Constraint as Competitive Edge
- Frugal IT innovation is a variation of frugal innovation in which IT takes the leading role.
- It has three dimensions: business innovation (in business strategy or cost structure), technology innovation (influencing products, processing, agility), and social innovation (driving sustainability or social entrepreneurship).
- Firms that practise frugal IT leverage emerging IT technologies and open source platforms. They use resource-light technologies such as social media, mobile computing, analytics and business intelligence, cloud computing, and the Internet of Things.
- Popularized in emerging economies, frugal IT innovation is used by small firms in rural areas of developed countries and enterprise units within multinational firms.
While visiting his family in India, Suchit Ahuja was treated to a master class in frugal innovation. As a PhD student at Smith School of Business, Ahuja was familiar with the concept. Frugal innovation refers to the process of reducing the cost and complexity of a good, stripping down its production, and focusing on its affordability, accessibility, availability, and sustainability.
Some of the frugal innovations Ahuja saw were on a modest scale: a man operating a food cart, for example, used a car battery to power his tools and food processing equipment. When he returned to collect data for his dissertation, he found more ambitious examples, such as a garbage collection and recycling ecosystem driven by a mobile app. Through the app, volunteers are recruited, trash is segregated, and reports are issued on how much and what type of garbage is collected and where it is being processed.
“All of the people who are responsible for garbage recycling and processing are now finding dignity,” says Ahuja. “Their entire livelihood has changed and improved radically because this implementation of IT has helped them find a new identity. They’re now seen as valuable members of society, helping recycle and keep the city clean.”
Innovating for Affordability and Sustainability
Ahuja was struck by the enabling role of information technology in such resource-constrained environments, marked by the lack of access to basic resources such as electricity or even non-existent infrastructure. “I saw a lot of other implementations of how people were using IT to solve problems that would otherwise be addressed by governments,” he says. “Food, public health, education, taxation, sanitation. It's all becoming possible because of the access we now have to emerging technologies, mobile phones, and analytics applications. One of the key aspects is, how do you innovate for affordability and sustainability at the same time?”
Back at the Smith School of Business, Ahuja teamed up with his dissertation supervisor Yolande Chan, E. Marie Shantz Professor of IT Management, to develop a model for what they call “frugal IT innovation,” a variation of frugal innovation in which IT takes the leading role. They came to see frugal IT as having three dimensions: business innovation (in business strategy or cost structure), technology innovation (influencing products, processing, agility), and social innovation (driving sustainability or social entrepreneurship).
“Although not all companies may want to have all three elements to the same extent, we see benefits to companies when they incorporate these elements,” says Chan. “Different combinations of these elements work very well for different firms, and lead to important innovation outcomes.”
Frugal IT in Action
Firms that practise frugal IT see opportunity in adversity — for them, “constraints are actually driving frugal IT innovation’” says Ahuja. They know how to do more with less, think and act with flexibility, and engage local communities and partners in setting up a grassroots value chain to locally build, deliver, and support their solutions.
Significantly, they are also less likely to be beholden to legacy IT systems and processes, which gives them the freedom to source low-cost IT strategies. Research has shown that they often spend a larger percentage of revenue on digitization than more mature firms and are faster to market with new offerings. They achieve it, says Ahuja, by leveraging emerging IT technologies and open source platforms. “The stack of technologies that this capability sits on is social media, mobile computing, analytics and business intelligence, cloud computing, and the Internet of Things,” he says. “Many of these technologies are light and not resource heavy. They allow resource-constrained businesses to innovate very frugally.”
Ahuja and Chan say successful practitioners of frugal IT focus more on value creation than on developing intellectual property for later use. “Companies can bring in a lot more intellectual capital on board by actually creating digital platforms that connect people and helping them shape their own ecosystem, and where new ideas and products are generated by customers and vendors and suppliers in collaboration with the firms.”
“The stack of technologies that this capability sits on is . . . not resource heavy. They allow resource-constrained businesses to innovate very frugally"
Frugal IT may sound like lean management, which is geared to creating value by minimizing waste, but Ahuja says it is goes beyond the formalized lean processes. “With frugal IT in resource-constrained environments, you have to be focused on affordability and sustainability because your customer base is similarly restricted or constrained by their budgets. Lean and agile would be more formalized processed-based structures, not necessarily product or service based. Their focus is generally on internal operations whereas in frugal IT, the focus could be internal as well as external.”
Frugal IT in Rural Ontario
Ahuja and Chan emphasize that frugal IT innovation is not only a paradigm for emerging economies. Many of the constraints and challenges faced by firms that operate in emerging markets are also faced by firms operating in rural areas of developed markets. Challenges such as access to a highly skilled workforce or potential investors, an ecosystem for developing networks, and basic IT infrastructure such as broadband internet connectivity are common.
To prove it, the researchers conducted a case study of one such enterprise, a digital video production firm with four employees based in Eastern Ontario. Despite facing geographical, business, and IT constraints, the firm established a healthy business in smaller towns often overlooked by video production firms in larger cities.
“It might not map exactly to what's going on in India or China but it has its own flavour,” says Ahuja. “Although the CEO was looking forward to leveraging technology as much as he could, he was very cautious about the costs that were involved using these technologies. He was just trying to survive in the space that he had carved out for himself. He had to make decisions around what was best for the organization but also keep in mind that he’s a part of a larger community and he can’t let the community down while making his business decisions.”
It is this combination of operational constraints and a business dependent on technology that prompted the CEO to use frugal IT innovation principles. He changed his business model to fit the needs of his environment, focusing on low-cost but high-value and superior quality services for his rural customers. He sourced low-cost drones directly from China and bolted on DSLR cameras to develop aerial photography capabilities. He also developed customizable, video-enabled greeting cards, ordering the hardware from China and developing the software in-house. He says his business is committed to developing a rural IT ecosystem and has partnered with a regional business incubator to hire more full-time employees from within the community.
“A lot of large firms run skunkworks internally. . . and frugal IT applies to this significantly”
Ahuja and Chan say frugal IT innovation offers lessons for large firms as well. Some multinationals, such as General Electric, are now designing basic products such as affordable medical devices in developing countries, sometimes with the intention of selling them in developed countries. Renault-Nissan even operates a centre for frugal engineering in India. In some cases, separate sales teams and distribution channels are being built to support these lines.
“A lot of large firms run skunkworks internally,” says Chan, “and frugal IT applies to this significantly. They may also have business units that are spread across Canada in remote rural areas. Although they would have the strength of a corporate structure and a global structure, there are local concerns that might have constraints that again make this work very relevant. Sometimes just the discipline of frugality is a strategy that large firms are applying. You think in new ways when you don't assume that you have certain resources.
“Increasingly the elements of frugal IT innovation are what the market is demanding,” Chan adds. “The market is demanding that we’re more socially responsible. It’s demanding that the technologies are current and emerging. The market is asking for this new business model and rewarding it.”
— Alan Morantz
SIDEBAR: The Okwaho Network’s Frugal IT Innovation
A good example of the integration of all three components of frugal IT innovation — business, technology, and social innovation — can be observed in the strategies used by the Okwaho Network of Canada.
Founded in Ontario, the Okwaho Network is a Facebook-like social network for global Indigenous people. It offers a unique networking experience where indigenous entrepreneurs, small business owners, indigenous communities, innovators, investors, service providers, students, and youth can connect, engage, and discover business and economic development opportunities.
In supporting First Nations entrepreneurs of Northern Ontario, the Okwaho Network acts as a digital platform that enables them to market their products to a much larger set of customers than they typically could access. On the other hand, the Okwaho Network encourages businesses and individuals to join and provide support and services to the Indigenous people of northern Ontario. As a result, a mutual space for exchange of goods and services exists which also acts as a medium for discussions and execution of plans for regional economic development.
The Okwaho Network is addressing challenges faced by Indigenous people using frugal digital innovation. The business concept, technology, and website were developed at home by its founders, Shyra and Ryan Barberstock. Okwaho established itself by developing its ecosystem through local relationships within the region and later expanded by offering value-added services. It was also able to impact an untapped market and address social challenges such as lack of infrastructure, access to larger markets, and connectivity to complementary business services for Indigenous people of the region.
— Suchit Ahuja and Yolande Chan