SIMON BROWN: Innovate, innovate … and innovate some more

One of my favourite reads has been The Innovator’s Dilemma by Clayton M Christensen, first published in 1997.

The central theme of the book is that while a business must focus on responding to its customers’ needs, it should also be ready and able to innovate — because if it fails to do so, somebody else will, and it will lose customers.

We see this all the time in investing, with Pick n Pay being a prime example. Having been the dominant food retailer in South Africa for decades, it simply did not innovate in the late 1990s and 2000s, and its customers moved on to other retailers.

On the other hand, an example of innovating is Amazon, which has launched Haul in its US app. The idea here is to sell really cheap goods, mostly below $20 or $10. This is a direct response to the pricing models of Temu and Shein, which changed the face of buying online with a huge range at crazy prices but long delivery times, as opposed to Amazon’s next-day delivery. Temu and Shein bet that consumers would wait longer for the right cheap product. Locally our clothing retailers’ response seems to be to rather try to crack down on these Chinese companies than to out-innovate them.

The problem is that it is hard to see true innovation in a business from the outside. Perusing annual reports and asking questions at the AGM can help but often yield only corporate speak.

A better indication is when a company has innovated before. Importantly, even failed innovation is fine, as it shows a willingness to try new things.

The Checkers Sixty60 app is probably the best local example of innovation in recent years, as everybody thought food retail was boring and predictable.

Another example is Sibanye-Stillwater*, which started life as a gold miner with Gold Fields’s unwanted South African assets. Under Neal Froneman it first moved into platinum, then into palladium and more recently battery metals.

Right now platinum group metals aren’t doing great, but in their boom days they gave the company the space and capital to move into battery metals.

Mpact’s acquisition of a minority stake in water storage company Africa Tanks isn’t hugely innovative, but shows that Mpact is prepared to spend money on what will certainly be the next crisis for South Africa.

Pepkor’s Flash business is another example, providing fintech solutions to informal traders and growing their businesses at the same time. Pepkor saw informal traders as an opportunity rather than a threat to its low-cost business.

A decade ago financial service companies were trying “robo advisers”. None has made it stick, but at least they tried.

A simpler innovation is being done by Premier; it consistently upgrades equipment to reduce bread production costs. It’s not a huge innovation, just incremental changes that add up over time.

So while innovation is important, it’s hard to spot, and therefore we need to keep our eyes open for it or the lack of it. And if we don’t see it, we should be worried.

* The writer holds shares in Sibanye-Stillwater