Like many revolutions, frugal innovation started from small beginnings but is causing big waves. It means doing a lot with little, creating low-cost solutions to local problems. Any product or service that cuts prices by over 50% but maintains a competitive performance and meets international benchmarks can be described as frugal innovation, explains Leah Davidson, faculty mentor, University of Pennsylvania in “
Do Frugal Innovations Lead to Frugal Outcomes?”
Frugal innovators work in places where doing what seems mad in terms of conventional wisdom becomes obvious, says Charles Leadbeater, a British author and former advisor to Tony Blair, in his book
. “Frugal innovators do more because they have less, and because they have less they have no option but to think differently.” The Frugal Innovator
In parts of Asia, such as India, frugal innovation is often a necessity, as businesses sink costs to a level that consumers can afford. This is nowhere as critical as in the healthcare sector, where frugal innovation is sweeping away the divide between rich and poor and making healthcare affordable for everyone.
HAVE A HEART
Narayana Health (NH), founded in 2000 by Dr Devi Shetty (pictured below), is a prime example of frugal innovation in the country. NH aims to provide high-quality healthcare, mainly heart surgery, at a large scale and an affordable price. The hospital chain has 5,300 beds in 23 hospitals in 18 cities across India and is accredited by JCAHO’s Joint Commission International (JCI) in the US.
A heart operation at NH costs $1,400 to $1,600, compared with an average price of $50,000 in the US. NH’s cross-subsidization model means that around 13% of all patients receive heart surgery for free or at a discounted rate, while foreign visitors may pay up to five times the price for a heart operation, specialist access and a deluxe private room.
Mangalore-born Shetty’s motivations for NH are clear: he is saving lives. “We live in a developing country and we need this. The people here can’t afford heart surgery. If the solution isn’t affordable, then it isn’t a solution.
“I see about 100 people a day for consultation of which many require heart surgery, especially children. If the treatment were too expensive, many of them would die.”
HIGH RATES, LOW COSTS
Economies of scale keep costs low. “Most heart hospitals will perform two or three heart surgeries a day. We perform about 35,” says Shetty. In total, the hospital currently performs around 10% of heart surgeries in India.
To lower costs, NH leases equipment and routinely negotiates prices with companies. It also keeps staffing costs low: at any given time, there is a large number of young doctors undergoing their six-year residency program at the hospital, being paid a stipend for their work – at a fraction of a surgeon’s standard salary. In addition, NH pays non-student surgeons a fixed rate, rather than compensating them per surgery.
Everybody has to copy what we’re doing because there is no money in this world. Because there is no money, there is no other choice Devi Shetty
To ease the staff workload, the hospitals have introduced family training programs. “When a patient gets admitted for a heart operation, his family stays with her or him,” Shetty explains. “We teach families to help with basic care-giving, such as checking blood pressure and pulse rates and dressing wounds. This program is called Care Companion and I consider it to be one of the best patient empowerment tools.”
Shetty sees frugal innovation as inevitable in a world where only 20% of the population has access to quality healthcare. “Tell me which country has surplus money to spend on healthcare? Everybody has to copy what we’re doing because there is no money in this world. Because there is no money, there is no other choice. The world is growing and we’re living for longer, so the need for healthcare is only increasing.”
A HEALTHY IMAGINATION, FOR LESS
The logic of frugal innovation is so obvious that the big players are getting on board. Take American multinational conglomerate, General Electric (GE), which has devised a
Healthymagination business strategy with 100 innovative products to reduce the cost of procedures, where possible using GE technology and services.
In India, GE has revamped its operations to introduce low-cost medical devices, taking into account local constraints, such as a lack of resources, power fluctuations and high levels of dust and pollution. “Our concept is getting a lot done with a lot less,” says Vikram Damodaran, general manager of the Affordable Care Portfolio for GE Healthcare. “We’re trying to increase access to healthcare, while reducing its cost and maintaining high standards of care.”
One of the trailblazers has been GE’s Lullaby Warmer, an infant bed which provides direct heat in an open cradle to
prevent new-borns’ death from hypothermia, crucial in a country with around 42 deaths per 1,000 live births. It is 50% more affordable than the traditional warmer that GE sells in the US and it sells in over 70 countries worldwide at a rate of over 2,000 units a week.
Our concept is getting a lot done with a lot less Vikram Damodaran
The product uses 50% less electricity than most incubators, operates with minimal switches and settings, with graphic instructions for users with low literacy. GE uses the same component for thermal regulation as in its more deluxe version, but pared everything else such as structural design and the cost of mechanical parts down to the bare minimum. “We identified what was of critical importance for the survival of the baby and then took a variable approach to do away with features that are not really considered essential, while building something that was just good enough and appropriate to deliver care,” says Damodaran.
Another example from GE is the
Vscan, a pocket-sized, easy-to-use ultrasound. “What we learned is that you can actually get a lot done with a lot less. Frugal innovation is the way forward,” says Damodaran.
Of course, for companies like GE, there is always the risk of cannibalizing your own product base. Then again, as Damodaran points out, you simultaneously create a large consumer base of people entering the healthcare system by increasing access and availability.
See “ PROJECT M #23 – The first wealth,” which examines health aspects in Asia in great detail. Register for the newsletter on the homepage to receive alerts about new articles online