5 Reasons Middle East Companies Miss Disruptive Innovation
What do cell phones and Amazon.com have in common? Both are popular technology in wide use today – but it wasn’t always that way. When cell phones and Amazon.com were introduced, they served the needs of a few people who were eager to try them, even though they had a few shortcomings. In the case of cell phones, users had to tolerate lower voice quality in exchange for the ability to call anyone from any place. In Amazon’s case, not everyone was ready to browse a store online and send their credit card information over the Internet.
Today online stores like Amazon.com are extremely popular with shoppers all over the world. And cell phone usage has exploded to 5 billion users as of July 2010. This number is expected to rise exponentially, as the industry average is currently 60 million new users every month. Compare that to the 74 years it took for the telephone to reach 50 million users, and you see the power of technology in action – as well as the influence of disruptive innovation.
Cell phones and Amazon.com are examples of disruptive innovation, so called because this type of innovation disrupts the current market, which is dominated by an established market leader. In the examples above, the market leaders were “land line” telephone companies and brick and mortar stores, which are now dominated by cell phone companies and online merchants. The disruptor becomes the market leader!
Where are the Disruptors in Middle East Northern Africa (MENA)?
Disruptive innovation is a way for startups to differentiate themselves and target a path of growth. For established organizations, it offers a way to go beyond incremental and even breakthrough innovation to remain profitable and relevant. As such, many companies have incorporated disruptive innovation into their strategies.
But in the Middle East, the lack of disruptive innovation strategy is very apparent. Why do we miss it? Here is what I think.
Bigger is Better – In the Middle East, there tends to be a mentality that “bigger is better” (taller in the case of our buildings). Fancy, feature-laden and more expensive is also thought to be better. But this is the opposite of disruptive innovations, which are by definition simpler and cheaper, at least when they first come out. Over time, disruptive innovations tend to add functionality and increase in complexity and price as the market for them grows and diversifies.
Behind the Curve – Middle East companies place a lot of value on what is popular elsewhere and we like to import products and technologies. So we are always behind the curve, not leading it. But by trying to give customers what they want today, and investing only in these offerings, we don’t dedicate any resources to figuring out what customers will want tomorrow. We don’t do market research on trends, we don’t try to develop strategic foresight. So all our innovations are sustaining and incremental, never disruptive or breakthrough.
Fear of Failure – In some cultures, including the Middle East, there is a serious stigma attached to failure. There are even legal implications for new businesses that fail. This makes many companies here risk adverse. They only pursue “safe” incremental innovations (process improvement and product/service upgrades) as a rule, and consider breakthrough innovation to be very risky. Disruptive innovation is way beyond their comfort zone.
Money Matters – Many Middle East companies are large organizations that require large revenues to survive. So the idea of producing a less profitable product/service for a smaller market does not make financial sense. Also, we don’t have internal incubation models, so large companies here don’t know how to incubate disruptive ideas internally and spin them off into successful product lines.
Falafel Shop Syndrome – As I have mentioned before, there is a “falafel shop” syndrome here that results in many startups and SMEs that have similar offerings and are not differentiated. This is partly due to the idea of entrepreneurship being relatively new in many MENA countries. Also, there are many difficulties to starting a business here (funding, paperwork, learning curve). It doesn’t seem logical then to enter the market with a risky (disruptive) idea when so much is involved. You want a “sure thing.” The problem is that everyone else wants a sure thing too, and will be competing for the same business. So, you end up with a small piece of a large pie, instead of the whole pie to yourself.
Balance and Research are Key
Just as people need a balanced diet to stay healthy, established organizations need a balanced innovation portfolio to survive and grow. This requires a mix of different types of innovation – product/service, operational, management, and business model innovation. It also calls for a strategic mix of innovation project risk, from incremental (or sustaining) to disruptive. Knowing the right mix for your organization is the key to a successful innovation strategy.
For startups, if you want to enter the market with a disruption, you have to do your homework to make sure there is a market for your offering, and have reason to believe it will grow. This is where business model thinking will help you determine if your disruptive innovation is economically feasible.
Steve Jobs, founder of Apple, once said that innovation distinguishes between a leader and a follower. That’s no longer true. Now it’s innovation strategy that determines who will lead the market, profit and thrive. Companies that don’t have a strategy for innovation will simply be left behind.
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Kamal Hassan is President and CEO of Innovation 360 Institute, and is responsible for leading the company’s global operations and customer acquisition.
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Kamal, this is a great article that truly reflects the situations of majority of companies in MENA, yet I think there are few exceptions out there, but those exceptions have big partners overseas, which brings us back to square 1.
This is the first time I am reading about the Falafel Shop Syndrome, but it certainly rings a bell. I’m from Malaysia and the sister syndrome here is called the TomYam Shop Syndrome. In general, I think your other points are pretty much directly applicable to the situation here too. Question is how to engender change in mentality.
Great article, required reading for entrepreneurs and people who work with them. It illustrates why entrepreneurial support is so necessary to new companies in the region.
Great and true article, Kamal!
I believe also that in the region (at least in Egypt where I am currently based) there is a the stereotype associated with what you called “Behind the Curve.” MENA companies not only look up for those in the West but consider them to be better than their own.
I also see a big problem in the business etiquette of MENA companies. Many companies and their top managers mix personal and business relationships and think of business innovation as an affront to what is current and “working” for their businesses. Some also use the common excuse of “this region is different; it won’t work here” when facing a new approach, especially Western.
very good analysis summary of the current status of innovation in the Middle East !
There is a lack of true leadership and visionaries in the Middle East, strong role models for the new generations, that can breakthrough this negative inertia.
It all boils down to: “Education and Culture”.
We need an education and culture that promotes academic and professional excellence and not the easy life of minimum effort.
I would add that many times CEO’s don’t really know what innovation means at its core sense. I feel that for many decision makers, “innovation” its a trendy word that they need to use at least once a week to look as if they are keeping up with the pace of technology.
Innovation is not something you can mandate: tomorrow everyone will be innovative in the ME…
Its not about money guys!!!…it’s about the spirit, people that promote it need to breath innovation and not just have an innovation title that looks nice in the Org chart.
Once again the secret is “Education and Culture”, we only need to choose the right people to help us build the true innovation of the future generations.