Out this week is a new book from Navi Radjou and Jaideep Prabhu, “Frugal Innovation: How to Do More with Less.” It focuses on how companies can develop high-quality products on limited budgets to appeal not just to consumers in emerging markets, but to Western consumers who are increasingly cost-conscious and environmentally aware. The two co-authors also run the site Frugal Innovation Hub.
They shared with Innovation Leader their six principles of frugal innovation, and an example from the book about how Kingfisher plc, the largest home improvement retailer in Europe, is working to move the needle on Principle #3, creating sustainable solutions.
1. Engage and iterate. Rather than using insular research and development departments that rely on educated guesses about customer needs, E&I starts with customers, observing their behavior in their natural environment, and then considers how products can be made as relevant as possible, going back and forth between the customer and the lab to refine designs.
2. Flex your assets. New tools (such as robotics and 3D printers) and new approaches (such as social manufacturing and continuous production) can help operations and supply chain managers “flex” their production, logistics, and service assets to satisfy demanding customers better and more cheaply.
3. Create sustainable solutions. R&D and manufacturing managers can develop self-sustaining solutions that help both businesses and the environment, such as “cradle-to-cradle” (where components and materials are repeatedly recycled.)
4. Shape customer behaviour. Companies can influence consumers into behaving differently (for example, driving less or more safely) and feeling richer while consuming less.
5. Co-create value with prosumers. Consumers – especially the tech-savvy Millennial generation (those born between 1982 and 2004) – are evolving from passive individual users into communities of empowered “prosumers,” who collectively design, create and share the products and services they want. As a result, R&D and marketing leaders are working with do-it-yourself (DIY) and crowdsourcing pioneers, such as TechShop and Quirky, to bolster and harness the collective ingenuity and skills of consumer communities.
6. Make innovative friends. You can develop frugal products, services and business models more efficiently by collaborating with diverse external partners (such as suppliers, universities, venture capitalists, and start-ups) than by working alone.
In 2012, UK-headquartered home-improvement retailer Kingfisher announced its goal to become “net positive” – that is, return more resources to the earth than it extracts and consumes – in response to forecasts of resource scarcity, social inequality, and climate change. (The company’s annual wood consumption is equivalent to a forest the size of Switzerland.) Its Net Positive plan has four priority areas – timber, energy, innovation and communities – and three related areas – employees, suppliers and the environment – for improvement. Kingfisher uses 50 KPIs, called the Foundations, to measure daily progress set against a 2012 baseline. Each KPI has a 2020 target and most must reach a 2015 milestone. Kingfisher tracks and reports progress every six months. According to Jamie Lawrence, senior sustainability adviser and in-house counsel to Kingfisher Group’s Net Positive strategy:
“The KPIs also tell us where we need to collaborate more – internationally across business units as well as externally with suppliers and the government – to reach our 2020 targets.”
The company is transparent about both its achievements and its setbacks. Its 2013/14 Net Positive Report, for instance, revealed that while 87% of the timber used in its products is responsibly sourced (against a target of 100% in 2020), it currently sells only 170 products with closed-loop (most eco-friendly) credentials against an ambitious target of 1,000 products by 2020. Richard Gillies, the company’s sustainability director, admits that although Kingfisher is already generating £500 million ($790 million) in sales from its closed-loop products, the company is “still only scratching the surface of the commercial benefits that Net Positive can bring.” As former CEO Ian Cheshire, who led the company until late 2014, notes: “What we’ve learnt is that business ‘unusual’ isn’t easy.”
Kingfisher will tie its Net Positive KPIs to the earnings of its top 250 managers by 2016/17, and to all relevant employees by 2020.
Kingfisher’s Net Positive strategy provides other valuable lessons in how to disrupt an old business model. Its goal is to sell 1,000 products with closed-loop credentials by 2020. Closed-loop products are made mostly from recycled or renewable materials and consume only renewable energy during their manufacture and use. When they break or get old, materials and parts from these products can be collected to make new products.
But the company’s existing supply chains cannot cope with the aggressive closed-loop objectives. So it is building an entirely new supply chain and new supplier partnerships. Kingfisher’s Jamie Lawrence says:
“We could have just focused on designing one sexy, newsy ‘closed-loop’ product which didn’t sell a lot. Or we could have focused on 1,000 products that don’t sell well. But such products wouldn’t fundamentally affect our supply chain and would just remain niche. So instead we are focusing on designing ten entirely new supply chains as opposed to products. The question we are asking ourselves is: Can we get 10 supply chains to be circular and from that get 1,000 new products?”
To make this happen, Kingfisher is working with a coalition of the willing. For instance, it decided to use recycled plastics and pallet wood, which is usually thrown away after several shipments, to make worktops in kitchens. When its existing supplier of pallet wood did not want to comply with the new plan – since that would mean less pallet wood to sell – Kingfisher simply switched suppliers.
Eventually, Kingfisher wants its entire 40,000 product portfolio to reach closed-loop status. Kingfisher’s closed-loop calculator is used across the company to assess how existing and new products meet ten criteria. These include the product’s materials, whether it can be rented or repaired, and if it can be easily disassembled into components or materials for reuse or recycling. Kingfisher intends to share this tool with its suppliers.
The company is also piloting numerous product-sharing initiatives. One, titled Project Box, allows customers to rent rather than buy the DIY tools they need for home-improvement projects. Tools such as power drills are typically used for less than 30 minutes over their entire lifetime, making them particularly suited to a rental model. As James Walker, former head of innovation at Kingfisher, explains: Instead of spending £300 on buying the wrong tools that they may use only once anyway, customers can rent the right tools for less.
Focus groups suggest that women like the concept more than men. Women typically complain that their husbands never have the right tools and end up doing a terrible job, or returning to the store to buy more tools; and men respond positively, because they do not have to work it all out themselves. So everyone is happy and less stressed, and there are fewer fights, Walker says.
Constantly communicating the need to change now or lose badly tomorrow is crucial in getting employees to commit to change. But this is not enough. Intrinsic motivation factors such as “I am doing the right thing” or “I am helping save the planet” alone cannot sustain organization-wide mindset and behavior change. Extrinsic motivation factors such as rewards and incentives are also needed to ensure that employees remain fully engaged with the change process. Leaders must therefore set up organization-wide incentive systems based on KPIs to reinforce new behavior.
As Kingfisher’s Jamie Lawrence puts it:
“There are 80,000 employees at Kingfisher. Internal engagement is a big task. When people are informed, there is a positive response. Creating such a positive atmosphere can be part of the solution. But the real challenge is affecting not just hearts but also minds. The big challenge is how to make Net Positive part of everyone’s job
To achieve this objective, Kingfisher aims to make Net Positive targets a part of employees’ bonuses. Doing so will require a change in the company’s current compensation programs. Buying teams, for example, are not yet measured on their commitment to Net Positive objectives. Nevertheless, Kingfisher does have a few sustainability
teams backed by Véronique Laury, its committed CEO. And Net Positive is a key part of the company’s business plans. As Lawrence says:
“The challenge is getting middle-management and director level support, creating rewards and making this part of the day job. We have the support of the top but we need to embed this in the organization’s middle management.”
(Adapted with permission from “Frugal Innovation: How to Do More with Less.”)