Archive for June 25th, 2010
Business Linkages at the BoP
Business Linkages are often-times the key to reaching out to the BoP. Often companies are unable to act on their own, requiring several layers of linkage in order to acheive their goals.
The IFC, in collaboration with the the International Business Leaders Forum, and the CSR Initiative of the Harvard Kennedy School has been organizing a series of roundtable discussions to understand the several kinds of linkages that exist. Following one such roundtable in Jaipur in 2009, they jointly brought out a report titled “Business Linkages: Enabling Access to Markets at the Base of the Pyramid.*”
The report draws from experiences of participants at the round table. The discussions are based around three areas: Opportunities to enable access to markets at the BoP, Challenges in forming business linkages, and Patterns of Solutions and cross-cutting themes.
The case examples used in the report draw not from “social enterprises” particularly. For example, while discussing the opportunities to enable access to markets at the BoP, the report highlights the work of the Aditya Birla group in selling to the BoP. The group’s cellular network service, Idea Cellular, has been able to penetrate into rural markets by offering a suite of products and services customized to the needs of rural customers.
The report also talks about how enterprises can find opportunity at the BoP by going beyond traditional value chains. These are applicable in areas that improve the quality of life and help strengthen and diversify local economies. For example, education and health. The work of the Syngenta Foundation is cited as an example. The Foundation focuses on raising farmer productivity and access to markets through farmer training, and assistance with commercialization.
However, the report identifies significant challenges to establishing business linkages. These are in the form operational challenges (obtaining reliable information), reputational and relationship management challenges (managing expecations and reducing dependence) and systemic challenges (skill-building, improving access to finance, strengthening regulatory environment).
The third part of the report draws from previous roundtables in Washington, Johannesburg and Rio de Janeiro, to establish a clear pattern of challenges and a scheme of solutions to meet those challenges. Beyond particular solutions, two broad solutions are offered. The first is to develop a “systems thinking” mentality. This is recommened to enable those engaging with BoP markets to counter inefficiencies that might arise due to the unpredictable nature of BoP suppliers, distributors and customers. To combat a system full of holes that can not be taken for granted, the report suggest that companies think proactively about the sytems, and often take action to make sure they work better.
A second solution on offer is that of “collaboration.” Collaboration becomes necessary when it is not economically feasible for a company to plug all the systemic loopholes on its own. In such cases companies may look for partners — either government agencies, civil society organizations, international development agencies — that are themselves in complementary lines of businesses. For example, GlaxoSmithKline is able to organize a milk value chain from end-to-end for its Horlicks brand, but ICICI Lombard partners with microfinance service providers such as BASIX.
The report emphasises the need for building these linkages at a time when truly risk-free opportunities are rare. The plethora of solutions on offer a valuable set of solutions to organizations looking to reach out to the BoP.
Read the entire report here.
* Jenkins, Beth and Eriko Ishikawa. 2009. “Business Linkages: Enabling Access to Markets at the Base of the Pyramid.” Report of a Roundtable Dialogue, March 3-5, 2009, Jaipur, India. Washington, D.C: International Finance Corporation, International Business Leaders Forum, and the CSR Initiative at the Harvard Kennedy School.
Growing Social Innovation
With it’s Office of the Third Sector, the UK invests a lot of money into supporting the social enterprise sector. NESTA – the UK’s National Endowment for Science, Technology and the Arts brought out a report titled “In and Out of Sync: The Challenge of Growing Social Innovations,” brought out a report which looks at the ways in which social innovation grows and spreads.
Drawing from 11 cases studies, the establishes conditions for growing a social enterprise. It also addresses the fundamental issue of growth: synchronizing ‘demand’ and ’supply’ factors through several strategies. Additionally, the report seeks to establish that there is in fact a distinct difference to the diffusion of social innovation from a diffusion of technology innovation, and therefore emphasizes the need to address social innovation differently.
The four necessary conditions for scaling up innovative products and services are identified below:
- A ‘pull’ factor, in the form of addressing an acknowledged societal need.
- A ‘push’ factor which stems from effective supply
- Effective strategies that connect ‘pull’ and ‘push’ factors, and finds the right organizations structure for the innovation
- A process of learning and adaption that ensures the innovation achieves its social impact, and adapts to changes in the environment
One finding that comes out of the report is the lack of institutions that connect ‘pull’ and ‘push’ factors. The report identifies several causes for this — fragile markets, an underdeveloped capital market, weak institutions and networks, a lack of knowledge of established methods and strategies for nurturing and growing innovation, and a lack of managerial talent.
Key to the growth of innovation is the strategy in use. The report develops a framework for classifying the growth/diffusion of innovation — depending on the organizational form, the control exerted by the innovator, location and the intended beneficiaries.
The framework identifies the following types of innovation diffusion:
- Uncontrolled diffusion: Typically carried forward by a self-appointed champion. Such diffusion tends to adapt itself to local conditions.
- Innovator-led diffusion: Such innovation typically follows prescribed processes and methods established by the innovator or parent organization. This can be done through concerted promotion through formal or informal networks, franchising, licensing and so on.
- Taken-over diffusion: Where innovators can adopt a deliberate strategy to allow their innovation to be taken over by a larger organization.
- Diffusion through organizational growth: Where the innovation spreads through the growth of the company itself
Besides adopting different strategies, the report goes on to list a set of priorities required for improving and scaling up innovation:
- Availability of more mature sources of financing. Particularly those that allow genuine risk-taking
- Developed exchanges and intermediaries
- Stronger knowledge and experience base for the field of social innovation
- Incentivizing the adoption of better performing models
While the case studies used in the report are not based in the developing world, the findings of the report definitely have implications for how social innovation globally can be enhanced.
This report was authored by Geoff Mulgan with Rushanara Ali, Richard Halkett and Ben Sanders. Read the entire NESTA report here.
Important Distinctions in the Social Enterprise Field
When talking about social enterprise, how do we distinguish between the several kinds of organizations that exist? Kim Alter in her paper on Social Enterprise Typology plotted enterprises along a hybrid spectrum, classifying practitioners into four types: non-profit with income generating activities, social enterprise, socially responsible business and corporation practicing social responsibility.
However, within the realm of the social enterprise itself there is much misunderstanding about what the term means. Organizations are quick to label themselves as a social enterprise without fully understanding the distinctions that need to be drawn.
In an article published on Social Enterprise Alliance, authors Jerr Boschee and Jim McClurg run us through some important distinctions to be made. The paper is geared towards helping non-profits identify the lines of distinction between themselves and traditional for-profit enterprises. Both the authors have considerable experience in the social enterprise world, and draw on this in their paper.
They point to four crucial distinctions.
1. The differences between “entrepreneurship” and “social entrepreneurship.”
A traditional entrepreneur, they point out have “the ability to take a business to the point at which it can sustain itself on internally generated cash flow.” A traditional entrepreneur may engage in activities that are socially relevant, but not core to the businesses operations. For example, donating to charity.
A social entrepreneur on the other hand, is anyone who “uses earned income strategies to pursue a social objective.” As opposed to traditional entrepreneurs who use profit as an indicator of success or failure, a social entrepreneur is driven by a double — sometimes triple — bottom line. His or her success is defined by a blend of financial and social returns.
2. The differences between “sustainability” and “self-sufficiency.”
While traditional non-profits have used philanthropy, subsidies and earned revenue to achieve sustainability, a social enterprise, while it may welcome philanthropy and subsidies, relies wholly on earned income.
3. The differences between “earned income strategies” and “social purpose business ventures”
Typically non-profits enter carry out strategies to cover program costs, and increase revenue. These are referred to “earned income strategies.” Example of these may be in membership fees, or program registrations. A “social purpose business venture” is sometimes the next step that non-profits take. This often means starting a whole new business, which is legal and operationally separate from the parent organization.
Of course for many the “social purpose business venture” route is the first option. But for those who wish to create impact without engaging in the rigor of a business venture, “earned income strategies” offer a sustainable option.
4. The differences between “innovators,” “entrepreneurs” and “professional managers”
The last point of differentiation is made to enable non-profits to correctly identify the kind of people it needs at different stages at growth. Drawing from their experience, the authors point out that often non-profits realize that their efforts are doomed because they are being lead by the wrong kinds of people.
They draw the following lines of distinction:
Innovators, who are dreamers. They “create prototypes, work out the kinks” often with little emphasis on the financial viability of what they do.
Entrepreneurs who are builders. They turn the prototypes into businesses. Financial viability is key to what they do.
Professional managers are akin to trustees. They “secure the future by installing and overseeing systems and infrastructure” needed to keep things going.
This distinction could perhaps be useful in helping non-profits identify the right resources for their projects.
Overall the paper serves as a good guide for those thinking of starting an enterprise, and for those non-profits considering a for-profit model. It helps clear the lines of confusion that might exist.