Rare gems or mundane practice? Resource constraints as drivers of frugal innovation

Abstract

Frugal innovation and related concepts are receiving increasing scholarly attention. While recent progress in the conceptualisation of frugal innovation as a phenomenon has been considerable, insights into the antecedents of frugal innovation remain relatively poor. We add to this literature by systematically conceptualising, theorising and empirically testing the relationship between resource constraints and the propensity of firms to produce frugal innovations, drawing on concepts of problemistic search and opportunity recognition. We distinguish two levels of resource constraints (firm-level and firm environment-level), and two types of frugal innovation (internally oriented and customer-oriented), while using managerial experience as a moderating internal factor. We find that firm-level resource constraints have a strong effect on the propensity of firms to engage in internally oriented frugal innovation, although only so for firms with experienced managers. This effect is lower when these firms operate in an environment that also faces high constraints. We find no effect of resource constraints on customer-oriented frugal innovations, but find a surprising negative moderating effect of managerial experience. We discuss the theoretical and policy implications of these findings for the frugal and wider innovation literature. This study is the first large-scale empirical investigation of frugal innovation that estimates its prevalence. We find that frugal innovation is quite common when using the widest definition of frugal innovation. The majority of frugal innovations are mundane internal efficiency upgrades through capital investment.