Disruptive Innovation


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Slides presented by Peter Ndiangui, CEO of OLX.CO.KE at the School of Computing and Informatics, University of Nairobi

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Disruptive Innovation

  1. 1. Disruptive I Di ti Innovation tiThe Key ingredient f y g ts of launching and  g scaling up a high‐growth disruptive  innovati ation. By Peter Ndiangúi  By Peter Ndiangúi 1
  2. 2. Objec ctives• To help you appreciate e the value of applying a  disruptive innovation f p framework lense when  working through your entreprenurial ventures 2
  3. 3. What we shall be discussing… What we shall be discussing• About 35 minutes  • The country I graduated in nto • Disruptive Innovation the Disruptive Innovation the eory • Applying Disruptive Innov vation framework to your venture• About 15 Minutes About 15 Minutes  – E‐commerce in Kenya through the lenses of disruptive  innovation• About 10 minutes – Q & Q & A time 3
  4. 4. "We always overestimate the chang that will occur in the next 2 y g geyears and underestimate the change that will occur in the next 10 eyears. Dont let yourself be lulled in inaction" Bill Gates ntoTHE COUNTRY I GR RADUATED INTO & THE ONE YOU WILLL GRADUATE INTO 4
  5. 5. Economic gro g owth story…. y GNI (Income) per Capita GNI I per capita growth in OECD & emerging economies Ken nya Ghana China Nigeria Kenya Ghana Zimbabwe China Nigeria Sou uth Africa South Korea Australia 9000 7000 40000 GNI per capita 8000 6000 35000 ana, Kenya) NI per capita (Australia, & South Korea)  7000 30000 5000 6000 pita 25000 rging economies G Nigeria, China, GhaGNP per Cap 4000 ECD Countries GN 5000 20000 4000 3000 15000 3000 2000 2000 10000 OE Emer (N 1000 5000 1000 0 0 0 1970 1980 1990 2000 2010 1970 1980 1990 2000 2010 Your graduation Time my graduation Time• 1980 – 2000 K 2000, Kenya’s 20 years of E ’ f Economic st i tagnation – l growth rates + high pop growth ti low th t hi h th• From 2003 – 2011, growth rate reversed avera aging 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 )? n• May be….why ? be why • High growth rates + low birthrates due to low dependency o • High growth due to ; Oil, Iron Ore, G , new constitution (political stability), Coal Gas• May be not ….why ? why • Political instability + large balance of trade – diminishing exports if resources are not f commercialized & no strong manufac cturing base 5
  6. 6. Internet Usag p age Update 80% 70% ates 70% 58% Penetration Ra 60% 51% Mobile Penetration Internet Access 50% 35% 38% 40% 34% 30% 22% 23% SEACOM & TEAMS 16% Under-sea Fib O i U d Fibre-Optic 20% 10% 11% 8% 9% Cables go live in Jul 10% 4% 5% 3% 4% 0.05% 0.38% 2% & Jun 09 respectively 0% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Time• 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 Africa’s • Cheap access & devices - Zero Tax on all internet access devices x • 95 % of Mobiles are Internet acces capable amongst urban Kenyans ss • High Technology adoption rates du to hi h literacy rates i h h l d i due high li Source 1 – Communications Commission of Kenya Source 2 - “Deep dive - The growing popularity of the intern – Mckinsey & Company Africa Consumer Insight net"
  7. 7. Broadband Installed CapacityKENYATotal Capacity - 575,000 mbps p y , pUtilized Capacity – 265,00 mbpsUtilization Rate – 58 %
  8. 8. Infrastructure InvestInfrastructure Investments completed tments completed t 8
  9. 9. “Innovation is the specific instrume of entrepreneurship. The act entthat endows resources with a new c capacity to create wealth.” PeterDruckerTHE THEORY OF DI ISRUPTIVE INNOVATION 9
  10. 10. The th y heory Two types of disruptions 1. Low-end disruptions • Target over-shot over shot customers 2. New-Market disruption • Compete against non- p g 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  i t t diti l performance metricsSource – www.christensen.com m 10
  11. 11. The theoThe theory cont ory cont… o Case in point M‐Pesa • Encrypted SMS technology  – Simplifies  payments/transfer process payments/transfer process • CBK did not stiffle money  y g transfer by insisting on ‘  traditional banking  standards   • V l Value network – N b k k Non‐bank  Agency Network • Low‐cost processes & Low cost processes &  resources 11
  12. 12. Examples of p f Disruptors pGlobalIndustry Disruptor Disrupte ee Key Disruption results  Key Disruption resultsComputers Apple Mac, IBM Mainframes Affordable computing powerAdvertising OLX Newspapers Affordable & convenient way of communicating with a customerMusic Apple iTunes Record P Production Affordable & convenient way of  acquiring music LocalIndustry Disruptor Disrupte ee Key Disruption results  Key Disruption resultsBanking Equity Bank Retail Ba anks Affordable banking solutionAdvertising Dealfish/OLX Newspapers Affordable & convenient way of communicating with a customerPayments MPESA Paying b bills /sending  Affordable & convenient way of  money sending money 12
  13. 13. "If I find 10,000 ways somethin won’t work, I haven’t failed. I ngam not discouraged because every wrong attempt discarded isoften a step forward" Thomas E forward EdisonAPPLYING DISRUPT TIVE INNOVATION FRAMEWORKS ON N YOUR VENTURE 13
  14. 14. Framing the opportunity  g pp y• Define your customer va alue proposition  – Th J b t b d The Jobs to be done theo th ory can help here h l h • Customers do not  buy 1 iinch drill they buy a one inch hole • When customers buy a pr roduct they are hiring the product   to get a job done for them mselves. • Targets based on Demogr h b d raphics are mere correlations.  lCustomer’s  Job to be done Current  Limitations  of  Alternative Circumstance solution((S) current solution (S) solution to  get  the job doneA car dealer with  Reach over 1000  Newspap p pper  Expensive to  p www.olx.co.keno money to  customers classified ds  advertise  Free to advertisecommunicate to  everyday Reach is capped  Ad runs until you a wide range of  sell customers about cars in her yard 14
  15. 15. Define your Bu y usiness Model• 3 types of business mo odels; – Solution shops Value chains & facilitated networks Solution shops , Value c chains & facilitated networks c• Value Network  – To join or build a stand alone value  network ? • For example do you sell your product through existing  p y y p g g channels or establish ne ew channels – Example of Honda  vs Ha arley‐Davidson dealers , Honda distributed  via power equipment sto ores  – Intel & SAP joint venture e , SME targeted ERP software distribution  via previous channel par p p rtners, Accenture ‐ FAILED , – Imagine if Safaricom atte empted to distribute its MPESA service  through the natural channels of Bank branches when it started –HHow can you implement l i l t t  e‐learning software in our schools based  i ft i h l b d on this principle ?  15
  16. 16. Elements of your Elements of your business model r business model rKEY PARTNERS KEY ACTIVITIES CUSTOMER  CUSTOMER  RELATIONSHIPS SEGEMENT• Telco •Develop platform• ISP’s • Online •Market platform • Manage Content CUSTOMER  • Advertisers • Customer Care VALUE  • Customers PROPOSITION • Free/ low‐cost  KEY RESOURCES CHANNELS and convenient  • Brand  SH way to buy or sell • Telco way to buy or • Online  • Internet  Platfrorm •Mobile MARGINS REVENUE MODEL $ COST STRUCTURE $ • Premium Ad Fees• Platform devt/maintenance• Customer Acquisition Costs Free d F ads & free access f Example of a freemium business m model such as OLX 16
  17. 17. Agile Strategy maAgile Strategy ma aking & execution  aking & execution• Embrace émergent str gy g rategy’ thinking  g – Example ; Honda exper rience in the US market• A l di Apply discovery‐driven l d i n planning i – Make projections  – Determine assumptions that must prove true – Implement a plan to lea – to test assumptions Implement a plan to lea arn  arn to test assumptions – Invest to implement str rategy • Pi i i i Pivoting is important , as you experiment  i 17
  18. 18. Outsource or integr grate ? – It depends p1867 frozen meat rail in the US Dell Computers assembly plantWhen functionality & reliability are inadequate integrate When customization & convenience are inadequate integrate• When the functionality & reliability o products overshoot customer needs of then convenience ,customization & lo prices are what is not good enough ow• For e-commerce e-cosystem in Kenya . What is not good enough ? So It depends !! 18
  19. 19. Financing, RecruitFinancing Recruit & Organizing ting & Organizing ting• The concept of Schools of experience  when  p p recruiting  – For example hiring a former CEO of a bricks & For example hiring a former CEO of a bricks &  mortar retail  might not t help you in an e‐ commerce setting  commerce setting• Org structure is critical  – Even where you haven’ ’t  got employees define the  roles as if you had emp ployees in place• Investors who are patient for growth but  impatient for profits  impatient for profits 19
  20. 20. Opportunities are growing in E commOpportunities are growing in E‐comm merceE‐COMMERCE OPP PORTUNITIES IN KENYA 20
  21. 21. Kenya s Online Kenya’s Online Marketplace e Marketplace e• How big are the oppor rtunities online ?• Long on promise short on $$$ ? Long on promise , short on $$$ ? • Using the Disruptive in nnovation framework  how do we navigate it ? • What are the ecosyste s key ingredients  &  What are the ecosysteem em’s key ingredients & hurdles ?  21
  22. 22. The Online M Market Place Online  Online Soccial  Search  Content gAdvertising Classifieds Meedia Advertising Platforms Platforms • Craiglist • Faceb book Global share Content Creators General • OLX • Twitte T itter • GGoogle – 82 % l • N ti Nation • Schibsted • Badooo • Bing – 4 % • Standard • 43thin ngs • Yahoo! – 6 % Content Aggregators • Huffington cal • Cheki.co.ke • Yandex – 2 % Vertic • Seek.com.au • Baidu – 5 % • Hulu • Realestate.com • AllAfrica Kille ller  Online  l Online  General  Catego ory  Gaming Retailing Retailers Retaileers Portals • Amazon • Zappos • Levelup • E-bay 22
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  24. 24. Kenya’s Online Adv y vertising Crystal ball g y KES 350,000 000,000) KES 300,000 KES 250,000 KES 250 000 Kenya Shillings  in Millions  (0 KES 200,000 KES 150,000 KES 100,000 KES 50,000 KES 0 2003 2004 2005 2010 2011 2 2012 2013 2014 2015 2016 2017 Total Advertisement Spend (Ksh) KES 5,950 KES 10,115 KES 10,744 KES 48,960 KES 67,150 KES 87,295 KES 113,48 KES 147,52 KES 191,78 KES 249,32 KES 324,12 Annual Online Ad Spend KE ES 672 KES 1,484 KES 3,280 KES 7,248 KES 16,018 KES 35,400 KES 78,235 Online Classifieds Spend KE ES 154 KES 341 KES 754 KES 1,667 KES 3,684 KES 8,142 KES 17,994 Key Points ey o ts• Kenyan Online Ad market could be worth 78 G‐20 Countries Advertising spend  billion by 2017 trends• Kenyan online classifieds market in 2017, could be e %  of media spend 120% 100% worth over $ 17 billi h billion 80% 60%• Online advertising in Kenya is at it’s infancy, but 40% Non‐Digital Media Spend it is at an inflection point 20% 0% Digital Media Spend• The Long Tail of advertising (SME s & (SME’s 2003 2010 individuals) is underserved in Kenya. Year• Its a huge opportunity ! 50% growth – print migration, 50 % new investments 24
  25. 25. E‐commerce cha g allenges in Kenya y Internal view - From an E E-commerce EntrepreneurDevelop Develop Select  & Process s Fulfill  Deliver Care for  Merchandise Maintain  Paymentt Order Order Customer to  stockPlatform NOT GOOD What can  entrepreneurs do   p based on disruptive  innovation theory ? 25
  26. 26. Applying Innovat Applying Innovat tion frameworks tion frameworks1. Define your value pr Define your value prroposition & target market  roposition & target market based on a ‘jobs to b be done’ approach2. Design a business model that satisfies the 2 D i b i d l h i fi h value proposition at acceptable price points 3. Avoid Pre‐mature scaling !! 1. 1 Be patient for growth Be patient for growth but impatient for profits h but impatient for profits  h4. Choose your investo ors carefully.  1. Whether  from family y , friends or VC’s  innovation  capital has to be ‘pat p p tient capital’ p 26
  27. 27. Becoming a Se Becoming a Se erial disruptor..  erial disruptor• Key ingredients of building a disruptor’s DNA – Associating  – Q ti i Questioning  – Observing – Networking Networking  – Experimenting  27
  28. 28. Key take Key take aways e‐aways e• A disruptive innovation n lense might increase  the odds of success • A business plan/strategy is as good as the last  day you updated it  day you updated it• Pre‐mature scaling is o one of the biggest killers  of start‐ups • Innovation can be pred Innovation can be preddictable   dictable 28
  29. 29. Who w Who w are we are weOLX.co.ke is formerly dealfish.co.ke, , Kenya’s leading online marketplace or Classifieds site. or Classifieds siteOLX is one of the largest and most successful free classifieds site in the  gworld with presence in over 90 counntries and supports 40 different languages. accessible through a PC oor mobile phone.We provide safe and transparent tra f ansactions between buyers and  b bsellersYou can sell or buy almost anything on OLX and its all for free. You can also search for jobs available on OLX. 29
  30. 30. Finally – My ch y y hallenge to you g y• You graduate in an era a of potential high  economic growth  economic growth• A lot of global disruptoors have eminated from  university dorms ; Dell i i d ll l, FB, Google etc l G l• The country is full of d s upt o oppo tu t es e cou t y s u o d disruption opportunities  that can bring affordab ble/convenient  solutions into the market e.g.; solutions into the market e g ; – Air travel  – Healthcare  – Education • Disrupt the market ! 30
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