Frugal Processes: An Empirical Investigation into the Operations of Resource-Constrained Firms

Abstract

The severe resource constraints that characterize markets at the bottom of the world's economic pyramid have forced firms to innovate both their products and processes. However, discourse in frugal innovation literature on how firms can design frugal processes in response to the resource constraints they face remains relatively sparse. Based on a systematic literature review, in this article we consolidate existing work on the process echelon of frugal innovation. We outline three ways frugal processes that have been conceptualized in the literature thus far, and distill their key characteristics. Based on an exploration of the supply chains of 87 small- and medium-sized enterprises, we show how firms configure these characteristics to overcome resource constraints at each stage of their supply chain. Ultimately, we propose three archetypes of a frugal supply chain that firms can strategically adopt. Firms with the primary goal of increasing consumer access to affordable products opt for a supply-chain structure that favors traditional economies of scale, and postpone any decentralization as further downstream as possible. In contrast, firms aiming to provide consumers with greener alternatives can adopt a hyperdecentralized structure throughout their supply-chain, which is made economically viable through low-cost approaches to distributed manufacturing. Firms interested in empowering local communities should consider hybrid structures that balance the high costs of investments in local capabilities.