The Frugal Way to Grow

 Building a Frugal Capability

The growth opportunities in frugal innovation are clear; however, its disruptive nature means that companies need to be strategic about how they adopt and implement it within their organizations. We suggest three entry points for companies seeking to embark on a frugal innovation journey. The higher the level, the greater the risk and complexity, but also the more enduring benefits conferred on companies adopting it.

Level 1: Frugal products and services. This is a good starting point and creates a tactical competitive advantage for companies facing stiff price competition from low-cost rivals. Think of fast-moving consumer goods companies trying to win back thrifty consumers who have been switching to private-label products; brick-and-mortar hotel chains having to fend off Airbnb; or multinationals desperate to crack emerging markets such as India and China where frugal local companies reign supreme. Level 1 is also suited to companies with a high environmental impact, such as those in the automotive, chemicals, and electric power industries. These businesses may be under pressure from regulators and eco-conscious consumers to redesign existing products and services, or to create new ones that are environmentally friendly. Frugal innovation can help.

Level 2: Frugal business models. Companies that sell commodity products in mature or saturated markets, and firms whose supply chains depend on increasingly costly or scarce natural resources (such as water, wood, and oil), face huge pressures to do more with less. To stay competitive, these companies need to advance from seeking tactical advantage to enabling strategic change. They must reinvent their operations and practices systematically, using both cost savings and a reduced energy and environmental footprint to distinguish themselves as companies that avoid waste. This involves going beyond lean manufacturing and process reengineering, to a full redesign of the company’s value chain, encompassing sourcing, R&D, production, distribution, and product and customer service.

Level 3: Frugal mental models. Like Unilever, the Tarkett Group has reinvented itself to meet the demands of its evolving environmental strategy. But this global flooring and sports surface solutions provider, headquartered in Paris, has adopted “circular economy” principles. In this type of industrial design, waste is eliminated. Biological elements are put back into the ecosystem in a sustainable way, while all other materials are designed to be reused, recycled into new products, or used as input into some other industrial process.The Frugal Way to Grow