Someone or something that is disturbing is usually associated in a negative way. The subprime mortgage crisis has disrupted the financial and housing markets. That’s bad. My son was upset during dinner while someone else was talking. That is bad too.
But I think the idea of being deliberately disruptive can be very positive when used in developing strategies, organizations, products, business models, and markets. Specifically, disruption can be helpful for those companies that are trying to serve low-income markets and eradicate poverty, all while building a successful business venture.
In early 2005, I read The Fortune at the Bottom of the Pyramid by CK Pralahad and Innovator’s Solution by Clayton Christensen just as I started my new job as General Manager of the Emerging Market Platforms Group at Intel. Our group was responsible for developing and selling new PC and mobile products designed to meet the specific needs of those at the bottom of the pyramid. One such product is the Classmate PC, which has become famous primarily due to the ongoing public battle between it and Nicholas Negroponte’s OLPC XO laptop.
The theories set forth in Prahalad and Christensen’s books, combined with my experience in trying to create a viable business with clients making only $ 1 to $ 2 a day, is the foundation on which my belief that a disruptive approach is the way to go when building businesses focused on selling and improving the lives of the poor.
When I talk about being disruptive, I mean strategies and techniques that change the game, reverse the status quo, and ultimately have the greatest possible impact. In this post, I’ll touch on the following areas where I think disruptive strategies are required:
- Product strategy
- Business models
- Leadership and management
Disruptive product strategies
Let’s start with the product strategy. Clayton Christensen’s theory is that a disruptive innovation or technology is a product that is easier to use, more affordable, and adds unique value that the market-leading product does not. These products become wildly successful, often completely displacing the existing product or technology. Think of the PC displacing the mini-computer. The telephone displacing the telegraph. Digital photographs that displace traditional ones. The list goes on. Will the mobile phone displace the PC? Maybe. Doing so becomes an outage for the PC.
I think the product that will displace the PC will come from a company that has developed an affordable and easy-to-use device that has a very useful “one-time” value for those at the bottom of the pyramid. That was my conclusion after reading Prahalad and Christensen, and it was the path I wanted to put Intel on.
Classmate PC is not a disruptive innovation. The idea was to create R&D labs in four emerging market countries and incubate various devices based on ethnographic research conducted in those regions. Unfortunately, due to the world’s attention on Negroponte’s OLPC and the competitive pressure it exerts on Intel (the XO uses Intel’s competitor AMD chips), the Classmate PC project has absorbed most of the available resources and thus Therefore, I think it is unlikely that Intel will create such a disruptive device and as such it is not taking the world by surprise (at least not yet).
Is OLPC’s XO a disruptive innovation? Probably not. It has some differentiating qualities in the “unique value” category, but nothing that is incredibly new or different. A single value is usually very simple. The phone lets you talk vs. tap on the telegraph. The transistor radio was portable. Unique value is usually a game-changing quality. It also strives to be more affordable, although any computing device faces the same challenges from the floor in terms of cost and economics of components and layout. It has been built with an interface that works for ease of use, but these features are often superficial and are challenged as you delve deeper into the software and content.
There is nothing to stop either device from eventually becoming a disruptive innovation … many innovations are iterative vs. incremental.
Disruptive business models
In general, the penetration of technology products in emerging markets has not had a significant impact in closing the digital divide, even with overall growth rates higher than those normally found in countries with mature markets (mobile phones is the exception). Some argue that it is the lack of one or more of the product’s “disruptive” attributes (affordability, ease of use, value). Maybe.
Again, considering just the affordability of PCs specifically, there have been a multitude of companies that have aimed to bridge the PC gap by delivering very cheap and sometimes free computers. None of these companies have taken off on a large scale, at least those that I know of. Please point me out whoever is successful (for example, who has shipped millions of units in at least 5 or more countries on different continents).
I think the key is that business model strategy is often given a lower priority than product development. The business model needed in emerging markets is very different from what necessarily works in traditional markets.
Take prices, for example. It is not the actual price, but how the “pricing model” works. One reason mobile phones are so successful is that they have the qualities of disruptive innovation AND they have a business model that allows the very poor to buy phone service. In most emerging markets, the most prominent payment method is through prepaid cards vs. subscriptions. Safaricom has further disrupted the billing model: they bill in seconds vs. minutes. Safaricom is an example of a company that seems to understand how to create a successful business in Kenya for the base of the pyramid. I recently wrote an article on my blog, Disruptive Leadership, that explores Safaricom’s disruptive business processes titled “Safaricom has figured it out.”
So you would think that a similar model could work for the PC: offer a pay-as-you-go service for the PC through a subscription or prepaid cards. Microsoft introduced such a service called in 2006 and it has yet to scale beyond small tests. Securing the PC and its components against resale (a PC is an open device with multiple replaceable parts, unlike the mobile phone) and getting banks to offer financing services are just two of the challenges plaguing the project. Bottom line: the business model has to be appropriate for the specific device or solution.
Beyond the pricing model, it may take a disruptive strategy to think about how a company brings the product to the customer (at Intel, we called them channels). Outside of the big cities in many developing countries, especially Africa, there are few or no PC outlets. How can you get PCs to a customer when you don’t have a channel?
One out of the box idea is to sell PCs through the post office. At Intel, we are looking to do this in Egypt with a government joint venture to increase PC access in areas outside of Cairo and Alexandria, Egypt’s two main cities. There are few PC stores in the smaller cities and towns, but there is always a post office. We started a project to bring the PCs to the post offices, where people could buy them directly.
Lastly, I would like to expand the definition of a business model to include how the business is set up and operates. Should the company be established as a for-profit company with a mission to create a successful, high-growth company that generates profits for its investors (e.g. Intel), or should it be set up as a non-profit organization that relies on donations? and grants to finance your operations even when a real product is sold (eg OLPC)? I have made the argument that OLPC would be much more successful in achieving its goals if it were a for-profit company, which is discussed in detail on OLPCNews.com. By virtue of the amount of comments and its intensity, this article clearly hit a nerve. Or maybe I’m wrong … maybe the most successful “business” model is a hybrid between a non-profit and a for-profit organization. This is something I would like to explore further in future posts.
Disruptive leadership
I postulate that in addition to disruptive innovation and a business model, “disruptive leadership” is needed. I believe that disruptive leadership captures the essence of what it takes to be successful as a business leader trying to decipher the secret formula for growing in very dynamic emerging markets.
I did not invent the term “disruptive leadership”; Just Google the term and you will find interesting articles, like this one by Edward Marx in which he states:
“If I am not altering the proverbial apple cart, then I am adding little value. By simply keeping what has been done in the past, I will make little or no profit. Don’t get it wrong. This is not about stirring the pot for the sake of stir the pot. Disruptive leadership must have a purpose and be backed by a vision. ”
Another good book by Ted Santos talks about how good leaders create problems:
“What separates extraordinary leaders from managers? One way to tell the difference is to compare the mindset of leaders and managers. Managers are excellent at solving problems. Leaders, on the other hand, exude their greatness by creating problems. “.
A disruptive leader stirs the pot, thinks outside the box, is willing to challenge the norm, thrives on change and uncertainty, and, most important of all, can navigate the turbulent political waters that are inevitably created in reaction to changes. various disruptive strategies AND leaders. A disruptive leader creates a company culture that encompasses all of these concepts.
These leaders are few and far between. I loved a quote from a recent article in The Economist on the career of Mr. Ramadorai, CEO of one of India’s largest software outsourcing companies, on how he believes dealing with adversity only makes companies stronger. “If all is at peace, don’t strain,” he says.
“Adversity” has negative connotations, as does the word “disruptive.” But as Mr. Ramadorai says, adversity makes you stronger. I think being disruptive does too.
