Elsie Onsongo & Peter Knorringa Centre for Frugal Innovation in Africa

1. Strategic Choices for Frugal Innovation in Base of the Pyramid Contexts: An Institutional Approach Elsie Onsongo & Peter Knorringa Centre for Frugal Innovation in Africa International Institute of Social Studies (ISS)

2. Defining Frugal Innovation • (re)designing products, services and business models in order to reduce complexity and total lifecycle costs while providing high value and affordable solutions for BOP customers in developing countries • Frugal innovation involves both products/technologies and business models • Frugal innovation has been associated with base of the pyramid contexts • [severely] resource constrained • From producers perspective (production, exchange, consumption), and consumers perspective (economic poverty) • Institutionally* complex • The rules of the game: institutional voids, mix of formal and informal institutions Institutions here refer to social structures: schemes, rules, norms, routines, conventions, practices, values Patterns of behaviour

3. To succeed amid these challenges, frugal innovation has been conceptualised in existing literature as a process of adapting technologies and related business models to these contexts. • “redefinesbusiness models, reconfigures value chains and redesigns products” (Bhatti, 2012, p. 35); “works backward to develop solutions” (Gupta, 2011) • However, firms operating in the BoP are known to shape/influence/change their contexts. Does this strategy apply to frugal innovation? Main question: How do organisations engaging in frugal innovation navigate or exploit BOP institutional environments through their strategic choices? • We revisit both theoretical arguments underlying the notion of frugal innovation • We expand these arguments by drawing from recent developments in the entrepreneurship and neo-institutional literature • We develop a typology of organisational strategies • We develop research propositions

4. Navigating BoP contexts • Khanna et al. (2005) outline three strategy choices for success: • adapting the business model to the context while keeping the core value propositions intact, • altering the contexts to facilitate the deployment and or scaling up of the business model, and • staying away when either endeavour is uneconomical. • Dimensions of frugal innovation, derived from Soniand Krishnan (2014) and in part, by George et al. (2012) for inclusive innovation • the (frugal) philosophy or mindset at the basic level, • the ‘process’ or workflow at the activity level, and • the (frugal) ‘outcome’

5. Developing the typology… Entry strategies for the BoP Dimensions of frugal innovation

6. Strategy: Adapting to the context • The frugal outcome • Appropriate technologies (Schumacher, 1973) • affordable, robust, user-friendly, etc • Good-enough innovation (Zeschkyet al., 2014) • The frugal philosophy • Material bricolage; improvisational mind-set (Levi-Strauss, 1967), experimentation, effectuation • India’s Jugaad(Radjou et al., 2012), Kenya’s jua-kali(Daniels, 2010), Russia’s ‘repair society’ (Gerasimova & Chuikina, 2009) • Social inclusion (George et al., 2012) • The frugal process • Institutional adaptation (Van de Ven & Hargrave, 2004) • Frugal reengineering: technical adaptation of products: redesign, reconfigure technologies, “frugalizing” by customizing value-adding features, stripping down luxury features, replacing high-quality materials with cheaper substitutes • Business model innovation: iterative changes to value proposition, the revenue model and distribution channels to respond to BoP needs

7. Example: Philips’ Community Life Centres • CLCs aim to improve community and primary health across Africa, by extending new or existing health facilities into social and economic community hubs, using innovative and sustainable programs, technologies and services. • The CLC bundles primary healthcare with light, water, solar energy and entrepreneurship • Services include: outpatient, laboratory, pharmacy, maternity, child welfare • Philips adapted to local context by: • Fitting into the Kenya Health System framework as Level 3 Health Centre • Frugal engineering: • Refurbishment of pre-existing health centres • Developing and using appropriate medical devices, e.g. the Wind-up Fetal Doppler (portable, light, wind-up to charge, simple interface) • Business model innovation: • Value proposition: Upgrade primary healthcare, community outreach using Philips backpacks • Adopting different revenue/financing models: public financing, donor agencies, venture capital, etc • Modular deployment of CLC services • There is no fundamental change to the health system through the CLC

8. Borehole and water storage unit LED area lighting Kiosks/ shops Refurbishment of existing buildings Solar power unit - Connectivity within the health system: IT, referral system - Community outreach programme – Philips backpacks for CHW - Clinical consulting – improved workflow and client flow - Monitoring, evaluation and capacity strengthening

10. Some preliminary research propositions • Frugal innovation entails adapting both the technology and the business model in response to both internal organisational drivers and external institutional constraints • For MNCs, frugal innovation involves learning from the practices of successful local enterprises that operate from de facto frugal mind-sets. • Adaptation involves focusing on ‘good enough’ solutions, which implies a constant evaluation of the ideal balance between quality, cost and functionality in response to local requirements and constraints.

11. Strategy 2: Shaping the context • The frugal outcome • New markets at the BOP (McKague et al., 2015) • New (frugal) ‘rules-of-the-game’, de-legitimation of non-frugal arrangements • Micro-level: changes in user practices, • Meso-level: shifts in regulatory frameworks and industry arrangements • The frugal philosophy • Jugaad, Institutional bricolage, Effectuation, Social inclusion, Sustainability • The frugal process • Institutional innovation (Van de Ven & Hargrave, 2004) • Institutional entrepreneurship (DiMaggio, 1988) • Market creation/building through context brokering, spanning institutional voids, context bridging • Institutional work (Lawrence et al., 2009) • Theorising, advocacy, educating, mimicry, constructing normative networks, vesting

12. Example: Vodafone & Safaricom’s M-Pesa • Mobile phone based financial services aimed at financial inclusion of the unbanked • Functions on basic phones and an agent network • Services: deposit, cash transfers, withdrawals, savings, micro-insurance, micro-credit • M-Pesa changed the local context by: • Creating and filling a policy void: Influencing the regulatory framework to support mobile money • Advocacy with central bank, educating the public, moralising on financial inclusion (banking vs mobile money) to gain legitimacy • Bridging urban and rural finance • Transforming formal financial services: M-banking, lowering transaction costs, lowering entry requirements • Transforming informal financial services: formalising operations in chamaas, eroding informal finance

14. Some preliminary propositions • Powerful frugal innovators engage in more overt frugal processes of institutional innovation while less powerful actors adopt subtle means of inducing change. • Important breakthroughs occur through institutional entrepreneurship in which individuals reframe the rules and norms for business activity in an established context • Implementing radical frugal innovation calls for the strategy to engage in institutional innovation

15. Strategy 3: Do not enter • Applies to the entry decision into extreme operating environments: regions with on-going ethnic conflicts or ethnic-divided extremism, unfolding or recurrent civil and political unrest, geographically remote regions with extreme poverty and underdevelopment • The frugal outcome • Typically non-profit outcomes e.g. infrastructure development, education: the domain of government and donor agencies • The frugal philosophy • Require the enterprise to muster an extreme frugal mindset of bricolage, experimentation, effectuation • The frugal process • Require extreme agility in business model innovation, high risk

16. Preliminary proposition • Local, bottom up frugal innovation initiatives are more likely to succeed in extreme operating conditions in the BOP than those of established firms or multinational enterprises.

17. Completing the typology…

18. Conclusion • The adaptation strategy focuses on technological outcomes • The strategy to shape a context focuses on institutional outcomes • Further propositions: • These strategies may be exercised iteratively, or simultaneously. Further case study research could when and why this switch occurs. Further research could explore whether these strategies are mutually exclusive • The choice of one strategy may be mediated by the type and size of organisation engaging in frugal innovation. Further research would shed light on the dominance of one strategy over another among different groups of innovating entities

19. Questions and comments: onsongo@iss.nl

20. Philips outreach kit (backpack) Foetal doppler Ear thermometer Solar lantern Vital signs monitor Portable ultrasound Medical instruments kit Diagnostic ECG Pulse oximeter Blood pressure and heart rate monitor Child respiration monitor