Transformative Innovation: An African Path to Success by Yellowwood

2013 | Vol 3

By HonorĂŠ Gasa, Charles Erasmus & Al Mackay

The eyes of the world are on Africa as businesses search for new sources of growth. With increasing competition and opportunity on our continent, local businesses need to find ways to innovate to stay ahead and reap the rewards of Africaâ&#x20AC;&#x2122;s economic boom. For African businesses to create sustained growth they need to be innovating in ways which are more relevant, more useful and more meaningful than global competitors.

The

innovation

required

goes beyond taking market share from competitors; it is about transforming categories, unlocking new markets and helping to create favourable conditions for

market

growth.

upskills,

em-

powers and contributes to prosperity on the continent. And in a global environment that is increasingly similar to that of Africa, a successful model of African innovation can create brand leaders to take on the world. This paper aims to investigate the mechanics of innovation that is successfully achieving a broader positive impact and to distil our findings into a shortlist of key characteristics, approaches and techniques for African businesses.

Innovation has always been the lifeblood of progress. Consider a world where the Wright brothers did not invent the aeroplane, Thomas Edison did not give us practical, electrical lights, or Larry Page and Sergey Brin did not bring Google into our lives. But what started out as the honest pursuit of overcoming challenges and advancing the human condition has, in recent years, become somewhat tainted by a growing suspicion that innovation has only one remaining goal: larger corporate profits. Apple is a good example. Although we still enjoy the devices they bring to market, we cannot shake the feeling that Apple’s original mission of transforming what technology can do for us, has gradually been replaced by a mission of milking us for all we have. As Tasos Calantzis of Terrestial says, “most companies think they are innovating when they churn out new products. That isn’t innovation. Unless you are creating new value, you are not innovating.” Can faith be restored? We believe it can; and a variety of businesses are demonstrating that innovation’s reason for being can go beyond battling rivals for a bigger slice of the proverbial pie. Perhaps not surprisingly, many of these businesses are based in developing economies where it cannot be taken for granted that markets have unlimited ability or inclination to spend.

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If we take the level of R&D spend in a country as an indicator of the level of innovation occurring in that country, then we can see that Africa spends comparatively little on R&D and the % of GDP spent indicates that it is not a priority. South Africa appears as the first African country in the list in 30th place, followed by Egypt in 46th place. As expected, we underperform in comparison to the industrialised nations. Moreover, we are underperforming in comparison to other emerging markets such as China, South Korea, India, Brazil and Russia.

R&D Spend in US$ Billions 450 400

405.3

350 296.8

300 250 200

160.3

150 69.5

55.8

42.2

38.4

36.1

24.3

23.8

19.4

3.7

(0 11 .9 . B % of RA G ZIL DP )

(1 10 .0 . R % of USS G IA DP )

(1 9. .8 CA % of NA G DA DP )

8. of IND G IA DP )

(0 .9 %

of 7. G UK DP )

(1 .7 %

(1 6. .9 FR % of AN G CE DP )

(2 .7 %

1 of . U G SA DP )

(1 .9 7% 2. C of HI G NA DP ) (3 .6 7% 3. J of AP G AN DP ) 4. (2 G .3 ER % of MA G NY 5. DP SO ) (3 UT .7 H 4% K of OR G EA DP )

30 .S O U (0 TH .9 % AF of RI G CA DP )

100

Source: Battelle, National Bureau of Statistics of China, Ministry of Commerce of the People’s Republic of China

There may be a number of reasons for the lack of R&D spend in Africa. One of the most obvious reasons is that it is the large organisations or institutions that spend money on R&D and these tend to base their substantive R&D operations in global head offices or in other developed countries where the level of access to highly educated people is comparatively high. The products that result from this are ‘pushed’ into regions such as Africa rather than being developed within them. Africa therefore suffers from ‘satellite office syndrome’ – Africa based operations are viewed as ‘implementation’ offices as opposed to potential drivers of innovation. In African offices of global companies, budgets are generally focused on operations and marketing spend. In addition, governments, who are generally major funders of R&D through academic and public institutions, have far more pressing demands on their budgets in Africa, like the provision of basic services and infrastructure. The above focuses largely on product innovation, though, and there are potentially other innovation areas that do not require classic R&D investment – like process innovation. So why are we not innovating more in these areas as big business?

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From a long list of reasons, we believe the most compelling and interconnected to be: • • • •

Context disconnect A culture of authority Market attractiveness Risk aversion

Context Disconnect It is still true that there is a large contextual disconnect between those engaged in big business and the mass of the population. Those in positions of power in big business tend to be well educated and comparatively well-heeled. Their context, with regards to their life views and lifestyles, is very different from the mass market and it is difficult to bridge the divide in understanding the needs of the market and in being able to develop solutions for those needs. TIP: Use ethnographic research, include participants from the target market in your ideation and ensure executives leave their offices and explore the daily lives of customers to really grasp their realities – not as a tour but as a genuine experience. For more on better understanding your customers see Yellowwood’s previous white paper The Guide to Relevance.

A Culture of Authority Companies that succeed in building an innovation culture have flat structures, high levels of interpersonal respect and emotional intelligence. For employees and customers to participate in successful and continuous ideation, they need to believe that their opinions and ideas are valued, and that the business is genuinely interested in what they think. Without this, much creative energy is stifled. South Africa has historically been a highly authoritative and hierarchical society, in which power is centralised and ‘ordinary’ people’s views are disrespected. Many businesses and managers still exhibit this behaviour, which makes true innovation near impossible. TIP: Flatten your structures and host frequent cross-disciplinary ideation sessions. Encourage the participation of junior employees and customers, and build on their ideas rather than shutting them down. Consider utilising crowdsourcing platforms, both within and beyond the business, to broaden participation.

Market Attractiveness There has been a move in recent years towards ‘the bottom of the pyramid’. The obvious reason for this has been the sheer size of this market in terms of numbers of people. Largely, this has taken the form of the question ‘what can we develop that this market will buy?’ The problem is that companies are competing for a miniscule amount of disposable income. Sometimes there is even an expectation that these consumers will give up something else in order to buy the new product. While this may be the case in certain circumstances and categories (such as giving up food to buy airtime), it is largely an unrealistic expectation to have. It is no surprise that many companies find themselves abandoning the quest and labelling the market as ‘unattractive’ (and reverting to the more lucrative upper end). TIP: Ask not what consumers will add to their repertoires, but how the innovation can potentially add to their incomes.

Risk Aversion Innovation often means taking risks, failing a few times, learning and trying again. Many executives believe that the risks and investments required largely outweigh the potential size of the prize, and this has been exacerbated by the global financial crisis and the tough economic times that have followed. TIP: Instead of basing decisions on the current size of the prize, think about what you can do to increase it. This leads us to the idea of transformative innovation.

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Innovation is the ability to create new value through new ideas. It is not simply churning out a multitude of different versions of something that no one needs. In our research, we identified five basic levels of innovation. We have named them level T-2 to T+2, with each progressive level taking a slightly longer term and more broad-based view on ensuring sustainable shareholder value. T-1 and T-2 represent the ‘standard’ product or service innovations that deliver shareholder and customer value, but they don’t appear to have transformative value beyond that. The higher T-numbers are not necessarily more noble or desirable than the lower ones – it depends on a company’s situation and position in the market – but the higher the level, the more indirect and greater the eventual impact on shareholder value becomes. The levels of innovation are cumulative; they build progressively to ensure that profitability and customer value are always in sight. If a company cannot deliver significant shareholder and customer value as a start, it will not be in a position to create meaningful new employment or societal progress. Innovation begins to be transformative at level T when the innovation is able to grow a category or create new markets. This is the point at which the pie starts to become bigger, change shape, or becomes something completely different; an ice-cream.

Levels of Innovation

T-2

Benefits:

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T-1

SHAREHOLDER VALUE

CUSTOMER VALUE

Better revenue and profit

Better value for existing customers

MARKET VALUE

Growing categories, developing new categories and unlocking new markets

T+1

DIRECT EMPLOYMENT VALUE

New employment or entrepreneurial opportunities

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T+2

LONG-TERM SOCIETAL VALUE

Education, healthcare, infrastructure and sustainable natural resources

T-2

At the core of the model is the creation of value for shareholders. Businesses exist to create this value and it is critical for the sustainability of business as an institution. Shareholder value is what differentiates businesses from non-profit organisations and governments. Innovations that focus solely on shareholder value are often driven by a need for greater efficiency and short-term profitability. However, innovations that do not create value for any other stakeholders are, in today’s environment, extremely risky. Since the crash in 2008, consumers have become more sceptical about business and its motives and are mobilising through social networks to expose unscrupulous or greedy behaviour. The potential threats to brand and business reputation are significant. Examples of this type of pure shareholder value creation would be: marginally reducing a product pack size while keeping the price the same, thereby increasing the margin. Here is an extract from an article on www.fullcirclemag.co.za about Protex soap entitled ‘Deception’:

“So when I got home, I dug the old wrapper out of the bin and compared it to the bars of soap I’d just bought. Sure enough, the old bars weighted 200g and the new slim-waisted shape was only 175g. They’d reduced the weight of each bar by an eighth. Or were making an extra 12.5 per cent on each bar! I was pretty miffed, to put it mildly. I know retailers will justify this sort of thing as ‘normal’ business but in my opinion it is deceitful. Why not simply charge more and let the consumer decide whether or not they will continue buying that brand. You’d think that was the end of the story. I wish it was. But it gets worse…I checked the receipt expecting to see R6.99. I found that not only had the weight of the bar been reduced, but the price had increased to an astonishing R10.49! I was incensed!”

Another good example of this is Facebook. In its quest to raise revenue, it compromised the privacy of its users, sparking massively negative publicity and even an investigation by the European Union. It has had to retract the practice of using facial recognition software, sharing aspects of Facebook timeline and enforcing settings on users where their information could be shared, in order to correct the situation. However, not before it had been ranked Number 1 as America’s most hated company on the website www.247wallst.com.

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T-1

Innovation really hits the sweet spot when it creates both shareholder and customer value. This is the traditional arena of innovation and it is, many would argue, the core purpose of business. A recent example of this is GSK’s launch of Sensodyne Repair & Protect toothpaste. This is an innovation within the toothpaste category that actually repairs areas on teeth where the dentine has become exposed. It is a great innovation and definitely meets a need for sensitive teeth sufferers. However, it is unlikely to attract new users to the toothpaste category. Continual innovation of this nature within a category becomes more and more difficult to sustain as the category fragments and competition becomes fierce. In order to escape the battle, brands will need to look outside of the traditional market to find new ‘blue ocean’ opportunities.

Getting the Basics Right: Foundations to Innovation Define the problem. Get many views on what the problem is. Be clear about what you need to achieve, but don’t fixate on the problem. Get lateral. Provide lateral stimulus, speak to experts from unrelated fields, include a diverse mix of people in your ideation sessions. Keep your eyes and ears open. Most innovation comes from combining unlikely ideas. Take the time. Don’t lock people in a brainstorm and expect an answer that day. Allow ideas to percolate in the unconscious mind. Create an innovative culture rather than a once-off event. Get the attitude right. Dream big, listen and include people, build on ideas instead of criticising or questioning them.

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Level T is where transformative innovation begins. Although it is the most basic form of transformative innovation, it makes an impact that benefits your business as well as others. Innovations that re-write the category rules consistently produce far greater returns in the long term than ones that just grab market share in the short term. Level T innovations all have one thing in common: they succeed in identifying and responding to a latent, unarticulated or unmet consumer need. They are innovations that result from deeper insight into consumer behaviour and frustrations, rather than from breakthrough technologies alone. This is the domain of ‘Blue Ocean Strategy’ as described in the bestselling book by W. Chan Kim and Renée Mauborgne. The authors compare an established market -place where competitors have been battling it out for a bigger slice of the pie to a ‘red ocean’ – an ocean full of blood resulting from a shark feeding frenzy. In a ‘red ocean’, there is a steep curve of diminishing returns as competitors try to outperform and undercut one another; and as more and more competitors are attracted into the fray. Blue Ocean Strategy looks for new, uncontested market space - and that requires gaining insight beyond the obvious. There are a number of very good techniques for looking beyond category conventions and known consumer needs. One such technique is to identify latent consumer needs evident in alternative industries or categories that fulfil the same basic purpose as the one in which you compete. As Peter Schoeman, Divisional Director of Sales and Marketing for City Lodge Hotel Group says, “the most important characteristic of industry-changing innovators is the ability to spot consumer trends before the rest. Very often, those trends are already evident in other, seemingly unrelated, industries. For example, some of our innovations in streamlining the check-in experience came from looking at what Mercedes Benz was doing with their car servicing experience”.

CASE STUDY iTunes iTunes re-wrote the rules in the music industry by understanding what the emergence of pirate music sites like Napster and Gnutella said about changing consumer needs and technology. The record companies saw pirate sites as a threat to conventional record sales and pursued legal battles and scare tactics. Apple simply adopted the pirate model and made it legal. Apple viewed the popularity of pirate sites less as an indication of how corrupt and immoral the human race was, and more of an indication that the record industry had not kept up with consumer needs, expectations and technologies. Music could be easily and cheaply downloaded, and consumers could escape a limitation that had been imposed on them for decades – buying a whole album when they only wanted one song. The result of iTunes was a rejuvenation of the entire music industry, now paying dividends to everyone from record labels to artists and fans. South African businesses can apply the lessons from iTunes in our local context. We live in a country where pirate DVDs are available on every street corner and there are many other examples of pirate and basic survival behaviour that could give rise to game-changing business and distribution models.

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An excellent example of a business that created new market value is Southwest Airlines. They revolutionised air travel by looking outside of their immediate (and overtraded) industry to what consumers were doing when they were not travelling by air. They realised that they were competing with other forms of transport (cars, buses and trains) that were inexpensive compared to airlines and offered more routes, more regularly. They created a low cost, convenient airline with regular departures and they got rid of the unnecessary frills that customers did not need – the airline industry norms of free on-board meals, lounges and different travel classes. Southwest Airlines was so committed to this new model that their CEO famously replied to a customer who repeatedly complained about their lack of first class seating and meals with “We will miss you.” The Southwest Airlines model has now been replicated across the world and locally by airlines such as kulula.com and Mango, resulting in a massive expansion of the air travel market to include customers who previously did not travel by air.

CASE STUDY MTN Pay-As-You-Go A notable example of an innovation that has unlocked new markets is MTN Pay-As-You-Go. In 1996, MTN was the first company to launch pre-paid airtime solutions. At the time, the majority of South Africans were excluded from the mobile market because they could not afford to take on contracts due to lower or irregular incomes and issues around creditworthiness. MTN created their Pay-As-You-Go option, allowing users to buy SIM cards without opening contracts, and to pay only for the amount of airtime needed. The service created significant market value by unlocking a massive untapped market. The key lesson in the Pay-As-You-Go story is that African consumers respond well to smaller sized purchases that they can make when the funds are available. Many other innovations throughout Africa have been successful due to this insight: PEP and Hollard insurance have given new markets access to insurance through their ‘starter pack’ insurance model. PEPbranded insurance packs (packaged like mobile phone ‘starter packs’) are placed near the store check-out counters and include six different schemes with various monthly premiums and lump sum pay-outs in the case of death. The purchase price of the starter pack is inclusive of the first month’s premium. Within 72 hours of a purchase, the customer is called by an authorised insurance agent from Hollard who collects all required personal details and provides qualified advice. Follow-up monthly premium payments can be made in the nearby PEP store.

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1. BETTER UNDERSTAND YOUR CUSTOMERS Most businesses do not really understand what their customers want. Henry Ford’s famous innovation came from understanding that it was not just a ‘faster horse’ that his customers wanted. What frustrates consumers about your category? What needs are currently not being met? Invest heavily in understanding your market. Get the executives out into the world of your customers. As Helen Andrews of SynNovation says, “the most powerful innovation comes from inventing off real insight.”

2. IDENTIFY YOUR CATEGORY CONVENTIONS Are your current formats, packs or distributions based purely on historical idiosyncrasies or out-dated technologies? Are you trying to sell CDs to consumers who only want music?

3. LOOK FOR LATENT CONSUMER NEEDS EVIDENT IN ALTERNATIVE OR ADJACENT INDUSTRIES For example: Is there an opportunity to change the way financial services are offered by evaluating behaviour in Stokvels or other informal ways of managing finances?

THE PIE (YOUR INDUSTRY)

Non-users & deserters

How are they currently meeting their need?

How can we better meet it?

4. TURN PIRATES INTO PARTNERS South Africa and Africa have large informal markets, with many entrepreneurs innovating with very little, and trying to make ends meet. How can you find ways to work with them, instead of against them? For example: Is there an opportunity to reinvent the ailing cinema industry by setting up small community theatres, operated by local entrepreneurs?

5. CONSIDER OFFERING PRODUCTS IN SMALLER, MORE AFFORDABLE PORTIONS For example: is there an opportunity for a new education model that breaks down curriculums into smaller, more affordable modules?

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T+1

Business Chain

INPUTS

Opportunities for entrepreneurial innovation?

DESIGN

Core Business MANUFACTURING

DISTRIBUTION

Creating quality employment is one of the most pressing needs facing South Africa and the rest of the continent, but it’s not just a feelgood consideration for business. Strengthening the employment context makes the market for your products and services more stable, and increases the disposable income and brand loyalty of those you target.

Level T+1 innovations are the innovations that release revenue into the market and create significant new employment, higher quality employment, or entrepreneurial opportunities – directly improving a market’s spending power. This type of innovation is where real sustainability starts to emerge. For the most part, Level T+1 are business or distribution model innovations that open up new opportunities for entrepreneurs to become links in the value chain.

MARKETING

They could become links in the chain at either side of a business’s core competency. The key to doing this successfully and profitably is to have a clear understanding of what your core business is, and to consider outsourcing the rest. This is the concept of Unbundling Business Models as described by Alexander Osterwalder & Yves Pigneur in their book “Business Model Generation.”

AFTER-SALES SERVICE

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T+1

The concept of the ‘unbundled’ corporation holds that there are three fundamentally different types of businesses: customer relationship businesses, product innovation businesses, and infrastructure businesses. Each type has different basic business models and skills requirements. The three types may co-exist within a single organisation, but ideally they are ‘unbundled’ into separate entities in order to avoid conflicts or undesirable trade-offs. For example, in Europe, mobile telecommunication firms have started sharing network infrastructure with competitors or outsourcing network operations altogether so they can focus on their key asset - their brand and their customer relationships. Consider where your company’s true core competency lies. How can noncore activities be outsourced to entrepreneurs or innovated around for new business ventures? It’s important to approach this way of thinking as an opportunity to help small or informal businesses, rather than simply unbundling to another large, specialist business. This will generate new jobs for people at a higher rate and to a larger degree – and create brand loyalty and self-sufficiency among your collaborators. Outsourcing non-core parts of your value chain is only the simplest form of T+1

CASE STUDY OUTsurance Pointsmen Over the past six years, thousands of motorists around Johannesburg have come to rely on the assistance of the OUTsurance Pointsmen, who direct traffic at congested intersections, road accidents and faulty traffic lights. OUTsurance has created employment by training and employing a group of previously unemployed individuals who are now skilled and can earn a steady income. The brilliance of this innovation is that it creates employment as a form of marketing – making a noticeable difference to commuters who get to see their brand in action: ‘You always get something out’.

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T+1

innovation. There are enormous opportunities to entirely rethink the inputs and outputs of your business and find ways to create new value by including potential partners and collaborators in your ideation sessions. South African Agri-Protein, for example, won the UN Innovation Prize for Africa by rethinking waste and output altogether. Their business converts abattoir waste (and human sewage) into protein for animal feed by growing fly larvae (a high-protein source) at scale and then drying and pulverising it. This creates jobs and an entirely new business out of things previously considered just waste at the end of a value chain. MTN’s Pay-As-You-Go is also an excellent example of T+1 innovation. The innovation not only unlocked a new market for mobile, but it also created a source of business for people across Africa. In every township and rural village across Africa, somebody is selling airtime – it requires no formal infrastructure. The leapfrog of mobile in Africa can be traced back to the roots of this innovation in particular and mobile telecommunications is now one of the strongest and most lucrative industries on the continent – large and sustainable.

CASE STUDY SAB and City Lodge The SAB Owner-Driver programme has enabled more than 450 employees to become independent entrepreneurs. Under the programme, SAB drivers are encouraged to convert their normal tasks into sustainable small businesses – drivers are helped to buy their trucks (worth about R800,000) and to secure delivery contracts. One remarkable success story is Ben Mvemve who started as an SAB truck driver and now owns a transport company with an annual turnover of more than R2-million. Mvemve is an owner-driver contracted to SAB in Durban and operates three vehicles with a staff of 12 people, delivering to a variety of outlets within an 80km radius of the city. SAB has effectively ‘unbundled’ parts of their distribution network, thereby creating value beyond their business by enabling previous employees to grow, specialise and employ others. Similarly, City Lodge Hotel Group considers which aspects of the customer experience are not part of their core business and tries to outsource these to entrepreneurs. Peter Schoeman explains, “At City Lodge we have seeded many small businesses by outsourcing things like concierge desks, transfer services and even conference services at our hotels. Many of those black entrepreneurs now own very successful businesses.”

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T+1

Busting Some Innovation Myths: Innovation is for artsy, creative types. Anyone can innovate – and it’s often more about strategy, systems thinking and an openness to new neural connections than art. Innovation is making lots of new products. What many people call innovation isn’t innovation at all – if it’s not creating value and answering a real need in a new way, it’s not innovation. Innovation is a first-world competency. Nowhere needs innovation as much as the developing world. And ordinary people in developing markets innovate with very little, every day. Africa has the potential to lead global innovation. Publicly-traded companies can’t think long term. It makes solid business sense to innovate for sustainable success – through improved livelihoods and more stable markets.

T+1

CASE STUDY NeoNurture: the ‘Car Parts’ Incubator 1.8 million babies die each year due to inconsistent heat before they have the body fat and metabolic rate to stay warm. Despite this problem, incubators are not available in most poor countries. Conventional incubators designed for industrialised markets can cost up to US$30,000 and are difficult to maintain. NeoNurture gets around this problem by providing incubators that run on something people in Africa know how to maintain and fix: car parts. The incubator leverages the existing supply chain of the auto industry and the technical understanding of local car mechanics. It uses headlights as a heating element, a dashboard fan for convective heat circulation, signal lights and a door chime serve as alarms, and a motorcycle battery and car cigarette lighter provide backup power during incubator transport and power outages. Local mechanics, and not head-office technicians, can repair the machines.

1. CONSIDER TURNING NON-CORE AREAS OF YOUR BUSINESS INTO ENTREPRENEURIAL OPPORTUNITIES For example: Are there links in the supply chain (either inputs or outputs) that can be outsourced like delivery or maintenance of equipment? Could you create revenue generating opportunities for people that require very little in terms of investment or infrastructure?

2. FIND WAYS OF INJECTING EFFICIENCIES INTO EXISTING INFORMAL INDUSTRIES AND NETWORKS For example: Could petrol stations become retail points for local fresh produce and other products?

3. CONSIDER LEVERAGING INFORMAL DISTRIBUTION STRUCTURES FOR MORE EFFICIENT LOGISTICS For example: Could small businesses like Spaza shops or informal traders become more successful by becoming distributors for your product or service?

4. UNDERSTAND HOW ORDINARY SOUTH AFRICANS INNOVATE Many people innovate every day, with very little. Find ways to integrate their thinking and ideas into new business processes – and use this as a springboard for partnership.

5. CREATE INNOVATIONS THAT LEVERAGE LOCAL SKILLS Include customers and potential partners in your innovation sessions.

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T+2

Innovation that creates long term societal value impacts on long term market growth and spending power influencers – such as education levels, healthcare, infrastructure, resource sustainability and a healthy natural environment. The broader society and natural environment in which your customers live is directly responsible for their general well-being, personal development and spending power. Without taking this environment into account, even the greatest innovations can fail like some kind of legitimised Ponzi scheme. Innovation that creates social value is the kind of innovation that builds the most sustainable success for the business behind it. It can also lead to a positively reinforcing cycle of innovation. As Hema Morar and Seth Maanda of FNB Smart Transactional Banking put it, “An aspect of FNB’s success is an entrenched culture of giving back. The culture is nurtured by our volunteer programme which has a very high level of staff participation. The simple act of giving back helps you understand your markets better and enables you to solve some of the problems they face.” And the environment is ripe for it. Tasos Calantzis of Terrestrial points out, that with Gini coefficients higher than they’ve ever been and governments emboldened by the financial crisis, vast amounts of money are available for those who can innovate successfully in the social space.

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T+2

CASE STUDY Paperight Paperight creates value for the business, value for customers, opens up new markets, creates employment and creates long-term societal value through extending the reach of educational material to people who have not had access to it before. The founder of Paperight, Arthur Attwell, started out life working for big publishing, in the area of tertiary education text books. They were creating large, expensive text books for students who would only use a portion of each text book. These heavy tomes were expensive to purchase and many students were photocopying what they needed rather than purchasing the entire book. The publisher was aware of this and simply increased the cost of the books to ensure that they covered production and distribution costs and made some profit. Stockists would only keep a small number of books (that they thought would sell), which led to shortages and illegal photocopying of books. It was a vicious cycle of shrinking revenue. Attwell realised that technology could offer a solution to this conundrum, and left to start his own e-publishing consultancy. However, his attempts at launching e-books created but a whimper. He realised that, despite the hype, the South African market was nowhere near ready to turn digital publishing mainstream. This became apparent when he set up a service where nurses could take tests online. Very few nurses completed the test online and many requested paper tests. Even private hospital nurses rarely had access to a computer with internet and very few had an email address. Serendipitously, Attwell was commissioned to research publishing and book selling outlets. This led him to discover that the smallest book factory was a photocopy machine and the smallest outlet a photocopy shop (which could be a photocopy machine in the back of a container store). Photocopiers were everywhere! And so the ‘aha’ moment struck and Paperight was born. Paperight allows copy shops to download and print books legally (and cheaply). It earns value for Paperight and the publishers, grows the market to include those who do not have access to book shops or the income to buy books, creates more work for copy shops and, in the long run, supplies educational material to a broader portion of society. Although the idea was born out of the necessity of making a living, Attwell says that the business’s social value creation has attracted purpose-driven staff who believe in the company’s vision (‘every book within walking distance of every home’), are passionate, loyal and work extremely hard for below market rates.

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T+2

T+2 innovation looks at the value cycle from the perspective of pressing societal needs. It involves identifying your core business function and the core social need that you answer, and then innovating with role-players and business models that either supply or connect those social needs to your purpose. In the case of BOXCLEVER, the need was for space, and the supplier was shipping containers. In the case of Paperight the need was for education and the distribution model was borrowed from another category altogether.

CASE STUDY BOXCLEVER The South African Government, municipalities and NGOs are in need of simple, low-cost solutions for social development and service delivery. Shipping containers are affordable and can be used for a number of applications besides shipping. AMAKHONTEYNA (a division of BOXCLEVER) converts shipping containers into ablutions, low-cost housing, classrooms, clinics, soup kitchens, computer labs, libraries & police stations. They handle everything from project management to design, transport, logistics & problem solving. It is an innovative business that provides quick, affordable solutions that can drive immediate change in healthcare, sanitation, education, housing and safety.

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T+2

Suppliers, distributors

YOUR CATEGORY (eg. books)

SOCIAL NEEDS OF CATEGORY (eg. education)

Consumers, non-users

1. DEFINE YOUR ORGANISATIONAL PURPOSE What are you really in the business of? What broader needs do you really meet, and how can you do that differently or better? What needs of your customers, employees and suppliers are you currently not meeting, that you could?

2. IDENTIFY THE BOTTLENECKS What are the systemic issues within your business that cause you to lose revenue – and what causes them? Where are the bottlenecks in your category? What stops non-users from using your current business model? Is it price, location, product?

3. REDEFINE YOUR ENEMIES Who are your ‘enemies’? Can you team up with them to provide more value to the end user and grow a new category?

4. CONSIDER INTERMEDIATE TECHNOLOGIES Don’t get swept away by the latest imported trend – they take time to embed in Africa because of the nature of our market (mass poor and niche rich). Ask yourself ‘what is relevant now?’ and ‘what technologies are already available?’ Do your home-work and find the lowest common denominator. MTN innovations were not for the smartphone market; Paperight succeeded where e-books had failed.

5. LEAPFROG In order to leapfrog, the offering needs to be cheap, require minimal personal infrastructure for the customer and provide accessible entrepreneurial opportunities.

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New ideas and new ways of doing things can be particularly scary for those tasked with caretaking the future of the business – particularly when the idea is BIG. Very often business leaders do not want to change the way things are done unless the business is in crisis. This is particularly true in our current context in which many CEOs have come from a financial, rather than a marketing background, but it is always difficult to motivate for sweeping changes. It takes a lot of energy to change organisational culture and to fight inertia. To embark on the path to innovation, you will need to convince the sceptics. And to do so, it is imperative that you understand what their key concerns are and how to tailor the proposed solution to answer them. Although it is often expressed indirectly, we have found that the typical responses to calls for investment in innovation are: • It is too much of an investment or too much of a change • We are too frantic and can’t afford the distraction • We are doing fine and we don’t need it

These rebuttals are all forms of risk aversion, and if you are tasked with getting innovation onto the agenda of your organisation, it is imperative that you find ways to make innovation less risky. We suggest answering each of the abovementioned concerns as follows:

1. It is too big an investment or too much of a change Propose an innovation lab Create a subdivision within the business that is focused on innovation. This unit can create the experimental, agile culture of a start-up without jeopardising the way the business currently operates. The risks of failure are contained, thus freeing the unit to operate flexibly: encourage debate and creativity, explore customer markets, create and trial new products and processes. An innovative business cannot be afraid of failure – as failure is an inevitable step in the journey.

Crunch the numbers Define the metrics to measure business success – in terms of economic, market and social value, and build the model to calculate the risks and benefits of the innovation. Approach it as an entrepreneur would approach a venture capitalist. Or…

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Become a venture capitalist Large organisations are at a disadvantage when innovating. They have existing systems and cultures which are often more difficult to change than to start from scratch. If a separate innovation department would not be viable for the business, consider setting up a team whose responsibility it is to source market innovation that is relevant to the business. This kind of outsourced innovation relies on others to innovate to better meet the needs of your markets, and so runs the risk that start-ups may refuse to sell to you. The benefit of this approach is that the business does not need to be reinvented until the innovation starts earning its place as a viable business model. Consider the scenario in which a prominent publishing house bought Paperight, or how Google bought YouTube.

2. We’re too frantic and can’t afford the distraction Outline the path to survival Chances are that if a business is frantic and under it pressure, it means that you are operating in a category that is well developed, with increasing competition and decreasing margins and differentiation. This is exactly the environment that is ripe for transformative innovation: there are too many people trying to steal a piece of the pie and it is time to think outside of the pie. Innovation is not an additional, unnecessary expense: it is the path to new categories, breathing space and profits. Outline the kind of innovation you believe is necessary and give an estimate of the potential size of the new markets and the value the innovation will generate.

Take it to the top Churning out hundreds of new products all the time adds unnecessary stress to the business and is often ineffective. Becoming an innovative business means taking innovation to the top. Do not start with ideas for product or service innovation – start with business strategy, and build an innovation platform that can create value from there – whether it’s in the business model, the value chain or, finally, in the products and services. Do not let the tail wag the dog.

Levels of Innovation Business Model & Strategy Value Chain Product & Service

Increasing cost, risk, business change, transformative potential & benefit

3. We’re doing fine and don’t need it Present the human angle To those rare businesses who are doing well without innovation, there is always a case to be made for the more transformative aspects of innovation. Sales may be fine today, but how future-proof is the business? Does it have a strategy to grow and retain brand loyalty, secure talent and resources and stabilise the markets in which it operates? Is it spending money on scattered CSR instead of investing in ways which create social value? Transformative innovation can make even the most successful business better equipped to thrive.

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What do you need to do on Monday? 8 Steps to Getting Transformative Innovation Right: 1. Start from the top. Get executive buy-in. 2. Identify the operational blockages, threats and industry norms that hinder your business. 3. Identify the pirates, innovators and potential informal partners for your business. 4. Get to know your customers, the non-users of your category and their broader needs –

Listen to those you don’t usually listen to.

5. Define your organisational purpose - what do you actually do, and why? 6. Put together the costing model and calculate the potential value created for all stakeholders. 7. Start small. Test the innovation idea. Trial and build it up without disturbing the core business. 8. Make process, structure and people changes to drive the innovation culture across your business.

Transformative innovation has the power to turn South African and African businesses into leaders of global innovation, rather than passive followers of trends. It can stabilise and grow our markets, add to the disposable income of our consumers and partners and introduce new products, services and business models that create real value. Getting it right doesn’t require massive investments in NPD – it does, however, require thinking about your customers, employees, neighbours and competitors in a new way. It means being cognisant of your role in society, and in this phase of African development. And it requires building an innovative culture that takes risks and values and respects people and their ideas. Committing to creating genuine new value from new thinking is more difficult than churning out hundreds of product tweaks and variations, but it is so much more rewarding and beneficial for the business in the long term.

Good luck!

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Contributors Honoré Gasa

Insights Director Yellowwood Cape Town While based in London, Honoré was Global Category Research Manager for Reckitt Benckiser’s two specialist innovation groups for marketing and R&D. She has extensive experience at both TNS and Synovate and brought with her a love for consumer insight and innovation when she joined Yellowwood in 2012. Honoré heads up the Cape Town office and is the Insights Director for the company.

Charles Erasmus Senior Strategist Yellowwood Johannesburg

Al Mackay Content Strategist Yellowwood Cape Town

Charles has been on a quest to uncover the origins of effective marketing throughout his years at Y&R, Ogilvy and TBWA \ Hunt \ Lascaris. He has been a Senior Strategist at Yellowwood since 2011, heading up a team of top notch brand planning talent and bringing innovative thinking and deep market insight to help clients solve their toughest marketing challenges.

Alistair has a background in brand strategy, politics and digital marketing. He believes South Africa has huge untapped potential for transformative innovation, and hopes this paper helps to unleash that energy. With the goal of provoking dialogue and shifting conventional thinking, Al is Yellowwood’s Content Strategist.

References • Interview with Arthur Attwell: Founder of Paperight, September 2013 • Interview with Helen Andrews: Innovation Catalyst for SynNovation Solutions, September 2013 • Interview with Hema Morar and Seth Maanda: Smart Transactional Banking for FNB, October 2013 •

Interview with Peter Schoeman: Divisional Director of Sales and Marketing for City Lodge Hotel Group, October 2013

• Interview with Tasos Calantzis: CEO of Terrestrial, August 2013 • Interview with Truida Prekel: Innovation Catalyst for SynNovation Solutions, September 2013

• Allan, D, Murrin, K & Rudkin, D (1999) ?What If! Sticky Wisdom: How to Start a Creative Revolution at Work. Chichester: Capstone Publishing Limited

• Houghton, S (2012) Deception. Full Circle Magazine. Available at: http://www.fullcirclemag.co.za/ magazine/articles/11-piece-of-pi/208- deception

•

Chan Kim, W & Mauborgne, R (2005) Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant. USA: Harvard Business School Publishing

• Grueber, M & Studt, T (2010) 2011 Global R&D Funding Forecast, R&DMagazine. Advantage Business Media / Battelle. Available at: http://battelle.org/docs/r-d-funding forecast/2011_r_d_funding_forecast. pdf?sfvrsn=0

Kelley, T & Littman, J (2006) The Ten Faces of Innovation: Strategies for Heightening Creativity. London: Profile Books Ltd

• Osterwalder, A & Pigneur, Y (2010) Business Model Generation. New Jersey: John Wiley & Sons Inc. • Wild, S (2013) R&D in South Africa: No rhythm, only blues. Mail & Guardian. Available at: http://mg.co.za/ article/2013-06-21-00-rd-in-sa-no- rhythm-only-blues

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