We can all agree that recessions are inevitable phases of an economic cycle. While the timing of the next downturn is debatable, many CFOs are consulting with their leadership team about what will need to be in place and actions that need to be taken to properly shore up their organization for when the recession occurs. Russell Reynolds Associates surveyed 534 senior executives, including 179 CFOs, about this particular topic and found that only 6% believed they were well prepared to manage, while 74% of CFOs believe they have the right team in place. Only 3% of all CFOs said that their organization’s current team was well prepared for weathering an economic downturn, citing confidence issues due to “a lack of experience, agility, and ability to influence other parts of the business.”
Preparation and responses fall into the CFO-arena, as the organization turns to finance to “manage and recover from an economic crisis.” This critical function includes in-depth strategies across financial planning and analysis, commercial finance/data analytics, business/finance transformation, and treasury.
Organizations can financially maintain and thrive through the recession by looking to a “Frugal innovation” methodology. This holds the key to addressing limited resources and unpredictable revenue. In the long run, frugal innovation can facilitate a new way of thinking that helps organizations evolve and be better in touch with their internal processes, marketplace diversification, and social changes, and most importantly, their customer’s expectations.
Principles for Change
According to engineer and frugal-innovation.com founder Dr. Yasser Bhatti, frugal innovation “discovers new business models, reconfigures value chains, and redesigns products to serve users who face extreme affordability constraints, in a scalable and sustainable manner. It involves either overcoming or tapping institutional voids and resource constraints to create more inclusive markets.”
This type of innovation offers an approach to designing highly functional solutions to common problems and facilitating internal and external preparation. Frugal innovation solutions that pop up when organizations are faced with adversity are composed of practical features, optimization, and affordability. “Frugal innovation is not simply about making do; it’s about making things better,” writes Navi Radjou in “The genius of frugal innovation.”
Frugal innovation bypasses complex, overthought solutions for simple and accessible solutions. Teams should focus on a product/service to address employee and/or customers’ quintessential needs, first and foremost. Over time, the product/service can be refined and upgraded as needed and as resources become available. This provides a foundation for satisfaction within and outside of the organization.
Frugal innovation optimizes resources and solutions that are pertinent and already created. These innovations take into consideration what resources are present, working creatively around scarcity, lack of capital and capabilities by leveraging information, knowledge, and abundance. Radjou also suggests a workaround, such as borrowing proven technologies in one sector and adapting them to make new products for the organization’s industry.
Frugal innovation “thinks and acts horizontally,” favoring smaller manufacturing and distribution units across a wider radius rather than scaling up centralized distribution centers, says Radjou. Centralized distribution centers further strain short- and long-term affordability, especially during the recession when the economy is faced with greater capital challenges. Costs must be minimized as much as possible.
Organizations can look to creative entrepreneurs, family businesses and social movements for inspiration, as groups around the world have already found ways to thrive despite economic and environmental limitations. This involves an open and distributed process rather than the previous norm of closed, hierarchical silos typically found throughout enterprises and institutions.
By embracing a frugal innovation mindset — becoming more resourceful, orchestrating horizontal supply chains, and taking a simple design approach — organizations will be better prepared for weathering the full cycle of economic prosperity and recession, and in the process, become much more savvy about the changing climate of world economics and expectations.
All opinions & expressions are solely those of the author and not those of any other individual, institution or business.