Some innovate others inhibit
South Africa is ideally positioned to deliver IT services into Africa and Europe, and the country`s past isolation has engendered the ability to maak `n plan. But for every element fuelling success, there is a hurdle across the path.Two floors of an unassuming brown building on the periphery of the Cape Town business district are a bustling hive of innovation. Here, small companies can rent floor space – just as much as they need – along with the shared infrastructure they need to get started in business.The UUNet Bandwidth Barn is the pioneer project of the Cape IT Initiative (CITI), which is a not-for-profit promotion agency for the ICT industry in the Western Cape. Its intention is to grow the Western Cape into an international ICT hub, creating jobs and building the regional economy. The Bandwidth Barn offers entrepreneurs the facilities, bandwidth, mentorship, support and networking required to grow young businesses and foster innovation.“The greatest local hindrance to innovation and development is the problem with access to realistic financing and support, especially in the form of accounting and legal matters,” says Dan Perrin, founder of Perrin Software, a small company housed in the building. “Starting out is when the most support is required, and it appears that there is a general reluctance to assist a company before they can show a healthy profit, the only exception being those institutions who would have the struggling new businessman literally hand over the controlling interest in the business.“The Bandwidth Barn has definitely provided a much needed nurturing environment in which we are constantly impressed with the advantages provided, and have already reaped enormous benefits from the association and exposure to surrounding companies,” adds Perrin. “The benefits have made a huge difference in our ability to move forward in our quest for a successful business.”Rotor, Perrin Software`s flagship product, was developed in recognition of a need for parents and business owners to monitor the online and offline activities of their respective children and employees. After evaluating 20 products, Perrin came to the realisation that there was room in the industry for a real-time recorder.“By its very nature, real-time recording uses a lot of a hard disk space, and the first barrier that had to be crossed was developing the compression technology that would make it possible to store as much information as was required using as little space as possible,” explains Perrin. “We passed that challenge with flying colours, so much so that our compression is twice as good as the best international product we could find.”The recorder also provides a human interface that alerts managers when there is a security breach or other threat, rather than requiring them to wade through hours of tape. Perrin claims that competing software products simply do not provide adequate functionality to extract only the information needed.While small businesses may lack the infrastructure to allow them to focus on their core function, it is the glut of infrastructure that stifles innovation in their larger counterparts.“Innovation must be strategic, properly managed and implemented, without becoming bogged down in politics and bureaucracy,” says Thomas Jankovich, global business development manager of Deloitte Innovation Services. While this might seem an impossible task in most of today`s corporates, Jankovich explains that this is not the case. “Not if the terminology is strategically situated outside daily business and follows a carefully designed process,” he says.Deloitte & Touche SA began developing and implementing the methodology five years ago and has since been working at refining and streamlining it. “Essentially, the process follows six simple stages,” explains Jankovich. “Innovation leadership, ideation, market intelligence, business development, funding and implementation, and managing the exit. These steps apply to every industry, every business and in any country.”This process, innovative in its own right, is now being offered to international clients as well. “Innovation Services has become so well established and so effective that we are now offering it as a service to clients worldwide.”In fact, these processes have proven so effective that Deloitte & Touche has applied them internally as well, and reaped benefits to the tune of several hundred thousand dollars.“Since implementing our own Innovation Zone, Deloitte & Touche itself has seen the startup of dozens of businesses,” says Jankovich. “The potential is practically incalculable and the profits often exceed initial expectations. I am confident that, within the next few years, organisations are going to find themselves compelled to implement such an innovation methodology if they wish to remain competitive in our challenging global market.”This is all well and good for companies that have a substantial budget allocated to external consultants, but Jankovich maintains that these practices can be put into action to promote innovation regardless of the size of the company. “You`re not going to innovate if you don`t have all these components, whether you are a one-man or a one-million-dollar band,” he says, but adds that smaller companies would have less of a need for strategic innovation programmes.“What you will find is that a smaller organisation is generally innovative in itself. You won`t find a smaller organisation that is stagnating in its industry, where it is in the first half of its lifecycle, is dynamic and doesn`t have any processes in place. When you encounter a company that says they want to deploy a strategic innovation programme, they are in the second half of their lifecycle.”Bandwidth Barn and Deloitte & Touche Innovation Solutions are two very different strategic initiatives aimed at fostering innovation at opposite ends of the business spectrum. What emerges is the certainty that innovation is necessary to survive; but for that innovation to survive, it must be cultivated.“To become a leader in a globally competitive environment, you have to have the jump on competitors – and a significant jump at that, not just a little step,” says Jankovich. “This requires radical innovation, but not haphazard initiatives or excessively risky ventures.”While these two initiatives may reflect positively on the South African climate of innovation, the general population of “ideas men” believe that the country does not offer enough support for start-up companies.“Prototyping and research cost money, and South Africa does not house a streamlined non-biased government grant process that is truly representative of this country`s diversity of people`s ability to create and innovate,” says Ricus Ellis, executive director of PreWorX. “The availability of local capital is non existent for good reasons, of course; so you are pretty much left to finding private individuals that have money and are prepared to invest.”If a fledgling company has managed to navigate the myriad obstacles of finding financing, the next hurdle is identifying local customers willing to purchase home grown solutions.“I firmly believe big companies and government only look outside the country for their software requirements,” says Richard Firth, CEO of MIP Holdings. “If you look at the total IT spend in South Africa, which is in the order of R80 billion, I`m not sure that even 20 percent of that was spent on local software in the last year.”He cites the healthcare industry as an example of how software has been developed locally, specifically for a market segment, after international software was unable to deliver. “The healthcare industry has burned its fingers so badly with international software that no healthcare organisation will touch offshore products. They have come to the conclusion that they need to use local companies for their applications. Broaden that view into other industries and you will find that there are massive amounts of international software that are not getting the job done right.”MIP Holdings vied with 31 companies to become the provider of Progress Software`s Internet framework, which is now called Dynamics. As a result, MIP Holdings has expanded its area of operations into Europe and the US, becoming a global developer on the Progress Software platform. Despite this level of international interest, MIP Holdings still struggles to attract local attention. “We get more international interest than local interest in terms of new business right now, because people see local software developers as highly skilled and companies here generally cheap to do business with,” says FirthDespite this vote of no confidence on the local front, Firth has remained loyal to South Africa. “All my intellectual property rights for the software is owned here in South Africa, which contrasts with some companies that suggest they are local yet are registered outside South African borders – and unfortunately, this is where all the wealth goes to.” Death by taxesWhile the lack of funding and customers are the most likely stumbling blocks to a start-up company, where marketplace resentment of government infrastructure kicks in is at the point where small companies actually start to make money.“I think government is a bit short sighted when it comes to taxation,” says Ellis. “When you burn cash to develop and innovate it becomes a cost entry and it comes off your bottom line. The day you make a profit, you are taxed like any other company importing intellectual property. There is no special tax incentive to build intellectual property in this country, nor is there a non-bureaucratic system protecting intellectual property against international peers.”He compares IT innovation with the mining industry. South Africa has in the past exported iron ore to international markets, only to buy it back once it has been processed. It would make sense to increase the value of our offering by investing and processing the iron ore and then exporting the processed iron, transforming our natural resource into higher value. This retains value and earns money for the country.“Adding value to exported resources is so important for this country to retain its intellectual property,” says Ellis. “In our case, you get taxed the same, even if the direct input cost for a start-up company to play the international markets is significantly more than doing this out of the US, for example.”In defence of the South African government, there are a number of initiatives available to help out small businesses. But in a country that urgently needs to nurture its entrepreneurs, these are few and far between.“Government structures and incentives have been in place for a number of years to assist innovative companies in bringing new products to market,” says Jan Mrosik, MD of mobile business at Siemens Telecommunications. “Currently the total funding available and the limits per project are too low to make any significant impact on any particular industry. The scope and focus of these schemes is also too broad. It is a case of few funds spread too thinly. A government-sponsored venture capital scheme on a grand scale is required, focusing on a particular industry and having a presence in the president`s office.”He uses the example of India`s Ministry of Information Technology facilitating the growth of that country`s industry to international powerhouse status.In South Africa, the name most strongly associated with successful innovation is Mark Shuttleworth; and he has in turn established his foundation as a funding mechanism for innovative companies showing promise. There are, however, other local companies that have seen national adoption of their products and are now reaping the benefits.One such example is Leaf Wireless, a company that uses wireless technology to deliver a wide variety of services from news and financial headlines, through daily horoscopes and ring tones, to security applications and innovative point of sale solutions. Initially working closely with MTN, Leaf Wireless has now expanded to include offerings to users from all three of South Africa`s network operators. This burgeoning success on the local front has given Craig Bregman, Leaf Wireless`s marketing and media executive, a refreshingly positive outlook on doing business in the country.“South Africa is an ideal environment for innovation in IT and telecommunications,” he says. “These two industries make it possible to bring communication and education to our population in a technologically efficient and affordable way. The breadth of socio-economic issues that face us in South Africa – a country successfully bridging cultural divides that previously separated us – demands innovative solutions that promote progress, sustainability and opportunity for us all.”He goes on to comment that for innovation truly to be fostered on the local front, South Africa needs to embrace the value of its intellectual capital. “We have a real opportunity to enter the global technology market with compelling, world-class products and services that will establish a strong foundation for building a sustainable and competitive industry going forward.”
02 November 2003
South Africa is ideally positioned to deliver IT services into Africa and Europe, and the country`s past isolation has engendered the ability to maak `n plan. But for every element fuelling success, there is a hurdle across the path.
Two floors of an unassuming brown building on the periphery of the Cape Town business district are a bustling hive of innovation. Here, small companies can rent floor space – just as much as they need – along with the shared infrastructure they need to get started in business.
ITWeb Premium
Get 3 months of unlimited access
No credit card. No obligation.