Finding Our Way: The importance of investing in R & D for SME Development

One of the areas that I am strongly passionate about is Research and Development (R&D).   R & D leads to innovation.  It is no wander that in the early stages of setting up operational divisions for SME Association of Zimbabwe (SMEAZ) in 2011, I instantly asked the CEO and Chairman at the time, why their executive committee had not included an R & D Committee.  After all, if SMEs are the engines of growth in a given economy; then why would R & D not be part of that agenda?  After, punting my defense for R &D, as if I was defending my PhD thesis, the CEO graciously accepted my proposal to have an R & D Committee; especially to support the Advocacy & Lobby Committee and Market Development Committee.  Why support these two committees?  Well, what exactly would SMEs be advocating and lobbying for if we as a sector do not take upon ourselves to provide scientifically research-based studies to support 1) a specific policy design and implementation that we would like to take to parliament; and 2) discovery of new products to market to both existing markets or new market; aka finding our ‘Blue-Ocean.’  

What is SMEAZ all about?

To summarize, the SMEAZ was founded by Farai Mutambanengwe in the pursuit of providing support to SMEs in both the formal and informal sectors in a centralized and structured manner.  In addition, for SMEs to start working in collaboration with each other to improve  value chain process’ within an industry and/or sector as opposed working in individually and at odds with each other in an informal sector where it is both uncompetitive and impedes sustainable innovative products and services to market. 

For more information about the various committees and how you can volunteer your services, please visit: http://www.smeassociationzimbabwe.co.zw/index.php/contact-smeaz/smeaz-address.

Surely, SMEs don’t need R&D; because they are running business’ they are already innovative,correct?
Studies have shown that small business ownerships does not translate to entrepreneurial capacity.  Hence, that is why Zimbabwe can have approximately 90% of SMEs running formally and informally in the country but not making any meaningful economic impact to the country’s  GDP and Innovation Management System (IMS).

Therefore, it is my belief, that the primary purpose of the R&D Committee is to gather a critical mass of first-class Zimbabwean scientists and give them large enough grants on a continuing basis, as well as sufficient infrastructure, to enable them to undertake meaningful problem-solving R&D applied to industrial production that will lead to really important results of economic growth.  The sectors that would require such investment in R&D are:

• Agriculture
• Manufacturing
• Mining
• Tourism
• Energy, Infrastructure and Transport
• Education/Services (There is a huge gap between what the market needs in terms of job requirement and what the Zimbabwean education system is producing).

So, if you received funding for venture capitalists; international organizations and private sector;  what are the benefits to the investor?

1. Each outcome of the research should lead to a specific policy design and implementation. There-by, making an impact on institutional frameworks that affect the SME sector. 
2. Each outcome of the research should lead to specific product or service to market in Zimbabwe, that is both scalable and has a social rate of return NOT just a private rate of return to the society, businesses and government.

Conclusion

Whilst I commend the Government to an improvement on the Industrial Development Policy (IDP) 2012 – 2016; I am still dis-heartened by the fact that they are still not making R & D a priority in economic growth of this country.  This is highlighted by the following statement:

Greater financial support for innovation and technology is necessary in order to contribute to the national target of increasing and sustaining Research and Development (R&D) expenditure to 2% of GDP.  – IDP2012 - 2016 (2012)

Two per cent?  The reason why advanced economies are ahead of emerging market economies when it comes to innovation is because their R & D expenditure is more than 20% of GDP.  Thus, it has become a purpose-driven mission to:

·         Identify any institutions and organizations that will support R&D center(s) in Zimbabwe for SME Development.

·         Pro-actively seek donor fund allocation to R & D activities.

After reading the IDP 2012 – 2016, it dawned on me that Zimbabwe’s issues run deeper than the lack of innovation systems and the need to recapitalize key sectors.  Though IDP mentions initiatives around ‘clustering’ a concept born by the famous economist Michael Porter (1990); the country’s sectors continue to suffer from an inherited culture of closed innovation system of self-sufficiency of individual firms and industries.  This business model is at odds with the new knowledge-based landscape of the twenty-first century.  In essence, the R & D initiatives, seeks to support policy makers and industry stakeholders to continuously provide operational innovation management systems via various macro and microeconomic policies including cluster policy design. This is critical to the re-birth of the Zimbabwean economy 2012 and beyond!

Copyright @ 13 November 2012.  BlogSpot by Tambu Ndoro, Strategist & Innovation Expert at Hanga Consulting (PVT) Ltd, (2011). Visit www.hangaconsulting.com on Sustainability Workshops: Social Entrepreneurship; Sustainable Marketing, Strategic Leadership and Change and Innovation Management.

Suggested related readings from my blog NEW CONSCIOUSNESS:

http://tambu-ndoro@blogspot.com

1.          “The New Consciousness: Sustainability”:

http://tambu-ndoro.blogspot.com/2011/01/new-consciousness-sustainability.html

 

2.          “Building Sustainable Business Models”:

http://tambu-ndoro.blogspot.com/2011/08/building-sustainable-business-models.html

 

4.          “Part1: The Ramblings of an African Child”:

http://tambu-ndoro.blogspot.com/2012/01/part-i-ramblings-of-african-child.html

 

Customer-cultivating journey: an emergent strategy

An emerging enterprise post-financial crisis, suffers business-continuity under the harshest unregulated and heavily monopolized markets.  For any business no matter how big or small to thrive in any market-economy, it has to have promising and preferably already existing prospects.  Prospects are the company’s target market.  There are two main factors that divide the purchasing and consumptions habits of the consumer market: geographic and economic diversity.  The Zimbabwe Advertising Research Foundation (ZARF) provides a tool to cope with this diversity in order to facilitate market research. The Living Standards Measure (LSM) is a wealth measure based on standard of living rather than income. It divides the population into 10 LSM groups, 10 (highest) to 1 (lowest). The ZARF LSM is a unique means of segmenting the Zimbabwe market mainly since it groups people according to their living standards (or socio-economic status) using universal criteria such as degree of urbanization and their ownership and use of 29 goods and services. However, the most recent LSM figures available for research are 2004 prior to dollarization.  Therefore, without recent LSM figures including the impact of dollarization, it proves challenging to base any understanding of the Zimbabwean target market in general.  As a result, we rely on the LSM 2004 average monthly household income as it has an impact on the consumers’ purchasing and consumption behavior of products in Zimbabwe. 

The average monthly household income in 2004 was $2,519 (ZARF AMPS, 2004). Figure 1: Average monthly household income (2004) shows that both marginalised and emerging consumers earn less than the average household income, with only 6% of the population (established consumers) earning above the average monthly household income. These statistics are representative of a much skewed market in terms of income potential, with over 23% of all household income earned by 6% of the population; whereas 11% and 17% of all household income earned by 27% and 32% of population respectively,  (ZARF AMPS, 2004). So, as a local practitioner, emerging or established, which area of the population would you seek your product to reach?

Generally, local industries show a specific lack of knowledge about the emerging consumer, post-financial crisis by focusing merely on brand-driven strategy, as opposed to customer-driven strategy.  Brand-driven strategy, is the value of the brand attached to the product. The old traditional approach focused on marketing the products with very little interaction with the customer; whereas, customer-driven strategy focuses on cultivating customer relationships, i.e. building long-term prospects.   Research shows that the degree of high urbanization correlates with a high LSM.  Hence, if an industry is brand-driven in Zimbabwe it is focus’ on only 11 per cent of the population (LSM 7 & 8); and since the target market is so small why spend so much more in in not so thought-out advertising campaigns, to target on 11 per cent of the population?  Marketing communication strategy to LSM 7 & 8 target market is more likely to be more receptive to advertisement such as print media.   Local brand marketers need to have a behavioral scientists approach to the emerging and established consumer and they largely overlook the power of print media in this segment especially among LSM 7 & 8, for whom information seeking is an important part of their social life and an integral part of cultural heritage.  In addition, research seem to suggest that this group is mostly likely to experiment with other brands, hence are 50% less likely to make a choice to purchase a product based on image of the brand.  Whereas in contrast, 72 per cent of the population in Zimbabwe are rural and low disposal income earners, classified as LSM 1 – 3.   According to a market research study conducted by University of Stellenbosch in 2010, rural communities are most likely to be loyal to brands, as low-disposable incomes coerce them to buy products they perceive are reliable and permanent; hence trusted brands are still preferred. 

 

The Print Media Tradition: Newspapers

It is essential for Marketers to acknowledge that print-media is embedded in a industrialized culture.  The degree of industrialization present in a country is correlated by the type and dominance of mass media communication channels: print media.  Industrialization continues to have a deep-seated influence on how Zimbabwe continues to be economically viable.  Most research has found that countries with a high level of industrialization prefer to rule via mass media communications.  However, as a result of local growing readership in the media-business locally many Advertisers may place increased value in the newspapers.  Print media communication still has a major place in the Zimbabwean lifestyle. 

Research shows that products that command huge budgets for adverts in Zimbabwe are a) alcohol – National Breweries b) condoms - Population Services International and c) cigarettes – South Pacific and according to Revenue Report of the Herald and the Sunday Mail, Delta Corporation is the number one newspaper advertiser.  This is because newspapers have a wider circulation figures than any form of mass media communication.  Whilst Radio and TV are dependent on installation of satellite technology to be able to access consumers located in remote geographic areas.  Newspapers still possess the upper hand in ability of distributing to geographic areas where technology is yet to see the light of day.  This illustrates the strength of print media among Zimbabwean advertisers and their general reliance on newspaper as a trusted source of advocacy, entertainment, news and public service announcement.  However, does this mode of communication strategy translate to USD$ revenue? Favorable, advertising revenue for those in the publication sector will come to pass but not necessarily for the advertiser seeking to sell their products via this communication strategy.  So, what’s missing?

Customer-Cultivating Focus

While the traditional marketer is more aligned with the conventional selling mind-set (develop product, seek customer), the marketer of today pursues the customer first to find out what they need and fulfill them (find customer wants; fulfill their need).  Fortunately, Zimbabwe is full of those state of affairs in the public service sectors: water, sanitation, energy, public housing, renewed and improved road network system; internet banking, technology innovation for agri-business and manufacturing; etc., the list is endless.  Hence, private sector development solutions are required in our local market-economy.  Whilst the unemployment rate is bordering on 93% (2011); and Zimbabwe is said to be on the verge of political change regime, SMEs/private sector solutions are detriment to the survival of Zimbabwe’s market-economy.  Therefore, the answer lies in understanding the domestic markets specific basic and advanced needs and seeking to provide solutions that meet their needs.  It’s a win-win solution.  However, Zimbabwe’s solutions can no longer continue to be isolated from its socio-economic status.  Thus, failure and procrastination to being customer-cultivating agents at a private sector level is bigger than the SME/private sector itself, it is also a national crisis.    Figure 2: Customer Marketing Department proposes what the new marketing department should look like both at a public and private sector level (Harvard Business Review, 2010).

Customer Relationship Manager (CRM) – is a tool for weighing customer needs and behaviors.  Currently this role sits with IT, HR MIS departments in the banking sectors locally, regionally and internationally.

Market Research – Traditionally, this function focus’ on examining the media management statistics associated with the company’s product, brand usage behaviour and brand discussions in communities, (Harvard Business Review, 2010).  Market research in a customer-centric organization will have a broad understanding of the firms and its product, and a deep understanding of each customer segments. 

Research and Development (R&D) – The mistake that most start-up make is seeking advice about the best product to market from the producer and not the customer.  For example, if we decided to diversify our portfolio by opening up a restaurant in Harare, would I seek to get advice on the best food offering to market from the Chef or from the customer, particularly from the location we would have chosen to operate from?  Most times, the Chef is the one who is approached in answering this very important question.  When a product or service is about easier preparation and crafty production than it is about customer needs, revenue can dwindle.  So make sure that the product or service you offer, offers real-world need by bring the customer into design process.  Combining marketing with R&D is not only practical but more sustainable.

Customer Service – Cultivates long-term relationship by keeping track of your customer’s purchasing habits. I recall once some years ago visiting a video store in Johannesburg.  I had registered myself a member at this particular video store and when I came to the till the check-out my video collection, the till-operator/sales person, about 17 in age, smiled sheepishly, I inquired why the sudden giggles they indicated that one of their colleagues had put details under my customer profile that ‘I was very x10 extra nice customer.’ That was their lingo to take exceptional care of this customer as they create value to their company.  Honestly, I can’t recall how many times I patronized that particular video store, so it was a wonderful surprise to note that a reminder had been ingrained in their CRM system to ensure that they keep track of me, the customer, though additional information may need to be inputted to be able to gain meaningful insight on the type of videos I liked to check-out the most!  

In conclusion, identifying a company’s marketing communication strategy is important, gauging what your customers’ needs are is critical to business-continuity.  The post-financial crisis no longer has room for conventional advertising that is purely applied across the board, instead of taking advantage of different customer profiles inherent in communities which would make it simpler to cultivate relationships with specific communities.  However, we understand that this transformation will come at a price where brand managers will fight for the relevance of their job functions; R&D/Market Researchers will battle to keep some autonomy and most important IT personnel will want to cling on to CRM.  This is because transformation in itself requires overcoming imbedded interests, hence will not happen organically.  Change can only come from top down.

Copyright @ August 19, 2012.  This article was first published online on BlogSpot by Tambu Ndoro, Revenue Strategist & Business Owner at Hanga Consulting Private Ltd©2011.  www.hangaconsulting.com.  Hanga Consulting  is also a premier member of the SME Association of Zimbabwe: www.smeassociationzimbabwe.co.zw

The Best Market Opportunities for SMEs is Process and Product Innovations

We are now in the age of a market-driven economy, as opposed to the manufacturing-driven economy that dominated in the last industrial-age.   At an African level however, we are yet to emerge from the agrarian model into a full-throttle manufacturing-driven economy.   This means that Africa is not ready to serve the global market directly with its immature industries, under-developed infrastructures and vague policy measures that do not prescribe the level of local private-sector participation.  Africa can only serve the global markets via international partners with the technology know-how; a strong appetite to deliver value to customers; and vision for sustainable development in the African economies they participate in.  This grossly has an impact on African economies supply-side.  Hence, it becomes imperative for SMEs to play a crucial role by becoming the ‘middle-man’ in the market, through process and product innovation.  Hence, there are three (3) aspects to consider when looking at reconfiguring local supply chains: a) import process innovations from BRICs (Brazil, Russia, India, China, and South Africa) countries; b) reallocate R&D to where the researchers and the market growth is, Pankaj Ghemawat, 2007 and c) product and service innovation to cater to under-provided segment markets. 

Importing Process Innovations

In Zimbabwe there is an urgent need to shrink the country’s trade imbalances.  Thus, on the supply side, numerous shifts are already in play.  The rise of protectionism and concerns about high unemployment rate of over 60% in a country that is estimated to account for at least 25% of the global supply of rough diamonds, according to Bulawayo24, (May 22, 2012) is quite unfortunate.  In 2009, the Zimbabwean government is said to have set up a diamond processing plant at Harare International Airport in an effort to process the diamond for immediate export out of the country.  However, according to the Industrial Development Policy (IDP), the key strategic objective is for ALL the sectors to espouse a value addition approach.  This means that exporting ONLY processed diamonds is not what the IDP had in mind.  A total of 2,000Ha of diamonds out of a capacity of 67,000Ha, can be processed, polished and packaged locally.  It is estimated that this could bring about approximately 3,000 jobs in the industry.  Deriving lessons learned from South Africa, India and China about value-addition in such supply chain of diamonds and extraction of natural resources would provide one of the best market opportunities for SMEs.

Re-allocation of R&D

Developed countries can benefit enormously in placing their R&D in the areas in which there is market growth and potential.  Whilst, the Global Competitive report, (IMD, 2011) projects a low number of supply of engineers and other technical personnel in the BRICS country compared to the Western countries; the education sector has a high number of graduates of universities and technical schools particularly in India and China.  Thus, a company in the high-growth industry like high-tech with interest in emerging market economy like South Africa can start thinking about basing their R&D efforts in those countries.  In other words, SMEs can act as an incubator for large corporations with interest these markets.  For example, in 2008, Intel had designed one chip in India which led to the rolling out of XEON 7400 processor worldwide, (Pankaj Ghemawat, 2007).

Product and Services Innovation

SMEs have to start developing products and services that are essentially unlike what they are used to selling.  Hence, how an SME prices, provides an infrastructure for service and even taste of the good becomes very central.  According to a brief in African Business, July 2012, in Tanzania, farmers in Arusha are using a new technology called the Bio-Agtive Emission Technology (BAET).  The BAET has the ability to transform toxic farming machinery fumes into soil fertilizer.  This product was developed by a private company based in U.S.A called N/C Quest Incorporated.  The BAET is described as a paradigm shift way of thinking by both its creators and end-users. 

In conclusion, whilst SMEs continue to be the engines that spur economic growth, it is important to clarify the unit and level of analysis (Linton, 2010) of their contribution to each sector.  What Africa needs more of, are the type of SMEs that develop and improve on existing innovations in the market.  This can either be done by collaborating with large cooperation in need of a type of ‘surrogacy’ to nurture the new product to be developed for the market or alternatively; SMEs gain access to financing explore products and services developments that are both market-driven and offer a value-addition component to the supply chain.   

 Copyright @ August 5, 2012.  This article was first published online on BlogSpot by Tambu Ndoro, Revenue Strategist & CEO-Founder at Hanga Consulting Private Ltd©2011.  www.hangaconsulting.com.  Hanga Consulting  is also a premier member of the SME Association of Zimbabwe: www.smeassociationzimbabwe.co.zw/

Don’t underestimate the value of a sound strategy

We are in our 7-months of operating in Harare.  Since, our inception we have gained three (3) major home-grown Zimbabwean clients.  As a small enterprise it is humbling to have proudly Zimbabwean brands supporting a young small enterprise such as ours.  After all, we have no track record of management consultancy as an organization, although we do so at an individual level.  We have no huge corporate account with multinationals to endorse and/or validate our existence in the market and in addition, we are a young forward-looking new-kids-on-the-block; who is too 'green' to be distracted by the difficulties of non-functional existing networks.  Instead, we are equipped with ambition, hope, bravado and communication skills.  Yes, communication.  Something, that seems to be somewhat displaced in the fabric of our society but more so in business.  This is because as consultants when our client decides to get us on board to assist them on specific initiatives, more often than not, the client thinks that they know what the direct problem is.  They often come to us with pre-packaged solution. For instance, they will come to us saying we need to increase sales in our business can you come up with a market strategy.  However, what they sometimes often do not see is that a market strategy is just a ‘communicative-objective’ from the ‘business strategy’.  What’s the difference?  A business strategy says this is how our organization will work in order to reach our overall objective(s).  A market strategy says these are the promotional activities we will do to attract our clientele.  Hence, before we can draw up a market strategy, we need to investigate what the business strategy is?  Why?  The business strategy is the entire business model, the DNA of the organization.  It stipulates how the organizational system should work in its current economic environment to achieve its primary objective(s).  Failure, to disclose to the consultant or suppliers in the value-chain model how this system coordinates with its various suppliers; value-chain-processes and even to its own shareholders, will result in an entity that operates below its operating performance.  In addition, will not derive profitable returns to its stakeholders.  So, as practitioners, entrepreneurs, consultants in the field of strategy formulation and execution; what are the key factors in identifying that your business model IS attractive to internal and external suppliers; marketplace and the consumers:

  

• Understand your suppliers’ business model.  In emerging markets economy we often underestimate the importance of understanding our supplier’s value proposition.  We often adopt the elitist thinking that if we are providing business to our supplier then they should be profitable.  Think again.  What this results in is an incomplete vision of the partnership.  For example, we were hosting a FREE, networking function and we hired a supplier in the beverage industry to supply alcohol at the event.  When, I asked the supplier what the protocol is in supplying alcohol at an event, they indicated that they had to pay a $350 alcohol license fee just for the 2-hour event.  Having this insight, re-adjusted our outlook on the networking function.  In the future we will include a fee for the networking event so that we can support our suppliers.  Supporting our suppliers strengthens the value-chain.  By doing so, it may free-up the supplier to invest in product-volume or product-variety.  Another example, is when we mistake the supplier's value proposition as it's core revenue-generating activity.  For example, if we were a supplier of wines as a finished bottled product.  We would need to seek a supplier who has a good strong distribution network throughout the region(s).  Whilst the supplier will have strong distribution networks, their core revenue-generating activity will be in their promotional activities of the wine we supply.  You see, the easy part is getting the product to retail outlets but hard part is convincing that customer who walks in the shop to buy YOUR wines over another.  So, in essence, you may find that your distributor may own the retail outlets but unless you support their core business which in essence is strategic product-placement they may as well put your product behind another brand on shelves.  Unless 'incentivized' to do so.  How well do you think you understand your supplier's value proposition?

• Understand your marketplace.  Any marketplace needs to be scrutinized in an effort to adopt a prescriptive or emergent strategy or a combination of both.  Understanding how fluid the marketplace is will assist companies in determining 1) how to price their products; 2) how accessible the product needs to be to the consumer and 3) which products to supply to consumers, when and how.  For example, the Wine industry in South Africa understands that the South African consumer buying behavior and preference of wines changes according to seasons.  During winter, the sector experiences a high growth in red wines, liqueurs, whiskeys, Sherries brands.  In summer, a high volume of white wines, fruity wines, ciders and beers are most preferred.  Understanding the marketplace allows your company to revisit the business model to adjust specific marketing activities that match the current trends.

• Understand your consumers.  Keeping abreast with buying-behaviors is one thing, having customer insight is another.  You can develop a product for the general masses but if it only appeals to a particular demographic or social class; your organization will exert most of its resources on promotional activities on mass media and marketing campaigns that may seem fruitless.  As a result, one can fail to appreciate the role marketing costs places in generating revenue for your organization. Therefore, it becomes important to understand who your clients are and only spend energy on the client that creates value to your organization.

These three points, highlighted above may seem like common sense but one is so often amazed at how uncommon these practices are in developing/emerging marketing economies.  This may be due to the fact that as business’ grow through their business life-cycle from the growth stage to maturity; business’ overlook the simple details that allowed them to prosper and grow their markets initially.  Don’t underestimate the value of a sound strategy!

By Tambu Ndoro, Strategist/CEO-Founder at Hanga Consulting (PVT) Ltd, ©2011.                       Website: www.hangaconsulting.com  Email: tambu@hangaconsulting.com