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Friday, May 09, 2008

Taking BoP Strategies To Scale Pt 4: Building New Business DNA for the BoP

By Al Hammond

This post is the fourth in a five part series on a radical new approach to scaling BoP business models, what we call a transformative sector strategy. In this segment, I discuss the common characteristics that make BoP business models in different sectors scalable solutions.

Searching for Transformational Models in New Sectors
If building the missing infrastructure could transform rural connectivity and health care, what about access to clean drinking water, especially for smaller rural and peri-urban communities? That's a proposition that WRI and Santa Clara University's Global Social Benefit Incubator are researching. There are some promising models in the field, such as Water Health International, that are beginning to scale. There are a number of additional enterprises, five of which will be mentored intensively in this year's incubator class. There are some promising new filtering technologies that use less energy than existing technologies, as well as other interesting approaches that have yet to be applied in emerging markets; we are undertaking a detailed comparison of both existing and newer technologies.water
A number of community-initiated business models have produced good results, but they aren't easily replicable and don't scale. So we are analyzing both franchising and public-private partnership business models. Many of the elements that make rural connectivity and rural health care promising appear to be present in the water sector. It is too early to say what will emerge out of the research, but the scale of the unmet need is clear - a billion people without access to clean drinking water.

And after water, why not BoP energy? Our preliminary thinking is that there at least three sub-sectors of interest: Off-grid power and lighting, from mini-hydro to LED lighting; efficiency improvements in energy-using devices, such as cook stoves and motorbikes; and locally-grown, produced, and consumed biofuels that don't compete with food. We know of prototype enterprises and projects in each sub-sector, some of them already beginning to scale. We believe that the recent, rapid evolution of technology options will continue and can be adapted for the BoP. And we know that the unmet need is very large.

I believe that very similar approaches exist for BoP financial services and low-cost housing, as well as for rural connectivity and health care as described in earlier posts, even if the details of the transformative models remain to be fully elaborated and tested. Think of it as building the fundamental organizational infrastructure for delivery of basic services-and doing so quickly enough to make a perceptible difference globally within ten years.

Building New Business DNA for the BoP

Regardless of the sector, the businesses that can provide these services have to be built one country at a time-but because they have a common genetic code, many actors and many sources of investment, not to mention competitive market forces, can play a role, once the model is proven and well-established. These transformative sector models have in common new business models, new technology, sometimes new public-private hybrid investment strategies. Most importantly, they are built on an understanding of the real needs of BoP communities.

dnaDoes that mean that development projects to build BoP markets or improve value chains or remove barriers to enterprise are useless? Of course not. Or that corporate CSR efforts oriented toward the BoP are beside the point? Not at all, especially if they lead ultimately to greater business investment. Does it mean that efforts to nurture small-scale social entrepreneurs are wasted? Absolutely not, that's where many critical new ideas and a supply of seasoned entrepreneurs will come from.

But it may mean that these are, in a sense, preliminary or transitional activities: They cannot replace the need to scale and, more fundamentally, to transform the way our economies and our societies function. And if that is the case, then perhaps it's time to focus more directly on the scaling process - and on creating the deal flow and mainstream investment processes that will be required.

In our work at WRI, we have started by studying in some detail both the structure of BoP markets - the unmet needs, and how poor people spend their money, as described in our joint report with the IFC, The Next 4 Billion: Market Size and Business Strategy for the Base of the Pyramid. Likewise, we have studied what works in those markets, documenting the business models and trying to understand why they work, and how the activity meets real needs (see, for example, the What Works case studies in the Resources section of this site). Then we try to add to those business models expert knowledge about policy barriers, emerging new technologies, and financing strategies.

Finally we - it is always a joint activity by a number of partners - try to combine all of this intellectual capital to identify the low-hanging fruit, the opportunity that is potentially both scalable and replicable - in effect, the new business DNA that we call a transformative sector strategy. And the final step is to take these new approaches into the field in whatever way proves possible, and demonstrate what they can do.

Join Us in a Collaborative Approach

The essence of our sector transformation strategy is to demonstrate transformative new models in a number of countries, in the belief that market forces will then bring many more actors and investors into the picture to replicate, adapt, and improve the model. We admit that this approach is not a fully-proven strategy. So we invite comments and questions about our sector transformation approach as a scaling strategy for the BoP. We also invite all those who read NextBillion.net to send us examples, field experience, and other pertinent information on any of the sectors described above - especially for the BoP water and clean energy sectors. And we offer to share what we are learning to help others working in these sectors find better ways to scale.

Editor's note: Next week, NextBillion.net will be posting response pieces by experts in the BoP space who have read and are commenting on this series. Al Hammond's fifth and final subsequent post will reflect on those guest commentaries and offer concluding thoughts.

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  • Managing Partners

    William Davidson Institute
  • Sponsoring Partner

    Citi Foundation
  • Content Partners

    IADB
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