How frugal innovation will be the best antidote for businesses in the wake of the Covid-19 crisis
By Portia Banerjee,
Before the black swan event of Covid-19, most companies measured their progress with an attitude that gravitated towards “the more the better”. Looking back in history, all black swan events move the roots of institutions and force them to seek solutions from within; this crisis is no different, accelerating the shift towards “do better with less” as companies are left with no choice but to find a minimalistic approach.
During the Great Depression of the 1930s, people weren’t able to afford mayonnaise. This led to a decline in Kraft Foods Company sales and their development of emulsifying technology to create the famous Kraft’s Miracle Whip, a fluffy mayo-like spread. This new product was cheaper and healthier. Consumers could afford it during the crisis and the brand even made profit. Fast-forward to the financial crisis in 2008, which lowered incomes and created a subprime crisis where people were forced to share assets in the form of shared rooms or pooled cabs. This not only increased the popularity of Uber and Airbnb, but also created a social shift among people towards sharing assets in spite of owning them. These methods of delivering more value at lower costs to more people is the foundation of ‘Frugal Innovation’.
Frugal innovation emphasises accessible, affordable and quality solutions. It takes design thinking at a product/service level and system thinking at a macro-level. It brings out the disruptive ways of product development by leveraging modern technologies to deliver at lower costs. Though this innovation is bulletproof, the implementation always stood as a question mark for companies as it involved simplifying organisational structures by eliminating bureaucracy, empowering employees, and cultivating a flexible mindset in the workforce. But the post-Covid-19 crisis will change this picture.
Here are the top five frugal trends that will have a big impact on the survival of companies during this crisis:
1.Work from Home (WFH)
This has always been a topic of debate for organisations, but with the current situation every industry has a chance to check their productivity with remote working. A lot of industries have responded positively towards it: Mark Zuckerberg took this opportunity to request 50% of Facebook employees work from home over the next five to ten years. This would help Facebook limit offices to 25% capacity. Besides saving on infrastructure this would also help companies to increase transparency through documentation, to improve performance measures by evaluating the quality of work, and to move out of their local market employee dynamics and salary expectations. For the employees, it will save their commute time and costs. This flexible work culture would also give the employees freedom to work at hours they prefer.
According to Infosys management, working from home also helps building social capital. They would like to leverage this crisis by building an administrative structure that digitally works together while being apart. Another IT company joining Infosys’s spirit is TCS, which plans on only 25% of its employees working from its facilities by 2025. This shift has left co-working places thinking about their relevance post-crisis. Berlin-based company Coworkies launched the first ‘Hack Coworking Hackathon’ in London to explore the future of coworking spaces and develop ideas to sustain their business. Afterall, embracing the WFH experience with a proven rate of productivity and no footprint is giving companies a window to jump into this new normal and make a pass on crowded corporate settings.
With the economic challenges the world is facing right now there is going to be a huge change in customer purchase behaviour. We are in a price-sensitive market, but the silver lining is that the aspiration of consumers is the same. They want the same products but have to compromise because of their sentiments on savings. At the same time there is a production slowdown for companies as everything is in standstill. Before Covid-19, research suggested that 51% of consumers will spend more on second-hand items in the next five years and 15% of luxury-market sales already come from the second-hand market due to social shift among customers regarding sustainability. This market will now grow more rapidly due to the gap between supply and demand as well as the affordability factor among audiences, and re-commerce companies will take advantage of this opportunity. Other companies are likely to leverage and introduce a circular supply chain in their industries to end the traditional cycle of take, make, and throw away, which is an economic dead-end. This traditional cycle always comes with the struggle of raw materials cost, volatility and pollution. The future lies in saving resources and building a more sustainable brand with the social shift to a mindful shopping attitude.
The life-cycle of a product these days is far smaller than before. The common question that companies have is “can we give another kick at the can?” resulting in extensive redesign and improvement of the same service and product. Sometimes the new versions work, but when they don’t big companies like Blackberry and Nokia lose their market share over a period of time.
Customer loyalty is not guaranteed in this forever evolving market. 58% of businesses are shifting towards co-created projects to drive successful innovations with less investment on R&D, at the same time creating more touchpoints in the customer’s journey. With the changing times in this crisis, co-creation will not only help the company to understand consumers better for their next move but also give a chance for a shift from brand-driven to fan-driven companies. This will result in making customers more loyal to the brand and more active in its future. Examples like digital native beauty brand Glossier helps us understand the importance of using cult following for co-creating innovations that are by the people and for the people. The old way to interact with customers might give us satisfactory ratings, but co-creating gives birth to an immortal brand that can survive future crises.
4. Digital Native Vertical Brands (DNVB)
The world lives digitally on phones; your life is in your hands and so are digital-native vertical brands. These brands are born on the internet but, unlike e-commerce, control their own distribution. With the upcoming recession, people will be more willing to buy products from local brands to improve the country’s economy. Local companies will take this opportunity to make themselves available digitally. DNVB are the only brands that grow at Amazon speed and are cheaper for the customers as companies don’t have high intermediary costs: an example such as Casper launched in 2014 and is already valued at $1bn. Contrary to any e-commerce, DNVB invests on a zero-sum market from the beginning and hence brings in a better margin. Warby Parker launched as a DNVB, but with the increase of demand and customer base they expanded to retail commerce and now has 115 stores.
DNVB is expected to grow enormously, empowering small companies with great ideas to make a physical space in the life of customers via digital. With fewer capital investments due to the economic crisis, companies would find it easier to dive in and be part of DNVB, the future model of unified commerce.
5. Blockchain Technology
Blockchain technology has been lying in the back office till now and hasn’t been used to its full potential. This crisis is a redefining moment for blockchain revolution. With the World Economic Forum releasing a Blockchain deployment toolkit, organisations can accelerate their economic rebound in the wake of Covid-19.
The toolkit would help maximise the benefits and minimise the risks of technology. Blockchain provides a public independent digital record – a Distributed Ledger Technology (DLT) – that helps big companies like Mastercard and Amazon as well as small farmers interact with the same data without the risk of any alteration, thus equally availing the benefit of data to everyone. The cost of implementation is also flexible as blockchain is a feature-dependent technology. IBM Blockchain Ecosystem is one of the first to bring in blockchain technology as an initiative to change the world of businesses and to tap and share data of unserved markets. Through this initiative the company has partnered with 500+ clients to scale new sustainable business models and solutions. In the near future more companies will be partnered over blockchain, making co-creation easier, safer, smarter, transparent and more profitable to supply chains with added benefits of no legal processes and paperwork.
All the above innovations are highly likely to become necessary to stay relevant and successful in this falling economy. They focus on future dominance of frugal models that bring in the much-needed bottom-up changes within an institution. It paves a way to bring in solutions with less resources, more sustainability, higher quality and larger impacts. Most importantly it creates a safe space for open innovations where ideas from any corner of the world can compete in the wider confluence of globalisation without huge capital investments.
Though we are fighting the global health crisis in solidarity, we can recover better together by building partnerships and choosing frugal solutions, coming out stronger, more integrated and better able for challenges in the future.
- History of Kraft Foods Company.
- Harvard Business School article- What frugal innovators do
- ET Now news
- Artur Lapinsch Blog
- Quartz Article
- The Gateway to Retail 4.0- NRF 2020 by Bearing Point at ESCP Business School
Portia is a MSc in Marketing & Creativity student. Feeling inspired by her blog? To follow in her footsteps, check out ESCP Business School and its Marketing & Creativity programmes: