A $300 idea that is priceless

In 2010 the United Nations calculated that there were about 827m people living in slums—almost as many people as were living on the planet in Marx and Engels’s time—and predicted that the number might double by 2030.

Last year Vijay Govindarajan, of Dartmouth College’s Tuck School of Business, along with Christian Sarkar, a marketing expert, issued a challenge in a Harvard Business Review blog: why not apply the world’s best business thinking to housing the poor? Why not replace the shacks that blight the lives of so many poor people, thrown together out of cardboard and mud, and prone to collapsing or catching fire, with more durable structures? They laid down a few simple guidelines. The houses should be built of mass-produced materials tough enough to protect their inhabitants from a hostile world. They should be equipped with the basics of civilised life, including water filters and solar panels. They should be “improvable”, so that families can adapt them to their needs. And they should cost no more than $300.

Mr Govindarajan admits that the $300 figure was partly an attention-grabbing device. But he also argues that it has a certain logic. Muhammad Yunus, the founder of Grameen Bank, has calculated that the average value of the houses of people who have just escaped from poverty is $370. Tata Motors has also demonstrated the value of having a fixed figure to aim at: the company would have found it more difficult to produce the Tata Nano if it had simply been trying to produce a “cheap” car rather than a “one lakh” car (about $2,200).
The attention-grabbing certainly worked. The blog was so inundated with positive responses that a dedicated website, 300house.com, was set up, which has attracted more than 900 enthusiasts and advisers from all over the world. On April 20th Mr Govindarajan launched a competition inviting people to submit designs for a prototype of the house.

Why has a simple blog post led to such an explosion of creativity? The obvious reason is that “frugal innovation”—the art of radically reducing the cost of products while also delivering first-class value—is all the rage at the moment. General Electric has reduced the cost of an electrocardiogram machine from $2,000 to $400. Tata Chemicals has produced a $24 purifier that can provide a family with pure water for a year. Girish Bharadwaj, an engineer, has perfected a technique for producing cheap footbridges that are transforming life in rural India.
http://www.economist.com/node/18618271?story_id=18618271&fsrc=nlw|hig|04-28-2011|editors_highlights