H1 and H2 of digital transformation are notorious for their heavy CapEx requirements and linear revenue growth. A transforming bank that restrains itself by industry will only ever be a bank and can only ever expect growth up to a certain point. Conversely, transforming companies in Africa, who reach past industry boundaries can expect exponential and explosive growth – leveraging their H1 and H2 CapEx.
Africa’s markets are some of the fastest growing in the world due to a young, underserved population whose affluence, urbanisation and connectivity is growing at a rapid rate. GDP growth in these markets outpaces the global average and this is outpaced itself by household consumption.
African incumbents stand to gain far more than their European and American counterparts by investing in H3. In fact, Africa is sometimes cited as the last continent where explosive exponential growth is possible. A great example of an African group actively pursuing H3 is MTN. Previously known as only a Telecommunications company, MTN is evolving into a digital operator; branching into Financial Services with MoMo and dabbling in Entertainment and Media with ayoba and MusicTime. In the first half of 2020, MTN made R6.1bnrevenue off their Fintech business, just over a quarter of their core mobile data revenue – and it’s growing. Their cashless MoMo app grew by a staggering 2.8 million subscribers from March to June to 3.2 million in total. In Media, MTN’s revenue grew by 24.6% to R1.5 billion, from 2 million active monthly users.  With these results, it’s clear that industry convergence is a lucrative strategy.
When it comes to industry convergence, the “why” is clear. However, the “what” is often misunderstood as “every company must become a software company”. Although technology is a key enabler of industry convergence, it is not the only business model available. Deloitte has recognised three ways industry convergence occurs:

The first model is when companies use customer insight and underserved markets to strategically expand into a new industry, and by doing so, merge two traditionally different spaces.
Safaricom’s famous merger of Telecommunications and FSI with mPesa has been replicated across the continent by many telcos.
Telecommunications and FSI are, on the face of it, completely difference industries. What they have in common is the reliance on customer data. Telcos who have access to a wealth of customer data, have a major advantage when leveraging insights to launch financial services.
In Media and Entertainment, Africa has seen widespread industry convergence. So much so, that non-digital players are quickly becoming redundant. As far back as 2017 nearly 80% of Nigeria’s media and entertainment revenue belonged to players who had converged with the technology companies. In the same year, South Africa had a 9.6% difference in growth revenue between digital and non-digital industry players. As predicted, digital revenue continued to climb, and non-digital fell. COVID-19 was the final nail in the coffin for many media brands that were unable to transform.

In the second model of industry convergence, companies look upstream and downstream in their supply chain and move into these adjacent industries. Amazon realised that as an e-commerce player they relied heavily on upstream and downstream partners, and so they started capturing the supply chain in both directions. From providing the cloud infrastructure they require (AWS), to disrupting logistics, and even payments, Amazon has turned their supply chain into an inter-connected digital supply network. This model allows the organisation to drive massive cost efficiencies, while simultaneously growing revenue, as traditional competitors become the clients of your new businesses.

As companies progress in their digital transformation journeys, their architecture needs to become increasingly platform-based, so that services are easily plugged in and reconfigured. In the third model of industry convergence, players take the affordances of platforms one step further to help ‘plug-in’ not only the business’s own systems but partners – who can even be competitors- to build platform-enabled ecosystems.

There are two platform business models that organisations use to converge into other industries.

In the first model, a business builds and maintains its own, branded, platform that allows other partners to plug in. Last year, Deloitte assisted a Multinational Telecom in creating a branded marketplace platform for its SME clients to access cloud-based business services created either by them or their partners, allowing them to expand their revenue model and facilitate end-to-end services for their customers, even outside of the telecommunications product catalogue.

In the second, the business builds and maintains an ecosystem platform without the legacy brand tying customers to their products or services. This model allows partners to enter the platform as ‘equal players’ and enables the platform to establish its own value proposition, under a new and independent brand. Vitality in China serves as an example of this model. There, Vitality is not a sub-product of Discovery but an independent service that can be purchased by customers without any affinity to Discovery. The whole Vitality ecosystem makes up a new offering that stands alone. 

Both models offer benefits to the initiator: in the first example, the telecom company uses the platform to increase usage of their connectivity products, and cross-sell, whereas with separate ecosystems, organisations can enable rapid geographic expansion without the same regulatory and infrastructure constraints as their core business.. And in both examples no matter whose services are being bought, the primary organisations owned all the data from all interactions between partners can clients - which can be fed back into the core business’s decision-making processes and monetised as insights.  Finally, both organisations have now expanded their offerings in such a way that their core industries have converged with the technology industry.

Whether it be following your customer into adjacent industries; converging up and down your supply chain or building the technology that can form the backbone of your current industry, reaching past industry ceilings opens the door to new revenue streams and new ways to fortify your core- and in the case of African organisations, offers explosive and exponential growth. Keep a look out for our next article in the series which will discuss how to get started with your business’s horizon three.