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Disruptive Innovation The Key ingredients of launching and scaling up a high-growth disruptive innovation. By Peter Ndiang úi . Objectives. To help you appreciate the value of applying a disruptive innovation framework lense when working through your entreprenurial ventures.

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slide1

Disruptive InnovationThe Key ingredients of launching and scaling up a high-growth disruptive innovation.

By Peter Ndiangúi

objectives
Objectives
  • To help you appreciate the value of applying a disruptive innovation framework lense when working through your entreprenurial ventures
what we shall be discussing
What we shall be discussing…
  • About 35minutes
      • The country I graduated into
      • Disruptive Innovation theory
      • Applying Disruptive Innovation framework to your venture
  • About 15 Minutes
    • E-commerce in Kenya through the lenses of disruptive innovation
  • About 10 minutes – Q & A time
the country i graduated into the one you will graduate into
"We always overestimate the change that will occur in the next 2 years and underestimate the change that will occur in the next 10 years. Don't let yourself be lulled into inaction" Bill Gates The country I graduated into & the one you will graduate into
economic growth story
Economic growth story….

Your graduation

my graduation

  • 1980 – 2000, Kenya’s 20 years of Economic stagnation – low growth rates + high pop growth
  • From 2003 – 2011, growth rate reversed averaging 3.5 % CAGR , 2007 peak (at 7%)
  • Could we see a china “hockey stick growth" in the next 10 years ( reaching 4x today’s GNI )?
  • May be….why ?
    • High growth rates + low birthrates due to low dependency
      • High growth due to ; Oil, Iron Ore, Gas , new constitution (political stability), Coal
  • May be not ….why ?
      • Political instability + large balance of trade – diminishing exports if resources are not commercialized & no strong manufacturing base
internet usage update
Internet Usage Update

Penetration Rates

SEACOM & TEAMS

Under-sea Fibre-Optic

Cables go live in Jul

& Jun 09 respectively

  • 47% of Urban Kenyans use the net at least 10 hour per week (Mckinsey)
  • In Mckinsey survey Kenya lead the pack in Africa’s Urban internet penetration
    • Cheap access & devices - Zero Tax on all internet access devices
    • 95 % of Mobiles are Internet access capable amongst urban Kenyans
    • High Technology adoption rates due to high literacy rates

Source 1 – Communications Commission of Kenya

Source 2 - “Deep dive - The growing popularity of the internet" – Mckinsey& Company Africa Consumer Insight

slide7

Broadband Installed Capacity

KENYA

Total Capacity - 575,000 mbps

Utilized Capacity – 265,00 mbps

Utilization Rate – 58 %

the theory of disruptive innovation
“Innovation is the specific instrument of entrepreneurship. The act that endows resources with a new capacity to create wealth.” Peter DruckerThe theory of disruptive innovation
the theory
The theory
  • Two types of disruptions
  • Low-end disruptions
    • Target over-shot customers
  • New-Market disruption
    • Compete against non-consumption

Characteristics of Disruptors

Lower gross margins

Smaller target markets

Simpler products and services

May not appear as attractive as existing solutions when compared against traditional performance metrics

Source – www.christensen.com

the theory cont
The theory cont…

Case in point M-Pesa

Encrypted SMS technology – Simplifies payments/transfer process

CBK did not stiffle money transfer by insisting on ‘ traditional banking standards

Value network – Non-bank Agency Network

Low-cost processes & resources

applying disruptive innovation frameworks on your venture
"If I find 10,000 ways something won’t work, I haven’t failed. I am not discouraged because every wrong attempt discarded is often a step forward" Thomas EdisonApplying disruptive innovation frameworks on Your venture
framing the opportunity
Framing the opportunity
  • Define your customer value proposition
    • The Jobs to be done theory can help here
      • Customers do not buy 1 inch drill they buy a one inch hole
      • When customers buy a product they are hiring the product to get a job done for themselves.
      • Targets based on Demographics are mere correlations.
define your business model
Define your Business Model
  • 3 types of business models;
    • Solution shops , Value chains & facilitated networks
  • Value Network
    • To join or build a stand alone value network ?
      • For example do you sell your product through existing channels or establish new channels
        • Example of Honda vs Harley-Davidson dealers , Honda distributed via power equipment stores
        • Intel & SAP joint venture , SME targeted ERP software distribution via previous channel partners, Accenture - FAILED
        • Imagine if Safaricom attempted to distribute its MPESA service through the natural channels of Bank branches when it started
        • How can you implement e-learning software in our schools based on this principle ?
e lements of your business model
Elements of your business model

KEY PARTNERS

  • Telco
  • ISP’s

SH

KEY ACTIVITIES

  • Develop platform
  • Market platform
  • Manage Content
  • Customer Care

CUSTOMER VALUE PROPOSITION

  • Free/low-cost and convenient way to buy orsell

CUSTOMER RELATIONSHIPS

  • Online

CUSTOMER SEGEMENT

  • Advertisers
  • Customers

KEY RESOURCES

  • Brand
  • Online Platfrorm

CHANNELS

  • Telco
  • Internet
  • Mobile

COST STRUCTURE $

  • Platform devt/maintenance
  • Customer Acquisition Costs

REVENUE MODEL$

  • Premium Ad Fees

MARGINS

Free ads & free access

Example of a freemium business model such as OLX

agile strategy making execution
Agile Strategy making & execution
  • Embrace émergent strategy’ thinking
    • Example ; Honda experience in the US market
  • Apply discovery-driven planning
    • Make projections
    • Determine assumptions that must prove true
    • Implement a plan to learn – to test assumptions
    • Invest to implement strategy
  • Pivoting is important , as you experiment
outsource or integrate it depends
Outsourceor integrate ? – It depends

Dell Computers assembly plant

1867 frozen meat rail in the US

When functionality & reliability are inadequate integrate

When customization & convenience are inadequate integrate

  • When the functionality & reliability of products overshoot customer needs then convenience ,customization & low prices are what is not good enough
  • For e-commerce e-cosystem in Kenya . What is not good enough ?

So It depends !!

financing recruiting organizing
Financing, Recruiting & Organizing
  • The concept of Schools of experience when recruiting
    • For example hiring a former CEO of a bricks & mortar retail might not help you in an e-commerce setting
  • Org structure is critical
    • Even where you haven’t got employees define the roles as if you had employees in place
  • Investors who are patient for growth but impatient for profits
kenya s online marketplace
Kenya’s Online Marketplace
  • How big are the opportunities online ?
  • Long on promise , short on $$$ ?
  • Using the Disruptive innovation framework how do we navigate it ?
  • What are the ecosystem’s keyingredients & hurdles ?
the online market place
The Online Market Place

Online Advertising

Platforms

Online

Classifieds

Social Media

Search Advertising

Content

Platforms

  • Content Creators
  • Nation
  • Standard
  • Global share
  • Google – 82 %
  • Bing – 4 %
  • Yahoo! – 6 %
  • Yandex – 2 %
  • Baidu – 5 %
  • Craiglist
  • OLX
  • Schibsted
  • Cheki.co.ke
  • Seek.com.au
  • Realestate.com
  • Facebook
  • Twitter
  • Badoo
  • 43things

General

  • Content Aggregators
  • Huffington
  • Hulu
  • AllAfrica

Vertical

Online Retailing

General Retailers

Killer Category Retailers

Online Gaming Portals

  • Amazon
  • E-bay
  • Zappos
  • Levelup
kenya s online advertising crystal ball
Kenya’s Online Advertising Crystal ball
  • Key Points
  • Kenyan Online Ad market could be worth 78 billion by 2017
  • Kenyan online classifieds market in 2017, could be worth over $ 17 billion
  • Online advertising in Kenya is at it’s infancy, but it is at an inflection point
  • The Long Tail of advertising (SME’s & individuals) is underserved in Kenya.
  • Its ahuge opportunity !

50% growth – print migration, 50 % new investments

e commerce challenges in kenya
E-commerce challenges in Kenya

Internal view - From an E-commerce Entrepreneur

Develop &

Maintain Platform

Select Merchandise to stock

Process

Payment

Fulfill Order

Deliver

Order

Care for Customer

NOT GOOD

What can entrepreneurs do based on disruptive innovation theory ?

applying innovation frameworks
Applying Innovation frameworks
  • Define your value proposition & target market based on a ‘jobs to be done’ approach
  • Design a business model that satisfies the value proposition at acceptable price points
  • Avoid Pre-mature scaling !!
    • Be patient for growth but impatient for profits
  • Choose your investors carefully.
    • Whether from family , friends or VC’s innovation capital has to be ‘patient capital’
becoming a serial disruptor
Becoming a Serial disruptor..
  • Key ingredients of building a disruptor’s DNA
    • Associating
    • Questioning
    • Observing
    • Networking
    • Experimenting
key take aways
Key take-aways
  • A disruptive innovation lense might increase the odds of success
  • A business plan/strategy is as good as the last day you updated it
  • Pre-mature scaling is one of the biggest killers of start-ups
  • Innovation can be predictable
finally my challenge to you
Finally – My challenge to you
  • You graduate in an era of potential high economic growth
  • A lot of global disruptors have eminated from university dorms ; Dell, FB, Google etc
  • The country is full of disruption opportunities that can bring affordable/convenient solutions into the market e.g.;
    • Air travel
    • Healthcare
    • Education
  • Disrupt the market !