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This presentation shows some preliminary results of our re-invent the toilet challenge. For further information, please contact Heiko Gebauer ([email protected])
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Business model innovationMarket-based approaches for sanitation services
Ullrike Messmer & Heiko Gebauer
Sandec & Environmental Social Sciences
EAWAG
Zurich, 12-09-2013
Diversion concept
„The poor“
“Victims and supplicants for aid” towards being “value conscious
consumers and resilient entrepreneurs”
Key objectives
1) Understanding the role of business model innovation for sanitation services
2) Presentation of the business model of Eoos/Eawag and X-runner
3) Current status of business model work among grantees
4) Discussion and further steps
Business model thinking providing business knowledge
KP
KA
KR
VP
DM
CR
CS
C R
KP – Key Partner, KA – Key Activities, KR – Key resources, VP – Value proposition, CR - customer relationship, DM – distribution & marketing, CS – customers, C – Cost structure, R - Revenues
Marketing
Supply chain management
Pricing
Business strategy
Leadership
Organizational change
Process management
…
Business models as the top of the iceberg of business
knowledgeBusiness models
Business knowledge
Key factors for doing business with the poor
• Affordability, accessibility, acceptance, and awareness (Anderson
and Markides, 2007)
• Pay-per-use, no frills service, paraskilling, distribution networks,
contract production & deep procurement (Karamchandani,
Kubzansky, and Frandano, 2009)
• Adapting products and processes, investing in removing constraints,
leveraging poor people’s strengths, combining capabilities and
resources with other organizations, engaging in policy dialogue with
governments (UNDP, 2010)
Examples of supply chain management at Waste concern in Bangladesh
Urban poor
- Waste production
Waste concernMapAgro & waste concern baraka agro products
Rural farmers
- Compost application
Non-profit approach
- Waste separation & collection
- Compost plant
Profit approach
- Demand creation- Marketing &
distribution- Enriching compost
Supply chain contract
- Visualizing supply chain management activities- Disaggregation of supply chain activities into material,
information, and financial flows- Contractual arrangements between supplier and buyers- Incentives for each supply chain actor and consistency
among the incentives
Example of pricing and financial flows at Sarvajal
0
500
1000
1500
2000
2500
3000
3500
4000
Installed water systems
2008 2010 2014 20162012
...
Sarvajal(Franchisor)
(5000 $ / 2600$)
Micro- entrepreneurs(Franchisees)500 $ (40% of
revenue)
Communities(Villages –
3’000)0.12 $ for 20
liters
1 : n 1 : m
BankMicro-credit
institute
Source: own interpretation and interviews. Based on Macomber and Sinha (2012)
Business model innovations drive market creation
Creating needs where markets exist Creating markets where needs exist
- Traditional (narrow) perspective concentrating on product and service innovations
- More open (holistic) perspective driving business model innovations
- Developing a cheap and affordable phone, distributing it to low-income people, and charging appropriate air time prices (pre-paid)
- Providing a micro-credit to village person for buying a phone
- Training village phone operators in entrepreneurship
- Renting out phone minutes (pay-as-you-use) to village people
+ Pre-paid services Village Phone Operator
Villagers
Grameen‘s phone ladies illustrate the power of business model innovations
There are four reasons why business model thinking is beneficial
1. Business model is a holistic concept, which integrates social- and profit-oriented motives into consistent, overarching strategic goals
2. Business model can create revenue structures that match the volatile cash-flows in the low-income segment
3. Business models can make markets more inclusive for the poor by clearly depicting different value creation options
4. Business model thinking considers organizations not as isolated actors, but rather as integrated into business eco-systems, in which actors integrate resources to create value
Combing traditional growth thinking and business model innovations
Market penetration
1 - Existence2 - Survival
3 - Success
4 - Scale-up
5 - Maturity
Market creation
Creating needs where markets exist
Creating markets where needs exist
Time
KP
KA
KR
VP
DM
CR
CS
C R
Business model innovation
Different degrees of scope in the pro-poor solutions can be scaled-up
Market penetration (Scale reached by pro-poor solutions)
Scope(Complexity and heterogeneity of needs addressed
by pro-poor solutions)
- Incremental BM- BM customization- BM replication
- Radical BM- BM diversification- BM customization- BM replication
FIRST ENERGYScaling-up
cooking stoves
Low High
DESIPOWEREnergy
solutions for villages
BM – Business model
Strategy canvases for business model visualization
Key resourcesWhat key resources are required?
Value proposition• What value do we
deliver to the customer?
• Which one of our customer problems are we helping to solve?
• What bundles of products and services are we offering to each customer segment?
• Which customer needs are we satisfying?
Key activities• What key activities
do our value proposition require?
Key partners• Who are our key
partners?• Who are our key
suppliers?• Which key resources
are we acquiring from our partners?
• Which key activities do suppliers and partners perform?
Customer relationships
• What relationship does each customer segment expect us to establish?
Revenue streams• For what value are customers really willing to pay?• For what do customers currently pay for?• How are they currently paying?• How would they prefer to pay?
Cost structure• What are the most important costs for our business
model?• Which key resources are most expensive?• Which key activities are most expensive?
Marketing• How do we reach our
customer segments (awareness, evaluation, purchasing, and using)
Key resources• What key resources
do our value proposition require?
Customers• For whom are we
creating value?
Source: Johnson et al. (2007)
Customer experience cycle for exploring customer needs
Customer experience cycle Utility layers
X-Runner‘s customer segmentation
Short summary
- Business model thinking providing business knowledge
- Various key factors (e.g., affordability, accessibility, acceptance, and awareness) need to be considered in doing business with the „poor“
- Business model innovations drive market creation
- Scale and scope needs to be considered for pro-poor solutions
- Combining traditional growth thinking and business model innovations leads to incremental and radical business model innovations, business model customization, diversification, and replication
- Business practices offer a broad range of tools to support business approaches for the poor
Key objectives
1) Understanding the role of business model innovation for sanitation services
2) Presentation of the business model of Eoos/Eawag and X-runner
3) Current status of business model work among grantees
4) Discussion and further steps
How did we get to the existing business model?1. Imagining actor relationships
2. Describing business model elements for actor relationships
3. Create morphological boxes with different options
4. Selection of consistent combination of options
Factor Specifications (Options)
Intended buyers Landlords Tenants “Rent a Toilet (Service)”
Responsibility of maintenance (not cleaning)
Only users User and service person
Only service persons
Depends on maintenance
activity
Removal & conveyance of fecal containers
Individuals (users)
Individuals & service
Only service
Frequency Twice a week Once a week
What is our existing business model?
Key resourcesWhat key resources are required?
Value proposition• Access to a clean
and comfortable toilet• Reliable and safe
emptying of the toilet and collection of separated feces and urine
• Affordable weekly fixed service fee (including toilet rent, emptying toilet, transportation costs, and maintaining the toilet)
• Retrofit
Key activities• Renting• Installing• Using• Maintaining• Collecting• Treatment• Selling end-products
Key partners• Local toilet
manufacturer• Ultrafiltration
membrane manufacturer
• Treatment equipment provider
• Local contractors• Local community• Mobile phone
operator
Customer relationships
• Twice a week visits by the collector
• Mobile payment of the service fees
Revenue streams• Service fee• Sales of end-products
Cost structure• Investment costs for toilets and RRPs• Operational costs for toilets, RRPs, and logistics
Marketing• Community events
Key resources• Logistic skills• Operational skills
(RRP)• Management skills
Customers• Families with five
persons including landlords and tenants
• Wholesalers for end-products
What is our existing business model?
Toilet part production
Toilet assembly Installation
Toilet
Operation
Collection/ Transport
Treatment Technology Production
Treatment Technology Installation
Operations Resource Recovery
End-product Sales & Distribution
Demand creation
Payment
How do we see the growth of the business model? (1)
How do we build the business plan?
What are key issues in the business model we are currently working on?
• Reduce break-even time
• Exploring more on the end-product market
• Reconsidering the logistic approach for the collection
• Working on different options for each step in the sanitation value chain
Cost, revenue & profit calculation
Resources
http://blog.business-model-innovation.com/
http://www.growinginclusivemarkets.org/
Hystra (2009), Access to energy for the base of the Pyramid. Research Report.
Hystra (2011), Access to safe water for the base of the pyramid. Research Report.
Karamchandani A., M. Kubzansky and P. Frandano (2009). Emerging Markets, Emerging Models: Market-based Solutions to the Challenges of Global Poverty. Cambridge, MA, Monitor 2009.
Karnani A. (2007), “The mirage of marketing to the bottom of the pyramid: How the private sector can help alleviate poverty”, California Management Review, 49 (4), 90-111.
London, T. and Hart, S.L (2010), Next Generation Business Strategies for the Base of the Pyramid: New Approaches for Building Mutual Value. Upper Saddle River, NJ: Financial Times Press.