limitations of "frugal design"

The "frugal design" concept is highly appealing, even inspiring, but seems incomplete. It could even be disingenuous for IDEO and Booz to tout frugal design to most established, mature-market companies. GE is exceptional as a conglomerate that routinely buys innovative startups and unloads mature businesses. Also, my understanding is that companies like GE and Walmart treat their corporate social responsibility (CSR) initiatives as a marketing expense.

Despite the exciting array of untapped opportunities, there probably is not an ingenious, profitable solution for every emerging-market need. Health care comes to mind as a universal need that sometimes must be provided at a loss. At some point, other interests besides the profit motive must still prevail. High-margin activities charitably subsidize low- or negative-margin activities. To pretend otherwise is to paint an excessively rosy picture of "doing well by doing good."

Moreover, given the extremely narrow profit margins at stake, the temptation to cut corners in terms of sustainable sourcing, manufacturing, distribution, and disposal could be fierce. Working with whatever suppliers are available means not asking too many questions about upstream activities. Of course, cost-cutting measures that degrade the environment's productive capacity are in no one's long-term interest; resource optimization and dematerialization are theoretically win-win pursuits.

However, the extended producer responsibility (EPR) principle is not yet reinforced by policy in many emerging economies. The vast majority of electronic waste still ends up in developing countries where, in the absence of strict health or environmental protection, it can be recycled at a profit. Businesses cannot be expected to police themselves when environmental safeguards could tip the balance between profit and loss - or, continuing to serve the bottom of the pyramid vs. exiting the market.

The bottom line is that "value" doesn't correspond very exactly with willingness to pay. For social innovations, the intended benefits often substantially exceed direct beneficiaries' willingness (or ability) to pay. Value creation is for society rather than individual customers, yet someone must pay for it.

It's interesting that other blog posts this week have discussed the performing arts. Music and theater especially exemplify the problem of abstract, ineffable value (a "priceless" experience) that apparently cannot be sustained by customers' willingness to pay. The potential solutions I’ve heard about generally build in new revenue streams to subsidize artistic production. Likewise, cross-subsidization and internationally consistent, supportive policy are necessary additions to frugal design.