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Published: May 25, 2010
 / Summer 2010 / Issue 59

 
 

The Importance of Frugal Engineering

The central tenet behind every frugal engineering decision is maximizing value to the customer while minimizing nonessential costs. The term frugal engineering was coined in 2006 by Renault Chief Executive Carlos Ghosn to describe the competency of Indian engineers in developing products like Tata Motors’ Nano, the pint-sized, low-cost automobile. Companies such as Suzuki paved the way for the development of low-cost automobiles, but there may be no better example of frugal engineering than the Nano, which will allow millions of people with modest means to reliably drive their own car. The Nano is not — like so many other low-cost vehicles — a stripped-down version of a traditional, more expensive car design. Like other newly engineered products selling well in emerging markets, ranging from refrigerators to laptop computers to X-ray machines, it is based on a bottom-up approach to product development.

Even global companies uninterested in the growth offered by the world’s lowest-income consumers will have to pay attention to the lessons of frugal engineering: Products developed with this approach are beginning to compete with goods sold in developed countries, a trend that’s likely to continue. Deere & Company, for example, designed and sold small, lower-powered tractors in the Indian market, but didn’t begin selling such models in the U.S. until an Indian company, Mahindra & Mahindra Ltd., beat them to it. Mahindra & Mahindra has proven an able competitor to Deere in larger tractors as well. General Electric (GE), on the other hand, has been more proactive; for example, it has sold a revolutionary new low-cost handheld ultrasound scanner in developed markets by incorporating frugal engineering lessons learned in its Indian medical research and development lab. A low-cost GE electrocardiogram machine, developed at the same Indian lab for the local markets, is now being sold in the United States and Europe as well.

Meeting all these challenges will require a change in corporate culture. Some companies will be up to it; others companies will not. A successful approach to frugal engineering involves new ways of thinking about customers, innovation, and organization.

Understanding the Customer

The ultimate goal of frugal engineering couldn’t be more basic: to provide the essential functions people need — a way to wash clothes, keep food cold, get to work — at a price they can afford. Critical attention to low cost is always accompanied by a commitment to maximizing customer value. The Tata Nano development team’s decision not to include a radio on the standard model wasn’t a simple move to avoid cost. The team understood that the typical Nano customer places far more value on extra storage space. Using what normally would be the radio slot for storage not only avoided a major cost, but also added value for the customer.

Such carefully calculated trade-offs, made at the product planning stage, serve the dual purpose of maintaining low costs and increasing the product’s overall functionality and utility for the buyer. Assessment of those trade-offs requires close, careful observation on the part of planners if they are to arrive at a deep understanding of the ways a product fits (or doesn’t fit) into customers’ lives.

The Nokia 1100 cell phone is another example. Experience has shown that when low-income people in just about any country begin to enjoy a bit of economic prosperity, one of their first purchases is a cell phone. Many new cell phone customers in emerging markets are agricultural workers who spend their days outdoors. When Nokia developers watched field-workers using mobile phones in India, they noticed that the intense humidity made the phones slick and hard to hold or dial. So the phone was built with a nonslip silicon coating on its keypad and sides. The handset was also designed to resist damage from dust that is common in arid climates and some factory environments. The phones are otherwise basic: They can send and receive phone calls and text messages. The screens are monochrome. Because the phones lack fancy software, the power draw is smaller, so they can operate longer between charges. The only real extra is a tiny, energy-efficient flashlight that’s proven popular in areas where power blackouts are common — in other words, in most rural villages and many emerging-market cities. At a price of $15 to $20, the Nokia 1100 is the best-selling cell phone ever.

 
 
 
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