Abstract

Cost management is the strategy of planning and controlling the costs associated with operating a business. The frugal innovation (FI) approach is therefore interesting because it is a way to reduce costs while innovating without requiring a high level of investments in capital, technology, and skills. Therefore, to understand the mechanism of FI development, this research aims to study the relationships and influences among the diagnostic capabilities (DiC), dynamic capabilities (DyC), and frugal process innovation (FPI) of Thai small and medium-sized enterprises (SMEs), which require a cost strategy to stay in the highly competitive auto parts industry. Causal research was conducted through surveys using questionnaires for data collection. Respondents were chief executive officers (CEOs), engineers, and senior technicians in their respective companies. Partial least squares-structural equation modeling (PLS-SEM) was used to assess the structural models and verify the research hypotheses. The findings revealed significant influences among three pairs of constructs: (1) DiC has a positive effect on DyC, (2) DyC has a positive effect on FPI, and (3) DiC has a positive effect on FPI. Accordingly, the results of this research reveal a guideline for FI development by creating DiC and improving organizational DyC. These notions improve organizational preparation for unexpected situations in the future.