Innovation in Microfinance as an Ayala Blue Ocean – 1 of 2

I think the Ayala Group sees great opportunity in the microfinance market.

They can put together a strong strategy – I will attempt here to cobble up one from a grab bag of MBA buzzwords, hahah!- and have a source of strong growth in financial services in the coming years. That is if Ayala can execute the strategy (and put together an organization) that will go against their very DNA as a traditional financial services firm.

These buzzwords may include: blue ocean, value innovation, adjacencies (Zook) from a strong core, technology value lock, hidden assets, core competence and bottom of the pyramid (Prahalad).

Ayala has chosen Mr. Gerry Ablaza, former CEO of Globe and an experienced commercial banker at Cititrust, to lead the effort. Indeed, he is the best man in their team.

Seriously now, let us go to a possible strategy from the buzzwords.

Blue ocean and value innovation (Kim and Mauborgne). In the red ocean of big banks, microfinance represents a large blue ocean of unserved customers. Ayala can make a strategic move, Blue Ocean’s unit of analysis, to get into microfinance possibly, and I am just ‘blue skying,’ according to the following strategy canvass:

• Target market for strategic move: urban micro-credit market (the list of Globe customers with excellent credit standing)
• Selected Six Path (across related industries): top value line are universal and big city banks, bottom value line are rural banks in aggregate,
• Present factors of competition: risk capital, reputation, reach (branch network), sales & marketing (account management), service technology platform, data bank on credit scores and transactions, micro-tranched products with face-to-face relationship.
• Factors to minimize or eliminate: sales & marketing, branch network (no increment),
• Created factors: dedicated Ayala user-friendly service as technology extension from G-Cash,  the RBAP platform – i.e. statements as cash accounting ledger service. Other created factors may include co- branded products like G-Cash Click, BPI, and BPI Direct.

These created features come from existing Ayala affiliates’ core competences and next generation demand served from hidden assets – more buzz from Hamel, Prahalad and Slywotzky.

Better still, Ayala must go beyond  into Paul Romer space and develop created factors that are “non-rival, partially excludable” to attain increasing returns and wider distribution over the technology channel.

Technology value-lock. They can use the technology experience in G-cash to implement a low-cost service capability – compared to the face-to-face approach of the rural banks -to be a value lock matrix (author help – Varian?) paired with Blue Ocean. The matrix will create a barrier to entry (Porter) that will be hard for any new entrant to crash and a powerful force against existing microfinance players like the rural banks.

My fearless forecast (!): Ayala and Mr. Ablaza will easily sail this blue ocean though created factors with increasing return features will be a challenge and something to watch out for.

This is a big challenge for the rural banks. I think, a good thing ultimately for the Philippines. As a group, the rural banks need to clean up their cohort from rogues best exemplified by the Legacy Group (allegedly) and shape up to compete. They must further strengthen relationships without increasing service cost.

For Ayala, this deliberate approach, which have them getting into technology space in a robust manner, is a hallmark of a 100-year old (tried-and-true) company (another evidence is all the green technology applied in Nuvali).

One thing Ayala should watch out even as I post; I will bravely hazard a guess that I think will come true as the sun sets in the west. JG Summit is probably working on a well-engineered low-cost follower into microfinance, a Gokongwei hallmark like Cebu Pacific, Sun, and Payless noodles, in the microfinance space. They will be starting from their vaunted distribution channel capabilities in Jack & Jell, Maxx, Blend 45, C2, Pure Life Water, and Ministop – the elements are there. Mr. Lance can create a low-cost G-cash clone with the present Sun Cellular pipeline.

Innovation is alive and well in the Philippines! Robust competition from market opportunities is driving it.

William Baumol’s thesis is confirmed (See Post #17); as in other countries, entrepreneurial wild spirits do exist in abundance in the country. The Philippines will break through despite the burden of our deficit spending, non-tax-collecting politicians, hahah!

With all the new things and the rough-and-tumble of business, I am full of optimism!

Click here for Part 2 of 2.