South African companies are slowly waking up to the concept of disruption and radical innovation, but they are still not taking the impact it can have on their business seriously enough.
According to Grant Thornton’s second quarter International Business Report (IBR) research, which researched awareness of disruption and risk among South African businesses, almost two thirds of companies (63.4%) in South Africa believe disruption and innovation will have little to no impact on their operations.
The IBR provides tracker insights from around the world on a quarterly basis. These findings are from the IBR’s second quarter tracker data for 2016 to end June, revealing findings from business executive interviews held during May and June 2016. Regional and national perceptions are also researched every quarter for South Africa, from executives at 400 privately held business annually (100 executive interviews per quarter) regarding crime, service delivery, B-BBEE, IT security and disruptive innovation risk and political climate.
Disruption, which goes hand in hand with radical innovation, encompasses the way that completely new processes, products or services are created, sometimes creating entire new markets and marking a dramatic shift away from existing business models, products and services.
Asked specifically whether their businesses were actively investigating or experimenting with possible radical innovation to change or introduce new business models, products or services, 18% of South African business executives indicated that they were not taking any steps to address disruptive innovation; 35% said it would not be applicable to their business; and 10% had no idea if they would be affected or not.
In contrast, of the 100 business executives surveyed during the second quarter of 2016, 11% were seriously planning to launch a new business model, products or services and 25% were investigating possible innovative and disruptive ideas.
Grant Thornton director of Advisory Services, Michiel Jonker, says it was clear that companies have difficulty in developing foresight and were not doing enough to gauge just how much future possible events and technologies would affect their industries. He said the IBR data made it clear that innovation and disruption were clearly not part of business risk registers and strategies of companies across industries. And foresight is missing in business strategies in general.
“South African companies need to be aware of the new technologies and developments/innovations that can be advantageous to their operations. ,” says Jonker. “My concern is that, according to our research, so many companies did not even know what disruption entails.”
“What Uber has shown us is how simple it is to completely disrupt a market and at the same time create a new market. It has opened the doors to people who would never have used metered cabs while at the same time, the disruption on the vehicle rental industry is still unknown.”
Of the 64% of respondents who indicated that they had a business risk strategy in place, just more than half indicated that their risk plan factored in disruption. This means that almost 50% businesses still do not consider disruption as a serious risk (or even ‘Black Swan’**) during risk strategy formulation. Not to mention the opportunity to disrupt their own industry.
According to the 2016 Global Innovation Index, South Africa ranked 54th, behind countries like Mauritius, Thailand and Chile. The Global Innovation Index surveys the innovative capacity of more than 100 countries around the globe. The ranking is based on 82 indicators across seven areas: institutions, human capital and research, infrastructure, market sophistication, business sophistication, knowledge and both technology and creative outputs.
South Africa’s position indicates that research and development spend is well below average which makes it susceptible to new technologically savvy entrants from other markets.
Jonker says it is imperative to embrace the fact that while disruption or radical innovation could pose a threat; it also offered exceptional opportunities to forward-thinking businesses. He said innovation was also a vital driver of economic growth and particularly during low growth cycles and it should not be viewed in isolation.
“Too many businesses still think they don’t have to think of disruption and that’s alarming. Technology disruption – such as 3D printing; robotics; digital medicine; and nano-technology – in particular has the ability to affect entire industries. Although there is more awareness these days, there is not enough attention given to it at a strategic level.
“Some industries think they are not susceptible but any sector can be affected. Take 3D printing which can be used to manufacture mining and engineering components to spec and on site. This would affect importers, freight forwarders, and of the course the manufacturers of the components as well.”
“And while businesses generally treat technologies in isolation, the real opportunity (and risk) presents itself in the convergence of these technologies. The convergence of 3D printing and another technology like the nano-material Graphene, which is 300 times stronger than steel yet flexible, presents both possibilities and threats,” he said.
Jonker says that increasingly companies needed to understand how technologies converged, and appreciate the speed at which technology was improving; while simultaneously ensuring that executives had the foresight to anticipate the effect on its operations.
“Many people don’t know that Kodak invented the first digital camera. Yet the company decided not to embrace the technology because they opted to focus on their (perceived) core business of paper and chemicals. Today Kodak no longer exists,” says Jonker.
“In the end, the challenge for every business is to disrupt itself. Those who refuse to do so will be disrupted by others or new players in the market. At a macro level, the economy needs creative destruction in all industries to spur the next economic growth period,” he concludes.
**Black Swan – the outlier (unforeseen) risk that can destroy an organisation in one fell swoop