All businesses make productivity improvements and business sustainability their key growth agendas.
Innovation is the instrument businesses use to drive that target. But, it is typically not cheap.
Its high cost is one reason small- and medium-scale enterprises (SMEs) shy away from innovation spending. Now, there is good news for such businesses.
A new lower-cost approach — frugal innovation — has emerged as a workable option. It treats resource constraints as an opportunity rather than a liability.
Agility is favoured over efficiency. Businesses that practice frugal innovation do not seek to wow customers with technically sophisticated products. Instead, they strive to create solutions that deliver the highest value to customers at the lowest cost.
Companies now actively embrace frugal innovation. The change is not just confined to their business model but also the mentality of their employees.
Frugality becomes a part of the corporate DNA. One study has proposed five ways for businesses to foster frugality.
FIRST, building circular value networks. Most firms operate linear value chains, where products are designed, produced, sold, consumed and end up in landfills.
This is wasteful, costly, and environmentally unsustainable. The circular way is more resource-efficient. It involves using sustainable methods of design, production, and distribution. These enable the continual reuse of materials, parts and waste.
SECOND,crowdsourcing solutions are another way to reduce innovation costs. It is costly to rely solely on in-house capabilities and resources.
Instead of wasting time and money, businesses should consider crowdsource solutions from external networks of suppliers, universities and innovative entrepreneurs.
THIRD, partnering with external innovators can shift the perspective of employees and speed up cultural change.
For example, General Electric's (GE) recent 3D Printing Design Quest challenged people outside the company to design lighter, next-generation aircraft engine brackets that can be 3D-printed.
The idea was to save GE Aviation clients fuel and maintenance costs. Some call this "open innovation".
FOURTH, simplifying organisational structures and empowering employees will cut innovation expenses. Firms must be frugal with time, the most valuable resource in business.
To save it and gain agility, firms must learn to multitask their assets, not just physical or service assets, but also human assets.
To address customer needs faster and better, chief executive officers (CEOs) must simplify organisational structures by eliminating bureaucracy, empowering employees and cultivating a flexible mindset in the workforce. Use key performance indicators (KPIs) to incentivise and sustain frugal behaviour across the organisation.
FIFTH, CEOs must create specific KPIs to drive frugal thinking and action at all levels. These should enable employees to track their performance against enterprise-wide goals and adjust individual and collective efforts.
Companies should not merely communicate their bold frugal innovation goals by issuing press releases. Instead, corporate leaders must put their reputations on the line by making public announcements about these goals and restating them incessantly to employees, customers, investors, and partners.
Unilever PLC has precisely done this. By launching its Sustainable Living Plan in 2010, the CEO publicly committed himself and the company to an ambitious target of doubling the firm's revenue and halving its environmental footprint by 2020.
Since 2010, he has imparted his vision at employee meetings in major Unilever regions and public speeches and media interviews.
Creating a frugal innovation culture requires systemic change across companies, and CEOs must lead from the front in initiating such change.
All such lessons show that innovation need not necessarily be costly. It is time for SMEs to embrace frugal innovation as a progressive business strategy.
The writer is a professor at Tan Sri Omar Centre for STI Policy Studies, UCSI University
The views expressed in this article are the author's own and do not necessarily reflect those of the New Straits Times