Bloomburg Businessweek has recently reported on jugaad innovation – an approach that refers to overcoming significant constraints thought the development of affordable, low-cost products and services. The article profiles a company called Embrace, which has developed an approximately $200 infant warmer, which was piloted with on close to 200 pre-mature babies in India in 2011. The company uses rapid prototyping techniques to quickly receive feedback from customers – mothers – to make the product more user friendly. Though it currently runs on electricity, Embrace will also develop a heating device, which runs on hot water, so that the infant warmers can also be used in areas without electricity.

Each year, twenty million babies worldwide are born prematurely or with a low birth weight, and four million of them die, most in developing nations. Those who survive often suffer from low IQ, diabetes, and heart disease when they reach adulthood. According to the World Health Organization, 75% of these deaths and ailments could be averted by simply keeping these premature babies warm. Unfortunately, current options for warming babies in developing nations are either expensive or unsafe. The incubators sold in Western countries cost up to $20,000 and require electricity — which is unreliable in developing nations. And ad-hoc solutions like positioning babies under bare light bulbs are simply risky.

Enter jugaad innovation — a cost-effective approach for creating affordable products and services using limited resources. Jane Chen, Linus Liang, Naganand Murty, and Rahul Panicker cofounded a company called Embrace to come up with an affordable infant warmer for use in developing countries — one that costs far less than incubators available in the West. The founders came up with the idea for Embrace’s frugal business model while they were all attending Stanford University’s Entrepreneurial Design for Extreme Affordability program. After producing an initial prototype — a stripped-down version of traditional incubators powered by electricity — they traveled to Nepal to test it in an urban hospital. But they soon learned that 80 percent of babies that die prematurely in developing nations like Nepal are born at home in villages, far from well-equipped hospitals and without access to regular electricity.

That insight led them to fundamentally rethink who their users really were. Realizing that their customers were doctors and parents in villages, they set out to identify the product features that would bring the most value to these rural users. That inquiry led them to design a portable infant warmer that looks like a tiny sleeping bag and gives mothers greater mobility and more intimate contact with their babies. The bag in turn contains a pouch of a wax-like phase-change material (PCM) that keeps babies warm for up to six hours at regular body temperatures. Not only is this infant warmer intuitive to use, but it requires only thirty minutes of electricity to heat up the PCM pouch — using a portable electric heater that comes with the product. Further, this design dovetails well with the recommended practice of ”kangaroo care,” whereby a mother holds her baby against her skin (hence the company name ”Embrace”).

Most importantly, priced at approximately $200, the Embrace portable infant warmer costs merely 1 percent of what incubators in Western markets cost. In 2011, Embrace piloted the product in India, where 1.2 million premature babies die each year. Early results have been very encouraging. A preliminary study validated Embrace’s safety and efficacy with twenty infants. Embrace then undertook a more extensive clinical study of 160 premature babies. In one instance, a two-pound baby born to parents from a village near Bangalore, in Southern India, was kept in the Embrace infant warmer for twenty days and began to gain weight — bringing great joy to its parents, who had lost two babies previously.

Embrace uses rapid prototyping techniques to get fast customer feedback on new product features and to zero in on the attributes that are of highest relevance and value to rural customers. For instance, after noticing that mothers in Indian villages didn’t trust numerical displays that indicate whether the temperature is right, Embrace replaced the numerical scale with symbols indicating ”OK” or ”Not OK.” Similarly, Embrace is planning to release a future version of its product targeted at mothers who live in far-flung villages with no electricity at all: in this version, the PCM pouch will be heated — and thus ”recharged” — using a heating device that runs on hot water (instead of electricity).

Embrace is also experimenting with different pricing models — such as a rental option — to make its product extremely affordable in countries like India, where hundreds of millions in villages live on less than $2 U.S. a day. ”Entrepreneurs often fall in love with their original product idea or business model and fail to listen to customers,” Chen explains. ”We, on the other hand, have no qualms about modifying our product features and pricing again and again until we find a solution that delivers the highest value to our customers at the lowest cost for them. For us, innovation is a dynamic process that never ends.”

Embrace has already negotiated partnerships with multinational pharmaceutical and medical device companies such as GE Healthcare. The company is also working with local NGOs to piggyback on their extensive distribution networks to make the Embrace infant warmer accessible to as many hospitals and clinics as possible in countries like India. Finally, Embrace is testing its infant warmer at the Lucile Packard Children’s Hospital at Stanford University: the entrepreneurs believe there is a big market for Embrace’s product in the United States, where infant mortality rates are among the highest in the developed world. Embrace has set itself a bold target of saving the lives of more than 100,000 babies over the next three years, as well as preventing illness in more than 700,000 babies. Here’s a video interview we did with Jane Chen that talks more about this.

Embrace is a clear example of how jugaad innovators are able to find abundance in scarcity — and to share that abundance with customers and other stakeholders who also face scarcity. Jugaad innovators may lack financial, natural, and technological resources, but they compensate by finding ingenious ways to leverage social networks and their intimate knowledge of customers to create and deliver more value at less cost. In many ways, jugaad innovators embody Theodore Roosevelt’s belief that ”all the resources we need are in the mind.”

Do you know of similar frugal business models — pioneered by entrepreneurs or large corporations — that deliver customers significantly more value at much lower cost? Please share them with us in the comments below.

This post is adapted from the book Jugaad Innovation: Think Frugal, Be Flexible, Generate Breakthrough Growth (Jossey-Bass, 2012).

Navi Radjou is a Silicon Valley-based strategy consultant and a Fellow at Judge Business School, University of Cambridge, where Dr. Jaideep Prabhu is the Jawaharlal Nehru Professor of Indian Business and Enterprise. Dr. Simone Ahuja is the founder of Blood Orange. Radjou, Prabhu, and Ahuja are co-authors of Jugaad Innovation: Think Frugal, Be Flexible, Generate Breakthrough Growth.