M-PESA and the service innovation framework (extract)

A former student of mine just mailed me this article “Extracting Key Lessons in Service Innovation” (pdf) by S.Wooder and S. Baker, recently published in the Journal of Product Innovation Management, January 2012 edition. Here is the abstract of the article:

This paper describes how Sagentia—working with Vodafone, Safaricom, and other organizations—played a significant role in the creation and delivery of a landmark mobile money transfer and payment service for emerging markets, starting in Kenya. In this profile we examine the organization aspects and approach that contributed to the success of the service: the lessons we learned as the technology provider and how the experience has informed and strengthened our service innovation processes.

Reading through, what I found most valuable among the basic principles so simply and clearly articulated, was this insightful description of service innovation, as pertaining to the ways that a human centered design innovation team can work to improve the customer experience for any company, large or small:

What Is Service Innovation?  Creating and Delivering Value

We are familiar with service innovation examples such as music download, loyalty programs, franchise chains, ticket/check-in kiosks, and online tax returns.

Service innovation can be described as a combination of technology innovation, business model innovation, social-organizational innovation, and demand innovation, with the objective of improving existing services (incremental innovation), creating new value propositions (offerings), or creating new service systems (radical or transformational innovation) (IfM and IBM, 2008). The key components of service innovation can be distilled down to “participative” value delivery; [...]

So if the service is considered to be:

• something that may or may not entail physical product delivery or consumption
• a value delivery mechanism that connects the enterprise to the customer
• the combination of a value proposition, a delivery mechanism, and a customer’s experience

Then service innovation is simply innovation applied to one or more of the following areas:

• new concepts and/or value propositions
• new delivery mechanisms and/or business models
• new experiences

[...] Successful service or product innovation encompasses progress from the creative act (the so-called fuzzy front end) to the commercialization act (execution) and beyond that to sustainability and evolution of the innovation. Our simple framework for service innovation is shown in Figure 3

 And finally, they share with us the mapping of MPESA on to this service innovation framework.

The authors conclude their informative article with the following words:

Key lessons that were highlighted by our experience with M-PESA include:

• Learning in a detailed sense the needs of users in new markets and ensuring that it is possible to implement these needs and requirements as part of a pilot process;
• “Keeping it simple”; particularly in the early stages of the service, it is important to focus on a small set of compelling, marketable functions and features;
• Ensure that flexibility and agility, the ability to react and to respond to changes in the business model, are designed into the system; and
• For a service to succeed, it requires a critical mass of users as soon as possible; identifying mechanisms to motivate users to take up the service is an important part of the service innovation process.

The results of the study cannot claim to be generally applicable; however, it has allowed the “usefulness” of the conceptual stages in the service innovation framework to be empirically tested in a real-world example, and the vulnerabilities and strengths are better understood as a result.

Opportunity spaces vs ideas – business development for the BoP markets

Inaugural Issue of Entreprenuer magazine, photo taken in Kanpur India, Sept 13, 2009

Ideas or concepts are not the same as opportunity spaces or gaps in a particular market. Exploratory user research can identify opportunities for innovation, that is, either unmet needs or gaps in the existing ecosystem which could be filled by a product or service with the intent to create and provide value. On the other hand, actual ideas for new businesses or concepts for products or services may not be the immediate outcome of such exploration. While the insights from the field can act as waymarkers for new revenue generation opportunities, they are not the actual ideas or concepts themselves.

Imho, this conflation of the two – a concept or an idea and an opportunity space or gap in the existing market – gives rise to confusion about the goals or outcomes from field research, particularly in the short term or for the immediate results. It must be noted that even insights derived from observations are usually the result of data analysis and synthesis, best done with a team after the field research has been completed. Only after this can one say with any degree of confidence which gaps or behaviours observed would translate into potential opportunity spaces for innovation or new product development leading to sustainable and sustained revenue generation opportunities. Finally, the concepts or ideas can be generated within the constraints of this opportunity space.

The potential ‘market’ at the BoP is vast, complex and chaotic and too many needs go unmet that at first glance that it may seem opportunities are indeed available  for the picking and the possibility of fortunes immense.

The first critical challenge is to evaluate which of these potential areas offer value; a return on the customer’s investment, meagre though it may be.

The next is to evaluate the time and effort any new venture among BoP customers would require before it would start showing returns.

This is not a hit and run market.

Spotting an opportunity in Kinshasa’s informal markets

After writing yesterday’s post on the proliferation of superficial analysis being used to exemplify emerging consumer market opportunities in Sub Saharan Africa, I was pleased to find this  Afribiz article demonstrating clearly how on the ground observations can help identify spaces for innovation and new business in the informal markets:

At first glance, Kinshasa might seem intimidating to a perspective investor because they generally conduct business in an informal way there and have a relatively high poverty rate.  But with a little market research, innovation, and follow through doing business in Kinshasa can prove to be very lucrative. 

The people in the markets of Kinshasa generally conduct business with cash, avoiding banks.  “A single note can touch maybe one million hands before it reaches a bank,” says Claude Ibalanky, Chief Executive Officer for Bantu Investments.  “To do business in such a market, you first need to understand this dynamic.  Without (understanding) this dynamic, business would not succeed in Congo (consumer markets).”  As in other major African cities, you need to modify the way that you do business there and adapt to the local environment.
[...]
Claude Ibalanky found success in Kinshasa’s informal market with Nando’s, a popular restaurant based in South Africa. “When we looked at Nando’s,” says Ibalanky, “we saw an opportunity in Congo where most people did not.”

“You go into the streets of Kinshasa at night (and) you find (many) people selling chicken. They’re selling it – cooking it with charcoal and wood in the streets with dust, with rain water, with flies and all those kinds of things. We went to speak to them (the vendors) and we realized behind that was a very, very, very big and huge market. So, we thought a little bit of innovation, a little bit of formal set up could certainly capture a segment of the market which we targeted,” shares Ibalanky.

Bantu’s initial goal was to generate $10 for every person that ate in their Nando’s restaurants and, “after two years of operation we are sitting at about $24 per head,” says Ibalanky. So in an economy where they were expected to fail, they are instead making 2.5 times more than their goal.

Insights from the South African low income market (BoP) opportunity

Durban, South Africa - Jan 2008

I came across this article from South Africa titled “Why companies should care about the low-income market” which has some excellent insights about this demographic and opportunity space. Also called the ‘BoP or Bottom of the Pyramid’, it is the mass majority segment in the emerging middle class in Sub Sahara today (per recent reports.) I’ve interspersed my observations in between snippets from the article which are in italics:

He notes that large firms are also becoming more secretive about their bottom of the pyramid (BoP) strategies, perhaps a sign that they are beginning to take this market seriously. “We see a very clear trend that companies are no longer asking what the bottom of the pyramid is.”

This is an interesting piece of news – BoP markets are now internationally recognized as a long term growth market opportunity,  the secrecy implying that the strategy is less about CSR (and attendant goodwill via PR ) and more about competition.

 ”If you look at the upper-income segment in South Africa, those markets are mature, they are growing at perhaps 1% to 2% per year, whereas your low-income segments are growing at anything between 9% and 15% per year. You ignore such trends at your peril,” Coetzer explains.

Here’s why companies are taking it seriously – those are some significant growth figures, offering the kind of returns on investment that saturated, mature markets cannot.

Another point here is that BoP customers are very rarely formally employed with a regular paycheck.  The BoP market is also mostly cash based and almost 70% of the lower income markets are rural. All of these mean that they have not felt the impact of the global recession (there are exceptions such as migrant worker remittances from the rich world for example).

The article gives an example of tapping into REculture – the informal market’s characteristic behaviours of recycle, reuse, repurpose, resell and repair.

Coetzer explains that bottom of the pyramid strategies do not always just comprise of selling products, but also purchasing from the low-income segment. An example of this is Collect-a-Can, a non-profit but self sustaining recycling business, with steel and tinplate producer ArcelorMittal and beverage can manufacturer Nampak as shareholders. Collect-a-Can pays people cash for collecting used beverage cans and provides tens of thousands of unemployed South Africans with the opportunity to earn a living.

Opportunity spaces

“immediate untapped opportunities are present in the fields of financial services (especially mobile money), home upgrading and repairs (plastering, tiling, electrical installations, insulation, energy‐saving light bulbs, solar panels) as well as the distribution and delivery of goods. ”

An earlier survey [...] revealed that the majority of informal entrepreneurs in Cape Town townships are looking to grow their businesses, but are unable to do so because the type of credit, insurance, training and financial services available in the formal market are not adapted to their needs.

Catering for the low-income segment often calls for creative business models and product innovation.

While these unmet needs are the most visible, increasing competition will require a more strategic, customer-centric approach beginning with a greater understanding of this customer demographic.  Opportunity spaces for new products and services that can add value and enhance lives,  not simply plug the gaps of unmet needs. Needs and wants are so many at the BoP that every decision to spend money is a trade off on the risks of a return of maximum value.

“There is huge diversity within the bottom of the pyramid. People have different aspirations, different needs, and one of the biggest mistakes for any company would be to think of it as a single market segment. Not bothering to investigate just how diverse this segment is, is something we see quite often as a classical mistake,” says Coetzer.

 

Further reading

Emerging Markets as a Source of Disruptive Innovation: 5 Case Studies – February 2010
The 5D’s of BoP Marketing: Touchpoints for a holistic, human-centered strategy – January 2009
The Fortune at the Bottom of the Pyramid Begins with Understanding : Targeting the BoP Customer (PDF) – Nov 2008
Design for the Next Billion Customers  – April 2008

Invention vs Innovation from the customer’s perspective

 

 

An invention is not an innovation until it is adopted by the users ~ John Heskett

 

We think that technology has all the answers or can provide that magic silver bullet.  If we can simply build that shiny, new widget or make an app for the service, customers are bound to flock to the latest, greatest thing.  But as many have found, it doesn’t quite work that way.

John Heskett, who recently retired as the Chair Professor of Design at Hong Kong Polytechnic University, taught a course I took at the Institute of Design, IIT Chicago called ‘Design planning and market forces’.  The  sentence I’ve quoted above is my best paraphrase of his explanation of the difference between an invention (or technological advancement) and an innovation, from the end user or customer’s point of view.

The Segway, he said,  is a great example of advanced technology. The iPod has often said to be nothing more than pulling together numerous existing technologies into a beautiful package.  Which of these has been enthusiastically adopted by people (users) around the world?

One of these managed to change the way people listen to music, how they purchase it, store it and share it. The other could have changed the way people moved. One was considered a major innovation. The other remained an invention, albeit a major one.

Innovation does not simply have to be just a cool new product alone.  iTunes was the accompanying service (and business model with an attractive payment plan) without which the iPod may have remained a very beautiful flash drive with speakers.

This is why we emphasize the need to understand the people before focusing on the technology and take a customer centric approach to innovation.

 

Going solar as mainstream consumer choice

Supermarket solar display, Nairobi, Kenya June 2011

This shelf of alternate power supply equipment displayed in a Nairobi department store caught my eye.  It was in the consumer product section along with fridges, washing machines, TVs and a host of small appliances.  It was the first time I’d seen such a wide variety – batteries, solar panels, lamps – so casually displayed and in such a context.

Sunlite solar light, Nakumatt, Nairobi Kenya

Diesel generators and inverters are more common in India and certainly not displayed along with other white goods for direct consumer purchase. Seems like solar power is a mainstream consumer choice in the Kenyan market and worth exploring further.

Cracking the informal markets in Sub Saharan Africa: the need for strategic improvisation

Informal market, Nairobi, Kenya June 2011

Ernst & Young’s Consumer Products division  released a report for global consumer product companies interested in growing in Africa where they highlight the challenge of cracking the informal markets, described thus:

The informal economy is a key feature of life in Africa — estimated to account for around 42% of GDP in 2000 with the highest figures in Zimbabwe (59.4%), Tanzania (58.3%) and Nigeria (57.9%). South Africa is the least informal market — only 28.4% of GDP.

The International Labour Organization (ILO) estimates that 72% of non-agricultural employment in sub-Saharan Africa is informal, so small “mom and pop” stores have enormous market share — possibly as high as 85% of volumes.

The combination of lack of formal retail, underdeveloped infrastructure and a fragmented local logistics sector means that global consumer products companies often need to consider strategic improvisation to create their own solutions for cracking the informal market and reaching consumers effectively and in a cost-efficient manner.

Although not apparent, informal markets have structures, rules and a flow which businesses can tune into if they are prepared to invest sufficient time and effort.

After evaluating the search results for the term ‘strategic improvisation’ – popularized by a recent book analyzing The Grateful Dead’s lessons for management, I find this to be the most informative summary of the concept:

Four ideas make up the foundation of strategic improvisation. The first is the idea that managers and leaders need to be nimble. Nothing is certain (NB: The only certainty is uncertainty holds true for the emerging markets of Africa)- – especially not a five-year strategic plan. Strategic improvisation involves a continuous flow of acting, learning, and planning to manage and lead an organization in real-time as the situation takes form. It is a focus on fast action and adjusting plans on the fly as the situation changes and requirements become clear.

While taking the time and effort to understand the informal markets of the local economy will offer touchpoints for the most effective strategies, there is also the increased possibility of discovering the seeds of ideas within the informal economy which is in itself an excellent example of  strategic improvisation and creative ingenuity.

Should you launch in emerging markets first? Some examples of an Africa first strategy

Freeplay fetal heart rate monitor

That is the question posed by Prof.  Vijay Govindarajan in Harvard Business Review.  A short piece, co-authored with an undergraduate student, its basic premise is that for medical devices and other impedimenta of the health care industry such as diagnostic tests, there are benefits to launching in emerging markets first before entering the advanced first world markets.  They end by saying:

Ironically, the fact that companies hesitate before developing for emerging markets creates a source of comparative advantage that startups can use to gain market share. Claro Dx developed a next-generation battery-powered reader the size of an iPhone to detect HIV, syphilis, and hepatitis, for example. Its older reader in U.S.-centered clinical trials for prostate cancer recurrence is the size of a desktop.

Startups can benefit from reverse innovation. Can readers think of other types of startups an emerging-market-first strategy might be applicable to (sic)?

This need not simply apply to cases of reverse innovation alone – that is, bringing innovations developed for emerging markets back to the developed world, take mobile money transfer systems and their region specific success. Considering this gives rise to one key factor that does not seem to be covered in this article. That is the role played by  a vacuum in the operating environment. When something is missing in the system there is a gap or an opportunity space for an innovative solution to fill the need.  An oft quoted example is the leapfrogging of landlines and communication infrastructure by mobile wireless devices now available in everyone’s hands.

In the sophisticated developed markets there are layers of legacy solutions or an established status quo which often act as barriers to entry, impeding the rapid uptake or even the introduction of some innovative product or service.  Frontier markets on the other hand, such as those offered by the rapidly evolving consumer markets in Sub Saharan Africa can offer some unique opportunities such as:

The Kenyan sub $100 IDEOS Android Smartphone

Building a new brand or awareness of an entirely new product category – Huawei is a Chinese telecommunications equipment company well known for successfully taking on established players such as Ericsson and Nokia Siemens Networks. However it has no such reputation in consumer products such mobile phones until the launch of the low cost Android based smartphone, the IDEOS via mobile operators such as Safaricom in Kenya and MTN in Uganda. After seeing significant sales figures in Africa, it has just announced the launch of a low cost smartphone in Germany under the IDEOS name.

Samsung solar powered netbook

Innovative solutions for resource scarcity – Many of the challenges posed by the emerging market environment such as need for low cost, robust solutions with innovative business models and distribution channels also act as a resource constrained crucible for testing new products and services.  Samsung has launched a solar powered netbook in Africa first before taking it the developed world.

Leapfrogging infrastructure and services – While MPesa may not be as easily portable elsewhere, its the first and foremost example of a service filling a vacuum while inspiring major global efforts to find similar solutions for other regions. Others are more common in the mHealth space and here the argument is better articulated by this article “Developing countries offer lessons for the West“,

Mobile health applications from developing countries have the same potential to penetrate developed markets. In developing countries, these applications span a wide range of activities, including data collection, disease surveillance, health promotion, diagnostic support, disaster response and remote patient monitoring,” Sandhu writes.

But it is an unrealized potential, according to Sandhu. “Although myriad mHealth programs are operating in developing-country markets, only a few prominent mHealth innovations in the United States have been imported from abroad. Among the most notable are Vitality GlowCaps and GreatCall Medication Reminder Service, both of which are working to improve medication adherence,” he writes. According to Sandhu, both are outgrowths of technology that originated in South Africa. The Text4baby messaging service for pregnant women and new mothers was modeled after VidaNet in Mexico and Mobile 4 Good Health Tips in Kenya, though, like GlowCaps and GreatCall Medication Reminder Service, it is not an exact replica of the original. This is intentional.

The goal should not be to copy programs exactly, but rather to adapt global innovations for the developed-world market,”

But all of these are centered around information technology and mobile communication – do we see the potential for innovations dispersing out of Africa in other areas such as renewable energy solutions or consumer products for the home or are we seeing the first signals where Africa will make its mark globally?

Visible sign of market creation for a product designed for social impact

Moneymaker pump, Nairobi Kenya June 2011

It struck me when I saw this Moneymaker pump by Kickstart on a street corner matatu stand in Nairobi while wandering around a market with Muchiri who was shopping for shoes. I’m giving this level of detail so you can see the context in which we spotted this classic and oft quoted example of a product designed for the ‘bottom of the pyramid’ (BoP or base of the pyramid) aka the lower income demographic. Its meant to assist in the alleviation of poverty by increasing the output of smalltime farmers.

We stopped to ask the man waiting with the pump what he was doing there – he was wearing a branded t-shirt with the product logo. Turns out he was on his way to deliver it to a new customer who had just purchased it.

This random sighting on the street to me is one of the best indicators of a product’s penetration and/or popularity. So often it happens, particularly in the design for social impact sector that the press release is often all there is to see or the product is showcased as a pilot program. I know that I’ve yet to hear about LifeTools in India via any mass media or notice its usage or mention by someone (and I’ve asked around in the target population segment in a couple of different locations) for example.  And that’s a huge company with a big marketing budget and India a major market.

Market creation (supported by customer education) is the biggest challenge/opportunity in these market segments.

The African Experience Matters for Next Generation Mobile Web

Ever since Steve Song put up this image of the undersea cables linking Africa to the rest of the world, I’ve been thinking about what it might mean. When a landlocked country like Botswana which was totally dependent on slow and expensive satellite links for accessing the net is able almost overnight to slash connectivity costs in half and begin to dream of egovernment initiatives and enhancing educational capabilities, its very hard not to start dreaming of a wholly different future.