Overview and Evaluation of Existing Frugal Innovations in Healthcare


Bachelor Thesis, 2017

61 Pages, Grade: 1,7


Excerpt


Contents

List of Figures

List of Tables

Acronyms

1 Conceptual background
1.1 Definition of innovation
1.2 Characteristics of frugal innovations
1.2.1 Interrelation with other innovation concepts
1.3 Relevance of frugal innovations in healthcare with focus on India

2 Scientific state of the art

3 Empirical investigation
3.1 Methodology
3.1.1 Research process
3.1.2 Data analysis
3.2 Profiles of ten frugal innovations in healthcare
3.2.1 Aravind Eye Care System
3.2.2 MAC Series
3.2.3 Embrace Infant Warmer
3.2.4 Stanford-Jaipur Knee
3.2.5 Leveraged Freedom Chair (LFC)
3.2.6 Kit Yamoyo
3.2.7 Pratt Pouch
3.2.8 EMRI 108 services
3.2.9 Operation ASHA
3.2.10 Tata Swach
3.3 Evaluation of the data

4 Discussion

5 Conclusion and implications

A Appendix

Bibliography

List of Figures

3.1 Products and Services

3.2 Type of Innovator

3.3 Countries of Development

A.1 Outline of ten Examples of Frugal Innovations in Healthcare (1/2)

A.2 Outline of ten Examples of Frugal Innovations in Healthcare (2/2)

List of Tables

1.1 Key Concepts related to Frugal Innovations

A.1 Sample of Template I

Acronyms

illustration not visible in this excerpt

Introductory remarks

The world’s economic powers have the funds and resources to invest steadily in research and progress. However, the urgent problems that need innovative and efficient solutions exist primarily in developing countries. Their progress is slowed down by a steady growing population and simultaneous scarcity of re- sources [DRW16]. The demand for medical devices and diagnostic equipment is increasing and so do the markets for health companies at the same time. Solutions developed in industrialised countries are often not compatible with the needs and circumstances in these target markets. They include an overly complex range of services that exceed the demands of potential customers and their willingness to pay. The customers are willing to pay for less complex products and services, if they are not compromised in quality. To reach the raising patient volumes, highly affordable products and services are needed.

At this point, an innovation concept named frugal is emerging that has gained attention over the past ten years [HT15]. This is not a matter of advancing the economy or own profits, but to create the greatest possible social value. The con- cept includes the development of products and services, as well as business models, in order to reduce complexity and cost of ownership (see 1.2). The integration of any resources along the entire value chain is reduced. In this way, costs are already saved in the development and production process. This affects final prices, which are much lower compared to average products with the same benefit. Despite the low selling prices, frugal products can be profitable for companies due to the ever increasing size of the customer base. The difficulty for companies that want to develop frugal products or services is to adapt to the restrictions of the target market.

Numerous scientific contributions have already been published that show concepts and frameworks as to how frugal innovations can generally be implemented in the market (see 2). Although, frugal innovations in the field of healthcare are mentioned in the literature, there are hardly any scientific papers concentrating exclusively on them, or their development.

The aim of this thesis is to contribute to a more precise understanding of frugal innovations in healthcare and further drawing scientific and entrepreneurial atten- tion to them. With the help of the key elements of their business models, the procedures of ten frugal innovators are examined. All of them develop medical devices as well as services for healthcare delivery. The case studies provide empir- ical evidence to analyse under what conditions established companies of different types, can successfully commercialise frugal innovations. In this context, the de- velopment of a profound understanding of the target market as well as the design of a sustainable financing model, turned out to be the biggest challenges for the innovators. In addition, the success of the innovations is based on the establish- ment of a sector-wide network. Furthermore, this study aims to provide a basis for further investigations and the search for healthcare solutions to counteract the issue of medical under-supply in developing countries.

The thesis subdivides into four main sections: After the brief introduction, the theoretical foundations and conceptual frameworks are introduced to enable a ba- sic understanding of the topic. In the same place, the significance of healthcare innovations is explained. The second part depicts the scientific discourse and state of the art in the field of frugal product and service development, based on information from extant literature. With the explanation of the applied research methodology and procedure of analysis, the empirical part of this work commences in the third part. Subsequently it portraits ten examples of frugal innovations in healthcare in detail. The fourth section entails the empirical evaluation and dis- cussion of the prior part. It concludes with theoretical and managerial implications and a prospect for the importance of frugal innovations in healthcare. Potential limitations are discussed and recommendation for further research is given.

1 Conceptual background

This chapter aims to convey a brief introduction to the fundamental theoretical definitions and concepts the thesis deals with. After defining innovation in general, the theory of frugal innovations is elucidated in detail. On this occasion, frugal is going to be distinguished from similar innovation theories. Lastly, taking the prior definitions into context, the importance of frugal innovations for the healthcare sector is indicated to the example of India.

1.1 Definition of innovation

The term innovation has a broad variety of definitions that are adaptable to dif- ferent business and management disciplines. Rogers defines an innovation as "an idea, practise, or object that is perceived as new by an individual or other unit of adoption" [Rog03, p. 12]. For the purpose of this thesis, his general explanation is complemented by the definition proposed by the Organisation for Economic Co- operation and Development (OECD): "An innovation is the implementation of a new or significantly improved product (good or service), or process, a new mar- keting method or a new organizational method in business practices, workplace organisation or external relations" [OEC05, p. 46]. In this context new comprises not only generally new, but also new to a firm, a market, or a single person, even if it does not appear new to others [BV13][OEC05]. The prior definition includes the four common types of innovation: product, process, marketing and organisational. Those are utilised in the later chapters to differentiate the examined examples. A company can implement an innovation of one or several types. Yet only a product or service which has been realised on the market, or has been involved in the corporate operations respectively, can be labelled innovation [OEC05]. This criterion distinguishes innovation from invention, since invention is the act of developing an innovative idea [BW67].

Innovative activities imply competitive advantages and global changes in the in- dustries. Moreover, they are recognised to play a central role in creating value [BRS09]. They are indispensable for economic progress and are equally necessary to secure business settlement in markets. Furthermore, they are the key for de- veloping countries to enter the globalised market [Bas99]. Implementing any type of innovation in the business offers numerous incentives. Among others, those are raising quality, the efficiency of internal work or production processes, or the "knowledge spillovers from firm-level innovations" [OEC05, p. 20].

1.2 Characteristics of frugal innovations

Frugal, in its dictionary meaning, is "small, plain and not costing very much [...] by only using as much money as is necessary" [Hor+08, p. 626]. To innovate frugal means to match three components: technology, institutional and social conditions [Bha12]. The title of the book on frugal innovations "(How) To do more with less", describes with few words the core of the concept. This philosophy requests to both sellers and buyers [Bha12]. As the authors explain further, those innovations aim to create high value while reducing the allocation of resources like "energy, capital and time" along the whole "value chain (development, manufacturing, distribu- tion, consumption, and disposal)" [RPP15, p. xv][HT15][TH12][Ham14, p. 18]. The frugal concept applies to both products and services [Ham14]. Its innovations are to be understood as independent, not simply re-engineered solutions, serving the demand of resource-constrained environments. Whereas any kind of limita- tions on resources could be obstacles, frugal innovations turn those into advantage [BT12]. Varadarajan explains that shift of priorities as followed. In industrialised countries the product performance is most important for the purchase decision, followed by features, considering the price least of all. The costs of products are crucial for customers in developing countries, followed by portability and usability [Var11]. That is why the products are reduced to their core attributes, rather than adding features which are not required for the functionality10. At the same time, frugal products are characterised by high quality [Bha12].

The core capability of frugal innovations is to make them affordable, by cost reduction. In fact, costs have to be saved in the development and manufacturing process, but in this context, the customers perspective is in the centre of attention. Therefore, an innovation can only be labelled as frugal, if its price is perceived as low by the customer [WH16b].

In order to get a better idea of the extent of this reduction, Rao conducted a comparative study of the prices [Rao13][WH16b]. His investigation revealed that frugal products are an average of eighty percent cheaper than comparable products [Rao13]. Another scientific study suggests that the costs should be at least a third lower than for conventional products [WH16b].

Due to the characteristics of frugal innovations, the scalability is of great signifi- cance from an entrepreneurial point of view. It is not a feature to distinguish frugal from other innovative concepts, but it is crucial to the existence of the innovators [WH16b]. The low sales prices generate less profit and thus comparatively more product or service units must be sold. As claimed by Weyrauch and Herstatt, scalability does not limit frugal innovations to minor target groups [WH16b].

Frugal innovations currently target especially rural and semi-urban populations. They need to be robust and guaranteed to operate under extreme conditions [WH16a]. Those include "power-cuts, dust, and extreme temperatures" [Ham14, p. 18]. Especially for products used in the healthcare sector, it is important that they run stable without maintenance during their lifetime [WH16b]. At best, repairs can be done locally. If necessary specialists should be available in the target market. Additionally, frugal products must be easy and intuitive to operate as the customer or user may have a low level of education [Ber12].

As discussed in 3.2 and 3.3 different types of innovators develop frugal innovations. Grassroot innovators leverage solutions out of a community, but face the obstacle to expand their level of efficiency. Despite them, there are international research groups from universities and Multi-National Corporations (MNCs). Regardless of the challenges for developers of frugal innovations, the unsaturated market of developing countries offers the opportunity for entrepreneurs to serve a steadily growing customer segment. Frugal products and services create value for every consumer, whether they are price-sensitive or interested in "simpler products having a better fit to their actual needs" [TFK16, p. 16]. Further, they are solutions for the Business-to-consumer (B2C) as well as Business-to-business (B2B) relations [TFK16][HT15]. In the following section, the frugal concept is differentiated from other related innovation concepts. This delimitation serves to deepen the understanding of the frugal mindset.

1.2.1 Interrelation with other innovation concepts

In the following subsection, innovation concepts and strategies are presented, which are related to the frugal approach. Table 1.1 summarises them in a concise overview.

Bottom of the pyramid (BOP) describes the lowest income segment in the world. This market is characterised by a low purchasing power. Still, it is attractive for entrepreneurs, if they manage to make mass-produced products available, by exploiting scale effects [HT15]. BOP innovations are frugal, but are restricted to this customer segment. Additionally, they are more focused on innovation of the business model rather than technical innovations.

Cost innovation strategies imply low cost structures and innovative profit models. They are determined as disruptive as they reach out for under-served customer segments with high quality, customised products. "They often render obsolete the market leaders’ assets, capabilities, and experience [...] by undermining traditional profit models [...]" [WZ09, p. 69]. Williamson and Zeng classify three dimensions that constitute cost innovation strategies: "selling high-tech products at mass-market prices; offering choice and customization to value customers, turning premium niches into mass markets" [WZ09, pp. 69-73].

Disruptive technologies are commonly found at the lower end of a market, where they attract non-consumers [TFK16]. They introduce a completely "new, cheaper, smaller and simpler" value proposition while underperforming already established products from other providers [Chr03, p. 34]. Frugal innovations are commonly portrayed as disruptive [Rao13]. Both concepts do not include elements of supremacy [HSH16].

Grassroot innovators are usually local people or groups who create a solution to an existing problem in their direct environment. These types of innovations arise in both developing and developed markets [HSH16]. They need little financial resources. As the demand they address is local, grassroot innovations have difficulties to scale up [SK14].

Inclusive innovations are not limited to products, they also enable services. They aim to cause social and economic well-being and opportunities by leveraging valuecreating ideas. Again, the target market is the BOP [GMP12]. As in the case of frugal innovations, the end user should be integrated into the development process and the business model design from the start.

Jugaad innovations are based on improvisation without standards. They do not necessarily strive for an outcome. The pure accomplishment of purpose is in fo- cus. Jugaad solutions originate more from the Do it Yourself (DIY) movement, whereby frugal innovations are carried out by entrepreneurs. In scientific and entrepreneurial context, jugaad innovations are often regarded as negative, since they can be accompanied by a severe deterioration in quality [TFK16]. This is the main distinguishing feature. Both approaches are concerned with the reduction of production and ownership costs, but they have different standards on quality [TFK16].

Resource-constrained development is based either on the lack of usable re- sources or on the deliberately economical and sustainable use of resources in prod- uct development. Regardless of which of the two reasons they arise, the goal is to keep product costs as minimal as possible. The emphasis is on the re-design of conventional product development processes and to generate value with locally available resources. Resource-constrained product development is dependent on frugal engineering [SI12].

Reverse innovations represent an inverse approach of the innovation process. They are initially created for local applications in developing countries and later transformed and adapted for use in industrialised countries [ZWG14].

This strategy makes it possible to serve two target groups simultaneously in dif- ferent markets, while keeping the factor costs low at the same time [HT15] (e.g. 3.2.3, 3.2.2). The two concepts are concurring in terms of targeting at pricesensitive customers, but frugal innovations can be developed in industrial nations from the outset [IGT09][GR11].

All concepts differ in only slight nuances. Affordability is, in accordance with frugal characteristics, at all of high importance. Frugal innovations stand out from the crowd in one point. They are aimed not only at the BOP, but also at customers above this segment of the economic pyramid. In summary, all these approaches merge into the concept of frugal innovations.

Innovation Type Definition

Bottom of the Pyramid "Products and services which address under-served or un-served markets at the low end of the economic system." Cost "The use of cost advantage of developing economies in order to develop innovativeness at much lower cost." Disruptive "Processes of replacing older technologies with tech- nologies that change the course of development. [...] products and services which offer superior customer value at low cost."

Grassroot "Bottom-up development approach which includes so- cial integrity and social civilians as inventors by connecting people through social and technical networks in order to develop ecologically and socially acceptable products and services."

Inclusive "The development and implementation of new ideas, which aspire to create oppor- tunities that enhance social and economic well being for disenfranchised members of society."

Jugaad "Based on ingenious solutions, consisting of overcom- ing limitations (e.g. lack of funds) and finding ef- fective, often improvised solutions with limited re- sources."

Resource-constrained "Innovations which use minima resources and are af- fordable to end-consumers."

Reverse "The development of ideas in emerging markets and then the export of this knowledge and to developed economies."

illustration not visible in this excerpt

Table 1.1: Key concepts related to frugal innovations (own representation, based on [RH15, p. 52][RAB16, p. 4]

1.3 Relevance of frugal innovations in healthcare with focus on India

In 2015, the United Nations decided on the seventeen sustainable development goals. Healthcare is in third place on that list. They aim to globally enable "access to quality essential health-care services and access to safe, effective, quality and, affordable essential medicines and vaccines for all" [Uni15].

Due to their low costs, frugal innovations offer access to products and services to an under-served, low-income target population. This market comprises the "lowest socio-economic segment in the world" [RH15, p. 7]. Its coverage is estimated to be four billion people, mainly living in Asia [Ham10]. To provide this mass with medical care advanced technology is important. On the other hand, there is an urgent need for solutions which allow the adequate care of as many patients as possible. In this thematic context, India stands in the worldwide focus. The government contributes about one fifth of the total healthcare. Private companies and charity organisations bear the major part09.

India has a strong shortage of medical professionals. According to an estimation by the World Health Organisation (WHO), six doctors provide 10.000 patients (33/10.000 in Germany) [Wor06]. This number focuses on hospitals situated in urban regions. However, approximately 69 % of the Indian population live in rural or semi-urban areas [Cen17]. Consequently, the majority of the total population has limited access to medical care. Low public spending on healthcare affects public hospitals, which offer their services to the poor. Since there is no state- regulated health insurance, the patients themselves have to pay for their treatment [SR12]. This can lead to high debts for families or even circumvention of necessary treatment.

2 Scientific state of the art

Frugality and "the desire to get more with fewer resources" has long been anchored in the academic literature [Gem15, p. 4]. In the context of innovation management, it began to gain attention with the article Health care in India: Lessons from a frugal innovator published in The Economist, in 200909. The article established a connection between frugality and innovation for the first time [TFK16]. With their growing impact on emerging markets, the number of publications on fru- gal innovations increased significantly. According to Herstatt and Tiwari, within five years, the number of entries for the keywords ’Frugal Innovation’ on Google Scholar grew from 10, in 2009, to 758 in 2014 [HT15]. The publications focus on several contexts and industries. While all authors share the perception that frugal innovations create new technologies at low costs and share a price-sensitive customer base, there are different views as to which attributes of frugal products and services are of primary importance [BW14].

For the purpose of this work, the definitions of frugal innovation conducted by Herstatt [HT15], Tiwari and Herstatt [TH12] and Weyrauch [WH16b] are applied in 1.2. Other publications aim to generate an understanding of frugal innova- tion by investigating the principles underlying them. The analysis of Zeschky et al. on different types of resource-constrained innovations gave the criteria for the delineation of concepts in 1.2.1 and thus helped with a clear definition of frugal innovations [ZWG14].

The literature review and interviews with 45 managers and researchers, conducted by Weyrauch and Herstatt, induce three criteria which distinctively define fru- gal innovations [WH16b]. They outline substantial cost reduction, concentration on core functionalities, and optimised performance level as key characteristics [WH16b]. Their results have been adapted within the conceptual framework of this thesis. The empirical analysis of frugal product and service innovations by Rosca et al. provides a first systematisation of business models. A comparison of innovation strategies applied in countries of similar and unequal economic develop- ment reveals that frugal innovations require a perceptive combination of business model elements to create greatest possible value [RAB16]. Although their study does not investigate the healthcare sector, the intention and aim of the study are like those of the present thesis.

Although science is concerned with methods for innovations in medicine, the num- ber of research and publications on frugal innovations in the healthcare sector is still limited. Especially in the context of developing countries, the healthcare sec- tor needs innovative solutions. To drive progress in this field, more studies and empirical analysis that deal with market conditions and entrepreneurial require- ments are essential. Ramdorai and Herstatt aim at this gap with their scientific exploration, focusing on the BOP [RH15]. They investigate the strategies of com- panies to commercialise their frugal innovations, on a micro-level.

In conclusion, it can be said that frugal innovations in general enjoy growing attention in scientific discourse. Till date, concepts and frameworks which support companies in adapting their internal processes and structures to the requirements of frugal innovations are published increasingly. However, frugal innovations are established in the healthcare market, but little is specifically reported on their success or strategies. This thesis focuses on frugal healthcare innovations and contributes to the so far small field of research.

3 Empirical investigation

This chapter is divided into three parts. First the methodological approach of research and analysis is explained. After that, profiles introduce the examples of frugal innovations in healthcare in detail. The exploration of characteristic similarities and differences of the selected data concludes this section.

3.1 Methodology

For the purpose of this thesis, a diversity of methods was determined to proceed towards the research questions. The approach is built on a procedure of four steps, which are described in the following two subsections.

3.1.1 Research process

First, a comprehensive literature review was conducted, to gain an overview of the concept and established theories on frugal innovations. The online databases EbscoHost, Google Scholar, Science Direct and further public and academic literature were searched. The array of results was limited on German and English language. After extracting the defining criteria for frugal innovations, an outline structure which defines the terms of the later investigation, was compiled in form of an Excel file (see Figure A.1, Figure A.2).

Second, a selection of examples of frugal innovations in the healthcare sector was made. The repertoire spans examples regularly cited in the analysed literature and selected at an additionally conducted research. Therefore, the search field was extended. Google search engine and reports of global health authorities like the WHO or NGOs actively operating in the healthcare sector were included. Consequently a pool of examples arose. For more detailed information on the examples the respective website of the organisation and product sheets were ex- amined. It was checked whether the examples correspond with the definition of innovation. As the conceptual requirements of frugality vary in the literature, the main emphasis illustrated in 1.2 were applied to identify the examples as frugal innovations. Due to limitations on the extent of this thesis, the number of exam- ples has been confined to ten. With the choice of the examples it was respected to the fact, that they represent different geographic areas and ranges of application in medicine. To ensure a universal evaluation in the last section of the thesis, they have various corporate backgrounds. The examination excludes innovations that are still in the development stage or have been launched shortly, because only few detailed information on their business model and practises is provided. Third, the collected details on the individual examples were applied to the Excel sheet. The following subsection describes the fourth and last working step.

3.1.2 Data analysis

The analysis of the tables’ (A.1, A.2) content was carried out as follows. The inter- pretation of the rows was used to create the profiles (see 3.2). For the evaluation in the key part (see 3.3), the matrix was interpreted in a column-by-column manner. The individual distinctive features were considered for the entire examples. In that way similarities and differences between the ten innovations were clarified. To gain further understanding of the corporate structure the business entity and types of innovator were examined. The prior findings were linked with geographical char- acteristics to recognise where frugal innovations originate and which markets are most attractive for innovators. Accordingly, both the country where the innova- tion was developed and the target market were identified. In order to comprehend the temporal evolution of frugal innovations in healthcare, the ten examples’ years of launch were surveyed. The number of patients/units were determined to be for informational purposes only and are not included in the final evaluation.

As this thesis aims to give a profound insight into the operating strategies and business model patterns of frugal innovators in the healthcare sector, an additional systematisation was necessary. A more detailed information on the examples was structured with a modified business model framework to illustrate the innovators value creation. The usual number of business model elements was reduced to four. An analysis of the most frequently used components in business model frameworks supported this selection [AS17]. The refined model on which the analysis is based comprises the following elements. Qualities and service level as well as the "benefit offered by the product or service" describe the value proposition [RAB16, p. 3]. Flow of funds unite the revenue model and financing of the companies or organ- isation. Internal competencies and processes provide information on in-company key activities and resources as well as operational capabilities [AS17]. Interactions with partners and suppliers are investigated under network. Since the customer segments are clearly defined for frugal innovations, they were excluded from the analysis (see 1.2). To present the reader all this information in an open layout, a template was designed. A sample, describing the business model key elements, is attached in Table A.1.

Thus, the evaluation of this thesis is based on the available data, restrictions and inaccuracies are to be considered. For numerical facts, such as sales figures or retail prices, the data from different sources were compared, but these were partly divergent or no data were found. Further, in some cases they refer to the end user, in others to intermediaries. For this reason, these data were excluded from the interpretation.

3.2 Profiles of ten frugal innovations in healthcare

3.2.1 Aravind Eye Care System

Type of innovation: product, process, organisational, ophthalmology Company: Aravind Eye Care System; non-profit organisation Year of foundation: 1976 Type of innovator: grassroot Target market: India

Value proposition:

- prevent people from cataract related blindness without reference to their social and financial background
- treatment includes checking for diabetes and refraction to prevent posterior complications; guarantee low infection rates [GM10][Ara]

Flow of funds:

- by 2006, the cost of cataract surgery at Aravind was about $18 per person, including the intra-ocular lens (IOL) [RT07]
- hybrid business model: 40 % of Aravind’s patients finance the treatment and service for the remaining 60 % of non-paying, or not fully paying patients [RT07]
- the generated surplus stays in the system for constant improvements, like the establishment of Aurolab, scientific research and expansion [RT07]

Internal competences and processes:

- in fiscal year 2016 Aravind Clinics treated 4.7 million outpatients and performed over 408.220 surgeries [Ara]
- in-house manufacturing capacity Aurolab produces high quality intra-ocular lenses at an affordable cost and sells the excess to other hospitals and NGOs in India [RT07]
- a surgeon can perform up to 50 surgeries a day because of their standardised process flow of patients [Ara15]

Network:

- 11 Aravind hospitals across India [GN90]
- in Madurai, India the Lions Aravind Institute Of Community Ophthalmology (LAICO) offers training for doctors and nurses on low rates and knowledge transfer with other eye hospitals in India and 70 more countries [GM10][Lio]
- Vision centres, mobile eye camps in remote areas, offer full examination services and only send patients in need of surgery to city hospitals, to enable an effective resource allocation within the system [Ara][GM10]

3.2.2 MAC Series

Type of innovation: product; cardiology Company: GE Healthcare; for-profit organisation Year of launch: 2007 Type of innovator: MNC subsidiary Target market: Brazil, Russia, India, and China (BRIC) nations, USA

Value proposition:

- affordable, robust but lightweight (1.300 gram), portable electrocardiograph, especially designed for employment in developing market conditions to support early cardiac diagnostics [Gen07]
- MACs run on long lasting batteries with short charging time and conduct up to 500 ECG readings on one charge [GE 11]
- later developed models can convert data into Portable Document Format (PDF) and sent these via Local Area Network (LAN) from anyplace [Dol09]
- restriction on key functionalities minimises training expenses for health workers [RH15]

[...]

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Title
Overview and Evaluation of Existing Frugal Innovations in Healthcare
College
University of Leipzig  (Economics and Management Science)
Grade
1,7
Author
Year
2017
Pages
61
Catalog Number
V431621
ISBN (eBook)
9783668752023
ISBN (Book)
9783668752030
File size
891 KB
Language
English
Keywords
Frugal, Innovation, Healthcare
Quote paper
Julia Weinhold (Author), 2017, Overview and Evaluation of Existing Frugal Innovations in Healthcare, Munich, GRIN Verlag, https://www.grin.com/document/431621

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