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 / Spring 2013 / Issue 70(originally published by Booz & Company)


What the West Can Learn from Jugaad

The structured approach to innovation favored by mature companies can’t deliver the agility and differentiation they need today.

For three generations, Gustavo Grobocopatel’s family had pursued a small-scale, subsistence model of farming in Argentina. Grobocopatel dreamed of growing his farm into a larger, more sustainable enterprise, but his vision was hindered by scarcity. For one thing, he had difficulty accessing large tracts of land. Although Argentina is a vast country, farmland is hard to come by. Only 10 percent of the land is arable, and much of that is controlled by a few owners who are reluctant to part with it. Grobocopatel also faced a shortage of the skilled labor needed to scale up his business—people who could fertilize, sow, tend, and harvest crops. In Argentina, such labor is in limited supply, is not formally organized, is spread out across the country, and can be costly to hire, especially during peak harvest seasons. Finally, he didn’t have the capital to buy the farm equipment he needed. Funding opportunities for bootstrapping new businesses are very limited for entrepreneurs in Argentina.

Instead of giving in to these challenges, Grobocopatel developed an ingenious business model. He overcame the scarcity of land by leasing rather than acquiring it. He dealt with the scarcity of labor by subcontracting every aspect of farmwork to a network of specialized service providers, giving him access to “freelance” laborers whom he could hire as needed. And he overcame the cost of owning equipment and the lack of access to capital by renting the equipment needed from networks of small local companies. By cleverly leveraging a grassroots network of 3,800 small and midsized agricultural suppliers, Grobocopatel’s company, Los Grobo, which the entrepreneur founded in 1984, has evolved rapidly from a vertically integrated family business to an asset-light company. In 2010, it became the second-largest grain producer in Latin America, farming more than 300,000 hectares, trading 3 million tons of grain per year, and generating US$750 million in revenue—all without owning land or a single tractor or harvester. Having succeeded in Argentina, Grobocopatel is now exporting his “frugal farming” model to Brazil, Uruguay, and Paraguay.

Los Grobo’s innovative business model was born out of adverse circumstances. It shows how a resilient mind-set can transform scarcity into opportunity by combining limited resources with inventiveness and a never-say-die attitude. This approach—whether it is aimed at creating a product, service, or business model—is what we call jugaad innovation. Jugaad is a colloquial Hindi word that roughly translates as “an innovative fix for your business; an improvised solution born from ingenuity and cleverness.” It is based on six operating principles: seek opportunity in adversity, do more with less, think and act flexibly, keep everything about the business simple, tap the margins of society for employees and customers, and follow your heart.

The extreme conditions that make jugaad innovation worthwhile have typically been more prevalent in emerging markets such as India, China, and Brazil than in the United States or Europe. But in recent years, developed economies have begun to exhibit many of the same aspects of scarcity, diversity, unpredictability, and interconnectivity, making these principles relevant to companies around the world.

Jugaad Lost

The jugaad spirit, also known as the “pioneer spirit,” was once common in North America and Europe as well—at least until their economies matured. During the 20th century, Western companies built up dedicated research and development departments aimed at institutionalizing and managing their innovation capabilities. This industrialization of the creative process led to a structured approach to innovation that spawned big budgets, standardized business processes, and controlled access to knowledge.

Most Western firms have assimilated the idea that an innovation system—like any other industrial system—will generate more output (inventions) if fed more input (resources). As a result, the structured innovation engine in most companies is capital intensive, requiring an abundant supply of financial and natural resources at a time when both are scarce. The 1,000 companies in the world that invest the most in innovation spent a whopping $603 billion on R&D in 2011. But what did they get in return? As the Booz & Company Global Innovation 1000 study has repeatedly shown since 2005, pumping more money into R&D doesn’t necessarily buy more innovation (see “The Global Innovation 1000: Making Ideas Work,” by Barry Jaruzelski, John Loehr, and Richard Holman, s+b, Winter 2012).

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