“Recognizing the need is the primary condition for design” – Charles Eames
Design thinking (DT) originally came about as a way to teach engineers how to approach problems creatively, as designers do. Since then, it has been used effectively within a variety of industries, customising the process to their environment, challenges, and goals. Market leaders like IBM, Google, and Tesla also use design thinking as an innovative methodology to guide their product development. It helps them see the world through the eyes of their customers.
Addressing the needs of consumers is a powerful way to drive innovative thinking. In today’s rapidly changing world, it is becoming increasingly difficult to proffer a one-size-fits-all approach to customer expectations. This is due to advancements in technology, changing tastes and lifestyles, increasing purchasing power and so on. Organisations today have to address more complex problems. To address these problems, there is a need to better understand the consumers and what they expect to gain.
Design thinking puts the consumer at the centre of problem-solving. To be able to proffer solutions to a problem, it is important that organisations understand the impact on the consumer. Design thinking encourages organisations and businesses to focus on the human point of view above all else, and to build this focus into each step of the product development cycle. This means designing products and services with people’s needs and preferences firmly in mind. For instance, a software company will prioritise design functionality, dependability and security which will allow consumers to transact in a clear, simple and intuitive way.
Steps in Design Thinking
- Empathize: Empathy helps to understand the problem of the consumer by setting aside assumptions. It is when you understand how a problem impacts a consumer that you can empathise. We can practice empathy through observation and interviewing.
- Define: The outcome of this step is a problem statement. It involves asking what problem we are trying to solve. It helps identify the features that are a priority in the solution.
- Ideate: This requires an exhaustive exploration and evaluation of possible solutions (i.e. brainstorming), in a bid to address the pain points of customers.
- Prototype: It involves developing a quick representation of the solution i.e. a physical object, a drawing, or an experience map. It selects a handful of innovative proposals and turns them into prototypes.
- Test: Here, we test the prototype by gathering feedback to determine its effectiveness. It is an iterative process with opportunities for improvement.
Benefits of Design Thinking
- Cost-effectiveness: DT enables the testing of ideas without committing resources i.e. companies are able to evaluate the effectiveness of a new product or service, without having to go through the entire process of developing the product.
- Non-linear problem solving: DT allows companies the flexibility to jump from step to step as needed. For example, if the prototyping step does not work, a company can re-start the ideation process.
- Managing complexity: Complex problems can be solved by focusing on user needs and the limitations of existing products and services
- Market discovery: DT opens up the opportunity for companies to discover entirely new markets. For example, the iPhone started with the question of how to avoid customers juggling multiple devices. By working on how to make things easier for people, Apple invented the smartphone, which opened up a whole new global market.
- Tailored solutions: User experience (UX) is emphasised when capturing customers’ mindset during the design process.
Leveraging Design Thinking in BOI
Despite monumental successes that the bank has achieved over the years, BOI is not immune to challenges and as such, adopting a design thinking framework could help in efficiently executing some of its strategic objectives. For instance, improving access to BOI loans by the youth segment can be further enhanced by leveraging the DT approach by dialoguing with the segment to understand their limitations. Brainstorm on potential solutions and jointly analyse possible solutions and thereafter test/pilot such solutions for effectiveness.
Pitfalls to avoid in Design Thinking
Design thinking often leads to comprehensive solutions. However, the framework may not work for all objectives. As such, it is important not to lose sight of other pragmatic approaches to executing corporate objectives. In addition, clear and simplified communication is key in the iterative development stage of problem definition.
We conclude with a quote by Laura Ashley – “We don’t want to push our ideas onto customers, we simply want to make what they want.“
“Economic growth without investment in human development is unsustainable and unethical” – Amartya Sen
In the wake of the recent economic recession, the first since 1991, Nigeria released a new development plan – Economic Recovery and Growth Plan (ERGP) – that set out specific objectives for achieving economic growth of 7% by 2020. This release followed earlier plans such as Nigeria Industrial Revolution Plan (NIRP), National Economic Empowerment and Development Strategy (NEEDS), the 7- point agenda, and others that targeted both economic growth and development within a specified period. The implementation of these plans has allowed Nigeria to record some measure of growth. However, the recent recession and its contributing factors (global oil price reduction, unavailability of Foreign Exchange etc.) have shown that Nigeria needs to develop sustainable sources of foreign exchange earnings to fund economic development, besides oil.
To ensure more sustainable growth, Nigeria has to prioritise economic development that produces long-term growth. Focusing on this will require a clear definition of what economic development means for Nigeria, how it can be attained, and the identification of key actors and roles in its attainment.
Although GDP growth is essential for development, other metrics such as improved competitiveness and standards of living are also important to ensure economic development. The terms economic growth and economic development are often used interchangeably but they have quite distinct meanings; Economic growth is an increase in aggregate national output. This is usually of short-term benefit. Economic development involves the fundamental transformation of an economy, leading to long-term economic benefits. It is about positioning the economy on a higher growth trajectory while focusing on improving intrinsic development factors such as unemployment, literacy, life expectancy and poverty rates. This can be achieved by causing institutional changes, altering industrial structures, the educational and occupational characteristics of the population, and the entire social and cultural fabric of a nation. It is the product of long-term investment in generating new ideas, knowledge transfer, and infrastructure. Economic development requires quality improvements and innovation. As a result, a requirement for realising development is the presence of the innovative entrepreneur. These entrepreneurs usually focus on introducing goods with a higher value and can comfortably compete within and outside their country.
Nigeria possesses an abundance of natural resources and comparative advantages that present a good starting point for the pursuit of sustainable economic development.
In addition to a favourable climate, Nigeria has vast amounts of natural resources and a large population. It has the 6th largest gas reserves and the 8th largest crude oil reserves in the world. It is also endowed in commercial quantities with about 44 solid mineral types and has a population of close to 200milliom. The existence of these advantages presents vast opportunities with which Nigeria can push for a trend of continuous economic development.
However, to fully utilise these advantages, we must encourage the notion of competition at both the micro and macro levels. This will see industries attach a premium to improving productivity. It will also see the Nigerian industries transition from a focus on the production of primary goods to the production of secondary goods with a higher value. Such transition is possible only through the mechanisation of the production process. This is argued to be a hallmark of industrialisation. As a result, a focus on the attainment of economic development in Nigeria is indicative of a focus on driving the process of industrialisation within the country.
Where does the Bank of Industry come in?
The Bank of Industry (“BOI”) is one of the public institutions tasked with the mandate of promoting industrialisation in Nigeria. The bank does this by providing both business and financial support to small, medium, and large-scale Nigerian enterprises. Such support provides enterprises with the financing needed to acquire equipment (machines) to improve the efficiency of the production process. We also provide them with business advisory services to ensure that they have the necessary capabilities and know-how needed to operate sustainably. BOI’s role in enabling industrialisation, and economic development, cannot be understated. The application of machinery enables enterprises to produce goods that are not only value-adding but can also compete locally and internationally.
The ERGP and NIRP have placed industrialisation, entrepreneurship, and competition as being central to achieving their objectives. Due to its role as a financer of enterprises BOI is being depicted as probably the most important tool the government has to promote economic development in Nigeria. BOI will continue to strengthen collaborations for greater developmental impact and increase support for enterprises, leading to improved competition, innovation and economic development in Nigeria.
“Informal conversation is probably the oldest mechanism by which opinions on products are developed, expressed and spread” – Johann Arndt
2017 saw Nigeria record its first full year of growth after experiencing its first recession in 25 years. While this recovery brought an increase in business confidence, concerns remain as GDP growth was less than national population growth. These concerns persist even as the IMF projected 2.1% growth for 2018, which falls below the population growth forecast of 2.6%. Population growth, coupled with high underemployment and unemployment rates (a combined 40%), will result in an increase in the number of job seekers in 2018. It also translates to an increase in the number of people who look to the informal sector for economic survival. The Nigerian Informal Sector (IS) is a major contributor to the Nigerian economy, accounting for a significant portion of employment and national GDP. According to the IMF, the Nigerian informal sector accounted for ~65% of Nigeria’s 2017 GDP.
So what is the informal sector?
The Informal Sector comprises any economic activity or source of income that is not fully regulated by the government and other public authorities. This includes enterprises that are not officially registered and do not maintain a complete set of accounts, and workers who hold jobs lacking basic social or legal protection and employment benefits. Examples of informal employment workers include street traders, subsistence farmers, small-scale manufacturers, service providers (e.g. hairdressers, private taxi drivers, and carpenters), etc.
The sector currently accounts for over half of global employment and as much as 90% of employment in some of the poorer developing countries. Due to its flexible nature, the informal sector can easily adapt to difficulties such as the current global recession, providing some measure of support to those most in need. Despite its importance, the informal sector is often overlooked and misunderstood, with some viewing it as transient, and expected to be eventually absorbed into the formal economy.
Today, there is no unanimous perspective on the informal economy. Some believe that the informal sector encourages fraudulent activities that result in the loss of revenue from taxes, weak unions, unfair competition, a loss of regulatory control, and disregard for health and safety standards, among others. However, a fast-growing view is that the informal economy offers significant job creation, income generation potential, and the capacity to meet the needs of poor consumers by providing cheaper and more accessible goods and services. With the significant contribution of the informal sector to the Nigerian economy, an undeniable truth is that any notion of economic development in the country is one that hugely depends on the state of affairs in the informal sector. Sustainable and inclusive economic development and job creation are unlikely to be achieved unless the potential and needs of the informal sector are adequately considered. Thus, efforts must be made to understand the dynamics of the sector and how best to tap the latent potential that lies within.
If previous attempts at intervention were unsuccessful, what can be done to maximise the potential of the informal sector in Nigeria?
Historically, stakeholder interventions in the informal sector have been focused on how to regulate businesses, and effectively integrate them into the formal economy. Limited emphasis has been given to identifying the drivers of growth in the various sub-sectors within, and the challenges experienced by participants. The Nigerian Informal sector players face a myriad of challenges including inadequacy of technology, education, markets, land and physical infrastructure, limited access to finance, and limited skills development. Policy interventions to support the sector must therefore be two-fold. Firstly, efforts should be made to create more formal jobs to draw workers out of the informal sector. Secondly, policies should be introduced to address identified challenges in the informal sector towards improving productivity and incomes of informal sector players
What role does the Bank of Industry play in supporting the Informal Sector for national development?
Current BOI interventions in the informal sector include both training and financial support for market women, artisans, traders (through the FG’s “Government Economic Empowerment Programme “GEEP product”) and artisanal miners (through the Artisanal and Small-Scale Miners – “ASM Fund”). A critical look at these interventions shows BOI adopting a hybrid model that prioritises the attainment of both economic growth (GEEP) and development (ASM Fund). In the formal sector, BOI continues to provide funding and capacity building to enterprises, for business expansion, inevitably leading to job creation.
“A crisis is a terrible thing to waste”- Paul Romer
The COVID-19 pandemic has caused unprecedented disruptions for Nigerian MSMEs. This has led to a myriad of strategies and recommendations on how MSMEs can survive. As these are being implemented by MSMEs, a new normal and the probability of an economic recession have forced MSMEs to focus on thriving and not just surviving. To do this, MSMEs have to be proactive to face the ‘new normal’ by reshaping their business models to recognize and adapt to changing customer demands. To describe how MSMEs can thrive, we adopt a business model approach that describes how a business creates and delivers value propositions to its customers. Through this approach, we can assess how the pandemic affects MSME customers, value proposition, financial viability and infrastructure (channels, partnerships and key activities).
A critical review of the Impact of COVID-19 on MSMEs in Nigeria
A critical approach to analysing the impact of the COVID-19 crisis on MSMEs can be done on two levels.
The first level of analysis is to focus on the immediate impact of the lockdown on MSMEs. According to research carried out by the Pan Atlantic University-Enterprise Development Centre (PAU-EDC), most MSMEs (~93%) reported a decline in income due to the lockdown, with 88% of them re-thinking their business models. The study revealed that some of the biggest challenges most MSMEs faced were associated with their sales, cash flow position, production activities and logistics.
The second level looks at the post-lockdown impact. Existing evidence from preliminary research on the impact of COVID-19 on customer demand revealed that the potential increase in job losses and reduced wages have affected people’s finances. As a result, a good number of people may have lesser income available to cater to their needs. This will result in most customers limiting their consumption to essentials (e.g. food and medicine). Thus, MSMEs that predominantly offer non-essential goods and services may face diminished patronage which could have long-term negative effects.
As regards value propositions, evidence from existing research on the impact of a crisis on value propositions showed that, due to tighter finances, a vast majority of customers become more price-conscious and look for offerings that represent the best value for money. Thus, MSMEs with brands or value offerings that are quality focused (e.g. premium brands) may struggle more than MSMEs with value-centric brands.
Concerning financial viability, evidence from a study by Deloitte showed that MSMEs with huge variable costs are more likely to be negatively affected, primarily as anticipated reduction of demand lowers revenue. In addition to this, MSMEs with a single revenue stream may face challenges as customer demand changes or reduces.
Re-inventing MSMEs to thrive not survive during a crisis
To thrive during a crisis, MSMEs must look to introduce strategies and pathways to mitigate the impact of changes that emerge during such a crisis. Recommendations of action plans that can be implemented to ensure this include:
- Identify and Retain key customer segments: MSMEs are defined by their customers. This statement is as true during good times as it is during a crisis. MSMEs must ensure that they have a steady stream of customers. Most MSMEs tend to cater to multiple customer segments. However, there is always one segment that contributes the most to revenue. MSMEs must be able to identify what that key customer segment is! It is essential to assess how this segment has been affected by the crisis and how such an effect may influence their consumption patterns. Being able to address the changing consumption/demand patterns of this particular segment represents the first step toward a thriving MSME.
- Amend value proposition to align with changing demands of key customer segment: As consumption patterns of the key customer segment change, the previous value propositions of most MSMEs are unsuitable to consider as competitive advantage. Even in situations where there is a slight/negligible change in demand, customers may be tempted to look elsewhere due to other MSMEs providing a more attractive value proposition. As a result, MSMEs must be willing and proactive enough to make it difficult for their key customers to switch over to other competitors. Recommended strategies include increasing value-based offerings (such as discount or bundle packages for price-conscious customer segments), introducing convenience options (such as domestic delivery options for existing customers), etc.
- Review and Re-strategize on activities and customer channels to improve customer satisfaction: If an MSME wants to improve their customer satisfaction during this period, they can improve the efficiency of their key production activities, localise their partnerships to reduce the risk of disruption to supply chains and create new channels that enable them to reach their customers easily. Some strategies that have been proposed to achieve these include: leveraging digital channels to reach customers faster, introducing process improvements (such as reducing the number of human hand-offs in their business processes), and increasing the number of local suppliers
- Create additional revenue streams to harness potential opportunities that may arise as a result of the crisis: While the previous points focused on key customer segments, it is equally important for MSMEs to be aware of the new opportunities that may emerge due to the crisis. As a result, MSMEs must continuously scan for new opportunities worth exploring to enable them to create a new product that can serve as an additional revenue source.
To conclude, the concept of a new normal is frightening for all stakeholders but history has shown that every crisis brings forth opportunities. The most successful companies are the ones that recognize those opportunities and act upon them.
“Conformity is the jailer of freedom and the enemy of growth – John F. Kennedy”
In 2019, the Nigerian Bureau of Statistics (NBS) released the third edition of its Nationwide survey of MSMEs in Nigeria. The report revealed that there are about 41.5 million enterprises in Nigeria, a 12% increase from the figure reported in the previous survey in 2013. The survey however revealed that the number of medium-sized enterprises (businesses that employ between 50 – 199 people and have assets over ₦1 billion) reduced in the years between the 2nd and 3rd editions of the survey.
The number of medium-sized enterprises declined by 62% to 1,793 enterprises in relation to the figures reported in the previous MSME survey. According to the report, not only did most formal small enterprises fail to scale up in the last 4 years, but also many medium-sized enterprises contracted in size. Interestingly, recent research shows that micro and small enterprises are no more being considered primary drivers of employment. Medium-sized enterprises are increasingly considered the primary creators of better-paying jobs and increased productivity in a growing society. Given these current realities, this article seeks to discuss the existence of a “missing middle of medium-sized enterprises in Nigeria”, and proffers possible solutions to this developing issue.
What is the missing middle and why is it important to discuss it?
The concept of the missing middle has existed for a while. In Nigeria, it means the absence/reduction of vibrant medium-sized companies that can bring dynamic and competitive pressure to expand the number of productive and well-paying jobs in the country. Given the necessity of their products and services, having a large population of medium-sized enterprises is crucial to building an economy’s self-sufficiency and reducing the dependence on costly imports. Medium-sized enterprises also create a significant demand for products produced by small enterprises, utilising them as inputs into their production activities. Additionally, they also stimulate the development of a middle-class population who drive consumer purchases and local demand
Why is there a missing middle of enterprises in Nigeria?
There are various reasons why the missing middle currently exists in Nigeria. One reason, which will resonate with many policymakers, has to do with the negative impact that the recent economic recession had on the Nigerian economy. The slowdown in economic activity and unemployment rates that accompanied the recession made it difficult for many medium-sized enterprises to thrive. Another identified reason relates to the constraints on doing business in Nigeria. Challenges such as the difficulty in accessing finance, an unfavourable business and regulatory environment, and infrastructural issues are typical reasons why some medium and small-sized enterprises may experience decline or lack of growth respectively.
A third reason may simply be linked to the type of entrepreneurs that are present in Nigeria. Evidence from available research shows that entrepreneurs in developing countries (such as Nigeria) usually produce and sell products or services similar to their peers with no distinct value proposition to differentiate them. This stifles competition and makes growth difficult. In developed countries, entrepreneurs place a premium on their businesses by having a unique value proposition as a way to grow the business.
How then do we address the challenge of the missing middle in Nigeria?
Realistic efforts to address this challenge in Nigeria must recognise the long-standing issues (e.g. infrastructure, and access to finance) that plague the Nigerian business environment. In an increasingly competitive environment, entrepreneurs must begin to place a premium on selling differentiated products and services and focus on value addition. This is important as enterprises with a unique value proposition (e.g. quality, efficiency, speed, and customer service) are better equipped to compete both locally and internationally. These types of enterprises are also less susceptible to the effect of external shocks and thus, thrive better.
Secondly, entrepreneurs must start to develop innovative solutions not limited by traditional business models. One solution worth considering is the adoption of business model innovation (BMI) by enterprises. Introducing new business models that limit the influence of constraints faced by entrepreneurs, whilst also accentuating their ability to achieve their goals, has been argued as a practical way for enterprises to thrive in difficult environments.
Within this context, small enterprises may look to target previously underserved segments of the market. These segments can provide an opportunity for small enterprises to acquire the scale and cost advantages needed to scale up. It can also provide medium enterprises with the advantages needed to thrive.
To address these difficulties, stakeholders (both public and private institutions) have begun to introduce initiatives that address some of the challenges faced by small and medium-sized businesses.
From the provision of physical interventions such as industrial parks to ease some of the infrastructural challenges; to incubation centres and tech hubs where start-ups can access subject-matter expertise on technology trends, knowledge transfer, strategic innovation management, and industry-specific insights.
Lastly, several institutions now sponsor SME business and technical skills workshops, SME trade fairs, etc. which also enable these businesses to network and market their goods and services as well as exchange ideas. It is hoped that these initiatives will ease some of these challenges and grow the missing middle-sized enterprises in the country.