Archive for the ‘BoP’ Category
Simply Fly: Chapter 1
Traditional businesses have a lot to offer social enterprises. Several pioneering business models are perfected in mainstream markets before being adopted by social enterprises. The low-cost business model is one such concept that has taken root in the sector. In a series of blog posts, Devyani Srinivasan will provide chapter-wise reviews of the book, “Simply Fly” by Captain Gopinath, the founder of Air Deccan, India’s first low-cost airline. The book promises to hold some interesting lessons for social enterprises looking to work with the BOP. This month Devyani presents a review of Chapter 1
In July of this year, the Monitor Group released “Building Houses, Financing Homes: A Study Report of India’s Rapidly Growing Housing and Housing Finance Markets for the Low-Income Customer”. In this report, Monitor defines the low-income customer as one with a monthly household income of between Rs.7,000 and Rs.15,000. In contrast, the BoP literature and books such as Paul Polak’s Out of Poverty talk of the dollar-a-day customer. A back-of-the-napkin calculation suggests that the monthly income of a dollar-a-day customer in India would be around Rs.1,200. Even if this dollar-a-day customer has other family members who are working, it is unlikely that their monthly household income would reach Rs.7,000. Therefore, the low-income customer of the Monitor study is clearly different from the dollar-a-day customer of the BoP literature and Out of Poverty.
Nevertheless, there may be lessons to be learned from Monitor’s business model and other innovative solutions to meet the need of low-income urban housing that can be applied to reaching the dollar-a-day customer. It was with a similar thought in mind that I started reading Captain Gopinath’s Simply Fly, published last year. Captain Gopinath founded Air Deccan, India’s first and largest low-cost carrier. While Deccan is exalted for enabling the “common man” to fly, this “common man” is again not the dollar-a-day customer. Nevertheless, I expected that elements of Deccan’s business model would be applicable to reaching the BoP. In addition, Simply Fly is the autobiography of an Indian entrepreneur, and therefore could be also be relevant to efforts to promote entrepreneurship, and incubate entrepreneurs, in India.
The first chapter of this book, the subject of this post, is on Gopinath’s life from childhood to the time he becomes an officer cadet in the Artillery School. The reader learns that Gopinath’s father is a role model for him during his childhood. Gopinath enters military training, enrolling in a boarding school called the Sainik School where he suffers from homesickness. It is then that Gopinath’s father advises him to be courageous, to take hold of his life and to make something of it. The reader assumes that it is these lessons, learnt from his father, that stand Gopinath in good stead later in his career as an entrepreneur.
However, there are some contradictions that emerge in the first chapter as well, both in the lessons that Gopinath’s father teaches him, and in comparison with the military training that the boy receives. Firstly, while Gopinath’s father is himself a schoolteacher, he likens school to a jail, saying that it is too regimented and that, “real education is in life’s experiences.” He therefore decides that Gopinath will be taught at home until the fifth standard or grade. Not unexpectedly, both the Sainik School and the National Defence Academy, in which Gopinath subsequently enrolls, are highly regimented in contrast, and Gopinath says that he “deeply resented” and “hated” this.
The second contradiction is between equality and hierarchy. Gopinath’s father imbues him with a sense of equality, disapproving of the superior status that the Brahmins (of which he was one) in their village held with respect to the artisan class and Dalits. The army is, in comparison, hierarchical, and on the last page of this chapter, Gopinath describes his discomfort in occupying a position of formal superiority over junior commissioned officers and jawans. I’m interested to see how these contradictions play out in Gopinath’s life, and whether they contribute to his later decisions to leave the army and start Air Deccan.
The Benefits of Doing Well, and Doing Good
Can companies do well by doing good? To my mind, almost all companies are able to make profits while solving a problem rooted in society. For instance, Hemant Sahal, a VIT University undergraduate, has created Callmat, a chemical product which makes water fit for drinking. Sahal’s business has great potential to thrive, because the product is cheap and can solve a common problem in India. In an interview by the Spanish newspaper La Vanguardia, Sahal claimed that if he can not invest the profits made in society, he will have failed in his project.
According to Rosabeth Moss Kanter, who writes here, if a company can integrate the benefits that it offers society more closely into its existing business, that integration can be very sensible and beneficial for the business. Moreover, she highlights that some smart companies are finding that including a focus on benefiting society in their mission can help yield competitive advantage by creating a corporate culture that leads to high performance and profits.
On the other hand, Kanter argues that there are a number of reasons why incorporating social good into strategy can improve a company’s long- term performance.
- Can help motivate employees.
- Help to maintain a cohesive culture despite the diversity.
- Can help spark innovative thinking by exposing employees to new ideas and perspectives.
Also, the writer points out that the reason many companies now want to enter emerging markets is because those markets are growing. But companies are discovering that there are so many social and environmental needs in emerging markets and those needs can be a good source of new product or service ideas that people will pay for. For instance, in November 2006, Danone launched a yoghurt called Shoktidoi, designed to provide a response to the nutritional needs of Bangladeshi children at an affordable price.
Furthermore, for surviving, companies have to do some good for society to continue doing well financially. Fundamentally, companies that are not somehow doing good will eventually have problems. For Kanter, information about a company’s behavior anywhere in the world is more readily available to people all around the globe. That is why most companies try to invest part of their benefits in their Corporate Social Responsibility programs.
In conclusion, Kanter agrees that thinking about creating societal benefits through business should be part of setting strategy. If, as a business leader, you start thinking deeply about growing your company, in the future that means thinking about unsolved problems and unmet needs. Solving some of those problems and addressing some of those needs can, if done well, benefit both your company and the larger world.
Disruptive Innovation and Conventional Strategic Management Theory
In November 2009, Hari Nair, partner at Innosight Ventures wrote an article in the social enterprise magazine Beyond Profit on his company’s philosophy of supporting “disruptive innovation.” This form of innovation typically involves those that are smaller, cheaper and simpler than those of the traditional market leaders. Such innovation often reshapes a market. An example of such innovation would be Razor Rave — a booth-operated micro franchise that offers premium grooming services for men at costs far lower than than conventional service providers.
Mayank Jaiswal, Villgro Fellow 2010, takes a look the the concept of disruptive innovation through the lens of conventional strategic management theory.
Read Hari Nair’s full article here.
Hari Nair, in his piece, “Shaping For-Profit Enterprises Through Disruptive Innovation,” presents the concept of “disruptive innovation.” In this analysis I have attempted to understand it through the lens of conventional strategic management theory.
In the diagram alongside, the curve ODT represents an efficient Price Quality Frontier (which essentially means that it represents the best quality for a certain price and vice versa available in the market).
Disruptive innovation moves the frontier to point C so assume a curve passing through OCT rather than the solid curve shown passing through ODT. What this means is a business has found a new way of doing something which either provides a better quality at the same price as the efficient frontier or same quality at a lower price than the corresponding efficient frontier.
Let us further assume that A and B were established players who were providing a certain quality for a certain price. For example A is a Ramada Inn, which is a budget hotel with best quality in class similarly B is a Taj Palace, high quality for high price. We also see that both A and B have ‘influence circles’ – it is the area from which A and B derive their consumers. Thus if a company comes along and ‘breaks’ the frontier at D and raises it to C, we can have two types of migration – the ‘quality migrators’ people willing to pay slightly higher prices for a much higher quality or ‘price migrators’ people willing to settle for slightly lower quality with a considerable decrease in price. Thus we see flight of two types of consumers.
Additionally, it might so happen that region D was a consumer ‘wasteland’ say 20 years ago – i.e. no consumers existed in that region. However, with the change in the economic conditions may be region D has now become a ‘hot spot’, the entrenched players A and B usually miss out on these if they are not conducting timely surveys of the consumer landscape, and keeping themselves abreast of the latest changes in consumption patterns.
Razor Rave is a case in point. A can be thought of as the street hair dresser and B as the high end salon. With the entry of Razor Rave kiosks and the fact that there is more disposable income with Indians especially in the middle class, Razor Rave is C. It has come in where no players existed and has created disruptive innovation by serving the consumer professionally (quality axis growth) at not very high price points.
The theory has implications for new social enterprises as well. I If new enterprises can develop innovative approaches which provide better services orquality at similar prices or similar quality at lower prices and can identify “consumer wastelands” which will be no more, there is scope for a successful enterprise to be set up. The need and chances of developing such enterprises in the social space are very high given the current rate of growth in countries like India.
How Public-Private Partnerships Can Spur Rural Employment
Villgro Fellow Mayank Jaiswal highlights the working of a new public-private partnership to address the challenges of rural employment. As part of his Fellowship, Mayank works with e-Jeevika, a Villgro incubatee company that provides employment and recruitment services for rural India.
Rural India is teeming with youth who could be made employable. This will bring the youth and their families out of a vicious circle of poverty and deprivation. It not only imparts the youth with the financial stability that comes with a job but also empowers them and develops their self confidence by enhancing their social status in the community. Companies are increasingly relying on rural India to staff their front and back offices in urban and semi-urban towns.
For long the most coveted jobs in India were with the government. Rapid economic growth, driven by a thriving private sector has changed that, but the government isn’t completely out of the picture as yet. In fact a new initiative in the southern state of Andhra Pradesh, offers models for public-private partnership in providing employment to rural youth. The The Employment Generation & Marketing Mission (EGMM), headquartered in Hyderabad, not only trains young people, but also helps them get employed. The project was started by World Bank and was taken over by the state government of Andhra Pradesh.
The program identifies Grad 10-level students studying in government schools (where education is free) in rural Andhra Pradesh, who can be trained, groomed and prepared for an assortment of entry-level jobs in a range of sectors, including telecom, hospitality, manufacturing, retail and outsourcing. EGMM proactively talks to the industry and develops a curriculum, which it makes sure to include essential soft skills . The Mission provides a basic 75-day residential training program, which includes English and computer-skills classes, personal hygiene sessions and counseling. To minimize preconceived notions of what employment might entail, the last 15 days of the program provide on-the-job training at prospective workplaces ranging from security agencies and telecom firms to pharmaceutical companies and retail outlets. This allows trainees to get a feel for the work environment and see what’s expected of them. The familiarization helps youth adapt to their new lives later.
EGMM is a small but important start. If other states are able to replicate the model, there could be enough ammunition to handle India’s rural employment dilemma.
Read more about the EGMM, here.
Technology, Innovation and Gender
In February we featured a study by the International Council for Research on Women titled “Bridging the Gender Divide: How Technology can Advance Women Economically.” Villgro Fellow 2010, Jeanne Chen takes another look at this piece, focusing on how social enterprises can be more conscientious of the gender gap in innovation.
Technology and innovation are two words that form a pillar of social enterprise – even social enterprise itself is still considered an innovation. Social enterprises seek to develop technologies with the underlying assumption that they will increase productivity or create opportunities for social economic advancement. Some technologies are simple like the treadle pump, and others are complex like solar lanterns, but all of them help the BoP and it’s this latter benefit that we invest in. As social entrepreneurs, we’re obsessed with measuring this benefit and finding new ways to scale the impact further – in short we want to know that everyone who can benefit from this technology is adopting it. All the aforementioned statements are frequently discussed, but what we don’t hear enough about is whether these successful innovations are reaching men and women equally or whether there is a gender gap to adoption of technologies.
The International Council for Research on Women (www.icrw.org) recently published the report “Bridging the Gender Divide: How Technology can Advance Women Economically” (downloadable here: http://www.icrw.org/files/publications/Bridging-the-Gender-Divide-How-Technology-can-Advance-Women-Economically.pdf), which focuses on understanding how technology for the BoP differs in its impact on men versus women and what measures can be taken to ensure more inclusion of women. Four main barriers to adoption were identified:
- Lack of education and technology literacy: women are often excluded from opportunities to learn the new technology
- Time poverty: domestic responsibilities leave limited disposable time for tech exploration
- Social norms: women are often not in the habit of operating technology, or adoption would require women to enter a public arena (i.e., market) outside their customary comfort zone
- Limited economic means: domestic finances are most often controlled by the men of the households, leaving women unable to make a purchase decision to adopt innovations
These barriers can be overcome when developers of the technology or the social enterprise promoting the innovations take efforts to address the root causes, starting with including women in the design process. ICRW gives an example of the the Upesi rural biomass stoves, which were designed with inputs from women and consequently were adopted. I find this point to be one of the strongest recommendations – it addresses a systemic concern that prevents women adoption. As long as technology continues to be designed by men, women adoption will be low, perpetuating social norms that continue to support the existing gender gap. Sometimes, the solution is as simple as making a technology like a cooking stove, a height that women can reach. ICRW also suggests that inclusion of women in the design process can help to overcome many of the technology literacy and social norm barriers.
Other recommendations are centered on customizing the last mile distribution to address the awareness training needs, purchasing financing, and distribution through channels catered to women. By providing financing or bringing the innovation directly to the women, rather than relying on market place distribution, women are enabled to make the adoption. It is only through active efforts of the social enterprise to convert women adopters that this is possible.
ICRW provides the example of Solar Dryers in Uganda, which were financed by a partner NGO, enabling women to dry fruits for commercial consumption. As in the Solar Dryer example, technologies which can either create income generating activities or increase the productivity of women can go a long ways to contributing to their economic advancement. In addition, ICRW cites that the indirect benefits of increased productivity can also reduce the barrier of time poverty.
Overall, what I find most compelling and the most important point to takeaway is the need to examine and reevaluate how we think about the potential impact of a technology on helping the BoP. Social enterprises need to be more conscientious of the gender gap in innovation adoption and need to be vigilant in their efforts to address this gap.
One particular example comes to my mind of an innovative successful business model, who could benefit from thinking about their social impact with respect to an adoption gender gap. VisionSpring (www.visionspring.org), an organization recently partnered with Villgro, uses a high touch-point sales distribution model to bring low-cost reading glasses to the BoP across southeast India. VisionSpring’s customer demographics are heavily skewed towards men even though there are many women who attend the eyecamps and should be customers. There seem to be two primary reasons for the gender divide between VisionSpring’s customers. The first is that eyeglasses are perceived as aesthetically unappealing, which trumps the value of clear vision. The second is that women are less likely to have disposable income and the economic means to make the purchase. Both these reasons are problems that should be and can be addressed by the social enterprise. Awareness campaigns for the importance of proper reading glasses in the preservation of vision, not to mention the benefits of increased productivity, can be conducted to overcome what is essentially a misguided social norm that is a barrier to wearing glasses. Women can also be engaged in sourcing frames that are more aesthetically appealing. Finally, some form of partnership with a microfinance institution to finance the purchases is also possible to overcome the economic concern.
The point I want to emphasize is not how VisionSpring can work to increase its female customers, but rather that it needs to proactively think and evaluate the impact of its technology to identify how to overcome the gender gap. This is true across all social enterprises. Even though many social enterprises have introduced game changing technologies to the BoP, I think if we look closer, we would see a divide in the impact by gender. This gap is one that needs to be overcome if we truly want economic advancement for all of the BoP – of both women and men.
Energy Generation for Low-income Customers
Low-income markets are often the most neglected when it comes to access to energy. Traditional energy sources have been firewood, and kerosene stoves. There are recognized health risks that come with these. Not to mention that they are not efficient. A new breed for energy solutions are making their way into these low-income markets. Next Billion, a great resource for information on all things within the development sphere, has put compiled a profile of some organizations that are catering to BoP markets through their innovative products.
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.
Enhacing Food Value Chains
Agricultural practices have a direct bearing on how an economy feeds itself and the general quality of life of a population. Adopting sound agricultural practices is therefore crucial for any economy. Agri-businesses no doubt, play a strong role in enhancing agriculture value chains.
According to a recent report by the World Economic Forum, “Next Billions: Business Strategies to Enhance Food Value Chains and Empower the Poor,” more than 70% of the bottom of the pyramid depends on agriculture value chains for their income. The benefits of enhancing these value chains through new business models is no doubt huge.
Tapping in on this opportunity, the report takes a look at the several business models that can be employed to enhance value for the several actors in play. The report presents solutions to producers, consumers and solutions to empower entrepreneurs.
It also makes recommendations for stakeholder engagement, such as strengthening incentives for business engagement, providing complementary funding and capacity, facilitating corporate engagement.
The report offers business models that have the potential to create substantial value for the poor consumers, producers and entrepreneurs as well as for companies. It hopes to provide a roadmap for companies seeking a win-win approach in emerging markets, and those that wish to establish a workable, profitable and scalable business model.
Read the complete WEF report here.
Enabling Access to Energy at the BoP
The focus on renewable sources of energy has been reinforced in recent weeks by the BP oil spill off the Gulf Coast in the U.S. While one part of the globe voraciously consumes energy, 1.6 billion people globally have no access to electricity. A further 3 million still use traditional biomass for cooking, the health hazards of which have been substantially documented.
However, there are several – mainly local entrepreneurs – that are offering valuable energy solutions to this very segment of people. Most of these enterprises are removed from the traditional energy enterprises, and offer solutions based on local needs, and local possibilities. The Ashoka Network, in collaboration with Hystra, a hybrid organization that works with business and social sector entrepreneurs to design and implement strategies for the BoP, conducted a study on the work of these enterprises.
The study, “Access to Energy for the Base of the Pyramid,” is an in-depth look at several market-based approaches to BoP energy requirements. It looks at the different kind of technology available such as:
- Grid connections: which turns the BoP into legal, paying consumers
- Devices: such as solar lanterns and biomass cook stoves
- Solar home systems: Which deliver electricity to households
It also looks at systemic support to deliver these solutions. These include the roles of co-operatives which take on that challenge of providing sustainable power supply and create income generating opportunities, and the role of finance and various financing intermediaries. It also makes recommendations for action, outlined for various system enablers – aid agencies, governments, social investors and so on.
The study puts out two interesting observations – that it is not only important to focus on providing solutions that are cost and need-efficient, but also to optimize “human capital.” And secondly, that the most successful social entrepreneurs are also the ones who have tried harder to get the users who were implied in the value-addition process involved.
Download the entire report via the Hystra website.
Global Village vs. Small Towns
The global village is no longer an abstract concept. We live in a world that is more interconnected than ever, including the BoP. The business networks that exist at every level of our economies have implications for the workings of enterprises in the global village — multinationals.
Multinationals would particularly benefit from understanding the networks that exist at the base of the pyramid. This is a class of people often not studied enough or well-understood. Some firms have been able to distinguish their products well enough to serve this segment, while others have not.
Authors Miguel Rivera-Santos, and Carlos Rufin, work from the International Business Review, April 2010, “Global Village vs. Small Town: Understanding Networks at the Base of the Pyramid,” make the distinction for those building business models and strategies for the BoP. An excerpt from their paper is below.
“We compare and contrast business networks at the Base of the Pyramid (BOP) and at the Top of the Pyramid (TOP), and analyze their implications for multinational enterprises (MNEs). We first identify the specificities of BOP environments in terms of competitive environment and institutions. Building on this analysis, we develop a series of propositions regarding the impact of these specificities on the structural characteristics of BOP networks, their boundaries, the characteristics of their ties, the diversity of their partners, and their evolution over time, as compared to TOP networks. Our analysis suggests that major differences exist between both types of networks along all dimensions and that these differences have important implications for MNEs active in BOP environments.”