Here’s a script – from 18 months in the future backwards. It is the coming attraction of a movie we’ll not merely be watching but experiencing soon – with implications on every major South African business. Here are snippets from some of the action scenes that when edited together will warrant attention on the scale of a blockbuster. Like any movie, it takes some liberty with specifics to tell a still-unfolding story.
Long ago, (ok, not so long ago), a number of large South African companies, motivated by demographic shifts and perceived economic opportunities, invested in specific African expansion strategies – with a particular focus on the populous and perceived emerging economic strengths of Nigeria and Kenya. The plot was simple: build upon the demonstrably successful business models in South Africa and seed them into the emerging demographic and nascent business environments – expanding through efficiencies and common platforms, methods, tools and peoples. Let’s call this plot, Script 1.
The problem was, the scripts didn’t pan out. In fact, many of them flamed out, resulting in hundreds of millions of Rand lost and a number of the South African companies rescinding their options on the script, returning back to South Africa. They renewed their focus on “transformation” – which, stripped of its jargon, meant attempting to relieve the brutal pressures on their falling Returns on Equity and margins resulting both from global economic constraints and competitive pressures. The focus became reduction of the expense base to re-strengthen their balance sheet. The implicit storyline became, “We will return” to the script of our African Strategy when market conditions were ready for their business models and with a transformed cost base.
A funny thing happened in the interim. As we all learned in grade school, nature abhors a vacuum. So too do economies. While Script 1 returned to the south, new businesses – with new business models and scripts (Script 2) of how to engage the markets – entered Nigeria and Kenya, Ghana and Ethiopia. Bharti Airtel, with its per-second billing disrupting the telco billing market, EcoBank with its low-cost banking methods to mitigate risks, m-Pesa with its “infrastructurally-light” remittance platform, and many others quickly filled the needs that were growing with highly localized, honed and disruptive business models. The result? Extraordinary expansion of new business models creating newly recognized global brands with strong balance sheets – ready to take on the giants from the south. As the new producers of Script 2 continue their expansion in west, central and east Africa, their eyes are beginning to focus on the still significantly uptapped marketplace of South Africa – with its 5 million micro, small and mid-sized companies yet to be serviced and 20 million people, while unbanked, still carrying an average of 1.2 mobile devices, all requiring services and support.
And the stage is set for the clash of business models – of Script 1 vs Script 2 – throughout Africa. The original producers are forced to respond faster than they would like, still facing three significant challenges not of their making: 1) many of their business models “look the same” as their competitors creating a “race to zero” of differentiation and correspondingly ever-increasing cost pressures, 2) the pressure on their ROEs remains intense from the ever-continuing slide of the global economy and 3) their facing of disruptive models from new entrants coming onto their turf while challenging a key plot of their expansion strategy throughout Africa. Having said this, Script 2 faces its own set of significant adoption challenges as well. The models of the upstart producers have yet to be tested in South Africa and the traditional producers, while perhaps slow at first, have extraordinary assets to put to use.
So what will we see in 18 months? A clash of business and operating models: as the original producers work to re-spin their existing models while the upstarts bring in more agile, bottoms-up one. Get the popcorn ready. This will be an exciting show with specific plot lines to follow.
First, monitor what value is being captured, how it is being able, and steps take to sustain it. Each of these involve different activities which need to come together to make the script hold together. Each also tends to put pressure on the folks responsible for their activities. So, watch the actors and what they do to make sure they stick together, sustainably.
Second, watch out for what Alfred Hitchcock, the great suspense director, used to call the McGuffin – the parts of the script that are merely ancillary to the real storyline. Getting seduced by short-term competitive moves is a classic McGuffin strategically, whereby companies will seek to rapidly respond to their competitive moves in fear of losing some competitive tactic. A key challenge, here, is that much as McGuffins tend to side-track the movie hero from her focus, competitive McGuffins can take a company down a costly “me too” set of initiatives that perpetually put it in a catch-up, gotta-run-faster-and-faster just to keep catching up competitive mode… not a sustainable model.
Third, distill where value is being created. Return on Equity (RoE) is a common measure of effective performance. Only two options exist to improve on RoE. Option number 1 is to do more of the same with less, as measured by greater productivity. This is the cost optimization option – making sure that, simply put, your cost base is growing less than your revenue base. Option number 2 is to do new, as measured by new sources of sustainable profitable growth. This is the new revenue stream option – making sure that, simply put, you are meeting if not creating new customer needs. A challenge with option 1 is that markets shift, based on changing customer needs, new technology affordances, and increasing competitive pressures. So, doing more of the same, only more cheaply, runs the risk of perpetuating the storyline let’s call the Race to Zero of attempting to protect margins on products and services in a competitive world that doesn’t value them the same as they were valued before. A challenge with option 2 is that doing new requires insight and capabilities to identify what is new (in terms of what customers are willing to pay for), capturing it, and sustaining it… which highlights the tricky balance (using a well worn business analogy) to “change the tires of the bus (capturing new sources or value) while it is driving quickly down the highway (keeping the business running based on previous and existing sources of value), in a way that doesn’t cannibalize your existing revenue stream as you evolve to new streams. What actors do will fall within one of these two plot lines and provide some premonition in terms of which plot line will be the memorable one, as opposed to the eventually irrelevant and forgettable one.
Now, back to the show.
Strategic Edge 