10 key drivers for inclusive business in Africa
To tackle some of the greatest challenges the African continent is facing, such as extreme inequality, poverty, food insecurity, access to health and education, and climate change, we need to fundamentally reshape the way we think about growth: from a focus on GDP as the single (and misleading) metric for development to inclusive societies as the basis for sustainable development and growth. The private sector plays a vital role in facilitating this transition. However, to date still too little is known regarding the preconditions for implementing feasible, inclusive and scalable corporate strategies when operating at the bottom of the pyramid (BoP).
At the Partnerships Resource Centre of the Erasmus University in Rotterdam, we have conducted research into exactly these issues; studying inclusive business strategies of over a 100 companies and organisations in East-Africa, including three in-depth case studies into Safaricom and Philips in Kenya and GUTS Agro in Ethiopia. In November this year, the result of this research was published in a book titled: Inclusive Business Strategies in Africa. A Business Model Perspective.
The publication gives insight into 10 driving factors that need to be considered by those wanting to engage in inclusive business in Africa and turn societal challenges into opportunities for shared value creation.
1 Inclusiveness as a process rather than an outcome
There are a number of key dimensions that need to be addressed to develop an inclusive business model. First, formulating an inclusive value proposition for the BoP; striving towards a triple bottom line that aims for a positive social and environmental impact in addition to a financial return on investment. Second, designing processes of co-creation to cater for the needs of low-income and marginalised groups and working with partners that can complement resources and capabilities of the firm. Third, striking the right balance between different scaling strategies to enhance impact on inclusive development. And finally, perhaps most importantly, develop agile business models and strategies that can be adapted to the rapidly changing institutional contexts and needs of the BoP.
2 The importance of a societal mission-driven identity
What is it that you are set out to do? Which aspect of inclusiveness do you want to address? Developing a mission-statement and connecting it to the Sustainable Development Goals (SDGs) helps organisations to become more focussed and able to connect with others that are set out to work on the same issues. Internalising the societal mission within the company creates internal buy-in and support from top management to commit resources needed to drive the inclusive business venture. Most African countries have embraced the SDG agenda in their national development policies. Therefore, by embracing specific Global Goals, companies can better align their strategies with national development priorities.
3 Long-term strategy and vision
Inclusive business is not a quick-fix and entrepreneurs need to be in it for the long haul. Because of institutional voids in terms of underdeveloped markets and legal structures and affordability constrains among intended consumers, margins in BoP contexts are often low, while the risk of investment is high. As companies doing business at the BoP often still need to develop local markets and appeal to a latent demands of potential consumers, inclusive business entrepreneurs need a long term investment horizon and commitment to work on institutional as well as business development.
Safaricom in Africa
The mobile banking platform M-Pesa, launched by Kenya’s largest telecom operator Safaricom, may be one of the best-known examples of inclusive business in Africa. With M-Pesa, Safaricom promotes financial inclusion by providing millions of otherwise financially excluded individuals the opportunity to transfer, save and borrow money using basic mobile phone devices. The long-term investment horizon employed by the company, including the willingness to invest significant amounts of resources and operate at a loss for extended periods of time, allowed the innovation to scale organically and sustainably. As former CEO of Safaricom Bob Collymore once said: “It is a much better legacy for you and your successors to have a company which is running successfully 50 years from now rather than a company that delivers record results next year.”
4 Creating space for intrapreneurship
Inclusive businesses are made up of inclusive business entrepreneurs that develop innovative solutions for pressing societal needs. Therefore, creating a business environment where leadership within the firm – also described as ‘intrapreneurship’ – can flourish is crucial for inclusive business success. Investing in local talent and developing new capabilities and skills are important steps in this process. It also requires a level of ambidexterity; i.e. the ability of an organisation to host different innovation streams, exploiting the present while exploring the future at the same time.
5 Organising last mile distribution
As a majority of the BoP lives in rural areas that are often accessible only by poor quality road infrastructure, products and services providing essential societal value often do not reach the intended customers or are more expensive and of lower quality than the products available to other populations. Therefore, organising last mile distribution, either by leveraging existing retail channels or developing new distribution channels, is a critical aspect of inclusive business success. The latter includes working with trusted partners who can function as intermediaries in the consumer interface, making distribution more efficient and thereby more effective in reaching the BoP.
GUTS Agro in Ethiopia
GUTS Agro Industry PLC (GUTS), a food processing company founded by two Ethiopian entrepreneurs, supplies high quality and affordable food products to low-income consumers in Ethiopia. Through its innovative micro-franchise distribution model called LIKIE, the company provides marginalised consumers with access to a nutritious blend of maize and soybeans and integrates local communities in its value chain as producers and distributors. The LIKIE model engages local women entrepreneurs who use ‘tricycles’ to deliver products to the customer’s doorstep making the products available to low-income and marginalised households throughout the country.
6 Location, location, location
Contextual factors determine to a large extent the uptake of the inclusive business model at the BoP. Therefore, in order to develop a business model that caters to specific local needs and requirements, inclusive businesses need to have a thorough understanding of the local context. Facilitating a process of co-creation with the community can help companies to develop solutions that combine resources and knowledge of the ‘top of the pyramid’ with the wisdom and expertise found at the BoP. Co-creation creates local ownership and buy-in of the solution and provides a feedback mechanism for adjusting the value proposition to make it more appropriate for local conditions. Co-creation has also in this regard, proven to lead to more frugal innovative solutions to local problems. Especially host companies that have limited previous experience in the BoP need to invest in social embeddedness; the ability to create trusted connections with a web of organisations, institutions and communities to facilitate bottom-up development of innovations and unlock the BoP market.
7 “If you want to go fast, go alone. If you want to go far go together”
Contributing to inclusive development requires moving from standalone initiatives to innovation ecosystems, whereby a variety of partners work together to reach greater societal impact. Engaging in cross-sector partnerships can provide businesses with complementary resources and capabilities needed to create and deliver value in novel ways while minimizing costs and risks. Partnerships with non-market actors such as civil society organisations and public institutions can provide valuable knowledge and access to local networks as well as ways to navigate the local legal landscape. However, cross-sector partnerships, just like any other form of partnerships, require hard work; continuous reflection, recalibration and alignment of motives and operations. Therefore, inclusive businesses need to invest in partnering strategies that enable the development of a collective vision on inclusiveness. The SDG agenda helps here as well, by adopting 5 Principles of inclusive development: People, Planet, Prosperity, Peace and Partnering. Partnering proves a vital condition for reaching the other four P’s.
Royal Philips in Kenya
Royal Philips, a Dutch multinational specialised in electronics, healthcare and lighting, took up the challenge to contribute to inclusive healthcare in Africa. To achieve this resolution, Philips developed the Community Life Centre (CLC) platform that aims to improve the access to quality primary healthcare and reduce maternal and infant mortality rates through innovations in healthcare infrastructure, equipment and better referral systems. Key to the CLC’s success was the collaboration with civil society organisation AMREF, the Red Cross and the Management Science for Health. These cross-sector partnerships provided the company with credibility and legitimacy and created a ‘social licence to operate’ in the BoP context. Moreover, as the organisations are ingrained in local communities they provided access to local knowledge and networks, bridging the distance of the company to the community. Together with these partners the CLC experience is reproduced in various other locations.
8 Size does matter
Scaling is important both from a business perspective: to reach commercial viability by compensating for low margins, and from a development point of view: to meet the needs of the 4 billion people living in poverty. Inclusive businesses can employ different scaling strategies that focus on developing new products or services, entering new markets or a combination of both. Success in scaling seems to rest on striking the right balance between these strategies and between customisation and standardisation to create economies of scale. Scaling efforts needs to go beyond simply replicating the success of one firm or one business model to contribute to inclusive development. What is scaled is therefore not so much a technical solution, but rather a set of arrangements that stimulates the adoption and continuity of the inclusive business solution. Scaling inclusive business, as such also encompasses institutional innovation; transforming institutional arrangements to address root causes of exclusion and poverty. The potential of scaling increases substantially when multinational companies and NGOs with the right intentions are involved: they have the organizational capabilities to reproduce their experience in other locations, enabling global implementation of successful interventions.
9 Managing by measuring
As BoP ventures often have longer expected payback periods and higher perceived risk, standard business protocols and evaluation methods are not fit for purpose. Inclusive businesses therefore need to formulate and evaluate environmental and social key performance indicators as well as financial targets to reach triple bottom line impact. This can create a positive impact loop, whereby experimentation with social innovation leads to organisational change that redefines the entire business’ value system and mission, thereby creating internal alignment and support from top-management within the firm. There are sufficient measures already available to serve this need. It is a matter of embracing the right metrics.
10 Creating a learning environment within the firm
Finally, in order to develop a successful inclusive business model, inclusiveness needs to be institutionalised within the core business. For this it is important to create a learning environment, both within the firm and beyond, that captures and shares lessons from inclusive business success and failure. This enables businesses to learn from each other’s experiences, forge partnerships and eventually create new inclusive business opportunities.
This list of drivers is of course not conclusive and does not provide a ‘recipe for ‘inclusive business success’. Rather they provide ‘ingredients of knowledge’ that entrepreneurs can use in developing their own inclusive business models and strategies in the ever changing context of inclusive business in Africa.