Al Mackay
In Europe there is an increasing trend towards "unbundling." This means that companies focus on their core area of expertise and outsource other parts of the value chain to specialists. Perhaps the strangest example of this is in the mobile telecommunications sector, where mobile networks are beginning to unbundle their network infrastructure (which they now believe is commoditised, despite previously being their core competitive advantage and brand differentiator) to technology companies and focusing, instead, on winning customer relationship and brand businesses.
In South Africa this kind of thinking has enormous potential, for the simple reason that we have an unemployment crisis. In our research for our latest white paper on transformative innovation, the marketers that we spoke to were unanimous in their responses to the question of what type of innovation we need most in South Africa: innovation that creates jobs. If South African businesses unbundled non-core elements of their value chain to start-ups and local small businesses, it would do incredible things for job-creation, and unlock some of the wealth-creating potential that is tied up in cumbersome old structures. Small business is responsible for most job creation.
Companies like SAB and City Lodge Hotel Group have been doing this for years. SAB's owner-driver programme effectively "unbundled" distribution to SAB employees. The programme helped truck drivers to buy their own trucks and set up their own distribution businesses, helping hundreds of employees to create businesses and employ others. Likewise, City Lodge Hotel Group outsources various things from concierge services to conferencing to SMMEs.
But the real transformation of society begins when companies do more than outsource parts of the value chain; they start innovating with "pirates" along the value chain. Although piracy is often illegal, it points to a failure of the large players in an industry to meet their customers' needs. By partnering with the pirates in an industry, adopting their models and making it legal, companies can become much better at meeting customer needs and staying ahead of disruptive innovations from others. And in a market such as ours, connecting with the informal economy can turn these new partners into brand loyalists while increasing their ability to spend. It quite literally grows the market for your goods and services.
iTunes is famous for adopting the online piracy model and making it legal. Apple understood that customers want to buy the songs that they like, not entire CDs that they don't. South African social start-up Paperight is transforming the publishing industry by partnering with the pirates in that industry: instead of fighting the photocopy shops who copy textbooks for students, it uses them to print books cheaply and legally. Publishers receive money for every download, and consumers in remote areas get access to books that they otherwise wouldn't have. It's a complete overhaul of the publishing value chain, that lets publishers focus on their core competency of content, and partners with pirates to grow the market and create jobs (in copy shops). It's no wonder Paperight was chosen as the most innovative small business in South Africa at the Accenture Innovation Index Awards.
South African businesses can greatly improve their performance by thinking about innovation differently. By unbundling and partnering with pirates and the informal sector, companies can innovate new ways to distribute, market, or produce. They will have insight into unmet customer needs, contribute to job creation and kick their business into overdrive - inventing new categories and better, more relevant ways of operating. Importantly, businesses that embrace this kind of transformative innovation help to stabilise, grow and increase the spending power of the South African market - making it a better place to do business. From using pirate dvd sellers to run informal cinemas, to inventing financial services for stokvels, the possibilities in almost every category are endless.
To download the full white paper, Transformative Innovation: An African Path to Success, visit www.ywood.co.za/our-thinking/white-papers
