Altfin’s mobile phone medical aid, a disruptive innovation?

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ALTFIN Holdings’ mobile phone-based subscription medical aid called MedAccess is a very innovative product targeted at the informal sector.

The Human Capital Telescope by Brett Chulu

MedAccess looks and sounds like a disruptive innovation, but is it? If it is, are Zimbabwean medical aid giants ready to roll in the mud with Altfin?

Though the concept of disruptive innovation is beginning to get serious attention among Zimbabwe’s business leaders and analysts, there seems to be a general misunderstanding on what this phenomenon really is. To help you get a firm grip on this concept, we shall critique Altfin’s MedAccess. Not every innovation deserves the moniker disruptive.

What is a disruptive innovation?
A disruptive innovation is a new product or service that enables the unreached or under-served masses access to products or services that are the preserve of a few wealthy or highly-skilled people.

Principally, complexity and unaffordability prevent masses from accessing certain services and products. When a product or service is difficult to operate or use, only those technically proficient few can successfully utilise it. When a product or service is pricey, relative to the disposable incomes of the masses sitting at the bottom of the socio-economic pyramid, only a relatively few but wealthy people can afford it.

When an innovator finds ways to eliminate the complexity of a service or product so that no special skills are needed to operate or use it, proceeds to find ways to jettison several costs associated with producing or delivering the service, the innovation becomes only potentially disruptive.

For the innovation to pass the disruptive test, it must first show that it can draw previously unreached or under-served masses. There is a fine shade here; if you make your product easy-to-use and affordable but fail to assist what the unreached or over-served masses are already trying to do, you may have an innovation, albeit, not a disruptive one.

Economies of scale are critical to making the transition to disruptiveness, given that at the bottom of the pyramid you will have to accept low margins. Get this right; the disruptive game is about volumes.

Another fine nuance deserves attention; if you deploy an easy-to-use and low cost innovation to your existing clientele, your innovation is not disruptive. South Africa’s mobile money transfers offered by banks are not disruptive for this very reason.

Where you deploy an innovation has a big say in determining whether it will become disruptive or not.

Yet another fine nuance is that by eradicating complexity, less functionality and use, cases are offered to the masses at the inception of a disruptive innovation, resulting in those up the pyramid finding the innovation very unattractive when measured against their relatively high expectations.

Following the ‘customer is king’ philosophy, established giants see the new product or service as a non-threat – these new guys appear to be either fishing in a different pond or casting in well-known small-fish ponds. So why worry?

The disruptive innovator normally finds new ways to improve on the low performance but keeps the cost structure low. With time, the once-despised innovation becomes disarmingly attractive, cost and quality-wise. Using the double-edged sword of low cost and high quality, the mafikizolo (Johnnie-come-lately) starts catching more and more of your trophy prey. You are history.

Technology-necessity myth
A common misconception is that a disruptive innovation has to be driven by technology. It doesn’t have to. It can simply be driven by a new but clever business model.

Netflix, a movie rental business founded by Reed Hastings in 1997, became a disruptive innovation by simply introducing subscription-based DVD movie rentals mailed to customers. This business model called eat-all-you-can meant customers did not have to go to a store to search for DVDs — that was a whole new level of convenience. Hastings didn’t have to build or rent expensive retail outlets. His customers didn’t have to pay penalty fees for late returns. Incumbent movie rental giants were making tonnes of money from penalty fees.

Altfin’s MedAccess to the test
We are now ready to put MedAccess to the disruptive innovation test.
First, if MedAccess is to be a disruptive innovation it must be made affordable to the unreached and under-served masses.

At US$3 per month for an adult and US$2 per month for a child, MedAccess, at face value, seems reasonably priced and may appeal to the Zimbabwean masses at the bottom of the pyramid historically excluded from access to medical aid.

A closer scrutiny of MedAccess’s pricing model shows that it may not be that affordable. With an average family size of 7, a monthly subscription of at least US$16 per month is implied. That’s enough to buy vegetables from Mbare Musika to feed a family of seven for at least three months.

MedAccess’s true competitors are the small-value but critical basic needs.

MedAccess’s intended markets may prefer to look for funds to visit clinics and hospital when the need arises, relying on community financiers such as family and friends. Additionally, MedAcess has to contend with alternative health care.

Even if MedAccess were to be embraced by the unreached masses as being affordable that would just be one element in the disruptive innovation equation — affordability alone does not make an innovation disruptive.

Second, MedAccess would have to pass the simplicity-convenience test with flying colours. Currently, according to available information, MedAccess subscriptions are done through recharge cards across all major mobile networks.

This seemingly high level of convenience masks two soft points with the potential to wipe out MedAccess’s disruptiveness. On the one hand, though the recharge cards, as advertised are accessed from all Zimpost shops, Easy-to-Pay vendors and OK Zimbabwe shops, this network of agents does not pass the threshold of convenience compelling enough to trigger mass adoption.

Though Zimpost and OK Zimbabwe shops are found in high density areas, many people may need to walk significant distances to get a recharge card. Distance is always relative to how critical a purchase is.

On the other hand, trying to widen the agent network means ramping up distribution costs thereby eating into the evidently thin margins. Additionally, the cost of printing recharge cards necessary to increase convenience and widen access will have to rise proportionately.

Third, MedAccess’s ability to move up the pyramid to appeal to those upmarket is almost non-existent. To go north, MedAccess would have to replicate the existing high cost structures of the medical aid industry.

At the moment, it is virtually impossible to have a sustainable low cost business model in the medical aid industry due to economic forces outside the industry’s control, the high bargaining power of health service providers being a case in point.

MedAccess, in its current form, appears not to have a robust cost advantage extendable upmarket to disrupt incumbents.

For now, MedAccess looks more like a medical savings club. Not a bad idea at all!

Reflect on it
A disruptive innovation is built on the foundation of a deep cost advantage and a non-cost value proposition compelling enough to woo the unreached and under-served masses.

Chulu is a strategic HR consultant who is pioneering innovative strategic HR practices in both listed and unlisted companies. — brettchulu@consultant.com.

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