As a strategy & innovation consultant I came to meet & work with many large & mid-size organizations in various industries. Far from generalizing or being judgemental, I often notice that in most cases Inertia and lack of strategic thinking have done more damage than a slow economical cycle which is outside their control.
Let me explain, if we take Lebanon as a marketplace, we quickly observe that the big chunk of companies are operating either in mature or in declining categories. Moreover, their business practices did not evolve much since at least 20+ years.
Wether in retail, automotive, F&B, etc.. all these segments will not witness major growth due to: demographic stagnation, competitive intensity and bargaining power of consumers to name a few. Most of these industries with their current structure have reached their peak and will at best grow in line with the national GDP rate (1-2.5%). if applied on a company that sells for $M5 worth of goods, the incremental revenues will at best represent $K100-$K150/year, barely enough to cover the increase in cost of living or cost of doing business due to inflation (approx. 4%). people will not start eating 5 meals a day, will not drive more than 2 different cars at best, will not buy more clothes than what their closet can fit, etc..
That shows why most companies have seen their sales & profits stagnating over the past few years. And for those who will manage to beat the market and increase sales by more than 10%, it is most likely that this result will be achieved at the cost of very low profitability as they will need to invest in aggressive marketing and promotion in various forms & offers to steal market share.
So if the market is not growing enough & you can't profitably gain market shares from rivals due to customers inertia driven by your offering's lack of differentiation, the question becomes 'Where would growth come from?'
I am sure you agree that this is not a good story for any businessman who would like to see his turnover doubling every 5-6 years and his return on Capital following suit so he can invest in salaries increase, recruitment, bigger stores and up-to-date technology. so how can we break this vicious cycle and ignite sustainable growth that create value?
The answer is not seeking to gain incremental growth in mature sectors but rather to invest in Innovation strategies to create new market spaces and new consumers. How? let us look at examples that have disrupted existing businesses and created new markets & new customers​
Airbnb: This company has adopted what we call a 'Disruptive innovation' strategy by smartly targeting 'non-consumers' of hotels and travel services &/or 'over-served customers' who don't really need or value a lot of the hotels numerous facilities with their expensive price tags and limited immersion in city life experiences (living like true Parisian or Lebanese). Their innovation was to have an in-depth understand of these users problems & aspirations then leveraged technology to put them in contact with a segment of people who are looking to make some extra money by renting their real estate/assets when not in use. By doing so Airbnb created a whole new market and opportunities for those 'always wanted to travel or live like the natives' and for a lot of entrepreneurs to open shops to serve these Hosts who are not able to manage their properties on regular basis (due to work schedules or other constraints).
In Lebanon, occupancy rate for apartments on Airbnb is increasing, averaging around 55 percent in Beirut, according to AirDNA, a website offering statistical data on Airbnbs around the world. The number of Beirut properties listed on Airbnb has grown fourfold in the last three years, with listings jumping from 300 to nearly 1,200 offerings this year, according to the November issue of Lebanon Opportunities. Renting apartments and rooms through the online platform has become an attractive business for investors. “Airbnb started with individuals listing their apartments, but it is becoming a business model, where professional management companies are leading the market,” said Elie Karaa, managing Partner at Local Host, which manages 50 apartments through Airbnb.
One can confidently say that a substantial chunk of the growth in the hospitality sector has been scooped not by traditional players (hotels) but by a company that don't have an operation in Lebanon nor a single employee or ever invested in any asset!..Yet managed to create & grab a whole new market & customer base.
Same applies to Uber ( new mobility model), Netflix (who disrupted the low-quality video rentals shops). These examples show that the new competition has no boundaries and it will not play in existing markets but will innovate to Create new ones and render the legacy ones at best very weak & at worse totally obsolete.
What can local companies do about it? Innovate to create new businesses that will re-ignite double-digits growth.
Innovation carries a lot of misconceptions ranging from: technology only, not critical at this stage, 'not for us', etc..
Innovation is not 'invention'. It is simply a way to design better or cheaper new offerings that will make your company strategy tangible to accelerate growth that is economically profitable and appreciated by existing & new customers.
There are numerous ways a company can innovate. to do so it has to start by:
a. Conduct a PEST analysis to contextualize your business now & in the near future.
b. Defining what business are you in? (equally which ones you are not)
c. Understanding your customers 'job-to-be-done', their frustrations & aspirations
d. Identifying your current competitive advantages and core capabilities
e. Synthesize the above data then Ideate new 'Business models' with ten-types scenarios.
f. Design prototypes to test the solution in-situ to measure its appeal & mitigate risks.
Let us give a tangible example; auto-dealers are all suffering from a decline in sales which are highly dependents on the mother company's ability to design & manufacture new models that will hopefully appeal to local buyers taste but also to consumers spending appetite. This makes their business outlook fully reliant on external factors that can be highly cyclical.
The solution: 'what if' a car dealer decides to innovate in order to lower his dependency on suppliers and stabilize his revenues by offering a car sharing platform service? Leveraging those who have a car that they don't always use (only drive to work & back for ex.) and targeting those who either use cabs & poor public transport or those who can not afford to buy a car for each family member or those who moved down-town and now need a car only 'occasionally'?
The legacy thinking would say that this initiative would affect new car sales. Well, not quiet true since he would be targeting non-users or over-served but also dealer can supply potential entrepreneurs with his range of pre-owned cars to be put for sharing after being recouped from new sales..
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This is just to illustrate what should every company be thinking about to move from 'Playing to play' onto 'Playing to win'. i.e beating market levels and winning with customers in a unique way (profitability, experience, market share,...). To do that it must seek to strategically answer the critical questions: Can I redefine the business am in? Where would growth come from? how can I reduce dependencies? Are there opportunities to differentiate that am overlooking by being in my comfort zone? Then use innovation to develop adjacencies and new categories that will energize the growth curve, create new jobs, new entrepreneurs, profitable growth and transform our aging 19th century domestic economical model into a brighter 21st century knowledge & innovation based model.
Joe Ayoub is the founder of brandcell. A Strategy + Innovation consulting firm