to be "disruptive" It’s something good
Someone or something that is disruptive is usually associated in a negative way. The subprime mortgage crisis has disrupted housing and financial markets. That’s bad. My son was disturbing dinner while someone else was talking. That is also bad.
But I think that the idea of being deliberately disruptive can be very positive when used in the development of strategies, organizations, products, business models and markets. Specifically, the disruption may be for those companies trying to serve low-income markets and eradicate poverty, all while building a successful business venture.
In early 2005, I read CK Pralahad’s The Fortune at the Bottom of the Pyramid and Clayton Christensen’s Innovator’s Solution just as I started my new job as 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 such product is the Classmate PC, which has become famous mainly due to the ongoing public battle between it and Nicholas Negroponte’s OLPC XO laptop.
The theories presented in Prahalad and Christensen’s books, combined with my experience trying to create a viable business with clients earning just $1 to $2 a day, is the foundation on which I believe 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 mean strategies and techniques that change the game, overturn the status quo, and ultimately have the biggest impact possible. In this post, I will touch on the following areas where I believe 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 unique value that the leading product on the market 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 photographs displacing traditional photographs. The list goes on. Will the mobile displace the PC? Maybe. If it does then it becomes an interruption for the PC.
I believe the product that will displace the PC will come from a company that has developed an affordable, easy-to-use device that has very useful “unique” value for those at the bottom of the pyramid. That was my conclusion after reading Prahalad and Christensen, and it was the path I wanted to put 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 conducted in those regions. Unfortunately, due to the worldwide 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 therefore I think Intel is unlikely to create such a disruptive device and as such is not taking the world by storm (at least not yet).
Is the OLPC XO a disruptive innovation? Probably not. It has some differentiating qualities in the “unique value” category, but nothing that is mind-bogglingly new or different. A single value is usually very simple. The phone lets you talk vs. touch the telegraph The transistor radio was portable. Unique value is often a game-changing quality. It also strives to be more affordable, though any computing device faces the same floor-to-ceiling challenges in cost and economics of components and distribution. It has been built with an interface that works to improve ease of use, but often these features are superficial and challenged as you dig deeper into the software and content.
There is nothing to stop any of the devices from eventually becoming a disruptive innovation… many innovations are iterative vs. incremental
Disruptive business models
In general, the penetration of technology products in emerging markets has not had a significant impact on closing the digital divide, even with overall growth rates higher than those typically found in mature market countries (the exception being mobile). Some argue that it is the lack of one or more of the “disruptive” product attributes (affordability, ease of use, value). Maybe.
Again, looking specifically at the affordability of PCs, there have been a multitude of companies that have aimed to bridge the PC gap by handing out very cheap and sometimes free computers. None of these companies have taken off on a large scale, at least not the ones I know of. Please let me know any that are successful (for example, 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 from the one that necessarily works in traditional markets.
Take the price for example. Not the actual price, but how the “pricing model” works. One of the reasons mobile phones are so successful is that it combines the qualities of a disruptive innovation AND it has a business model that allows very poor people to buy phone services. In most emerging markets, the prominent payment method is through prepaid cards vs. Safaricom subscriptions have further altered the billing model: they bill in seconds instead of in seconds. minutes. Safaricom is an example of a company that seems to understand how to build a successful BOP business in Kenya. I recently wrote an article on my blog, Disruptive Leadership, exploring Safaricom’s disruptive business processes titled “Safaricom Has Figured It Out.”
So I would think a similar model could work for the PC: offer a pay-as-you-go service for the PC through a subscription or prepaid cards. Microsoft introduced such a service called in 2006 and has yet to scale beyond small tests. Securing the PC and its components against resale (a PC is an open device with multiple replaceable parts, unlike a mobile phone) and getting banks to offer financing services are just two of the challenges facing the project. Simply put: the business model must 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 call it channels). Outside of the big cities in many developing countries, especially in Africa, there are few or no PC sales outlets. How does PC take a client when they don’t have a channel?
An innovative idea is to sell PCs through the post office. We at Intel are looking at doing this in Egypt with a government joint venture to increase PC access in areas outside of Cairo and Alexandria, Egypt’s two main cities. There are few PC stores in the smaller cities and towns, but there is always a post office. We started a project to bring PCs to post offices where people could buy the PC directly.
Finally, I would like to broaden the definition of a business model to include How the company is established and works. Should the company be set up as a for-profit company with a mission to build a successful, high-growth company that provides a return to its investors (eg, Intel), or should it be set up as a non-profit organization that relies on donations and grants to finance its operations even when it sells a real product (eg, OLPC)? I have made the argument that OLPC would be much more successful in achieving its goals if it were a for-profit company, discussed in detail at OLPCNews.com. By virtue of the number of comments and their intensity, this article clearly hit a nerve. Or maybe I’m wrong… maybe the most successful “enterprise” model is a hybrid between a for-profit and a non-profit company. This is something I would like to explore more in future posts.
I posit that in addition to disruptive innovation and a business model, “disruptive leadership” is needed. I believe that Disruptive Leadership captures the essence of what it takes to succeed as a business leader trying to figure out the secret formula for growing in highly dynamic emerging markets.
I didn’t invent the term “disruptive leadership”; just google the term and you will find interesting articles, like this one by Edward Marx in which he states:
“If I’m not upsetting the proverbial apple cart, then I’m adding little value. Simply maintaining what has been done in the past will generate little to no profit. Don’t get me wrong. It’s not about stirring the pot for the sake of stirring the pot. Disruptive leadership must be purposeful and backed by vision.”
Another good one from Ted Santos talks about how good leaders create problems:
“What separates great leaders from managers? One way to tell the difference is to compare the mindsets of leaders and managers. Managers are great at problem solving. Leaders, on the other hand, exude their greatness at creating problems.”
A disruptive leader stirs the pot, thinks outside the box, is willing to challenge the norm, thrives on change and uncertainty, and most importantly, is able to navigate the rough political waters that are inevitably created in reaction to various disruptive strategies and leaders. A disruptive leader creates a company culture that encompasses all of these concepts.
These leaders are few and far between. I loved a quote from a recent article in The Economist about the career of Mr. Ramadorai, CEO of one of India’s largest software outsourcing companies, how he believes that dealing with adversity only makes companies stronger. “If everything is peaceful, 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.