Writing on the wall for Kenyan firms without innovation machine

All competitive advantage is temporary in Kenya today. The idea of a sustainable competitive advantage is a myth. Companies are poor runners in a Red Queen’s race where one has to run very fast just to stay where they are.

More than 100 years ago in 1917, Bertie Forbes publisher of the American Forbes magazine created his first list of the largest US companies.

Seventy years later the magazine published the original list and asked ‘where are they now’ ? Sixty-one on the original list had either ceased to exist, or merged or gone bankrupt.

Twenty-one were still around but dropped out of the top 100 list. Of the remaining 18, included were Citigroup and Proctor & Gamble that have a presence in East Africa.

One would think these could be called ‘excellent’ companies ? But the answer is: no. In looking deeper, with the exception of GE and Kodak every one of them had under performed the average growth in stock market value in the 70-year period.

Kodak despite inventing digital photography did not keep pace with the times and today barely exists in a diminished form. Only one of the original 100 to survive and outperform the market over the 70 years was GE – General Electric.

One would find the same pattern, in the much newer, Nairobi Securities Exchange, the market leaders of yesterday, say 20 years ago, are not those today.

Market leaders of tomorrow that understand the Red Queen race nature of business may be companies that don’t even exist yet.

The Red Queen’s race refers to an incident that appears in Lewis Carroll’s Through the Looking-Glass that involves the Red Queen, a representation of a queen in chess, and Alice constantly running but remaining in the same spot.

“Well, in our country,” said Alice, still panting a little, “you’d generally get to somewhere else — if you run very fast for a long time, as we’ve been doing.”

“A slow sort of country!” said the Queen. “Now, here, you see, it takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!”

Kenya is known globally for the prowess of its long distance runners and the development of simple cell phone based money transfer, championed by Safaricom M-Pesa.

While the athletes are still crossing the line first, M-Pesa is under threat on several fronts with the regulator wanting to cut in the competitors to Safaricom’s once dominant advantage.

Plus, for example, banks like Equity Bank, that has almost half the bank accounts in Kenya — plans to issue smart phones to retailers to allow cashless transactions using the new micro chip cards in a move expected to increase the bank’s income from its payments processing business.

Competition to established market leaders often comes from the most unexpected places, with a sort ‘Black Swan’ like unimagined unpredictability.

For instance, in education, the world’s largest school could be considered to the newly created non-profit Khan Academy that has 10 million students participating world wide in a month. Their motto is providing free world class education to everyone, anywhere.

A student in Kibera, providing they have the laptop with the connectivity, can take interactive engaging world class, mostly high school courses in science and mathematics, that rival those once only given the rich.

Entry and exit

Khan was a futures trader, not even a teacher, who began when he was asked to teach his niece math and began doing it in an entreating manner uploading videos on You Tube and it just grew from there – transforming old style chalk board and [often boring] teacher at the front of the class education.

And, in the process, this has provoked a questioning fundamental assumptions about ideas of what is possible in education.

Companies don’t generally innovate, it is markets influenced by fast changing technology and consumer demand that constantly innovate.

Markets are dynamic, but despite the hype most companies are not. Companies are often unresponsive to what is happening and just do their best to catch up.

Generally, change finally happens when the pain of staying the same is greater than the need to do things differently.

Research shows that what mostly drives change in an economy is more the entry and exit of firms, rather than the ability of companies to adapt, to evolve.

It is questionable if most companies have a strategic plan, rather than an operational plan in a ‘to-do’ list style with a few ‘hope for the best’ tactics tacked on. True strategies involve commitments that are difficult or costly to reverse.

Writing is on the wall for Kenyan business — a sustainable competitive advantage does not exist, there is just a never ending Red Queen’s race to create sources of a temporary advantage.

As Jeff Bezos, the founder of Amazon said: “There are two kinds of companies, those that work to charge more and those that work to charge less”.

David is a management consultant and author of The Manager And The Red Queen’s Race. Email: [email protected]