At the IST-Africa 2010 conference, SAFIPA organised and facilitated a session around disruptive innovation in emerging markets.

The audience and speakers present hailed from civil society, government, private sector and the non-profit sphere. Tapping into the pool of collective experience and knowledge of those in the room, this article offers insights into the value of disruptive innovation for emerging markets, how to think like a disruptive innovator, and the value of these innovations within the global economy.

Disruptive Innovation 101.
The term ‘disruptive innovation’ was coined by Harvard Business School professor, Clayton M. Christensen and describes the business scenario where a new market is created, or an established market is radically transformed by innovating around  a product or service to meet the needs of a marginalised sector of  that market.

The best way to understand disruptive innovation is by comparing it to the concept of ‘sustaining innovation.’ Sustaining innovation is the process by which a product is developed to add value to the customers, for example, making it faster, smaller, more efficient, or adding a range of clever features. While this continues serving the same customers, it is not a way to create new growth. Disruptive innovation on the other hand trades off pure performance to make a product more accessible, more affordable or more customisable to customers. Disruptive innovation thus makes a product simpler, and while it may sometimes appear to be cheaper or of inferior quality, a marginal (new) sector of the market will see value in it.

A classic example of sustaining versus disruptive innovation is that of Nintendo and Sony’s approach to the video gaming industry. Sony’s approach was to develop the Playstation III, with the goal of making the device better for their best customers, with better graphics and a more intense gaming experience – a typical sustaining innovation approach. Sony, however, asked: ‘What about all the people in the world who don’t consume video games at all because they are too complicated or expensive?” Their answer: the Wii, a platform that is so simple and intuitive that the whole family can participate. This is a typical disruptive innovator’s approach: the Wii is simple, accessible and affordable, and thus created a new market segment in the video gaming industry.

Disruptive innovation in emerging markets.
Disruptive innovation can also be applied to products other than video games, computer processors and advertising. Let’s turn our attention to the matter of cell phone pay-as-you-go airtime, micro lending, mobile banking, portable water filters and electricity-free refrigerators and chargers – all products that have gathered significant market share in emerging economies, thanks to disruptive innovators.

Corporations are increasingly turning their attention to emerging markets, as an exciting source of growth opportunities. Kash Rangan, professor at Harvard Business School explains in an interview about a book he co-edited, Business Solutions for the Global Poor, “The shift  we see is in a new understanding about who the customer is. Traditionally, leading companies—both in the West and in developing countries—have operated under the assumption that the world’s poor majority—those four billion people on the planet with a disposable income of $5 a day or less—were simply a non-market, just a void. Writing off four billion potential customers was short-sighted, because even if their individual incomes are tiny, collectively they represent a massive business opportunity.”

And while profit-making is certainly a motivator to innovate for emerging economies, disruptive innovations also have a powerful effect of ‘democratising’ a product or service by making it available to mass markets, which enables a traditionally underserved part of society to access tools of the modern economy. The result is the improvement of the quality of life of those ‘at the bottom of the pyramid’, either physically (for example, access to clean water) or by improving productivity (for example, through access to telecommunications and micro-financing) or in some cases, in the creation of jobs.

Grameen Bank is an example of a disruptive innovation that has changed the lives of the poor in Bangladesh. Founder and MD of Grameen Bank, Muhammad Yunus, re-imagined the rules of banking, making micro financing available to the poor by removing the need for collateral, and created a “banking system based on mutual trust, accountability, participation and creativity.” Since it’s inception in 1976, Grameen bank has loaned US$ 9.43 billion, with a recovery rate of 97%, and remember, that’s without the borrower signing any legal document. Through Grameen Bank the borrowers, ninety-seven percent of whom are women, have access to legitimate credit and no longer fall prey to loan sharks or fall into cycles of spiralling debt, and are propelled rather to enterprise and progress.

Think ‘people’.
These efforts to free poor people from poverty won Yunus and Grameen Bank the 2006 Nobel Peace Prize. Before the announcement, many did not know who Yunus was (some thought Grameen Bank was a person), but as word spread, so did the inspiring story of how Yunus conceived of the micro-financing strategy.

In 1976, Yunus met a group of craftsmen in a village, who were in desperate need of a loan of $27, but did not wish to fall prey to moneylenders charging exorbitant interest rates. Speaking to other villagers, it became evident to Yunus that what these people needed was access to affordable credit, which was a huge impediment to the economic growth of the village as a whole. Yunus lent the craftsmen the money out of his own pocket, and asked them to pay it back when they could. Within one year, the money had been paid back, and Yunus was set on the path to establishing Grameen Bank.

People are at the heart of this story, and at the heart of successful disruptive innovations in emerging economies in general. It is by speaking to and listening to the plight of the villagers that inspired Yunus to develop a business that is not only about earning profits, but also about making a substantive impact on the lives of rural Bangladeshis.

It is telling that Christensen first coined the phrase ‘disruptive technology’ and then later reverted to the term ‘disruptive innovation’. This is because technology is not intrinsically sustaining or disruptive, it is rather the strategy or business model in which that technology is applied, that is disruptive. Those in attendance at the IST-Africa workshop, who mostly worked in the field of ICT for development in Africa, were in agreement that technology is not the foremost consideration, but rather people are, and how they interact with that technology.  They emphasised the need for co-design with users, in order to ensure a product that provides value to the user.

Operating in emerging markets demands reconciliation between the developing world notion of value-driven outputs and the developed world’s drive for revenue and successful, sustainable business models. It also brings up the uneasy ethical considerations around profiting from the poor. The resolution lies in ‘bottom-up innovation’ – by listening to a community and its needs, building relationships and ownership from within the community – a successful business model is created because it is a two-way process, that creates value for the community.

A local example of this bottom-up approach to innovation is Marlon Parker’s operation, R-Labs, on the impoverished Cape Flats, using Mxit as a tool for counselling. Parker utilised this technology tool to engage in a universal form of communication – story telling, as a way to provide support to those in need. He trained 300 members of the community, including ex-gang members, ex-drug addicts and the homeless, to provide support to other members of the community.

R-Labs has developed multiple interventions using technology and innovation to empower people in this community. Another of its exciting projects is the Social Media Factory, where unemployed community members are trained and then given opportunities to create extra income by managing social media strategies for businesses and organisations. According to R-Labs, “This means that those who are in need of having their Social Media Strategy being managed or outsourced not only get access to these services at very good prices but also the teams implementing these strategies who will consist of a mix of experts and community members.”

Africa’s innovative strength.
A recent Economist article gave a special report on innovation in emerging markets. Looking at the issue from a global perspective, the writer posited that in the current recessionary landscape, the developed world could learn about ‘frugal innovation’, which is successfully applied in emerging markets. The article quotes Peter Williamson, of the Judge Business School at the University of Cambridge, saying that he considers emerging markets as repositories of value-for-money strategies for recessionary times.

This notion was one put forward by both the speakers and audience in the workshop room at the IST-Africa event – Africa especially allows for the best innovation, as the circumstances allow innovators to be more creative. Also, the solution must be cost-effective, fulfill a specific need, and has to work effectively, out of the box. This makes for exciting ground breaking problem solving, which is increasingly being exported back to the developed world for consumption too.

The fertile minds of emerging market innovators are increasingly being recognised:  “The world’s creative energy is shifting to the developing countries, which are becoming innovators in their own right rather than just talented imitators”, writes the Economist reporter, “A growing number of the world’s business innovations will in future come not from ‘the West’ but ‘the rest’.”