BusinessModels(&BusinessModelling)

forSustainableDevelopment

AlessandroRossiforMasterCodeClass4

1

2

assignment

how does a donor-funded business modellook like? ?

OFFER

DISTRIBUTION CHANNELS

CUSTOMER RELATIONSHIPS

CUSTOMER SEGMENTS

REVENUE STREAMS COST STRUCTURE

KEY ACTIVITIES

PARTNER NETWORK

KEY RESOURCES

3rd party-funded business models

donor!proposal!

donations!

proposal writing!

OFFER

DISTRIBUTION CHANNELS

CUSTOMER RELATIONSHIPS

CUSTOMER SEGMENTS

REVENUE STREAMS COST STRUCTURE

KEY ACTIVITIES

PARTNER NETWORK

KEY RESOURCES

3rd party-funded business models

donor!

recipient!

proposal!

mission!

donations!

reputation!

proposal writing!

OFFER

DISTRIBUTION CHANNELS

CUSTOMER RELATIONSHIPS

CUSTOMER SEGMENTS

REVENUE STREAMS COST STRUCTURE

KEY ACTIVITIES

PARTNER NETWORK

KEY RESOURCES

3rd party-funded business models

donor!

recipient!

proposal!

mission!

donations!

reputation!

proposal writing!

tendency to

focus on

donor (money

source)!

no direct

“$feedback”

from beneficiary !

dreamIqbal Quadirhad a

OFFER

DISTRIBUTION CHANNELS

CUSTOMER RELATIONSHIPS

CUSTOMER SEGMENTS

REVENUE STREAMS COST STRUCTURE

KEY ACTIVITIES

PARTNER NETWORK

KEY RESOURCES

mobile connectivity!

customer-funded business model

OFFER

DISTRIBUTION CHANNELS

CUSTOMER RELATIONSHIPS

CUSTOMER SEGMENTS

REVENUE STREAMS COST STRUCTURE

KEY ACTIVITIES

PARTNER NETWORK

KEY RESOURCES

mobile connectivity!

network management!

network!

Telenor! license!

network management!

customer-funded business model

OFFER

DISTRIBUTION CHANNELS

CUSTOMER RELATIONSHIPS

CUSTOMER SEGMENTS

REVENUE STREAMS COST STRUCTURE

KEY ACTIVITIES

PARTNER NETWORK

KEY RESOURCES

mobile connectivity!

villagers!

network management!

network!

Telenor! license!

network management!

customer-funded business model

how do you provide

connectivity to

villagers when they

are too poor to buy

a phone?!

OFFER

DISTRIBUTION CHANNELS

CUSTOMER RELATIONSHIPS

CUSTOMER SEGMENTS

REVENUE STREAMS COST STRUCTURE

KEY ACTIVITIES

PARTNER NETWORK

KEY RESOURCES

mobile connectivity!

villagers!

phone ladies!

Grameen Bank!

network management!

network!

Telenor! license!

network management!

customer-funded business model

by providing an

intermediary a loan

to buy a phone and

resell call services!

OFFER

DISTRIBUTION CHANNELS

CUSTOMER RELATIONSHIPS

CUSTOMER SEGMENTS

REVENUE STREAMS COST STRUCTURE

KEY ACTIVITIES

PARTNER NETWORK

KEY RESOURCES

income opportunity!

mobile connectivity!

villagers!

phone ladies!

phone ladies!

Grameen branches!

Grameen Bank!

network management!

network!

Telenor! license!

network management!

customer-funded business model

OFFER

DISTRIBUTION CHANNELS

CUSTOMER RELATIONSHIPS

CUSTOMER SEGMENTS

REVENUE STREAMS COST STRUCTURE

KEY ACTIVITIES

PARTNER NETWORK

KEY RESOURCES

income opportunity!

mobile connectivity!

villagers!

phone ladies!

phone ladies!

Grameen branches!

Grameen Bank!

communication revenues!

network management!

network!

Telenor! license!

network management!

customer-funded business model

RESULTS

Rashmi, 24 Bangladeshi village phone lady 2-3 $ daily income

there are about 250ʼ000women retailing telephoneservices in 60ʼ000 villagesgiving access to about 100million people

the 250ʼ000 telephones areproducing revenues at anannual rate of well over $100million for GrameenPhone

each entrepreneur makesabout $2 in profits per dayor about $700 per year

il caso Grameenphone

25

classoutline• basicsonsocialinnovation• TxtEagle casestudy• techniquestoinnovate• finalassigment

SI:apossibledefinition[GeoffMulgan,2006]

• businessinnovationisgenerallymotivatedbyprofitmaximizationanddiffusedthroughorganizationsthatareprimarilymotivatedbyprofitmaximization.

• socialinnovationreferstoinnovativeactivitiesandservicesthataremotivatedbythegoalofmeetingasocialneedandthatarepredominantlydiffusedthroughorganizationswhoseprimarypurposesaresocial.

• keepinmind:idealtypes vs.hybrid/realtypes,partnershipsandjoint socialventure,etc.

needs:theKenyacase

• 40Mpeople• poverty:dailypro-capitaincomeofEur 2.6• highunemploymentrate(2010->≈ 50%)

thebusiness

• medical transcripts:– market sizeof20BillionUSD– standardsolutions:$0.1pertextline(65chars,98%accuracy)

• software localization• manuals andtechnicaldocumentation• (marketsurveys)

the“scratch anitch”perspective

• NathanEagle• MITyoungfacultyfromtechnol.school• shortstayinKenya(girlfriend):– firsthandexperienceoflivingconditions

• returns home• startupcompanyTxtEagle

TxtEagle:atimeline

• 2008- BostonstartupsponsoredbyMIT• 2009- entersinKenyaandRwanda• 2010- 17Africancountries• 2011– 100countries– 220allianceswithlocalfirms– 8.5MUSDventurecapital

maturemobiletechnologies• TACS– GSM– UMTS– LTE• GSMtechnologies– mature– obsolete?surpassed?– cheapnetworktechnologies– cheaphardwareforusers

• mobilemarket– developedcountries:stagnating,maturemkt– developingcountries:exponentialgrow:

• Kenia:200k(0.5%)usersin2000->20M(50%)in2010– GSMstilltheleadingtechnology

TxtEagle:thebusinessidea• mobilecrowdsourcingsolutions• mobilesolutionsfordeployingmicro-tasktocrowdsourced

laborforcesviaSMS(160charsmessagingsystem)• activities

– collecting ataskfromacustomer– partitioning inindependentmicro-tasks– delivery ofmicro-taskstoaffiliates– gathering backtheoutputsfromaffiliates– regroupingofoutputs– qualitychecks(redundancy,controltasks,ratingofaffiliates,

etc.)– shippingofthefinaloutputtothecustomer– managementofmicro-paymentsforaffiliates

TxtEagle:valuecreation[1]

• cost savings:– medical transcriptions• standard solutions:$0.1pertextline(65chars,98%accuracy)• SMS: $0.02pertextline(1/5drop!,sameaccuracy)

• greathourlyrate:– $3/h– 1dayofwork≈ 1monthoffamilyexpenses

TxtEagle:valuecreation[2]

• useofUSSDprotocol(freeSMS)• alliances withtelcom providers• micro-paymentviaphonecredit– wholesalepurchaseatadiscount– resale atnominalprice– phonecreditasdigitalpurse– phonecreditasbankcheckingaccount

TxtEagle:usescenarios• Ruth&Betty,Home-Maker/VillagePhoneOperator,Butare,Rwanda.Ruthisthemotheroffourandwhileshe

readsandwritesEnglishfluently,shehasn’tbeenabletofindmuchworkinherlocalvillage.She’dliketoownaphone,buthasn’tbeenabletosaveupthemoney.BettyoperatesavillagephoneinRuth’svillage.By‘renting’thephonetoRuthfor50cents/hourduringoff-peaktimeswhenBettyhasnoothercustomers,Ruthisabletocomplete3hoursoftranscriptiontasks– accumulating$7.50intohersavingsaccountand$1.50intoBetty’saccount.AcoupleofmoresessionslikethatandRuthwillbeabletoaffordherownphone!

• David,MaasaiHerdsman,Kisumu,Kenya.WhileDavidhadbeenunabletocompleteformalizededucation,he,alongwithmanyofhisMaasipeers,doesownamobilephone.Davidcompletesvoice-tasks,helpingNokiatrainaspeechrecognitionengineonhisnativeMaasaidialect.WhenDavidwishestocompleteatask,he‘flashes’thetxteagleAsteriskboxthatcallshimback,askinghimtorepeatspecifickeywordsandphrases.After30minutesofwork,Davidhasearnedenoughairtimetolasthimaweek(assuminghedoesn’ttradeitagainforanothernecklacetogivetohisnewwife).

• Sophie,UnemployedSchoolTeacher,Kilifi,Kenya.Sophieisanactivememberofherlocalwoman’smicrofinanceinstituteandunderstandstheimportanceofsavings.However,sherarelyisabletomakeendsmeetforhergrowingfamilyandhasnomoneytoopenatraditionalsavingsaccount.Occasionallysheisabletoborrowherhusband’sphoneandusesittobeginearningsmallamountsofmoneybycompleting

• translationtasksforNokia;textingbackthecorrecttranslationtowordssuchas“AddressBook”inhermother-tongue,Giryama,shesoonisontheroadtoaccumulatingherownsavings.Emmanuel,Recenthigh-schoolgraduate(age14),Mtwapa,Kenya.Emmanuelhasjustfinishedsecondaryschool,butisunsurewhattodonext.Hehasalotoftimeonhishandsbuthecouldreallyusemoneyofhisown.Emmanuelbeginsexperimentingwiththetxteagletranscriptiontasksandfindsthathegetsfairlyhighaccuracyscores.Nowinsteadofspendinghistimeloiteringaroundthevillagewithhispeers,he’sridinganewbikehepurchasedwithhissavings.

TxtEagle ataglance• partnershipbetweenvariousprofitorientedcorporations:techstart-up,venturecapitalists,telcom providers,hardwareproducers

• disruptiveinnovation:aradicallynewwaytoofferaservicewhichdisintermediate traditionalprovider

• importantsocialconsequences:– people outofthelabour market– poverty trapandcompetencetrap– addition tofamilyincomes– improvementinlivingconditions

vignettesoninnovatinginSI

• bottomofthepyramidapproach• catalyticinnovation (disruptiveinnovation)• designthinking• positivedeviance

BoP – shift ofmindset• traditionalapproaches– poorarehelpless– needcharity,subsidies,publicassistance

• marketbasedapproaches– allpoorhouseholdstrade,buy,sell(cash,labor,bartering)– hybridbusinessstrategiesthatincorporate

• consumereducationorothercapacitybuilding• microloansandproducer/consumerfinance• cross-subsidyfromdifferentincomegroups• franchiseandotherdistributionarrangementswhichproducejobsanddistributeincome

• partnershipwithNGOsandpublicsector

BoP – newfocusforbusiness

• unprecedentedphenomenon:– emergingnewcustomers– revolutionaryas:e-business,mobilebusiness,etc.

• forcetorethinkcommonbusinesswisdomon:– hitech/lowtechinproductandservices– scaleandprofitability– price/performance– productivity– sustainabledevelopment

anexample:Hindustan Lever [1]

• detergentbusiness• northern/northwesternIndia• Lever:MNCwiththetypicalToP approach• Nirma:– newcomerlocalfirm– newformulation,process,packaging,distributionandpricing

– focusedonthepoor• Lever:laterecognitionandresponse

anexample:Hindustan Lever [2]

• sustainabledevelopment– soapformulation• lowerfattowaterratio• indigenousoils• novel,greenerprocessing

– localcompany• researchwithlocaltalent• localemploymentandawareness• commitmenttothebottom

anexample:Hindustan Lever [3]

• hugesuccess:– Nirma:$150Msales,grossm.18%,ROCE121%– Lever:$180Msales,grossm.25%,ROCE22%– LeverP:$100Msales,grossm.18%,ROCE93%

• lessonslearned:– bottomcanbeveryprofitable– lowmargin+highunitsales– volume->capitalefficiency!– profitvs.grossmargins

newbusinessmodels fortheBoP

• price-Performance• robustproducts(e.g.transport,dust,heat)• capitalefficiency• laborintensity• newalliances• SG&A,O/Hstructure• volumes andlogistics• packaging• sustainability

designthinking• avoidpreconceivednotionsaboutneedsandsolutions

• integratetheuser’sviewandneedsinconcepts,prototypes,innovativesolutions

• lookforfeedback(validation)• constructiveandexperientialapproach• systemicapproach:needsofusers,infrastructuresfordelivering,etc.

• initially:productdevelopmentforbusiness• nowadays:socialproblems

e.g.:fetchingwaterincountrysideIndia

• dailyprovisionofwaterforfamilyneeds• currentsolution(usedforgenerations):

– local,always-open,100-meterdistantborehole– 11-liter,headtransportable,plasticcontainer– notsosafe,periodicallyinducingsickness

• newmarket-basedsolution:– foundation-runcommunitytreatmentplant– atwalkingdistance(500meters)– wellknownandreputable– affordable($0.2fora19-litercontainer)– waterfeesasstatussymbolforsomevillagers

• familiesstillusethetraditionalsource– whythat?

e.g.:fetchingwater[solution]

• designflawsinthecontainer– toobig– tooheavy– difficulttograspandholdatthehip/onthehead

• flawsinthedeliveryoftheservice– openinghours:notaccessibleforworkingpeople

• flawsinthemarketprovision– monthlypunchcardfor19litersaday

• notethatthesolutionworksverywellforthe“typicalcustomer”:familieswithhusbandsoroldersonswhoownbikesandcanvisitintheopeninghoursthefacility

disruptiveinnovation(Christensen)

• “normal”innovations:– largeincumbents– betterexistingproducts/services– premium,valueaddingversions– targetingmoreattractivecustomers(purchasingpower)

• “disruptive”innovation:– newcomersinthemarket,industrynovices– simpler,strippeddownproducts(goodenough)– verypricecompetitive– newmarketsegments(differentorlessattractivecustomers,,“poor”segments)

whynewcomerssucceed?• traditionalinnovationsreinforcemarketsstatus-quo:– intermsofproduct/service– intermsofneeds– intermsofconsumers

• disruptiveinnovations:– paradigmaltering– newneeds– lessrichdemand– moreovertheyhavegreatpotentialforimprovements,whichovertimeresultsinsubstitutingdominantproductsandservicesformoresophisticatedcustomers

someexamplesofdisruption

• personalvs.mainframecomputers• lowcostaircarrier

• elementsincommon:– majorimpactonindustrystructures– mightunintentionallygiverisetosocialchanges

• disruptiveinnovationswhichintentionallycausesocialchangearelabelledascatalytici.

disruptioninsocialinnovation

• traditionalorganizationsaddressingsocialneeds(hospitals,schools,etc.):– merereplicationoftraditionalbusinessmodels– “disruptive”modelsareverydistant

• catalyticinnovations:– new,“goodenough”solutions– tounsolvedsocialissues– forunderservedgroupofcustomers– whicharenotaddressedbystatusquo

disruptionprocessesforsocialinnovation:anexample

• UShealthcare– highestpro-capite spenditure intheworld– relativelylowhealthcarequalityindicators

• USpubliceducation– 2° forexpenses(OECDcountries)– 29° instandardizedstudentlearningtests

• over-provison ofstatus-quoenhancing solutions• misdirectedinvestments• under-provisionof– newsimplersolutions– foruserswithbasicneeds

catalyticinnovations:casestudies

• WorkingToday– affordableinsuranceforindependentprofessionals(contractors,consultants,par-timers,tempsinNYC)

• communitycolleges• walk-inclinics– basicmedicalservicesinachainofdrugstoresupermarkets(CVS)

positivedeviance

• asset-based,problem-solving,community-drivenapproachtofindingsolutions

• lookforpositivedeviants:– certainindividualsorgroups– havingaccesstothesameresources– facingsimilarorworsechallenges– uncommonbehaviors andstrategiesenablingthemtofindbettersolutions

• http://www.positivedeviance.org/

PDguidingprinciples

• practiceinsteadofknowledge• self-ownershipoftheprocessbycommunity– “Don’tdoanythingaboutmewithoutme”– findexistinguncommon,successfulbehaviors (PDinquiry)

– designwaystopractice&amplifythosebehaviors– “someonejustlikeme”cangetresults– communitysetsbenchmarksandmonitorsprogress.– interactiveengagement,“letthecommunitylead”.

• expandsexistingnetworksandcreatesnewones

PDcasestudy:malnutritioninVietnam

• 1991,newDirectorofSavetheChildreninVietnam• governmentrequest:createaneffective,large-scaleprogramtocombatchild

malnutrition• morethan65%ofVietnamesechildrenlivinginvillagesmalnourished• directorengagedthecommunity:

– identifypoorfamilieswhohadmanagedtoavoidmalnutritiondespiteallodds– facingthesamechallengesandobstaclesastheirneighbours– andwithoutaccesstoanyspecialresources

• positivedeviants:– tinyshrimpsandcrabs+sweetpotatogreens– mostcommunitymembersbelievedtheywereinappropriateforyoungchildren– feedingtheirchildrenthreetofourtimesaday,ratherthantwiceaday

• pilotprojects:– familieswithmalnourishedchildren– invitingthemtopracticethedemonstrablysuccessfulbutuncommonbehaviors whichtheyhad

discoveredintheircommunities– greatresults

PDandSocialInnovation

• greatforNGOs-typeofSI:– educationalprograms– empowermentandcapacitybuildingofcommunity

• mightbealsohelpfulforSocialEntrepreneursorPrivateEnterprises:– PDaccessingprivilegedresources?– isthereawaytoovercomesuchsystem?(SEperspective)– canwethinkaboutBoP marketsolutions?(PEperspective)

examples

• ”standard”solutiontoasocietalpressingneed:– Bankloanstofundentrepreneurs

• neglectedusersegments:– Poorentrepreneursthirdcountries

• approach:PD• “novel”solution(socialinnovation):– consumeristyoungprofessionalsgraduateswithnodebt

examples

• ”standard”solutiontoasocietalpressingneed:– publicretirementplansandtheelderlyneedforfinancialsecurity

• neglectedusersegments:– youngmillennialswithpoorjobmarketsecurity

• approach:PD• “novel”solution(socialinnovation):– consumeristyoungprofessionalsgraduateswithnodebt

examples• ”standard”solutiontoasocietalpressingneed:– publicretirementplansandtheelderlyneedforfinancialsecurity

• neglectedusersegments:– youngmillennialswithpoorjobmarketsecurity

• approach:Designthinking• “novel”solution(socialinnovation):– voluntarypensionplans– opt-outnudging– informationonageandcheckamountatretirement

examples

• ”standard”solutiontoasocietalpressingneed:– Healthcareneeds

• neglectedusersegments:– Allpatientsduetoshrinkingwelfarebudgets

• approach:catalitic• “novel”solution(socialinnovation):– minute-clinics(pharmacistdeliveredhealthcare)

grading• Responsible:Prof.Italo Trevisan

• 30%previousassignments• 20%Classparticipation• 50%Finalassignments

• (Possibleà questioninfinalexam)

post-assignment1• takeyourcaseofsocialinnovation• discussthebusinessmodelofyoursocialinnovation.Whatisisabout?howisitsustainable?howcanyouinnovatesuchbusinessmodel?Doesitpromotesustainabledevelopment?Whatshouldpolicymakersdo?

• instructionsforthesubmissionintheblog• Max2-3pages(5000chars)

post-assignment-2• takethecaseoftxtEagle• describeinaparagraphinwhattheinnovationconsist:– whichproblemdoesitsolve?– forwhoseusers/beneficiaries?– how?whereistheinnovation?– howdifferentfromtraditionalsolutions(ifany)

• Doesitpromotesustainabledevelopment?Prosandcons?

• Max2-3pages(5000chars)