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By Margarita Cruz and Isabella Blengini

When speaking of innovation in the hospitality industry, we often hear about new technologies and processes capable of breaking the standards on how the industry works. Typically, these innovations require large amounts of investments; as well as the design and implementation of new processes. According to the EU Industrial R&D Investment Scorecard, in 2017 alone, investments in innovation made across different industries around the world surpassed €700bn.

However, only a small percentage of players are effectively able to implement innovations of this kind. In fact, 90% of the world’s R&D investments come from large corporations. Small- and medium size firms are instead not only 5.75 times less innovative than larger firms, but also have 13% lower chances to deploy their innovations productively according to a recent study by Harvard Business Review. This is also the case in hospitality. Indeed, in an industry with high fragmentation like hospitality, innovations and R&D investments represent only a limited option–particularly for independent, small and medium size hotels.

In an industry where competition is intense and hotel concepts are often closely related to those of the competitors, being innovative is an important part of maintaining the competitive advantage. But if impactful innovations are difficult to develop for small and medium companies, how can companies remain innovative? How could hoteliers and other players in the industry learn to be innovative and bring in novel practices while using the resources at hand?

Innovation does not have to be expensive

In fact, the concept of frugal innovation can turn out insightful in this direction.

Innovating by following a frugal approach means to be able to create more value for a company while optimizing its scarce resources or by even creating social impact in a community.

For example, think of M-PESA, a company which created a mobile payment solution in Kenya, where the vast majority of the population owns a telephone, but does not have any bank account. One of the founders of M-PESA went beyond this first innovation and created a new company, M-KOPA. This innovative business introduced home solar solutions in a box, composed of a solar panel, three LED lightbulbs, a solar radio and a cell phone charger. Kenyans, who do not have enough money to afford the cost of the home solar solution, could instead use the M-PESA technology and buy it through a generous system of 365 micropayments. M-KOPA now provides clean energy not only in Kenya, but also in Tanzania and Uganda. This is an example of how a simple technology-mobile connectivity, which is abundant in some developing countries-has been used to provide a scarce resource like energy.

Lessons from frugal innovators

So, what could we learn from frugal innovation and examples like M-PESA in the hospitality industry and how could hotels be frugal and create 5 times or 10 times more value without compromising quality or their hospitality approach and by using available resources?

When thinking of frugal innovation in the hospitality industry, recombination and reconfiguration of already available resources turn out to be the key. For instance, by allocating resources in a different way or searching for alternative ways of delivering the same service, frugal innovation offers a feasible approach to help players in the hospitality industry keep up with changes in their business environment. In an era where socially and environmentally responsible brands are sought after by younger generations, it makes sense to recombine elements at hand to come up with new business models, new hotel concepts, and even perhaps untapped markets.  

Why not think about an eco-friendly luxury hotel that only relies on local resources? Let us consider a hotel based in a majestic destination where natural resources abound. Hoteliers could build their property with local resources such as wood, plastic, or ice. According to the approach of frugal innovation, recombining these resources would lead to higher value creation because of providing opportunities to stay in a unique property while also reducing costs by using only locally sourced materials and resources. 

We could also think of long-standing properties aiming to attract new generations but do not have the resources to completely renovate their hotel and even less so to create a new hotel concept.

Frugal innovation could be useful here by, for example, allowing them to increase their value to younger generations by creating special weekend get-aways with reduced prices for young adults. Alternatively, a hotel of this kind could also attract younger generations in a frugal way by, for instance, hosting a funky dining experience once a month with the help of young and dynamic apprentice cooks who are eager to create their own menus and inventions devoted to younger consumers. Having young and dynamic apprentice cooks would reduce the costs of hosting such events while it would also give guests the chance to enjoy creations that will not be available anywhere at any other time. 

Finally, another interesting approach for hotels could imply the active involvement of local communities to provide not only hotel services but also authentic and unique experiences to the guests. Especially if we consider hotels located in exotic destination countries, this could contribute to the needs of the local population while also offering a completely original experience to the guests.

These are just some ideas about how hotels could remain innovative without compromising large amounts of capital. Whether it is by recombining tangible resources such as raw materials or intangible ones, such as knowledge or business models - frugal innovation offers an interesting way to cope with the challenges of a fast changing and competitive industry like hospitality. 

About Margarita Cruz

Margarita Cruz, Ph.D in Economics, is an Assistant Professor of Strategic Management and Entrepreneurship at Ecole hôtelière de Lausanne.

Margarita’s research lay at the intersection between organizational theory and entrepreneurship, with a particular focus on the role of authenticity on entrepreneurial outcomes such founding of new organizations and introduction of new products.

During her doctoral studies, Margarita has also been a visiting PhD student at Robert H. Smith Business School, University of Maryland (2015-2016), thanks to the competitive Fellowship for most promising candidates granted by the Swiss National Science Foundation. In her research, Margarita is passionate about breweries, restaurants, and luxury hotels.

In the classroom, Margarita likes to bring state-of-the-art trends and practices about the entrepreneurial and strategic scene in the hospitality and F&B industries.

Before joining academia, Margarita gained experience as business engineer in the banking and chemical industries.

About Isabella Blengini

Dr. Isabella Blengini, is an Assistant Professor in Economics. Her research interests include exchange rate movements, expectations, international capital flows, financial crises, optimal monetary policy and portfolio choices. Isabella teaches in the bachelor program the courses of microeconomics and hospitality economics. After taking her Ph.D. at Boston College, she did a post-doc at the University of Lausanne. She has been visiting fellow in the economics department at MIT and summer intern at the Boston Fed.

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