Innovation as a Significant Directive at Corporations Globally - Essay Example

? Introduction Innovation can be regarded as a significant directive at corporations globally; however, companies are increasingly facing difficulties in the global business landscape that is highly unpredictable and diverse. Western based corporations can no longer stick to the old formula that maintained innovation and growth for decades encompassing hybrid top-down strategies, rigid, highly structured innovation processes, and expensive R&D projects. The future of innovation demands that multinationals resort to places such as India, Africa, and China for a fresh bottom-up approach to flexible and frugal innovation. Frugal solutions are highly likely to become necessary so as to stay relevant within stagnant markets of the West, as well as the growing middle class in emerging economies. The paper explores the place of fungal innovation in emerging markets. Background The bulk of the literature focuses on the dominant innovation models exhibited by multinational enterprises based in the developed world, and minimal attention is directed to alternative models of innovation offered by local players from emerging markets. The new emphasis on the development of affordable and locally sustainable products has availed an alternative model of resource-constrained innovation within major sectors including telecommunications sector (Leonard-Barton 1995, p.6). Enterprises encounter challenges on how to design and diffuse innovations to tap into local demand within emerging markets. Some of the critical factors for innovation that can be highlighted to drive resource-constrained innovation include entrepreneurial leadership and vision; modular designs to satisfy user demands of functionality, affordability, and operability via architectural innovation; and, exploitation of the local knowledge base and the generation of local innovation clusters. Discussion Innovation represents the successful implementation of new ideas and encompasses the research and development activities of science and technology encompassing products, services, processes, social innovation, and design. Innovation can be perceived as a business activity of companies and individuals that yields in the creation of uncovering something new and marketable (processes, technologies, products) either radically different of just incrementally improved. On another hand, innovation represents a world-wide phenomenon not limited to developed economies. Nowadays, emerging economies have become sources of innovation, albeit of a diverse form (Gupta and Govindarajan 2001, p.45). In the contemporary business world, there are a number of factors that have played a prominent role in shaping a new economic environment with the most essential being globalization, technology, and demography (Markides 2012, p.22). The model of frugal innovation comes from emerging markets, and open innovation can play a pertinent role in bringing the innovation it generates to rich countries as reverse innovation. Frugal innovation seeks delivery of market value and sustainable solutions by improvising and utilizing creative thinking. When frugal innovation is transferred to developed countries and become commercially viable it is considered as reverse innovation. In recent times, multinationals such as GE, Siemens, Procter & Gamble have engaged widely in frugal innovation, as well as reverse innovation. Although, open innovation has not been considered within the context of low income customers within developing countries, the utilization of open innovation concept may accelerate the pace of frugal innovation and reverse innovation. As a result, quality products with low-income will be broadly available within both developed and developing countries. Therefore, Western companies should change their long held business strategies and reshape their business models. The removal of nonessential features from durable goods, so as to sell the product to developing countries cheaply, does not essentially mean that the products and services will be inferior. Frugal products are affordable owing to their substantial reduction in the total cost of ownership; avail features that merge robustness with the ease of use; and, promise an attractive value proposition to meet the needs and aspirations of customers. Frugal Innovation: Is the future of innovation in emerging markets? Frugal innovation has been highlighted as one way in which emerging economies and developing countries can solve their developmental challenges. This is informed by the fact that lackluster growth and leveraging within developed economies will increase demands for frugal product and services, as well as frugal innovation processes (Marco, Bastian, and Oliver 2013, par.3). Moreover, environmental constraints centring on climate, energy, water, as well as other resources will heighten the demands for more frugal models of consumption and production. Presently, the fastest growing markets are found within developing and emerging economies where the demand for frugal products and services if naturally high. This has mainly been fostered by new technology programs, which are drastically minimizing the cost of some forms of innovation. The advanced technology has generated huge new opportunities for frugal innovators, especially in services. Jagaad innovation features several principle including seeking opportunity in adversity; doing more with less; thinking and acting flexibly; keeping it simple; incorporating the margin; and following one’s heart. Frugal innovation is unique in its mean and ends and responds to limitations in resources including limitations in material or institutional and financial resources by utilizing a number of methods. Frugal innovations transforms constraints into an advantage by minimizing the utilization of resources in development, production, and deliver, or by leveraging the resources in new ways, whereby frugal innovations yield to dramatically lower-cost products and services (Indian Institute of Science 2013, p.521). Studies have demonstrated that successful frugal innovations are mainly low cost and usually outperform the alternative, and can be made available at a large scale. In most cases, frugal innovations manifest an explicit social mission. Several factors generate the conditions for high-impact frugal innovations within India and other emerging economies such as China, namely: (1) A culture of creative improvisation, whereby unusual skill set and mindset are adopted to drive frugal innovation; (2) A huge market where a growing, aspiration middle class generates the perfect conditions for frugal innovation to grow; (3) High growth in the Indian consumer base that is growing and that is highly price-sensitive and willing to experiment, which sustains the demand for frugal innovation; (4) Extreme conditions in which there are major gaps within service provision, which stimulates the demand for low-cost solutions within significant sectors of the economy including energy, manufacturing, education, and health sectors; (5) Strengths that manifest in the service and business model innovation generate an advantage in creative remodeling of product-service ecosystems; (6) New sources of social finance that are lowering the cost of investing the cost in frugal innovations; (7) An increasing “inclusive” science and innovation policy is emphasizing the policy of “more for less for more” and seeking to establish the institutional conditions that could drive high-impact frugal innovations. The adoption of open innovation can play a critical in fostering frugal innovation and reverse innovation. Frugal innovation represents a way of innovating faster, better, and cheaper within a complex and resource-constrained world. While in the west enterprises are engaged in creating the next big thing, while in emerging markets the central focus centres on creating the next significant value for clients to ensure that they come up with exciting ideas. Frugal innovation represents an innovation with low-cost, simple usability, efficient, and that is targeted at large low-income customers. In order to boost frugal innovation within emerging markets, open innovation can be employed to: innovate within emerging markets and establish cheaper products; herald frugal innovation from a distant location to the global arena; foster the flow of knowledge and attract talent; share the R&D costs and risks with local partners; and, utilize open innovation intermediaries to enable individuals from emerging economies to contribute to innovation. Open innovation can also aid in fostering competition; sharing experiences with local enterprises and learning from other companies by observing the strategies that they have employed to become successful in frugal innovation; and, gaining experience by testing products and services and collaborating to prepare for future challenges (Radjou, Prabhu, and Ahuja 2012, p.47). Big multinationals corporations have encountered challenges of further expansion and capturing of new markets, while at the same time, maintaining stability and competitiveness in an era of changing global conditions. On another hand, the business world's has witnessed the rise of emerging markets such as India and China with significantly higher economic growth rates that could be interpreted as a sign that advanced economies might be caught up with in matters regarding innovation and competitiveness (Trott 1998, p.4). The ascent of the emerging economies should not, in any way, be interpreted as a threat to the developed world, but rather a positive change towards a positive change that could be beneficial to the global economy. For a majority of companies, the strategy for these markets has for an extended period been extended to existing brands, or strip out some of the features from the brands so as to attract highly cost-conscious consumers. Nevertheless, with the rising consumer awareness and global connectedness, the competitive picture has shifted, and presently new emerging-market strategies are necessitated. Companies have started to target the set needs of the emerging consumer given that such an approach award companies an edge in emerging markets. In new competitive reality, companies are expected to develop innovative products specifically for and in emerging markets, and pursue opportunities that leverage the products back to the developed world. Traditional product development must be adapted to attain profitable results in and from emerging markets. Three significant evolutionary steps within a typical developed-world company’s efforts to innovate and develop can be highlighted: in the developed markets companies defend and grow developed markets (base product); in emerging markets companies adapt existing products to local markets, and also establish new platforms to local markets (frugal innovation); and in developed markets companies innovate from emerging markets targeting developed markets (reverse innovation) (Gupta 2011, p.252). New Solutions for old challenges: Reverse innovation The ascent of Indian and Chinese economies can be mainly attributed to demographic changes that the countries have experienced over the years. Frugal innovation delineates innovative activities that pursue to develop products that consume less and trade off some functionality for low cost. Emerging economies have become home to a new form of innovation that multinationals can utilize to attain further growth (Govindarajan, and Euchner 2012, p.13). Reverse innovation represents a new approach that encompasses developing frugal products within emerging markets that are later introduced within advanced economies. Recently, some multinationals have addressed the problem of global expansion and competitiveness in a different way, whereby, instead of the general practice of offering their existing products to customers within emerging markets, some of the multinationals such as GE and Siemens have opted for a different approach. Companies such as GE have developed new products within emerging markets that, when introduced in the home markets within developed countries enhance their competitiveness and open up new growth opportunities (Govindarajan and Ramamurti 2011, p.191). Such products are mainly frugal in nature by nature meaning that they are entry-level to mid-range products initially intended for consumers within the developing world, and their development is grounded in delivering value by consuming as minimal resources as possible (Immelt, Govindarajan, and Trimble 2009, p.56). Reverse innovation has been identified as a solution for the numerous challenges that companies are facing and is perceived to be a new wave within the history of innovation (Govindarajan and Trimble 2012, p.5). The pattern of reverse innovation is usually reversed given that companies innovate within the developing world by generating frugal products appropriate for the local customers, and introducing the same products within the developed world. Products with reverse potential can be regarded as “smart” given that they embody characteristics such as simple, affordable, maintenance-friendly, timely-to-market, and reliable (Ramamurti 2012, p.241). As promising as the concept of reverse innovation may be, this phenomenon is not yet pervasive among multinationals. MNCs based in the developing world might find it effortless to pursue innovation as the underpinning principal of frugality, which reinforces the faulty premise that frugality is a concept that if better grasped by individuals based in the developing world where resources are limited. Govindarajan and Ramamurti (2011, p.192) outline three steps shaping the process of reverse innovation, namely: innovating within an emerging market; adopting the innovation to other emerging markets; and, introducing the innovation to developed countries in which appealing price performance ratio of the offering coupled with other features that may be appealing to wealthier customers, as well. Multinationals could be viewed possessing adequate skills and resources to engage in reverse innovation. One possible difference that can be highlighted rests in the fact that local companies form emerging markets are highly familiar with the frugal approach as it is closely connected to the overall conditions within those regions of the world. In the end, reverse innovation presents analogous benefits to both sets of companies including increased global competitiveness, expansion and future growth. Judging the growing significance of emerging markets in the global economy, multinationals should not ignore the strategic significance of emerging markets. This arises from the fact that frugal innovation can play a critical role in unlocking opportunities that attract new customers with the low-cost products. Factors influencing reverse innovation Global challenges Multinationals are encountering continuous pressure to sustain growth despite having a staggering size, political power, and wealth. Big multinationals are confronting multiple strategies centring new markets and further expansion. Only few multinationals appear to go beyond their conventional, standardized approaches. This is further complicated by the fact that the home market within developed economies is increasingly becoming saturated (Govindarajan and Trimble 2005, p.47). The reluctant multinationals should be aware that multinationals can operate in emerging markets in ways that allow them to generate high revenues and new sources of growth, to enhance their efficiency and highlight new sources of innovation (Karnani 2007, p.90). Multinational should beware that frugal products can appeal to both the rich and the poor consumers within both emerging and developed economies. It is highly likely that the value-for-money segment will persist to grow in each market, which means that companies should view the trend of frugal innovation as a source of fresh opportunities for growth and success by innovating on the grounds of affordability and sustainability, instead of abundance and premium pricing. Moreover, multinationals within emerging markets can make a strategic defense move, which explain why the likes of GE are engaging in reverse innovation (Johannessen, Olaisen, and Olsen 2001, p.3). Developed-developing countries gaps There are a number of gaps that can be highlighted between developing economies and developed countries on where they should innovate. The gaps triggered by the emergence of reverse innovation cannot be bridged by mere adaptation of current products for emerging markets include performance gaps, sustainability gaps, infrastructure gap, regulatory gap, and preferences gap. The perception that innovation could emanate from advanced world only has been challenged by the fact that developing economies have enjoyed considerable growth in recent years increased their global presence through innovation, which challenges conventional notions on innovation, which may no longer be completely valid (Gupta 2011, p.251). Whether Frugal Innovation pose problems to Multinational Companies Frugal innovations have been sometimes been considered to be “a secret weapon of emerging markets.” Although, such a description can be regarded as martial rhetoric, frugal innovations usually have a disruptive character given that they can be powerful enough to destroy present business models of the complacent incumbents (Corbett 2008, par.2). Hence, it is advisable that companies within developed countries be well advised to engage in catering to the emerging needs and opportunities instead of waiting until they are challenged by emerging market multinationals on their home turf. In emerging markets, disruptive innovations will be essential as the focus of innovation activities rests on discovering unmet needs or opportunity gaps, especially in instances where existing products services fail to fulfill the needs of their clients. Innovations within emerging markets are mainly referred to “social innovations,” which means that an enterprise not only attempt to increase its profitability and generate growth, but also seeks solutions for social needs or problems in cooperation with local actors (Ray and Ray 2010, p.144). All this necessitates new approaches to innovation processes and new capabilities form a company. In the case of Tata Nano, the car was hyped as the world’s cheapest car and was deemed to be an embodiment of a revolution. The cost savings linked to frugal innovations are usually projected to be so huge to the extent that frugal ideas would conquer the world. The Nano was envisaged to herald India’s arrival to the global car market in the same way as Toyota did to Japan (Schumpeter 2012, pr.4). However, the miracle was dogged with numerous challenges given that early sales failed to gain momentum coupled with protesting farmers forcing Tata Motors to move its production site (Ramadorai 2011, p.197). Moreover, majority of rural farmers manifested little desire to shift from trucks to cars (Pandit 2005, p.60). The failure of Nano (miracle car) to live up to the hype raises questions regarding whether the notion of frugal innovation is being oversold. Frugal innovation has been flourishing across the emerging world and changes both the developed and developing countries. Multinationals are starting to incorporate ideas developed within emerging world and implementing the ideas into the developed world. Hence, frugal innovation does not necessarily proceed in one direction only. For instance, an American company that makes infotainment systems for cars instituted a new system for emerging markets labelled “Saras” (flexible) by employing a simpler design. Another example is GE’s portable ultrasound machine, which represents a portable ultrasound device that was developed in China and has become a hit in both rich and poor countries (Karabag, Tuncay-Celikel, and Berggren 2011, p.1347). Some western companies are turning to emerging markets to develop their products. This is reinforced by the fact that entrepreneurs are increasingly seizing on the notion of radical cost-cutting and this trend will most likely accelerate in the future (Shankar and Hanson 2013, p.191). Conclusion Frugal innovation yields in great value: high quality; no-frills; functional products, affordable to the customer with modest means. Low cost does not essentially translate to low tech given that companies can be frugal and at the same time sophisticated. 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