Harnessing the Secret Structure of Innovation 03-26

Sustained innovation success is not the result of artful intuition or heroic vision but of a deliberate search using key information signals.

In an era of low growth, companies need innovation more than ever. Leaders can draw on a large body of theory and precedent in pursuit of innovation, ranging from advice on choosing the right spaces to optimizing the product development process to establishing a culture of creativity.1 In practice, though, innovation remains more of an art than a science.

But it doesn’t need to be.

In our research with the London Institute, we made an exciting discovery.2 Innovation, much like marketing and human resources, can be made less reliant on artful intuition by using information in new ways. But this requires a change in perspective: We need to view innovation not as the product of luck or extraordinary vision but as the result of a deliberate search process. This process exploits the underlying structure of successful innovation to identify key information signals, which in turn can be harnessed to construct an advantaged innovation strategy.

Innovation in Legoland

Let’s illustrate the idea using Lego bricks. Think back to your childhood days. You’re in a room with two of your friends, playing with a big box of Legos (say, the beloved “fire station” set). All three of you have the same goal in mind: building as many new toys as possible. As you play, each of you searches through the box and chooses the bricks you believe will help you reach this goal.

Let’s now suppose each of you approaches this differently. Your friend Joey uses what we call an impatient strategy, carefully picking Lego men and their firefighting hats to immediately produce viable toys. You follow your intuition, picking random bricks that look intriguing. Meanwhile, your friend Jill chooses pieces such as axles, wheels, and small base plates that she noticed are common in more complex toys, even though she is not able to use them immediately to produce simpler toys. We call Jill’s approach a patient strategy.

At the end of the afternoon, who will have innovated the most?3 That is, who will have built the most new toys? Our simulations show that this depends on several factors. In the beginning, Joey will lead the way, surging ahead with his impatient strategy. But as the game progresses, fate will appear to shift. Jill’s early moves will begin to seem serendipitous when she’s able to assemble complex fire trucks from her choice of initially useless axles and wheels. It will appear that she was lucky, but we will soon see that she effectively harnessed serendipity.

What about you? Picking components without using any information, you will have built the fewest toys. Your friends had an information-enabled strategy, while you relied only on intuition and chance. 

What can we learn from this? If innovation is a search process, then your component choices today matter greatly in terms of the options they will open up to you tomorrow. Do you pick components that quickly form simple products and give you a return now, or do you choose the components that give you a higher future option value?

We analyzed the mathematics of innovation as a search process for viable product designs (toys) across a universe of components (bricks). We then tested our insights using historical data on innovations in four real environments and made a surprising discovery. You can have an advantaged innovation strategy by using information about the unfolding process of innovation. But there isn’t one superior strategy. The optimal strategy is both time-dependent (as in the Lego game) and space/sector-dependent — Lego is just one of many innovation spaces, each of which has its own characteristics. In innovation, as in business strategy, winning strategies depend on context.

The exhibit below, "Information-Enabled Innovation Strategies Outperform," demonstrates three crucial insights. First, information-enabled strategies outperform strategies that do not use the information generated by the search process. Second, in an earlier phase of the game, an impatient strategy outperforms; in later stages, a patient strategy does. Critically, third, it is possible to have an adaptive strategy, one that changes as the game unfolds and that outperforms in all phases of the game. Developing an adaptive strategy requires you to know when to switch from Joey’s approach to Jill’s. The switching point is knowable and occurs when the complexity of products (the number of unique Lego bricks in each toy) starts to level off. 

Applying the Insight

How can companies harness these insights in practice? To answer this question, we ran simulations based on detailed historical data for a range of datasets, from culinary arts and music to language and software technologies such as those used by Uber, Instagram, and Dropbox. From our findings, we distilled a five-step process for constructing an information-advantaged innovation strategy.

Step 1. Choose your space: Where to play?

The features of your innovation space matter, so it’s important to make a deliberate choice about where you want to compete. Interestingly, it’s not enough to analyze markets or anticipate customers’ needs. To innovate successfully, you also need to understand the structure of your innovation space.
Start by taking a snapshot of key competing products and their components. How complex are the products, and do you have access to the components? As a rule of thumb, choose spaces where product complexity is still low and where you have access to the most prevalent components.


By focusing on immature spaces, you can get ahead of competitors by first employing a rapid-yield, impatient strategy and then later switching to a more patient strategy with delayed rewards. Uber International CV provides a good example. The company entered the embryonic peer-to-peer ride-sharing space three years after it was founded in 2009 as a limousine commissioning company. Uber chose its space wisely: The ride-sharing industry was immature, product complexity was low, and the necessary components were easily accessible. The impatient strategy was to get to market quickly with a ride-sharing app. As we are learning, there is also now what appears to be a patient strategy at work at Uber — self-driving technology with a much higher level of complexity and a much longer period of gestation.

Reproduced from MITSLOAN Management Review

Expect ‘frugal innovation’ in emerging market healthcare in 2020: Deloitte report 02-03

Expect ‘frugal innovation’ in emerging market healthcare in 2020: Deloitte report 

In five years’ time, emerging markets in Southeast Asia will come up with new business models and products in the healthcare and life sciences sectors.

That is the prediction for the world’s emerging economies in Asia, Africa and Latin America, in a report released recently by Deloitte UK’s Centre for Health Solutions.

The trend is called ‘frugal innovation’, which goes a long way in meeting inherent healthcare challenges such as access and affordability in emerging markets.

“When we think of innovation, we tend to associate it with the culmination of a more sophisticated gadget with a greater number of features,” said Mohit Grover, Life Sciences & Health Care Leader for Deloitte Southeast Asia.

“The idea of frugal innovation, however, is the contrary. Instead of adding more features, frugal innovation aims to reduce complexity – and hence costs – by stripping non-essential features.”

In Asia, healthcare access is limited by poor infrastructure and the lack of caregivers, he said. The latter challenge is worsened by the brain drain of healthcare workers from emerging economies to developed countries because of better pay and job prospects.

Grover said: “The lack of healthcare financing options – coupled with the increasing cost of treatment for diabetes and many chronic diseases, which are becoming major killers even in emerging markets – has left many patients facing high out-of pocket expenditures that are beyond reach.

“This also means that many of those living in under-invested areas such as smaller towns or rural areas either do not have access to healthcare or have to pay significantly more for treatment because they need to travel to larger cities and often get treated at an advanced stage of the disease.”

For example, many rural areas of Asia’s emerging economies lack hospitals and even local dispensaries. According to Grover, finding innovative solutions to deliver healthcare outside the traditional hospital setting can effectively extend reach into these areas.

In this respect, tele-health and mobile health technologies hold much potential. An application that allows people to consult doctors remotely can tackle the challenges of geographical distances, cost and time. Grover pointed to Singapore-based healthcare start-up Ring.MD, which lets anyone, anywhere, consult the world’s best doctors by video or phone.

“While these technologies remain limited by the nascent telecommunications infrastructure in emerging markets and are likely to only bear fruit in the medium to long term, other innovations that enhance productivity and reduce complexity can be low-lying fruit for the healthcare sector,” he said.

He cited the successful example of the low-cost Odon Device, produced by global medical technology company BD (Becton, Dickinson and Company), which helps doctors and midwives deliver babies safely when complications occur during labour.

Other predictions in the Deloitte report, called “Healthcare and Life Sciences Predictions 2020: A bold future?”, show a world that is markedly different from today.

People will become better informed about their genetic profile, existing and potential diseases, and the availability of healthcare. Most medical care will also take place at home, thanks to the proliferation of digital communication.

One perennial issue remains in Asia, however.

“Pharmaceutical companies will have an increased challenge in Asia to meet compliance standards,” said Grover. “Asia is a complex and diverse region with language and cultural differences that make a one-size-fits-all regulatory compliance solution like the ones adopted in the West difficult to achieve.

“Furthermore, many Asia countries are in early stages of healthcare system development. While resources are limited, there is a compelling need to raise compliance standards.”

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A Brilliantly Simple Design Transforms Old Boxes Into School Desks And Bags 06-0

A Brilliantly Simple Design Transforms Old Boxes Into School Desks And Bags

Most schools in rural India can’t afford basic supplies like desks, and most of the students attending them can’t afford backpacks. The Bombay-based nonprofit Aarambh worked with designers to come up with an ingenious solution to both problems: Their simple stencil transforms old cardboard boxes into a convertible desk and school bag.

“In the villages of India life is very difficult for children,” says Shobha Murthy, the nonprofit's founder. “They walk miles to reach the nearest school. The concept of carrying school bags, wearing shoes or a school uniform are distant dreams because most families are landless laborers who barely earn $1 for 10 hours of work. Kids have to carry their books in their arms, and it was an urgent need to find them a way to carry their books.”

They needed desks just as much--students usually sit on the floor hunched over books for hours--but the organization couldn't afford to make two different products. The result,Help Desk, folds quickly from one thing to the other; at the end of the day, a few simple moves turn the desk back into a bag to carry books home. The design ended up costing only about 20 cents to make since it's made from used cardboard.

"Looking back, I think the solution was right in front of our eyes," says Sanuree Gomes, an art director from an agency called DDB Mudra, which came up with the design. "We wanted a material that was not only strong, but flexible and economical. We had just received a shipment at our office, and we had boxes lying all around us."

The designers prototyped a few different variations to test with the students, looking for a solution that would be ergonomically correct as a desk and also easy to build. So far, the final design has been given to 10,000 students at 600 schools.

The students are fans. "The children love the bags and take good care of them," says Murthy. "They are very lightweight and sit easily on the back."

The desk-bags don't last forever, especially since cardboard doesn't stand up well to the rain. But the team is working on developing a low-cost material that can be coated on the surface to help it repel water. Right now, they only last about six months to a year. But anytime they need to be replaced, it's simple to make again.

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Frugal Innovation 06-02

 Frugal Innovation: Lessons from Carlos Ghosn, CEO, Renault-Nissan

by Navi Radjou, Jaideep Prabhu, Simone Ahuja  |   6:00 AM July 2, 2012

Carlos Ghosn, Chairman and CEO of the Renault-Nissan Alliance, famously coined the term "frugal engineering" in 2006. He was impressed by Indian engineers' ability to innovate cost-effectively and quickly under severe resource constraints. And under Ghosn's leadership , Renault-Nissan has proactively embraced frugal engineering and become one of the world's leading producers of both electric cars as well as low-cost vehicles — two of the fastest growing and most promising market segments in the global automotive sector.

Recently, in New York, we participated in a panel discussion organized by the Asia Society called "Jugaad Innovation: Reigniting American Ingenuity" (you can watch a video here). We were honored to have Ghosn as our key panelist. During the panel discussion, Ghosn explained that Western automakers must sacrifice the "bigger is better" R&D model and adapt to frugal engineering.

In today's resource-constrained environment, Western firms are feeling the growing pressure to "do more with less" — that is, deliver more value to customers at less cost. CEOs of these firms can emulate four best practices initiated by Carlos Ghosn at Renault-Nissan:

1) Create "good enough" products that deliver high value for money: Over-engineering products is no longer sustainable — both for economical and environmental reasons. Rather, Western firms need to make simplicity a key tenet of their innovation process by developing "good enough" offerings that deliver significant value for money to cost-conscious consumers. For example, in 2004, Renault launched Logan, a small, no-frills family car. At a starting price of $10,000, the car is built with drastically simplified product architecture and minimal components. In addition to a stripped-down, modern design, Logan is reliable and energy efficient. As a result, it has become Renault's best-selling car across recession-weary European markets as well as in many emerging markets. Building on Logan's success, Renault has now developed an entire line of low-cost vehicles (under the brand Dacia) all modeled after Logan's technology platform.

2) Foster healthy rivalry among global R&D teams: CEOs may find it difficult to persuade R&D teams in the US and Europe — used to abundant resources and pushing the technology frontier for its own sake — to embrace frugal innovation. Yet engineers and scientists love challenges. Western CEOs can create challenges for global R&D teams by introducing artificial constraints that foster a sense of urgency and healthy rivalry that can lead to frugal solutions. In one instance, Ghosn requested three different R&D teams — one each from Japan, France, and India — to come up an engineering solution for the same technical problem. The teams came up with solutions of equal quality — yet the Indian engineers' solution cost only one-fifth of what the French and Japanese engineers' solutions cost.

3) Tap partners in emerging markets who excel at innovating more with less. Rather than relying exclusively on in-house R&D teams to develop frugal solutions, companies in developed economies need to connect with entrepreneurial organizations in emerging markets that have a knack for innovating on a shoestring. Recognizing that even its least-expensive pickup truck was five times costlier than the Indian market could afford, Nissan established an R&D and manufacturing joint venture with Ashok Leyland, an Indian commercial vehicle manufacturer. Ghosn recounts with humor how Dr. V. Sumantran, Non-Executive Vice-Chairman of Ashok Leyland, paid a visit to the basement of Nissan's technical center in Atsugi, Japan and pointed to a four-generation old Nissan pick-up truck. He told Nissan's baffled head of product planning: "Give us the design specs of this vehicle and our Indian engineers will use it as baseline to develop a great-looking yet affordable and robust pick-up truck fit for the tough Indian roads." And they did it. The result is DOST, an entry-level pick-up truck with a starting price of Rs 3.7 lakhs ($6,600). Since its launch in September 2011, DOST has garnered more than a third of India's hypercompetitive light commercial vehicles market. The Ashok Leyland-Nissan joint venture now plans to introduce DOST in other emerging markets in Southeast Asia and the Middle East.

4) Send your top executives to emerging markets to cultivate the jugaad mindset: 
Ultimately frugal innovation is not just about doing more with less. It's about learning how to innovate under severe constraints and turn extreme adversity into an opportunity for growth. But it's hard for Western executives to cultivate this frugal, flexible and inclusive mindset — which we call jugaad — in resource-rich and relatively stable Western economies. That's why Ghosn dispatched Gérard Detourbet, a senior executive in Paris who was in charge of Renault-Nissan's entry-level cars, to India. From his new base in Chennai, Detourbet will be leading the development of a "global small car" — an entry-level car priced at around Rs 3 lakhs ($5,200) that will first be commercialized in India and then introduced in other emerging markets like Brazil, Indonesia, and South Africa. When Detourbet returns to Renault-Nissan's headquarters in Paris, he is poised to bring with him the jugaad mindset he honed in India. As Ghosn, a Brazilian-born French national of Lebanese descent, explains: "We don't go to emerging markets to just bring back a product, but to learn something — like new processes or a whole new mindset."

To win in today's resource-constrained global economy, Western CEOs must follow Ghosn's lead in embracing frugal innovation. By inculcating the jugaad mindset within their enterprise, Western CEOs will be able to build a resilient organization that can deliver significantly more value to customers using fewer resources.

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