October 20, 2017

The Radical Frugality Mind-set for Scaling Social Change

How successful Indian nonprofits reduce costs while extending impact, even when scarcity abounds.

By: Rohit Menezes, Swati Ganeti

For any nonprofit to make noteworthy progress toward breaking the grinding cycle of intergenerational poverty in India, it’s not enough to impact thousands or even tens of thousands of constituents—not when more than 260 million people on the subcontinent live on less than $2 a day. In India, effective nonprofits think in terms of reaching hundreds of thousands and often millions of people in need. An additional challenge: Most Indian nonprofits must strive to grow while stretched for resources.

Even though total funding for India’s development sector grew by 9 percent from 2011 to 2016, nonprofits still struggle to raise sufficient resources to fuel critical growth drivers such as leadership development. A recent Bridgespan Group study revealed that more than 50 percent of surveyed NGOs in India report that they did not receive any funding for developing homegrown leaders over the past two years. At the same time, the Indian government could do more to help nonprofits scale their social impact efforts. The government spends just 1.4 percent of the nation’s gross domestic product on health care—less than half the amount China and Brazil spend. Government spending on schools similarly trails the spending rates in other emerging economies.

Nonprofits that manage the tension between scarcity and scale in India must not only squeeze costs, but also exalt frugality. They streamline administrative and other internal processes to optimize operational expenses. To avoid capital expenditures, they often by partner with other entities or create internal networks that share the cost of maintaining fixed assets.

One organization that has embraced this “radical frugality mind-set” is Karuna Trust, which delivers healthcare services to 1.5 million people annually. In 1986, Dr. Hanumappa Sudarshan, a medical doctor who administered treatment to tribal communities, launched the organization as a public charity to battle leprosy in the state of Karnataka. Over the years, the organization expanded to support integrated rural development through health, education, and livelihood security. But in 1996, Dr. Sudarshan realized Karuna was duplicating services provided by India’s Primary Health Centres (PHCs)—state-owned clinics that provide treatments and minor surgeries. This insight put the organization on a path toward growth through frugality—why, he wondered, couldn’t Karuna and PHCs combine forces through a public-private partnership?

Dr. Sudarshan first had to convince the government that partnering would be beneficial. In 1996, the government cautiously allowed Karuna to take over two PHCs in remote places that were difficult to manage and lacked many services. Initially, Karuna received just 90 percent of the existing government budget to manage the select PHCs—a case of executing with officially enforced thrift. Dr. Sudarshan took this as a challenge, and the project was so successful that the Karnataka government issued a formal policy supporting public-private partnerships in managing PHCs in 2000.

Karuna Trust now runs 68 PHCs in six Indian states. It is also providing added services, including low-cost health insurance and mental health treatment, all at an overhead expenditure of less than 3 percent. Low-cost innovations such as the ECHO knowledge sharing network—where expert teams use videoconferencing to train front-line, primary care clinicians in providing specialty services to underserved communities—further operationalize a radical frugality mind-set.  

Of course, India’s unmet health needs still vastly exceed the social sector’s reach.  According to estimates published in The Lancet, in 2015, just one government bed was available for every 1,833 persons. This is especially pronounced among the country's rural population, more than 70 percent of whom—some 600 million people—lack access to a nearby, licensed medical doctor. For instance, 85 percent of Bihar’s 100 million people reside in rural areas, while 55 million live under the poverty line. In Uttar Pradesh, 160 million of its 200 million live in remote areas, with 80 million in poverty.

World Health Partners (WHP), which works to provide health care within “walkable distances” to people in remote areas of Bihar, Uttar Pradesh, West Bengal, Rajasthan, Jharkhand, and Gujarat, has also adopted the radical frugality mind-set.

Founded in 2008 by Gopi Gopalakrishnan, WHP provides the medical expertise of highly qualified city doctors, via satellite, to patients formerly served by rural health practitioners. After training, these healthcare providers can become franchised owners of SKY health centers—informal clinics equipped with webcams for patients and caregivers to videoconference with city-based physicians—and share a fixed ratio of revenues with WHP. Field teams and central facilities maintain the technology.

In an extended hub-and-spoke configuration, each SKY center typically serves seven to 10 villages. Most of these villages have WHP-trained caregivers, who provide low-cost, symptom-based treatments or basic diagnostics. It’s a frugal model that aims to help every stakeholder win:

  • Patients receive modern medical advice at minimal cost (about $2 for a telemedicine consultation).  
  • Franchisees receive up-to-date medical devices, technology, education, and access to wider medical knowledge. They join a network of local health care workers, nurses, doctors, specialists, laboratories, and pharmacists from whom they can seek and receive referrals, including telemedicine consultations. On the flip side, SKY network providers must meet stringent quality-of-care standards, and offer essential preventive care services such as inoculations and family planning.
  • Doctors participate as their time permits and at reduced fees, earning incremental income and the satisfaction of helping those less fortunate.
  • Field teams guarantee that centrally procured generic drugs get to centers and local pharmacies. They train the new entrepreneurs and they conduct surveys to evaluate performance and patient satisfaction. Based on surveys and data collected from the centers, they implement corrective actions as needed. 

While uptake of WHP’s model has been slower than expected, the organization has so far offered more than 200,000 teleconsultations to vastly underserved regions. “Scalability and sustainability come only when the service is economically payable or the government’s money is used to pay for it,” says Gopalakrishanan. “Thus, we have a model that leverages the existing knowledge of rural health workers, free bandwidth of city doctors, and an efficient field team through the use of technology at a reasonable cost.” 

India’s thrifty nonprofits understand that even the most rigorous frugality will never result in zero overhead costs. That said, they’ve learned how to navigate around the radical frugality mind-set’s chief pitfall: The tendency to cut back on the wrong things. They keep their focus on reducing unit costs, and avoid any cut that might starve innovation and thereby diminish their overall impact.

 Soumitra Pandey (@soumitrapandey) is a partner and the head of The Bridgespan Group’s Mumbai office.

 Rohit Menezes is a partner in Bridgespan’s San Francisco office and was formerly based in Mumbai.

 Swati Ganeti, formerly a Bain & Company consultant who externed at Bridgespan Mumbai in 2016, is pursuing an MBA at the University of Pennsylvania's Wharton School.

This post is the second in a series based on the authors’ Stanford Social Innovation Review article, “Why Indian Nonprofits Are Experts at Scaling Up.”

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