The World Financial Review
Think Frugal, Be Flexible, Generate Breakthrough Growth
Jugaad is a Hindi word that roughly translates as “overcoming hash constraints by improvising an effective solution using limited resources”. Jugaad innovation is a powerful approach to innovation that is most active in emerging markets such as India. It has the benefits of being frugal, i.e. enabling innovators to do more with less. Further, it is flexible, supporting improvisation and iteration, and it is inclusive or democratic, bringing in the knowledge of diverse swaths of customers and employees alike while addressing the needs of previously marginalized consumers. Similar to frugal innovation, we found through our research that jugaad innovation is becoming increasingly active in the West, where it complements the structured approach to innovation to deliver the agility, speed and efficiency that is so crucial in today’s complex economic environment.
Jugaad innovators don’t view customers as merely passive users of their products and services. Recognizing the diversity of customer needs, they invent new solutions from the ground up by working closely with marginal groups to identify their unique needs. They then engage local communities and partners to set up a grassroots value chain to locally build, deliver, and support their solutions—making these solutions in turn affordable, accessible, and sustainable.
For instance, to effectively serve the six hundred million unbanked Indians, YES BANK is constantly experimenting with new technology-powered inclusive business models that tap a vast network of partners. The YES MONEY service is one such initiative. As part of this initiative, the bank has teamed up with various payment platform companies like Suvidhaa Infoserve and Oxigen Services which offer payment services through about two hundred thousand mom-and-pop retail stores in urban and rural areas. YES BANK has helped these companies to deploy a specialized “domestic remittance” module, allowing, for example, migrant workers in cities to send money to their families in far-flung villages Compared to money order remittance services (offered by India Post, a government undertaking), YES MONEY is about five times cheaper and five times faster. YES MONEY also offers a cost-effective alternative to Western Union. Moreover, the majority of the fees collected are passed back to the payment platform companies and the retailers—creating value for all partners in the YES MONEY ecosystem.
“YES BANK constantly experiments with new technology powered inclusive business models that tap a vast network of partners.”
Like YES BANK, Zone V is positioning its products as tools for economic empowerment rather than for passive consumption. Zone V’s phones can therefore enable blind women in rural India to manage not only the finances of their households but also those of their neighbors and the village council. In this way, the individual phone becomes a vehicle for driving socioeconomic growth in an entire community. To make all this happen, Zone V will rely on a host of partners. It has outsourced its design and manufacturing to contract engineers and manufacturers and relies on nongovernment organizations (NGOs) like Sightsavers to distribute its phones in emerging markets like India—especially in rural areas. More important, Zone V will create a platform for third-party software developers to develop “inclusive apps” for its phones. These apps will be available at different price points depending on the customer segment and the phone being used. Naha believes that many mobile app developers will be motivated to create solutions that meet the basic needs of blind people worldwide.
In emerging markets, jugaad innovators often partner with state-level and local governments to make health care, education, and financial services more inclusive. For instance, GE Healthcare has signed a performance-based service contract with the government of the Northwestern Indian state of Gujarat. Under the terms of this public-private partnership agreement, GE-trained partners will operate and maintain all the medical equipment installed in government-run hospitals in the smaller cities of Gujarat. Rural hospitals, for their part, won’t need to invest in expensive equipment or scramble to recruit qualified technicians. Nevertheless, they will be guaranteed higher equipment uptime and lower utilization costs—all of which will translate into cost-effective and high quality care for rural patients.
“In emerging markets, jugaad innovators often partner with state-level and local governments to make health care, education, and financial services more inclusive.”
Scaling Up Personalized Solutions with Technology
Jugaad innovators cleverly employ technology—especially mobile computing—to reduce the cost of delivering services to marginal segments. They also leverage technology to customize their offerings on a large scale. A case in point is Reuters Market Light (RML), a mobile phone service developed by Thomson Reuters in India. RML delivers to farmers customized and localized weather forecasts, local crop prices, agricultural news, and other relevant information (namely relevant government aid schemes), in the form of three SMS messages sent daily to their mobile phones in the local language. Such customized and timely information enables farmers to better plan their activities such as irrigation, fertilizer use, and harvesting. As a result, farmers can better manage risks and improve their decisions regarding when and where to sell their produce to maximize profit. The service costs a mere 250 rupees (US$5) for a three-month subscription. As of 2011, some 250,000 Indian farmers from over fifteen thousand villages had subscribed to RML. Thomson Reuters estimates that over a million farmers across at least thirteen Indian states have benefitted from the RML service. Moreover, farmers have reaped substantial returns from their investment in RML. Some have realized up to 200,000 rupees (US$4,000) in additional profits, and savings of nearly 400,000 rupees (US$8,000) with an investment of only US$5 in subscription costs.
“Jugaad innovators cleverly employ technology—especially mobile computing—to reduce the cost of delivering services to marginal segments.”
Another jugaad innovator using technology to bring low-cost services to the masses is Dr. Liu Jiren, chairman and CEO of Neusoft, China’s largest IT solution and service provider. Dr. Liu, a former professor of computer science, is worried that the Chinese, thanks to sustained double-digit economic growth, “have accumulated lots of wealth in the past two decades, but have also accumulated lots of diseases as they got richer.” It is estimated that ninety million Chinese suffer from diabetes and two hundred million may be suffering from cardiovascular diseases. The explosion of chronic diseases—which are particularly devastating for low-income Chinese in rural areas—is forcing the government to invest in a health care system that has so far been deficient or nonexistent in the rural areas, which lag behind urban areas in medical resources and health care infrastructure. But Dr. Liu warns: “If the Chinese government were to build a health care system to serve 1.3 billion Chinese modeled on the United States [where health care spending is projected to account for 20 percent of GDP by 2020] we will need a huge budget which will soon bankrupt our country. We need an alternative health care model that is smart, affordable, and inclusive. We need a model that focuses on—and enables—disease preventionrather than treatment.”
For its part, Neusoft has developed several low-cost but high-tech solutions, such as affordable health monitoring devices and telemedicine solutions for rural hospitals to serve low-income Chinese patients. More impressively, Neusoft has developed a cutting-edge wristwatch for chronic disease patients to use as a mobile health monitor. On a regular basis, the watch collects bio indicators from sensors attached to the patient’s body. This dynamic data is sent to Health Cloud, a cloud computing–based expert system. Health Cloud analyzes the data using a health care knowledge database and offers customized advice to the patient in terms of exercise plans and diet regimen, thus helping the patient make healthy lifestyle changes. For instance, if you are overweight, the system will suggest a three-month jogging plan, monitor and report back your progress daily, and even suggest improvements when needed.
Dr. Liu notes that in a rapidly aging China—where family ties are important and the over-sixty-five population is projected to increase from 130 million in 2010 to some 222 million by 2030—these wristwatches and home health monitors have become popular gifts from young Chinese to their parents. Through these gifts, young Chinese can remotely track their parents’ health—through daily reports on their mobile phones—and proactively tend to their well-being. Dr. Liu believes that Neusoft’s ability to serve marginal groups (such as the elderly and the rural poor) faster and cheaper by harnessing affordable technologies like cloud computing gives the company an advantage over Western multinationals. He says: “We don’t have the resources of a large multinational corporation, but we identify opportunities in underserved markets early on and execute fast on them by harnessing the power of technology—especially cloud computing, which significantly lowers the cost of service delivery in sectors like health care.”
Jugaad innovators like Dr. Liu successfully include the margin by approaching marginal groups as whole new markets, helping everyone climb up Maslow’s hierarchy of needs, co-creating value with customers and partners throughout the value chain, and making clever use of affordable technology to scale up their personalized solutions. As Western nations become increasingly diverse, however, there is a growing urgency for Western companies to pay close attention to the margin.
“Western companies will miss out on a big market opportunity if they fail to adapt their offerings to the requirements of the rapidly aging consumer base in the United States and Europe.”
The Margin Is Becoming the Majority
In coming years, “marginal” segments in the West will no longer be marginal; they will become bigger, possibly muchbigger. And the number of marginal consumers will increase across a number of dimensions: age, ethnicity, and income.
Take age. In the next fifteen to twenty years, the number of Americans over sixty-five will double. In the same period, the number of Americans over eighty-five will triple. This shift will be even more dramatic in Europe. The continent already has nineteen of the world’s twenty demographically oldest nations. By 2030, nearly 25 percent of Europeans will be older than sixty-five, up from about 17 percent in 2005. As a result, the U.S. Census Bureau estimates that by 2030 the European Union will experience a 14-percent decrease in its workforce and a 7-percent decrease in its consumer populations. All this means that American and European companies will need to tend to a rapidly aging workforce and learn to serve aging consumers—many of whom belong to the assertive baby boomer generation which is used to getting what it wants given the sheer strength of its numbers.
The good news is that this senior market is a highly lucrative one. In the UK, the over-fifties spent £276 billion (US$437 billion) in 2008, making up around 44 percent of total family spending in Britain. In the United States, the over-fifties’ annual after-tax income is estimated to be $2.4 trillion, accounting for some 42 percent of all after-tax income. The bad news is that existing products and services are often not tailored to aging consumers’ needs. Ian Hosking, senior research associate at the Engineering Design Centre at the University of Cambridge’s Department of Engineering, points out: “Aging populations exhibit an increasing variation in functional capabilities such as vision, hearing, and dexterity. In general these abilities reduce with age. Even though it may seem obvious to design inclusive products, many products are targeted at young, able-bodied users. As a result, they are neither accessible nor desirable to older users. At the same time, the products that we use every day seem to grow ever more complex to operate.” Western companies will miss out on a big market opportunity if they fail to adapt their offerings to the requirements of the rapidly aging consumer base in the United States and Europe.
Western populations are not only aging, they are also becoming more diverse and multicultural. For instance, the percentage of children in the United States with at least one foreign-born parent rose from 15 percent in 1994 to 23 percent in 2010. Similarly, more than half of the growth in the U.S. population between 2000 and 2010 came from the increase in the Hispanic population, which rose 43 percent to 50.5 million during that period; these Hispanic consumers are likely to form the majority in states like California within a generation. It is estimated that the Hispanic consumer group has a collective buying power of about $1 trillion. The Census Bureau projects that the share of ethnic and racial minorities will reach 54 percent of the total U.S. population and surpass that of non-Hispanic whites by 2042—eight years sooner than expected.
The demographic makeup of Europe is also bound to change rapidly. Muslims, who currently account for 5 percent of the overall population of the European community (reaching 10 percent in France), are expected to account for 20 percent by 2050. But long before that, countries such as Britain, France, Spain and the Netherlands will have surpassed that figure. As the working-age population rapidly decreases, European governments will have no choice but to liberalize their immigration policies if they wish to sustain their economic competitiveness. This growing ethnic and cultural diversity of Western populations will force corporations to innovate their products and services to meet the differing needs of minority consumers.
Another key factor contributing to the diversity of Western populations is the rise of Generation Y and Z workers, with their idiosyncratic values and expectations. Many studies show that Gen Y and Z employees consider themselves widely misunderstood in the workplace and feel alienated—primarily because the hierarchical structures and top-down communication styles of Western corporations are at odds with the collaborative spirit of Gen Y and Z workers. Unless Western companies find an innovation mechanism to keep their Gen Y and Z employees fully engaged, these young workers are likely to feel marginalized and leave for organizations that truly capitalize on their creative talents.
Finally, there has been a dramatic shift in income in the United States, where the lingering recession has pushed more people into poverty. In 2010, 15.1 percent of Americans (or 46.2 million people) were living below the official poverty line, the highest level since 1993 (in 2009, the percentage was 14.3 percent). More worryingly, America’s consuming middle class, which accounts for 70 percent of national spending and forms the bedrock of the U.S. economy, is shrinking. According to Pew Charitable Trusts, nearly a third of Americans who belonged to the middle class as teenagers in the 1970s have slipped below it as adults. The study highlights the relative ease with which even Americans who started life with advantages can end up in low-income, low-opportunity circumstances.
And although it has become easier to be downshifted economically, it has become harder to climb back up the socioeconomic ladder. Median incomes in the United States have remained stagnant for the last thirty years. (In 2010, the median U.S. household income was $49,445, down slightly from $49,777 in 2009.) Adjusted for inflation, the middle-income family earned only 11 percent more in 2010 than it did in 1980, whereas the richest 5 percent in America have gained a 42-percent income boost. In sum, the bottom 60 percent of U.S. households experienced an income reduction in 2010, whereas households making $100,000 and above enjoyed an increase in income. As a result, the 5 percent of Americans with the highest incomes now account for 37 percent of all consumer purchases.
An economy rife with such inequality and downward mobility—the so-called “plutonomy”—is simply not sustainable. In an op-ed entitled “The Limping Middle Class,” Robert Reich, former U.S. secretary of labor, warns: “When so much income goes to the top, the middle class doesn’t have enough purchasing power to keep the economy going without sinking ever more deeply into debt—which, as we’ve seen, ends badly.” Fifty million Americans currently don’t have medical insurance, and a whopping sixty million Americans are unbanked or underbanked—which means they are unable or unwilling to avail themselves of the full gamut of financial services offered by traditional banks. One can expect these numbers to go up significantly in coming years as economic conditions worsen. For a growing number of disenfranchised middle-class Americans, the American dream will remain just that: a dream.
“Companies that actively embrace the marginal groups, and form their businesses around their needs, are likely to find, just as jugaad innovators in emerging markets are finding, that doing so increasingly makes business sense.”
What does all this mean for Western corporations? The marginal groups that have traditionally been perceived—and therefore ignored—as the “long tail” of the consumer economy (that is, as niche segments) are rapidly becoming the “fat tail” (that is, dominant consumer groups). These groups can no longer be ignored. Companies that actively embrace them, and form their businesses around their needs, are likely to find, just as jugaad innovators in emerging markets are finding, that doing so increasingly makes business sense. Indeed, it will increasingly be possible to include the margin (do good) and make a profit (do well) at the same time. But there are several factors holding back Western companies from including the margin in their business strategies. We explore these factors in the next section.
Excerpted with permission from the publisher, Wiley, from Jugaad Innovation: Think Frugal, Be Flexible, Generate Breakthrough Growth by Navi Radjou, Jaideep Prabhu, and Simone Ahuja. Copyright © 2012.
About the Authors
Navi Radjou (email@example.com) is an independent innovation and leadership consultant and speaker based in Palo Alto, California, and a fellow at the University of Cambridge’s Judge Business School.
Jaideep Prabhu (firstname.lastname@example.org) is the Jawaharlal Nehru professor of Indian business and enterprise and director of the Centre for India & Global Business at the University of Cambridge’s Judge Business School.
Simone Ahuja (email@example.com) is the founder of Blood Orange, a marketing and strategy consultancy with a focus on frugal innovation and emerging markets.