How business is changing the relief of economy and how people can make money on it
If an ATM offer Alexander Romanishin, a co-founder of ‘Reactor UA, LLC’ and ISE Group, to scan his eye retina or read a proverb for voice recognition, he will not be surprised. Even if at the gas station you will get not only gasoline poured into the tank of your car but also coffee in the driver’s thermos – our hero will remain imperturbable. Romanishin and his colleagues are committed to helping large business become more innovative by linking market mastodons with development teams around the world. Alexander told Leadership Journey where the global business is heading and why it will soon be difficult to divide companies across industries.
Leadership Journey (LJ): I know that business models have always changed, the topography of industries has changed – sometimes more, sometimes less. But now the boundaries of industries are disappearing at all. I am interested, the point of singularity, when such changes become a global phenomenon – has it already been reached?
Alexander Romanishin (A.R.): Speaking about changes in the relief of industries, it would be more accurate to speak not about a singularity, but about convergence — interpenetration of businesses. If we talk about the change of business models, the feeling of a business belonging to an industry is already eroding. It used to be obvious: these are farmers, these are mechanical engineering, and this is a bank, now it is not so obvious. Now, when you look at Kyivstar or Vodafone, the question arises: is it still a telecom or is it almost fintech? Operators launch mobile banks, they are already moving to another industry. And not to a related industry. They have one foot somewhere over there.
SpaceX, Falcon 9
Another example: SpaceX will launch free Wi-Fi across the planet, and from this point on the business model of Internet service providers is already in question. Or take the agro-industry, where 60% of the cost — it is the cost of purchasing fuel and lubricants. Agro-enterprises are becoming actually energy companies that should be able to primarily manage energy resources efficiently and develop a niche in the energy sector.
Another example: oil sales, in which more than half of the revenue comes from the sale of alcohol, tobacco, food and other retail product categories. Accordingly, this is almost food retail. Now more and more businesses cannot always identify themselves accurately. This is called ‘convergence’.
LJ: Are there any industries that are the most protected from such market mixing?
A.R.: It is a matter of time. At first glance, some of them may seem to be protected from such market mixing, but the convergence driving forces concern virtually every industry. Accordingly, another question arises: what strategies should be applied to preserve and increase revenues in the face of such a convergence? Each industry can have its own strategies, and this may be a topic for another conversation. The formation and promotion of new standards in the market, revision of the business model, and entry into market segments, in which convergence has not yet begun, could be used as such strategies.
THE CONVERGENCE DRIVING FORCES CONCERN VIRTUALLY EVERY INDUSTRY
LJ: I used to think for a long time that Ukrainian business and innovations still rarely met, but when I saw the queue of innovations seekers on your ‘RE: ACTOR’ platform I had changed my mind. Which companies in Ukraine do pay special attention to innovations and what exactly do they change?
A.R.: We do have a queue. Our mission is to implement innovations in corporations effectively. Many people understand that you can spend tens of millions of dollars on your internal R&D and invent a bicycle. Why, the question arises? If a company really means business, then its owner clearly realizes that all these internal incubators are ‘toys’. A company informs the ecosystem’s players (accelerators, venture funds, technology hubs, etc.) through us about the necessary changes and needs, and receives various ready-made offers. We work mainly with companies in Eastern Europe and for we provide the best solutions from around the world our clients. In Ukraine, there is also a request for such solutions; the Ukrainian business is opening itself up to innovation.
I can cite Alfa-Bank and OKKO Group as an example of the Ukrainian cases that actively request different technological solutions. For example, over the past six months, we have conducted more than 300 negotiations with various technology teams; we have selected nearly 100 specific solutions for managers’ consideration, and 20 of them have been included in the pilot projects already. This was largely done in six months. However, you can change a business model only when the company is ready for change internally. The search and implementation of innovations is a system business process similar to personnel management or preparation of the annual financial report, or inventory management, or whatever another process. Innovation activities should be systemic and regular. To this end, we help to build a horizontal structure for managing innovations inside the corporation, which organically co-exists with a well-established hierarchy, not destroying it, but vice versa – only strengthening it.
LJ: Often corporations and developers speak different languages. How do you bring them together?
A.R.: Let us first clarify the question of where this different ‘languages’ come from. First, this relates to differences in business processes. In the case of a corporation, these are projects with a long planning horizon and a streamlined business process. For solution developers these projects imply regular testing of product hypotheses, developing new products in small sprints, and tailoring solutions for the market and customers. Secondly, the imbalance of interests of the parties exist. It often happens that in the pursuit of a client, a startup developer is ready to go for obviously unfavorable conditions; after having the hypotheses tested the developer (may go) goes to competitors of his first client and makes a full-fledged product there. Thirdly, the entry point to the corporation is a problem. It is a rare case when a corporation has an officer responsible for communication with external solution developers, and consequently, the developers’ team gets lost in the wilds of the bureaucracy.
For these reasons, it is often difficult for corporations and solution developers to work directly. For each of these reasons, we manage to find the best options for how to bring them together. In addition, we are already working with a list of tasks from corporations. On the ‘RE: ACTOR’ platform, corporations place requests for innovation and technology solutions, and development teams submit their solutions.
LJ: These doors are shut for many. How do you get them open?
A.R.: I have eight years of experience in EY (Ernst & Young) – an audit and consulting company. Before EY, I was working in Ukrainian and international holdings. All this time, while conducting transactions, engaging in mergers and acquisitions, I communicated directly with business owners and top managers. I know how business thinks, I understand its needs. If an owner of a company is looking to the future, planning to build the business in a year, and in five, and in ten years, he will certainly come across issues of strategy and business models of the future. There is nothing worse than the moment when a company, having attained a certain success, stops developing. What is good to be a monopolist in your industry today? To think, you are the king of the mountain is dangerous, because tomorrow a seemingly stable situation might change and you will find yourself among the laggards, and more agile and enterprising people will take your place. Therefore, when you are on top, it is time to think about the transformation of the business model. Or, at least, to ask yourself the question: are there objective factors that in the next few years will make our product or service uninteresting for the consumer?
LJ: What is the difference between requests for innovation in Ukraine and other countries?
A.R.: Interestingly, in some areas, we are, as they say, ‘ahead of the whole planet’. For example, Ukrainian banks are more advanced than European banks. Their requests are more focused, more conscious and formed; there is more flexibility in implementation. If you take the agro sector, then Europe and Israel are in the lead: land management, precision farming … As far as Ukrainian agriculture, basic land cultivation technologies are used, and only some agricultural holdings apply smart farming, besides not at full strength.
UKRAINIAN BANKS ARE MORE ADVANCED THAN EUROPEAN BANKS
LJ: In the agricultural sector, does Ukraine lag far behind the advanced countries in terms of innovation?
A.R.: In general, in the world, according to the McKinsey Global Institute (Industry Digitization Index), agriculture ranks the last among industries in terms of innovation.
Let us take ‘agrifoodtech’ for example – various food delivery schemes, eco-friendly or ‘smart’ packaging, etc. Judging by the size of transactions, the annual capacity of this market in the world is $ 10 billion, half of which is the USA share. And Ukraine has only $ 4 million. Admit it the difference is huge. At the same time, Ukraine is among the top ten countries with the largest area of fertile land; and it positions itself as an exporter of agricultural products. In Poland, for example, the farmed land is twice as small, but they harvest two to three times more from one hectare than we do. Analysis of the GDP structure shows that Poles use every hectare of cultivated land six times more efficiently than we do. Conclusion: this sector in Ukraine is under-invested and has huge development potential. That is why now our country is very interesting from the point of view of pilot agricultural projects: to launch a new technology, test it and then scale it to the whole world.
UBER EATS
LJ: In your opinion, does such a subtle substance as mentality matter? After all, many innovations that work ‘there’ do not ‘fire’ in Ukraine …
A.R.: I would say that mentality differs not only across countries but also even across companies. Take Google, Amazon, Deutsche Bank – each company has its own history, rules, and business approaches. Nevertheless, every industry has prerequisites to form a culture of innovation perception and implementation.
In general, there are two poles: on one, those who are ecstatic about innovations, on the second — those who perceive innovations with a hostility. Someone shells out a lot of money in the company’s transformation and fails. A burned child dreads the fire. He thinks, “Why at all should I do it? We will work as before.” This is one category. There is a different category. I call them ‘a theater of innovation’. These are the companies, which are introducing innovations for the sake of innovations as such, not fully understanding the results of the next transformation. However, the “Let us try, it is cool” principle, eventually leads to a lost focus and disorientation. You stop to understand what will work and what will come out a ‘bubble’.
Silicon Valley
Therefore, the perception of innovation depends more on the attitude of a particular entrepreneur, and the mentality here has an indirect effect. For example, in Scandinavia, people, despite their restraint nature and external coldness, generate many innovative ideas. There is also the so-called Valley effect: if a company is located within 56 km limits of Silicon Valley, then you are in its ecosystem. You are ‘boiling in the broth’ of innovations and feeding on it. Moreover, take Kansas state, they are gone not far from the old industrial approaches, although it is the same country.
LJ: How do you start working on a new project?
A.R.: We form an Innovation Council, which consists of internal (owners, top managers of the company) and external (invited experts) participants. We conduct professional interviews with each participant of the Innovation Council to define the main growth and development points of the company as a whole and for each line of business separately. Data from the interviews, we describe in the form of open requests for innovation solutions. Based on this, we write a manifest, which contains a general request, and send it to our partners — accelerators, venture funds, and R&D centers — all over the world. The emphasis is on the USA, Asia, and Eastern Europe. Then we receive their offers, which we analyze, and those that have successfully passed the technical expertise, we pass on to the innovation council. Then the important stage of the pilot project begins. On average, the time duration from the submission of proposals to the pilot project takes about five months. Of the 20 teams that enter the pilot project stage, usually, four are failures and six are successful. I think this is a good result.
LJ: Does successful pilot mean the offer is 100% what the client requested?
A.R.: The teams, which signed a contract with a corporation and started earning money together. That means it worked. We hold this funnel of sales and track implementation dynamics.
LJ: How do customer companies work at this stage?
A.R.: The companies, which order innovations, are involved at all stages; we have three main stages: search, selection, and implementation of innovative solutions. Before searching, a company’s management formulates their wishes, the areas of the future technological solutions. At the stage of selection, it is active participation in Idea Day and sprints in order to assess the relevance and value of the chosen solution. Then the active stage of working with the team in the pilot comes for the client. If a company wants to be innovative, at each stage it is important to devote enough time to communicate with the developers’ team and at the same time not to do too much of hypotheses’ testing and experiments. We made measurements. The management spends no more than 3-5% of its time on work with innovations in our platform’ model. The world benchmark is 5%.
LJ: What are the most interesting requests for innovation that you could point out?
A.R.: Alfa-Bank Ukraine is among the fresh examples. The bank had set us a task: to find technology teams that are ready to offer solutions for creating a digital bank. We have selected over 150 teams that have read the request. Conducted a series of interviews. We have chosen and integrated it into the bank’s activities. The product has entered the market; it is called ‘OK, Alpha!’ Now an entrepreneur can open a bank account in five minutes instead of two to three days as it used to be. This innovation is changing the way the bank communicates with the customers and demonstrates a willingness of the bank to solve a customer’s problem the moment it occurs.
LJ: What are other domestic companies that systematically seek innovation?
A.R.: For example, from OKKO we have about half a dozen different requests. They want to digitize HR as much as possible; they want to introduce food-techs – everything related to delivery and new products. They want to build ‘smart’ gas stations and simplify payment schemes. For example, you can now pay for fuel with QR code not leaving your car. It holds also for the stores at gas stations: having statistics of previous purchases of a particular person, you can personalize the service, making it more customer-oriented. If a salesperson knows that a customer always takes a hot dog and coffee, he will not offer him tea. And so on. This technology takes communication with customers to a new level.
THIS TECHNOLOGY TAKES COMMUNICATION WITH CUSTOMERS TO A NEW LEVEL
LJ: What are the main trends in innovation?
A.R.: There are many of them. I will mention those that, according to my observations, are now the main ones. Robotization – more and more processes, such as collecting and classifying information, filling out forms can be automated with algorithms. Artificial intelligence — for example, recognizing video images or voices. One of the cases: a 30-second conversation of a call center operator with a client allows you to determine the probability of purchase and to decide whether to terminate or continue the conversation based on this probability. Augmented and virtual reality applications – the areas are numerous: from the gaming industry to education, medicine, engineering, and many others.
LJ: And the Internet of things – what are the innovations in this direction?
А.R.: There appear more and more sensor and detector devices able to exchange data. According to forecasts, the number of devices connected to the internet is already approaching 50 billion and every second 80 new devices are added to the network. High growth rates can be expected in such areas as management and monitoring in agriculture, medical telemetry, and contextual advertising in a store.
LJ: What interesting developments are in the sphere of human capital – search for candidates, testing? Right down to the things that oversee happiness …
A.R.: There are several directions. Including, interactive learning systems with chat bots. Other directions are searching and attracting candidates based on data science; technology for interviewing candidates based on artificial intelligence; a bot program for interviewing; a digital platform for recruiting and managing vacancies and tools for assessing the potential of employees. This is exactly what the Thomas System personnel assessment system does. There are also various chat platforms, where the selection of the right candidate is done in just a few minutes, and a candidate or an employee is assessed by a 360-degree method, which provides an objective assessment personal effectiveness.
EVERY SECOND 80 NEW DEVICES ARE ADDED TO THE NETWORK
LJ: What about the whole world?
A.R.: Let me give you an example. When I visited Finnovate 2018 in New York, I came to know about an interesting decision that helps to score candidates for leadership positions. It gives answers to the following questions: is a person sufficiently charismatic and ambitious to be a leader; is his communication efficient enough to convey his ideas and tasks? This assessment is based on a person’s behavior in a live interview and takes into consideration his face expression, motility, gesturing, emotionality, etc. Large baggage of patterns has already been accumulated, and if a person’s psycho-type falls into one or another pattern, then his line of conduct will most likely fit.