Capabilities for Frugal Innovation in Developed Market Firms

Abstract

Frugal innovation has proven a powerful approach to innovating using fewer resources. Mostly associated with emerging markets, some scholars and practitioners suggest the growing relevance of frugal innovation practices to developed markets. However, existing studies are primarily anecdotal, often lacking systematic empirical exploration. The present research explores how developed market firms incorporate frugal innovation activities into their normal innovation activities. In particular, this research focuses on firms operating from a developed market context in the Asia-Pacific region, and primarily targeting customers in emerging market contexts in the same region. More precisely, the present research answers the research question: How do strategic decision-making and knowledge integration activities enable capabilities for frugal innovation in developed market firms? To answer the research question, the dynamic capability perspective is applied to review the literature of frugal innovation capability building in emerging markets. A multi-level (firm- and project-level) qualitative case study approach is then applied to analyse four in-depth purposive case studies of developed market firms involved in frugal product innovation. Thematic analysis reveals that the firms engage in frugal innovation for different reasons. A typology is developed that shows three categories of firm motivation based on the degree of empathy with market needs and the importance of activity being profitable. These categories, termed the Philanthro-Capitalist, Robin Hood, and Cost-Driven approaches, offer a new way to describe the reasons developed market firms pursue frugal innovation. The findings also show the firm-level and project-level activities underpinning distinctive capabilities for frugal innovation. A multi-level model connecting firm motivations and distinctive capabilities for frugal innovation is developed.