like high-definition TV that you try to install in your living room, you know how complex technology is getting these days. So there is a premium now associated with simplicity. That means, can we come up with a good-enough solution, as opposed to an over-engineered solution? Because a lot of data shows that, for example in Microsoft software, nearly 90% of the features may not ever be used by the users. The question is, why bother over-engineering a product when you can simplify it and make life easier for the customer? With that being the impetus for driving simplicity, you see companies like Philips incorporating simplicity as a key tenet of their design philosophy. Philips has made it a point that all their products ... will be very user-friendly and very maintenance-friendly as well. They have made it almost like a cornerstone of their product development model.
Another company that, in my opinion, really embodies the simplicity principle is Facebook, because the interface of Facebook is very, very simple. They don't have a lot of complex features. The navigation of the website is very easy to use. The reason is because they employed something called social design, which is essentially a design philosophy where the technology takes a back seat to the user experience, which takes the front seat. That's a radical departure from the traditional R&D model, where the focus used to be on showing off, so to speak, your technology capabilities and hoping to wow the customers. Instead, the customer got put off by the technology's complexity. So, Facebook uses social design as a way to make the user the king of the experience, and let them drive this whole experience, as opposed to the technology being at the forefront.
Finally, the third company which embodies the spirit of simplicity is Siemens, the industrial conglomerate in Europe. They also have started coming up with a lot of products that are very simple to use. And that, for me, is remarkable. Because Siemens is known for engineering prowess. It's all about pushing the envelope on technology. But having done that for 100 years, now they realize that just putting more technology into the product is not going to really help the customers. They are going back to the basics and asking, "Can we come up with a good enough medical device?" Or, a good enough power generator that could really deliver performance, but still will be very simple to use and maintain?
Knowledge@Wharton: Well, that's great. How should jugaad innovators tap into marginal markets?
Ahuja: One of the things that we advise our readers and clients is that we have to be aware of the increasing diversity of the marketplace around the world, but also right here in the U.S. We have to be aware that the middle class is shrinking and essentially becoming a marginal class. This is really driving a change in what customers want and need. Customers are looking for value for money and not just features. What's happening is that companies are having to adjust to this. For example, Procter & Gamble is adjusting to the fact that many of their consumers are now looking for low-cost products. For the first time in something like 38 years, Procter & Gamble developed a low-cost line of dishwashing liquids and hand soaps. They understand that they have to access such a large group because the Gini index in this country -- which is an economic wealth indicator where "one" means the wealth all goes to one person and "zero" means the wealth is distributed equally -- is very similar today in the U.S. to that of the Philippines and Mexico. I think the fact that P&G actually developed a new product line for this group makes it clear that they understand they need to address this margin. But also, [the fact] that they're doing R&D dedicated toward this group means that it's here for the long term.
I think another example would be Walmart. They are introducing financial services in some of their stores and in satellite branches now. They are offering services like check cashing right in Walmart stores, where a very, very high number of people actually pay with cash. That's another way to include the margin and generate revenue for the company in an area where brick-and-mortar banks are simply not meeting the needs of these marginalized customers. Because A, they don't take the time to really understand their needs. And B, because they just feel it's not worthwhile for them. And that's clearly not true.
Radjou: We used to call [that] concept bottom of the pyramid." What P&G was saying is that it's very humbling to realize that there is a bottom of the pyramid, right in the U.S. Except that it's the bottom 60% of this country, right? Essentially, that's the middle class of this country, and they are being squeezed into lower purchasing power. The 60% means it's a big population, right? That's another reason that it also makes economic sense for these companies, like Procter & Gamble and Walmart, to tap into those marginal segments, which are growing and are in bloom. Because if they don't do that, then they're going to have these nimble products and emerging market competitors who might come and steal that market share.
Ajuha: Right. We have, let's say, in the financial sector, 60 million unbanked or underbanked citizens in this country. In the health care sector, we have approximately 50 million individuals who lack access to health insurance -- there's certainly a huge market share that needs to be addressed.
Knowledge@Wharton: We're almost out of time, but I have one last question. Any advice for companies that want to implement the principles of jugaad innovation? How should they go about it?
Radjou: In the book, we outline six principles. They can just pick one of them to begin with. For example, it might be doing more with less. And then they can figure out if there is a particular area within their organization where they can apply this principle. For example, General Motors is saying, "Okay, can we re-use parts and components? Why do we have to reinvent the wheel for every car across every market? Let's begin to standardize some of the platforms and reuse parts and components." In a way, that will lower the cost of global car development.
You can start like that on the R&D side. But I think you can also apply this principle of doing more with less in other parts of the organization as well. For example, if you are in the marketing function, you can think about how to use social media to run a marketing campaign, which is a much more frugal way of doing it than investing in expensive TV ads and whatnot. There are different functional areas in your organization where you can implement one of these principles very quickly. But I think what's important in all this is the role of leadership. Because ultimately, what defines jugaad as a philosophy is about transforming the culture and the mindset of people in the organization. What we find is that this isn't something that really can be easy to do with the millennials, the young workforce that is joining corporate America in masses. But for the traditional managers, the middle management, this may be a bit disruptive. Because in a way, it's about changing the status quo, right? I think there must be some kind of incentive system, or some kind of mechanism put in place by leaders, to drive this behavioral change. Ultimately, jugaad is going to be about transforming the corporate culture of an organization. My two recommendations would be, first, start small by implementing one of the six principles in a very focused, diluted fashion. Secondly, if you want to make the most out of jugaad, you've got to be able to drive massive cultural transformation as well, with the right incentive system and the right metrics. Simone, anything you want to add to that?
Ahuja: No. I think that's exactly right. That's exactly how we've seen it as being the most effective. Typically, when corporations want to integrate jugaad and drive jugaad innovation in their companies, they tend to do it first in smaller segments and/or by partnering with other groups who already understand how to do this, like grassroots entrepreneurs, for example, or individuals who are coming out of programs like Stanford's entrepreneurial design program. That's the way that they're best driving this kind of innovation in their corporations.
Knowledge@Wharton: Navi and Simone, thanks so much for speaking with Knowledge@Wharton.