Frugal Innovation in India

I had recently blogged about the innovative $35 computer introduced in India. Along the same lines comes news about inexpensive homes in India (http://www.livemint.com/2010/08/18213720/Jaithirth-Rao-launches-10-lak.html?atype=tp ). So why is this important?

India has been growing very rapidly – in the last quarter GDP grew at 8.8%. This growth has also spurred considerable domestic consumption - not least in the housing sector, where traditionally homes in cities such as Bangalore, have been out of the reach of many middle class citizens. Any initiative that helps address this lack of affordable housing will address a key social need as well as spur the local economy.

This initiative takes an innovation from a structural design company in Kansas City, USA and applies it to the housing sector in Bangalore, India (and other cities soon). The entrepreneurs in this case are successful corporate managers – Jaithirth (Jerry) Rao and PS Jayakumar were colleagues and senior managers of Citibank India, soon after liberalization. It is interesting that they have chosen to enter into a business that they have overseen lending to but not actively engaged in.

Perhaps what frugal innovation to succeed what is needed is a fresh perspective on old problems – similar to what the Indian engineers did with the $35 computer (and what the folks in Silicon Valley did not) and what IT folks did for emergency services in South India. This also raises an interesting question of whether disruptive innovation (frugal innovation is a dramatic illustration of disruptive innovation) is possible with managers who are already in the business. Does what the late CK Prahalad call ‘dominant logic’ block these game changing innovations?

The true test for the model shown by Jerry Rao and PS Jayakumar is going to be whether it is replicable in other cities in India that have even more tough housing markets like Mumbai and Delhi; while also reducing prices as they have promised. In the meantime other famous academics, such as Vijay Govindarajan at the Tuck School of Business at Dartmouth College, are tinkering with the idea of even more frugal housing – catering to the poorest in India, by suggesting a $300 home for the poor (http://blogs.hbr.org/govindarajan/2010/08/the-300-house-a-hands-on-lab-f.html )

The question as I suggested in my earlier blog then becomes – what does this mean for the already battered housing markets in more developed countries? How do they deal with the continuing flood of innovations that radically alter the cost structure of their industries?