Frugal innovation and design changes expanding the cost-performance frontier: A Schumpeterian approach

This paper redefines “frugal innovations” particularly for physical products with relatively complex designs, by using a multidimensional framework that covers design, technological, and economic aspects of innovations, refining and broadening its initial definition as “low-cost innovations” for the unserved lower end of the mass market (ULM). By applying our framework, this paper clarifies and broadens the concept of frugal innovation. The applicability of this broadened concept is demonstrated by using this framework to illustrate two cases of radical frugal innovations in the automobile industry, Tata Motors Nano and Citroën 2CV, from an emerging country and an advanced country respectively. The study shows that frugal innovation may improve (rather than decrease) performance of the products deliverable to the ULM under extreme budget constraints by extensive architectural changes and creation of technological knowledge, that integral architectures may be adopted more frequently in frugal radical innovation of relatively complex products such as automobiles, and that such products may not be destructive for producers in the higher price segments. The study shows that the existing concepts of frugal innovation that emphasize “low cost/good enough” innovation of “simple products” need to be re-examined, because frugal innovation can also be treated as technological product innovation in the sense that it may improve the performance of relatively complex products deliverable through their architectural changes and creation of technological knowledge. This study shows that there is a domain of innovation policies and strategies activating frugal innovations that calls for integrative and strategic approaches, not only to R&D, but also to other value-adding functions of firms and industries.