The Human Capital Telescope: Disruptive innovation: Key for small businesses

 

Over 3 000 years later, a brilliant business management scholar from the Harvard Business School (HBS), Clayton Christensen (pictured), found out modern business giants are defeated the same way — deploying simplicity and cost effectiveness.

 

Christensen, after obtaining his MBA from the HBS, was puzzled by a curious pattern; many firms run by brilliant minds were repeatedly being decimated by business midgets who were virtually springing from nowhere to consign business heavyweights to the dustbin of history. Christensen resisted the temptation to advance the simplistic idea that these relegated giants fell due to complacency and arrogance. He therefore embarked on research at doctorate level to try and understand the real reasons business Goliaths fell to business Davids.

His study in 1997 culminated in a “new and revolutionary” management theory Christensen christened disruptive innovation.

Disruptive innovation explained

In brief, disruptive innovation comes about when start-up firms find ways of reducing the complexity of a product or service offering by means of technology. They either target their ridiculously simple offerings at non-consumers (new market) or target the lower-end of the existing market space currently served by the established giants.

 

Confronted by an aggressive start-up pushing a ridiculously simple and cheap offering to a segment where giants are not making much money compared to their high-end market segments, incumbents abandon the lower-end markets. Put differently, they confine themselves to the refuge of high-paying customer segments, apparently not interested in the new “low quality” offerings.

 

Serious trouble sets in when the start-ups begin to improve their initial offerings (sustaining innovation) to levels which begin to attract the ‘safe segments’ in which the giants confined themselves. The big boys once again concentrate on the next level of “safe segments”. The newcomers continue  innovating incrementally, breaching one more time the quality psychological barrier, and they move up into the big guns’ remaining up-market “safe segments” until they take over the whole market. The giants then confine themselves to oblivion.

In the face of intense internal and external competition being fanned by globalisation, Zimbabwean entities have to get a sling and a stone to fight the regional and global Goliaths. You cannot hope to crush Goliath using his tactics. Zimbabwean firms need to compete using disruptive innovation.
Zimbabwean firms need to be rescued from the tragedy of thinking like Goliath when they are Davids. 

We need to be rescued from two business intellectual traps that stifle the disruptive innovation potential of our businesses.

Race-to-impress trap

The race to impress is anti-disruptive innovation in that it unwittingly complicates a firm’s cost structure.

You cannot be a disruptive innovator if you have a heavy cost structure. Many business executives confuse value with value-added services.

A number of Zimbabwean firms, especially in the services sector, seem to believe sophistication and razzmatazz are necessary to maintain a competitive edge.

As a result, they over-engineer products and services. For instance, why do banks have giant plasma screens showing DSTV in their banking halls, as if to atone for poor service? People do not go to banks to be entertained. When they want entertainment, they know who to hire. Instead, banks should focus on delivering services fast so that the need to “entertain” customers is obviated.

Why do business executives approve designs for their buildings that are dominated by glass in a subtropical climate like ours, turning buildings into greenhouses? Are the high costs of air conditioning in such buildings justified?   Buildings dominated by glass make perfect sense in the cold climates of the Northern Hemisphere. Why import building designs that are not energy efficient in the name of aesthetic appeal? It is possible to have aesthetically appealing and energy efficient building designs that do not have to look like those from New York.

Customers want value not value-added services. The cheapest way to impress customers is doing well the job for which they hire your products. Customers are more likely to have a lasting impression of your brand if you give them utility than watching a movie in your shop while they wait to be served.

There is no way Zimbabwean firms can disrupt giants in the region and elsewhere if they invest talent and money to improve their chances of winning the race to impress. The entry ticket to the disruptive innovation arena is banishing razzmatazz and razzle-dazzle. As such, business executives in Zimbabwe must abandon the race to impress for the race to simplicity.  

Race-to-sameness trap

The race to sameness is anti-disruptive innovation in that it leads a firm to engage in a race towards complexity, ramping up costs in the process. There is a fatal belief among many Zimbabwean executives that they must incorporate their competitors’ strongest features for them to remain competitive. This belief results in the race to sameness.

 

Ever since a new entrant into the Zimbabwean dairy market introduced stylish yoghurt containers, competition is following suit.  The tragedy is that these firms view themselves as being different. They are different in their own eyes, but in the eyes of the customers they offer the same difference except for names and corporate colours. Not only does the race to sameness or the “race to be like Goliath” disqualify businesses from participating in the disruptive agenda, it traps the business executives to focus less on the real competition. The real competitors of a firm are not other firms, but unmet utility. For instance, in Zimbabwe and Mozambique, the biggest competitors to banks is non-consumption.

Who said a banking hall can only be dedicated to financial services alone? Banks should be where money is. If you study Biti’s Budget Statement, you are led to conclude that currently Zimbabweans spend their income on talking and eating. Simple logic dictates that banks should have a strong presence where people talk and eat.

 

Does it not make sense for a bank to relocate to a major retail outlet, and capture deposits where cash is being generated?

Better still, can’t a bank buy into major cash-spinning retail outfits, establish banking services therein and save clients the drudgery and risk of transporting bulk cash?  What stops a supermarket from opening up its space to vegetable vendors and establish win-win symbiotic relationships?

Is it not possible for a banking outfit to bring under one roof, a bank, a flea market, a supermarket and vegetable vendors’ vegetable market with the bank providing overnight cash custodial services for the vendors?  This kind of thinking where synergies are found among seemingly unrelated entities is the essence of innovation.    

For the rural populace, why can’t cattle and goats be accepted as collateral for microloans to fund productive rural enterprise such as market gardening? A micro-loan to purchase seeds and chemicals would go a long way in sustaining some rural livelihoods with proven skills but lacking a mere US$100 to finance a simple micro-enterprise. 

 

Why do we think that what passes as standards of business in the West should be adopted hook line and sinker, yet we have different economic set-ups? It’s the race to be the same kind of thinking that takes away our immense potential to be disruptive innovators as Afro-centric businesses.

Is the ATM still necessary with the advent of mobile-phone transfer technology? With the inordinate cost of running ATMs using fuel-powered generators, occasioned by frequent power cuts, complicating banks’ cost structures, can banks afford to continue running ATMs? What stops metered taxis from offering competitive fixed fares during peak commuter periods and cash in on their convenience?

Structural barriers to disruption

Perhaps legislative hurdles could be a spanner in the works. Kill legislation that prevents disruptive innovation such as zoning laws that unnecessarily restrict integration of unrelated entities.

Blatant corruption evidently raises costs of products and services. High input costs such as expensive utilities admittedly lead to cost ramping. Government has a big role to play in enabling Zimbabwean firms to become serious disruptors in the region, moreso with the advent of free trade zones by removing structural and systemic barriers.  If we don’t, our businesses will face disruption from free trade zones Davids.

 

Let’s discuss at brettchulu@consultant.com