Imperial

Innovation report

The ultimate objective of innovation at Imperial Logistics is to position the group as a leading provider of integrated freight management, contract logistics and distributorship services in challenging markets. Our innovation strategy takes a pragmatic approach to innovation to enable client-centricity and flawless execution, and also aims to leverage digitalisation as a disruptor to drive long-term sustainability.

Our approach to innovation

Our revised approach to innovation extends beyond digitalisation to three focus areas: operational innovation, commercial innovation and disruptive innovation. Past innovation efforts were confined to particular businesses or regions, but now we are focused on taking an integrated approach to these three types of innovation.

Operational innovation			Commercial innovation			Disruptive innovation
Improves collaboration and interdependence between our businesses and clients, reducing the cost to serve, building client confidence and fostering loyal partnerships.			Delivers client-focused solutions that demonstrate our industry expertise and build credibility among multinational clients.			Creates long-term sustainability by identifying and leveraging emerging technologies and business models to position us as an innovator, able to compete effectively against new industry players.

Our approach to information technology

Digitalisation is a key component of innovation for Imperial. IT is a critical enabler of strategy for the group and our regional operations. Our primary objective is to replace legacy systems, introduce standard processes, and standardise our application lifecycle management.

It has become clear that limited synergies exist to effectively implement regional IT strategies through a centralised IT organisation. As such, IT has been devolved into the regional operations. Each business unit has agreed to a specific IT roadmap, with upgrades and conversions scheduled over the next two to three years according to business priorities and requirements. The roadmaps will be implemented and administered by regional IT units. This approach caters to our heterogeneous application landscape and allows business units to accord with the group strategy while still accommodating the complex operational contexts of regional business units.

IT security will remain a centralised IT function under the direction of the risk organisation in the office of the group CFO.

Regional IT initiatives are outlined in the respective operating reviews in Logistics South Africa, Logistics African Regions and Logistics International.

Primed to win business and reduce cost, commercial and operational innovation remain vital to maintaining and creating new opportunities for individual business units and therefore require a pragmatic regional and segmental focus. The aim is to provide the building blocks for highly effective and efficient regional and business unit practices, ensuring a strong foundation for driving client-focused future growth.

Co-ordination of these activities is fundamental to the success of innovation-focused initiatives. Regional innovation champions ensure co-ordination across regions and innovation teams, creating and maintaining networks for sharing ideas, refining existing initiatives and aligning regional initiatives to other areas of the group where appropriate. Not only does this provide support for businesses, it also protects against the compartmentalisation of valuable innovation initiatives with the potential to effect positive change in other regions and business units, and prevents isolated activities that may not be aligned with the regional and group strategy.

Operational and commercial innovation in action

The OneLink Delivery Management Solution (DMS) allows stakeholders to manage and track the end-to-end delivery process, from the point of central distribution, all the way to the delivery end point. Innovative solution functionality includes:

• Comprehensive vehicle inspection and damage reporting management.
• Status updates and delivery notifications to the customer including estimated time of arrival, driver information and delivery vehicle information, for additional security.
• Driver behaviour management and health and safety procedures and adherence.
• Customer satisfaction surveys and electronic proof of delivery (ePOD) with sign-on-glass.
• Reverse logistics and tracking for assets, equipment and returns.
• Business intelligence dashboards enabling real-time decision-making.
• Mobile integration across processes.

The benefits of implementing OneLink DMS include real-time visibility on driver performance and adherence to plan. Customer satisfaction is increased due to accurate deliveries and timely communication. On the back-end, latency caused by unnecessary manual processes is decreased due to integrated mobile technology. Another significant benefit is improved accountability and utilisation of resources thanks to the availability of accurate, real-time information and end-to-end visibility. On-time in-full (OTIF) deliveries increase, while redeliveries and returns decrease, resulting in increased cost and time savings.

OneLink has been implemented for various clients within the retail and FMCG industries, with additional go-lives imminent for a number of major FMCG clients.

Disruptive innovation

Disruptive innovation is managed centrally as it focuses on global developments spurred by exponential technological change with the potential to disrupt our clients and our industry. The potential for disruptive innovation to modularise and break up formerly integrated systems presents risks and opportunities; the latter because the industry tends to be a late adopter of technological innovation. Investing wisely in innovation heightens our responsiveness to a rapidly changing technological context and enables us to move in step with or ahead of industry shifts. As technological development can fundamentally change our industry by improving speed, time, cost, accuracy and reliability of services, it remains central to our ability to deepen our competitiveness, and ultimately to secure our survival.

Innovation fund

To position Imperial Logistics as a leader in the pragmatic application of disruptive innovation and new technologies, we have established a USD20 million innovation fund in partnership with Newtown Partners. The fund will provide a mechanism for effective responses to current and future developments in our industry. It will invest in high-potential start-ups in relevant supply chain and logistics technology areas. Besides its strategic mandate, the fund will aim to generate attractive financial returns over its lifetime.

The fund's investment thesis places technology at its core. A historical view of technological progress over a number of economic cycles shows that new technologies invariably accrete over older technologies; a process generally only interrupted by fundamental technological shifts. Start-ups are therefore ideally positioned to harness mature and emerging technologies in new ways, delivering highly focused solutions within specific areas of the logistics value chain. Brought to commercial scale, these solutions have the potential to significantly disrupt the market and could either enhance or depreciate the competitiveness of our value propositions to clients, depending on our ability to anticipate and adapt to these changes. Placing technological innovation that is relevant to our business at its centre, the fund will mitigate the risk of disruption and position the group at the forefront of developments, allowing us to capitalise on technological evolution.

The fund considers a mix of factors to determine the investment potential and alignment to Imperial Logistics' strategic objectives of potential start-ups.

This includes three overlapping areas of capabilities (business models, existing and emerging technologies, and potentially disruptive services). Together with geographical and industry-related considerations, these factors act as investment filters – with the key objectives set out below.

Challenging markets

Start-ups operating in challenging markets, aligned with the group's core strategic focus on Africa, and other selected emerging markets including Eastern Europe and Asia. Building stronger capabilities in these markets to provide access into and between emerging markets, or between emerging and developed markets. Finding opportunities for technological leapfrogging in these markets. Solutions that mitigate the shortage of local skills, enhance diversity across the supply chain and process governance. Attractive opportunities aligned to the fund's investment thesis will be considered in developed markets.

Priority industries

Start-ups in our chosen industries: healthcare, consumer, automotive, chemicals, industrial. Capturing the substantial scope for growth in healthcare and pharmaceuticals, particularly across Africa. Expanding in scope within target industries – electronics and apparel in the consumer industry for example.

Business models with high disruptive potential

Preventing disintermediation through platforms and aggregators directly connecting suppliers and consumers. Targeting shared economy players with low asset utilisation rates, structured to fulfil shifting consumer expectations (bringing warehouses closer to consumers to speed up delivery times), and which connect storage capacity more closely to demand (through big data and artificial intelligence). Monitoring supply chain adjustments to respond to potential shifts that could make logistics capabilities redundant, for example onsite 3D printing.

Existing and emerging technologies

Technologies with the potential to either disrupt existing or dominate new high-growth markets. e-Commerce fulfilment: positioning for shifts in consumer online shopping expectations. Big data: leveraging datasets to provide real-time information for better decision-making. Artificial intelligence and machine learning: leveraging data to optimise business automation. Automated retail: identity management authentication capabilities. Blockchain technologies: enabling visibility by allowing transparent item tracking through the supply chain via distributed secure ledger.

Emerging services

Services with the highest potential to significantly improve (or disrupt) our existing competencies. These may include digital freight shipping, supply chain and logistics analytics, e-commerce logistics and last-mile autonomous vehicles and drones.

Start-ups identified as potential candidates are assessed first in terms of their disruptive potential and time to impact (or time to value) and plotted along an ignore-watch-invest-acquire (IWIA) matrix, shown below.

Acquire High disruptive potential Short time to value Reasoning: immediate impact.			Invest High disruptive potential Long time to value Reasoning: likelihood of significant impact in the next five to 10 years, representing an early opportunity to invest in technologies not yet fully realised.
Ignore Low disruptive potential Short time to value and high disruptive potential Time to value >10 years Reasoning: outside of current planning period.			Watch High disruptive potential Long time to value Reasoning: full disruptive potential may not yet be known or realised and may become an investment opportunity.

Potential investment opportunities will be further interrogated using a critical factors investment framework which considers future technological innovations in terms of their likelihood of being adopted, their current stage of development, their protectability, level of customer engagement, route-to-market options, market potential, experience and expertise, and financial model. The framework produces categorisations for opportunities ranging from promising, to unlikely, to weak, and fatally flawed.

If an opportunity is identified as investable by the IWIA matrix and "promising" by the critical factors framework, its strategic fit is tested against the fund investment thesis.

The group's businesses will be appraised of the fund's disruptive innovation initiatives according to an investment roadmap via the innovation and marketing teams. This will build internal capacity, leverage expertise across different teams and enable knowledge sharing.

Innovation fund performance and governance

In addition to the investment filters above, the fund will identify well-priced investment opportunities and use various models to effectively allocate capital. Although global industry players are investing heavily in innovation, there appears to be little differentiation in terms of innovation or technology focus areas. Thus, the fund will aim to differentiate itself by sourcing mispriced and overlooked investments with the potential for significant returns.

Fund performance will be measured qualitatively against the group's strategic objectives and quantitatively against a targeted rate of return of 25% to 30% before tax. The audit and risk committee will review performance annually to ensure that the USD20 million investment is recoverable at book value. The fund manager will report monthly to the chief strategy officer, who in turn reports to the executive committee. The external auditors of the company will value the fund's underlying investments twice a year. The fund and fund manager will comply with the reporting and fund valuation requirements of the audit and risk committee and auditors.