Breaking the bank

I have mentioned Safaricom in this blog several times as an example of a classic disruptive leader and touted their M-Pesa text-based payment system as a game-changing service targeting the bottom of the pyramid (BOP).  But a recent article in the International Herald Times showcases the challenges this service and others face.  In truth, any project, product, or service that needs to tap into an emerging market banking infrastructure faces significant hurtles.

These include regulatory compliance, the banks’ reluctance to open their back-end systems to other companies’ technologies, and overall complexity of implementing these services.  According to the article, Visa and Mastercard are aware of the opportunity and watching on the sidelines.

When being “disruptive” is a good thing

This is a reposting of an article I wrote last week for NextBillion.net.  NextBillion is a site that “brings together business leaders, social entrepreneurs, NGOs, policy makers, and academics who want to explore the connection between development and enterprise.” While a few of the ideas are covered in the About section of this blog, I wanted to delve deeper into the concept of being a Disruptive Leader.

Someone or something that is disruptive is usually associated with a negative. The subprime mortgage crisis has disrupted financial and housing markets. That’s bad (and getting worse!). 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 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 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, are the foundation of my belief that a disruptive approach is the way to go when building businesses focused on selling and improving the lives of the poor.

Safaricom has figured it out …

I wanted to comment on a June 2008 article from The Economist from June 2008 since it directly relates to my previous post on being successful in emerging market countries.

A multinational company, Vodafone, builds their business and brand locally in Kenya through their local subsidiary Safaricom. Vodafone is completely behind the scenes. The visionary leader is Michael Joseph, a South African who took over in 2000. I was in Kenya in 2006 and clearly remember the big Safaricom billboards. I never realized they were owned by Vodafone and I’d argue most Kenyans didn’t know either.

This is an emerging market success story because they did the right things to grow business in emerging markets, blowing away expectations with Vodafone’s top brass:

“Vodafone’s bosses reckoned that the Kenyan market would top out at 400,000 customers. Yet Safaricom alone now has 10.5m. It is the most profitable business in eastern and central Africa, earning profits of $223.7m in the financial year to the end of March, up 16% on the previous year.”

So what was Safaricom’s approach?

“Michael Joseph quickly decided to go after “pay as you go” customers, who pay for mobile airtime in advance, and therefore do not pose a credit risk to the operator, though they spend much less than wealthier (and less numerous) contract customers. He introduced billing by the second—a big deal for those earning just pennies a month. And he revamped the firm’s brand, reasoning that the poorest customers are the most price-sensitive, and that a strong brand can help keep them loyal.”

So # 8 on my Top 10 list was:

• Evaluate alternative business models for packaging, selling, distributing, financing and servicing your products and services. What works in developed markets (e.g. Dell’s direct-model) does not necessarily work in emerging markets (e.g. retail PC stores prevail).