Linking: 5 Differences between complexity & systems thinking

Business model innovation in manufacturers in developing countries

The topic of Business model innovation is receiving increasing attention as a solution to surviving in turbulent economic times. The discussion on business model innovation to me seems to be driven by finding ways to respond to opportunities, unmet needs, creating new markets or thinking up novel ways of doing business. Many articles on business model innovation contains phrases like “responding to change”, “rapid” and “creating opportunities”. From my experience of engaging with many typical manufacturers in developing countries they don’t identify with this literature. It seems like many firms are able to absorb external changes, partly by ignoring them or simply by being to paralyzed to change. I think in some instances this is also their saving grace in the short term, although in the long term it might erode the competitiveness and dare I use the word “resilience” of the firm.

From my weekly engagements with business, it seems like we need to get our industries in developing countries to better respond to semi-permanent or emerging long term framework conditions. It reminds me of the story of the frog in the pot of water on the stove; because the heat (negative framework conditions) is increasing slowly most firms do not realize the pending disaster of not making these external forces part of core business strategy. I think it is called conditioning.
What many of the manufacturers that I am engaged with are struggling with is finding ways of responding to some of the obstacles, irritations or constraints in their environment that seems to become established or permanent features over time. In South Africa, many manufacturers are waiting, hoping, or lobbying for electricity prices to come down, for labour to become more reasonable, for government to curb the influx of more competitive imports, for inputs to become cheaper, for government investment grants to increase, etc. At the same time, the average size of orders are going down as other countries are able to manufacture the same quality at a much lower landed cost.
From visiting more than 50 manufacturers in traditional manufacturing sectors like valve, pump and industrial equipment this year I can see that those manufacturers that take these external factors as drivers for change or key considerations in their strategy are thriving. While the rest of manufacturers seems to be making mainly small incremental adjustments, hoping that something in the external environment would change returning them to their previous levels of competitiveness. The problem is that too few firms have the will to respond to some of the slow moving changes in their environment. Those firms that do change their business models to adjust to the prevailing circumstances are doing well despite still being in the same country as those firms that are simply trying to cope.
So what I would like to see is a dialogue on how to use business model innovation to deal with these semi-permanent constraints in the external economic environment as drivers for innovation within firms. To me it seems that many manufacturers do not feel driven by opportunity anymore, especially when they perceive the prevailing economic and political conditions to be negative or anti business.
In the field of promoting innovation systems we have hardly come up with systemic models on how to induce widespread change in how business models are designed, created, changed or even shelved. At the moment the topic still seems to driven by dialogue in business schools, or by advocates of social responsibility.

Update from the field

I wondered if I should name this post “from the airport lounge” but then I realized that I still travel much less than my business partners and some friends.

Seeing that so many of you ask me where I am I thought I will give a quick update.

Since my previoSplit Team Smallus post I have traveled to Split in Croatia to conduct an LED training for a group of local government officials from Bosnia. This was a great event because I had the opportunity to conduct the training with my business partners Frank Waeltring and Christian Schoen. This event was arranged for and funded by GIZ Bosnia and took place during the first week of September.

During this event it again struck me how no matter where we work with Local Economic Development, the main principles and challenges remain the same. The people, the language and also the priorities might be different, but the issues that we are always confronted by is a breakdown in trust between business and local government, fragmentation and confusion between local and national stakeholders, and the tension between bottom up and top down priorities and intervention means.



Immediately after Croatia I traveled to India to assist GIZ India to assist with designing a Private Sector Development Programme. The mission included capacity building of local experts, consultants and policy makers on innovation systems and how this perspective can be used to strengthen cluster, value chain and regional development programmes. I traveled with the GIZ team to Bangalore and Aurangabad to assess the readiness of different clusters to benefit from an innovation systems perspective.

In Delhi, my hotel room overlooked the famous Jantra Mantar astronomy instrument. It is anJantra Mantra heritage site that dates from 1724 that was one of the great astronomy observation posts of the time. I spent a whole Saturday morning looking at the details of this site. I also spent half a day on the Hop on Hop Off Bus in India.

I am looking forward to traveling back to India shortly for an extension on this assignment.

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