Lauri Elliott

This article was commissioned by ITWeb/Brainstorm of South Africa for the June 2010 issue.  It was originally entitled, “Facebook Generation.”

Consumers are becoming increasingly identity-focused. Corporations will have to keep up to remain relevant – both as suppliers and employers. 

Diane Hessan, CEO of Communispace, a US company that does consumer market research, recently shared insights about consumers at the Milken Institute’s Annual Global Conference for global thought leaders. One of her comments was that consumers have found mental strength through the economic crisis.

Says Hessan: “Consumers are empowered and clear about what they are doing. People know where they spend money and how they define value for themselves. These consumers are very clear and very intentional. They do research and feel they have learned a lot.”

This is a new consumer paradigm. We are seeing the beginning of the age of identity. Consumers better understand their unique identity and what they value these days. They prioritise based on what allows them to live out their unique identities.

The principle drivers of identity-focused consumers can still be understood in the context of Maslow’s Hierarchy of Needs. Maslow says that needs drive individual motivation. Needs start with survival issues around food, water, and shelter. As people develop and move up the socioeconomic scale, their needs change from needs to connect with family and friends to self-esteem found through education and career. The final levels of actualisation and transcendence speak to people achieving mental and spiritual acuity. In other words, people become attuned to their unique identities and personalities.

The difference in the consumer markets moving forward is that an increasingly larger number of consumers will not prioritise based on needs indicating lack, e.g., self-esteem, safety, relationships.

They will focus on needs that allow them to fully live out their identities. As the old saying goes: “To thine own self be true.”

Tipping Point

This mindset used to be limited to individuals like artists and elites who had education and perhaps money, allowing them more freedom to explore who they were, according to Shoshona Zuboff in her book, The Support Economy.

The developed nations have been moving along this continuum for the last 50 or so years, but it’s possible that the economic crisis was a tipping point. This shift is not limited to Western cultures though, thanks to things like the internet, globalisation and democratisation. People have much more freedom and access to explore their unique identities even with limited means.

There is also an age dimension to this consumer market. The majority of them will be under the age of 40. By and large, they are young people who were born as the internet, globalisation and democratisation took hold.

These young consumers expect mutual, not hierarchical, relationships. That means they do not want to be pushed into something, they want to make their own decisions and co-create solutions. They will remove themselves from situations that do not create value for them, much more so than their parents did. This is a significant issue for employers.Employers need to see how to create value for themselves as well as this identity generation. Some call this talent management, but it’s more than that.

Successful employers will treat even entry-level employees as leaders in their own space and help them develop accordingly.

Employers will also have to shift thinking about turnover. This identity generation will come and go as they please. Money and perks will not hold them if employers have not connected with their needs. And even if they have connected, people will still leave much more readily for other opportunities.

So employers need to ask themselves: “How do we deal with continual change among our workforce?”

A New Age?

This identity generation can also parallel an age of entrepreneurs. A basic definition of an entrepreneur is someone who creates. Our societies will be filled with creative, ‘out-of-the-box’ people who develop disruptive solutions on a continual basis. They will be willing to take informed risks when aligned with a purpose.

While this identity generation sounds like selfish individuals, in actuality, because they understand themselves better, they become more aware and conscious of the world around them. Part of identity is having a purpose beyond yourself. According to McKinsey Consulting, this young generation, the youngest sub-group being the Millenials born after 1982, is actually more socially conscious.

Relationships are key for this generation. While it starts with a social dimension, these relationships become quite powerful as people come together more often for a common purpose or interest. However, they will flow in and out of groups or communities more readily.

Many view this as an online phenomenon, but it will also hit the real world. The grassroots strength in the Obama presidential campaign in 2008 and the Ushahidi story of citizens reporting instances of election violence in Kenya are just the tip of the iceberg.

And, it is not just a social or political shift. It is also a market and business shift. The control discipline of management science no longer works in a world with continual chaos, change, speed, and identity-focused individuals. Businesses need to be able to flow with the dynamics, not control them. IBM’s orchestration of its ecosystem has become a technology sector example.

While some may consider this not new, the significance is that, in the next decade, the identity generation will finally get a leading voice in the main markets across the globe just from sheer numbers. This will shift society, business and politics.

New Models

So what business models will work in this age of identity? The key is models that allow people freedom and growth in their identities. In practical terms, The Copenhagen Institute of Future Studies says that strategies should allow consumers to be a part of the creative process from beginning to end. The gaming market is an example. Players co-create by developing their own content in new ways of playing, skins, activities, etc.

Another strategy approach is to focus on what gives meaning to consumers. One way that Facebook enhances the meaning people derive from their relationships is through real-time engagement. Businesses should also look at business models that incorporate pull-versus-push and self-generating strategies.

African consumer markets have traditionally been disenfranchised from paradigm shifts because of the continent’s lack of development. As consumers rapidly adopt technology innovations like mobile phones, however, development, including human, tends to accelerate. Businesses focusing on Africa need to prepare for this shift, too.

The horizon for this shift in Africa may be longer, but a good gauge will be ICT patterns of usage three to five years after major ICT projects are completed. In the meantime, businesses can monitor patterns in markets where ICT access, penetration, and usage is more robust.

South Africa is the first market, but East Africa should also be followed as ICT infrastructure is rapidly developing there.

The age of identity is not just for consumers but businesses that can navigate it well. Businesses will have innumerable configurations for potential products and services with an ecosystem to bring them to market, allowing them to more readily sustain competitiveness.

Media is such a major issue for Africa at this time.  There is a general perception that western media is doing a disservice to the image of Africa.  I agree and disagree.

I agree that western media has painted a particular view of Africa as needy, poor, corrupt, and in conflict historically.  But there are also those who do Africa a good service.

But to me this argument is no longer the primary relevant issue.  Now with the technology tools and the connected society, everyone is media.  That is called citizen media.  Individuals, groups, and organizations need to use this shift to make media that is appropriate for Africa.

The new configurations of media will be infinite, but open.  This is what we have to focus on.  There are still people who need to work with in traditional media who can help change what is being reported and how.  But most of us, whether professional media or public media don’t have to what for things to change, we can make the change.

I had a brief opportunity to share these thoughts and others at the Rwanda Convention 2010 (www.rwandaconvention.org) in Boston, Massachusetts on May 29, 2010.  And living  up to the potential in technology, I participated via videoconferencing from my home!

You can download my slide presentation – Evolving Media Presentation 2010 (20). 

Feel free to start up a conversation on this.

This article was commissioned by ITWeb/Brainstorm for May 2010 edition.  It was co-written with Hilton Tarrant.

The Department of Defence admits its information communications infrastructure requires serious upgrades and replacements.  

IT in the public defence arena in South Africa can be summed up as a state of under-investment. While the US Military, arguably one of the most advanced defence outfits in the world, grapples with whether or not to allow the use of Twitter and Facebook across the army (it has allowed it), South Africa’s Department of Defence is dealing with what it euphemistically terms the need for “considerable investment” in information technology architecture.

In its annual report for 2009, it specifies the need for investment: “The information communications infrastructure requires serious upgrades and replacements while priority is given to information technology support to the flying environment.”

It has been working with the State Information Technology Agency (Sita) over the past decade to get the department into shape.

The Department of Defence operates over 500 separate information systems, with over a fifth of those defined as “major”. The department’s IT acquisition plan makes for sombre reading. Its budget for the 2009-2010 financial year was R200 million, out of a baseline allocation for the department from Treasury of R28.6 billion.

The money was allocated roughly equally to management applications, functional applications, common applications and an integrated information and communication infrastructure.

It had requested an additional R500 million from Treasury for information and communication system renewal over the past three years, but did not receive any allocation for that purpose.

In line with the rest of government, it’s rolling out the Integrated Financial Management System (IFMS). National Treasury says the IFMS project will “review and upgrade government’s transverse information technology systems”.

The objective is to enhance transverse – or general administrative – systems including financial management, human resource management, supply chain management (procurement) and related business intelligence.

Business process management outfit Ovations has been awarded a tender to implement service-oriented architecture at the department.

Private

Aside from the travails in the public sector, the country has a vibrant defence industry in the private sector.

Denel remains a sizeable outfit, and numerous weapon components are manufactured in the country. These companies are under the same pressures, from an ICT perspective, as any other industrial outfit.

The trend towards outsourcing certain functions is not as pronounced in the sector, because of the highly specialised processes.

Many argue that consistent research and development into new and highly specialised technologies is critical. Otto Schür, Denel’s Group executive: Technical, maintains that “with the Defence Force typically sourcing these technologies from suppliers in the industry, companies in this sector need to effectively remain ‘one step ahead’ of the enemy.

“This ‘new’ approach to national security has seen the defence industry sector focusing even more on accuracy, as well as advancing and enabling high-end technology.”

There is also a trend towards the commercialisation of military technologies, enabling certain product offerings to add significant value to the local security industry, among others.

A Natural Mix

Defence and security are critical issues for African nations, but Africa still accounts for less than five percent of the market globally. Key drivers for the defence market in Africa for the last several years have been the need to modernise, as well as the need to secure oil and gas assets.

A few years back, the market in Africa was projected to grow six percent to seven percent yearly. The economic crisis caused the forecast to slow to 2.6 percent through 2013, according to Forecast International.

The major country markets, excluding South Africa, are “Algeria, Angola, Kenya, Morocco, and Nigeria,” says Shaun McDougall, International Military Markets analyst for Forecast International. The African market can be delineated between more and less advanced economies. This delineation also defines the focus in ICT opportunities.

More advanced economies are looking at intelligence gathering, ICT and data networks, and securing the networks, while the less advanced economies are focusing on basic voice and data capabilities to support command and control structures, indicates McDougall.

In either case, ICT plays an important element that weaves itself through the defence subsectors, including aircraft, warships, ordinance, missiles, vehicles and C4I. C4I stands for command, control, communications, computer, and intelligence. It’s obvious that ICT plays a signifi cant role in the C4I space, but electronics are found in devices and equipment in all subsectors. As such, the development of ICT infrastructure is a strong contributor to the growth and potential of the defence market going forward.

According to McDougall, regional integration is another driver for ICT in defence. Even small countries are looking at how to improve command and control within the field, using communications. “Being able to participate fully in joint operations and interservice/ international training exercises is important,” says McDougall. For example, Nigeria opened its first advanced operations centre in Abuja in 2009. The centre allows officers to stay connected with soldiers deployed on domestic and international missions. Its capacity includes real-time video and data communications.

Another set of drivers, particularly in North Africa, is insurgency and border control. Due to this, some of Algeria’s focus is on intelligence, aircraft, and unmanned aerial vehicles (UAVs). “Aircraft and UAVs can include technology like smart weapons and advanced radar capabilities, defi nitely enabled by ICT,” says McDougall.

Nigeria is focused on managing the Niger Delta conflict.

Maritime defence systems are the key to protect the waterways and coast in the region. McDougall notes major vendors in the African defence market do not come from the African continent. Russia has a long history in sub-Saharan Africa (SSA). Today, many SSA countries are modernising ageing Russian defence systems. The United States defence industry is another major player. Europe is in the mix, with France’s defence industry working mostly the French-speaking countries.

China appears on the radar, but in niche markets, not major defence systems.

The need for defence, including ICT infrastructure, is there. But, African economies need to grow signifi – cantly overall to take on the funding requirements.

Commissioned by ITWeb/Brainstorm of South Africa for May 2010 issue.

While the economic crisis at the end of the first decade of the 21st century has made the most headlines, there are more significant shifts afoot that will inform the future of business.

The years 2000 through 2009 represented not only a decade, but the end of a generation in technology.

In 1957, the Russians put the first satellite in orbit. In 1969, the first man walked on the moon, and the internet officially went online. Now, these technologies have converged in innovative ways and opened doors to average people around the world. People can use services like Google Earth to see and pull up information on physical locations around the world, combining satellite and internet technology.

In many ways, the first decade of the 21st century was also a transition decade. The transition, which is still underfoot, will fundamentally change both our economic and business environments.

Politically, the last decade started with the stalwart, unipolar power of the United States. It ended with an emerging configuration of multipolar power, inclusive of emerging nations. It has spilled over into the co-ordination of global economic policy changing from the G8 nations to the G20 nations, including South Africa.

Aligned with these political shifts are the dynamics of global demographics, which are setting the stage for the major consumer markets of the next 40 years. These markets are shifting to emerging regions like Asia and Africa due to fast population growth. While consumer demand should continue to rise globally, it will increase the fastest in Asia and Africa. In fact, the International Monetary Fund says that emerging consumer markets will serve as the new growth engine for the global economy.

This equation holds true in technology as well. The International Data Corporation’s “Economic Impact of IT” study says that emerging markets represented 21 percent of IT spending in 2009, but through 2013 will represent 50 percent of net new growth in IT spending.

Technology also serves as a catalyst for economies and an enabler of business. Each ten percent increase in broadband connections results in 1.3 percent economic growth, according to the World Bank.

A New Impetus

While these notes serve as a backdrop to the transition in the last decade, they do not reveal the real story of how technology is fundamentally influencing our economic and business environment.

John Hagel and John Seely Brown, authors of The Only Sustainable Edge: Why Business Strategy Depends on Productive Friction and Dynamic Specialization, theorise that the business environment is transforming from push to pull models for mobilising resources. Essentially, instead of organising resources in anticipation of needs, resources are positioned when needed. For example, cloud computing allows digital infrastructure to be used and scaled when needed. Pull models are more conducive to the chaotic and turbulent environments in which we live today, allowing for greater agility. The shift from a push to pull paradigm has been occurring for decades. It seems more apparent now, however.

According to the Shift Index 2009, by Deloitte, there are three key waves (The Big Shift) impacting our business environment. The first wave is the impact of an expanding digital infrastructure and public policy focusing on economic liberalisation. The second wave is the shift in knowledge, capital, and talent flows due to an expanding digital infrastructure. And the third wave is the impact created by the first two.

There is a ray of light for emerging nations and markets in The Big Shift. Thomas Friedman, in the book The Lexus and The Olive Tree: Understanding Globalization, says that there will no longer be a First, Second, and Third World, but only the Fast World and Slow World. The Fast World is a wide-open society.

In The Big Shift, African economies do not need to catch up to industrialised nations, per se, because the open playing field creates space for them to innovate.

The growth of the mobile market in Africa in the past decade is a perfect example. If Africa had waited for fixed line deployment, it would still have been catching up, but instead it is leading global markets.

D for Democracy

The Fast World/Slow World paradigm is evolving due to the democratisation of technology, finance, and information, which started in the 1980s. Democratisation of technology encompasses the innovations that have allowed hundreds of millions of people to communicate, connect, and exchange information, money, etc. Democratisation of finance means people have the power and information to invest.

Democratisation of information means that people around the world have access to information. In essence, the power to shape economies and markets no longer rests in the hands of the few, but is open to the masses, or crowds, around the globe.

From a practical business perspective, these forces mean the way we do business now and in the future will change. There are several evolving models that took root in the past decade.

Crowdsourcing is any sort of outsourcing that involves a large group of people, usually the public, to actively contribute to a task or project. Wikipedia is a prime example of crowdsourcing. In a business context, Goldcorp, a Canadian mining company, outsourced the task of identifying gold deposits in a concession to the public in 2000. Through this process, Goldcorp was able to find deposits worth $3 billion.

In Africa, crowdsourcing is a model well suited to mobilising people around development, political, or business projects. First National Bank (FNB) used crowdsourcing to solicit a business idea that would draw its wealthy customers to online banking in 2008. The selected idea garnered $2 500 for winner, Guillaume Martin.

Another operational model is crowdfunding. Crowdfunding is crowdsourcing applied to raising funds. Osterwalder Alexander and Pigneur Yves, authors of Business Model Generation, used a combination of crowdsourcing and crowdfunding to write and fund the book. The public was invited to serve as co-writers and investors at the same time. As people joined the project, they paid a fee that got them a copy of the book when released, allowed them to provide input as the book was developed, and get a royalty as the book was sold.

Locally, Eve Dmochowska has started a crowdfunding project for South African start-ups, which generated nearly R1 million in investments within its first few weeks of opening.

In another instance, digital democratisation and the cost of technology, e.g., internet bandwidth, reaching almost a “virtually” free state in the West, catalysed the “freemium” business model.

Chris Anderson, Editor-in- Chief of Wired Magazine, coined the phrase in his book, Free: The Future of a Radical Price. Freemium is where basic services are offered for free, while a premium is charged for special features. A typical application is magazines or newspapers that offer some online content free but the majority for paid subscribers only. Anderson expects, “freemium to cross over into other industries as part of a new industrial revolution”.

New Horizons

Will Africa win or lose in this new business context? It has the same opportunity as any other region to move in the new business dynamics, and it has several things going for it. Mobile and internet infrastructure development has gained momentum in the past decade, but there is still a lot to do. The continent has one of the world’s largest consumer markets and ample human capital, both of which are underdeveloped. And, of course, Africa has an abundance of resources.

The question is, will Africa leapfrog, as a whole, like it did with the mobile market? The next two to three years will see whether it rises to the challenge or falls behind the occasion presented in this decade.

Today’s business environment is turbulent, fast, and constantly changing.  It’s a complex environment with many variables woven together that creates business.  Africa is no different.  It has its own set of complexities that dynamically impact the business environment.  My firm, Conceptualee, has started research to help navigate those dynamics more fluidly.  One of the areas of research is the dynamics of social politics.  Our topic, “Social Politics in Business in Africa,” was chosen as a poster session at the Duke Political Networks 2010 conference.

The poster provides a stratospheric view of the evolving dynamic themes on economic development of the South African Development Community based on a historical and political streams.  This is just a starting point for an ongoing dialogue about how to increase economic opportunity even within the constraints of current systems.

You can download the poster Social Politics in Business in Africa (19).  And please, comment and provide insight below.

This piece was commissed by ITWeb/Brainstorm for April 2010.  Original Title is “Regulation is the Name of the Game.” Hilton Tarrant co-wrote the article.

Pharmaceutical players need to be able to track everything.

Regulatory and legislative requirements are top of mind in the pharmaceutical sector.

“Our customers are coming under a demanding set of regulations,” says Keith Fenner, sales director at Softline Accpac. “This is a highly regulated industry.”

Ironically, Accpac hasn’t traditionally targeted the sector, largely because of the “complexities around the process or batch manufacturing, formulation management, weight calculation, potencies…”

Jane Thomson, MD of Softworx, says that “validation is very important”. Companies operating in “markets covered by the [US] FDA approval and the MCC regulations in Europe” have a lot of complexity added to their business, she adds. “When they do implementations, they have to have everything validated, right from the software to the processes in their business.”

There are also challenges around traceability, believes Fenner. “Everything from full-lot traceability and control to quality assurance” needs to be managed.

“At any point in time, you have to manage inspections and these things have to be process-driven.”

“It can’t be about ‘we decided to inspect this batch and not that one’,” he adds. “And it can’t be done on an Excel spreadsheet somewhere! Even the distributors have to be stamped and approved,” says Fenner.

A number of pharmaceutical players have made the decision to outsource their distribution function. Fenner says the split is about 50/50 among his clients.

Most of the manufacturing of pharmaceuticals takes place offshore, and Fenner explains that Accpac has mostly been “asked to help with complying in a warehouse world”.

“I’ve been reading in the market about guys starting to rationalise and focussing on what they are good at,” says Fenner.

His clients are saying things like: “My job is to get product into the country at the lowest cost possible to make the highest margin. How we push that out into distribution, we’ll leave other guys to figure out. Everyone is trying to streamline that process … but you cannot get around the complexities of the legislation and the regulations,” says Fenner.

“Our clients need to still have visibility into that supply chain … whether their stock is on consignment or sitting in a warehouse. They still have to manage the expiry dates.”

And for this, you need a collaborative supply chain.

Thomson says Softworx’s biggest client in the space, Aspen Pharmacare, has – like its peers – expanded rapidly over the past few years. The manufacturing and distributing of products in other territories adds “huge complexity into their supply chain”.

“Their business needs to be extremely responsive and flexible,” because of this growth, she says.

“They’re doing rollouts of their ERP systems in four to six weeks in some of their territories. So in terms of their ICT requirements, there needs to be a rapid response.”

Fenner agrees, saying: “The questions that are coming at us are around being responsive.”

Thomson also says that clients in the sector are looking to move some of their systems into the SOA space.

“We’re seeing on-use, on-demand type of software emerging now.”

And she says this is being driven by “local business in their desire to remain competitive and to grow market share.” Like other sectors, there is a lot of consolidation taking place in the industry. This is being driven by market forces.

This piece was commissioned by IT/Web Brainstorm for March 2010.  It was written jointly with Hilton Tarrant.

It’s all about the customer right now.

The insurance sector is grappling with the same sorts of cost pressures evident in other industries, and “outsourcing is a trend” among most players, says Haydn Pinnell, MD of Gallium.

It’s not ‘simple’ outsourcing, however. There is a lot of demand for Gallium’s software and application testing services in the insurance market now “because of some of the pressures the sector is facing”.

Fierce competition means client-retention for insurers is critical, and companies require a “faster time to market with new, innovative services”.

This is “no different to anywhere else in the financial services industry,” Pinnell says. Adriaan Rossouw, account manager at business application provider Softworx agrees, and goes so far as to say that insurance has “almost become a commodity”.

The competition from banks and other financial services companies only serves to increase the pressure. “There is a big reliance on intermediaries,” explains Rossouw. “And historically they’ve been left to their own devices.” Now, insurance companies have realised that whoever controls the intermediaries controls the “share of wallet”, and insurers have begun opening up their systems.

“They need to give intermediaries access to their information, and better decision-making tools,” Rossouw notes. “This is a big drive going forward … by opening up systems to external parties”, insurance companies are going to be able to grow their books significantly.

“Insurers want to get a lot closer to intermediaries, whether they’re independent or captive.”

This obviously means a substantial number of external people accessing the company’s systems, a decision that has significant impact. Gallium’s Pinnell says that together with the mindset change around intermediaries, “traditional insurance players are having to re-engineer and relook at the way they are doing business with their customers”.

The rise of the direct (online) insurance players has almost forced this reaction. Insurers are becoming laser-focused on how they retain their customers, explains Pinnell. They want to do “better business, quicker”.

This re-engineering impacts on whether or not “they refresh or continue using their legacy applications and systems”. It also impacts on what technology they’re using.

“It’s all about the customer right now,” states Pinnell. Rossouw agrees: “It’s been very product-focused, not customer-driven”.

Within insurance companies, the allocation of people to product versus to customers is changing.

“There is a much bigger focus on the customer,” he says. “This brings with it challenges around systems.”

Traditionally, a customer’s spending on insurance is very much split into sectors. The challenge is to “bring that information together into one view of a customer,” says Rossouw.

“Insurers want to break down those silo walls” and this will help grow cross-selling of products and services. The Holy Grail is to “try to get a customer to spend all of their money with one insurance company, instead of splitting it up.” There is a delicate balance, however, between the drive to change the model, while at the same time containing costs.

Rossouw says Softworx hasn’t “seen too much in terms of deferring costs, but some of the roles within IT have been outsourced. “For instance, the BI role might be provided by external service providers.”

Pinnell says that even though South African financial services companies often do pioneer in terms of products and services, insurance, specifically, is subject to global influences. “We’re seeing stricter, tighter regulatory and governance-type requirements,” he adds. While global regulations are driving decisions locally, technology choices are largely driven per market, says Pinnell.

Some insurers are driving strategy from South Africa, others are being dictated to from their global owners/partners overseas.

Growing opportunities

The insurance sector in Africa only represented about 1.3 percent of the global insurance business in 2007, according to Swiss Re Economic Research. In the ‘South African Insurance Industry Forecast to 2013’ by RNCOS Industry Research Solutions, 85 percent of the current African insurance market is in South Africa. Both figures demonstrate the undertapped potential of the insurance market on the continent.

The industry faces major challenges, however, according to the African Insurance Organisation, including underdeveloped insurance organisations, a weak insurance regulatory environment, need for expertise in the sector, and lack of ICT infrastructure.

Even with the challenges, there is one insurance sub-sector – micro-insurance – drawing significant interest. Micro-insurance is insurance for low-income people. In ‘Insurance in Developing Countries: Exploring Opportunities in Microinsurance’, Lloyd’s estimates there is potential for 1.5 to three billion new policies globally. The Micro-insurance Centre estimates only four percent of Africans and less than one percent of poor Africans are covered by micro-insurance.

Major insurance companies like AIG, Zurich, and Swiss Re have entered the market. AIG was the first major player to enter micro-insurance in Africa, partnering a local microfinance institution in Uganda in the 1990s.

This interest will naturally lead to opportunities for the ICT industry. For example, the International Livestock Research Institute (ILRI) has developed satellite technology to assess weather conditions, such as drought patterns, which could lead to livestock deaths. This technology will help insurance agencies determine whether or not to honor such claims. Eric Gerelle, director of IBEX Projects in Switzerland, says there is a gap in the market for ICT providers. To deliver insurance products and services effectively on the ground, agencies of any size need a strong back office and ICT infrastructure.

Gerelle points out that small agencies generally take the wrong approach in developing their businesses. They start selling policies before developing the infrastructure to support the business process. In fact, they often do not have the requisite skills and knowledge to develop such an infrastructure.

According to Gerelle: “Software as a service (SaaS) providers will be the real winners in this space.” A SaaS platform can provide applications for many agencies simultaneously. Also, application developers might find opportunities to plug their solutions into a SaaS provider’s platform.

Gerelle says SaaS supports a federated model for the micro-insurance industry. Small agencies would get the ICT strength of major insurance agencies while maintaining the advantage of having knowledge of the local markets.

Asked how the mobile market would influence technology in micro-insurance, Gerelle is firm: “Mobile data and handsets are definite drivers for the market, but the key is creating the back office capability first.”

This article was commissioned for ITWeb/Brainstorm of South Africa for February 2010 under the title “It’s the Platform, Stupid.”  It is written with Hilton Tarrant.

It’s no secret that the financial services sector is the biggest spender on ICT in the country. According to BMI-T’s SA ICT Vertical Market Sizing and Forecasting Report, the financial, business and other services sector accounted for over 30 percent of total expenditure on information and communications technology in South Africa. But what trends are dominating the sector?

Because of security, financial institutions, especially banks, cannot feasibly outsource their IT departments, a trend seen in most other sectors. Most functions are retained in-house. However, desktop support is one area where outsourced solutions make economic sense. Gijima AST, one local company focused on the financial services sector, offers customer interface as well as electronic payment solutions. Electronic payment (largely back office) solutions are seeing tougher security as well as further automation of processes. The trend is for cheques and other documents to be scanned and archived for simple access from anywhere on the bank’s network.

Making this kind of data available on other platforms is also seeing serious adoption in the industry. Clients can, for example, access scanned cheques/ deposit slips/documents via the traditional online banking platform. The broader push sees transaction systems leveraged onto different platforms and interfaces. In the same way that an archived image of a cheque can be accessed in-branch and over the internet banking interface, banks are taking their core transaction functionality and leveraging that over a number of platforms.

No longer are ATMs simply cash withdrawal points. Transactions can now be done inbranch, online through internet banking, via ATMs, through point-of-sale systems and, increasingly, on mobile phones. Gijima says the “focus is shifting towards solution concepts for new delivery channels such as electronic banking and new branch structures”.

Mobile Banking

This leveraging requires significant integration of new systems with the banks’ core legacy offerings. The biggest push in the South African market is undoubtedly into mobile banking. FNB, one of the pioneers, set up a division internally that innovated mobile banking. This now falls under the ambit of FNB Mobile and Transact Solutions, and the group has set up a similar team responsible for innovation, with some of the original mobile banking staff involved.

It’s not only FNB that has realised that smaller, more autonomous units are the key to innovation. This new team is largely responsible for the ancillary FNB Connect service, where FNB is leveraging its excess bandwidth and providing connectivity and VOIP calling to its customers. The use of two-way SMS messaging in the customer relationship management realm has caught on in the South African market, and banks have here again married newer platforms with their legacy systems.

Internet banking systems have been further integrated with SMS gateways as a fraud prevention mechanism. Account transaction notifications are sent in real-time, allowing customers to be aware of payments immediately.

Aside from sector-specific adoption, the financial services industry is adopting broader ICT trends, such as virtualisation, standardisation and – as mentioned – the outsourcing of desktop support. Standard Bank, for example, in 2008 standardised its IT environment to create a centrally managed one.

The benefits were obvious: costs were reduced, while the bank saw increases in security, productivity, agility, and stability. It’s also used the built-in virtualisation technology in Windows Server 2008 to reduce the number of physical servers required to run bank operations. This also translates into quicker development of new services.

Cross-Continent

Less than ten percent of Africans use banking services, however. In addition, cash is still the primary financial instrument, and market capitalisation as a percentage of gross domestic product (GDP) is well below 100 percent. These statistics illustrate that financial markets in Africa only contribute in a minor way to economic growth on the continent. However, initiatives like the M-PESA mobile payment system in Kenya show the potential opportunity for ICT in fi nancial services. It is also ICT providers across the globe that are increasingly providing these services, either instead of or in partnership with banks.

There is another success story in Ethiopia – Ethiopia Commodity Exchange (ECX). Solomon Edossa, CIO of ECX, says it is designed after world-class commodities exchanges like the Chicago Mercantile Exchange. Generally, a commodities exchange would partner with financial institutions to handle settlement of trades, but there was no clearinghouse and no electronic payment system in Ethiopia. ECX established its own clearinghouse and electronic payment system, in partnership with Ethiopian banks, to handle its transactions.

In fact, ECX has become a financial services “orchestrator” in its ecosystem, which can extend to several hundreds of thousands of subsistence farmers in cooperatives participating as ECX members.

Its commodity warehouses can be considered “bank branches”. Producers deposit commodities at the warehouses. ECX assures the quality, quantity and delivery of each commodity to buyers. At the same time, ECX assures sellers their commodities are secure and payments are received within 24 hours. In 2010, producers will be able to get warehouse receipting financing on commodities they deposited. ICT abounds in ECX’s “financial market”.

Edossa says once commodities are deposited into a warehouse, they are electronically registered and tracked. This information is electronically communicated to the ECX headquarters in Addis Ababa. In addition, prices are displayed across the country at remote stations and on mobiles. Soon, ECX will begin online trading.

But the ECX story is really about the potential of its ecosystem. Edossa states: “All my staff members are local. We are creating jobs and increasing local capacity.”

In working with banks to deliver on their service delivery agreements with members, ECX is helping banks design new financial products for members. This brings more business to the banks. In addition, the process is also encouraging Ethiopian partner banks to implement core banking processes, which is creating new opportunities for ICT providers. Eventually, ECX will implement ICT-dependent services in sectors other than financial services like logistics, systems support and internet cafes.

But ECX still faces the typical challenges in Africa. In fact, Edossa admits: “I doubted it could be done.” ECX had to address the regular power outages in Ethiopia, particularly in the rainy season, and the unreliable communications network. It met the challenges with a variety of solutions like mixing generators and uninterrupted power supplies to keep systems running, and mixing broadband and dial-up for telecommunications consistency. ECX worked the ICT challenge so well that there is not a single failed transaction in two years of operation and close to $2 billion in transactions.

This is an article I wrote for Brainstorm Magazine of South Africa. It appeared in the December 2009/January 2010 issue.

The penetration of mobile phones and mobile data will serve as catalysts for a growing mobile gaming market in South Africa. The question is how well the industry will navigate these opportunities.

Globally, gaming is a hot market – from console, to PC, to online, to mobile. Pyramid Research’s recent report, Mobile Gaming in Emerging Markets, says that mobile gaming will grow at least 20 percent per year from 2009 to 2014 in the Africa and Middle East regions.

Jan Ten Sythoff, research manager for Pyramid Research, says that mobile phone and mobile data penetration serve as catalysts for this market. While Africa has good mobile phone penetration, there are differences between consumers in mature markets like the United States and those in emerging markets like Africa.

Says Matt Benic, a developer with I-Imagine: “While we have high mobile phone penetration, our potential consumers in South Africa typically have low levels of disposable income (also typical of the rest of Africa).”

This means handsets used by consumers are lower-end devices, and the cost of games needs to be lower than in developed markets. In addition, consumers would not necessarily have previous experience with other gaming platforms like consoles and PCs. Says Danny Day, owner of QCF Design: “The first provider that offers a truly engaging, massively multi-player, micro-transaction-enabled game on phones is going to win big.”

Benic says there is also huge opportunity with sports, like soccer, and SMS-based games in South Africa. A “taxi”-driving game might be an appealing concept in South Africa too. This is tapping into what consumers know and feel comfortable with.

Sythoff says the challenges facing emerging markets include game cost, affordable handsets and piracy.

Benic mentions that the misperception that game development is inexpensive is a challenge in the local industry. Companies that would pay to have games developed for advertising and promotional purposes are often shocked when quoted a price.

Furthermore, according to Benic, the lack of sufficient numbers of skilled developers is slowing down the mobile game development industry. And then there is the ongoing issue of the cost of internet access. There are many free and inexpensive tools online to support mobile game development but the data usage expense can be prohibitive for small firms.

Challenges impact the consumer too, says Day. “Poor visibility, commodity-focused instead of product-focused marketing, shoddy after-sales support and lack of penetration by local mobile developers means…potential players have to wade through sheets and sheets of poorly advertised games.” In addition, the games are not localised to suit consumers.

Challenges notwithstanding, Sythoff shares several business models with the potential to succeed in African markets. First, there is gaming for advertising, or adver-gaming: players are allowed to download games for free, but the games contain advertisements. The vendor and developer generate revenue by selling advertising space.

A second potential business model allows consumers to play games for free until they reach a certain level, after which they must pay. This is a good way of getting consumers hooked on a game, providing motivation for them to pay to continue.

In some instances, a game developer will work with a data provider to provide games. Both share the revenues while keeping the price of games lower. Day says QCF Design is looking into another business model – subscriptions.

No matter which business model is employed though, says Benic, a game has to make it the first month it is released.

Sythoff says there are potential spinoffs in digital content and educational games, while Day says his firm “has had some success with mobile-based learning games”.

Sythoff points out that new mobile game developers need to address several issues. First, they have to find channels to reach potential consumers. This will normally result in partnerships with mobile phone operators or aggregators. Second, developers need to consider how they will bill the end-user.

Third, games should be localised to match language and culture.

Unlike the iPhone Appstore, which shook the US mobile game industry by allowing new and more agile mobile developers to enter the market, local developers find it difficult to enter the market. Day says “commissioned game development is currently more lucrative”.

Up, up and away

As for the future, Day provides several insights. “New studios are applying lessons learned from digital distribution games on consoles and PCs to the mobile space. These are studios and products that will change the mobile gaming sector in South Africa.”

Also, says Day: “Watch content creators that produce content for local consumers, as well as the Indian mobile game development industry… (it) will inform developers here.”

Finally, Day says to track MXIT.

“MXIT is a heavyweight in the industry. It’s one to watch for future growth in the mobile game sector, especially if it acts as an aggregator for quality local content.”

The sector will also be tamed. “New gambling control laws and changes to premium cost services should help reign in the `Wild West’ nature of many mobile businesses,” according to Day. This will reduce exploitation of consumers.

Overall, two possible scenarios will develop in South Africa’s mobile game sector. Mobile games will be overtaken by flash- or browser-based games as phones evolve, if the mobile game industry does not respond on time. Or, the industry will shift from its current business models to more customer-focused models, which focus on alternative revenue streams.

Sythoff says the mobile game sector is complex. Navigating this complexity successfully is a key enabler for firms wanting to enter this space. Success will come to firms like Apple, which are able to deconstruct the complexity and tap into the potential of the sector. With the potential revenue stream and under-tapped market, it’s definitely a sector to consider.

Originally posted at htp://www.afribiz.info/?p=2137.

Shashank Bengali of McClatchey Newspapers wrote “Africa is gripped by one of the greatest population explosions ever recorded” in a recent article entitled, “Africa’s Perilous Baby Boom.” In fact, while it is widely reported that India’s population (1.6 billion projected) will surpass China’s population (1.4 billion projected) by 2050, Africa will beat both with a population close to two billion according to the United Nations Population Division.

Bengali paints a picture of the horrible conditions under which and into which many children are born in Africa.  However, the problem is the conditions not the population growth.  Africa is a continent that has vast resources, which if managed effectively, can sustain a booming population.  In addition, Africa as a region has one of the lowest consumption rates globally when compared to developed countries. 

In fact, this population boom is a tremendous global business and economic growth opportunity.  Dominique Strauss-Kahn, Managing Director of the International Monetary Fund, shares the world can no longer expect U.S. and Western households to drive global economic growth.  Developing markets like China, India and Africa are the future economic growth engines.

This shift sounds frightening to many in the West, but no one has to lose.  Businesses and entrepreneurs globally need to shift their strategy to account for this phenomenon.  Remember, the United States served as a major channel for China and other countries to grow their economies.  The pattern does not have to change, but the roles the actors play.  Africa, China and India can be used to drive economic growth in the United States, Europe, and elsewhere, in the future.

Part of this shift requires a change in the way the African population is viewed.  C.K. Prahalad, in “The Bottom of the Pyramid,” points out that businesses have traditionally treated the poor and disenfranchised as victims instead of consumers.  Businesses tend to devalue these populations without taking into account the current and future value of these markets, if developed.  Businesses have the opportunity to create their own consumer markets while solving endemic problems like poverty.

Once businesses see Africans as consumers, they need to consider the challenges faced by their consumers and those challenges in serving them, including those painted by Bengali.  The key is to design a business model accounting for and overcoming these challenges. 

For example, Africa lags far behind in broadband coverage, yet the World Bank noted that broadband coverage contributes to economic growth.  Also, if it is available, it tends to be expensive.  Two companies, SEACOM and O3B Networks, have taken on the challenge to cover Africa with affordable broadband within five years.   SEACOM has already landed in over ten countries in Eastern and Southern Africa.

In addition to the potential, businesses need to consider the importance of timing and position.  Now, is a perfect time for many businesses to position themselves in the African consumer markets.  Nations recognize this.  While China looks to Africa resources, it is not the only reason.  John Lee, in “China Woos Africa” points out that China is positioning itself to take advantage of the growing (in size and income) African consumer market. 

In another example, could the potential in the African consumer markets be one reason the U.S. government is shifting from supporting food aid in Africa to investment in agricultural systems?  Remember, part of the role of  diplomatic missions in foreign countries is to further the interests, including economic, of a nation.

On a final note, the issues and problems of Africa continue to provide fodder for the media more than the potential of Africa.  But there is a hidden message in all of it for entrepreneurs.  Entrepreneurs will recognize the challenge of Africa not as perilous or problematic, but as potential and powerful markets.