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Frugal Innovation: Catalyzing India’s National Innovation System

Khadijah F. Qamar

Indian inventor and student Remya Jose demonstrating her pedal-powered,

water-efficient washing machine

(Open Architecture Network)

Prof. William Bonvillian

STIA 463 – Innovation Systems

April 20th 2012

I. Introduction

In 1993, economist Richard Nelson attempted to define the ‘national innovation system.’ He prophetically asserted that the idea of ‘nation’ becomes irrelevant in an increasingly transnational economic landscape. His definition of ‘system”, as a set of institutions whose interactions drive the innovative performance of national firms and individual entrepreneurs, sought to erase a misconception. He wrote, “although to some it connotes something that is consciously designed and built…there should be no presumption that these institutions are consciously designed or even work together smoothly” (Nelson). In a sense, these institutions likely take on some characteristics of the innovation process itself: spontaneous, independent, and risky. Nelson goes on to state that identifying the institutional players is key to understanding a nation’s innovation system. His broad framework ably described the U.S. innovation system at the time, but has applications even now for an altogether different country – India.

Although the same framework may be applicable, the political and economic development of India, and thus also the development of a strong national innovation system, is markedly different from that of the United States. First, India must develop its innovation system amidst tough competition from the United States and other emerging economies, including China, Brazil, Russia, and South Africa. It has the potential to leapfrog over established technological advances but the standard for breakthrough innovation is also much higher. Most challenging, India, although described as a democracy, is in reality a very messy and bureaucratic federalism, one that has trouble keeping peace in all of its fractured states. As such, India does not have a strong national innovation system yet, but it is nonetheless innovating.

A phenomenon dubbed ‘frugal innovation’ is sweeping emerging markets, including India, as they struggle to innovate at every level. Called by different names in different languages, ‘jugaad’ in Hindi, ‘zizhu chuangxin’ in Mandarin, ‘gambiarra’ in Portuguese, and ‘Yankee ingenuity’ in English, ‘frugal innovation’ roughly translates as doing more with less, being flexible, and utilizing homespun ingenuity to solve real problems. Frugal innovation is the dominant motif of an informal innovation system, loosely defined as individual entrepreneurs and scattered private firms. This informal innovation system resembles the U.S. innovation system in the 19th century, when self-made men like Cyrus McCormick, Ben Franklin, and Thomas Edison tinkered and invented generative technologies (Ahuja, Radjou and Prabhu). Now in the 21st century, the United States has a robust, formal innovation system, fortified by the crucial trinity: an engaged research and development (R&D) financial infrastructure, human talent, and effective innovation organization. While formal innovation seeks to discover the breakthrough innovations at the frontier of knowledge in high-tech laboratories, informal innovation describes the inventive spirit that encourages common people to solve the problems most relevant to them. Formal innovation occurs at the national scale while informal innovation is mostly built from grassroots efforts and person-to-person interaction. The two can develop simultaneously, and the success of each depends on the other. In order to play catch-up to developed countries like the U.S., emerging economies must race to nurture both an informal and formal innovation system at the same time. Indeed, if India expects to make the next breakthrough in information technology (IT), it must also assure that its agricultural output meets national demand at the hands of innovative farmers.

This paper describes how frugal innovation gives rise to a more structured and resourceful formal innovation system in India. India lacks sufficient R&D and effective innovation organization but boasts a breadth of human talent. Frugal innovation uses human talent as a launching pad to develop an informal innovation system that, with significant time and resources, can eventually develop into a formal innovation system encompassing the crucial trinity: R&D, human talent, and effective innovation organization. For emerging markets, investing in R&D and structuring effective innovation organization can take years, but frugal innovation takes maximum and immediate advantage of existing human talent. In fact, frugal innovation is a necessary transition phase for an emerging market to develop a strong national innovation system. Frugal innovation as a transition period, from an informal innovation system into a formal national innovation system, is appropriate for three reasons: 1) it takes maximum advantage of available resources, 2) it identifies the needs of the masses and responds to their problems, and 3) it develops a network of empowered entrepreneurs and innovators and motivates the government to invest in R&D. In order to understand its power, this paper analyzes how frugal innovation has catalyzed India’s national innovation system, effectively transforming an informal innovation network into a foundation for a strong national innovation system. Indeed, the power of ‘frugal innovation’ is critical for emerging economies that seek to make a swift transition to a strong national innovation system.

First this paper reviews the established U.S. literature on what constitutes a national innovation system, specifically citing R&D, human talent, and innovation organization, as proposed by Solow, Romer, and Bonvillian. This innovation systems framework then splits along the lines of a formal and informal innovation system. The formal innovation system encompasses R&D-rich, institutional, and high-tech innovation, like the advanced innovation system in the U.S. The informal innovation system encompasses the grassroots network and person-to-person interactions that characterize frugal innovation. A discussion of the Indian formal innovation system and its weaknesses then invites a deliberation on how frugal innovation is building a strong innovation network, called “Honey Bee”, of resourceful entrepreneurs and “tinkerers” who, in the coming decade, will catalyze the formation of a strong formal innovation system.

II. Established Literature on the National Innovation System

What ingredients make up a national innovation system? Economist Robert Solow identified R&D as a foundational economic innovation force in his 1987 acceptance speech for the Nobel Prize in Economics. His idea of growth theory revolutionized classical economic thinking. He argued “technology remains the dominant engine of growth” and that technological advance signifies a healthy innovation system (Solow). Struggling to quantify the power of technological advance, he eventually identified R&D as the critical component of a strong national innovation system. Within his growth theory model, technological innovation is treated as exogenous to the classical economic system. But Stanford economist Paul Romer argued to the contrary and expanded on Solow’s initial growth theory model. He posits that “the stock of human capital determines the rate of growth” and thus, since human capital is endogenous to the economic system, so is growth theory (Romer). He contends that human talent is the direct input generating technological advance and, that without a critical mass of human talent, R&D is incidental. In addition to Solow’s R&D, Romer identifies human talent as a critical input in a strong national innovation system.

Returning to Nelson’s framework, an innovation system is best understood by identifying the primary actors. These actors, all contributors to R&D and human talent, include component and systems producers, upstream and downstream firms, universities, industry, and government (Nelson). But Nelson also stresses that technological advance does not occur through the existence of these actors alone, but rather proceeds from their interactions. Consequently, R&D and human talent are not enough to merit a strong innovation system; rather, the way in which they effectively interact and innovate technological advance determines the strength of a national innovation system. In his article “The Connected Science Model for Innovation – The DARPA Model”, Professor William Bonvillian provides further insight into this interaction, “it is not enough to have the ingredients of R&D and talent, they have to come together in an effective way for a highly productive innovation system. We’ll call this third factor innovation organization” (Bonvillian). Innovation organization is divided into two levels of interaction –institutional and person-to-person. In the United States, Presidential Science Advisor Vannevar Bush was the father of the institutional innovation organization. His vision attempted to bridge, at least for the military, the “valley of death” between technology breakthroughs in fundamental science into applied development and prototyping (Bonvillian). But Professor Donald Stokes criticized his narrow pipeline vision of technological advance and argued that there is also a reverse flow from technology to science (Stokes). This assertion is particularly important in emerging economies, where technological advance often comes before fundamental scientific research.

While R&D and human talent are inputs, innovation organization is a more complex and abstract concept that is particular to each country. After raising significant R&D, India’s biggest challenge is engendering the most effective innovation organization. Riding the wave of frugal innovation, India has engendered a broad personal, face-to-face level of innovation organization. These personal interactions constitute the informal innovation system; on the other hand, India does not have strong institutions encouraging breakthrough innovation and thus lacks a strong formal innovation system. The next section discusses the current status of the formal innovation system, its institutional gaps and where improvements might be made.

III. India’s Formal Innovation System

In order for India to take advantage of its vast assets, including an educated middle class, a semi-democratic government, widespread human talent, a vibrant private sector, aptitude for science and technology development, a niche in information services and a booming population, India will need to strengthen its financial and institutional regimes, invest heavily in education, and most critically, channel talent through an efficient national innovation system. A formal national innovation system requires significant government R&D, private-public partnerships, high-tech research laboratories, and strong national innovation institutions that foster innovation. Though India has promising beginnings in each of these categories, the establishment of a strong national innovation system will require more investment from the government and private firms.

The below diagram provides a visual summary of the current status of India’s formal innovation system (Dahlman and Utz).

This scorecard demonstrates that India does well in its availability of venture capital, costs to enforce a contract, and cluster development (like the information technology haven in Bangalore) but that it has a seriously underdeveloped manufacturing sector, lack of strong innovation institutions, and unremarkable Gross Foreign Direct Investment, although that is improving. India spends only .78% of its GDP on R&D, less than its most able competitors, Brazil, China, and Russia (Dahlman and Utz). In contrast to the U.S., the majority of R&D is government funded, suggesting that private firms have not engaged completely into the financial structure for innovation. Nonetheless, their share in the R&D pie is growing and multinational corporations increasingly flock to India to take advantage of the cheap technical workforce.

India faces a number of challenges if it wishes to maintain its current economic growth rate. It is weak in turning its research into profitable applications, in other words, bridging the “Valley of Death.” Although the government has recently proposed a new $1 billion venture capital fund (MyDigitalFC), Professors Lew Branscomb and Phil Auserwald note that funding for technology development between invention and innovation comes from primarily corporations and federal government programs, not venture capital (Branscomb and Auserwald). In order to compete with other emerging economies, the government must invest heavily in R&D and pursue private industry to do so as well. Attracting the right kind of R&D investment will require creativity and effort on the part of the government, or an innovation organization that it creates.

The government of India has yet to stand up strong national innovation organizations that can foster and invest in both high and low-tech innovation. Though several of its cities breed innovation, like New Delhi and IT-haven Bangalore, there is no overarching national innovation plan or program. A large part of the reason for this may be due to the fractured nature of Indian politics, where states mostly self-govern and experience wildly different economic growth. Moreover, India does not have any major research grant schemes or any institution resembling DARPA in the United States (Dahlman and Utz). In addition, it needs to improve its intellectual property rights and patent regime, although this has seen some improvement in the last few years.

India’s formal national innovation system has only come into being over the last decade and requires many more improvements in the coming one if India is to be considered a “knowledge economy.” Most importantly, it needs to invest in R&D and build effective innovation organization. India’s plethora of human talent sets it on the right path. The ingenuity of thousands of regular citizens, flourishing in the entrepreneurial spirit of frugal innovation, has established a broad informal innovation system. The next section discusses how frugal innovation has launched a strong informal innovation network.
IV. India’s Informal Innovation Network: Frugal Innovation

When Arunachalam Muruganantham created a homemade sanitary pad for poor women in southern India, he didn’t know he was part of a larger phenomenon sweeping emerging markets – frugal innovation. In India, where 88% of women don’t use or have access to sanitary pads during menstruation, feminine hygiene is a highly taboo topic, and thus, left uninvestigated. Muruganantham pledged to solve his wife’s “embarrassing condition” and after four years of research, including a stint as a fake millionaire to earn production secrets from multinationals, he eventually created a machine that creates sanitary pads for a fraction of the price and can also employ rural women (Co.Exist). Muruganantham’s ingenuity and practicality embody the six core principles of frugal innovation: 1) seek opportunity in adversity, 2) do more with less, 3) think and act flexibly, 4) keep it simple, 5) include the margin and 6) follow your heart (Ahuja, Prabhu, and Rajhu).

Indeed, India’s strength is in its diverse but highly capable human talent. Moreover, a widening informal innovation network is connecting the heroic Schumpeterian entrepreneurs who champion frugal innovation. The Honey Bee Network is the most impressive product of the informal innovation network. Developed by Dr. Anil Gupta sixteen years ago, the Honey Bee Network is a self-described “crucible of like-minded individuals, innovators, farmers, scholars, academicians, policy makers, entrepreneurs and non-governmental organizations (NGOs)…[promoting] a philosophy of discourse which is authentic, accountable and fair” (SRISTI). To discover the ingenuity of village entrepreneurs whom Dr. Gupta describes as “oddballs, crazy people” he and a team of academics, students and technicians travel by foot across regions of India twice a year. His job, he states, is to “add value to people’s creativity and ideas, and to make sure that it reaches other people who need that solution” (SRISTI). The results of these visits are then catalogued on an online database that compiles innovations from marginalized communities (the majority in India) in order to spread ideas, but also preserve the intellectual property of the original inventors, oftentimes uneducated laborers.

The Honey Bee network partners with several government organizations to try to patent some of these ideas and push them into commercialization. The two most significant, the National Innovation Foundation (NIF) and the Grassroots Innovation Augmentation Network (GIAN) seem to be well-motivated in theory, but further investigation reveals that they often fail to bridge the “valley of death,” even after a prototype is at their fingertips. One prominent example is the story of Remya Jose who invented an efficient pedal-powered washing machine that, although promoted proudly in international media, has yet to be effectively marketed or find appropriate investment (Brown). In reality, the NIF and GIAN receive more patents than they can successfully market but also don’t have the right tools to cross the “valley of death,” including visionary management, capable project teams, and an expedited production pipeline.

Once again, India’s lack of R&D and innovation organization threatens to stifle the potential of its human talent. Several within the Honey Bee Network are able to produce and market their own innovations but most are incapable of moving past “valley of death” on their own. Nonetheless, frugal innovation tenets provides several guidelines that may help push the informal innovation network into a feasible formal innovation system: 1) take maximum advantage of available resources, 2) identify the needs of the masses and respond to their problems, and 3) develop an empowered network of entrepreneurs and innovators and motivate the government to invest in R&D. The next section discusses how these principles of frugal innovation motivate the formation of a stronger formal national innovation system.

V. Frugal Innovation: Adversity into Opportunity

Principle #1: Take Maximum Advantage of Available Resources

In a world economy of diminishing resources, India is hard-pressed to find the most efficient methods to sustain its population of over a billion people, the majority (70%) of whom are impoverished rural citizens (2011 Census). Frugal innovation’s tenet of doing more with less means India can take maximum advantage of the resources it does have. These resources, human talent, a large domestic market, and reverse engineering, can launch India’s informal innovation network into a full-fledged national innovation system.

India’s human talent spans all levels of education and socioeconomic disparities, as evidenced by the Honey Bee Network. Two of Honey Bee Network’s most promising ideas, including the amphibious bike and a tree climbing apparatus, were inspired by uneducated workmen who simply tried to make their own lives a little easier (SRISTI). But India’s talent, as the world acknowledges, also spans the complex fields of information technology and nuclear energy. The formal innovation system must capture human talent within both low and high-tech sectors. A new government organization, or a seriously reformed NIF, must engage with the Honey Bee Network to push marketable ideas into commercialization. India’s high-tech talent must be funneled towards key industries of comparative advantage – among the most promising, pharmaceuticals. Recently, many prominent pharmaceutical companies have established research centers in India, responding to the call of a cheap but technically skilled workforce (Dahlman and Utz). If the government can foster enough growth and expertise in the pharmaceuticals sector, India could become the pharmaceuticals giant of the developing world, a yet untapped market by developed countries. Moreover, India has an unmatched domestic market with a rising income and a rising standard of living. In order to meet its demands, India must innovate at all socioeconomic levels – it can benefit as much from selling luxury cars as it can from mass-producing cheap bicycles. And finally, India has the advantage of leapfrogging to the global frontier in knowledge and technology. By making effective use of existing global knowledge, India can make quick and measured strides in many of its own underdeveloped industries. Pharmaceuticals is one such industry where, thanks to plentiful human talent, scientists can reverse engineer Western medicines for a fraction of the price and reap the benefits.

In summary, frugal innovation stresses that India must take maximum advantage of available resources. India, a resource-rich country, is particularly endowed with three opportunities that can transform its national innovation system: human talent, both educated and uneducated, a large and demanding domestic market, and reverse engineering existing technologies. Connecting these opportunities successfully will spawn creative innovation organization critical to the national innovation system.

Principle #2: Identify the Needs of the Masses and Respond to their Problems

“Include the margin” stands as one of frugal innovation’s key tenets. In India this observation is particularly crucial – 70% of the population lives in rural areas and usually earns only at a subsistence level. Though most Western firms target only the richest, economist C. K. Prahalad argues that the real market opportunities exist among the world’s poorest and largest socioeconomic class, the bottom of the pyramid (BOP) (Prahalad). Western firms are unwilling, or perhaps unable to tap the market potential of a class of people whose needs and preferences they do not understand. India’s entrepreneurs, both educated and uneducated, demonstrate a real ability to grasp at this “fortune at the bottom of the pyramid.” Entrepreneur Abi Naha founded Zone V, a company that creates special cell phones designed to meet the needs of the 284 million blind and partially sighted people worldwide. Already the company has broad success in India and has the potential to radically empower an entire class of marginalized citizens (Ahuja, Radjou, and Prahbu).

Dr. Gupta warns “do not marginalize the minds of people at the margin” (SRISTI). The Honey Bee Network boasts thousands of entrepreneurially minded citizens who, although among the margin, also create technologies and techniques that can lift those same people out of the margin of poverty. In the agricultural sector in particular, India has the opportunity to put to work a number of homespun innovations that promise greater productivity, efficiency, and value-added services. Indeed, if India is to develop a strong innovation system, it must encourage greater socioeconomic equality between all of its states. By empowering innovators among them, India can reduce the myriad of problems it suffers at the hands of poverty. In reality, the government is spoon-fed solutions to the Indian people’s most relevant and pressing problems – it needs only to equip its innovation organizations with the right tools to cross these ideas over the “valley of death.”
Principle #3: Develop an Empowered Network of Entrepreneurs and Innovators and Motivate the Government to Invest in R&D

A network of entrepreneurs and innovators, both educated and uneducated, has the power to motivate the government to invest more in R&D. First, the networks, like Honey Bee, have developed a stronger patent system that invites foreign investment, and which in turn provokes the national government to invest as well. Second, this network can inaugurate small and medium-sized national firms. The Indian business scene, dominated by sometimes manipulative multinationals, would welcome smaller national firms that work directly for national interest – the government would welcome them as well. Third, these investments directly improve the quality of life. If the government can commercialize and mass-produce solutions like those of Remya Jose and Arunachalam Muruganantham, they effectively invest in significantly improving national welfare, crucial for a strong innovation system.

In most developed countries, including the U.S., private firms and industry constitute the bulk of national R&D investment (Dahlman and Utz). In contrast, one of the India’s R&D weaknesses is that it has not caught the attention of private firms or industry to match government investments. Empowered entrepreneurs can change this trend. Stronger patent laws and more networks like Honey Bee, help entrepreneurs to patent and then sell their ideas. These ideas, which have huge commercial potential among the BOP, will draw in more Gross Foreign Direct Investment.

In addition, India’s human talent needs to act like citizens of a real democracy, that is, to make demands on the government. Dr. Gupta’s Honey Bee Network has recognized and empowered thousands of marginalized entrepreneurs who, without notice, would never have shared and developed their ingenious solutions to everyday problems. A similar network among academia and industry needs to showcase India’s high-tech innovation and push for more funding. Their ideas should inspire entrepreneurialism and generate the small and medium-sized businesses that India lacks (Dahlman and Utz). These national firms would no doubt merit government subsidies for R&D.

Finally, academia and industry need to engage with the problems of the poorest masses. Although rural “tinkerers” can proudly solve many of basic technical challenges, it will require more advanced science to develop the most productive strains of agricultural crops or manufacture medicines for high-burden diseases. Indeed, there is no lack of debilitating disease in rural India, or for that matter, famer suicides as a result of low crop yield. This network of entrepreneurs must urge the government to invest in solving India’s most basic problems, those that deal directly with the quality of life for millions. In order to establish a basis for a strong innovation system, a diverse network of innovators must motivate the government to invest in R&D.
V. Conclusion

Adapting Nelson’s national innovation framework to India reveals that it faces many challenges in the future in coordinating the interactions between all relevant innovation actors, most important of which is India’s diverse human capital. Indeed, how India designs its innovation organization, and how much R&D it invests will determine the future of its national innovation system. On the other hand, India benefits from the frugal innovation phenomenon sweeping emerging economies. As these economies rush to catch up to the United States, they must develop both their informal and formal innovation systems. India must capitalize on frugal innovation because, for emerging markets, it is a necessary transition phase to develop a strong national innovation system. Frugal innovation captures two ideas especially beneficial to India: first, “that people, not institutions, innovate” (class) and second, that “economic growth occurs whenever people take resources and rearrange them in ways that are more valuable” (Romer). If India adapts the frugal innovation mindset, it promises to embody three guiding principles: 1) take maximum advantage of available resources, 2) identify the needs of the masses and respond to their problems, and 3) develop an empowered network of entrepreneurs and innovators and motivate the government to invest in R&D. These principles, along with R&D, human talent, and innovation organization, will lay the foundation for a strong national innovation system.

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