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.

Competitive advantage? Just how competitive are you.

I am working every day with businesses that are denying that the game has changed. Many believe it is just the government that is inventing new rules. This is true in some cases, but in most the government is also simply responding to global changes. The benefit of working outside of South Africa sometimes is that I get to see the domestic manufacturers from another angle. And the truth be told: South African firms are not as competitive as they would like to believe. Yes, there are exceptions, and we hail their achievements.

Tim Kastelle published an article today titled “here’s why you need to build your innovation capability“. When my eye caught the first sub heading I almost stopped reading. It shouts “Competitive advantage is dead. Or at least dying”. Blink. I believe in competitive advantage, and I believe that firms must figure out what it is that they have to do to remain competitive. I also know that once you found a gap in the market it takes hard work to remain competitive. Being a follower of his blog I plowed on.

Wait. Don’t let me spoil a good post. you have to read Tim’s argument for yourself. He argues that it is more important to become innovative than to have a competitive advantage. This is not a new argument in itself, but I like his angle on this. He then provides some simple steps that a manager can take to become more innovative even within a rigid organizational context where innovation may not necessarily be appreciated. His logic will also apply to not-for-profit organizations that don’t believe they compete even though they have to be able to compete for funding.

Reading this article also made me think of how we idolize some of the very famous firms now, but how we tend to forget how many great firms have dissolved here in South Africa and in other developing countries. It usually starts with a refocusing, then with selling off under-performing or non-core units. Then a merger of the remains with another firm with a “strategic fit”. Then, the end. They just slip from our conscious into the past.

Let me not close so depressing. Let me rather ask: how can you use the environment as an constraint that you have to consider in your business model and your innovation process?

If it constrains you it must constrain your competitors. Can getting around this give you an edge? In other words, can you put the constraint between you and your competitors?

Then ask: what are the constraints that are on the horizon, and how can I anticipate these constraints to get them between me and my competitors?

Thinking about this often might save you the anguish of trying to adapt while under pressure to also deliver.

I wonder how your answers will challenge your current view of how competitive you really are, and how innovative you are to respond to the changes in the environment.

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