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Jul 19, 2011

Frugal Engineering: Necessity and Importance - Vikas Khanvelkar, MD DesignTech Systems. Ltd

A Radical approach to Customer Centric Innovation.

I am borrowing the term "Frugal Engineering" coined by Mr. Carlos Ghosn, the Chairman and CEO of Nissan with context to Indian Engineering and Manufacturing approach. The word Frugal as per the dictionary means "not wasteful". So in a very simple explanation, Frugal Engineering implies lean Engineering methodology or process that involves optimum use of resources at hand.

In a country like India, where the resources have always been scarce, and though the customers are hard pressed for funds and look for products at lower costs, they still do not wish to compromise on their requirements in terms of product quality, functioning, comfort and environment friendliness.

The key idea about adopting Frugal Engineering as an approach to Product Development is to build and produce products that are affordable to the customers and do not involve exorbitant product development costs.

Frugal Engineering is a scientific approach that has compelled and inspired the Product Development companies around the world to re-evaluate and re-strategize their engineering processes and development methodologies. Frugal Engineering is a scientific way of building the products and processes in the most economical way possible. The companies have to revise, re-examine and re-investigate every small step and every minute detail of their current product development processes and do away with the parts that are not necessary. It, basically breaks down the product engineering and development processes into its basic components and enables companies to rebuild the products in the most cost effective ways. It is like commencing your product development right from the blank slate. You have to have a fresh look at product developments and engineering processes right from the start. It is a new beginning or a new window to your otherwise conventional Engineering outlook.

As Thomas Friedman in his book has rightly said that world market is shrinking and World is becoming flat, the "One World, One Market" scenario was never more true. In such situations, the only way a company can expand is to create new markets by building the products that cater to specific larger set of demographics for emerging markets at the bottom of the pyramid as defined by C.K Prahlad.

Innovation is the key which smart companies avail to create a market which we didn't even know existed earlier. In this cost competitive and fast pacing world where technologies and products become outdated in less than 6 months of their launch, the companies need to think of nonconventional and unorthodox strategies and avenues to expand, rather than just feed the devouring market with the familiar range of new products. Companies now should also aim to create breakthroughs that would develop a new market or a new demography.

Frugal Engineering primarily focuses and involves, but is not just limited to Cost Cutting aspect of product development. Because it involves defining the processes right from the start, it helps the companies to avoid incurring unnecessary expenses. It also provides the companies a microscopic vision of their current methodologies and thus helps them identify the weak links or short comings in their present processes. Instead of introducing featuristcally less loaded version of the same product at cheaper costs, the company stands to gain a lot bigger and better by introducing a radically different product that caters to the tastes of new emerging markets. Just by eliminating the features of the product that has been built for the mature high - end market, the company cannot successfully serve the new emerging market with different needs. E.g in the country like India which has the world's largest middle class population, now comparatively has a higher spending capacity but still cannot match the spending potential of US, would have different product expectations and needs. Frugal engineering through its fresh perspective gives the companies an insight to building a breakthrough product that best caters to the new emerging markets at the costs best affordable to them. The challenge is to balance the product features and functionality expectations with the costs that would be considerable for this new cost conscious demography.

This involves the companies to thoroughly understand the market expectations they would be targeting in terms of their product needs and the price they are willing to pay. Because this is a fresh perspective and has not been tried and tested before, the biggest challenge for the companies is to get it right the very first time.

All said and done, the word frugal should not be confused for being miser. There is a world's difference in being miser and being frugal. The former involves in compromising on the standard product quality and cutting down on the expenses or investments that may affect the product quality adversely. The latter is a scientific approach to developing standard quality products by doing away with the unnecessary features or costs after carefully understanding the market expectations and developing products that meet the taste and requirements of the emerging market at costs affordable to them.

This whole approach is about understanding the needs and expectations of the customers to provide them what they need through processes and development methodologies that involve optimum use of available resources. This approach involves not just the OEMs, but caters to the entire eco-system of product development by extending the approach to suppliers, and vendors as well.

Benefits of adopting Frugal Engineering approach which Companies can see right upfront:

Helps companies determine and establish lean product development and manufacturing processes and build an entire productive eco-system involving suppliers and vendors
Ensures optimum utilization of available resources thereby eliminating waste and saving unnecessary expenditure
Helps build better products through Engineering and Process reviews
Benefits from economies of scale
Caters to emerging market that helps company expand its reach and penetration

Frugal Engineering is one such approach that is unique to India and now being followed by many MNCs. One of the classic examples product developed through the approach of Frugal Engineering is Tata Nano. A $3000 Car has the entire world marvelling and commending the ingenious Engineering acumen that went behind developing this "Small Wonder". The suppliers, and Vendors apart from OEM have made a strong contribution in building this remarkable vehicle that best caters to the needs of the emerging market and is made available to them at affordable prices without compromising on the standard quality, safety and emission standards. They adopted a reverse innovation strategy approach whereby they understood the needs of the emerging market to develop a product which best met their requirements. They are also planning to launch an upgraded version of Tata Nano in the western markets.

One other classic example of Reverse Innovation through Frugal Engineering is a $1000 electrocardiogram (ECG) device Mac 400 developed at GE's John H Welch Technology Centre (JHWTC) in Bangalore, the success story of which was published in Economic Times Corporate Dossier of 25th March 2011. In Reverse Innovation approach, the companies develop the low cost products for the emerging Markets and after their success is tried and tested in the emerging Markets, they ship the same product and sale it in the fully Developed markets/Economies of USA and/Europe, which is actually the exact reverse of the conventional approach where the products developed for the Developed market are scaled down to suit the needs and requirements of the emerging market and then are sold in countries like India.

In today's market scenario where the bargaining power of customers is very high, the threat of the competition is alarming, and when the world is already saturated with lot of similar products, the only way a company can sustain and outperform the competition is by investing to create radically innovative products that address the needs and expectations of the new emerging markets in developing economies with their increasing disposable incomes and as a result stand to gain largely from economies of scale.