Transformative Innovation White Paper - Digital Edition

By Honoré Gasa, Charles Erasmus & Al Mackay2013 | Vol 3

The eyes of the world are on Africa
as businesses search for new sources of
growth. With increasing competition and
opportunity on our continent, local bus-
inesses need to find ways to innovate
to stay ahead and reap the rewards of
Africa’s economic boom.
For African businesses to create sustained
growth they need to be innovating in
ways which are more relevant, more
useful and more meaningful than global
competitors. The innovation required
goes beyond taking market share from
competitors; it is about transforming
categories, unlocking new markets and
helping to create favourable conditions
for market growth. It upskills, em-
powers and contributes to prosperity
on the continent.
And in a global environment that is
increasingly similar to that of Africa, a
successful model of African innovation
can create brand leaders to take on
the world.
This paper aims to investigate the mech-
anics of innovation that is successfully
achieving a broader positive impact
and to distil our findings into a shortlist
of key characteristics, approaches and
techniques for African businesses.

Innovation has always been the lifeblood of progress. Consider a world where
the Wright brothers did not invent the aeroplane, Thomas Edison did not
give us practical, electrical lights, or Larry Page and Sergey Brin did not bring
Google into our lives.
But what started out as the honest pursuit of overcoming challenges and ad-
vancing the human condition has, in recent years, become somewhat tainted
by a growing suspicion that innovation has only one remaining goal: larger
corporate profits. Apple is a good example. Although we still enjoy the devices
they bring to market, we cannot shake the feeling that Apple’s original mission
of transforming what technology can do for us, has gradually been replaced
by a mission of milking us for all we have.
As Tasos Calantzis of Terrestial says, “most companies think they are innovat-
ing when they churn out new products. That isn’t innovation. Unless you are
creating new value, you are not innovating.”
Can faith be restored? We believe it can; and a variety of businesses are
demonstrating that innovation’s reason for being can go beyond battling rivals
for a bigger slice of the proverbial pie. Perhaps not surprisingly, many of these
businesses are based in developing economies where it cannot be taken for
granted that markets have unlimited ability or inclination to spend.
© 2013 YELLOWWOOD. All rights reserved.PAGE 2 www.ywood.co.za

If we take the level of R&D spend in a country as an indicator of the level of innovation occurring in that country, then we
can see that Africa spends comparatively little on R&D and the % of GDP spent indicates that it is not a priority. South Africa
appears as the first African country in the list in 30th place, followed by Egypt in 46th place. As expected, we underperform
in comparison to the industrialised nations. Moreover, we are underperforming in comparison to other emerging markets
such as China, South Korea, India, Brazil and Russia.
R&D Spend in US$ Billions
450
400
350
300
250
200
150
100
50
0
405.3
1.USA
(2.7%
ofG
DP)
There may be a number of reasons for the lack of R&D spend in Africa. One of the most obvious reasons is that it is the
large organisations or institutions that spend money on R&D and these tend to base their substantive R&D operations
in global head offices or in other developed countries where the level of access to highly educated people is
comparatively high.
The products that result from this are ‘pushed’ into regions such as Africa rather than being developed within them. Africa
therefore suffers from ‘satellite office syndrome’ – Africa based operations are viewed as ‘implementation’ offices as op-
posed to potential drivers of innovation. In African offices of global companies, budgets are generally focused on operations
and marketing spend. In addition, governments, who are generally major funders of R&D through academic and public in-
stitutions, have far more pressing demands on their budgets in Africa, like the provision of basic services and infrastructure.
The above focuses largely on product innovation, though, and there are potentially other innovation areas that do not re-
quire classic R&D investment – like process innovation. So why are we not innovating more in these areas as big business?
296.8
2.CHINA
(1.97%
ofG
DP)
160.3
3.JAPAN
(3.67%
ofG
DP)
69.5
4.G
ERM
ANY
(2.3%
ofG
DP)
55.8
5.SO
UTH
KO
REA
(3.74%
ofG
DP)
42.2
6.FRANCE
(1.9%
ofG
DP)
38.4
7.UK
(1.7%
ofG
DP)
36.1
8.INDIA
(0.9%
ofG
DP)
24.3
9.CANADA
(1.8%
ofG
DP)
23.8
10.RUSSIA
(1.0%
ofG
DP)
19.4
11.BRAZIL
(0.9%
ofG
DP)
3.7
30.SO
UTH
AFRICA
(0.9%
ofG
DP)
Source: Battelle, National Bureau of Statistics of China, Ministry of Commerce of the People’s Republic of China

Context Disconnect
It is still true that there is a large contextual disconnect between those engaged in big business and the mass of the population. Those
in positions of power in big business tend to be well educated and comparatively well-heeled. Their context, with regards to their life
views and lifestyles, is very different from the mass market and it is difficult to bridge the divide in understanding the needs of the
market and in being able to develop solutions for those needs.
TIP: Use ethnographic research, include participants from the target market in your ideation and ensure executives leave their
offices and explore the daily lives of customers to really grasp their realities – not as a tour but as a genuine experience. For more
on better understanding your customers see Yellowwood’s previous white paper The Guide to Relevance.
A Culture of Authority
Companies that succeed in building an innovation culture have flat structures, high levels of interpersonal respect and emotional
intelligence. For employees and customers to participate in successful and continuous ideation, they need to believe that their opinions
and ideas are valued, and that the business is genuinely interested in what they think. Without this, much creative energy is stifled.
South Africa has historically been a highly authoritative and hierarchical society, in which power is centralised and ‘ordinary’ people’s
views are disrespected. Many businesses and managers still exhibit this behaviour, which makes true innovation near impossible.
TIP: Flatten your structures and host frequent cross-disciplinary ideation sessions. Encourage the participation of junior
employees and customers, and build on their ideas rather than shutting them down. Consider utilising crowdsourcing platforms,
both within and beyond the business, to broaden participation.
Market Attractiveness
There has been a move in recent years towards ‘the bottom of the pyramid’. The obvious reason for this has been the sheer size
of this market in terms of numbers of people. Largely, this has taken the form of the question ‘what can we develop that this market
will buy?’ The problem is that companies are competing for a miniscule amount of disposable income. Sometimes there is even an
expectation that these consumers will give up something else in order to buy the new product. While this may be the case in certain
circumstances and categories (such as giving up food to buy airtime), it is largely an unrealistic expectation to have. It is no surprise
that many companies find themselves abandoning the quest and labelling the market as ‘unattractive’ (and reverting to the more
lucrative upper end).
TIP: Ask not what consumers will add to their repertoires, but how the innovation can potentially add to their incomes.
Risk Aversion
Innovation often means taking risks, failing a few times, learning and trying again. Many executives believe that the risks and
investments required largely outweigh the potential size of the prize, and this has been exacerbated by the global financial crisis and
the tough economic times that have followed.
TIP: Instead of basing decisions on the current size of the prize, think about what you can do to increase it.
This leads us to the idea of transformative innovation.
From a long list of reasons, we believe the most compelling and interconnected to be:
• Context disconnect
• A culture of authority
• Market attractiveness
• Risk aversion

Innovation is the ability to create new value through new ideas. It is not simply churning
out a multitude of different versions of something that no one needs. In our research, we
identified five basic levels of innovation. We have named them level T-2 to T+2, with each
progressive level taking a slightly longer term and more broad-based view on ensuring
sustainable shareholder value. T-1 and T-2 represent the ‘standard’ product or service
innovations that deliver shareholder and customer value, but they don’t appear to have
transformative value beyond that.
The higher T-numbers are not necessarily more noble or desirable than the lower ones – it
depends on a company’s situation and position in the market – but the higher the level, the
more indirect and greater the eventual impact on shareholder value becomes.
The levels of innovation are cumulative; they build progressively to ensure that profitability
and customer value are always in sight. If a company cannot deliver significant shareholder
and customer value as a start, it will not be in a position to create meaningful new em-
ployment or societal progress. Innovation begins to be transformative at level T when the
innovation is able to grow a category or create new markets. This is the point at which the
pie starts to become bigger, change shape, or becomes something completely different;
an ice-cream.
Levels of Innovation
SHAREHOLDER
VALUE
CUSTOMER
VALUE
MARKET
VALUE
T-2 T-1 T T+1 T+2
Benefits:
DIRECT
EMPLOYMENT
VALUE
LONG-TERM
SOCIETAL
VALUE
Better
revenue and
profit
Better value
for existing
customers
Growing
categories,
developing new
categories and
unlocking new
markets
New
employment
or
entrepreneurial
opportunities
Education,
healthcare,
infrastructure
and sustainable
natural resources

Innovations that focus solely on shareholder value are often driven by a need for greater
efficiency and short-term profitability. However, innovations that do not create value for any
other stakeholders are, in today’s environment, extremely risky. Since the crash in 2008,
consumers have become more sceptical about business and its motives and are mobilis-
ing through social networks to expose unscrupulous or greedy behaviour. The potential
threats to brand and business reputation are significant.
Examples of this type of pure shareholder value creation would be: marginally reducing a
product pack size while keeping the price the same, thereby increasing the margin.
Here is an extract from an article on www.fullcirclemag.co.za about Protex soap
entitled ‘Deception’:
Another good example of this is Facebook. In its quest to raise revenue, it compromised
the privacy of its users, sparking massively negative publicity and even an investigation by
the European Union. It has had to retract the practice of using facial recognition software,
sharing aspects of Facebook timeline and enforcing settings on users where their infor-
mation could be shared, in order to correct the situation. However, not before it had been
ranked Number 1 as America’s most hated company on the website www.247wallst.com.
T-2
“So when I got home, I dug the old wrapper out of the bin and compared it to the bars of
soap I’d just bought. Sure enough, the old bars weighted 200g and the new slim-waisted
shape was only 175g. They’d reduced the weight of each bar by an eighth. Or were making
an extra 12.5 per cent on each bar!
I was pretty miffed, to put it mildly. I know retailers will justify this sort of thing as ‘normal’
business but in my opinion it is deceitful. Why not simply charge more and let the consumer
decide whether or not they will continue buying that brand.
You’d think that was the end of the story. I wish it was. But it gets worse…I checked the
receipt expecting to see R6.99. I found that not only had the weight of the bar been reduced,
but the price had increased to an astonishing R10.49! I was incensed!”
At the core of the model is the creation of value for shareholders.
Businesses exist to create this value and it is critical for the sustainability
of business as an institution. Shareholder value is what differentiates
businesses from non-profit organisations and governments.

A recent example of this is GSK’s launch of Sensodyne Repair & Protect toothpaste. This is
an innovation within the toothpaste category that actually repairs areas on teeth where the
dentine has become exposed. It is a great innovation and definitely meets a need for sen-
sitive teeth sufferers. However, it is unlikely to attract new users to the toothpaste category.
Continual innovation of this nature within a category becomes more and more difficult
to sustain as the category fragments and competition becomes fierce. In order to es-
cape the battle, brands will need to look outside of the traditional market to find new
‘blue ocean’ opportunities.
Foundations to Innovation
Define the problem.
Get many views on what the problem is. Be clear about what you need to achieve, but don’t fixate on the problem.
Get lateral.
Provide lateral stimulus, speak to experts from unrelated fields, include a diverse mix of people in your ideation sessions.
Keep your eyes and ears open. Most innovation comes from combining unlikely ideas.
Take the time.
Don’t lock people in a brainstorm and expect an answer that day. Allow ideas to percolate in the unconscious mind. Create an
innovative culture rather than a once-off event.
Get the attitude right.
Dream big, listen and include people, build on ideas instead of criticising or questioning them.
Getting the Basics Right:
T-1
Innovation really hits the sweet spot when it creates both shareholder and
customer value. This is the traditional arena of innovation and it is, many would
argue, the core purpose of business.

Level T innovations all have one thing in common: they
succeed in identifying and responding to a latent, un-
articulated or unmet consumer need. They are innova-
tions that result from deeper insight into consumer be-
haviour and frustrations, rather than from breakthrough
technologies alone.
This is the domain of ‘Blue Ocean Strategy’ as described
in the bestselling book by W. Chan Kim and Renée Mau-
borgne. The authors compare an established market
-place where competitors have been battling it out for a
bigger slice of the pie to a ‘red ocean’ – an ocean full
of blood resulting from a shark feeding frenzy. In a ‘red
ocean’, there is a steep curve of diminishing returns as
competitors try to outperform and undercut one another;
and as more and more competitors are attracted into
the fray.
Blue Ocean Strategy looks for new, uncontested mar-
ket space - and that requires gaining insight beyond the
obvious. There are a number of very good techniques
for looking beyond category conventions and known
consumer needs. One such technique is to identify la-
tent consumer needs evident in alternative industries or
categories that fulfil the same basic purpose as the one
in which you compete.
As Peter Schoeman, Divisional Director of Sales and
Marketing for City Lodge Hotel Group says, “the most
important characteristic of industry-changing innovators
is the ability to spot consumer trends before the rest.
Very often, those trends are already evident in other,
seemingly unrelated, industries. For example, some of
our innovations in streamlining the check-in experience
came from looking at what Mercedes Benz was doing
with their car servicing experience”.
iTunes
iTunes re-wrote the rules in the music industry by understanding
what the emergence of pirate music sites like Napster and Gnutella
said about changing consumer needs and technology. The record
companies saw pirate sites as a threat to conventional record sales
and pursued legal battles and scare tactics. Apple simply adopted the
pirate model and made it legal. Apple viewed the popularity of pirate
sites less as an indication of how corrupt and immoral the human race
was, and more of an indication that the record industry had not kept
up with consumer needs, expectations and technologies. Music could
be easily and cheaply downloaded, and consumers could escape a
limitation that had been imposed on them for decades – buying a
whole album when they only wanted one song.
The result of iTunes was a rejuvenation of the entire music industry,
now paying dividends to everyone from record labels to artists and
fans. South African businesses can apply the lessons from iTunes in
our local context. We live in a country where pirate DVDs are available
on every street corner and there are many other examples of pirate
and basic survival behaviour that could give rise to game-changing
business and distribution models.
CASE STUDY
T
Level T is where transformative innovation begins.
Although it is the most basic form of transformative innovation,
it makes an impact that benefits your business as well as
others. Innovations that re-write the category rules consistently
produce far greater returns in the long term than ones that just
grab market share in the short term.

MTN Pay-As-You-Go
A notable example of an innovation that has unlocked new markets is
MTN Pay-As-You-Go. In 1996, MTN was the first company to launch
pre-paid airtime solutions. At the time, the majority of South Africans
were excluded from the mobile market because they could not afford to
take on contracts due to lower or irregular incomes and issues around
creditworthiness. MTN created their Pay-As-You-Go option, allowing
users to buy SIM cards without opening contracts, and to pay only for
the amount of airtime needed. The service created significant market
value by unlocking a massive untapped market. The key lesson in the
Pay-As-You-Go story is thatAfrican consumers respond well to smaller
sized purchases that they can make when the funds are available.
Many other innovations throughout Africa have been successful due
to this insight: PEP and Hollard insurance have given new markets
access to insurance through their ‘starter pack’ insurance model. PEP-
branded insurance packs (packaged like mobile phone ‘starter packs’)
are placed near the store check-out counters and include six different
schemes with various monthly premiums and lump sum pay-outs in
the case of death. The purchase price of the starter pack is inclusive of
the first month’s premium. Within 72 hours of a purchase, the customer
is called by an authorised insurance agent from Hollard who collects
all required personal details and provides qualified advice. Follow-up
monthly premium payments can be made in the nearby PEP store.
CASE STUDY
An excellent example of a business that created new market value is Southwest Airlines. They revolutionised
air travel by looking outside of their immediate (and overtraded) industry to what consumers were doing
when they were not travelling by air. They realised that they were competing with other forms of transport
(cars, buses and trains) that were inexpensive compared to airlines and offered more routes, more regular-
ly. They created a low cost, convenient airline with regular departures and they got rid of the unnecessary
frills that customers did not need – the airline industry norms of free on-board meals, lounges and different
travel classes. Southwest Airlines was so committed to this new model that their CEO famously replied to a
customer who repeatedly complained about their lack of first class seating and meals with “We will miss you.”
The Southwest Airlines model has now been replicated across the world and locally by airlines such as
kulula.com and Mango, resulting in a massive expansion of the air travel market to include customers who
previously did not travel by air.
T

1. BETTER UNDERSTAND YOUR CUSTOMERS
Most businesses do not really understand what their customers want. Henry Ford’s
famous innovation came from understanding that it was not just a ‘faster horse’ that
his customers wanted. What frustrates consumers about your category? What needs
are currently not being met? Invest heavily in understanding your market. Get the
executives out into the world of your customers. As Helen Andrews of SynNovation
says, “the most powerful innovation comes from inventing off real insight.”
2. IDENTIFY YOUR CATEGORY CONVENTIONS
Are your current formats, packs or distributions based purely on historical
idiosyncrasies or out-dated technologies? Are you trying to sell CDs to
consumers who only want music?
3. LOOK FOR LATENT CONSUMER NEEDS EVIDENT
IN ALTERNATIVE OR ADJACENT INDUSTRIES
For example: Is there an opportunity to change the way financial services are offered
by evaluating behaviour in Stokvels or other informal ways of managing finances?
4. TURN PIRATES INTO PARTNERS
South Africa and Africa have large informal markets, with many entrepreneurs
innovating with very little, and trying to make ends meet. How can you find ways to
work with them, instead of against them?
For example: Is there an opportunity to reinvent the ailing cinema industry by
setting up small community theatres, operated by local entrepreneurs?
5. CONSIDER OFFERING PRODUCTS IN SMALLER,
MORE AFFORDABLE PORTIONS
For example: is there an opportunity for a new education model that breaks down
curriculums into smaller, more affordable modules?
THE PIE
(YOUR INDUSTRY)
Non-users
& deserters
How are
they currently
meeting
their need?
T
How can
we better
meet it?

Level T+1 innovations are the innovations that release revenue into the
market and create significant new employment, higher quality employ-
ment, or entrepreneurial opportunities – directly improving a market’s
spending power. This type of innovation is where real sustainability starts
to emerge.
For the most part, Level T+1 are business or distribution model innova-
tions that open up new opportunities for entrepreneurs to become links
in the value chain.
They could become links in the chain at either side of a business’s core
competency. The key to doing this successfully and profitably is to have
a clear understanding of what your core business is, and to consider out-
sourcing the rest. This is the concept of Unbundling Business Models as
described by Alexander Osterwalder & Yves Pigneur in their book “Busi-
ness Model Generation.”
Creating quality employment is one
of the most pressing needs facing
South Africa and the rest of the
continent, but it’s not just a feel-
good consideration for business.
Strengthening the employment context
makes the market for your products and
services more stable, and increases the
disposable income and brand loyalty of
those you target.
T+1
Business Chain
INPUTS
DESIGN
Opportunitiesforentrepreneurialinnovation?
Core
Business
MANUFACTURING
DISTRIBUTION
MARKETING
AFTER-SALES
SERVICE

The concept of the ‘unbundled’ corporation holds that there are three funda-
mentally different types of businesses: customer relationship businesses, prod-
uct innovation businesses, and infrastructure businesses. Each type has differ-
ent basic business models and skills requirements.
The three types may co-exist within a single organisation, but ideally they
are ‘unbundled’ into separate entities in order to avoid conflicts or undesirable
trade-offs.
For example, in Europe, mobile telecommunication firms have started shar-
ing network infrastructure with competitors or outsourcing network opera-
tions altogether so they can focus on their key asset - their brand and their
customer relationships.
Consider where your company’s true core competency lies. How can non-
core activities be outsourced to entrepreneurs or innovated around for new
business ventures?
OUTsurance Pointsmen
Over the past six years, thousands of motorists around Johannesburg have come to rely on the assistance of the OUTsurance
Pointsmen, who direct traffic at congested intersections, road accidents and faulty traffic lights. OUTsurance has created
employment by training and employing a group of previously unemployed individuals who are now skilled and can earn a
steady income. The brilliance of this innovation is that it creates employment as a form of marketing – making a noticeable
difference to commuters who get to see their brand in action: ‘You always get something out’.
CASE STUDY
T+1
It’s important to approach this way of thinking as an opportunity to help small or
informal businesses, rather than simply unbundling to another large, specialist
business. This will generate new jobs for people at a higher rate and to a larger
degree – and create brand loyalty and self-sufficiency among your collaborators.
Outsourcing non-core parts of your value chain is only the simplest form of T+1

SAB and City Lodge
The SAB Owner-Driver programme has enabled more than 450
employees to become independent entrepreneurs. Under the pro-
gramme, SAB drivers are encouraged to convert their normal tasks
into sustainable small businesses – drivers are helped to buy their
trucks (worth about R800,000) and to secure delivery contracts. One
remarkable success story is Ben Mvemve who started as an SAB truck
driver and now owns a transport company with an annual turnover
of more than R2-million. Mvemve is an owner-driver contracted to
SAB in Durban and operates three vehicles with a staff of 12 people,
delivering to a variety of outlets within an 80km radius of the city. SAB
has effectively ‘unbundled’ parts of their distribution network, thereby
creating value beyond their business by enabling previous employees
to grow, specialise and employ others.
Similarly, City Lodge Hotel Group considers which aspects of the
customer experience are not part of their core business and tries
to outsource these to entrepreneurs. Peter Schoeman explains, “At
City Lodge we have seeded many small businesses by outsourcing
things like concierge desks, transfer services and even conference
services at our hotels. Many of those black entrepreneurs now own
very successful businesses.”
CASE STUDY
innovation. There are enormous opportunities to entirely rethink the inputs and outputs of your business and find ways to create new
value by including potential partners and collaborators in your ideation sessions. South African Agri-Protein, for example, won the UN
Innovation Prize for Africa by rethinking waste and output altogether. Their business converts abattoir waste (and human sewage) into
protein for animal feed by growing fly larvae (a high-protein source) at scale and then drying and pulverising it. This creates jobs and
an entirely new business out of things previously considered just waste at the end of a value chain.
MTN’s Pay-As-You-Go is also an excellent example of T+1 innovation. The innovation not only unlocked a new market for mobile, but
it also created a source of business for people across Africa. In every township and rural village across Africa, somebody is selling air-
time – it requires no formal infrastructure. The leapfrog of mobile in Africa can be traced back to the roots of this innovation in particular
and mobile telecommunications is now one of the strongest and most lucrative industries on the continent – large and sustainable.
T+1

T+1
Innovation is for artsy, creative types.
Anyone can innovate – and it’s often more about strategy, systems thinking and an openness to new neural connections than art.
Innovation is making lots of new products.
What many people call innovation isn’t innovation at all – if it’s not creating value and answering a real need in a new way, it’s
not innovation.
Innovation is a first-world competency.
Nowhere needs innovation as much as the developing world. And ordinary people in developing markets innovate with very
little, every day. Africa has the potential to lead global innovation.
Publicly-traded companies can’t think long term.
It makes solid business sense to innovate for sustainable success – through improved livelihoods and more stable markets.
Busting Some Innovation Myths:

T+1
1. CONSIDER TURNING NON-CORE AREAS OF YOUR BUSINESS INTO
ENTREPRENEURIAL OPPORTUNITIES
For example: Are there links in the supply chain (either inputs or outputs) that can be outsourced like
delivery or maintenance of equipment? Could you create revenue generating opportunities for people
that require very little in terms of investment or infrastructure?
2. FIND WAYS OF INJECTING EFFICIENCIES INTO EXISTING
INFORMAL INDUSTRIES AND NETWORKS
For example: Could petrol stations become retail points for local fresh produce and other products?
3. CONSIDER LEVERAGING INFORMAL DISTRIBUTION
STRUCTURES FOR MORE EFFICIENT LOGISTICS
For example: Could small businesses like Spaza shops or informal traders become more successful by
becoming distributors for your product or service?
4. UNDERSTAND HOW ORDINARY SOUTH AFRICANS INNOVATE
Many people innovate every day, with very little. Find ways to integrate their thinking and ideas into new
business processes – and use this as a springboard for partnership.
5. CREATE INNOVATIONS THAT LEVERAGE LOCAL SKILLS
Include customers and potential partners in your innovation sessions.
NeoNurture: the ‘Car Parts’ Incubator
1.8 million babies die each year due to inconsistent heat before they have the body fat and metabolic rate
to stay warm. Despite this problem, incubators are not available in most poor countries. Conventional
incubators designed for industrialised markets can cost up to US$30,000 and are difficult to maintain.
NeoNurture gets around this problem by providing incubators that run on something people in Africa
know how to maintain and fix: car parts. The incubator leverages the existing supply chain of the
auto industry and the technical understanding of local car mechanics. It uses headlights as a heating
element, a dashboard fan for convective heat circulation, signal lights and a door chime serve as alarms,
and a motorcycle battery and car cigarette lighter provide backup power during incubator transport and
power outages. Local mechanics, and not head-office technicians, can repair the machines.
CASE STUDY

T+2
The broader society and natural environment in which your customers live
is directly responsible for their general well-being, personal development
and spending power. Without taking this environment into account, even
the greatest innovations can fail like some kind of legitimised Ponzi scheme.
Innovation that creates social value is the kind of innovation that builds
the most sustainable success for the business behind it. It can also lead
to a positively reinforcing cycle of innovation. As Hema Morar and Seth
Maanda of FNB Smart Transactional Banking put it, “An aspect of FNB’s
success is an entrenched culture of giving back. The culture is nurtured by
our volunteer programme which has a very high level of staff participation.
The simple act of giving back helps you understand your markets better
and enables you to solve some of the problems they face.”
And the environment is ripe for it. Tasos Calantzis of Terrestrial points out,
that with Gini coefficients higher than they’ve ever been and governments
emboldened by the financial crisis, vast amounts of money are available for
those who can innovate successfully in the social space.
Innovation that creates long term
societal value impacts on long term
market growth and spending power
influencers – such as education levels,
healthcare, infrastructure, resource
sustainability and a healthy natural
environment.

Paperight
Paperight creates value for the business, value for customers, opens
up new markets, creates employment and creates long-term societal
value through extending the reach of educational material to people
who have not had access to it before.
The founder of Paperight, Arthur Attwell, started out life working for
big publishing, in the area of tertiary education text books. They were
creating large, expensive text books for students who would only use
a portion of each text book. These heavy tomes were expensive to
purchase and many students were photocopying what they needed
rather than purchasing the entire book. The publisher was aware of
this and simply increased the cost of the books to ensure that they
covered production and distribution costs and made some profit.
Stockists would only keep a small number of books (that they thought
would sell), which led to shortages and illegal photocopying of books.
It was a vicious cycle of shrinking revenue.
Attwell realised that technology could offer a solution to this conundrum,
and left to start his own e-publishing consultancy. However, his at-
tempts at launching e-books created but a whimper. He realised that,
despite the hype, the South African market was nowhere near ready
to turn digital publishing mainstream. This became apparent when he
set up a service where nurses could take tests online. Very few nur-
ses completed the test online and many requested paper tests. Even
private hospital nurses rarely had access to a computer with internet
and very few had an email address.
Serendipitously, Attwell was commissioned to research publishing
and book selling outlets. This led him to discover that the smallest
book factory was a photocopy machine and the smallest outlet a
photocopy shop (which could be a photocopy machine in the back of
a container store). Photocopiers were everywhere! And so the ‘aha’
moment struck and Paperight was born. Paperight allows copy shops
to download and print books legally (and cheaply). It earns value for
Paperight and the publishers, grows the market to include those who
do not have access to book shops or the income to buy books, creates
more work for copy shops and, in the long run, supplies educational
material to a broader portion of society.
Although the idea was born out of the necessity of making a living,
Attwell says that the business’s social value creation has attracted
purpose-driven staff who believe in the company’s vision (‘every book
within walking distance of every home’), are passionate, loyal and
work extremely hard for below market rates.
CASE STUDY
T+2

T+2
BOXCLEVER
The South African Government, municipalities and NGOs are in
need of simple, low-cost solutions for social development and
service delivery. Shipping containers are affordable and can be used
for a number of applications besides shipping. AMAKHONTEYNA
(a division of BOXCLEVER) converts shipping containers into
ablutions, low-cost housing, classrooms, clinics, soup kitchens,
computer labs, libraries & police stations. They handle everything from
project management to design, transport, logistics & problem solving.
It is an innovative business that provides quick, affordable solutions
that can drive immediate change in healthcare, sanitation, education,
housing and safety.
CASE STUDY
T+2 innovation looks at the value cycle from the perspective of pressing societal
needs. It involves identifying your core business function and the core social need
that you answer, and then innovating with role-players and business models
that either supply or connect those social needs to your purpose. In the case of
BOXCLEVER, the need was for space, and the supplier was shipping containers.
In the case of Paperight the need was for education and the distribution model
was borrowed from another category altogether.

1. DEFINE YOUR ORGANISATIONAL PURPOSE
What are you really in the business of? What broader needs do you really meet, and how can you do
that differently or better? What needs of your customers, employees and suppliers are you currently
not meeting, that you could?
2. IDENTIFY THE BOTTLENECKS
What are the systemic issues within your business that cause you to lose revenue – and what causes
them? Where are the bottlenecks in your category? What stops non-users from using your current
business model? Is it price, location, product?
3. REDEFINE YOUR ENEMIES
Who are your ‘enemies’? Can you team up with them to provide more value to the end user and grow
a new category?
4. CONSIDER INTERMEDIATE TECHNOLOGIES
Don’t get swept away by the latest imported trend – they take time to embed in Africa because of
the nature of our market (mass poor and niche rich). Ask yourself ‘what is relevant now?’ and ‘what
technologies are already available?’ Do your home-work and find the lowest common denominator.
MTN innovations were not for the smartphone market; Paperight succeeded where e-books had failed.
5. LEAPFROG
In order to leapfrog, the offering needs to be cheap, require minimal personal infrastructure for the
customer and provide accessible entrepreneurial opportunities.
YOUR CATEGORY
(eg. books)
SOCIAL NEEDS
OF CATEGORY
(eg. education)
Suppliers, distributors
Consumers, non-users
T+2

New ideas and new ways of doing things can be particularly scary for those tasked with
caretaking the future of the business – particularly when the idea is BIG. Very often business
leaders do not want to change the way things are done unless the business is in crisis. This
is particularly true in our current context in which many CEOs have come from a financial,
rather than a marketing background, but it is always difficult to motivate for sweeping chang-
es. It takes a lot of energy to change organisational culture and to fight inertia. To embark on
the path to innovation, you will need to convince the sceptics. And to do so, it is imperative
that you understand what their key concerns are and how to tailor the proposed solution to
answer them.
Although it is often expressed indirectly, we have found that the typical respons-
es to calls for investment in innovation are:
• It is too much of an investment or too much of a change
• We are too frantic and can’t afford the distraction
• We are doing fine and we don’t need it
These rebuttals are all forms of risk aversion, and if you are tasked with getting innovation onto the agenda
of your organisation, it is imperative that you find ways to make innovation less risky. We suggest answering
each of the abovementioned concerns as follows:
1. It is too big an investment or too much of a change
Propose an innovation lab
Create a subdivision within the business that is focused on innovation. This unit can create
the experimental, agile culture of a start-up without jeopardising the way the business
currently operates. The risks of failure are contained, thus freeing the unit to operate
flexibly: encourage debate and creativity, explore customer markets, create and trial new
products and processes. An innovative business cannot be afraid of failure – as failure is
an inevitable step in the journey.
Crunch the numbers
Define the metrics to measure business success – in terms of economic, market and social
value, and build the model to calculate the risks and benefits of the innovation. Approach it
as an entrepreneur would approach a venture capitalist. Or…

Become a venture capitalist
Large organisations are at a disadvantage when innovating. They have existing systems
and cultures which are often more difficult to change than to start from scratch. If a separate
innovation department would not be viable for the business, consider setting up a team
whose responsibility it is to source market innovation that is relevant to the business. This
kind of outsourced innovation relies on others to innovate to better meet the needs of your
markets, and so runs the risk that start-ups may refuse to sell to you. The benefit of this
approach is that the business does not need to be reinvented until the innovation starts
earning its place as a viable business model. Consider the scenario in which a prominent
publishing house bought Paperight, or how Google bought YouTube.
2. We’re too frantic and can’t afford the distraction
Outline the path to survival
Chances are that if a business is frantic and under it pressure, it means that you are
operating in a category that is well developed, with increasing competition and decreasing
margins and differentiation. This is exactly the environment that is ripe for transformative
innovation: there are too many people trying to steal a piece of the pie and it is time to think
outside of the pie.
Innovation is not an additional, unnecessary expense: it is the path to new categories,
breathing space and profits. Outline the kind of innovation you believe is necessary and
give an estimate of the potential size of the new markets and the value the innovation
will generate.
Take it to the top
Churning out hundreds of new products all the time
adds unnecessary stress to the business and is often
ineffective. Becoming an innovative business means
taking innovation to the top. Do not start with ideas
for product or service innovation – start with business
strategy, and build an innovation platform that can
create value from there – whether it’s in the business
model, the value chain or, finally, in the products and
services. Do not let the tail wag the dog.
3. We’re doing fine and don’t need it
Present the human angle
To those rare businesses who are doing well without innovation, there is always a case
to be made for the more transformative aspects of innovation. Sales may be fine today,
but how future-proof is the business? Does it have a strategy to grow and retain brand
loyalty, secure talent and resources and stabilise the markets in which it operates? Is it
spending money on scattered CSR instead of investing in ways which create social value?
Transformative innovation can make even the most successful business better equipped
to thrive.
Levels of Innovation
Business
Model
& Strategy
Value
Chain
Product
& Service
Increasing cost,
risk, business change,
transformative
potential & benefit

Transformative innovation has the power to turn South
African and African businesses into leaders of global
innovation, rather than passive followers of trends. It can
stabilise and grow our markets, add to the disposable
income of our consumers and partners and introduce
new products, services and business models that create
real value.
Getting it right doesn’t require massive investments in NPD
– it does, however, require thinking about your customers,
employees, neighbours and competitors in a new way. It
means being cognisant of your role in society, and in this
phase of African development. And it requires building an
innovative culture that takes risks and values and respects
people and their ideas. Committing to creating genuine
new value from new thinking is more difficult than churning
out hundreds of product tweaks and variations, but it is so
much more rewarding and beneficial for the business in the
long term.
Good luck!
8 Steps to Getting Transformative Innovation Right:
1. Start from the top. Get executive buy-in.
2. Identify the operational blockages, threats and industry norms that hinder your business.
3. Identify the pirates, innovators and potential informal partners for your business.
4. Get to know your customers, the non-users of your category and their broader needs –
Listen to those you don’t usually listen to.
5. Define your organisational purpose - what do you actually do, and why?
6. Put together the costing model and calculate the potential value created for all stakeholders.
7. Start small. Test the innovation idea. Trial and build it up without disturbing the core business.
8. Make process, structure and people changes to drive the innovation culture across your business.
What do you need to do on Monday?

References
• Interview with Arthur Attwell:
Founder of Paperight, September 2013
• Interview with Helen Andrews:
Innovation Catalyst for SynNovation
Solutions, September 2013
• Interview with Hema Morar and
Seth Maanda: Smart Transactional
Banking for FNB, October 2013
• Interview with Peter Schoeman:
Divisional Director of Sales and
Marketing for City Lodge Hotel Group,
October 2013
• Interview with Tasos Calantzis:
CEO of Terrestrial, August 2013
• Interview with Truida Prekel:
Innovation Catalyst for SynNovation
Solutions, September 2013
• Allan, D, Murrin, K & Rudkin, D (1999)
?What If! Sticky Wisdom: How to
Start a Creative Revolution at Work.
Chichester: Capstone Publishing
Limited
• Chan Kim, W & Mauborgne, R (2005)
Blue Ocean Strategy: How to Create
Uncontested Market Space and Make
the Competition Irrelevant. USA:
Harvard Business School Publishing
• Grueber, M & Studt, T (2010)
2011 Global R&D Funding Forecast,
R&DMagazine. Advantage Business
Media / Battelle. Available at:
http://battelle.org/docs/r-d-funding-
forecast/2011_r_d_funding_forecast.
pdf?sfvrsn=0
While based in London, Honoré was Global
Category Research Manager for Reckitt
Benckiser’s two specialist innovation
groups for marketing and R&D. She has
extensive experience at both TNS and
Synovate and brought with her a love for
consumer insight and innovation when she
joined Yellowwood in 2012. Honoré heads
up the Cape Town office and is the Insights
Director for the company.
Honoré Gasa
Insights Director
Yellowwood Cape Town
Charles has been on a quest to uncover the
origins of effective marketing throughout his
years at Y&R, Ogilvy and TBWA Hunt
Lascaris. He has been a Senior Strategist
at Yellowwood since 2011, heading up a
team of top notch brand planning talent
and bringing innovative thinking and deep
market insight to help clients solve their
toughest marketing challenges.
Charles Erasmus
Senior Strategist
Yellowwood Johannesburg
Contributors
• Houghton, S (2012) Deception.
Full Circle Magazine. Available at:
http://www.fullcirclemag.co.za/
magazine/articles/11-piece-of-pi/208-
deception
• Kelley, T & Littman, J (2006) The
Ten Faces of Innovation: Strategies
for Heightening Creativity. London:
Profile Books Ltd
• Osterwalder, A & Pigneur, Y (2010)
Business Model Generation. New
Jersey: John Wiley & Sons Inc.
• Wild, S (2013) R&D in South Africa:
No rhythm, only blues. Mail &
Guardian. Available at: http://mg.co.za/
article/2013-06-21-00-rd-in-sa-no-
rhythm-only-blues
Alistair has a background in brand strategy,
politics and digital marketing. He believes
South Africa has huge untapped potential
for transformative innovation, and hopes
this paper helps to unleash that energy.
With the goal of provoking dialogue and
shifting conventional thinking, Al is Yellow-
wood’s Content Strategist.
Al Mackay
Content Strategist
Yellowwood Cape Town

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David Blyth, Group MD
Email:davidb@ywood.co.za
Get in touch
www.ywood.co.za
@askYellowwood

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