Someone or something that is disruptive is usually associated in the negative. The sub-prime mortgage crisis has disrupted financial and housing markets. That's bad. My son was being disruptive at dinner while someone else was talking. That's bad too.
But I believe the idea of being deliberately disruptive can be a huge positive when used in the development of strategies, organizations, products, business models and markets. Specifically, disruption can be useful for those companies that are trying to serve low income markets and eradicate poverty, all while building a successful business venture.
Back in early 2005, I read CK Pralahad's The Fortune at the Bottom of the Pyramid and Clayton Christensen's Innovator's Solution ust as I started my new job General Manager of the Emerging Markets Platforms Group at Intel. Our group was responsible for developing and selling new PC and mobile products designed to meet the specific needs of those at the bottom of the pyramid. One of these products is the Classmate PC, which has become famous mostly because of the ongoing public battle between it and Nicholas Negroponte's OLPC XO laptop.
The theories put forward in Prahalad's and Christensen's books, combined with my experience trying to create a viable business with customers that make only $1 to $2 a day, is the foundation on which my belief that a disruptive approach is the way to go when building businesses focused on selling and improving the lives of the poor.
When I talk about being disruptive, I'm talking about strategies and techniques that change the game, overturn the status quo, and ultimately make the biggest possible impact. In this post, I will touch on the following areas where I think disruptive strategies are required:
- Product strategy
- Business models
- Leadership and management
Disruptive Product Strategies
Let's start with the product strategy. Clayton Christensen's theory is that a disruptive innovation or technology is a product that is easier to use, more affordable and adds a unique value that the market leading product does not. These products become wildly successful, often completely displacing the existing product or technology. Think of the PC displacing the mini-computer. The telephone displacing the telegraph. Digital photos displacing traditional photos. The list goes on. Will the mobile phone displace the PC? Maybe. If it does, then it becomes a disruption to the PC.
I believe the product that will displace the PC will come from a company that has developed an easy to use, affordable device that has some very useful “unique” value to those at the bottom of the pyramid. That was my conclusion after reading Prahalad and Christensen – and was the path I wanted to set Intel on.
Classmate PC is not a disruptive innovation. The idea was to create R&D labs in four emerging market countries and incubate various devices based on ethnographic research done in those regions. Unfortunately, because of the world's attention on Negroponte's OLPC and the competitive pressure it put on Intel (the XO uses AMD chips, Intel's competitor), the Classmate PC project has sucked up most of the available resources and thus I think it is unlikely that Intel will create that disruptive device, and as such, is not taking the world by storm (at least not yet).
Is OLPC's XO a disruptive innovation? Probably not. It has some differentiating qualities in the “unique value” category but nothing that are mind-blowing new or different. A unique value is usually very straightforward. The phone let you talk vs. tap on the telegraph. The transistor radio was portable. The unique value is usually a gaming-changing quality. It also strives to be more affordable, although any computer device runs into the same challenges of the floor on component and distribution costs and economics. It has been built with an interface that works to improve ease of use, but often these features are skin deep and are challenged, as you get deeper into the software and content.
There is nothing to stop either device from eventually becoming a disruptive innovation … many innovations are iterative vs. incremental.
Disruptive Business Models
In general, the penetration of tech products into emerging markets has not made a significant impact in closing the digital divide, even with higher overall growth rates than typically found in mature market countries (the mobile phone being the exception). Some argue it is the lack of one or more of the “disruptive” product attributes (affordability, ease of use, value). Maybe.
Again, looking just at PC affordability specifically, there have been a multitude of ventures that have aimed to close the PC divide by delivering very cheap, and sometimes free, computers. None of these ventures have taken off in a large scale, at least those that I am aware of. Please point me to any that are successful (e.g., that have shipped millions of units in at least 5 or more countries on different continents).
I think the key is that the business model strategy is often given a lower priority than product development. The business model that is needed in emerging markets is very different than what necessarily works in traditional markets.
Take pricing for example. Not the actual price, but how the “pricing model” works. One of the reasons mobile phones are so successful is that it meets the qualities of a disruptive innovation AND has a business model that allows very poor people to purchase phone service. In most emerging markets the prominent method of payment is through pre-paid cards vs. subscriptions. Safaricom has disrupted the billing model even more – they bill in seconds vs. minutes. Safaricom is a poster child for a company that seems to understand how to create a successful business in Kenya for the BoP. I recently wrote an article on my blog, Disruptive Leadership, that explores Safaricom's disruptive business processes titled “Safaricom has figured it out.”
So you'd think that a similar model could work for the PC — offer a pay-as-you-go service for the PC through a subscription or pre-paid cards. Microsoft introduced such a service called in 2006 and it has yet to scale beyond small trials. Securing the PC and its components against resale (a PC is an open device with multiple replaceable parts, unlike the mobile phone) and getting banks to offer financing services are just two of the challenges plaguing the project. Bottom line: the business model has to be appropriate for the specific device or solution.
Beyond the pricing model, a disruptive strategy may be needed to think about how a company gets the product to the customer (at Intel, we called this channels). Outside the big cities in many developing countries, especially Africa, there are little or no retail outlets for PCs. How do you get PCs to a customer when you don't have a channel?
One out-of-the-box idea is to sell PCs through the post office. We at Intel looked at doing this in Egypt with a government joint venture to increase PC access in areas outside Cairo and Alexandria, the two major cities in Egypt. There are few PC stores in the smaller towns and villages, but there is always a post office. We started a project to get PC's into the post offices where people could purchase the PC directly.
Finally, I'd like to stretch the definition of a business model to include how the company is set up and functions. Should the company be set up as a for-profit enterprise with the mission to create a successful, high growth venture that brings a return to its investors (e.g., Intel), or should it be setup as a non-profit that depends on donations and grants to fund its operations even when selling an actual product (e.g., OLPC)? I have made the argument that OLPC would be much more successful in achieving its objectives if it was a for-profit enterprise, discussed in detail at OLPCNews.com. By the virtue of the number of comments and their intensity, this article clearly struck a nerve. Or maybe I'm wrong…maybe the most successful “company” model is a hybrid between a for-profit and nonprofit. This is something I would like to explore more in future posts.
I posit that in addition to a disruptive innovation and business model, you need “disruptive leadership.” I believe disruptive leadership captures the essence of what it takes to be successful as a business leader that is trying to crack the secret formula of growing in very dynamic emerging markets.
I didn't invent the term “disruptive leadership;” just Google the term and you'll find interesting articles, like this one by Edward Marx in which he states:
“If I am not upsetting the proverbial apple cart, then I am adding little value. By merely maintaining what has been done in the past, I will bring about little if any gain. Don't misunderstand. This is not about stirring the pot for the sake of stirring the pot. Disruptive leadership must be purposeful and backed by a vision.”
Another good one by Ted Santos talks about how good leaders create problems:
“What separates extraordinary leaders from managers? One way to distinguish the difference is to compare the mindset of leaders and managers. Managers are great at solving problems. Leaders, on the other hand, exude their greatness by creating problems.”
A disruptive leader stirs the pot, thinks out of the box, is willing to challenge the norm, thrives on change and uncertainty, and most importantly of all, can navigate the turbulent political waters that inevitably are created in reaction to the various disruptive strategies AND leaders. A disruptive leader creates a company culture that embraces all of these concepts.
These leaders are few and far between. I loved a quote from a recent article in the Economist on the career of Mr Ramadorai, CEO of one of India's largest software outsourcing company, on how believes dealing with adversity only makes companies stronger. “If everything is peaceful, you don't push yourself,” he says.
“Adversity” has negative connotations, just like the word “disruptive.” But as Mr. Ramadorai says, adversity makes you stronger. I think being disruptive does too.