Hybrid value chains: how to blend social entrepreneurship with business scale
How is it that you can find a distributor for Coca Cola in many remote areas, but not for solar lanterns? How come so many inclusive business projects and social entrepreneurship ventures have languished at pilot stage, or at best succeeded in just a few local clusters?
Cross-cutting analysis and recommendations for overcoming such scale objectives are offered in the new book, Scaling up Business Solutions to Social Problems: A Practical Guide for Social and Corporate Entrepreneurs, by Olivier Kayser and Valeria Budinich. The authors are from consultancy Hystra and social entrepreneur network Ashoka respectively, and have extensive experience in the business and social sectors.
The 17 chapters are spread across 225 pages with numerous illustrative charts, tables and photographs, as well as useful references such as the books Philantropo-capitalism (Matthew Bishop and Michael Green), Next Generation Business Strategies (Ted London and Stuart Hart), and Freedom from Want (Ian Smillie). Here are my key takeways and tips for social entrepreneurs and ‘businesses with a conscience’ who want to collaborate in this space.
BoP problems and solutions
The book begins with profiles of poor families in India, Brazil and Kenya, and shows how they suffer from a range of problems: lack of access to basic infrastructure and services, vulnerability of exploitation by middle-men, lack of basic rights (such as identity documents and ownership titles), and the ‘BoP penalty’ (eg. higher prices and greater effort for getting water and fuel).
Exemplary social entrepreneurs in these countries are also profiled. Satyen Mishra founded the Drishtee network of kiosks to provide access to affordable products and ICT services in northern India. Andre Albuquerque founded Terra Nova in Brazil to offer mediational services between squatters and landlords. Ron Layton from New Zealand founded Light Years IP to offer IP-based solutions to small farmers to bargain for better prices and branding for their products, such as country-of-origin certification for Ethiopian coffee.
The authors compare and contrast solutions that have already been developed for tackling key needs of bottom-of-the-pyramid families: cooking, lighting, housing, water and financial services. I have summarised some of these features in Table 1.
Table 1: BoP Solutions and Scale Obstacles
The authors offer insightful discussion into the varying perceptions of profits and partnerships between social activists and large corporations. Focus only on profit is not good for society, as shown in the wayward behaviour of many companies; but neglecting profit is not good either since it may prevent scaling up of useful solutions and may waste public resources which could be used for other problems.
In many cases, a pure philanthropic approach may actually cause problems by creating dependence among the target communities, and making social entrepreneurs focus more on the next grants than on the next customers.
It is important for both sides to come together and forge a new ‘social contract’ between business and society. Corporates can offer the potential of scale and brand, but have received flak for short-term focus on quarterly results and lack of empathy with poorer citizens. Social activists have come under criticism for not being ‘professional’ enough and being unwilling to apply business models to their work.
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Organisations successfully blending these two perspectives include BRAC (one of the most impactful citizen sector organisations, from Bangladesh) as well as Aravind Eye Care and Narayana Hrudayalaya (India), with multi-tiered pricing and cross-subsidies for customers at varying income levels.
On the other hand, there are also entrepreneur-activists who have been accused of ‘selling their soul’ – such as Body Shop (committed to ‘no animal testing’ but sold to L’Oreal which has not abandoned animal testing), Ben & Jerry’s (sold to Unilever) and Stonyfield (sold to Danone).
The authors offer useful scale tips via hybrid value chains and specific functions such as marketing, distributing and finance. Social entrepreneurs tend to scale up by increasing the size of their organisations (eg. Ashoka, BRAC, Groupe SOS), widening their influence (eg. Mohammad Yunus; Wikipedia), or becoming serial entrepreneurs (UK: Michael Young with Open University and Education Extra; India: Jeroo Billimoria with Meljol, Childline, Child Helpline International). The ‘small is beautiful’ approach and the inability to ‘let go’ can unfortunately get in the way of other entrepreneurs who need to scale.
Large corporates need to be able to nurture intrapreneurs who can explore new kinds of business models with the social sector. Danone and Brittania have developed food products fortified with micro-nutrients for poor children in Bangladesh and India. Total has used its gas stations in Africa to distribute solar lanterns, and Unilever distributes Pureit water purification systems.
Such practices help corporates find new avenues for innovation, growth and meaning, but many are ‘unaware, unable or unwilling’ to make this cultural and strategic shift. Some companies have begun on this new journey via societal business units, social investment funds and technical assistance programmes. See also my book reviews of Reverse Innovation by Vijay Govindarajan and Chris Trimble, and India Inside by Nirmalya Kumar and Phanish Puranam.
The authors propose the concept of hybrid value chains (HVCs) to scale social ventures, which call for changes in business frameworks, values and skills of all stakeholders. HVCs are like the DNA double-helix, and go beyond CSR to blend wealth creation with social impact goals; this calls for a commitment to learning and co-creation. Examples include Zurich Financial Services’ foray into micro-insurance in Mexico, and Danone’s cooperation with the Ukraine milk parlours.
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As for marketing BoP products and services more effectively, it helps to reduce perception of risk, increase perception of value, rely on word-of-mouth messaging, and use creative outreach. For example, Grameen Shakti promotes its solar energy solutions by demonstrating them in local schools rather than spending on ads. Cemex uses Net Promoter Scores (NPS) to promote citizen evangelists.
Jack Sim from Singapore, founder of the World Toilet Organisation, first convinced mall owners to install clean toilets to improve shopper traffic, and now promotes toilet construction in rural areas as a status symbol, not just a hygienic solution.
Approaches to improve rural distribution and sales include a mix of ‘hunting’ (higher commissions for better evangelists), ‘shifting cultivation’ (moving sales forces to new territories once the tipping point has been reached), and ‘farming’ (cultivating trust to sell comprehensive packages). For example, Cemex (Mexico) promotes other complementary products along with cement; Hindustan Lever (India) provides bicycles to village sales staff; and Mi Tienda (Mexico) trains retailers in store layout and modernisation.
Social financing has come from foundations and grants on the one hand and development agencies and private equity firms on the other – with impact investing and micro-finance in between. Collaboration between all these stakeholders is called for, as well as philanthropists, with support not just for individual entrepreneurs but for the whole ecosystem. Players to watch include the Ashoka Support Network, Social Venture Partners and European Venture Philanthropy Association.
The Road Ahead
The book ends with a range of provocative questions. Will greater prosperity lead to smaller family sizes or only more consumption? Will emerging economies develop and refine better ‘frugal innovation’ techniques than mature economies? Will mature economies reduce their wastage by adopting such frugal techniques? (See also my book reviews of Frugal Innovation by Navi Radjou and Jaideep Prabhu; A Never-Before World by Rama Bijapurkar; and Peers Inc by Robin Chase.)
“We need a community of changemakers to bridge gaps between sectors, countries and social classes,” the authors conclude.
About the authors:
Olivier Kayser is the founder and managing director of Hystra, a global consulting firm specialising in multi-stakeholder hybrid strategies. He was a Vice-President of Ashoka, and is founder of the Ashoka Support Network (a global network of businesses supporting social entrepreneurs). He was earlier with McKinsey, and studied at French business school HEC.
Valeria Budinich is a Leadership Group Member at Ashoka, and founder of Full Economic Citizenship, a global initiative with over 50 hybrid business models. She earlier worked on development and entrepreneurship in emerging economies. Valeria is an advisor at Lemelson Foundation and Leapfrog Investments, and grew up in Central America.