In this edition of our monthly GrowthCore Business Leadership Conversations we focus on the subject of digitization and innovation as it relates specifically to Africa. This is preparatory to our forth coming flagship conference on innovation scheduled for November. My guest for this edition is Efosa Ojomo, research fellow at the Forum for Growth and Innovation at the Harvard Business School. Efosa’s research at Harvard is guided by Professor Clay Christensen, one of the world’s top experts on strategy, growth, and innovation.
Is there such a thing as African innovation? How do we describe Africa’s approach to innovation, is it or should it be different from the rest of the world?
There is African innovation, in so far as that means “innovation that is executed by Africans.” But beyond that, at our research institute, we categorize innovation into three buckets: market-creating, sustaining, and efficiency. Market-creating innovation targets non-consumption by transforming formerly expensive and complicated solutions into simpler and more affordable ones. Non-consumption is a phenomenon that is pervasive across Africa. It is when a majority of people would benefit from a solution but cannot afford it due to its cost or the expertise required to purchase the solution. Because market-creating innovations target non-consumption and because the number of non consumers in society is typically larger than the number of consumers, market-creating innovations are distinct in their ability to create jobs. When the personal computer was created, it created many more jobs than the mainframe computers.
Sustaining innovation targets demanding consumers and makes existing products better. Companies typically sell this for more money and more margin. A majority of the innovations in the world today are sustaining in character, even though all, at one point, were market-creating. The last is efficiency innovations and these are innovations that allow companies do more with less. Every company should engage in these but from an economy standpoint, they tend to eliminate jobs and free up capital.
Africa, because of its increasing population (2.4 billion by 2030 and 4.4 billion by 2100), innovators and policy makers need to focus on market-creating innovations. These innovations don’t have to be inventions. Indomie Noodles, for example, was a market-creating innovation executed by Tolaram. They had to create a noodle market from nothing when the company entered Nigeria in 1988. MTN created a market for wireless telephony. Several other companies are creating markets, but not nearly at the rate that we need them to.
Is Africa merely digitizing or actually innovating? Can we make a distinction between digitization and innovation?
So far, the data suggests that Africa isn’t even really digitizing. Africa has several hundred million mobile phones, of which a few are smart and now have data plans, but beyond that, it is hard to make the assertion that Africa is digitizing. Is Africa more digital than it was 10 years ago? Absolutely. But that is like saying a 15 year old child is bigger than he was ten years ago. It is to be expected.
The important thing to note about digitization is that it is impossible to digitize without establishing some analog processes. For instance, one might look at the e-commerce craze on the continent and conclude that we are digitizing, but what one would miss is that e-commerce is built on the back of analog systems such as road networks, efficient warehouses, educational institutions, and truck drivers. It is not enough to say – we have Internet, therefore we should have e-commerce. There are several other examples of that on the continent. Solutions that jump on the “digitization” bandwagon without truly understanding what it takes will continue to raise money and continue to lose money.
In terms of the difference between digitization and innovation, that is quite simple. Using the three definitions of innovation I outlined above, digitization can live in any of them. The definitions are about a company’s business model and the constituent it targets. So, you could use a digital strategy to reach demanding customers or you could leverage it to become more efficient. We typically don’t categorize that way because digitization lives inside a firm’s business model which could be market-creating, sustaining, or efficiency.
Would you mind if we took a look at ‘Everett Rogers diffusion of innovations’, a theory I have long admired. On Everett’s diffusion of innovations curve, we have the ‘Innovators’,’The Early adoptors’ ‘The early majority’ ‘Late majority’ and the ‘Laggards’, What are some of the corporate characteristics that determine where companies fall (categorized) on this chart? What makes some Laggards while others are early adoptors and actual innovators?
A colleague of mine, Horace Dediu, has done amazing research on adoption curves and why certain innovations and technologies get adopted faster than others. Its all about modularity. Horace’s research hypothesizes that if you make your product easy to sell and easy to buy, that will accelerate adoption. One example he used quite a bit is the refrigerator versus the washing machine example. In the United States, for example, approximately 99.9 percent of households have a refrigerator but only about 70 percent have access to washing machines. The difference between those two products is mainly modularity. The refrigerator is plug and play while the washing machine requires installation by a professional. There are other factors that affect modularity but that’s just one example. Dediu has developed ten factors, five for sellers and five for buyers, that can help firms speed up their adoption.
At what point can industry and academia interface to catalyze innovation on the continent? What strategies would you recommend?
We are currently trying to do this as we develop relevant theories and models for firms to adopt in order to spur growth and innovation on the continent. All growth is good because growth, by its nature, is good. But some growth results in no jobs and some actually eliminate jobs. When industry and policy makers understand the distinction between these types of innovations, they are more likely to create policies that favor market-creation and innovators will be more likely to invest in market-creating innovations as well.
The GrowthCore is a monthly conversational/interview series with business and policy leaders from around the continent and beyond. See past editions here.