In an increasingly competitive environment, every business knows that innovation is crucial if it is to remain relevant. However, in pursuit of innovative and creative excellence, some companies are so focused on developing solutions for their most demanding customers that they end up alienating their mainstream ones.

There is a school of thought that some of the greatest innovations are developed by focusing on what truly matters to create relevant and simple solutions and products rather than needless accumulation and complication.

Stephen Wunker, the author of Costovation: Innovation that Gives Your Customers Exactly What They Want — And Nothing More, maintains that there is a balance that can be struck between reducing costs and still innovating for customers. Reconceptualising and rethinking delivery on customer needs allows for a reduction of costs, while simultaneously delighting customers, he says.

Wunker, who is MD of consulting firm New Markets Advisors, describes “costovation” as the principle of applying the tools of innovation to the cost of the business. It’s about rethinking how businesses can operate more cost effectively without alienating customers. Companies that have implemented the principle well include Planet Fitness in the US and Capitec in SA.

Speaking at a recent Business Day SME Matters digital event in partnership with Johannesburg Business School, and moderated by Earthy founder Mummy Mthembu-Fawkes, Wunker said the Covid-19 pandemic has led to a growing realisation that companies need a step change in their cost position. As a result, more organisations are prepared to do things dramatically differently in their quest to meet consumers’ need for low-cost but high-quality products and services.

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Covid-19 has resulted in a fundamental shift in spending patterns as consumers have reprioritized what they consider essential, added Herman Singh, CEO of Future Advisory and professor of practice at the Johannesburg Business School.

The pandemic has resulted in the rules being rewritten, said Singh. Recent trends include a greater focus on value; a move from indoors to outdoors characterised by an acceleration of drive-through banking; a comeback of old-school roadhouses; a greater focus on sanitising and isolation facilities; and a move from offline to online.

A particularly interesting concept for small businesses, said Singh, is the idea of “pay as you grow”, which essentially negates the need for a big capital injection. The next few years, he predicted, will see an explosion of small businesses going online.

To survive, he said companies need to adopt a digital-first approach while offering lower cost, but more value to customers.

SA is characterised by a number of perverse incentives where businesses charge more for their services the more customers use them, he said, citing telco companies charging more once customers exceed their data or voice usage, banks that charged more when customers exceed their overdrafts, and car hire companies that charge a premium for exceeding the daily mileage. “We’ve been overpaying for too many things for too long. Consumers need to start asking why a lot more,” he said.

The cost and quality interface is particularly important and relevant in the African context given the highly differentiated markets found on the continent, said professor Lyal White, senior director of the Johannesburg Business School. He said that in future, higher education institutions will need to emphasise critical thinking and creative solutions if they wish to be relevant.

Costovation will result in job losses, given that many people are in legacy jobs which add little value. However, these job losses can be avoided if employees are retrained and repurposed for roles where the value lies. Essentially, more people need to be working on work that adds value.

Implementing costovation requires identifying the hidden cost drivers in a business and finding ways to remove them, while at the same becoming more customer-centric.

Click here to register for the next digital conversation taking place on the August 19 on Pivoting the pandemic: Reinventing your business around the Covid reset — and how you can do the same”.

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