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.

4 Responses to “Business model innovation in manufacturers in developing countries”

  1. Mary Morgan Says:

    Shawn– really seems like the term models is not at all congruent with systems thinking. A model is “a thing used as an example to follow or imitate”. It is something that is constructed and implemented with no adaptations whatsoever to any context– when in fact we all know that every context requires a new way of doing business, otherwise if all business followed the prescribed to the model, everyone would be competitive. Sure there are the core essentials of business– marketing mix (price, product, place, promotion) which would include the core competency, efficiency in production, procurement, distribution so that costs are as low as possible without compromising quality (if that is the intent) and revenue is maximized. But again– this is a framework or guidelines, not really a model because the 4 P’s would be different or distinct for individual firms.

    Seems to me this post is about how firms are doing business– they are either being market driven and innovating in response to what the market wants and needs or they are supply driven and are waiting for the market to adapt to their perceived core competencies.

    Maybe you can spell out what you envision a business model to be for clarification here.

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    • Dr Shawn Cunningham Says:

      Hi Mary,
      Thank you for the comment.

      Generally in innovation there is a distinction made between different kinds of innovation: product, process, business model and then more recently also social innovation. I am not convinced that social innovation is distinct from product, process or business model innovation. Let me rather focus now on the business model kind of innovation. Most gurus on the topic here focus on how entrepreneurs rethink their business strategy. So maybe they started their business using the 4 Ps, but now the game has changed. I am hoping that Tim Kastelle would also comment, he is one of those gurus I refer to.

      Some of the examples of business model innovation out there is for instance Amazon (I doubt this is a good example) or how IBM has repositioned itself. Some even now cite Yahoo or even Microsoft. Those are all big technology based firms and not the kind I am referring to.

      My point was that some manufacturers have not revisited their basic assumptions about what is external and maybe temporary and what has now crossed the boundary to have a strong internal focus and that is increasingly becoming permanent.

      As I work largely with large sections of industries at a time I notice these patterns across industries. I can imagine how to address this issue one firm at a time, but how to do it at scale is a question that intrigues me.

      Best wishes,

      Shawn

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      • Mary Morgan Says:

        Hi Shawn- the Amazon example is a good example of a ‘model’– web based business model with appropriate safe payment options, efficient delivery mechanisms and meeting the needs of people on the go. Yahoo, Facebook, google are also interesting models. IBM’s business model is a global corporation– and they are smart enough to know that innovation is necessary to maintain their market share– if they don’t innovate they will go the way of Kodak.

        If you are curious about industry wide responses to shifts in the market environment–whether temporary or long term, sounds like a good industry wide analysis (procurement, production, distribution, customer needs in a changing world) may be able to identify opportunities for some innovative options. Now you have my curiosity piqued.
        cheers
        mary

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  2. Andres Echeverry Says:

    Hi Shawn,

    I have come to the very same conclusion. I have led an effort on business model innovation and corporate entrepreneurship in a paper/print/media conglomerate in Latin America collaborating with some of the leading thinkers on the subject. From the work of authors such as Christensen (business model disruption), Tushmann (organizational ambidexterity), Osterwalder (Business Model Design), and Blank (Customer Development), we were able to design an emerging framework on how to effectively drive these processes inside firms. The potential for impact is very significant, in particular within developing countries.

    My great frustration in the current state of development thinking, in particular when it comes to innovation systems, is the total disregard for the potential of leveraging the leading assets of a region – its relatively sophisticated businesses – into innovate at the business model level to develop new economic activity. In a developing context, where there are so many barriers to high impact entrepreneurship, existing businesses time and time again provide a rather robust platform for new business development – one that is ignored from the competitiveness and innovation policy discussion. The challenge is how to create an enabling environment around these firms to induce these dynamics, and to create this enabling environment we need to bring this topic into relevance within development thinking. Further complicating matters is the fact that the level of sophistication required for these business interventions is usually not viable for local provision.

    I have reached out to you via linked in to talk about this subject. I look forward to your reply.

    Like


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