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As the global economic squeeze continues, major corporations are looking East — not just for new markets, but new inspiration. Enter jugaad: A 'frugal' form of innovation developed in India that is beginning to make its mark in companies like Philips and GE. We've extracted the core lessons every marketer should know.

The Hindi word 'Jugaad' describes an improvised or makeshift solution using scarce resources. It's a way of life in India, where washing machines are used for whipping up yogurt drinks, but it's also an innovation theory that's proving to be increasingly influential in the marketing departments of Western corporations.

In a business context, jugaad is a "frugal, flexible, and inclusive approach to problem solving and innovation." So says Professor Jaideep Prabhu, author of Jugaad Innovation: Think Frugal, Be Flexible, Generate Breakthrough Growth.

Prabhu, who is a professor at Cambridge University's Judge Business School in the UK, points to examples like SELCO India, a sustainable energy provider that sells solar panels to a network of small entrepreneurs who in turn use them to charge battery-powered lights rented to households outside the country's electricity grid. Or Tata Motor's Nano - the cheapest car in the world when it launched in 2009 at $2,000. And the ingenious electrocardiogram in a backpack, developed by GE Healthcare's Indian engineers.

In the West, with the global economy set for a long period of austerity, jugaad is a welcome item on boardroom agendas. "Jugaad is a clever, unconventional, quick way to solve a problem," says Wido Menhardt, CEO of the Philips Innovation Center in Bangalore. "It is always out-of-the-box, and it is typically very focused. These are exactly the kinds of innovations Philips needs to develop products for emerging markets, but ultimately also for increasingly competitive developed markets."

"There is sometimes a tendency for Western companies to over-engineer products - to make them perfect, account for all possible use cases, and make them last forever," he continues. "Jugaad thinking helps us focus on the essence, the real requirements, and often leads to taking the mental leap that is required for a disruptive new design or product."

So how is Philips using jugaad? "We challenge ourselves with seemingly unattainable goals in cost, delivery time, or function, and as we focus intensely on that goal, it forces us to come up with unconventional solutions," explains Menhardt. "Often, these seem impossible or unrealistic at first, but they can lead to incredible and disruptive solutions."

But isn't jugaad just another iteration of the various agile methodologies already doing the rounds? No, says Menhardt: "Agile or lean are process frameworks, whereas jugaad is void of process," he argues. "Jugaad is a culture, an attitude, an outcome of circumstance, but definitely not something planned. The challenge is to tap into it and channel it."

According to Prabhu, lean and agile are internally or supply-side focused; they pursue cost efficiencies or responsiveness as an end goal. "Jugaad, in contrast, is primarily externally or demand-side focused. It uses cost efficiency as a means to achieve a larger goal of delivering higher value to customers," he says. "Jugaad innovators strive to create products and services that score high on three attributes increasingly valued by customers: Affordability, quality, and sustainability."

For marketers, understanding the challenges and requirements of jugaad is therefore imperative.

Put Marketing Back at the Heart of Innovation

"The formalization and industrialization of R&D created a split between technologists and marketers," Prabhu says. "But if jugaad tells us anything, it is the centrality of understanding consumer needs and then working back - even if that's as simple as deciding the price that people can afford. The consumer is front and center here, and marketers are central to driving the jugaad innovation process in the organization."

Talk to the DIY Generation

In Western markets, there has been a mindset shift among young consumers who are now seeking more sustainable solutions. In his book, Professor Prabhu tells the story of Yuri Malina and Mert Iseri, two young American entrepreneurs who co-founded SwipeSense, a portable hand-sanitizing device that doctors can clip to their scrubs. "They did this partly out of social conscience, but also because they relished the challenge of doing it in a skunkworks way," he says.

"Younger people in the West have moved towards a post-materialistic mindset. They are more interested in the environment, in experience rather than acquisition. They have grown up in a world of open innovation where consumers are involved in co-production, empowered with computing tools and social media. This generation shift is going to be a long-term driver of frugal innovation."

Balance Affordable with Aspirational

In developing economies, aspirations still matter - so brands must not choose to market affordability over aspiration. "I think Tata may be learning that they oversold the affordability of the Nano over the aspirational" suggests Prabhu. "Large numbers of people around the world want affordable products, but that doesn't come at the expense of any aspirational drive they might have. Yes, a Nano needs to be affordable to reach large numbers of people who currently can't afford a car, but you can't ram it down their throats that it's the world's cheapest car. You also have to point out that it's a cool car to drive and has features that make it aspirational."

There has to be a certain element of craziness, uncertainty, and space for serendipitous learning.

Protect the Jugaad Spirit

"You can't import jugaad into your organization and then just carry on as if it's business as usual," says Prabhu. "It's about employing people who have a jugaad mindset, then increasing the empowerment of small teams at every level of the organization, consistent with bottom-up innovation. There has to be a certain element of craziness, uncertainty, and space for serendipitous learning. Too much process will kill that creative spark." Or, as Intel founder Andy Groves once put it: "Let chaos reign, then rein in chaos."