Can social enterprises be rich?

 “To succeed, these (social) ventures must adhere to both social goals and stiff financial constraints.” [1]

Farmers historically have been severely exploited by a chain of middlemen, but very few existing models sustainably connects them directly with the end consumers. Having worked with a Social Enterprise that directly worked towards bringing marginal farmers (farmers who do not own more than 2 acres of land) and retailers together, I constantly faced several bottlenecks concerning the availability of funds.  Our team was actively seeking funds and grants from the foundations and trusts, working closely with the government to avail tax benefits and subsidies and devising financial models to bring in as much revenue as possible – both to sustain the organization and to provide a fair share to the farmer. The project was ran through a Hybrid model.

There were many challenges with this model.

 A) A disproportionate amount of time was spent in writing donor reports and proposals. Since trusts don’t prefer to work with small numbers, we had to either scale the project (purely to adhere to the foundation’s mandate) or show inflated numbers so we could fall under the “high impact” category.

B) The same was the case with partnering with government agencies. Moreover, the bureaucracy was acutely high in these agencies. Both sources of funding were “difficult to guarantee indefinitely” [2]. More often than not, the question of financial viability was in question.

  “For social entrepreneurs, the social mission is explicit and central.” [3]

Though definition [1] was most obvious, there was a resistance and a sense of guilt amongst stakeholders (employees, farmer leaders, organization heads) in adhering to “stiff financial constraints”. Ideas on making revenues or engaging in income generation activities were rubbished as ignoring the core mission. I was almost ashamed to ask the question that has been daunting me for the past couple of years, “Is it OK for a Social Enterprise to be rich?” When a fellow classmate brought this question up in a class discussion, Proff Z’s quote, “No Money, No mission”, struck the chord perfectly.  Financial sustainability or sometimes profitability is after all is a key component in maximizing impact. It reiterated that, “by grow­ing (a steady) rev­enue, improv­ing gross and oper­at­ing mar­gins, increas­ing free cash flow, effi­ciently man­ag­ing both cap­i­tal expen­di­tures and work­ing cap­i­tal, and build­ing an asset base” [4] the goal of Social impact is not compromised in anyway.

 

                                                            Image from Google

 

One of the classic cases is the Arvind Eye Care Hospital in India. Arvind Eye Care follows a “cross subsidization” approach wherein the rich pay for the services while the poor (BPL population) do not.  Though the same doctor performs surgery on either of the patients, the relatively wealthier patient pays for other value add services such as an exclusive para medical care, better boarding and lodging facilities, etc. while the subsidized patient just avails the very basic amenities.

Though the Hybrid model is not a one size fit all approach (some of the greatest social innovations did come from a government agencies or not for profit models) to solving social problems, this approach is not to be dismissed. The amount of time and resources that needs be dedicated to each (Impact vs Profitability) are variable, but they most certainly are not mutually exclusive. The organization or the enterprise could clearly defines the priority of each while constantly reevaluating the goals and objectives as the project progresses though time, scale and geographical boundaries. In the end, high impact organizations can be rich as long as they build an effective mechanism so that the different stakeholders, while receiving real time market based inputs, do not lose track of the shared Mission and Values of the project.

 

 [1] https://hbr.org/2015/05/two-keys-to-sustainable-social-enterprise

[2]. https://hbr.org/2015/05/two-keys-to-sustainable-social-enterprise

[3] The Meaning of “Social Entrepreneurship” J. Gregory Dees

[4] http://www.northeastern.edu/sei/2013/09/how-to-build-financially-sustainable-social-enterprises/

An Aging New World

In the article, “The Four Global Forces Breaking all the Trends,” the authors discuss the disruptive forces of urbanization, accelerating technological change, an aging workforce, and globalization.  There is no stopping these forces as they all happen simultaneously to one another.  As we find ourselves in an increasingly interconnected world, it is becoming more apparent that the world must find ways to handle the challenges faced by an aging population.  First, innovation is necessary in order to replace the aging workforce as lower fertility rates lead to an eventual decrease in population.  Secondly, we must find a way to care for the increasing amount of elderly as the baby boomers approach retirement age and life expectancy continues to increase.

While a decrease in population might be good news for an over-crowded planet, it can negatively impact the economy.  The economy grows as people join the workforce each year.  More people working equals more production, earning, and spending [1].  As the aging population leaves the workforce, countries need to find ways to make up for the decrease in the working population.  There are two obvious options: find ways to encourage people to work longer and create technological advances that could replace the aging workforce.  The first option will likely require government intervention.  Currently the United States is incrementally increasing the retirement age.  Although this is for different reasons, it will lead to more people staying in the workforce for longer periods of time.  They also encourage people to work longer by increasing the social security benefit that they receive if they wait longer to retire. 

Another way to deal with a smaller workforce is through technological advances. Technological advances can pertain to any line of work, but manufacturing stands out in this case.  As the workforce in manufacturing declines, so does production and therefore the nation’s GDP.  In order to save the economy from a potential decline, innovation is necessary.  Further investment toward advances in efficient practices and robotic automation will become more and more essential as the world progresses forward.

While the world must be innovative in the way it handles the decrease in its workforce, it must also find ways to handle an overwhelming amount of elderly.  Elder care is in demand as multi-generational households become less common.  So how do we prepare for this?  How do we make sure that every elderly person receives the care they need as the price of this care remains unaffordable for many?  This is a very real issue with no obvious answers.  Is the answer in policy, technology, or a social venture; perhaps all three? 

[1] http://www.cbsnews.com/news/dropping-birth-rates-threaten-global-economic-growth/

A Look at the 2030 Prophecies of the N.I.C.

In a world full of unknowns, it’s amazing we can pick out major trends and drivers, and come up with likely scenarios for our future. While reading the Global Trends 2030 report, I was immediately drawn to the “Alternative Worlds” section in which the National Intelligence Council detailed four potential scenarios for the future. As an engineer, my first reaction was to try to make sense of the scenarios by boiling them down to an equation - some f (megatrends, game-changers) = alternative world scenario. While that was mostly a futile exercise, it did push me to consider each scenario and which one seemed most likely, given my perspective and knowledge of the world. While I don’t completely agree with any one scenario, the “Gini Out-of-the-Bottle” and “Nonstate World” each have components that I would consider in my own 2030 vision.

In “Gini Out-of-the-Bottle,” some of the key drivers are the domination of inequalities, U.S. energy independence, and the U.S. reducing its “global policeman” tendencies. Economic inequality still runs rampant in our society, with little push from either end to fix it. These circles of “the rich get richer” and “the poor stay poor” are deeply entrenched in many cultures and economic policies, and will take longer than 2030 to fix, or even improve. As for U.S. energy independence, we are nearly there today. I worked in the Oil and Gas industry for three years, and the advancement of technology has pushed the U.S. to the forefront of exploration and production techniques. This independence will likely shift the U.S. foreign policies away from oil-bearing nations (i.e. the Middle East), and will retrain focus on domestic issues. This will overall reduce the need for the U.S. to play the “global policeman.”

In “Nonstate World,” the primary driver is the increasing power of nonstate actors. Even today, the income elite of the world and private companies have a great deal of influence over governmental entities and policies, although no official role. In the future, it is likely these individuals and companies could form the “hybrid coalitions” discussed in the report, and gain a more official role in government undertakings. While this could potentially facilitate greater international cooperation, there is the potential for it to drown out the voice of the middle and lower class, and further perpetuate the inequalities mentioned in “Gini Out-of-the-Bottle.”

Thinking about your own vision of the world, which of the four “Alternative Worlds” do you think we will end up with in 2030?

Doubts on Global Conflict Predictions

The National Intelligence Councils Global Trends 2030: Alternative Worlds (2012) publication highlights several current and ongoing global trends which are then extrapolated out over the next 20 years to predict the major shifts in geopolitical relations.  The megatrends predictions in this publication seem tautological and most of them are already undergoing.  Doubtful are the more acute predictions the publication makes especially regarding armed conflict around the world.  Although the publication cites measurable decreases in the number of civilian and military casualties over the past two decades, other metrics which the publication disregards suggest the opposite trend may be at play. (59) For example, the proliferation of interstate cyber-warfare has the potential to inflict low cost to human life, but great cost to economies, infrastructure, or security.   The potential for nuclear conflict, especially on the Korean peninsular, the Middle East, or on the Indian sub-continent are larger than they have ever been before. 

The decline in interstate conflict, which the publication acknowledges, was widely cited among academics and members of the policy community during the 1990s as proof that the international system had become so benign that the United States no longer faced serious security threats of any kind.[i]  Chief among these academics was Dr. Francis Fukuyama who, in his famous book The End of History and the Last Man (1992) asserted that there existed an international consensus favoring democracy and free markets and the prediction that major conflict and war would be essentially a thing of the past.  The peace witnessed directly after the fall of the Soviet Union proved to be ephemeral.  The rise and rapid globalization of the phenomenon of international jihadism was not predicted in the years following the collapse of the USSR.   There is no evidence to suggest that our power of prediction in international relations and global conflict has improved over the last 15 years.  The point being, extrapolations into the future, even the seemingly near future of 10-15 years, tend to miss the mark.  Considering the National Intelligence Councils publication in 2012, it is worthwhile to note that there is no mention of the Islamic State, a non-state actor, with nation-state ambitions that has upended geopolitical dynamics in the Middle East. 

Increased demand for critical resources such as food, water, and energy, which the report discusses at length, may lead to increases in international conflict.   Countries such as Pakistan or India, which both have nuclear arsenals and large population that demand resource consumption, may be pushed to adopt more aggressive postures for these reasons.   

While fertility rates in most of the developed world are declining, this is not true for much of Sub-Saharan Africa. (60) Resource competition as well as large populations of young people goes against the publication’s prediction of a more peaceful world in the coming decades.

Finally, according to the United Nations, there are almost 60 million displaced refugees in the world today, most due to war and conflict.[ii]  The ongoing European immigration crisis is noticeably absent from the national Intelligence Council’s predictions.  Such diaspora is sure to cause intrastate tension and possibly violence.

Ultimately, this article seems more confident in the forces favoring peaceful global interaction.  However, the international system is inherently unpredictable and any extrapolations for future trends in geopolitics should be taken with a heavy dosage of salt and skepticism.

---

[i] Gaddis, John Lewis.  Surprise, Security, and the American Experience. 2004. Page 76.

[ii] According to the United Nations High Commissioner for Refugees (UNHCR) Global Trends: Forced Displacement in 2014 Report. http://unhcr.org/556725e69.html

The Road to Hell is Paved With Good Innovations

     Social innovators are on a mission to tackle the world's most crippling problems. One major issue attacking much of Africa is malaria; the fatal disease carried by mosquitos where the highest number of deaths are from children. The design thinking process was used through steps of inspiration and ideation; insecticide-treated nets with small holes were given in masses to families in African states for use as a canopy while sleeping. The World Health Organization found that the nets lowered deaths overall, especially in children under age 5 by 51% in Ethiopia, 34% in Ghana, and 66% in Rwanda [1]. The nets were extremely effective in lowering malaria cases when used properly. 

      With all successes, however, come unintended negative consequences. 

      The implementation of the product design ran into problems almost instantaneously. First, hospitals were giving expectant mothers nets for free when they came in for doctor visits. This method was effective for villagers with little access to protect their children. This did, however, cause the nets to be a non-profitable item for shop owners to sell, making it difficult for people in cities to purchase them for protection. Hospitals did not have the ability to sell the nets they gave to expectant mothers either; there by causing gains in malaria cases.

Second unexpected consequence, the mosquito repelling nets made an excellent fishing tool.  

        In Zambia and Mozambique there are growing number of malaria cases as the nets come straight from packages and into the local lakes and streams to gather fish. The villagers are namely fond of the small holes that are able to grasp all wildlife. Unfortunately, the insecticide-treated nets are placed into already contaminated waters and causing an increase in other health problems amongst the villagers. Furthermore, families take multiple nets and sew them together to cover larger span of marine life in the lakes. Considering that the fish population is already scarce, this practice  of net usage will lead to a critical food source shortage for the millions of the world’s poorest people [2]. 

Fisherman have been reduced to fist fights over traditional fishing methods vs the catch-all methods using a free tent. Legislation is being drafted to stop the local population from using the nets for anything but their intended design. 

This leaves us with a conundrum: Do we denounce the successes of the malaria repelling nets because, when used improperly, they lead to higher rates of malaria and other diseases? How do we prioritize one crippling problem (malaria) over another (malnutrition) when researching and implementing social ventures?

[1] Design Thinking for Social Innovation, Stanford Social Innovation Review (2010) http://ssir.org/articles/entry/design_thinking_for_social_innovation/

 [2] Meant to Keep Malaria Out, Mosquito Nets Are Used to Haul Fish In (2015) http://www.nytimes.com/2015/01/25/world/africa/mosquito-nets-for-malaria-spawn-new-epidemic-overfishing.html?_r=0#

The Benefits of Designing from the Bottom-Up

            The theme of week two of Foundations of Social Innovation and Enterprise is “Drivers of Social Innovation and Human-Centered Design Thinking” and the article The Importance of Frugal Engineering explores the manner in which products for emerging markets have required changes in the way they are designed in order to adapt to the different needs that people in emerging markets need. Product development in the United States typically focuses much more strictly on functionality for the perceived customer but utilizes a much more prolonged set of tactics to do so, performing research by way of focus groups and relying on sometimes overwhelmingly large teams. The goal of this is to use focus groups and a series of surveys to find out what the consumer wants, how they will use the product or how that product can be altered to capture a larger portion of the market. Here costs are then cut by making the best model possible and then removing features to drive costs down.

            People in emerging markets are finding a new degree of largesse as their stake in the world economy grows and they increasingly are buying what would have previously been luxuries, though they’re looking for the more basic and no-frills ways to have those experiences. However in a different environment and culture what is considered basic can be completely different and by looking for inspiration in that environment it is possible to have a more successful product. An example of this would be the Tata Nano, which used the rickshaw, which was more of the cultural norm and better for navigating the traffic of cities like Mumbai than the traditional car. By building a profoundly cheap car from the ground up and focusing on features their market actually needed, Tata was able to use simplicity to deliver the experience its market needed.

Conversely, by ignoring that environment’s particular needs and having a product that focuses on the wrong aspects, distribution channels, or way of implementing things everything can end up being for naught in the end, as found in the other assigned article Design Thinking for Social Innovation’s cases where in Ghana mosquito nets that could have drastically cut instances malaria weren’t distributed due to a short-sighted focus on pregnant women and recent mothers as well as a lack of nets for hospitals or other possible vendors. While the nets themselves worked spectacularly, a lack of opportunity for many others to purchase these meant a large segment of the population went without these potentially life-saving nets and Ghana saw much less of an impact from this program as similar programs in Ethiopia or Rwanda, showing how good intentions can easily be trumped by a missed aspect of the problem.

            Emerging markets’ design of products and programs can’t hope to copy-paste strategies that work in the first world and hope for automatic success, they need to focus on their customer base and how to deliver and distribute the best possible experience to them in particular.

The Inevitable Shift - Preparing for disruption in the face of the unknowable

  Change is an aspect ingrained into the very nature of technology at its core. It is through this change and innovation that we develop, progress and normalize this technology, not only as the innovators ourselves of these technologies, but as a society. Whether it is the development of the scientific aspects of the technology or the business components of its application, how we interact with these new technology is constantly in flux, and we must constantly be prepared in order to harness these capabilities. But how can we be prepared for these changes that are defined by their mystery and surprise? We can understand the inevitable nature of technological change in very general terms, but it is rare that anyone is truly prepared for specific components of these disruption. But though we can rarely predict the large scale nature of change, it is ultimately how we react once these changes occur that define how we can harness this disruption.

As Manyika et al say in their May 2013 article for McKinsey and Company, “Disruptive technologies…”: “If business and government leaders wait until these technologies are exerting their full influence on the economy, it will be too late to capture the benefits or react to the consequences.” Therefore, it is important to have measures in place that will allow for some adaptation time once these technological shifts occur. It is important to be prepared, not for the specific nature of changes, but for strategic adaption in the case of these changes. Not only will a proper utilization of these disruptive technological shifts benefit those in the industry competing within this technological realm, it will more importantly effect customers, constituents and other stakeholders that feel the effects of these shifts from a market perspective. But ultimately, the greatest disruptions in the technological realm are those that effect the whole of society and, in turn, create a social innovation that we all feel. And without proper preparation from industry leaders.

As previously stated, the only way we can really be prepared for these shifts is in general terms, but some more specific ways we can react and interact to these great shifts vary by sector and industry. For example, business leaders must be prepared with business-plan level innovation in order to properly adapt to shifts. These shifts can eventually affect even long-established methods of management and conducting business, and sticking to “the old ways” are the best way for those in the industry to be left behind. For policymakers and non-profits, a great way to harness these shifts is to make them into training and educational opportunities. Harnessing shifts for learning will not only prepare current leaders in these sectors, but prepare future leaders as well. And finally, as Dobbs, Manyinka and Woetzel discuss in their Global Forces article, understanding place and age of the shifts in the markets are of the utmost importance to these shifts. 

Let There Be Frugal Light

In emerging markets, a thorough understanding of customer needs is perhaps even more important than it is in mature markets. Frugal engineering is not merely low-cost or cost-cutting, but rather seeks to avoid needless costs in the first place [1]. Therefore, the customers’ priorities must be evaluated at the product planning stage. In this sense, I find “design thinking” [2] and frugal engineering to be particularly complementary. Without critical observation on the part of the planners and prioritization of local constituents’ needs, solutions may fall short in terms of efficiency and practical application.

Starting with a “clean sheet” is one step innovators can take to ensure optimal outcomes for their endeavors in frugal engineering. For example, low-income communities in emerging markets will likely use electricity differently than their higher-income counterparts. Daily behavior, tasks, and schedules are all aspects of community members’ lives that designers can observe to help them construct efficacious product designs. In a poor country like the Philippines where more than half the population lives on less than two dollars per day, even cost-effective energy alternatives may not maximize customer value if they do not take local needs into consideration. Building up from the bare minimum is therefore crucial. It is all too easy for designers to become biased by decades- or centuries-old methods of delivering products and services.

Alternative lighting sources in low-income neighborhoods in the Philippines provide an excellent example of this bottom-up approach. After observing individuals’ behavior in their homes, designers determined that basic lighting fixtures would be sufficient for families living in the slums to accomplish their daily tasks while dramatically reducing their electrical bill. The lighting fixtures were in fact so basic that they required no electricity at all – volunteer groups created makeshift “bulbs” out of soda bottles, water, and bleach that jut through holes in the roof and give off about 55 watts of light as a result of solar power [3].

This example illustrates the importance of context-specific considerations. A designer biased by old methods of delivering so-called simple solutions might run the risk of being confined by outdated, yet existing conventions. For instance, candles or lamps with cheap fuel might seem like a decent alternative to electricity, and so might solar cells that have been simplified to reduce costs. These options do not begin with a clean sheet approach, thus they are also less tailored to fit the needs of the specific consumers for whom they are designed. Moreover, they are comparatively dangerous and ill-suited for damp, tropical environments. The low-tech soda bottle light bulb, by contrast, eliminates unnecessary costs in the first place by re-purposing trash for a practical purpose.

Since such examples of frugal engineering are so innovative and context-specific, what are the best methods by which they can become widely implemented? In the Philippines cast, volunteers working with nonprofit organizations installed the light bulbs. Is this implementation process sustainable, or could it be improved?

[1] The Importance of Frugal Engineering, Strategy + Business article (2010)

[2] Design Thinking for Social Innovation, Stanford Social Innovation Review (2010)

[3] In Philippine Slums, Captuing Light in a Bottle, NPR (2011) http://www.npr.org/2011/12/28/144385288/in-philippine-slums-capturing-light-in-a-bottle

Design Thinking and Nonprofits

Design Thinking is gaining popularity in more than just the business field. Design thinking is human centered approach to innovation activities that is driven by the understanding of people's wants and needs. Businesses have adopted the practices of design thinking “to help them be more innovative, better differentiate their brands, and bring their products and services to market fast "[1]. Nonprofits are now beginning to utilize this technique to find resolutions to social problems. In the article, Design Thinking for Social Innovation, it gives a good example of using design thinking to solve a social problem. The articles speaks about the Jerry Sternin and his colleagues use of design thinking and positive deviance to solve the problem of malnutrition children in Quong Xuong communities

I feel that design thinking is an essential tool for creating a nonprofit and existing nonprofits .  The purpose of many nonprofits is to meet the needs of a particular population what better way to do that then to ask them what they need. If your organization is not fulfilling its mission or purpose then you are wasting time and resources.  I have worked and served at several local nonprofit who I feel would greatly benefit from utilizing design thinking. One organization in partially is a nonprofit, I served at as an AmeriCorps member, who serves youth at a local juvenile detention center.  I feel they were not meeting the needs of the clientele by focusing on teaching a curriculum not structure for this type of facilities. By using design thinking  they would have been able to efficiently address the needs of their clientele.  The leaders of the organization could have engaged the residents of the juvenile facilities and the staff in helping to identity the needs of the clientele.   This would require the leaders to get out their office and immerse in the lives youth at the detention center.

[1] Brown, Tim, Wyatt, Jocelyn. “Design Thinking for Social Innovation”.   Stanford Social Innovation Review. 2010. Accessed 3 September 2015

New Technology and an Older Populaiton

The world’s population is getting older and we’re faced with the issue of a shrinking workforce. The Global Trends 2030: Alternate Worlds report categorizes aging as a “tectonic shift” – a large scale change that will affect how the world functions. Dobbs, Manyika and Woetzel also highlight aging as a major factor in “The Four Global Forces breaking all the trends”, stressing that this aging population will result in a smaller work force that will need to be increasingly productive. As our workforce declines we’re faced with finding new ways of being increasingly effective with a smaller number of workers, will the creation of new technologies that reduce the need for certain workers be able to compete with the aging population and need for more labor? How do we maximize the use of technology to help address this problem?

As we think about how to deal with some of the larger scale problems we face in the coming decades, we need to take into account the constant and rapid increase in technologies. “Disruptive Technologies: Advances That Will Transform Life, Business, and the Global Economy” presents a dozen technologies that they’ve identified as having the potential to be “disruptive technologies,” ones that can greatly change and impact the way we go about our daily lives. Three have the potential to address the challenge of dealing with a depleted workforce – “automation of knowledge,” robotics, and autonomous vehicles. Advances in these areas could allow for replacing human workers in certain roles and helping to fill the gap in employment left by the aging population. There is, of course, the challenge of having the resources to train, or retrain, workers for roles that would require human workers but it seems like the opportunity is endless and benefits both workers and suppliers. If we can imagine a scenario where either government, corporations, NGOs or other organizations are able to provide the education necessary for these new higher skill jobs it’s not hard for me to believe that these machines and systems could help fill gaps left by an aging population exiting the workforce.

Reinventing the wheel

The most important challenge with international development is to get the right resources at places where people need them most and to ensure that the model is sustainable. Lack of comprehensive knowledge about ground realities could lead to failure of the model.

Ideas need to come from decentralized sources to get maximum advantage[1]. Instead of having a few intelligent people in a room develop a product and sell to people, modern civilization has reached a stage where it has become mandatory for entrepreneurs to reach out to the target audience to understand the problem statement and come up with effective solutions. The bottom-line is that people will not buy anything that is not useful to them. Design thinking recognizes a need for this bottom-up approach.

A wonderful application of this approach is the concept of Wello water wheel:

[A woman using the Wello WaterWheel. Source: Wello]

Water, transportation and hygiene are constant challenges in northwestern belt of Rural India. Women often own the burden of having to walk up to five miles every day to fetch water.  United Nations has estimated that women in rural India spend about 25 percent of their time each day collecting water[2]. Cynthia Koenig, a social innovator and her team proposed a new way to make this task less difficult and improve the lives of people. They designed a rolling 50-litre cylindrical barrel to roll water from water sources rather than having women carry 10-20 litre containers over the head. This improved the efficiency by 400% whereby one person can now do the work of four people in less than half the time.

[Representation of efficiency of the system. Source: Wello]

Cynthia and her team did not propose this system in a single day. All they wanted is to reduce the water crisis and improve lives of women in Rural India. They used the idea of design thinking to lay out this success story.

The project was the result of a three-step process[3] [4]:

1. Inspiration:

They came out with a clear problem statement after interacting with local women. This step was to understand the problem statement and not come up with solutions.

2. Ideation:

"The best way to have a good idea is to have a lot of ideas" - Linus Pauling

They brainstormed many ideas and eliminated not-so-good ideas to come up with a design that is convenient, hygienic and durable. They created a basic design that could give rise to continuous innovations like utilizing the barrel for energy generation, advertising and so on.

3. Implementation:

They introduced a prototype and gave to sample public to use. They refined the model on receiving continuous feedback from the end-users to ensure that the model is foolproof.

Now that we have seen the benefits of the bottom-up approach, I have a few questions - 

Is a bottom-up approach always a viable option?  What could be the cases where a top-down approach in social entrepreneurship has an upper edge over the bottom -up approach?

[1] http://www.amazon.com/The-Fortune-Bottom-Pyramid-Eradicating/dp/0131467506

[2] http://www.unwater.org/worldwaterday/learn/en/

[3] https://www.youtube.com/watch?v=ABJ41yVClvs

[4] http://wellowater.org/

Effective Marketing of Frugally Engineered Products to Customers

The major emphasis of Frugal Engineering paradigm is on ensuring that organizations fully understand the needs of bottom of pyramid customers and then devise their products/services to ensure customers can have access to the products/services at minimum possible cost without comprising on needs of target customer segment. However in my opinion, it is equally important that products developed through Frugal Engineering are marketed to target customers in the right way. We may be able to produce perfect product as a result of Frugal Engineering but if that product is not marketed in the right way to the target market, the product may end up as failure.      

Branchless banking industry in Pakistan is actually a practical example of successful implementation of Frugal Engineering. In Pakistan, only 15% of the adult population has access to conventional banking channel. The primary reasons for this trend are:

·        With around 62% of population[1] based in rural areas, large portion of population is unable to access conventional banks located primarily in urban centers

·        Conventional bank branches are not focused on serving micro transactional needs of lower income classes.

·        Lower income class customers often feel intimated by the up-scale surroundings they encounter at bank branches and hence avoid using Banks

In order to address the issue, government and business sector colluded to launch branchless banking in Pakistan in 2009. Salient features of branchless banking framework were:

·        Financial services were provided through network of ordinary retailers through their shops located in communities where potential customers resided. These retailers were signed up as “banking agents” for branchless banking services. This ensured reach of service to target customers; it also minimized cost of providing service by eliminating need of setting up “brick and mortar” bank branches

·        Only basic financial services were provided through branchless banking which were mostly used by target market.

Branchless banking framework provided lower income class customers with a cheaper, convenient way to get access to basic financial services. Since its launch in 2009, branchless banking sector has shown tremendous growth [2].

The success of branchless banking in Pakistan is not only due to the quality of end service; its success is also linked with how it was marketed to target customers. Branchless banking was promoted as innovation in Pakistan and people who adopted it were portrayed as trendsetters. This notion of trend setters sat well with target customer base and helped in rapid uptake of service.

Compare this with TATA’s Nano launch which on paper appears to be perfectly good output of Frugal Engineering but which has failed to take-off as per expectations [4]. While this can be attributed to multiple factors, one factor that has contributed to this has been the marketing of Nano as “cheapest car” which has not fallen well with target customer base who did not want to be associated with purchase of “cheapest car”.

Given these two examples, perhaps going forward, literature on social innovation models should also focus a bit more on appropriate ways to market social innovative products amongst target customer base as this can have profound effect on uptake of the social innovation. I would like to invite thoughts of others on this as well.

[1] http://www.tradingeconomics.com/pakistan/rural-population-percent-of-total-population-wb-data.html

[2] http://www.sbp.org.pk/publications/acd/BranchlessBanking-Oct-Dec-2014.pdf

[3] http://www.sbp.org.pk/publications/schedule_banks/

[4] http://trak.in/tags/business/2013/11/30/ratan-tata-nano-failed/