Saturday, 14 December 2013

Livelihoods Promotion: Quest for Scale

In spite of the creditable growth of the Indian economy over the last two decades, the proportion of rural population living in poverty is still unacceptably high. While many models have successfully supported the livelihoods of the poor, very few have achieved the desired scale.

In this backdrop, 'Quest for Scale' was chosen as the theme of one of the Panels in the 2013 edition of the Livelihoods India Conference.

Dr Rajesh Tandon of the Society for Participatory Researchin Asia, Mr Brij Mohan of ACCESS Development Services, and Dr Subhashish Gangopadhyay of India Development Foundation and I were the Panelists in this session, moderated by Dr Sankar Datta of Azim PremjiUniversity

I argued that the default model chosen by most organisations for 'Scaling Up' is 'Spreading Wide'. This involves codifying the solution that worked, and then executing that code in new geographies. This would work so long as the new context is similar to the one where the solution worked in the first instance. And the organisation must have capacity to manage scale, be it the management bandwidth or the quality of execution. 

For example, if a Microfinance Organisation perfected the process of social mobilisation, risk assessment of the borrowers, efficiency of cash disbursements as well as collections etc, the same process can be successfully replicated in a different geography, unless the socio-cultural or livelihoods context is quite different.

In many cases, the scale reduces the 'Unit Costs', but in several cases, the scale can raise the management costs disproportionately. One must be cognizant of these issues also before 'Spreading Wide'

If the new context is very different, the original solution won't work; and if the organisation lacks capacity to manage scale, the consequences can be disastrous.

There are more ways to scale than Spreading Wide. Depending on the 'transferability of the solution' and the 'capacity of the organisation', one can choose from any of the four other Scaling Models.

2.       Scaling (or Mining) Deep: This involves bringing more products and services to serve the other current needs of the existing customers. If the infrastructure and the relationships built to deliver the original solution can be converted into a platform, it can facilitate access to other relevant offerings from third parties, who otherwise find it difficult to reach out to these customers. Continuing with the same example of Microfinance Organisation, Mining Deep model could go beyond lending and bring complementary solutions such as Capacity Building, Risk Management, Access to Quality Inputs, or Linking to Output Markets.
3.       Scaling (or Evolving) Along: This involves adapting products and services to serve the evolving needs of the existing customers, as time goes by. For example, as the incomes of the current borrowers improve, or as they reach different age bracket, their borrowing needs would change. A successful push-cart vendor, selling vegetables, may like to borrow ten times as much amount and set up a Grocery Store. This might mean a completely redesigned process compared to the process used for the earlier loan size. This is an often ignored, but smart, scaling opportunity.
4.       Scaling (or Stepping) Out: This involves adapting the solution to a completely new value chain. For example, the business model that worked for building an inclusive agricultural supply chain, could very well be adapted for skilling human resources for the employment market. While the Mining Deep model works wherever morphing into platform is feasible, this model can be explored where value chains are somewhat similar.
5.       Scaling (or Multiplying) Through: This is like the conventional franchising model. The code is handed over to a franchisee or a licensee for execution. One can spread wide, scale along or out, using this model. If  the organisation would like to retain control on the franchisee, there is a need to find a 'stickiness' factor, eg. shared services at low cost riding on the scale of multiple franchisees (accounts management, quality audit, training, legal services etc).

Thus, in my view, the foremost question in the quest for scale is "which model of scaling is right for me?"

Saturday, 12 October 2013

Will the new CSR mandate be a game changer?

As you may know, the new Companies Act of India mandates that companies of a certain size and profitability must spend at least 2% of their net profits on Social Responsibility activities (See Section 135 on Page 80 of the Act)

I was a panelist at the 'CII National Summit on CSR' in Delhi held on 30th September 2013. These were my opening remarks in response to the question posed to my panel, "Will the new CSR mandate be a game changer?"

The 2% CSR spend is estimated at about Rs 20,000 Crores. This money is less than what Government spends in five days, considering the annual expenditure budget of Government is some Rs 17 Lakh Crores. Subsidies alone, out of this total amount, exceed Rs 250,000 Crores! Therefore the 2% CSR spend is not going to bring in the game-changing resources...

However, if Corporate India harnesses its 'innovation capacity' and leverages the 'power of partnerships' to solve India's social and environmental problems, I am sure it can change the game!
Instead of looking at the 2% amount as 'a philanthropy budget', if companies can innovatively embed CSR into their business strategies, larger problems can be solved.

This could be in the form of 'socially inclusive business models' where the capacities of low income suppliers and distributors can be strengthened to improve their productivity, market access, and bargaining power, while enhancing the competitiveness of the whole value chain in which the company is a part. Eg. ITC eChoupal.

On the environmental front, investing in renewable energy is a low hanging fruit, given our unreliable grid power, and the high cost of diesel-generated power. Innovation of higher order is required to build 'green supply chains' that regenerate the natural resources consumed in a business. Eg. ITC FarmForestry. 

Embedding CSR into business strategies would also ensure that the CSR spends do not get impacted in times of slowdown. Of course, this whole argument is not to rule out the need for philanthropic spends in cases of extreme distress.

Now I come to my second idea. I believe four types of partnerships could contribute to game-changing outcomes:

Partnerships with other Corporates operating in the same geography or working in the same domain can create joint projects and / or knowledge platforms for experience sharing.

Partnerships with CSOs / NfPs for social mobilisation and impact audits.

Partnerships with Communities themselves for gaining deeper insights while designing and executing projects. Also, Users Groups for democratising common property management.

Partnerships with Governments to create markets for trading "social credits" ala "carbon credits", and for aligning social subsidies to develop inclusive markets rather than distorting markets. This is besides the PPPs for building infrastructure that are already gaining traction.

While no one stopped Corporates from innovating and partnering to solve societal problems - indeed several companies have done so, successfully - the new CSR mandate hopefully inspires many companies to look at this as a game changing opportunity.

Never believe that a few caring people can't change the world. Indeed it is the only thing that ever has ~ Margaret Mead