Turning the page…

Another interesting year is rapidly winding down. This year, I had the chance to work with many gifted business and tech leaders, but it was particularly satisfying collaborating with innovators in developing regions — the Sub-Sahara, the Middle East and South Asia.

It’s time for Western multinational companies — especially those in the customer-facing sectors — to enter developing markets where consumer-led growth is robust but capital and resources are in short supply.

Many Westerners have misconceptions about working in emerging markets. For example, they assume that the transfer of knowledge flows only in one direction — from us to them. But our clients in developing regions bring a keen understanding of their markets and what’s needed to elevate their businesses. We typically learn as much from them as they do from us.

Innovation Hothouses

Some of the most interesting business and technology breakthroughs are now coming from developing markets which have become hothouses of disruptive innovation. Behold the $2,500 car, the $25 business hotel room and the $25 mobile handset that provides service for just 2.5 cents a minute.

Developing innovators are finding novel ways for using mobile phones to perform vital functions like transferring money, paying bills, monitoring elections, diagnosing and treating illnesses, and buying and selling food. Each of these breakthroughs was created by inventive, driven entrepreneurs and engineers to improve the lives of consumers in their markets.

Those who aspire to work with innovators in developing regions must recognize the unique challenges that they face.  While conditions are generally improving, operators are often grappling with government red tape, dodgy distribution networks and difficulty securing credit. They demonstrate in quotidian ways how to overcome the kinds of constraints that would crush many Western enterprises.

Price of Admission

To contribute to and benefit from opportunities in emerging regions demands the wise use of capital, talent and resources. Understanding the market and culture are essential. Patience and perseverance are crucial.

Working in these markets also obliges us to give a portion of our time and resources to lend a helping hand where it’s needed the most. Whether that means donating digital equipment to bridge information gaps or mentoring a new generation of leaders, each of us can have a lasting impact.

Serving developing markets isn’t for everyone. For those who are fiercely determined to make a meaningful contribution on a global stage, the rewards outweigh the inconveniences.

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Want more?

I suggest a book, Winning in Emerging Markets, by two Harvard professors, Tarun Khanna and Krishna Palepu. They write, “Companies with ambitious emerging market growth strategies have no choice but to engage deeply with these economies – but the complex nature of these markets has made success elusive.”

Also have a look at McKinsey On Africa — a continent on the move, a “box-set” of essays and interviews about the opportunities and challenges in Africa.

In prior posts I’ve looked at how mobile phones are being used in emerging markets including in this tribute to Professor C. K. Prahalad who died earlier this year. His sage advice resonates. “Focus on becoming part of global citizenry. In exchange for the opportunity to participate everywhere/anywhere in the world you have the obligation to do something productive, which will improve the world.”

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Companies have begunb scrutinizing their value chains from the bottom up and the top down because none of our customers has the extra time or money to be wasted by underperforming partners or suppliers.   The smart  firms have already started this process in earnest. 

Organizations we work with are mustering the self-honesty and diligence to impose greater process discipline and rigor while, at the same time, becoming “turn-on-a-dime” adaptable.  To succeed in this low-demand cycle, businesses will have to focus on what matters most to their customers and relentlessly discard what’s leftover. 

With that in mind, our team this week looked at ways we can improve the quality of services we provide our clients. We convened a workshop in Chicago aimed at squeezing even more value out of our solution delivery model.   We asked ourselves, how can we build more capacity? How can we deliver targeted solutions to clients quickly while also eliminating complexity?  We’re always asking these questions but I can’t recall ever  approaching  them with more ferver and resourcefulness.   

Businesses everywhere are facing one of the most daunting questions of our age. Will institutions be barriers to helping their constituents succeed or will they be bridges to the future?  I think the latter is likely if we take the right approach.  According to our clients and partners, that’s What’s Next…

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He pointed out how the Southwest Airlines model is “disruptive” because their low-cost strategy targeted customers who had been using trains and buses and or those who used out of the way airports.

But, Christensen believes that low cost carriers have a limited shelf life, because the incumbents can ultimately match them on the cost side, whereas the incumbents can’t climb the value chain.

I wonder what comes next in the evolution of airline service models – few of which are working well in mature markets, particularly in the U.S. and Europe.  Carriers suffer from overcapacity during down cycles like this while customers receive less than stellar service.

Just when we figured there’s nothing new and interesting in the industry comes Virgin America’s innovative business model. Their planes feature custom-designed leather seats, mood-lighting, and the best in-flight entertainment (IFE) system in the industry with on-demand TV and movies, high end games, music and even online chats with other customers.

The IFE is a great example of how the airline got it right.  As a practical matter, customers can plug their devices into USB ports.  The real genius is that the system runs on twin Linux servers–meaning an “open source” platform that is equipped to handle a range of new software and harware add-ons down the road.  This innovation occurred because the company had the wisdom to recruit forward-thinking, Silicon valley engineers – not airline entertainment vendors – to design it.

And, the airline managed all of this using a surprisingly lean, yet scalable operations model.  By allocating costs on non-perishable components that customers value, Virgin has come up with an effective airline model that will alter the way we think about flying.

While the legacy carriers fight it out using conventional warfare, Virgin America is rolling out new, novel features that today’s high value customer desires.  That’s what’s next – along with more mergers among the majors.

P.S. [April 18, 2008], Notice Time magazine’s 4-17 article, “Richard Branson’s Flight Plan”.

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