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Innovation

Be Deliberately Disruptive to Achieve Growth

Use disruption theory to shape ideas and strategy, and identify or create new opportunities.

Monique Verduyn

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Companies today need to have a clear vision about how they are going to be conspicuously different from their competitors. In an extremely competitive environment, ‘me too’ strategies are unlikely to be forgiven. Unless businesses offer something different to different groups of customers, they are likely to be swallowed up by the competition.

In his new hard-hitting book, The Innovator’s Manifesto, Michael Raynor, co-author with Clayton Christensen of the bestseller, The Innovator’s Solution, argues that disruption theory, which explains how fringe ideas come to redefine entire markets, is not only a useful idea — it stands alone in actually predicting future success.

How disruptive thinking started

In Christensen’s two books, The Innovator’s Dilemma and The Innovator’s Solution, he posited two different kinds of business innovations:

  • Sustaining innovations are those that bring better products to an existing market. Most sustaining innovations are simple, incremental, year-to-year improvements. A useful analogy for a sustaining innovation is the quarter-turn-of-the-screw. With sustaining innovations, the odds overwhelmingly favour the incumbents.
  • A disruptive innovation “brings to market a product not as good as the products in the current market, and so it cannot be sold to the mainstream customers. But it is simple and it is more affordable.” Disruptive innovations take root in a small niche of the market but eventually reach the mainstream. “I call that a disruptive innovation,” Christensen said, “not because it’s a breakthrough from a technological sense, but instead of sustaining the trajectory of improvement that has been established in a market, it disrupts it and redefines it by bringing to the market something that is simpler.”

A manifesto for growth

Whether you’re an investor, an entrepreneur, or a manager, you live with the unavoidable paradox that although you believe passionately in whatever specific undertaking you are committed to today, you understand that of the many initiatives you may undertake or be involved in, most will fail to be breakthrough winners.

Raynor’s The Innovator’s Manifesto contains new research showing how disruption theory is unique in its ability to help managers predict the success or failure of a company or product. He explains why disruption theory is so powerful — and provides the roadmap managers need — to use disruption theory to shape new products and ventures in their own industries in ways that make ultimate success possible.

So what do you do if you are not able to reliably pick or create successful innovations? Raynor suggests the following three-stage approach as state of the art in innovation management:

1. Variation

Start with lots of ideas

Ideas are brought to life by activities such as innovation competitions and teams that focus on developing great new ideas. It’s an approach taken by companies like Google which gives people some unstructured time to pursue projects that they are passionate about. Google believes that when you give smart people space to innovate, you unleash the power of imagination, ideas and connectivity to change the world. Despite its size, Google still maintains a start-up culture. Its work is project-based and its commitment to innovation depends on everyone being comfortable sharing ideas and opinions. Googlers have the opportunity to develop 20% Projects, where they take 20% of their work time to work on projects that they’re personally passionate about. One such project led to the development of Gmail.

The implicit belief is that since we cannot know in advance what the characteristics of a successful idea are, we have to get as many ideas as we can from as many diverse sources as we can.

2. Selection

Try out as many of your ideas as you can in the marketplace to see what works

We need some way of sorting the wheat from the chaff, and since we can’t rely on our judgement we try out as many concepts as possible in the market. We create ‘lean start-ups’ in the hope of ‘failing fast’ so we can ‘iterate’ toward a winning formula. Those concepts that meet with early approval from the market are the ones we deem likeliest to succeed.

Innovation usually results from trial-and-error experimentation and sometimes occurs incidentally where researchers produce something other than what they intended.

3. Retention

Stick with the successes and abandon the failures

In the hope that those products early adopters embrace have long-run potential, we commit to those and abandon the rest. As we scale up, we must live with the uncertainty that as we cope with the demands of growth, we can adapt effectively.

What this proves

According to Raynor, the apparent waste of this extravagant approach to innovation need no longer be meekly accepted. New evidence shows that disruption theory can materially and significantly improve predictive accuracy when creating or picking successful new businesses. The core of Raynor’s case for the predictive power of disruption theory is a study of Intel’s New Business Initiatives (NBI) group, whose job it is to investigate opportunities far afield from the company’s current operations. In this study, disruption theory proves to be a better predictor of new venture success and failure than other theories.

This conclusion was confirmed in a follow-up study in which MBA students were given business plans drawn from venture capitalist pitch decks and asked to use different theories to predict what happened to the companies. Over 500 MBA students from Harvard, MIT, and Ivey Business School in London and Toronto analysed a portfolio of 48 business proposals funded by Intel Corporation. After just one hour of instruction in disruption theory, 50% were more likely to pick businesses that survived in a business plan competition. Once again, disruption theory proved to be the best predictor of future success.

These results imply that it is possible to identify successful new businesses at the earliest stages of development. And the consequences for how we manage effective innovation programmes can be profound, says Raynor. Instead of ‘variation-selection-retention’ – a framework designed to compensate for our ignorance – we can now build upon our improved understanding with an entirely new paradigm.

If we can identify the predictors of disruption, he maintains, we can find and create those circumstances,
and therefore increase our likeliness of success.

The framework he suggests is three-pronged: Focus, Shape, and Persist. Focus on the disruptive ideas, shape them, and then stick with them. That’s how to ensure a greater likelihood of success:

1. Focus

Go where the money isn’t

Innovations consistent with the prescriptions of disruption theory are systematically more successful than those that aren’t. Consequently, we can focus our efforts on those markets and technologies that target un-served or over-served segments with greater confidence than ever before.

2. Shape

Seek ‘creative creation’

Rather than trying to find out what works by seeking to minimise the cost of failure, we can now build business models that conform to meaningful patterns of success. Specifically, by serving profitable segments that incumbents deem inconsequential, new businesses can create a valuable foothold. Then, by building their businesses around ‘enabling technologies’ – elements of their business model that allow performance to improve over time – entrants can move from that foothold to positions of mainstream dominance.

3. Persist

Don’t fail fast, learn fast

Disruption improves predictive accuracy, but we’re still a long way from 100%. What this means is that although we can more confidently commit to specific markets, technologies, and strategies, there is still a lot to learn. Learning, however, demands persistence: the willingness to stick with something despite early setbacks. And that persistence need no longer be the product of blind faith, but can instead be based on solid empirical evidence.

Most theories of innovation base their prescriptions for action on explanations of the past. Disruption is perhaps the only theory of innovation to have been tested for predictive power using a portfolio of actual businesses. And the results suggest that a revolution in how innovation is managed is upon us.

Raynor offers many examples of disruptive innovation – innovations that took root in a small niche of the market but eventually reached the mainstream and dominated them:

  • The Internet was a disruptive innovation to newspapers.
  • Toyota was a disruptive innovator with its Toyota Production System of lean manufacturing and process improvement.
  • Southwest Airlines was a disruptor with its low cost carrier strategy.

Monique Verduyn is a freelance writer. She has more than 12 years’ experience in writing for the corporate, SME, IT and entertainment sectors, and has interviewed many of South Africa’s most prominent business leaders and thinkers. Find her on Google+.

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Innovation

Why Smart Business Growth Means Smart IT Budgeting

(…And how to do it)

Colin Thornton

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For any business today, no matter its size or sector, getting the IT budget right has become a critical part of success and sustainability.  The difference between a three-device network and a fifty-device network has significant ramifications for your IT spend and your overall budget outlook.

Let’s take a closer look at several potential costs and how to plan for them…

Network: The driving force

Essentially, the network is the backbone/core of your IT infrastructure. It needs to be reliable, fast and efficient. Often, a young and growing business will have a piecemeal network in place, bolting on new sections over time. This can lead to the network becoming inefficient and slow.

The important thing to note is that when you have reached capacity on your current network, is it’s sometimes better to start from scratch and also leave room for expansion down the line (rather than adding to the existing network as a quick fix).

While it may appear more costly (and scary), the end result is a reliable network that you won’t have to worry about revamping for many years.

Related: How Dial A Nerd Managed To Dial Up Profits

Licensing: Pricey but critical

Software licensing often comes as an unexpected (and unpleasant) cost to many business owners and their financial teams. Indeed, purchasing legal software can be pricey if you aren’t prepared for it (and don’t understand how it all works!). However, if you buy software licenses in bulk, or commit to a longer term, they can cost far less…so again, budgeting intelligently for your business growth can save you money in the long term. Also remember that many software licenses nowadays can be rented on a per user per month basis so its flexible and always up-to-date.

Maintenance: Be realistic

As the business grows and expands, so too will your IT maintenance needs. The key factor to note is to carefully consider the potential costs of IT failures and hardware issues. You need to take into account that you will undoubtedly have to spend money on maintaining your computers and overall network – and breakdowns can be extremely costly in downtime and lost productivity.

Some businesses find that it makes good financial sense to employ someone to be an IT technician in addition to taking on other responsibilities – but this person may not have the right expertise and experience to manage everything. The other increasingly popular option is to outsource your IT management.  With flexible pricing options now available to businesses, this is becoming a viable and often much more flexible route to take.

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Company Posts

Think Beyond The Box

With a holistic view of your business finances and admin in place, Sasfin’s new digital banking platform is engineered to help you grow your business.

Sasfin

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business-banking

Welcome to the banking platform designed to support your banking needs. In response to more than 50 years of financing and supporting SMEs, Sasfin has launched a digital banking platform, B\\YOND, to help address the pain points and pressures that business owners face in South Africa.

“We’ve spent decades understanding what makes SMEs succeed or fail, and a lot of it begins with how well a business owner understands their finances,” says Sasfin CEO, Michael Sassoon.

“Failed SMEs often tend to either neglect or become completely consumed by their finances and admin. We wanted to create a platform that could help them take control of these factors, and give them a full 360-degree view of their businesses.”

B\\YOND was built to enable businesses to attend to their finances and admin seamlessly, thereby ensuring that entrepreneurs can focus on their clients — driving revenue and enhancing their products and services in the process.

Related: What To Consider When Investing Your (Hard-Earned) Money

Everything you need on one platform

According to Sassoon, entrepreneurs on the B\\YOND platform will never need to set foot in a branch again. The sophisticated technology incorporates many value-added services at no additional cost, including:

  • B\\YOND online applications: Businesses with multiple shareholders and directors can apply online, by uploading documents and signing the application digitally.
  • B\\YOND payroll: A simple-to-use and SARS-compliant payroll function enables business owners to perform their own payroll management.
  • B\\YOND invoicing: Businesses can create and send personalised quotes and invoices directly from the platform.
  • B\\YOND insights: Smart dashboards generated through clever account and transaction classification and tagging helps manage revenue and expenses, and keep track of projects.
  • B\\YOND integrations: Direct-feed integration into Xero ensures that small businesses and their accountants can safely and seamlessly connect their Sasfin Bank transactional data with Xero, the fastest growing cloud-based accounting software provider in the world.

Serving the entrepreneur

While there is much in store for the next versions of B\\YOND, the platform currently offers business leaders the basic tools they need to run their businesses smoothly in one place at no additional cost, with the ability to bank at their convenience.

“Sasfin has always existed to serve the entrepreneur and investor, the two key drivers of the South African economy and it bothers us that there is such a high failure rate of entrepreneurs in our country. We have spent the last three years building B\\YOND — a future-fit digital banking platform to help these entrepreneurs,” says Sassoon.


Engineered for success

Sasfin has gone above and B\\YOND to bring you a new digital banking platform that gives you the tools to make managing your business simple and profitable.

B//YOND is a value-add to all Sasfin Transctional Banking clients

Bank outside the box

The Sasfin Transactional Banking Business Account is designed for SMEs who want to focus on what they’re most passionate about — their business — while their banking platform not only sweats the small stuff for them, but helps manage and grow their business.

  1. Do you spend unnecessary time on banking?
  2. Does your bank pay you market-leading annual interest rates?
  3. Does your bank give you easy cash management in real-time?
  4. Would you like to manage your payroll and invoicing from your bank account?
  5. Does your bank help you keep track of your cash flow, manage your admin, and provide you with the set of tools you need to help run your business successfully?

Sign up today and have access to a whole new world of banking better for your business.

Visit: www.sasfin.com/bank/byond/

Call 0861 SASFIN for more information.

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Innovation

A Short Cut For Corporates To Digital Innovation: Start-ups

Charlie Stewart, co-founder and CEO of Rogerwilco shares his advice for turning to start-ups for solutions.

Charlie Stewart

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If there is one anathema in corporate culture, it is failure. With profit to be made and share prices to increase, failure is simply not an option. And yet, when listening to stories about success in the digital space, failure is there to put one on the right path to success. The phrase ‘Fail fast, Fail often’ is often bandied about, and innovation can be seen as a constant process of iteration, test and failure, repeating this until a well refined service or product is on the table.

Many corporates are waking up to the uncomfortable fact that at a structural level, the type of innovation required to grow in today’s digital landscape, is out of their reach, at least when trying to come up with it internally. So what to do? Charlie Stewart, co-founder and CEO of Rogerwilco shares his advice for turning to start-ups for solutions.

1. The start-up solution

Corporates comfortable in the digital space – Apple, Alphabet, Facebook and Amazon – have been buying startups for years, and now companies are realising that when it comes to Blockchain, artificial intelligence and machine learning, they need to turn elsewhere. And they are. Matt Garratt, Vice President of Salesforce Ventures noted that of the roughly 1500 tech acquisitions Stateside in 2016, half of them were bought by non-tech companies, showing that buying a start-up is a quick way to acquire new technologies, skills or patents.

Related: Why Optimism Isn’t Enough – You Need To Also Accept The Brutal Facts

But purchasing a company with a fully developed product can be an expensive and often risky play. Instead we are beginning to see a trend where corporates are framing agile startups as solution providers, offering them seed funding to come up with answers to digital headaches.

In the US, defence contractor Lockheed Martin has turned its investment strategy around, focusing on young startups instead of more mature companies. In the region of $20 million was ploughed into startups in 2017, helping Lockheed Martin to get a slice of the pie in fast moving spaces such as cybersecurity, autonomous vehicles and nanotechnology.

2. Outsourcing the problem

For corporates turning to start-ups, there are two benefits. Firstly, by doing so companies are casting their net a bit wider, with not only more eyeballs on the problems but, importantly, without the restraints of the corporate boardroom. There is more out-of-the-box thinking involved, no internal politics to worry about and far less of a threat of somebody’s career being jeopardised.

Secondly, if a start-up comes up with a solution, investing in the fledgling company can be cheaper than purchasing one with an established solution. If a buy-out is on the cards, it is less risky too since the due diligence process has been worked through and cultural challenges have been ironed out.

But not all start-ups actually want a buy-out. Some rather prefer access to market and skills transfer, especially around the commercial side of business. Yes, they do need investment, so companies can provide them with a proof of concept to take their idea forward, or potentially a more structured form of investment in their business. 

3. Cape Town: the start-up hub of Africa

Locally, Cape Town can be seen as the tech start-up hub of Africa, and is certainly a good place for corporates to start sniffing around for that digital innovation golden ticket. Events such as last year’s AfricArena conference proved that Cape Town can be a fruitful hunting ground. 80 start-ups from across Africa attended the inaugural event, and were tasked to find solutions to problems provided by corporates beforehand. Air France, for example, was looking for innovative mobile solutions, the City of Cape Town wanted to see how technology can be used to improve the tourism industry, while RCS asked for a loyalty programme to match a new credit programme.

Related: 7 Ingredients Of Small Business Success Online

By all accounts the event was a major success, connecting start-ups with corporates and investors, both attending the event and dialing in. The winner of Air France’s challenge, mobile payment solution provider WeCashUp, received multiple offers of investment and the project has moved on to the proof-of-concept phase.

4. The start-up lifeboat

Many companies need to face up to the fact that the current corporate structure they are working within does not allow for the type of innovation required to adapt to, never mind thrive, in a digital world. South African companies were perhaps sheltered from the digital tsunami that has eviscerated the analogue business world, but the wave has hit our shores. If it is innovation that is needed, it is time to turn to agile startups, far better adapted to a sink-or-swim digital environment, to come up with the solutions.

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