Disruptive Innovation
The Key ingredients of launching and
scaling up a high-growth disruptive
innovation.
By Peter Ndiangúi
1
Objectives
• To help you appreciate the value of applying a
disruptive innovation framework lense when
working through your entreprenurial ventures
2
What we shall be discussing…
• About 35 minutes
• The country I graduated into
• Disruptive Innovation theory
• Applying Disruptive Innovation framework to your venture
• About 15 Minutes
– E-commerce in Kenya through the lenses of disruptive
innovation
• About 10 minutes – Q & A time
3
"We always overestimate the change that will occur in the next 2
years and underestimate the change that will occur in the next 10
years. Don't let yourself be lulled into inaction" Bill Gates
THE COUNTRY I GRADUATED INTO &
THE ONE YOU WILL GRADUATE INTO
4
Economic growth story….
GNI (Income) per Capita
Ghana
Zimbabwe
China
Nigeria
Emerging economies GNI per capita
(Nigeria, China, Ghana, Kenya)
9000
8000
GNP per Capita
7000
6000
5000
4000
3000
2000
1000
0
Ghana
China
South Africa
South Korea
Australia
Nigeria
7000
40000
6000
35000
30000
5000
25000
4000
20000
3000
15000
2000
10000
1000
5000
0
1970
1980
1990
Time
•
•
•
•
Kenya
2000
2010
OECD Countries GNI per capita
(Australia, & South Korea)
Kenya
GNI per capita growth in OECD & emerging economies
0
1970
1980
1990
2000
Time
my graduation
2010
Your graduation
1980 – 2000, Kenya’s 20 years of Economic stagnation – low growth rates + high pop growth
From 2003 – 2011, growth rate reversed averaging 3.5 % CAGR , 2007 peak (at 7%)
Could we see a china “hockey stick growth" in the next 10 years ( reaching 4x today’s GNI )?
May be….why ?
• High growth rates + low birthrates due to low dependency
• High growth due to ; Oil, Iron Ore, Gas , new constitution (political stability), Coal
• May be not ….why ?
• Political instability + large balance of trade – diminishing exports if resources are not
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commercialized & no strong manufacturing base
Internet Usage Update
Penetration Rates
80%
70%
70%
58%
60%
Mobile Penetration
51%
Internet Access
50%
34%
40%
30%
16%
0.05%
0.38%
2%
4%
1999
2000
2001
2002
5%
2003
8%
3%
4%
2005
2006
SEACOM & TEAMS
Under-sea Fibre-Optic
Cables go live in Jul
& Jun 09 respectively
23%
22%
20%
10%
38%
35%
9%
10%
11%
2007
2008
2009
0%
2004
Time
2010
2011
• 47% of Urban Kenyans use the net at least 10 hour per week (Mckinsey)
• In Mckinsey survey Kenya lead the pack in Africa’s Urban internet penetration
• Cheap access & devices - Zero Tax on all internet access devices
• 95 % of Mobiles are Internet access capable amongst urban Kenyans
• High Technology adoption rates due to high literacy rates
Source 1 – Communications Commission of Kenya
Source 2 - “Deep dive - The growing popularity of the internet" – Mckinsey & Company Africa Consumer Insight
Broadband Installed Capacity
KENYA
Total Capacity - 575,000 mbps
Utilized Capacity – 265,00 mbps
Utilization Rate – 58 %
Infrastructure Investments completed
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“Innovation is the specific instrument of entrepreneurship. The act
that endows resources with a new capacity to create wealth.” Peter
Drucker
THE THEORY OF DISRUPTIVE
INNOVATION
9
The theory
Two types of disruptions
1.
Low-end disruptions
•
Target over-shot
customers
2. New-Market disruption
•
Compete against nonconsumption
Characteristics of Disruptors
• Lower gross margins
• Smaller target markets
• Simpler products and
services
• May not appear as
attractive as existing
solutions when compared
against traditional
performance metrics
Source – www.christensen.com
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The theory cont…
Case in point M-Pesa
• Encrypted SMS technology
– Simplifies
payments/transfer process
• CBK did not stiffle money
transfer by insisting on ‘
traditional banking
standards
• Value network – Non-bank
Agency Network
• Low-cost processes &
resources
11
Examples of Disruptors
Global
Industry
Disruptor
Disruptee
Key Disruption results
Computers
Apple Mac, IBM
Mainframes
Affordable computing power
Advertising
OLX
Newspapers
Affordable & convenient way of
communicating with a customer
Music
Apple iTunes
Record Production
Affordable & convenient way of
acquiring music
Industry
Disruptor
Disruptee
Key Disruption results
Banking
Equity Bank
Retail Banks
Affordable banking solution
Advertising
Dealfish/OLX
Newspapers
Affordable & convenient way of
communicating with a customer
Payments
MPESA
Paying bills /sending Affordable & convenient way of
money
sending money
Local
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"If I find 10,000 ways something won’t work, I haven’t failed. I
am not discouraged because every wrong attempt discarded is
often a step forward" Thomas Edison
APPLYING DISRUPTIVE INNOVATION
FRAMEWORKS ON YOUR VENTURE
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Framing the opportunity
• Define your customer value proposition
– The Jobs to be done theory can help here
• Customers do not buy 1 inch drill they buy a one inch hole
• When customers buy a product they are hiring the product
to get a job done for themselves.
• Targets based on Demographics are mere correlations.
Customer’s
Circumstance
Job to be done
Current
solution(S)
A car dealer with Reach over 1000 Newspaper
no money to
customers
classifieds
communicate to everyday
a wide range of
customers about
cars in her yard
Limitations of
Alternative
current solution (S) solution to get
the job done
Expensive to
advertise
Reach is capped
www.olx.co.ke
Free to advertise
Ad runs until you
sell
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Define your Business Model
• 3 types of business models;
– Solution shops , Value chains & facilitated networks
• Value Network
– To join or build a stand alone value network ?
• For example do you sell your product through existing
channels or establish new channels
– Example of Honda vs Harley-Davidson dealers , Honda distributed
via power equipment stores
– Intel & SAP joint venture , SME targeted ERP software distribution
via previous channel partners, Accenture - FAILED
– Imagine if Safaricom attempted to distribute its MPESA service
through the natural channels of Bank branches when it started
– How can you implement e-learning software in our schools based
on this principle ?
15
Elements of your business model
KEY PARTNERS
• Telco
• ISP’s
KEY ACTIVITIES
•Develop platform
•Market platform
• Manage Content
• Customer Care
CUSTOMER
RELATIONSHIPS
CUSTOMER
SEGEMENT
• Online
• Advertisers
• Customers
CUSTOMER
VALUE
PROPOSITION
• Free/ low-cost
KEY RESOURCES
CHANNELS
and convenient
SH
• Brand
way to buy or sell • Telco
• Online
• Internet
Platfrorm
•Mobile
MARGINS
COST STRUCTURE $
• Platform devt/maintenance
• Customer Acquisition Costs
REVENUE MODEL $
• Premium Ad Fees
Free ads & free access
Example of a freemium business model such as OLX
16
Agile Strategy making & execution
• Embrace émergent strategy’ thinking
– Example ; Honda experience in the US market
• Apply discovery-driven planning
– Make projections
– Determine assumptions that must prove true
– Implement a plan to learn – to test assumptions
– Invest to implement strategy
• Pivoting is important , as you experiment
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Outsource or integrate ? – It depends
1867 frozen meat rail in the US
When functionality & reliability are inadequate integrate
Dell Computers assembly plant
When customization & convenience are inadequate integrate
• When the functionality & reliability of products overshoot customer needs
then convenience ,customization & low prices are what is not good enough
• For e-commerce e-cosystem in Kenya . What is not good enough ?
So It depends !!
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Financing, Recruiting & Organizing
• The concept of Schools of experience when
recruiting
– For example hiring a former CEO of a bricks &
mortar retail might not help you in an ecommerce setting
• Org structure is critical
– Even where you haven’t got employees define the
roles as if you had employees in place
• Investors who are patient for growth but
impatient for profits
19
Opportunities are growing in E-commerce
E-COMMERCE OPPORTUNITIES IN
KENYA
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Kenya’s Online Marketplace
• How big are the opportunities online ?
• Long on promise , short on $$$ ?
• Using the Disruptive innovation framework
how do we navigate it ?
• What are the ecosystem’s key ingredients &
hurdles ?
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The Online Market Place
Online
Advertising
Platforms
Online
Retailing
General
• Craiglist
• OLX
• Schibsted
• Cheki.co.ke
• Seek.com.au
• Realestate.com
General
Retailers
•
•
Social
Media
Vertical
Online
Classifieds
Amazon
E-bay
•
•
•
•
Facebook
Twitter
Badoo
43things
Killer
Category
Retailers
• Zappos
Search
Advertising
Global share
• Google – 82 %
• Bing – 4 %
• Yahoo! – 6 %
• Yandex – 2 %
• Baidu – 5 %
Content
Platforms
Content Creators
• Nation
• Standard
Content Aggregators
• Huffington
• Hulu
• AllAfrica
Online
Gaming
Portals
• Levelup
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Kenya’s Online Advertising Crystal ball
KES 300,000
KES 250,000
KES 200,000
KES 150,000
KES 100,000
KES 50,000
KES 0
2003
Total Advertisement Spend (Ksh) KES 5,950
2004
2005
2010
2011
2012
2013
2014
2015
2016
2017
KES 10,115 KES 10,744 KES 48,960 KES 67,150 KES 87,295 KES 113,484 KES 147,529 KES 191,787 KES 249,323 KES 324,120
Annual Online Ad Spend
KES 672
KES 1,484
KES 3,280
KES 7,248
KES 16,018 KES 35,400 KES 78,235
Online Classifieds Spend
KES 154
KES 341
KES 754
KES 1,667
KES 3,684
Key Points
• Kenyan Online Ad market could be worth 78
billion by 2017
• Kenyan online classifieds market in 2017, could be
worth over $ 17 billion
• Online advertising in Kenya is at it’s infancy, but
it is at an inflection point
• The Long Tail of advertising (SME’s &
individuals) is underserved in Kenya.
• Its a huge opportunity !
KES 8,142
KES 17,994
G-20 Countries Advertising spend
trends
% of media spend
Kenya Shillings in Millions (000,000)
KES 350,000
120%
100%
80%
60%
40%
20%
0%
Non-Digital Media Spend
Digital Media Spend
2003
2010
Year
50% growth – print migration, 50 % new investments24
E-commerce challenges in Kenya
Internal view - From an E-commerce Entrepreneur
Develop
&
Maintain
Platform
Select
Merchandise
to stock
Process
Payment
Fulfill
Order
Deliver
Order
Care for
Customer
NOT GOOD
What can
entrepreneurs do
based on disruptive
innovation theory ?
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Applying Innovation frameworks
1. Define your value proposition & target market
based on a ‘jobs to be done’ approach
2. Design a business model that satisfies the
value proposition at acceptable price points
3. Avoid Pre-mature scaling !!
1.
Be patient for growth but impatient for profits
4. Choose your investors carefully.
1.
Whether from family , friends or VC’s innovation
capital has to be ‘patient capital’
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Becoming a Serial disruptor..
• Key ingredients of building a disruptor’s DNA
– Associating
– Questioning
– Observing
– Networking
– Experimenting
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Key take-aways
• A disruptive innovation lense might increase
the odds of success
• A business plan/strategy is as good as the last
day you updated it
• Pre-mature scaling is one of the biggest killers
of start-ups
• Innovation can be predictable
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Who we are
OLX.co.ke is formerly dealfish.co.ke, Kenya’s leading online marketplace
or Classifieds site.
OLX is one of the largest and most successful free classifieds site in the
world with presence in over 90 countries and supports 40 different
languages. accessible through a PC or mobile phone.
We provide safe and transparent transactions between buyers and
sellers
You can sell or buy almost anything on OLX and its all for free.
You can also search for jobs available on OLX.
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Finally – My challenge to you
• You graduate in an era of potential high
economic growth
• A lot of global disruptors have eminated from
university dorms ; Dell, FB, Google etc
• The country is full of disruption opportunities
that can bring affordable/convenient
solutions into the market e.g.;
– Air travel
– Healthcare
– Education
• Disrupt the market !
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