Convergence new avenue for business growth
It is now a common news item, to learn about two organisations teaming up to create a bigger market platform for goods or services. This phenomenon is referred to as convergence.
In Kenya, technology and branch networks are proving to be the key drivers of convergence. The government through regulatory agencies is the enabler of innovations emanating from such joint ventures.
Let us learn from those who have done it, then later learn what it takes to get into a convergence relationship.
Let us begin with examples of technology driven convergence products and their resultant benefits to the organisations in question and the buying public.
Commercial Bank of Africa (CBA) teamed up with telco giant Safaricom to launch the M-Shwari banking product that has proved popular with phone users.
On its own, CBA hardly had 40,000 account holders before launching the innovation. Today, we know that it has more than two million account holders in the wake of M-Shwari.
Safaricom has provided a convenient platform to its subscribers and the results are nothing less than astonishing. Because CBA plans to venture into 10 African countries, it needed to be reasonably big at home so that it gets benchmarked favourably in its chosen continental markets.
Technology has proven to be the game changer in its expansion quest.
Insurance companies amongst them UAP and Pan Africa, have also linked up with telcos to reach wider populations of customers in a convenient manner.
On its own, insurance is a difficult sale and trusted platforms make it easier to sell insurance services. The traditional insurance salesman has been scandalised for long and here again, technology seems to be bringing much needed relief.
M-Pesa, the innovative payment solution with world acclaim, has enabled every business to have a safe way to pay for goods and services in Kenya and abroad. A lot has been written about this and many readers have experienced the power of this platform so we need not to say much.
Amazon bookstore has made it easier for books to be purchased conveniently. For authors such as myself, I am able to avoid upfront costs associated with traditional book publishing because, my books on sale at Amazon, are only printed on demand.
A customer goes online to order and it is the buyers money that is used to print and ship the end product. This has made publishing the affordable venture that has encouraged me to write my third book, which will soon be out.
My initial experiences with local publishers were bad and many others are moving on to safer platforms such as Amazon that provide royalties three times more than our local publishers and with no hassles.
The Android technology, has allowed the development of many innovative applications that are commercially viable through Android driven gadgets. This technology is affordable and widely in use and hence its preferred status as a convergence platform.
The Y and millennial generations are Android addicts and being the consumers that they are, makes it attractive to develop applications that would reach them conveniently. We have barely scratched the phone applications industry hence a lot of growth will be driven by this platform.
Universities are teaming up with other parties to generate additional revenue. One such initiative is the joint venture between Management University of Africa and a private company to provide counties a convenient revenue collection application that also maps out the exact location of the business via GPS technology.
How this works, might inform the Kenya Revenue Authority on how to collect taxes more efficiently. There are many other examples of collaborations with significant impact on both institutions and society.
We now move to branch network enabled convergence. Uchumi and UAP are providing insurance cover over the counter without involving the salesperson.
Recently, a vehicle battery manufacturer, teamed up with Equity Bank to provide credit for the purchase of new batteries. These two examples have phenomenal impact because they provide plenty of convenience.
Tyre manufacturers should follow suit so that people can afford new tyres given that the second hand market is responsible for many tyre bursts.
The convergence of the bank and traders, moves one-off heavy purchases to the convenient installment payments corner that is preferred by many would-be customers.
Now let us focus on what makes convergence tick. First, you must have a product that meets a specific need in a competitive market. Products that do not appeal will never move even if the best salespeople in the world was put behind the product rollout.
Second, identify the most ideal platform that would yield phenomenal growth for you. Telcos work well for some of the industries that we have mentioned while branch networks is suitable for others. It just depends on where you are.
From the platform providers side, reputational risk is a key concern. A joint venture is meant to be symbiotic and must not erode an organisations standing in the market. Both parties must see clear benefits arising from the partnership.
Your governance practices must be at par. If you are not paying taxes or not having similar employ policies, for example, then the platform provider may decline your proposal.
You must be willing to open up your books to the platform provider and vice versa. Surprises from undisclosed issues later on can bring joint ventures to an abrupt end.
The partnership, must not constrain the providers core business because this makes it less competitive in the market.
Are we ready for more converging offers? My answer is yes. First, we are ready because more than ever before, we have a huge middle class which in any country is the driver of consumer business.
Their increased affluence, affords organisations the chance to market more products. We have moved out of the times when two thirds of the middle class comprised civil servants. Now we have very many independent business people and well paid private sector employees driving demand.
Second, Generation Y and millenials have embraced a lifestyle that favours the use of technology to reach them. As mentioned Android and phone technologies are a convenient avenue to reach them. Information that profiles different segments of society is now more readily available for decision making.
Third, convergence is a means to containing challenges from new entrants from larger economies. Globalisation requires organisations to assume bigger sizes to survive. It can also be the opposite. If your strategy is to position yourself for a global by-out, then the faster you use a dependable convergence platform, the better for you.
The losers shall be those who refuse to sign up to a phenomenal distribution channel. Technology as a key driver is disruptive to the plans of those who fail to embrace it.
Those that often say that we have always done our business like this are likely to die in the wake of innovative competitors.
Mr Mugun is director of special projects at Strathmore Business School.