HomeBusiness DigestThe Human Capital Telescope: Disruptive innovation: Possible local victims

The Human Capital Telescope: Disruptive innovation: Possible local victims

Disruptive innovation

In brief, disruptive innovation comes about when a start-up firm finds ways of reducing the complexity of a product or service offering, simplifying cost structures in the process, via technology. They either target their ridiculously simple and highly affordable offerings at non-consumers (new market) or at the lower-end of the existing market space currently served by the established giants.

 

The incumbents flee to the “safe” 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’ where giants initially fled to.  Start-ups continue to innovate incrementally, moving up to the giants’ remaining up-market ‘safe segments’, until the big guns  find no more up-market ‘safe segments’ to where they can flee.

We see signs of disruptive innovation forces gathering pace in four of Zimbabwe’s industry clusters.

Advertising and publishing

Twin independent disruptive forces are converging on Zimbabwe’s advertising and publishing industries as a result of the improving quality of design and printing technologies, aided by the mass production of highly-skilled graphic and creative artists from our technical colleges and universities. If you have business cards, chances are that you did not order them from a big-name printing firm.

 

A top-executive from a former mid-tier printing firm I interviewed revealed that their biggest competitors in the lower-end market  for printing customised  jobs such as invoice and receipt books are the ‘bag-and-laptop enterprises’ which can print a single invoice book at good-enough quality. In the traditional  printing industry, single-unit jobs are not commercially viable.

When technologies that were once expensive and therefore the preserve of firms and individuals with huge financial muscle become cheaper and more ubiquitous, a special term is used — consumerisation. Consumerisation is abetting disruptive forces, making them more potent.  Freshly-minted graduates from technical institutions, armed with a simple laptop and above-average skills, can set up a simple kitchen-table business, producing quality advertising material for the low-end customers.

 

The start-up cost structure is very simple; no rentals, no huge administrative costs, no tax burden, and no professional services fees such as audit fees, to mention a few. With such a ridiculously low cost structure, the start-ups can charge ridiculously low prices for their services. In Bulawayo, for instance, the design and production of posters, adverts, banners and other promotional materials is mainly dominated by the informal one-man-band microenterprises and a few formal microenterprises.

 

A survey we did shows that a significant number of mid-tier organisations are now engaging these microenterprises for promotional-related assignments. With a simple Toshiba E-Studio 2040 multimedia gizmo, a microenterprise can carry out commendable small to medium scale printing jobs. 

Perhaps the Zimbabwe advertising industry’s biggest threat in the medium term will be mobile phone operators. Zimbabwe’s three mobile telephone operators have a combined captive audience in excess of six million people, big enough to turn any advertising executive green with envy. You might have noticed that our mobile phone operators are using their platforms to convey advertising messages to market and promote their own products. I have been receiving a barrage of emails from a Zimbabwean start-up firm virtually not known in the advertising industry, boasting a growing clientele base (of mid-tier organisations) that use its bulk sms service to convey messages to its clients. Multimedia Message Service (MMS) has just been launched in Zimbabwe.

 

This has the potential to enable the sending of pictures, deepening the  scope for affordable good-enough-quality mass mobile-phone adverts and messaging. However, mobile-telephony advertising could face legislative roadblocks in the form of, perhaps broadcasting laws. I am informed that the law is dead until it is tested. It would be foolhardy for executives in the advertising industry to dismiss the potential disruptive effect of mobile telephony by being lulled into slumber by the promise of protection by who-knows-which-law, through which some brilliant legal mind can punch big holes.  

Banking industry

Smart executives in our banking sector are beginning to decode the nature of competitive forces at play more accurately — they are aware that their most potent competitors are not the firms in the financial services sector — but the pillows and mattresses. It is now possible to keep ‘your money safely’ on your mobile phone — more securely than the pillow and mattress. Mobile phones will act more effectively as cash safes than  as the medium of cash transfer. If you lose your cellphone you won’t lose your money.

 

With mobile phones becoming very ubiquitous, coupled with mobile phone penetration rates of more than 60% of Zimbabwe’s population, mobile phones are poised to be the next generation of money safes for ordinary households. The innovator who will successfully sell the message: ‘your phone is safer than your pillow and mattress’ to a once-bitten-twice-shy populace will be the next multi-millionaire.

The only costs one incurs could be when money is transferred or withdrawn. Mobile telephone money is likely going to be linked to cash cards, providing the convenience of switching between the two at little or no cost. For mobile phone financial services to be truly disruptive, the costs of using the service must become ridiculously low but profitable as a result of high volumes from the potential millions of subscribers.

 

What we are seeing currently in the banking sector is classic disruptive behaviour. Several banks, correctly assessing the disruptive potential of out-of-industry innovators and mobile phone firms, are moving to protect their existing customer base by providing mobile phone services.

 

This is not going shield them from disruption. Lower-end customers and the unbanked will adopt the mass market mobile phone financial services once costs fall, which will happen sooner or later. With time, mobile phone financial services will crawl up the top-tier segments of existing banks as cost-lowering innovations occur.

 

We predict some organisations will pay out small value salaries and carry out other small value transactions through mobile phone cash services.  When that begins to happen, banks will be unable to compete on price as the mobile phone financial services will be much cheaper as a result of huge volumes potentially running into millions of users. Mobile-phone operators will have an additional psychological advantage — their being disentangled from the past trust-sapping crises involving the loss of depositors’ hard-earned monies.

Professional services industry  

The professional services firms  such as those  in book-keeping and specialised services such as Human Resources assessments are beginning to feel the effects of disruptive forces at play. Only recently did the board regulating public accounting services reacted by publishing the names of firms registered to offer public accounting services, to counter the threat of the huge army of unregistered individuals and firms offering book-keeping and tax advisory services.

We have established through research that a majority of small scale and microenterprises use qualified but unregistered accountants who charge them reasonable fees, producing acceptable quality work (since it meets the requirements of the users such as tax returns accepted by Zimra).

We suspect that mid-tier segments of the registered accountants will be forced to react swiftly to defend their territory when these unregistered accountants begin to encroach into their domain.

Unfortunately, our economic challenges are blurring the distinction between low-tier and mid-tier customer segments, widening disruptive space.  
My advice to incumbents: try self-disruption.

 

Let’s discuss at brettchulu@consultant.com.

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